Price gouging by 'pharma bro' Martin Shkreli exposes why America's drug costs are out of control

Until this week most of us had never heard of Daraprim, a drug that fights toxoplasmosis. But after the decision of the drug’s new owner, Turing Pharmaceuticals, to boost its cost per pill from $13.50 to a whopping $750, we’re all unlikely to forget its name or the name of Turing’s owner, 32-year-old Martin Shkreli.

Shkreli became one of the most hated men in America last week, Hillary Clinton called for reforms in the drug market, social media tore him to shreds, a punk label he bankrolled severed ties with him and even Donald Trump weighed in, calling him a “spoiled brat” .

He’s now pledged to cut the price – he hasn’t said by how much or when – but the outrage over the astronomical hike in a life-saving drug has opened the doors to a fast-moving and furious debate about the soaring costs of prescription medications in the United States – one that is long overdue.

While from a scientific and business perspective, we may be in the midst of a new “golden age” for pharmaceutical innovation and research and development in the drug industry, the costs of these new wonder drugs may drive the system – and the individuals within it – to the brink .

Daraprim is a particularly egregious example of how broken the system is because it isn’t a new and complex wonder drug, but something that has been around since the 1940s. Logic suggests that drugs that have been around for a while should decline in price, in part because they are cheap and easy to make; in part because they face competition from generic manufacturers. It turns out that isn’t the case.

Part of the problem is that there are individuals like Shkreli scouring the market for drugs like Daraprim that don’t have effective generic rivals (perhaps that market is too small for a generic drug maker to view it is profitable; perhaps, as in Daraprim’s case, there are unique issues surrounding the requirements for regulatory testing) or other factors that give the drug a lot of effective pricing power. The profit-minded individual or company snaps up the patents, suddenly hikes the drug’s price and puts consumers – from insurance companies to individuals – in a position of either paying what is demanded or going without.

Late this summer, Rodelis Therapeutics boosted the cost of 30 tablets of cycloserine, a tuberculosis drug, from $500 to $10,800. When the Mayo Clinic made the price hike public, the company returned the rights to the medication to the Chao Center for Industrial Pharmacy & Contract Manufacturing, from which it had acquired them. Early in the year, Valeant Pharmaceuticals International Inc boosted the prices of two heart drugs, Nitropress and Isuprel, by 525% and 212% on the same day that they acquired them . “Our duty is to shareholders and to maximize the value” of Valeant’s products, a company spokeswoman told the Wall Street Journal at the time.

I’ve encountered this first hand. When I started freelancing in 2002, I began paying for my own medication to treat my chronic migraines: Fioricet with codeine. Back then, the cost to me of the brand (the only kind that Walgreen’s stocked – they claimed that no generic version existed) was $220 per month. By 2005, it was $350. By 2007, $450. In 2009, it was well north of $500. That was the year that I moved pharmacies and finally discovered a generic. But then the cost of the generic, too, began to climb – from $120 to $160 and then to north of $200 a month. Just because a drug is a generic doesn’t make it immune from big price increases , as industry mergers and decisions by manufacturers to stop producing some drugs have affected availability of some medications.

At least with insurance (although that insurance premium isn’t cheap), the medications I have to take are at least affordable, because my insurer will cover them. In the cases of some of the newest and most costly bleeding-edge drugs , the jury is out on whether that will happen.

A case in point is the newest treatments for hepatitis C , sold by Gilead Science and AbbVie, which appear to cure more than 90% of those infected with the potentially fatal liver disease. More than three million Americans are estimated to have hep C, which can be spread, among other things by poorly sterilized medical instruments, as well as (in prior decades) blood transfusions, as well as sharing needles among drug addicts, and can result in cirrhosis, cancer and ultimately death. The new drugs, including Harvoni, can effect a complete cure in as little as three months, with few side-effects, and even prevent the scarring. The price tag, however, is astronomical: as much as $94,500.

Unsurprisingly, insurers are balking at footing the bill – even though it’s significantly cheaper than paying out $175,000 or so to cover a liver transplant a few years down the road. (Perhaps they’re reading the actuarial tables, and gambling that livers won’t become available in time for a transplant and that this actually is a better bet?) They insist that the newer drugs haven’t been tested in as many people as the typical drugs and so they are only approving treatments for those with advanced liver disease.

That’s prompting patients trying to avoid ending up with irreversible damage to their organs to sue their insurers . Insurers, for their part, point out that while these drugs represent a tiny fraction of prescriptions written for their members – perhaps 1% – they can make up as much of a quarter of all spending on drugs , as is the case at Blue Cross Blue Shield of Massachusetts.

Obamacare may have made basic healthcare – flu shots, a visit to the doctor’s office, and such basic expenses – accessible and affordable, to some extent and with varying degrees of success. (Yes, your favorite doctor may not participate in the plan that you can afford; yes, while some of us pay less, others may find themselves paying more every month in premiums.) But the cost of prescription medication is one area that remains largely unaddressed, and has the potential to be even more perilously complicated to try to resolve: it involves not one, but two sets of for-profit interests, the pharmaceutical companies who research and develop the increasingly sophisticated products to treat diseases that once had few effective medications, and the insurance companies that must find a way to collect enough premiums from you and me to pay for it all and still make money for their shareholders.

It’s no wonder that the Daraprim debacle has drawn the attention of political candidates on both sides of the aisle. Even Donald Trump, that promoter of free enterprise, appeared to draw the line at Shkreli’s attempt to profiteer, being quoted as calling him “a spoiled brat” and describing his actions as “disgusting”. For their part, Democratic presidential candidates Hillary Clinton and Bernie Sanders took to the campaign trail to talk about the need to curb drug price increases . As a populist strategy, it’s got to be a winning one. But any attempt to craft new policies around the ideas they are discussing may unleash a battle with insurers and with the pharmaceutical industry that makes the struggle over Obamacare look like a pleasant afternoon stroll on the beach.

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