Before the coronavirus crisis hit, newspapers were filled with headlines concerning the rising costs in healthcare and how they might be contained efficiently. The justification of innovative therapies costing millions must be discussed. The coronavirus pandemic has put healthcare at the centre of media attention and highlights how important a well-functioning health system is – and that it comes at a cost.
Looking for a “new normal” amidst the coronavirus pandemic, it is more than appropriate to rethink costs in the healthcare system. The question is whether it is ethically justifiable to make billions in profits at the expense of ill people. Our health is one of the greatest goods we have, and many are willing to spend a lot of money on it. The global healthcare sector is expanding rapidly and has proven to be extremely lucrative, with the highest profit margins in the economy.
“The healthcare system is part of the social system of our society. Part of our wealth is invested in healthcare for the benefit of all. A health industry, on the other hand, is part of the economic system. Capital owners invest in this healthcare industry and they expect a return, for the benefit of few. You can’t have both at the same time, because the goals of these two systems fundamentally contradict each other.” Giovanni Maio
Health service versus health industry
In his book “Business Health – How the Market Abolishes the Art of Healing”, medical ethicist Giovanni Maio describes the consequences of the economisation of healthcare: “The healthcare system is part of the social system of our society. Part of our wealth is invested in health care for the benefit of all. A health industry, on the other hand, is part of the economic system. Capital owners invest in this healthcare industry and they expect a return, for the benefit of few. You can’t have both at the same time, because the goals of these two systems fundamentally contradict each other.” Nowadays, many corporations pursue profit maximisation, which is fundamentally incompatible with a health system based on solidarity.
The role of the pharma industry
Since the early 1980s, the global pharmaceutical market has grown steadily, reaching over 1000 billion US dollars a year. Half of the market exists in the United States. The top 10 pharmaceutical companies generate two thirds of the sales (www.pmlive.com). Since the Reagan presidency, the big pharmaceutical companies have followed the so-called “blockbuster model” (drugs with annual sales of over 1 billion dollars) with profit maximisation within, but also outside of legal boundaries, with profit margins often exceeding 20 %.1,2 In 2003, pharmaceutical profit surpassed the cumulative profit of all Forbes-listed industries. However, the golden days of the “blockbuster model” are coming to an end, now there are numerous generic drugs on the market for many common diseases such as hypertension, asthma, depression and tumours. In addition, the patent protection of many “box office hits” is expiring, and generic drugs have become significantly cheaper.
Now, “personalised medicine” is emerging as the new buzzword in pharmaceuticals.1 The development of so-called orphan drugs, i. e. drugs for rare diseases such as cystic fibrosis, spinal muscular atrophy and tumours, has opened up a promising future market for the pharmaceutical industry. Legal incentives such as the extension of patent protection have made research into orphan drugs attractive, which has led to astronomical sums being charged for such drugs today.
Compensation for high development costs?
Representatives of the pharmaceutical industry justify high prices of drugs with high development costs. However, many discoveries and innovations are made in research institutions at universities, which are financed with public money. This often results in small start-ups being bought up by large corporations for horrific sums, which are then booked as development costs.
The mean development costs for a new drug have been the subject of controversy for years; so far the most cited studies by Di Masi et al. estimated these costs (assuming 11 % loan costs and a clinical success rate of 12 %) at $ 1.1–2.8 billion.3 A recent study examining 355 new FDA-approved drugs in 2009-2018 arrived at a significantly lower cost estimate: After considering the cost of failed trials, the median cost of research and development investment to bring a new drug to market was calculated to be $ 985 million (95 % CI: $ 684–1229 million).4 Today, pharmaceutical companies are investing far more in marketing, manufacturing, and sales than in research and development.5 In the past 20 years, the pharmaceutical and healthcare product industries spent $ 230 million annually on lobbying in the United States alone, more than any other industry.6 The massive purchase prices for “pipeline shopping” are also included in the drug development costs. It is therefore not surprising that the companies are hardly interested in taking care of a high-quality generic or biosimilar market. The number of essential generic drugs that are no longer available is growing every day, and basic supplies for our population is increasingly at risk.
Who determines the price of a new drug?
Many do not know how the pricing of a new drug works and that in the USA the pricing is in no way regulated – it is left to the companies. Therefore, all pharmaceutical companies are trying to get approval for their new drugs in the USA, since the American healthcare market is the most lucrative in the world and generates the most profits. After approval by the American health authority FDA, the company sets the price for the drug as it sees fit. As stock corporations, the companies are committed to “shareholder value”, which serves to generate maximum profit, and not to the patients or the common good of our society. Once the maximum price has been set, it will be further protected by many regulations and patents. As a result, the drug is withdrawn from free trade and its price kept high long term.2 In Europe, despite HTA processes, most authorities align themselves with the American price structure. It is not surprising, then, that the pharmaceutical industry is one of the most profitable industries.
In Switzerland, there have been patents for the chemical sector since 1907, but it was not until the Bayh-Dole Act 1980 that public research institutions were allowed to patent and license their findings, to found and sell start-ups on attractive terms.7 As a result, US companies were able to be more innovative, to become more productive and to keep profits in the US. Surprisingly, it has not yet been proven that patents serve to promote new inventions, let alone that they are indispensable for an innovation process.8
In summary, the profit margin of the pharmaceutical industry is far too high compared to other branches and no longer reflects the investment risk of development costs. Most of the claimed costs of innovative drugs today reflect the purchase of start-ups as well as lobbying and PR activities, not the real development costs. There is an urgent need for complete transparency in pricing with comprehensible pricing models and – where necessary – compulsory licenses and bans on excessive marketing measures for the launch of expensive drugs. It requires a political will to establish internationally valid, fair rules. “Business as usual” is no longer tenable even in the richest economies, especially since the corona crisis hit. A healthcare system based on solidarity must not turn into such a one-sided profit-maximizing health care market, where large corporations can excessively enrich themselves at the expense of ill people. •
Source: Barben, J., Cerny, T. “Welche Lehren ziehen wir aus der Coronakrise?” (What can we learn from the coronavirus crisis?), Schweizerische Ärztezeitung SAeZ (Swiss Medical Journal) 2020;101(37):1152-1154; Reprint with friendly permission of the authors. (Translation from German to English: Isabelle Bannerman-Wirth)
1 Möhr P. Personalisierte Medizin und ihre Triebkräfte . SAeZ 2016;97:1018-20
2 Cerny T. Warum Patente in der Onkologie heute schädlich sind. Schweizer Krebsbulletin 2020;202:114-7
3 DiMasi JA et al. “Innovation in the pharmaceutical industry: New estimates of R&D costs”, in: J Health Econ 2016;47:20-33
4 Wouters OJ et al. “Estimated Research and Development Investment Needed to Bring a New Medicine to Market”, in: JAMA 2020;323:844-53
5 Tay-Teo K et al. “Comparison of Sales Income and Research and Development Costs for FDA-Approved Cancer Drugs Sold by Originator Drug Companies”, in: JAMA Netw Open 2019;2:e186875
6 “Wouters OJ. Lobbying Expenditures and Campaign Contributions by the Pharmaceutical and Health Product Industry in the US”, in: JAMA Intern Med 2020;180:688-97
7 Markel H. “Patents, Profits, and the American People – The Bayh-Dole Act of 1980”, in: N Engl J Med 2013;369:794-6
8 Ridley M. “Rasender Fortschritt? Schön wär’s”, in: Neue Zürcher Zeitung of 4 June 2020
Which role do patents play?
Patents are neither bad nor good. They can contribute to the benefit, but also to the detriment of a society and its economy. They only make sense if the overall benefit for the general public predominates. Only then can it be politically justified that the state grants a monopoly to individuals or companies, which can turn it into a non-competitive business. Today, patents are often misused to maximise profits without any corresponding benefit. Patent disputes also prevent innovation and delay or even hinder the development and market launch of generics and biosimilars.
Why patents in oncology are harmful today or “It’s the economy, stupid!” Swiss Cancer Bulletin 2020; 202: 114-7
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