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We Asked an Expert How the Price of a Pill Could Go from $13.50 to $750 Overnight

Former hedge funder Martin Shkreli made headlines for jacking up the price of a medication dramatically. How can we stop price-gouging from happening?

by Mike Pearl
Sep 22 2015, 4:00pm

Photo by the author

As I'm sure you know by now, everyone on the internet got very mad at a man named Martin Shkreli after the New York Times reported that his company, Turing Pharmaceuticals, was increasing the price of a drug from $13.50 to $750.

The drug in question, Daraprim, is a medication for people who have parasitic infections, especially toxoplasmosis; it's also prescribed to treat infections associated with AIDS. In other words, it's not the sort of thing one would generally call a luxury.

On VICE News: Pharmaceutical Company CEO Defends 5,000 Percent Price Hike of Drug on Twitter

Shkreli's price-gouging drew a lot of ire on social media, but its far from the only example of American pharmaceutical companies behaving like they're run by Lex Luthor. Despite the hate, the 32-year-old hedge fund has gone an PR offensive, appearing live on Bloomberg News on Monday to deadpan about how he and his company "feel this is an appropriate price."

When that didn't calm people down, he completely threw down on Twitter, and even quoted Eminem.

To find out how American drug costs got to this point, and whether we can stop people like Shkreli, VICE talked to Daniel Hartung, a pharmacist and associate professor who, along with several other researchers, conducted a study on the effect of skyrocketing drug costs, the findings of which were published earlier this year.

VICE: How'd this drug get so expensive?
Daniel Hartung: This scenario is taking place more and more often: A drug company will purchase the rights of a previously very cheap generically available medication that's been around forever, and typically has been sold for low cost, and increase the price substantially.

But how does a new, upstart company get the leverage to do this?
In terms of some of these older drugs—that aren't used by a lot of people, but have been historically cheap—generic manufacturers have left the marketplace for a particular drug, and there are very few manufacturers in a particular market. If a company comes in and decides that it wants to increase the price substantially, then it essentially has monopoly-pricing leverage to do so. There are no strong competitive forces that put a stop to that price increase.

In your research, did you see people taking on these insane costs and being completely financially ruined, or are the consequences more subtle?
What I think more often is the case—or at least what I've heard about—are patient access issues in terms of delays in getting therapy. In multiple sclerosis cases [the focus of his recent paper] (patients have) to use medication that isn't preferred for that particular patient, or have to go through more administrative hurdles because insurance companies are trying to manage these costs as well.

Is this situation unique to the US?
The market for pharmaceuticals here is probably by far the freest market in the world. Drug companies are essentially given carte blanche to set prices at what they want—what the market will bear—and the market has been shown to bear quite a bit for many different classes of drugs, like cancer medication, and it kind of pushes the limits of what insurers and people are willing to pay for medication, and that's trickling down to more chronic conditions. I think it's more of a lack of laws, and lack of regulation that's causing this uptick in drug pricing, and the realization that these prices can be increased, and these insurance companies and third-party payers will historically pay them.

Are other cases that get labeled "gouging," associated with conditions that are relatively short-term, rather than something you have to take for the rest of your life?
[There was recent] uproar about a hepatitis C medication. A lot of press talked about "the $1,000-a-day pill," and that's a course of therapy. Ninety-five percent of people who take the eight-week course will be cured of their hepatitis C. I think that had some traction in terms of being perhaps more palatable than medications for diabetes or some other [condition] where the patient—or the payer—is saddled with those costs for life.

Is it easier for the company, PR-wise, if the medication is for a short-term illness rather than a chronic condition?
The price increase of five- or six-fold, basically to increase profits, just doesn't resonate with people, even if it's a one-time course of therapy. It may even be more egregious. You're holding people hostage who need to be treated acutely for this. They need to figure out—"I don't have insurance. How am I going to pay for it?" or, "How do I work the insurance company system to get this medication?"

Does this happen with drugs for chronic conditions, though?
There are new drugs for cystic fibrosis that cost about $300,000 a year for a small segment of the population. But obviously that's unaffordable, and for the payers, that's where the real stress is occurring.

Was there anything in Obamacare that was intended to address this issue?There's nothing in the Affordable Care Act that really addresses costs of medication, or really addresses costs at all. The intent of the ACA is really getting people insured, and delivering care in a more cost-effective way, but it doesn't really address the core of cost issues in this country which keep going up and up. We have more people insured, but the costs of healthcare are rising as well, so there's nothing in there that's directly targeting these high drug costs.

Would government regulations to solve this problem necessarily look like price controls?
I'm not sure if price controls would be the best solution. I think there smaller steps—these are big things to do, but smaller than just general price controls—would be allowing Medicare to aggressively negotiate on prices as one purchaser. That still would require a lot of political capital, but maybe it's more palatable politically than saying "We need to have a governance structure that says drug prices for X class cannot exceed set amount."

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