01:45 - Source: CNNMoney
Here's why drug prices are so high

Editor’s Note: Robert Klitzman is a professor of psychiatry and director of the Masters of Bioethics Program at Columbia University. He is author of “The Ethics Police? The Struggle to Make Human Research Safe.” The opinions expressed in this commentary are solely those of the author. View more opinion articles on CNN.

CNN —  

Several pharmaceutical companies have been jacking up the prices of their drugs in unethical ways. Most recently, Nirmal Mulye, founder and president of Nostrum Pharmaceuticals, defended his decision to more than quadruple the price of nitrofurantoin, used to treat bladder infections, from about $500 to more than $2,300 a bottle. He said it was his “moral requirement to sell the product at the highest price.”

Mulye argues that his only moral duty is to benefit his investors. As he said in defending Martin Shkreli, who in 2015 raised the price of an anti-parasite drug, daraprim, 5,000% from $13.50 to $750 per tablet, “When he raised the price of his drug he was within his rights because he had to reward his shareholders.”

Mulye is wrong for many reasons. Drug companies deserve reasonable return on their investment in research and development, but some of these companies are abusing the system. The development of countless new drugs depends on taxpayer money and sacrifices that patients in studies make in good faith. Excessive price hikes harm many people, threaten public health and deplete huge amounts of taxpayer money that could be better used in other ways.

The US government pays more than 40% of all Americans’ prescription costs, and this amount has been growing faster than inflation. In 2015, over 118 million Americans were on some form of government health insurance, including around 52 million on Medicare and 62 million on Medicaid. And these numbers have been increasing. Today, around 59 million Americans are on Medicare and 75 million on Medicaid.

And, in 2016, Medicare and Medicaid alone spent $174 billion on prescriptions drugs – 23% of their entire budget. In short, the government spends more on health care than it spends on any other single segment of the federal budget, including defense or Social Security.

The United States already spends significantly more on drugs than any other country – over twice as much as the average of the 19 major other industrialized countries. In the United States, one drug is even approaching close to $1 million per person per year. And while Mulye and Shkreli have increased the prices of brand-name drugs, other companies have raised the prices of generic medications, which require no new research or development – often the excuse used for excessive drug prices.

Partly as a result, the United States spends about twice as much per person on health as do other Western countries, and this gap is growing. Yet we rank 26th in the world in life expectancy. People live longer in Chile and Slovenia than in the United States.

These high drug costs prevent many Americans from accessing vital treatments – meaning they are at risk of getting sicker or dying. In recent surveys conducted by the Kaiser Family Foundation, over 20% of Americans have difficulty affording their prescribed medications, 24% say they or a family member has not filled a prescription, cut pills in half or skipped doses due to high costs, and 80% say the cost of prescription drugs is unreasonable. Regardless of whether they are Republicans or Democrats, most Americans think more regulation is needed to limit prescription drug prices.

These higher drug costs limit our nation’s ability to support other programs as much as we could – from rebuilding aging bridges and roads, and creating more jobs, to enhancing education and public radio and television

Rapidly mounting government drug expenditures result partly from the fact that over the past decade, the pharmaceutical industry has spent $2.3 billion in lobbying efforts – more than any other industry since 1998. Not surprisingly, while other Western countries negotiate prices with pharmaceutical companies, Congress has barred Medicare from doing so.

These huge price increases are also unjustified since the US government, through the National Institutes of Health (NIH) and other agencies, funds much of the basic science that enables pharmaceutical companies to develop new medications. Countless drug company researchers and physicians are also educated through National Science Foundation grants and government-subsidized hospitals and state universities.

Every year, Congress and the President debate how much to support these various agencies. Last year, Trump proposed slashing the NIH budget by 22%. Over the past 10 years, this budget has already been decreasing when adjusted for inflation. Luckily, Congress ultimately rejected Trump’s proposed cuts – but all of this funding, on which the pharmaceutical industry depends, clearly hinges on public support, and thus on the public feeling that it receives fair return on its generosity.

Moreover, thousands of patients enter studies, risking harm or even death, in order to help develop new drugs to aid future patients. Countless patients willingly share their genetic and other medical data to benefit science and other patients.

Exorbitant price gouging is also shortsighted and counterproductive. This year alone, 24 states, including Maryland, New York and Nevada, have passed 37 bills to reduce increasing drug costs. Additional bills under consideration would prohibit unfair pricing, cap annual price hikes and require companies to release information on prices and costs.

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President Donald Trump promised to cut drug prices and has declared a victory in doing so, but Mulye’s and other companies’ price hikes demonstrate otherwise. Parts of Trump’s proposals also seem to help drug companies more than consumers, reducing programs that require drug companies to lower costs to institutions that serve poorer patients. The fate of his proposals is unclear. But if he is truly interested in curbing drug company prices, he should set criteria for new drug prices and establish caps on annual price increases.

Physicians have long followed the Hippocratic Oath, with its moral commitments to prioritize patients’ well-being and first do no harm. Nostrum and other drug companies should recognize the importance of helping not just shareholders, but patients. At stake is our individual and nation’s health.