Breaking Ankles and Fixing America’s Healthcare

Ajay Pathakamuri

November 17, 2021

‘Should we call an ambulance for you?’

For most people with a shattered ankle, feeling searing pain shoot through the core of their body, the answer is a resounding ‘YES!’

But for the average American, the answer is not so linear.

A week into college, I broke my ankle in the classiest way possible: trying to ‘juke’ my friend in a pick-up game of basketball. Unfortunately, my footwork was not as smooth as I had hoped, and my foot caught the sleek floor beneath me, leaving myself performing a very foul and awkward impression of the iconic Michael Jackson lean.

Crashing to the ground, I knew I was going to be in crutches for a while. And as if to confirm this belief, my ankle quickly swelled to the size of my fist. A great start to college. With my parents almost 800 miles away, I had no idea what I was supposed to do.

After a few minutes of laying on the ground, the pain finally began to subside and, with the help of two of my friends, I hobbled to the lobby of the recreation center, where a security guard helped wrap and ice my ankle. After tying up the wrap, he asked me what I wanted to do. I could only respond with a lost look and a sad shrug.

‘Should I call you an ambulance?’

I hesitated. I knew enough about healthcare to understand that most Pittsburgh hospitals were not covered by my Georgia insurance, and that an uninsured visit to the hospital, much less the emergency room, would quite literally black-hole my student-debt-filled pockets.

‘How much does an ambulance cost?’

For me, and for many Americans, when asked if we need an ambulance, we do not immediately think about how quickly we need to get to the hospital to get the treatment we need^[i]. Instead, our mind is forcedly focused on if we can afford to get into the medical minivan. In the great United States, the question is not whether we need an ambulance, but whether we can afford one.

The $3.5 trillion Build Back Better Act seeks to change that American mindset. One of the most contentious components of the bill includes the largest expansion of Medicare to date. Under the bill, Medicare would be broadened to cover both dental and vision care. But the part that has deeply infuriated pharmaceutical companies is the piece that would allow Medicare to negotiate drug prices, effectively ending Pharma’s total reign on drug prices and democratizing their access and affordability.

The Status Quo

But what exactly does allowing Medicare to negotiate drug prices mean? What would that look like? Who would that affect? And why would it be such monumental legislation?

In the words of Bernie Sanders, by allowing Medicare to negotiate drug prices, we would simply be “joining the rest of the industrialized world,” ^[ii]. But to understand the potential of such paramount policies, it is important to discern the situation around drug prices and health expenditures concurrently.

The RAND Corporation, an acclaimed nonprofit and nonpartisan research group, recently released an extensive report regarding drug prices in America compared to prices in other nations. The findings stated that America truly is the greatest paying country. The RAND study revealed that Americans pay 250% of what other countries pay for the same drugs, and that number rises to 344% when it comes to brand-name drugs ^[iii]. Globally, America accounts for 54% of total pharmaceutical sales, but only 24% of the volume ^[iv].

But what do those numbers translate to? A quarter of Americans ration insulin at dangerous levels—almost 10% more than any other developed nation—because they cannot afford regular renewals ^[v]. Widespread reporting by pharmacists record that more and more patients are simply walking away from their counters empty-handed and disease-ridden ^[vi]. 18% of Americans face collection for medical debt, having been financially debilitated by exorbitant prices—total debt owed by Americans amounting to an impossible $140 billion (this number itself is a drastic underestimate), making it the largest source of debt that Americans owe collection agencies ^[vii]. Of all the cracks in America’s melting pot, the nation’s health system is perhaps the closest to rupturing.

Pharma’s Greedy Guiles

Yet at the other end of the spectrum, it is the Golden Age for pharmaceutical companies, who have the power to raise drug prices on a whim and without reason. For instance, Teva, the largest manufacturer of generic drugs, increased their prices by over 9% (the inflation rate of that year was 1.81%) in a single year, with no explanation ^{[viii], [ix]}. In fact, Teva is currently under audit for conspiring with competing pharmaceutical companies to increase their prices so the whole sector could profit off everyday Americans ^[x]. And this comes at a time when the median gross profit margin for a pharmaceutical company is a whopping 76.5% ^[xi]. To put that in context, the average profit margin across all other business sectors is a meager 7.9%; pharmaceutical companies make nearly 10 times as much profit as those in other economic sectors ^[xii]. If Americans are represented by George Bailey in It’s a Wonderful Life, then Pharma is represented by Mr. Potter and his guileful pilfering.

Patents and Pricing

The foremost reason for America’s high drug prices can be directly attributed to pharmaceutical companies’ iniquitous exploitation of patent laws. Drug patents give pharmaceutical companies 20 years of monopoly power (although by the time drugs are approved, that time is halved to 10 years). Pharma also employs underhanded tactics such as evergreening, the process of slightly changing a drug’s chemical composition or physical attributes, and thicketing, which floods the U.S. Patent and Trademark Office with excessive patent applications to make it difficult for competing firms to secure patents, enabling Pharma to extend their patents and maintain their exclusivity. These are so saturated in the practices of Pharma that 78% of new drug patents are not actually for new drugs, but for slight modifications of pre-existing drugs ^[[xiii]]. In fact, 70% of best-selling drugs extended their patent at least once, and 50% extended more than once ^[[xiv]].

How does this lead to high prices? Patents enable pharmaceutical companies to list drugs at whatever price they believe will churn the most revenue; they are not concerned with ethical issues such as access and affordability. For instance, the Senate Finance Committee recently found pharmaceutical giant Gilead Sciences of employing marketing and pricing strategies that maximized profits and held little regard for access and affordability ^[xv].

As of now, there are no policies or protections that prevent Pharma from continuing such self-interested and unprincipled actions. They can continue setting prodigious prices, they can continue utilizing cheap tactics to extend their monopolistic powers, and they can continue ignoring the detrimental effects such actions have on Americans and their health.

Evidence FOR Expanding Medicare

Allowing Medicare to firmly negotiate drug prices, however, would reverse these trends. There is vast evidence that expanding Medicare and government regulation of the health industry works. Newly published research from the JAMA Network revealed that of the $140 billion in unpaid medical bills, an increasing amount is concentrated in states that do not participate in the Affordable Care Act’s Medicaid expansion program, particularly states in the South ^[xvi].

Furthermore, lowering drug prices would help those with the most need, something many past policies have failed to accomplish. Medical debts are highest in poorer neighborhoods. In the lowest-income ZIP codes, people owed an average of $677; those in the highest-income ZIP codes owed an average of $126. The difference? Access to affordable medicines, which, for high-income individuals, is achieved through private health insurance. But by allowing Medicare to negotiate prices, this access to affordable medicines, and thus lower and potentially nonexistent debt, can be shared by all Americans, not just the privileged.

A Look at Other Developed Nations

Furthermore, advanced countries that allow their health systems to negotiate drug prices see considerably lower prices for the same drugs than the US. For instance, France, Sweden, and Germany—hailed as having the health regulation models closest to perfection—have seen not just lower prices, but also considerably slower rises in prices.

A study by the Organization for Economic Cooperation and Development (OECD) investigated how price regulation in France, Sweden, Germany, and the UK affected the level at which drug prices rose in those nations from 1985 (when most of these nations’ policies were fully developed) to 1991, finding that drug prices actually decreased in all four nations when adjusted for general inflation rates after the full implementation of price controls ^[xvii]. In fact, the countries with the most ambitious price controls, France and Sweden, saw the greatest decline in drug prices ^[xviii].

To further contextualize this behavior, during that same period the US saw an almost 5% increase in drug prices after adjusting for inflation, almost 6% higher than any of the other nations ^[xviii]. And when drug expenditure exceeds billions of dollars, even a fraction of a percent equates to unthinkable amounts of money. Allowing public health systems to negotiate drug prices has been proven to work. It is time for America to join the rest of the industrialized world.

Pharma’s Argument

The pharmaceutical industry has no doubt heard the desperate cries of Americans struggling to pay for the medications they need to live, and yet Pharma does little to help. Surely, they must have a reason for their abusive negligence. They must have a reason for opposing reforms that would save lives. They must have a reason for raising their prices in response to the outcries of Americans whose taxes helped fund the research behind the very drug they cannot afford but desperately need.

What is Pharma’s justification then? Americans must bear the ‘short-term’ consequences so that Pharma can continue to innovate ‘new drugs’. Proponents of this ideology point to an analysis by the Congressional Budget Office suggesting that reducing the pharmaceutical industry’s revenue would also decrease the number of new drugs developed ^[xix]. That may perhaps be a sound argument: to reap the benefits of leading innovation, you must also bear the costs associated with it.

But innovation and affordability are not mutually exclusive. They can and they should coexist. For instance, upon closer analysis of the Congressional Budget Office’s findings, it is apparent that the independently formed conclusions by Pharma are misleading. Yes, the number of drugs decreases with decreased revenue. But that number is insignificant: two fewer drugs in the next decade, 23 fewer in the following decade, and 34 fewer drugs in the third decade. Furthermore, an analysis by the Western Health Policy Center found that most of those drugs would not be truly novel or innovative drugs, but rather modified versions of pre-existing drugs ^[xx].

But more misleading than that is the notion that Pharma is at the center of innovation. Yes, Pharma provides the funds to carry newly developed drugs through exceedingly expensive clinical trials and into the drug market, but the innovation and development of new therapies actually occur at small companies that are spin-offs of university research efforts typically funded by the NIH ^[xxi]. In 2018, such small firms accounted for nearly two-thirds of the truly novel drugs patented in the US and nearly three-quarters of drugs in the late stage of the development pipeline ^{[xxii], [xxiii]}. The most famous and recent example is the mRNA technology that was developed at the University of Pennsylvania and MIT, which was used to develop the COVID-19 vaccines. In essence, there is little evidence that suggests that making drugs more affordable would reduce innovation or the development of truly novel drugs.

Conclusion

There has never been a more opportune time to pass legislation that will finally resolve, at some level, America’s broken health system and promote affordable and equitable access to pharmaceuticals. If such an opportunity is missed, there perhaps may not be another chance, for as each year passes, the pharmaceutical industry becomes increasingly expansive and powerful. As Democrats poise to finally deliver on an issue supported by an overwhelming majority of Americans, now is the time for meaningful action. Now is the time to take back control of American health from the corrupted hands of corporate Pharma. Now is the time to finally allow Medicare to negotiate drug prices.

[i] https://aspe.hhs.gov/sites/default/files/private/pdf/265041/trends-in-the-us-uninsured.pdf

[ii] https://twitter.com/sensanders/status/744339715705405441

[iii] https://www.rand.org/news/press/2021/01/28.html

[iv] https://www.rand.org/news/press/2021/01/28.html

[v] https://www.t1international.com/media/assets/file/T1International_Report_-_Costs_and_Rationing_of_Insulin__Diabetes_Supplies_2.pdf

[vi] https://www.washingtonpost.com/opinions/2021/09/23/prescription-drug-prices-medicare-negotiate/

[vii] https://www.nytimes.com/2021/07/20/upshot/medical-debt-americans-medicaid.html#:~:text=Using%2010%20percent%20of%20all,that%20Americans%20owe%20collections%20agencies

[viii] https://www.macrotrends.net/countries/USA/united-states/inflation-rate-cpi#:~:text=U.S.%20inflation%20rate%20for%202019,a%200.87%25%20increase%20from%202016.

[ix] https://ir.tevapharm.com/investors/press-releases/press-release-details/2019/Teva-Reports-Fourth-Quarter-and-Full-Year-2018-Financial-Results/default.aspx

[x] https://www.cnbc.com/2020/08/26/us-charges-teva-in-generic-drugs-price-fixing-probe.html

[xi] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054843/#:~:text=For%20pharmaceutical%20companies%2C%20the%20median,CI%2C%2010.2%25%2D17.4%25

[xii] https://www.aei.org/carpe-diem/the-public-thinks-the-average-company-makes-a-36-profit-margin-which-is-about-5x-too-high-part-ii/