A little-known drug called Daraprim captured national attention in September when Turing Pharmaceuticals boosted the price of the lifesaving toxoplasmosis treatment by over 5,000%. Overnight, Turing CEO Martin Shkreli became the poster child for bad business in the pharmaceutical industry, skewered for what was seen as price gouging, leaving very ill patients without treatment.
Turing became a tipping point that drew scrutiny from all spheres—patients, doctors, advocates—and made drugmakers a prime target of politicians. Presidential candidate Hillary Clinton weighed in with her own proposal to cap drug prices, sending biotech stocks plummeting, and federal authorities targeted Valeant Pharmaceuticals (VRX) with a subpoena demanding more information on its drug pricing strategies.
But despite the uproar, high prescription drug prices in the U.S. Are nothing new. The costs of specialty cancer drugs have increased an average of 10% annually since 1995, according to one recent study. Last year alone, brand-name drug prices rose by 14.8%, says analytics firm Truveris. Price hikes are so routine, in the U.S. In particular, that Credit Suisse (CSGKF) estimates they accounted for 80% of profits last year for the largest drug companies.
This doesn’t happen everywhere. In most European countries, single-payer health systems use their size to negotiate big discounts. In the U.S., though, benefits managers and insurers are left to haggle on their own, and Medicare, the single largest payer for health care in the U.S., is barred by law from negotiating directly with drug companies. The result is that the U.S. Is a drugmakers’ gold mine. According to the latest available data, U.S. Drug spending in 2012 totaled $328 billion, more than twice that of France, Germany, Italy, Spain, and Britain combined.
Could intensifying political pressure finally force a change? The prognosis isn’t good. Democrats have been trying to amend Medicare’s non-negotiating rule since long before Clinton released her proposal, but so far they’ve been unable to even bring the debate to the floor. Evercore ISI (EVR) political analyst Terry Haines thinks the chances of forcing a bill through Congress are nil. “The solution is a lot harder than it looks,” Haines says.
In October, after overwhelming blowback, Shkreli agreed to reduce the price of Daraprim but has yet to say by how much or when. Don’t expect the rest of the industry to move much faster.
A version of this article appears in the November 1, 2015 issue of Coins2Day with the headline “The U.S. Has the highest drug prices in the world. And hating Martin Shkreli won’t be enough to change it.”
