Tag Archives: Drug prices

Some Reflections on US Healthcare From the Great White North

By Marvin Ross

Like many outside the US, I am perplexed by their health care system, the amount that is spent, and the poor results for citizens that it creates. Last year, I wrote in the Huffington Post about what I call my near death experience and contrasted by care and costs to that of the US. My key comment was that there should be no profit motive in health care.

I’ve just finished reading a book called Tailspin: The People and Forces Behind America’s Fifty-Year Fall – and Those Fighting to Reverse It by Steven Bell. This is a fascinating and well documented read on the state of American politics, the economy and the law. I am just going to focus on his revelations about health care and the pharmaceutical industry.

To begin with, a 2003 law which is still in effect forbids Medicare from negotiating drug prices with big pharma in order to get a volume discount. Everyone must pay the inflated prices set by the companies and the industry has managed to fight off all attempts at price control that are common everywhere else in the world.

Between 1970 and 2010, per capita spending on health care increased in inflation adjusted 2013 dollars by nearly 420%. Costs went from $1742 to $8400. Company profits and executive salaries showed similar growths. Between 1980 and 2016, personal out of pocket spending on health care grew by 460%.

I have always been confused about how Obamacare actually works given the complexity of the US system of multiple insurance companies all making profits compared to the single payer system we have in Canada. According to Brill, all Obamacare did was to subsidize people who did not have health insurance through an employer and who could not afford it to be able to buy insurance. More people were able to sign up with insurance companies so the insurance companies were able to enjoy even larger profits. A pretty pathetic system in my opinion and still the Republicans want to end that.

One tactic that big pharma uses to increase profits is to promote their drugs off label. Drugs are approved by the FDA for certain conditions and companies cannot market them for uses that they have not been approved for. However, in 2016 8 of 9 big pharma companies paid billions in fines for violating the criminal statute against that marketing. However, they still made money.

Risperdal, an anti-psychotic manufactured by Johnson and Johnson (J & J), was promoted for use in children and the elderly. In children, it caused young boys to grow large breasts and in the elderly it caused stroke, diabetes and other negative effects. J & J earned $18 billion on Risperdal sales with an estimated $9 Billion of that coming from off label sales. They paid out $6 Billion in settlements so netted $3 Billion for their illegal activity.

The day before a $2.2 Billion settlement, their stock traded at $93.37 a share. A year later, the stock traded at $108.62 a share. Alex Gorsky who was the sales manager for Risperdal and then the head of that division, was given a 48% raise in salary and bonus to $25 million. Who says crime doesn’t pay.

J & J’s tactic was one recommended by a consultant called Michael Pearson – a Canadian educated at Duke working at a consulting company in New Jersey. His advice was to raise prices aggressively when they still had patent protection and boost sales by targetting off label use. He also told them to cut back on research and development and, instead, buy up small companies developing new agents that did not have the funds to get FDA approval.

In 2008, Pearson struck out on his own and bought a small California drug maker. He borrowed enough by 2010 to merge with a larger Canadian company and move his headquarters to Montreal. The company became Valeant. He began borrowing more money, issuing new stock, buy a company, raise prices, expand markets, and cut back on R and D. At one point, he tried to take over Allergan and the plan was to strip 90% of its R & D budget. His takeover failed but he went on to doing more than a hundred deals. None of them had anything to do with producing new medicines but rather to increase stock prices and that went up over 4000%. Fortunately, his house of cards collapsed by 2016 but they had raised prices on crucial drugs by a good 200 to 300%.

Given the emphasis on profit, is it any wonder that the US ranks 29th out of 35 on infant mortality; 26th on life expectancy. In terms of health care performance, the US ranked worst of 11 other developed countries