The U.S. market for prescription drugs is an Alice-in-Wonderland corner of capitalism, immune to the usual forces of supply and demand. A team of Wall Street Journal reporters exposed the inner workings of a dysfunctional system that fuels corporate profits on unrestrained price increases, with no accountability to the patients, businesses and government payers that must bear the cost.
An April WSJ article uncovered an audacious strategy at several drug companies: Buy old medicines and immediately jack up the prices. In the central example, the acquisitive giant Valeant Pharmaceuticals earlier that year bought rights to a pair of life-saving heart drugs and raised their prices by 525% and 212%. The strategy, which has driven massive increases in spending on drugs, had gone largely unnoticed until the Journal’s investigation.
The Journal’s reporting proved prescient when, in September, an investor named Martin Shkreli made waves for pursuing the same strategy at a smaller drug company. Among other key findings: How price hikes help drug companies continue to wring profit from medicines even as the drugs decline in popularity. Across 30 top-selling drugs, U.S. revenue far outpaced demand over five years, rising three times the increase in prescription volume as wholesale prices rose an average of 76%, according to a Journal analysis of corporate filings and industry data.
Another research-driven effort detailed, as never before, how and why the U.S. pays far more for drugs than other developed nations. A painstaking comparison of the prices of dozens of top-selling drugs in the taxpayer-funded U.S. Medicare system to prices for payers in Norway, England and Canada revealed eye-opening differences.
One example: The Medicare price for eye drug Lucentis – $1,936 a vial. The price in Norway – $894. As our story showed, the U.S. is unwilling and unable to make the tradeoffs other nations do and say “no” to costly drugs. In an exclusive, deep dive into the world of corporate pricing strategies, the Journal exposed the true factors that go into a drug maker’s price for a new drug. Price has little relation to a company’s research and development investment–the reason industry repeatedly gives for high drug costs. Rather price is based on a shrewd calculation of the highest number the market will bear. The story went behind the scenes at Pfizer Inc. to show in elaborate detail how the drug giant spent three years researching comparable drugs, doctors’ preferences and health insurers’ budgets to come up with the magic number of $9,850 a month for a new breast-cancer drug.