My last post introduced several elements influencing the high costs of medications besides high research and development (R&D) costs, including pharmaceutical companies raising prices, cutting spending, and controlling the market by keeping out generics. Drugmakers claim that the high prices are only for R&D costs, but this is not strictly true.
What other operating costs are we financing by paying higher prices for medications? Other expenditures include direct-to-consumer advertising (i.e. – commercials and magazine ads), soliciting health care professionals, and legal costs to defend patents and settle criminal and civil suits, among others.
Likely, you’ve seen the plethora of commercials on TV and layouts in magazines advertising “blockbuster” drugs (drugs that make a lot of money, such as Lipitor – one of the most profitable drugs or Viagra). In 2009, the industry spent an estimated $4.5 billion on DTC advertising. According to a study led by Dominick Frosch, a typical American television viewer can expect to spend 16 hours per year watching DTC drug commercials. Of note – this direct-to-consumer (DTC) marketing is only allowed in the US and New Zealand.
If you saw the movie “Love and Other Drugs,” you got a taste of the amount of money pharmaceutical companies spend on soliciting physicians. Growing up as a doctor’s daughter, I saw firsthand the amounts of money these companies were willing to waste to encourage physicians to prescribe their drugs – dinners at the fanciest restaurants, tickets to the best shows in town, movie theatres rented out playing the newest movies for you and your family, endless amounts of pens, clipboards, pads of paper, mugs, and random items (toys and gadgets) with the drug names on them. The first concert I saw was sold out, but we had box seats thanks to a pharmaceutical company. If we wanted to, our family could eat at the expense of these companies every night, though we certainly didn’t need to. The offers were exorbitant and many. Realizing the ridiculousness of this spending in light of those who cannot even afford their medications set me along this path to advocate for health as a human right. For the issue here is not lack of resources – we need not ration these medications. These medications are available and can be affordable if the pharmaceutical companies stopped increasing prices citing R&D costs when they could cut frivolous spending such as advertising to individuals and doctors.
Pharmaceutical companies have been historically reluctant to increase transparency of their accounting. However, Pfizer just disclosed fees paid to US doctors to comply with settlements of governmental investigations concerning improper marketing practices. Pfizer reported paying $177 million to doctors and institutions for their work on clinical trials, consulting, speaking, among other items. Pfizer spent:
- $34.4 in speaking fees to about 4,600 professionals (that’s about $7,500 per professional),
- $18 million on meals provided to doctors in their offices,
- $8.9 million in professional advising fees to 1,400 doctors,
- $5.8 million in travel expenses, and
- $1.7 million in education items.
Some companies are starting to voluntarily disclose their spending including GlaxoSmithKlein, Merck, and Johnson & Johnson. GlaxoSmithKlein reported spending $85 million including $56.8 million in speaking or advisory fees for 5,331 health-care professionals. Merck paid $20.4 million in speaking fees to doctors (not including payments with programs associated with Shering-Plough, which it acquired in 2009). Though they say the money is spent on providing educational information for physicians and health care providers, the information is not at all objective and in fact may make assertions that are inconsistent with FDA-approved prescribing information.
While pharmaceutical companies may still be asserting their influence, using their deep pockets to market their products to doctors, in recent years, the culture around doctors playing into this solicitation. The American Medical Association, the American College of Physicians, and the American Society of Internal Medicine all have voluntary codes serving as guidelines regarding these offers. Additionally, about half of family medicine residency programs refused drug samples and disallowed industry gifts or food, over 68% did not allow pharmaceutical companies to sponsor residency activities, and 44% denied industry access to students and residents at the family medicine center, effectively initiating a culture change for the next generation of doctors. This however does will not change the current costs of medications.
Just because doctors in the US aren’t accepting gifts and samples does not stop pharmaceutical companies from finding other ways to wield their influence (particularly monetary influence) and increase sales. And these inventive schemes can have huge costs.
Recently, Johnson & Johnson (J&J) agreed to pay $21.4 million to settle criminal charges brought by the Justice Department and $48.8 million in disgorgement and interest to settle allegations by the Securities and Exchange Commission. Allegations against J&J involved sham contracts, bribes, and kickbacks paid by the company to doctors and hospitals in Greece, Iraq, Poland and Romania since 1998 which helped them earn millions of dollars in profits. J&J’s also paid about $7.9 million to settle charges in the U.K. for conduct by its DePuy subsidiary.
California brought a lawsuit against Bristol-Meyers Squibb for offering 15,000 cash kickbacks, gifts, and “happy hours” with LA Lakers to “high prescribing physicians.” In 2007, the company paid $515 million to settle allegations that it used a kickback scheme to defraud Medicare and Medicaid.
In 2004, Pfizer was taken to court for promoting Neurontin for purposes that weren’t approved by the FDA (called off-label promotion), settling the case for $450 million. Yet sales of Neuronton were over $1 billion in one year.
Are these settlement costs merely the cost of doing business? Keep in mind, these are just the settlements, they do not include the legal expenses incurred throughout the investigation. Together settlement payments and legal fees have a significant impact on the bottom line, yet profits are still soaring. Why? Because these companies recuperate these costs by increasing medication prices when patents are about to expire, paying generic manufacturers to stay out of the market, and cutting spending (and perhaps quality? Consider the recent J&J Tylenol recalls).
Considering the significance of the product being sold, essential medications that can mean life or death, how can it be ethical for these companies to keep medication prices high while wasting money on advertising, inappropriate solicitation, and legal fees and settlements resulting from their unethical practices?
 Note that the Pharmaceutical Research and Manufacturers of America (PhRMA) adopted a marketing code under which 40 companies agreed to stop distributing free products with their logos and to restrict meals purchased for physicians. However, this means little. First, it’s voluntary and not regulated in any way. Second, I’ve yet to walk into a doctor’s office where the pens and mugs and clipboards (for those who still use paper) aren’t covered with logos. And the disclosures above show they are still paying for meals.
Continue the series:
The Costs to Live – Part 3