PRICE GOUGING BY BIG PHARMA

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

Big increases in the prices of many drugs from multiple manufacturers in January appear to be price gouging by the big drug companies. Price gouging by big corporations is increasingly being blamed as a major contributor to the current high level of inflation. (See this previous post for more detail.)

Thirteen Members of Congress have sent a letter to the industry trade group (the Pharmaceutical Research and Manufacturers of America [PhRMA]) asking for an explanation and justification for the price increases. [1] The letter alleges that the big drug companies are using their monopolistic power in the market to raise prices to increase their already large profits, i.e., to engage in price gouging. [2]

The broad price increases by virtually every manufacturer of popular prescription drugs appear to be coordinated and perhaps timed to coincide with (and therefore go unnoticed due to) the high inflation the economy is experiencing. These drug price increases will contribute to keeping inflation high. Although drug companies often increase some prices in January, they also often increase prices in July as well. Therefore, these drug price increases are probably not the only increases in drug prices consumers, Medicare and other health insurers, and the economy are likely to experience this year. [3]

A study of drug prices over the first 25 days of January found that drug companies increased the prices of 72% of the 187 different formulations of the 100 top selling drugs and on 26% of all brand name drugs. While the average increase for brand name drugs was 5.1%, for 118 drugs the increase was 10% or more. The highest price increase was 60%!

A separate study of price increases on the 20 drugs with the highest expenditures by Medicare found that prices were raised on 16 of them. Twelve of them had increases of 4.0% or more and four of those had increases of 6.0% or more. These price increases are estimated to cost Medicare and seniors $2.5 billion this year. Many of these drugs have been on the market for years and some for decades, so it appears that these price increases are only occurring to increase the already high profits of the drug companies.

The pharmaceutical drug industry’s profits (i.e., operating margin) are 26.4% of revenue compared with an average of 13.2% across all U.S. industries. [4] A profit margin of 10% is generally considered good and one of 20% is considered high. So, the pharmaceutical drug industry’s 26.4% is very high and price increases are possible only because of a lack of competition, i.e., a lack of other manufacturers that would sell at lower prices and be happy to have somewhat lower, but still healthy, profit margins.

Pfizer Inc., for example, is the manufacturer of eight of the twenty drugs with the highest price increases in January 2022, all of which were 10% or higher. In 2021, it reported revenues of $81.3 billion and profits of $25.2 billion, both of which had roughly doubled from 2020. Its 2021 profit margin was 31.0%. Nonetheless, it significantly increased drug prices in January 2022 and projects that in 2022 its revenue will grow 23% and its profit margin will grow to 37%. [5] It’s hard to view its price increases as anything but monopolistic power in the market for its drugs and greed for even more exorbitant profits.

The Build Back Better Act (BBBA) included some provisions to address high drug prices, including allowing Medicare to negotiate drug prices with manufacturers (which the Veterans’ Administration and every private health insurer and other country do). With the BBBA stalled, a standalone bill was introduced in the U.S. Senate to cut drug prices. However, Republicans blocked voting on the bill.

President Biden, in his State of the Union speech on March 1st, called for Congressional action to cut drug prices, including allowing Medicare to negotiate drug prices and putting a cap on the price of insulin at $35 per month. The price of insulin in the U.S. is eight times what it is in Canada and ten times the average price in three dozen other countries. [6]

I urge you to contact President Biden and your U.S. Representative and Senators to let them know that you support a range of actions to control and reduce drug prices. Allowing Medicare to negotiate drug prices is one. Price controls and a windfall profits tax are others. (By the way, price controls and a windfall profits tax should be considered for all businesses that are engaging in price gouging, not just the drug companies.)

You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414.

You can find contact information for your U.S. Representative at  http://www.house.gov/representatives/find/ and for your U.S. Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

UPDATE: I wrote about price gouging by drug companies in 2016, including highlighting the huge price increases ($100 to $608) for EpiPens, which inject a drug to treat severe allergic reactions, such as to peanuts or a bee sting. On Feb. 28, 2022, the EpiPen price gouger, Mylan (now Viatris), agreed to a $264 million class-action lawsuit settlement for illegal monopolistic behavior. EpiPens are made by two subsidiaries of Pfizer, which settled its piece of the lawsuit for $345 million last July. [7]

[1]      Corbett, J., 3/2/22, “Warren demands big pharma end ‘corporate price gouging’,” Common Dreams (https://www.commondreams.org/news/2022/03/02/warren-demands-big-pharma-end-corporate-price-gouging)

[2]      Price gouging typically refers to price increases when businesses are taking advantage of spikes in demand or shortages of supply and charge exorbitant prices for necessities, often after a natural disaster or another type of emergency. Here it refers to businesses that are taking advantage of having monopolistic power, which means they control the supply in the market.

[3]      Senator Elizabeth Warren et al., 3/1/22, “Letter to PhRMA on January 2022 drug price increases,” (https://www.warren.senate.gov/imo/media/doc/2022.03.01%20Letter%20to%20PhRMA%20on%20January%202022%20Drug%20Price%20Increases%20(1).pdf)

[4]      Stern School of Business, Jan. 2022, “Margins by sector (US),” New York University (https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html)

[5]      Pfizer Inc., 2/8/22, “Pfizer reports fourth-quarter and full-year 2021 results,” (https://s28.q4cdn.com/781576035/files/doc_financials/2021/q4/Q4-2021-PFE-Earnings-Release.pdf)

[6]      RAND Corporation, 1/6/21, “The astronomical price of insulin hurts American families,” (https://www.rand.org/blog/rand-review/2021/01/the-astronomical-price-of-insulin-hurts-american-families.html)

[7]      Jimenez, J., 2/28/22, “Viatris agrees to settle EpiPen antitrust litigation for $264 million,” The New York Times

PRICE GOUGING BY BIG PHARMA (3/5/22, #452) Categories:

Note: If you find my posts too long or too dense to read on occasion, please just read the bolded portions. They present the key points I’m making and the most important information I’m sharing.

Big increases in the prices of many drugs from multiple manufacturers in January appear to be price gouging by the big drug companies. Price gouging by big corporations is increasingly being blamed as a major contributor to the current high level of inflation. (See this previous post for more detail.)

Thirteen Members of Congress have sent a letter to the industry trade group (the Pharmaceutical Research and Manufacturers of America [PhRMA]) asking for an explanation and justification for the price increases. [1] The letter alleges that the big drug companies are using their monopolistic power in the market to raise prices to increase their already large profits, i.e., to engage in price gouging. [2]

The broad price increases by virtually every manufacturer of popular prescription drugs appear to be coordinated and perhaps timed to coincide with (and therefore go unnoticed due to) the high inflation the economy is experiencing. These drug price increases will contribute to keeping inflation high. Although drug companies often increase some prices in January, they also often increase prices in July as well. Therefore, these drug price increases are probably not the only increases in drug prices consumers, Medicare and other health insurers, and the economy are likely to experience this year. [3]

A study of drug prices over the first 25 days of January found that drug companies increased the prices of 72% of the 187 different formulations of the 100 top selling drugs and on 26% of all brand name drugs. While the average increase for brand name drugs was 5.1%, for 118 drugs the increase was 10% or more. The highest price increase was 60%!

A separate study of price increases on the 20 drugs with the highest expenditures by Medicare found that prices were raised on 16 of them. Twelve of them had increases of 4.0% or more and four of those had increases of 6.0% or more. These price increases are estimated to cost Medicare and seniors $2.5 billion this year. Many of these drugs have been on the market for years and some for decades, so it appears that these price increases are only occurring to increase the already high profits of the drug companies.

The pharmaceutical drug industry’s profits (i.e., operating margin) are 26.4% of revenue compared with an average of 13.2% across all U.S. industries. [4] A profit margin of 10% is generally considered good and one of 20% is considered high. So, the pharmaceutical drug industry’s 26.4% is very high and price increases are possible only because of a lack of competition from companies that would be willing to sell at lower prices and have lower profit margins.

Pfizer Inc., for example, is the manufacturer of eight of the twenty drugs with the highest price increases in January 2022, all of which were 10% or higher. In 2021, it reported revenues of $81.3 billion and profits of $25.2 billion, both of which had roughly doubled from 2020. Its 2021 profit margin was 31.0%. Nonetheless, it significantly increased drug prices in January 2022 and projects that in 2022 its revenue will grow 23% and its profit margin will grow to 37%. [5] It’s hard to view this as anything but monopolistic power in the market for its drugs and greed for even more exorbitant profits.

The Build Back Better Act (BBBA) included some provisions to address high drug prices, including allowing Medicare to negotiate drug prices with manufacturers (which the Veterans’ Administration and every private health insurer and other country do). With the BBBA stalled, a standalone bill was introduced in the U.S. Senate to cut drug prices. However, Republicans blocked voting on the bill.

President Biden, in his State of the Union speech on March 1st, called for Congressional action to cut drug prices, including allowing Medicare to negotiate drug prices and putting a cap on the price of insulin at $35 per month. The price of insulin in the U.S. is eight times what it is in Canada and ten times the average price in three dozen other countries. [6]

I urge you to contact President Biden and your U.S. Representative and Senators to let them know that you support a range of actions to control and reduce drug prices. Allowing Medicare to negotiate drug prices is one. Price controls and a windfall profits tax are others. (By the way, price controls and a windfall profits tax should be considered for all businesses that are engaging in price gouging, not just the drug companies.)

You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414.

You can find contact information for your U.S. Representative at  http://www.house.gov/representatives/find/ and for your U.S. Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

UPDATE: I wrote about price gouging by drug companies in 2016, including highlighting the huge price increases ($100 to $608) for EpiPens, which inject a drug to treat severe allergic reactions, such as to peanuts or a bee sting. On Feb. 28,2022, the EpiPen price gouger, Mylan (now Viatris), agreed to a $264 million class-action lawsuit settlement for illegal monopolistic behavior. EpiPens are made by two subsidiaries of Pfizer, which settled its piece of the lawsuit for $345 million last July. [7]

[1]      Corbett, J., 3/2/22, “Warren demands big pharma end ‘corporate price gouging’,” Common Dreams (https://www.commondreams.org/news/2022/03/02/warren-demands-big-pharma-end-corporate-price-gouging)

[2]      Price gouging typically refers to price increases when businesses are taking advantage of spikes in demand or shortages of supply and charge exorbitant prices for necessities, often after a natural disaster or another type of emergency. Here it refers to businesses that are taking advantage of having monopolistic power, which means they control the supply in the market.

[3]      Senator Elizabeth Warren et al., 3/1/22, “Letter to PhRMA on January 2022 drug price increases,” (https://www.warren.senate.gov/imo/media/doc/2022.03.01%20Letter%20to%20PhRMA%20on%20January%202022%20Drug%20Price%20Increases%20(1).pdf)

[4]      Stern School of Business, Jan. 2022, “Margins by sector (US),” New York University (https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html)

[5]      Pfizer Inc., 2/8/22, “Pfizer reports fourth-quarter and full-year 2021 results,” (https://s28.q4cdn.com/781576035/files/doc_financials/2021/q4/Q4-2021-PFE-Earnings-Release.pdf)

[6]      RAND Corporation, 1/6/21, “The astronomical price of insulin hurts American families,” (https://www.rand.org/blog/rand-review/2021/01/the-astronomical-price-of-insulin-hurts-american-families.html)

[7]      Jimenez, J., 2/28/22, “Viatris agrees to settle EpiPen antitrust litigation for $264 million,” The New York Times

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