When a pill costs more than the price of your house, is it really worth it? Barry Werth, author of "The Antidote," examines the astronomical costs of breakthrough drugs.
Pricing a drug isn't like pricing a mattress or a car or anything else a consumer buys, says Werth. Instead, that purchasing chain from consumer to customer is broken apart. "The consumer is not the customer and the customer is not the payer," Werth says. "The consumer is the person who takes the drug; the payer is a managed care company or insurance company, or the government."
This distorted chain of command gives drug companies a lot of leeway in terms of what they expect insurance companies to pay. And in the case of drugs targeted to very specific ailments - which have limited competition - costs can be astronomical. Since relatively few people consume these drugs, pharmaceutical companies know insurance companies can - and, most often, will - pay the price.
Now, look at that system on a macroscale. Since most industrialized countries besides the United States have a nationalized health care system, they are able to buy drugs in bulk, so they can negotiate prices with drug companies to lower costs. (Congress, on the other hand, is not allowed to subsidize drugs for American consumers.) The end result is that Americans end up shouldering the costs of drugs which are subsidized in Europe, Japan, Australia, and elsewhere.
"The companies know that when they get to Europe, they're going to have to negotiate," Werth says. "They know they have a free hand here and they can charge as much as the market will bear." And if the eye-popping costs of many drugs are any indication, the market can bear quite a lot.
To hear more about the world of high-cost pharmaceuticals - including the story behind those drug advertisements with all the grotesque side effects - tune in to our full interview with Barry Werth, above.
- "A Tale of Two Drugs" by Barry Werth via the MIT Tech Review.
- "Bitter Pill: Why Medical Bills Are Killing Us," by Steven Brill via TIME.
- Read more of Barry Werth's work here.