Have you ever heard of a house of cards? We’re not referring to the TV series. We mean a structure that will eventually collapse when it can no longer sustain itself. We fear that high drug prices will shortly cause the collapse of our entire health care system. That’s because hospitals, nursing homes, patients and insurance companies will no longer be able to afford the incredible costs of crucial medicines. If a drug for dementia were developed, it would break the bank.

Volume: The Old Business Model

Not very long ago the pharmaceutical industry made money based on how many pills it sold. The big money makers were brands like Lipitor, Nexium, Prilosec, Prozac, Valium, Xanax, Zantac and Zoloft. Many became household names.

The business model for drug companies was to first choose a health condition such as nervousness, insomnia, depression, heartburn or high cholesterol that affects millions of people. Then they developed a medication to help control that problem. If doctors would keep prescribing the drug for a really long time to millions of patients, the dollars would flow.

The marketing plan was to get as many people as possible taking these frequently prescribed medicines for as long as possible. Millions of individuals stayed on such drugs for years or even decades.

If stopping an anti-anxiety agent, antidepressant or heartburn drug suddenly led to uncomfortable symptoms, many people would choose to stay on the medicine indefinitely. Drug companies didn’t do a lot of research on withdrawal complaints and rarely offered providers clear guidelines on how to help patients taper off such medications. Why would they? The more people taking their pills the better!

The Edge of the Cliff:

Needless to say, big brand name drug makers worried about losing patent protection on their best sellers. That’s because once such drugs went off patent, generic companies jumped in to make copies that could be sold for a fraction of the cost.

Here are just a few examples based on data from GoodRx.com. The generic prices are with coupons from GoodRx.

A One Month Supply of:

Valium = $175-$200  Generic diazepam = $6-$11

Nexium = $275-$290 Generic esomeprazole = $18-$47
Prozac = $450-$550  Generic fluoxetine = $3-$15

It’s hardly any wonder that most people opt for generics. That’s especially true since insurance companies often refuse to pay for pricey brands. Not surprisingly, sales of branded drugs plummet once a generic version becomes available.

Why Are High Drug Prices Ravaging Healthcare?

To keep its shareholders happy, the pharmaceutical industry has had to come up with a new model. Instead of seeking common conditions, drug companies began searching for niche markets and charging extremely high prices.

Treatments for relatively rare diseases are known as orphan drugs and get special treatment from the FDA. When Congress passed the orphan drug legislation in 1983, it didn’t envision that pharmaceutical companies would make much money on these medications. In fact, they were referred to as:

Now, however, the prices of many orphan drugs are stratospheric. Actimmune, used to treat a rare immunodeficiency disease, can cost up to $55,000 a month.

Treatments for Gaucher disease, a genetic condition that can become fatal if untreated, can run to $300,000 or more annually.

Spinraza, to treat spinal muscular atrophy, costs approximately $750,000 for the initial year of treatment.

A drug for Duchenne muscular dystrophy, Exondys 51, has an annual price tag of $300,000 after discounts, though some experts project anywhere from $750,000 to $1.5 million (New York Times, June 22, 2017). 

Nowadays, instead of “limited commercial value,” orphan drugs have become bonanzas. Some of them, like Humira, EnbrelRemicade and Revlimid, are among the top-selling drugs by dollar value. We are talking billions of dollars annually for each drug.

Cancer medications may also earn orphan drug designations. And that can mean that they earn big bucks as well. Some of the newer cancer medicines, such as Keytruda or Opdivo, can cost $100,000 or more annually.

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The total cost including hospitalization can exceed $500,000.

Instead of millions of people paying a modest monthly price for their medicine, the recent Pharma model has relied on a few hundred or a few thousand individuals paying huge amounts of money for an essential or life-saving medication.

This more or less works as long as people have good health insurance. If, however, the insurance has a high deductible or if someone is uninsured, access to a life-saving treatment could easily be out of reach.

Insurance companies are beginning to balk at the high cost of some new medicines. Drugs for hepatitis C can cost over $1,000 a pill. Even though such medicines are less toxic than older alternatives, some insurance plans require patients to “fail” less expensive treatments before they will cover the newer drugs.

What if drug companies came up with truly effective medications for people with devastating conditions? If those conditions affected hundreds of thousands or millions of people, the health care system would likely collapse like a house of cards.

The holy grail for the pharmaceutical industry would be a treatment for Alzheimer’s disease. Note that we said treatment and not cure. If a drug company came up with an effective therapy against dementia, it could single-handedly bring down health care in America.

It is estimated that over 5 million people have Alzheimer’s disease in the U.S. A skilled memory care facility can charge anywhere from $60,000 to $90,000 a year.

A drug company could easily charge more than $100,000 to keep someone with Alzheimer’s disease from deteriorating. If the hypothetical drug helped patients improve, that would be a huge bonus. If that patient had to take the medicine daily for the rest of her life, it would be a bonanza for the company. Just try multiplying $100,000 times 5 million. You get a lot of zeroes, as in:

$500,000,000,000

That is for one year.

We have no great love for insurance companies. That said, we cannot imagine that they can continue to pay extraordinarily high drug prices. Even the government can’t manage to cover the kind of high drug prices we anticipate in coming years.

The current situation is unsustainable. It isn’t clear, however, how it can be resolved. In the United States, drug companies can charge whatever the market will bear. The question is, what will the industry do if it breaks the health care system?

We welcome your thoughts in the comment section below.

“significant drugs of limited commercial value”

High Drug Prices for Orphans:

Making Billions from Orphan Drugs:

High Drug Prices = the New Pharmaceutical Model:

Alzheimer’s Disease: Justifying High Drug Prices?

Can Insurance Companies Survive?

Related People's Pharmacy Health Guide

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