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Thursday, October 08, 2015

Big Pharma Bites Its Own Shareholders

America is addicted to drugs, the legal kind. We’re bankrupting ourselves to finance our habits and our drug companies are gladly helping.

Drug prices entered the headlines suddenly last month when one small company hiked the price on an old but still very effective drug by over 5,000%. They decided to charge what the market would bear. As good capitalists, we can’t blame them, can we?

Yes, we can. There is no “market” for prescription drugs. It would be a market if buyers and sellers could interact directly and make voluntary choices. That is not how drug pricing works.

The first problem is the Food & Drug Administration. Its Byzantine drug approval process supposedly protects the public from dangerous drugs. Maybe it does, but it also protects the public from perfectly safe drugs whose makers can’t afford to cross every “t” and dot every “i.”

The buy side is not a free market, either. The biggest drug purchaser in the United States is Medicare Part D, and federal law forbids it from negotiating lower prices. Medicare pays whatever the drug companies demand. So quite naturally, they demand a lot.

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