From Free Market to Negotiated Pricing: why pharmaceutical industry is convoluted in the rising health care cost?

Keywords or Terms: Drugs; Vancocin; Dificid; Free Market Pricing; Market Analysts; Patient Pricing; Disparate Pricing and Drug Costs; Pharmaceutical Industry; Health Care Cost

The last national debate on health care reform opened up the intricate nature of lobbying by the pharmaceutical industry of congress. Lawmakers, many of whom will deny that lobbying from the pharmaceutical industry meant anything at their consideration of the Patient Protection and Affordable Care Act, may want to rethink again after reading this blog. In the midst of the heated debate was the controversial giving in of about 80 billion dollars in negotiations by the pharmaceutical industry. Many of us wondered at that time, why the pharmaceutical industry was in the midst of negotiated privileges for their industry. Now we know why, after reading the New York Times treatise: 1) For First Time, UNICEF Reveals Differences in Prices it Pays Drug Companies for Vaccines (May 27, 2011 publication); 2) F.D.A. Approves Drug to Treat Hospital Scourge (May 28, 2011 publication). Both of these publications open up debate over why the free market is not necessarily the on-going arbiter of drug prices paid by consumers, hospitals or international organizations.

In case you miss the argument, price determinant for drugs marketed by the pharmaceutical industry are hardly yielded to the forces of supply and demand. While some drugs are sold at artificial low prices in the market, others are sold and marketed at exorbitant prices, making aggregation of ideal cost of what a regular customer pays or the true cost of getting a drug by a customer, debatable. Drugs that could really make a difference in the lives of Americans, are probably held back from market, when the pricing formula is not right; or sold at differential prices to the average consumer or hospital and or international organizations. One the one hand, the Pharmaceutical Industry is willing and ready to go into negotiated pricing for the drugs when sold to international organizations like UNICEF, as long as they keep the negotiated prices secret. On the other hand, the industry is attempting to frame itself as part of the solution to rising health care costs.

For example, Vancocin was reported as having $259.6 million sales in 2010, a 22 percent increase in prices to previous year, while its prescriptions in doctor’s clinics and hospitals were in a decline. Now, are doctors necessarily colluding with pharmaceutical industry to hold the prices of Vancocin higher or, what radical or artificial factors afforded for about one-fifth increase in price of this drug? This drug is known to stop diarrhea; and also has a substitute: Dificid. Recent clinical trials in 1,100 patients show ample superiority of Dificid to Vanconcin. While the recurrence after treatment period of use of Vanconcin was roughly 25 percent that for Dificid was only about 15 percent. When the Press sought to know the possible pricing structure for the new drug Dificid, Optimer, the manufacturer, declined to disclose the price pending conference call with analysts. This makes one wonder, what actually influences the pricing of some drugs in the market: Is it the price of an existing competitive drug in market or the actual unit cost of production plus margin? There was a speculation that since Vanconcin costs a $1,000 for a regime of treatment, it is unlikely that Deficid will cost less. All these issues must be factored into the cost of health care. If the manufacturers of drugs are using other parameters in pricing, that are hardly related to the unit cost of production and or marketing, then consumers and patients are actually paying more and the federal government who is picking up the tab for Medicare patients, is probably paying more as well. Now, does that tell you anything about the rising cost of health care?

Market Analysts, Hospitals, Pharmacists, and Doctors Clinics are probably partners with the Pharmaceutical industry regarding the ultimate price paid by patients. Much as the patients would like it to be otherwise, much as we all trumpet the benefits of allowing the free market to dictate drug prices, the reality is, it is never so. The earlier we start contemplating this reality and factoring it into why health care costs are going through the roof, the better for all of us, including the lawmakers who are doing the bidding for the pharmaceutical industry. Lawmakers may be attempting to achieve lower cost for health care, lower cost for Medicare services and hospital care; however, if the pharmaceutical industry is not working with congress and or consumers, it will probably take a long time for all of us to reach a compromise, over why our health care costs are rising. The potential that the health care costs will continue to rise can no longer be adduced to hospital stays for familiar and prevalent aging diseases among our seniors; the factors are probably unrelated to these.

To ensure that newly discovered drugs meet the needs of the stakeholders, pharmaceutical companies are going to do all it takes to get better prices for their products, even if their costs of research into discovery and production are marginal. When Upjohn paid for research into the discovery of an antibiotic to cure toxin-producing clostridia, it expects to make a margin. However, when it goes into an intensive marketing spree followed by strategic deliberation of market analysts, who are far remote from the discovery and production of the antibiotic, to set prices at the market gate, then we really have problems and we may not necessarily be able to get a handle over our rising health care costs. The result of extraneous variables consideration in setting drug prices makes it difficult for patients to pay a fair market price for the drugs they really need. If the government fails to use its federal might to negotiate reasonable drugs prices for their subsidized patients on Medicare, then the government would have to fork out more than is wise, to make health care cost reasonable for the program.

Just as Food and Drug Administration is approving drugs to treat Hospital Scourge or any other diseases, it might be necessary for the body to solicit pricing data or refer this information to the federal agency on the issue of price gouging, to help temper the unit cost at the market gate for drugs. If federal agencies are able to talk to each other over terrorism, they must be able to talk to each other, about issues of pricing that is undermining federal health programs as Medicare. If there are no existing legislation to afford for that, then congress has to step up to do its job. It is not just enough complaining about rising health care costs; how about focusing some legislation on bogus pricing that is contributing to the rising costs of health care.

Current feedback from patients, who are benefiting from the implemented parts of the Patients Protection and Affordable Care Act of 2010, has been relatively positive. From the perspective of reducing costs of health care, the focus must shift or add for consideration, issues of price gouging in the pharmaceutical industry, hospitals and health insurance industry. From information available to federal agencies, it is known that issues of pricing complaints arise from extraneous factors unrelated to health care delivery, which has made health care costs unmanageable for patients and government programs as Medicare. In terms of rising drug prices to patients, cohesion among federal agencies regarding approving drugs, determining market gate prices of drugs, National Institute of Health Investment in drug research, Medicare payment for drugs and issues of shady pricing, must all be on the table for us to actually determine what drugs are costing patients and the government, especially on the Medicare program, and how to have a proper handle on the ratio of drug costs as part of health care delivery costs.

During the debates over bills antecedent to the Patient Protection and Affordable Care Act of 2010, both chambers of congress had to reconcile and harmonize bills’ provision, before fashioning out the ultimate document that was passed into law. Why haven’t federal agencies adopted this formula in looking at the cost expended by the feds over programs? Why is National Institute of Health not providing Health and Human Services how much investment they have put into the discovery of some drugs through research grants and how the private drug industry is making a program as Medicare pay?

If the United Nation’s Children’s fund have now come into its senses, by listing publicly how much price it pays to drug makers for vaccines, should it not be public knowledge, how much of tax payers money has been going into research grants that led to discovery of the many over priced drugs in the market? Examples of revolutionary drugs, which discovery can be traced to National Institute of Health grants are available; what are absent today, are full disclosures regarding how the pharmaceutical industry has privately commercialized these drugs and turned around to charge federal programs as Medicare, exorbitant prices for the same. Never mind that the Federal Government negotiates the prices it pays doctors for the care of Medicare patients; it is about time to negotiate on behalf of ordinary American, the true cost of the drugs they are buying at the pharmacy; and, how much their initial investment into their discovery, has been.




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