This story has been updated.
Spectacularly high drug prices have become a political punching bag, especially since Turing Pharmaceuticals struck a nerve by increasing the price of a 62-year-old drug by more than 4,000 percent — a mind-boggling increase similar to waking up one day and finding out a gallon of gas costs nearly $100.
Hillary Rodham Clinton announced on Twitter that she'd lay out a plan to help control the "price gouging" in the pharmaceutical industry, which she called "outrageous." Meanwhile, Sen. Bernie Sanders (I-Vt.) and Rep. Elijah E. Cummings (D-Md.) this summer launched an investigation into exorbitant drug prices and began sending letters to drug companies requesting information about their prices.
The details do indeed turn out to be as insane as they sound. But behind them lurks a real lesson about the way drugs are priced in the United States and what role they actually play in the trillion-dollar fight over controlling health-care costs.
New York-based Turing bought the drug called Daraprim for $55 million this summer. It is used to treat toxoplasmosis, a parasitic infection that can be severe in patients with compromised immune systems, such as HIV, and for pregnant women. Earlier this month, the head of the Infectious Diseases Society of America and the HIV Medicine Association condemned the price increase from $13.50 a pill to $750, noting that the average cost per year for a patient weighing more than 132 pounds would be $634,500.
"This cost is unjustifiable for the medically vulnerable patient population in need of this medication and unsustainable for the health care system," wrote Stephen B. Calderwood, president of the Infectious Diseases Society of America, and Adaora Adimora, chair of the HIV Medicine Association.
The increasing cost of prescription drugs has been a growing national issue, and stories about drug prices that go up — instead of down, as most people expect as time goes on — have become increasingly common.
In August and September, the Mayo Clinic posted on its website concerns about the tuberculosis drug cycloserine. Rodelis Therapeutics increased the manufacturer’s price of the drug from less than $500 for a package of 30 tablets to about $10,800 after acquiring it from the Chao Center for Industrial Pharmacy & Contract Manufacturing. In contrast to Turing's approach, Rodelis Therapeutics announced Monday that it had returned the drug to the Chao Center.
Sanders and Cummings sent a letter to Valeant Pharmaceuticals International after the Wall Street Journal reported that the company had increased the prices of two heart drugs by 525 percent and 212 percent the day it acquired those drugs. The AARP Public Policy Institute published a study last year finding that the retail prices of more than 200 brand name prescription drugs increased by 12.9 percent, faster than in years past. Even the area of industry that has been responsible for huge cost savings, generic drugs, have had some drug prices soar.
Data from IMS Health show that the revenues for Daraprim have skyrocketed over the last four years. The total revenues in 2014 for the drug were nearly 15 times what they were in 2010, even as the number of prescriptions dropped by almost a third. According to the New York Times, the drug once cost $1 a pill but the price increased sharply in 2010, after GlaxoSmithKline sold the drug to a different company, CorePharma. CorePharma, in turn, sold the drug to another company, Impax Laboratories, and Turing bought Daraprim in August.
Martin Shkreli, the brazen young chief executive of Turing, said in an interview that his company raised the price because "the drug was unprofitable at its former price; this drug was practically being given away, so people are sort of fooled by the math."
He said that media reports had all overstated the price increase, as from $13.50 to $750. The real original price, he said, was $18 per tablet, making it merely a 4,000 percent increase in price, not a 5,500 percent increase.
"We needed to go to a price where we could turn a profit," Shkreli said. "With this acquisition, we may become profitable."
He also said the company would give the medicine to patients for free or $1 if they can't afford it, and that all profits from the drug would be reinvested into research on making a better version of the drug.
“Focusing on examples like these, which are the exception and not the rule, ignores that even with new treatments the growth of spending on retail prescription medicines are projected to grow in line with overall health-care spending through the next decade," said Robert Zirkelbach, senior vice president of communications at PhRMA, an industry trade group. Turing is not a member of PhRMA.
Uwe Reinhardt, a noted health-care economist from Princeton University, said that, in a way, what Shkreli did may have been a service to the discussion about health-care spending in the United States.
"He bought this patent and he's milking it for all it's worth. In a way, I thank him, because it's really sort of like putting a sign on your back saying, 'Kick me,'" Reinhardt said. "Sometimes you need some sentinel effect that wakes people up."
High drug prices have gained lots of attention over the past year, with a Kaiser Family Foundation poll in August revealing that the majority of the public found the price of prescription drugs unreasonable. Meanwhile, the pharmaceutical industry trade group frequently points to another statistic, showing that drug prices are on average a relatively small percentage of health-care spending — around 10 percent.
Drew Altman, president of the Kaiser Family Foundation, said it was surprising in April when he began to see in survey data that Americans' concern about prescription drug costs registered far above many of the Affordable Care Act issues that policy wonks had been focused on. But he thinks they may also be one of the most graspable pieces of the much larger issue of health-care costs.
"Lots of people use drugs, almost half the American people, and a lot of them use multiple drugs," Altman said. "It’s kind of the canary in the coal mine for people on health-care costs; they go to the pharmacy and they purchase them online. It's the health-care cost they can see and touch."