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For some time now, drug prices have rocketed on an upward trajectory, like the mythical Icarus soaring towards the sun. In Greek mythology, Icarus ignores his father's warning not to fly too close to the sun. His wings are made of wax and melt. As a result, he tumbles out of the sky into the sea and drowns. Icarus is a story of failure as a result of hubris and therefore it seems an apropos descriptor for the current approach to drug pricing in the US.

Drug prices have been flying ever closer to the sun and cannot continue to sustain their flight. Let’s examine some of the evidence. The most common excuse for this rise in prices is that it is costly to develop new drugs and high costs are needed to offset these research and development costs. But there are several holes in this argument.

First, the pharmaceutical industry is generating record profits. Sales revenue increased 45% from $534 billion to $775 billion between 2006 and 2015. About two-thirds of drug companies saw their profit margins increase over that period, averaging 17.1%. This is not a struggling industry with companies going out of business owing to razor-thin margins. Far more is spent on marketing and advertising than on research and development, and at least some of the basic science research that leads to new novel therapies is also generated by the Federal government.
This argument would also seem more credible if price increases were limited to new novel therapies that are just coming to the market. But price increases have often been across entire product lines and have continued for several years, for some products with limited competition price increases have been astronomical. How does the cost of research and development justify increases for drugs like doxycycline, albuterol, insulin, epi-pens, etc.? Generic drug prices have also increased substantially.

Another argument that I often hear regarding government involvement in drug pricing is that price controls will impede innovation. But I must ask what good is innovation if almost no one can afford to pay for it? A good example is hepatitis. We now have a cure for hepatitis, but the drug is priced at such a high level that the patient populations most in need the drug do not receive it. Worldwide company reported research and development spending (R&D) increased only modestly from $82 billion to $89 billion from 2008 to 2014. As Erin Fox stated well in a December issue of Modern Healthcare "Companies are clearly making more profits—there is a lot of talk about innovation and that's why prices are so high, yet R&D spending hasn't increased very much." Further, why should the USA fund innovation for the rest of the industrialized world? Virtually all other developed countries negotiate drug prices for their citizens so why should the USA be writing a blank check?

And not all new drug products are cures. One could perhaps make the case that if a drug can cure a disease then a perhaps a higher price is justified. But many new products targeting chronic diseases are entering the market with astonishingly high prices. Treatments for diabetes, rheumatoid arthritis, asthma, heart failure, multiple sclerosis, etc. are not only very expensive but are lifelong therapies.

Drugs are also becoming a larger part of the nation’s growing health care costs.Health care has grown to 17% of the GPD and is expected to grow to 20% by 2025. For the first time this year, health care has exceeded retail to become the largest source of jobs in the USA. Despite the US leading other industrialized nations in health care spending it trails badly in terms of providing its citizens with quality outcomes. Retail prescription drug costs represent 10% of national health expenditures in 2016 according to CMS. Growth in prescription drug costs slowed to 1.3% in 2016 after growing 12.4% and 8.9% in 2014 and 2015.And at least some of this reduction in drug spending has been the result of insurers limiting spending on new high cost drugs. 

Scott Knoer summarized it well in a recent issue of Modern Healthcare, "Drug companies raise prices far exceeding inflation because they can. In the absence of regulation and without consumer awareness—since consumers don't generally see the price due to insurance—the sky is the limit."

This trajectory is not sustainable. And like the mythical Icarus, their hubris is starting to take a toll. While there has been only modest efforts at the Federal level new efforts are underway in the states to address exorbitant pricing practices. Maryland for example has passed new legislation that addresses price gouging. Other states have taken similar actions. And now five health systems and the VA have banded together and are forming a new nonprofit generic drug company. After years of relentless drug shortages and unpredictable and often exorbitant price increases health care providers have had enough and are taking manufacturing into their own hands. I applaud this bold move and hope that the industry will take notice.

I am not against industry and recognize that there are many individuals who work hard to bring new therapies to market. Companies are entitled to generate a fair return on their investment. But the unbridled increases in drug prices is simply not a sustainable approach. These novel new therapies do no good if no one can afford to pay for them or if insurance costs are out of reach for most citizens. And significant increases to the price of older therapies to boost profitability is not justifiable in most cases. It is time for real reforms that balance promoting the public health while ensuring that innovation and research can be maintained.