What’s Behind the Health Care Crisis?March 2016
By Chase Falcon
There was a time when medical insurance was an automatic benefit for most employees having a job in the public or private sector.
The majority of employees would be given employer-paid insurance not just for themselves, but for their families as well. During this era of American history (1950s-1980s), having comprehensive insurance typically meant that you were insured for virtually 100% of your medical needs.
Back in those days, the practice of forcing employees to pay significant portions of their health insurance premiums, requiring high deductibles, and exacting other “out-of-pocket” expenses was not common. The reason was that the cost of health care was not that expensive.1-3
Today, fewer than 50% of companies offer medical insurance for their employees.4 Most employees now pay for part or all of their costs to participate in a group insurance plan. Premiums have escalated to difficult-to-afford levels.
Medical insurance premiums have risen at a pace that is above the inflation rate and there is no indication that this trend will be changing in the near future.2
With medical premium prices skyrocketing, copay charges soaring, and deductibles reaching unaffordable levels, it’s no wonder Americans are fed up. For some plans, the insurance coverage is so meager that the plans function more like subsidies then comprehensive insurance.
Premiums for even bottom-of-the-barrel health insurance coverage are prohibitively expensive for middle income families. And when a serious illness develops, insurance companies often balk at paying for expensive drugs and diagnostics that represent valid medical needs.5,6
Although such practices leave many insured Americans in financial disarray, the situation is far worse for the 36 million Americans who live without health insurance, and a great many more who can only afford low-coverage insurance plans.7 The majority of these people’s livelihoods are put at stake every day in a great gamble, as they may be just one major medical issue away from financial insolvency.
But why are insurance companies subjecting Americans to what seems like extortionist prices and coverage denials?
The answer is simple, but often overlooked. Read on to find out why most medical insurance plans cannot come close to covering today’s inflated health care costs.
Insurance Prices Reflect the Price of Medicine
Just as medical insurance now costs a fortune, the price of medical care does as well. Nowhere is this more apparent than the outlandish prices of prescription drugs.
Consumers and health insurance companies alike are subjected to markups that are beyond rational comprehension. Retail prices for prescription drug costs have risen so high that many “insured” individuals cannot afford their copays.8
In fact, drug prices in the United States are rising so fast that total spending on prescriptions is expected to explode to $1.3 trillion by the year 2018, up from only $326 billion in 2013, an almost 4-fold increase in prescription drug spending!9,10
It is commonplace for name-brand pharmaceutical giants to charge immense prices for the patented drugs they sell. Excuses given to justify these prices are the costs of the company’s research and development, as well as the expense and arduous time constraint involved in complying with FDA-imposed drug approval requirements.11-15
The prices of patented brand-name drugs, however, have now gone far beyond the research and development costs and the realms of reasonable profit. The hepatitis C drug Sovaldi® is an egregious example. A bottle containing 84 pills costs $84,000.16-18 The cost to manufacture Solvaldi® is estimated to be around $130.19 The company making Sovaldi® will earn back all the development costs in less than two years, while hepatitis C victims are bankrupted paying this extortionist price for another 14 years or so.20,21
You would think a similar manner of price gouging would not exist in the generic drug industry. After all, the generic prescription drug industry was revolutionized in 1984 via the Drug Price Competition and Patent Term Restoration Act.22 As the name implies, generics were created for the purpose of introducing the fundamental concept of competition into the health care market with the effect of substantially lowering the cost of medicine for many Americans.23
Unfortunately, certain generic drug manufacturers operate as quasi-monopolies that act in the antithesis of competition. An artificial scarcity of drug manufacturers is one of the causes that has led to skyrocketing prices for certain generics.24
In 2011, a congressional investigation was opened seeking to find the source of the so-called prescription drug “shortages” that had seen 99.5% of hospitals around the US experience at least one shortage of a prescription drug within a six-month period. Some 44% of hospitals stated that they had encountered 21 or more shortages of prescription drugs during the same time period.25
A congressional investigation exposed some of the sordid facts behind these supposed prescription drug “shortages.” According to a detailed congressional report released on July 25, 2012, shortages of prescription drugs were intentionally created to artificially jack up prices for consumers through “gray market” tactics.26 The scarcity of medicine resulted in systemwide explosions in the prices of many drugs.27 The findings of this investigation exposed a despicable method in which pharmaceutical companies defraud the American people.28
For example, the drug cytarabine could be bought via its manufacturer through contract for about $12 a vial on average. By the time the drug was run through an elaborate network comprised of crony wholesalers, “shortages” mystically developed. The average price of cytarabine then shot up to over $990 per vial.29
This trend of exorbitant price increases occurring in response to artificial “shortages” has intensified in recent years, causing some insurance companies to question the need for virtually every drug your physician may prescribe.
Generic Makers Get Away with Collusive Practices
An example of violations of antitrust laws was brought to light in 2015 in response to a lawsuit the Federal Trade Commission had filed alleging such behavior regarding sales of the drug Provigil®.
In a 1.2 billion dollar settlement, Teva Pharma-ceuticals admitted that Cephalon, a pharmaceutical company later absorbed into the Teva conglomerate, paid several generic drug manufacturers to delay the introduction of their generic equivalents so that they would not compete with the higher-priced drug (Provigil®) even after its patent had expired.30-33
The Sherman Antitrust Act makes it illegal for businesses to intentionally collude to raise prices. The Sherman Act calls for penalties that usually go far beyond mere fines. Case law demonstrates that the criminal prosecution of everyone involved in making collusive actions is typical. 34,35 Not all are convicted, but criminal investigation commonly follows the uncovering of these behaviors.36
It may not surprise you that there hasn’t been, and likely never will be, a criminal investigation against the executives of Teva who, according to their civil settlement, admitted collusive behavior. Despite an immense fine, the company is walking away in the green.
But just how far in the green is Teva? According to an article in Forbes, in the first quarter after Cephalon was absorbed into Teva, “Provigil® generated $350 million in sales.”37 That’s $350 million dollars over just a three-month period.
Now, according to Teva’s filings with the Securities and Exchange Commission, Cephalon/Teva Pharmaceuticals effectively stalled the introduction of a generic counterpart of Provigil for several years.32 Even assuming $350 million in three months was a peak for Provigil sales, due to the sheer enormity of the price fixing, it’s still a fairly safe bet that Teva is walking out with both pockets full and then some by paying a $1.2 billion fine on sales of a drug that generated many more billions in profits.
The profits Teva managed to bank came from the pockets of the American consumer and of taxpayer-funded programs like Medicare. This is not an isolated case, but more of a business-as-usual practice in the pharmaceutical industry as can be seen on the chart below.
Skyrocketing Prices Sparks Senate Investigation
After years of rising generic drug prices, the high cost of health care again caught the attention of lawmakers in Congress. In an attempt to seek out the underlying cause of the exponential increases, a joint committee hearing was held to investigate the source of the price hikes.38-40
A Senate investigation commenced with a request to 14 different generic drug manufacturers for specific information regarding the drugs they sell. 40 This information requested included: total gross revenues, dates, quantities, purchasers, prices paid for all drugs, contracts, prices of identical drugs in foreign markets, and the identity of company officials responsible for increasing the drug prices.
Not surprisingly, none of the 14 generic drug manufacturers elected to testify before the hearing or provided the data the committee had requested.38,41 It was pointed out that at least two of the manufacturers that Congress had requested data from were under current investigation by the Department of Justice under allegations of antitrust law violations.42,43
The data the Senate committee was able to acquire from consumer advocacy and group purchasing organizations was compelling. These consumer organizations measured and tracked the price increases of various generic drugs.
The final report was presented in front of the Senate Subcommittee on Health. It showed that many of the drugs they tracked had unexplainable and astronomical rises in price in a time frame that spanned well under a year.44,45
One, for instance, is doxycycline hyclate, a generic prescription antibiotic used to treat many types of infections. This drug had an average market price in 2013 that hovered at about $20 for a bottle of 500, 100 mg tablets.45 This would be about double the price of a large over-the-counter bottle of aspirin.
By 2014, the price for the same quantity of the same drug had risen to $1,849. The magnitude of this represented a price increase of over 8,200%.
No other industry can increase the price of a non-patented product by 8,200%. Take for example, the typical bottle of aspirin that was alluded to previously. If the market for aspirin were given the same barriers to entry and regulatory restrictions that the FDA puts on the common antibiotic doxycycline, would consumers just sit idly by as their cost jumped to a proportional $828 for a bottle of aspirin tablets?
More Price Gouging
Albuterol was also cited by the Senate committee as having a price increase of over 4,000%.38,45
Albuterol is a generic drug prescribed by doctors to treat patients with conditions such as asthma, bronchitis, or similar breathing problems.46 Albuterol was sold at an average market price of $11 for a bottle of 100, 2 mg tablets, in October 2013. After recent unexplained price increases by various pharmaceutical companies, the average price for albuterol sulfate jumped to $434 by April 2014.
Albuterol is frequently one of the top 10 best-selling drugs. In the year 2013, 63.6 million prescriptions were written exclusively for patients who needed the drug.47
At the average market price for albuterol in October 2013, the drug would have cost Americans $699.6 million to acquire over the fiscal year 2013. When the new extortionist price is multiplied by the same number of scripts that were written in 2013, the albuterol that once cost Americans $699.6 million per year now costs $27.6 billion. This represents a net change of 26.9 billion dollars more per year for the same generic drug that our health care system must now bear.
Apply that same math to pravastatin, a popular generic drug used to lower cholesterol, which saw a price increase of 573% from October of 2013 to April of 2014 with the cost to the American health care system being an additional $5.9 billion dollars per year.45,48
During the investigation, the ranking committee member pointed out just what kind of an effect this egregious price gouging is having on the individual American:
“According to the most recent reports, more than one in four Americans do not fill their prescriptions because they cannot afford the cost. Think about that for a second; people walk into their doctor’s office because they are sick. They or their insurance company pays for that visit. Their doctor spends time with them. Their doctor diagnoses the illness. The doctor writes out a prescription, and one out of four people is unable to afford to fill that prescription. What happens to those people? They go home, their illness continues, and maybe they end up in the hospital. Totally absurd situation.” 38
Prices on medical care as a whole have skyrocketed over the past few decades and the numbers leave no room for ambiguity. According to a Harvard study, 62.1% of all bankruptcies in the United States emanate from individuals who bear insurmountable medical-related debts.49
Congress Overwhelmed with Pharmaceutical Lobbyists
The effects of this price gouging are devastating for Americans who rely on certain drugs every day just to survive.
In response to news reports of these prices spikes, Congress launched investigations and spawned legislation with the intent of combatting spiraling health care costs.27,42,50
The Senate committee looking into high-priced generic drugs concluded with an announcement that legislation—later named The Medicaid Generic Drug Price Fairness Act of 2014 (S. 2948; H.R. 5748)—would be brought before Congress in an effort to mend the cost crisis.51,52
The problem with this legislation is that it made no attempt to alleviate the burden of high generic drug prices on consumers. Instead it would force pharmaceutical companies, which billed Medicaid at prices that rose faster than the inflation rate, to pay a rebate of some kind.53 Like putting a bandage on a mortal wound if enacted into law, such modest provisions would hardly put a damper on the rising cost of medicine in America. Despite being an ineffective attempt at curbing high drug prices, it would at least be a step in the right direction, and if passed it might slow the rate at which pharmaceutical companies are bankrupting programs like Medicare and Medicaid. Yet this drop-in-the-bucket solution never made it out of committee, and it subsequently died in Congress.
After decades of rising generic drug prices, and with no feasible end in sight, many Americans have been left asking, who is to blame and what lies behind the curtains? This would lead many to think, “Why hasn’t Congress done anything about this?”
The answer is that the United States Congress is so heavily lobbied by the pharmaceutical industry that it has been effectively incapacitated from enacting any legislation that would in any way hinder the profit margins of Big Pharma.54
Democracy Going Once, Going Twice, Sold!
The pharmaceutical industry learned long ago that spending money lobbying lawmakers to pass favorable legislation is a lot more profitable than being more competitive or innovative.55
This pervasive system of institutionalized corruption is a regular practice on Capitol Hill, where lobbying seldom benefits the American consumer.
Pharmaceutical companies spend hundreds of millions each year to shape and influence politics, putting profit margins as a priority above everything else.
In 2003, the Medicare Modernization Act passed the House by a margin of just one vote.56 It was pushed through Congress with great vigor from pharmaceutical lobbyists.57 The bill expanded federal spending in the health care industry while simultaneously eliminating the government’s power to negotiate prices for the prescription drugs it purchases.58 A study on the effects of the Medicare Part D provision of the Medicare Modernization Act precisely cited the real-world benefits pharmaceutical companies received from lobbying for the bill’s passage.
“Because of the passage of Medicare Part D, pharmaceutical companies generated millions of new customers who previously lacked prescription drug coverage. Moreover, the pharmaceutical industry defeated the reform measures they feared most: legalized importation of lower-cost medicines, governmental price controls, and easier market access for less expensive generic drugs.”57
Big Pharma’s ultimate objective in lobbying is the engineering of legislation and regulation that both opens up the floodgates of federal spending on pharmaceuticals and limits competition in the drug market.57,59
In the year 2014, drug companies spent approximately $230 million lobbying the government in one way or another. 60
Since 1999, no other industry has spent more money lobbying the government for the promotion of special interest than the pharmaceutical industry.61 A study on the profitability of lobbying administered by Strategas Research Partners revealed that for every 1 dollar a business spends lobbying the federal government, that business makes 220 more dollars as a result of influencing public policy in their favor.55
The objectives and the means in which Big Pharma achieves its objectives are not tied to any set of political ideals. Big Pharma seeks to buy the influence of every member of Congress in the form of campaign, PAC, and Super PAC contributions, as well as promises of lucrative executive positions and lobbying jobs after their retirement from office.62-64
One might think that there would be some members of Congress whose ideals, virtues, and moral standards would enable them to refuse such blatant bribery. What most of the public does not realize is that Big Pharma, like other special interests, not only offers elected officials incentive for selling out their constituents, but these elected officials are also subjected to implicit coercion if they refuse to cooperate with pharmaceutical financial interests in certain circumstances.
Coercion against elected officials typically manifests as the prospect of campaign, PAC, and Super PAC contributions given not to the member of Congress who chose not to succumb to the whims of special interest, but to his or her opponent in the next election cycle.65,66 This system has worked to simultaneously purge the honest and the honorable from power while normalizing crooked and unethical practices in Washington.
The methods in which these tactics are employed, the intentions behind them, and the end goals mirror outright bribery and intimidation, yet they are instead acknowledged, justified, encouraged, and perpetuated under a very thin veil of free speech.
The pharmaceutical lobby’s eyes are not so narrow as to only focus on Congress as a means of acquiring favorable policy and maintaining their anticompetitive edge.
Big Pharma is quick to exploit the “Revolving Door,” or the movement of personnel between lawmaking positions, regulatory positions, and the private industries affected by these regulations.71 Of the registered lobbyists Big Pharma utilized to buy power and influence in and amongst government lawmakers and regulators in 2014, 880 out of 1,421 have been identified as revolvers, meaning 880 had previous government jobs in relevant agencies or positions before working for pharmaceutical companies or vice-versa.60
As a result of the gargantuan sum of money Big Pharma pours into Washington, registered pharmaceutical lobbyists now outnumber US congressman nearly 3 to 1. This influence has allowed private enterprise to gain tight control over public policy.
Lobbying the FDA
Agencies like the Food and Drug Administration (FDA) are heavily lobbied by pharmaceutical companies, and this is a major source of the high drug cost problem, as it is the FDA that determines which generic and brand-name drugs obtain “approval.” This plays into the hands of the pharmaceutical industry and creates monopolistic practices that devastate the pocketbooks of American consumers.
Beyond just exorbitant drug prices, the FDA has a drawn-out drug approval process that spans many years.72 In 2012, Congress sought to address the FDA’s unconscionable delays that were keeping generic drugs from being able to compete and reduce the costs of medicine for Americans.
In an attempt to alleviate the delays, the Food and Drug Administration Safety and Innovation Act was passed.73 The bill extended the provision of “user-fee agreements” from brand-name drugs to generics as well. The concept of “user fees” was implemented to create an incentive for the FDA to approve the sale of generics on at least an acceptable timescale.74
Businesses now seeking the FDA’s approval to sell generics have to pay to ensure that the agency does its job reasonably.75-77 Although the FDA is fully staffed and is tasked with approving generic medications already, a handsome payment to the FDA in the form of a “user fee” is still required to get one’s drug approved expeditiously. Pharmaceutical companies cherish this “user-fee” system because it locks smaller competitors out of the regulatory labyrinth. Established companies gain the most as they can afford to expend all kinds of “user fees” to ensure their drug(s) get priority approval over the competition.78
Despite pharmaceutical companies paying high user fees, they do not always get the timely service they think they paid for.79-81 During a Senate committee hearing, one senator revealed the true extent of failure this program has had on the ability of generic drugs to be approved by the FDA:
“Since 2012, the Food and Drug Administration has been implementing the first generic drug user-fee agreement. Since this agreement was intended to accelerate the delivery of high-quality, low-cost generic drugs, we have to ask ourselves, ‘is it working?’ and ‘has it accomplished that goal?’ In 2011, the median time for generic approvals was about 31 months. Two years and hundreds of millions of dollars later in generic user fees, it’s taking longer for generic drugs to be approved by the FDA, 36 months and counting… Thousands of generic drug products await review by the agency. In fact, there are more generic drug applications waiting review at the FDA today then before the generic drug user-fee agreement was put in place.”38
The implications of policies like this are ominous. Such overbearing requirements for generic drug approval make it increasingly difficult for new companies to bring competition into markets. As the drug approval lag widens, and competition is diminished, prices will rise to intolerable levels.
This has created a deadly wait for many Americans who live with life-threatening illnesses and need reliable access to inexpensive medicine because for many, this is a matter of life and death.
Real-World Solutions to High Drug Prices
As long as the regulations and restrictions imposed by the FDA and Congress on the generic drug market continue to exist, these trends of shortages and price abuses will continue and worsen.
If the generic drug market were to be liberated from its current regulatory stranglehold, prices of just about every generic drug would fall and countless Americans would be able to afford all the medicine they need.
The regulations that are the most responsible for these abuses are the provisions that force generic drug manufacturers to gain approval from the FDA in order to begin selling a drug.82 This is the first of many muddled and self-defeating regulations that should be overturned.
While there are some generics that may require regulatory oversight to ensure bio-equivalency (such as drugs that require recombinant DNA technology), most could readily achieve measurably identical safety/efficacy as the name brand. Companies seeking to prove the equivalence or superiority of their product could obtain certification of safety and potency from private organizations akin to Underwriters Laboratories, which among other safety missions, is tasked with ensuring that consumers aren’t electrocuted when plugging electronic devices into outlets.83
In any other market, after a patent expires on a product, anyone is allowed to manufacture and sell that product. At this point, the supply increases and the price drops.84,85
Under the guise of protecting consumers, pharmaceutical drug lobbyists attempt to make the case that without stringent regulation, generics won’t be safe, potent, and effective. These intimidating claims don’t hold up to scrutiny.86
Assuming a free-market environment opens up in the generic industry, what would be the incentive to sell defective products? The cost of the active (drug) ingredient is usually so low that it would be against the interests of a business to shortchange consumers or make defective products that would quickly be found ineffective in the clinical arena.
Existing laws already subjects those who sell dangerous or fraudulent products to criminal prosecution and civil lawsuits.87 These legal deterrents keep most consumer products generally safe to use.
Similarly, if a generic drug didn’t contain the potency listed on its label, that’s already a felony called fraud, which can result in severe legal repercussions. And, just like in every other industry, a company which would sell a lousy generic that isn’t effective would lose its reputation and likely be driven out of business.
By way of example, let’s assume a free market opens up in the generic drug industry. This would let Walgreens, for example, make their version of generic Pravachol® (pravastatin), a cholesterol-lowering drug. Since the active ingredient in pravastatin is so inexpensive, a month’s supply could be profitably sold to consumers for under $5.88 A follow-up blood test would quickly show whether this free-market pravastatin is adequately lowering total cholesterol and LDL.
The FDA’s regulation of the generic drug industry is at best redundant, but the truth is, it is deadly.
The FDA’s oversight of generic drugs was intended to be done for the public good, to save lives. However, current FDA regulation of generic drugs hinders the welfare of the American people and is costing lives because too many Americans cannot afford the spiraling cost of the generic medications they need. 89-91
Earlier in the article it was cited that one in four Americans do not fill their prescriptions because they cannot afford the cost.38 Too many Americans die from preventable, treatable illnesses as a result of the FDA’s regulatory authority that keeps prices too high while making many vital drugs sporadically unavailable to the public.
It’s easy to blame medical insurance companies for the suffocating costs that consumers now bear for their health care. Overlooked are spiraling medical costs that force insurance companies to raise premiums while cutting back on the portion of your sick care they will pay.
Big Pharma has effectively utilized its corrupting influence in Washington to usurp the wills and interests of the citizenry. Through this, it has effectively seized the power of the United States government through the manipulation of law and the crooked exploitation of regulation to plunder the welfare of the American people.
The endless flow of pharmaceutical money into the US political system enables the perversity of generic drug price gouging.
The FDA was created to foster and protect the health and welfare of the American people.
Not only does the FDA fail to serve this purpose, but it is destructive of it. Congress is tasked with keeping the FDA accountable to the people, while reining in on FDA abuse, overreach, and wrongdoing. Unfortunately, Congress and the FDA are no longer accountable to the citizens, nor even to common sense, but instead to the highest bidder.
The current system denies Americans dependable access to affordable medicine while stalling the acceleration of medical progress. Medications are purposefully made scarce and boast prices that are unattainable for many.
Our health, our wealth, and our very lives are being put at stake. The corrupt practices described in this article will persist and expand, until the anguished cries of every American grow loud enough that the apathetic are besieged into action and corrupting influences muffled into silence.
This is not a partisan issue. It adversely affects us all. The public should be rising up in outrage.
For life, rationality, and prosperity,
If you have any questions on the scientific content of this article, please call a Life Extension® Health Advisor at 1-866-864-3027.
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