Shkreli is not the only case of drug industry price hikes
Congress wants to talk to Martin Shkreli, the brash young drug company CEO who jacked up the price of an obscure drug his company controlled by 5,000 percent.
Shkreli, 32, is a former hedge fund manager who became the face of pharmaceutical companies abuses when he boosted the price of a drug his company owned overnight. The drug, Daraprim, had been around for decades and is used by a relatively small number of people. Nevertheless, Daraprim is a life-saving drug, treating parasitic infections that threaten certain cancer and AIDS patients.
Amid public and congressional outrage, federal officials looked into Shkreli's past business practices and charged him with securities fraud. Meanwhile, a congressional committee served him with a subpoena to testify about drug pricing.
Lawyers for Shkreli are trying to keep him from testifying. The hearing, if it happens, will turn into political theater, with members of Congress most interested in embarrassing the bad boy of pharma.
When, or if, Shkreli does testify, he should not be there alone.
Shkreli's testimony would be a circus or a sideshow, but he's an outlier. No other drug has seen a 5,000 percent price jump.
The more important show would look at drug pricing in general, not just the most outrageous case.
Congress should look at the broader pharmaceutical industry and ask the top drug company CEOs why Americans pay far more for drugs than people in other countries.
The committee should remind everyone that Americans pay about twice as much for health care, on a per-person basis, than people in other advanced countries. Drug prices are to blame, but only partly. The cost of medical care, hospital stays, private health insurance and marketing of drugs all contribute to the high cost of health care in the United States.
Drug company CEOs should join Shkreli to explain their pricing. They could explain why Americans pay more for drugs than people in other countries and why they think Americans should subsidize cheaper drugs for people around the world.
One answer drug companies have offered to justify higher U.S. prices is that they generate profits to fund important research and development of new drugs.
The CEOs should be asked to explain why nine of the 10 largest drug companies spend more on marketing than on research and development. These facts don't support one of the industry's explanations for high drug price — to fund research.
To give the industry credit, the cost of developing and testing new drugs, passing regulatory hurdles and finally bringing the drug to market is expensive, and many drugs never make it, failing earlier in the process. But the fact that drug companies spend more on marketing than research and development takes the air out of that argument. This is especially so — in theory, anyway — because the doctor, not the consumer, decides the purchase of prescription drugs.
In countries with lower drug prices, the government negotiates lower prices as part of universal health care. In the United States, the government bargains for lower drug prices only for Medicaid and the Department of Veterans Affairs. Medicare, the biggest buyer of prescription drugs, is prohibited from bargaining with drug companies for lower prices. That prohibition was part of the legislation establishing the Medicare Part D benefit — and is clear evidence of the political power of the big drug companies in Washington.
The answer to why the government is not allowed to negotiate lower drug prices in Medicare must be found in the hundreds of millions of dollars spent by the big drug companies on campaign donations and lobbying.
Reacting to last weekend's snow storm, the House Committee on Oversight and Government Reform announced that Shkreli's date to testify has been delayed to Feb. 4. Shkreli's lawyers will probably try to keep him from appearing in Washington, but most observers expect those efforts to fail.
When Shkreli does appear before the congressional committee, the questioning should go far beyond his single outrageous act of price gouging. Broader questions should be asked to explain why Americans pay much more for drugs than people in other countries.
Without getting drug prices under control, there is no chance to get overall health care spending under control. Grilling drug company CEOs is a good place to start.
