Protecting Public Health: The Need for Cost Control and Regulation in the Pharmaceutical Industry

By Albert Manfredi

Albert “Albi” Manfredi is a sophomore in the School of Engineering and Applied Science at the University of Pennsylvania. He majors chemical and biomolecular engineering, concentrating in pharmaceuticals and biotechnology, and hopes to complete the joint legal studies and history minor between The Wharton School and the College of Arts and Sciences. 
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With 15% of the United States population now fully vaccinated against COVID-19, the government-subsidized vaccine rollout is starting to be viewed as a massive success for public health and the pharmaceutical industry [1]. Not only have vaccines distributed at a rapid pace, but they have managed to stay affordably priced as the government purchases and distributes them to ensure they are accessible to those in need. However, paying for quick relief while overlooking long-term regulation may come with a cost. Two weeks ago, Pfizer, Moderna, and Johnson & Johnson executives promised investors increased prices for current vaccines and future booster shots during the “non-pandemic” phase [2]. This profit-scheme comes in spite of the fact that the majority of vaccine funding, approximately $30 billion, came from taxpayers and the federal government [2]. These actions call into question the ethics of the pharmaceutical industry and whether it requires government intervention to prioritize public health before investor profits.

For Americans, high drug prices are nothing new. Since 2014, prescription drug prices have increased 33%, while the price of some generic drugs have seen price increases of 500%, drastically exceeding the rate of inflation [3,4]. Compared to other high-income countries, drug prices in the United States are 117% higher and health outcomes are significantly worse [5]. To put this into perspective, about one third of Americans choose to jeopardize their health and forego taking prescription medications because they are too expensive [4].

While pharmaceutical companies are subject to government regulation, the lack of direct price controls coupled with strong intellectual property protections allow them to use a number of tactics to keep prices high and thwart competition. Some pharmaceutical companies extend and acquire patents to hold exclusive monopoly prices, bribe generic companies to keep cheap alternatives off the market, and file lawsuits against smaller pharmaceutical developers to put them out of business [6,7]. As such, it comes as no surprise that large companies now hold 64% of the market share, as opposed to 28% in 2007 [8].

Despite these exclusionary practices, pharmaceutical companies are often given the benefit of the doubt because of the role they play in innovation and global healthcare development. Academics defend high prices by pointing to the inherently risky and costly nature of investment into new research. One study estimates that the success of research and development investment is only about 4.1% [9]. While research into new cures is a risky investment, a large portion of the capital necessary comes from the government. With the COVID-19 vaccines as just one example, over 75% of all new molecular entities come from NIH-funded research whereas private companies mostly invest in treatments that nominally improve existing medications [10]. In these cases, taxpayers are essentially footing two bills: the cost of prescription and the cost of development. 

Pharmaceutical executives concurrently argue that monopoly prices in the United States are necessary to subsidize their humanitarian development prices and programs abroad. It holds true that most developing countries are able to receive pharmaceuticals at very low prices compared to the United States. However, some academics have analyzed these tactics as mere profit maximizing price discrimination instead of philanthropy [11]. While pharmaceutical companies have certainly assisted development in emerging healthcare industries, in some cases they are able to do this while turning a profit. Historically, in extreme circumstances, once companies gain a foothold in developing markets, they begin to extract monopoly profits and limit access [12]. Thus, wrangling in US pharmaceutical companies is not only a domestic issue, but one that can affect global access to life-saving medications. 
There are several avenues for policymakers to ensure affordable, long-term access to both existing drugs and novel treatments like the COVID-19 vaccine. Some proposals call for similar measures to European Union countries that mandate certain low prices based on the drugs’ clinical values. This strategy, called reference pricing, is estimated to reduce the overall cost of medication by 39% [13]. There have also been discussions to expand negotiation power under Medicare Part D; it would give Congress bargaining power to tie prices to international medians as another means of reducing costs [14]. These proposals would both decrease prices while additionally encouraging thoughtful investment into life-saving medications on the part of private companies since the price is attached to their calculated clinical benefit. 
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However, any effort to pass price control legislation would require bipartisan support. The GOP generally views the enforcement of price regulation as government overreach and the expansion of unnecessary bureaucracy [15]. Luckily for the COVID-19 vaccines, provisions currently exist that grant Congress the power to regulate immunizations. If a vaccine is federally funded, as is the case with the COVID-19 vaccine,  it can be purchased according to “fair and reasonable” pricing as enforced by the Federal Acquisition Regulation [2]. While “fair and reasonable” is certainly a definition up for debate, the federal government could also draw from the Bayh-Dole Act that allows them to federally mandate licensing and force free technology transfer to other manufacturers [2]. This would be a great way to increase production while simultaneously lowering costs to guarantee access to prescription medication for those in need. 
While current vaccine efforts bring hope that the COVID-19 pandemic may be a thing of the past, policymakers must act fast to ensure that public health is accessible for those in need and not the few who can afford it. 

[1] Smith-Schoenwalder, Cecilia. “CDC: 15% of U.S. Population Fully Vaccinated Against Coronavirus.” U.S. News World Report, March 29, 2021. https://www.usnews.com/news/health-news/articles/2021-03-29/cdc-15-of-us-population-fully-vaccinated-against-coronavirus  
[2] Cohen, Joshua. “Profiting from Success: The Future of COVID-19 Vaccine Pricing.” Forbes Magazine, April 2, 2021. https://www.forbes.com/sites/joshuacohen/2021/04/02/profiting-from-success-the-future-of-covid-19-vaccine-pricing/?sh=411f7b041bf5 
[3] Balasubramanian, Sai. “Prescription Drug And Healthcare Costs Are Rising.” Forbes Magazine, September 21, 2020. https://www.forbes.com/sites/saibala/2020/09/21/prescription-drug-and-healthcare-costs-are-rising/?sh=76211002367e 
[4] Waxman, Henry; Corr, Bill; Martin, Kristi; & Duong, Sophia. “Getting to the Root of the High Prescription Drug Prices: Drivers and Potential Solutions.” The Commonwealth Fund, July 2017. https://www.commonwealthfund.org/publications/fund-reports/2017/jul/getting-root-high-prescription-drug-prices-drivers-and-potential 
[5] Sarnak, Dana; Squires, David; Kuzmak, Greg; Bishop, Shawn. “Paying for Prescription Drugs Around the World: Why is the U.S. an Outlier?” The Commonwealth Fund, October 2017. https://www.commonwealthfund.org/sites/default/files/documents/___media_files_publications_issue_brief_2017_oct_sarnak_paying_for_rx_ib_v2.pdf 
[6] Fox, Erin. “How Pharma Companies Game the System to Keep Drugs Expensive.” Harvard Business Review, April 6, 2017. https://hbr.org/2017/04/how-pharma-companies-game-the-system-to-keep-drugs-expensive 
[7] Gagnon, Marc-André. “Merger mania: mergers and acquisitions in the generic drug sector from 1995 to 2016.” Globalization and Health Journal, 2017. https://globalizationandhealth.biomedcentral.com/articles/10.1186/s12992-017-0285-x 
[8] Sorscher, Sarah. “The Rising Cost of Generic Drugs.” Public Citizen Magazine,  July 2016. https://www.citizen.org/our-work/health-and-safety/the-rising-cost-of-generic-drugs 
[9] Schuhmacher, Alexander. “Changing R&D models in research-based pharmaceutical companies.” Journal of Translational Medicine, April 27 2016. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4847363/ 
[10] Mazzucato, Mariana. “How taxpayers prop up Big Pharma, and how to cap that.” LA Times, October 27 2015. http://www.latimes.com/opinion/op-ed/la-oe-1027-mazzucato-big-pharma-prices-20151027-story.html 
[11] Schweitzer, Stewart. “Prices of Pharmaceutical in Poor Countries Are Much Lower Than in Wealthy Countries.” Health Affairs Journal, 2011.  https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2009.0923 
[12] Boseley, Sarah. “Rich countries ‘blocking cheap drugs for developing world.’” The Guardian, November 14, 2006. https://www.theguardian.com/society/2006/nov/14/internationalaidanddevelopment.medicineandhealth 
[13] A. Acosta. “Pharmaceutical Policies: Effects of reference pricing, other pricings, and purchasing policies.” Cochrane Library, 2014. https://pubmed.ncbi.nlm.nih.gov/25318966/ 
[14] Huetteman, Emmarie. “Democrats Eye Medicare Negotiations to Lower Drug Prices.” Kaiser Family Foundation, March 23, 2021. https://khn.org/news/article/democrats-eye-medicare-negotiations-to-lower-drug-prices/ 
[15] Huetteman, Emmarie. “Democrats eye Medicare negotiations to lower drug prices.” Fierce Healthcare, March 23, 2021. https://www.fiercehealthcare.com/payer/democrats-eye-medicare-negotiations-to-lower-drug-prices 
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