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22 April 2020

Regulating Big Pharma: A Literature Review

Most Americans wouldn’t say that prescriptions are cheap, the common sentiment is

actually the opposite. Many say that prescription medication is more expensive than necessary,

but there is disagreement about why, and how to fix it. It seems everybody has their own take on

how to lower out-of-pocket costs for medication. Many argue that the solution is to impose

regulations that limit how much drug companies can charge consumers. Some argue that

lowering the price of drugs would decrease the revenue earned by their manufacturers, limiting

how much funding can be devoted to research and development of new medications. Others

propose a variety of compromises that would allow pharmaceutical companies to maintain their

profits while making cheaper, generic versions of drugs more widely available. The discussion is

as vast and varied as the seemingly limitless propositions for ways in which the price tag of

important medications might be lowered. Considering the negative consequences many suffer as

a result of expensive medications, it is necessary to examine the discussions that surround this

issue.

It seems, in general, that patients picking up their prescriptions at the pharmacy are

paying more than they used to, and continue to pay more as time goes on. There are millions of

drugs and medications, and to examine them all on an individual basis isn’t feasible. It is better

to look at a specific example. For instance, insulin, a life-saving medication that diabetic patients

must take in order to survive. In January of 2019, JAMA Internal Medicine published a survey,
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conducted in 2017 by researchers with Yale and Harvard, who surveyed patients at the Yale

Diabetes Center. They found that “​One in 4 patients at an urban diabetes center reported

cost-related insulin underuse and this was associated with poor glycemic control. These results

highlight an urgent need to address affordability of insulin.” (Herket, Darby et al). They noted, as

well, that the cost of insulin had tripled in the last decade, and out-of-pocket costs had doubled.

One researcher who helped to conduct this survey, Kaisa J. Lipska, M.D., MHS, and assistant

professor of Medicine at Yale, later testified to the U.S. House Committee on Energy and

Commerce Oversight and Investigations Subcommittee, relating the findings of their survey and

pleading with lawmakers to pressure drug makers into lowering their prices. Lipska made a

compelling argument for imposing regulations that would lower the cost of drugs, namely

Humalog insulin. She said, “The price of Humalog insulin has increased more than ten-fold since

1996, when it cost just $21 per vial. Since then, there’s been no innovation to improve Humalog.

It is the same exact insulin hormone. The only thing that’s changed is the price: it now costs over

$250 a vial.” (Lipska). These may just seem like numbers, but for many, it’s a price tag that can

break the bank.

The human impact of high drug costs is undeniable. Patients suffer unnecessary

complications from undertreating their conditions when they can’t afford their meds. Many argue

that simply regulating the price and imposing restrictions would be a poor solution, though. Liam

Sigaud, a writer for RealClearHealth.com, notes that the United States is responsible for funding

44% of the world’s medical research and development. This, he says, is attributable to the fact

that the U.S. is much more lax with their drug regulations than many other countries, particularly

in Europe. This has allowed more new medications to be developed, and imposing strict
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regulations would stifle future innovation and discourage investment in research and

development. “There are ways to reform America’s drug market without compromising

incentives to develop treatments or endangering access to life-saving drugs. For example,

changing how pharmacy benefits managers (PBMs) operate by enhancing transparency could

generate billions of dollars in savings for consumers.” (Sigaud.) Sigaud’s argument offers

something of a compromise between calls for regulation and pushback against them. Savings for

consumers are a necessity in this field, but many still argue that decreasing the revenue of

pharmaceutical companies will do more harm than good.

It’s true that decreasing the revenue of drug makers will leave them with fewer resources

to pour into research. However, numerous sources have pointed out that drug makers spend far

more on marketing than they do on research and development. Richard Anderson of the BBC

offered a concise breakdown of figures sourced from GlobalData that shows the money flow for

some of the world’s biggest drug makers. One such drug manufacturer was U.S.-based Pfizer,

which was found to yield $51.6 billion in revenue in 2014, but spent only $6.6 billion on

research and development, while $22 billion was taken as profit. In a 2018 article, Lauren

Benishek and Leslie E. Sekerka of the Emory Corporate Governance and Accountability Review

wrote of the average spending of U.S. pharmaceutical companies, “​While these figures vary,

depending on whether the purchased drugs are generic or branded, only 17% of the cost is estimated

to fund drug development, while 23% of the total purchase price is absorbed by stakeholders as

profit.” (Benishek). These figures clearly suggest that if the revenue for these companies decreased,

they could continue to invest the same amount into research and development as they do now , just

by nudging their budget in a way that lessens their profits. Opponents of strict regulations, however,

have proposed many possible compromises.

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Sigaud and those of similar opinions urge the consideration of alternatives to government

regulations upon drug prices. He proposed enhancing transparency as a means of changing the way

that pharmacy benefit managers (PBMs), the groups that manage prescription drug benefits and

negotiate discounts, among other things, operate. Robert Pearl, M.D. and former CEO of the

Permanente Medical Group, published an article in Forbes with a number of similar possible

compromises. He proposed that the U.S. Government should cut out the middleman and serve the

role that PBMs do in negotiating prices, particularly for Medicare. Benishek and Sekerka, though,

proposed a more direct solution and claimed that the U.S. government should purchase shares of

drug companies themselves. The potential solutions are endless, and it seems that everybody has an

opinion on how to best bring down prescription drug costs. One fact seems to be agreed upon,

though. Americans will continue to suffer the consequences if nothing is done to bring the price of

medications down. Through a review of existing literature, it can be concluded that the best way to

lower out-of pocket costs for prescription medications is to impose government regulations upon

how much can be charged to the consumer for medications.

A thorough analysis of the effects of regulation upon pharmaceutical revenue and the cost of

drugs was conducted by Neeraj Sood, PhD, and his colleagues. In this study Sood and his team

reviewed nineteen countries between 1992 and 2004, and they found that when additional

regulations were added in countries that already had tight regulations, it had a relatively small effect

on consumer costs. However, they also found that many regulations significantly reduced

pharmaceutical revenues, and argued that introducing regulations in a less strictly controlled

market, like the United States, could result in dramatically cheaper medications. Pearl also

advocated for a hard and fast limit for how much pharmaceutical companies can charge for

medications. “American drug makers should be required to pay a penalty if they charge Americans

more than 120% for the same medication as the 10 wealthiest nations pay on average. It’d be the

same thing that happens when baseball teams exceed the salary cap” (Pearl).
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In recent weeks, it has been shown in the case of insulin that lowering prices is completely

feasible for drug makers. As a response to the COVID-19 pandemic and ensuing widespread job loss,

the Eli Lilly company implemented a thirty-five dollar copay cap on April 7, 2020. While certainly a

welcome development, it highlights the fact that the excuses drug manufacturers have used for high

drug prices up until this point are little more than thin veils meant to obfuscate their true motive of

maximizing profits at any cost, even if people suffer for it and go without essential medications. That

in the midst of a public health crisis a large drug company willingly lowered the price of a major

product shows that this could have been done at any time with minimal consequence to the

manufacturer. When the current public health crisis ends, however, the issue will remain of

medication being a bank-breaker for many Americans. The point will still stand that the legislators of

the United States must fashion new regulations to place upon pharmaceutical companies for the

wellbeing of the people. Benishek and Sekerka, the Yale and Harvard researchers, Lipska, Pearl, and

Sood, though the details may vary between them, are all in agreement that government intervention

is a necessary measure in bringing the cost of medication down for consumers in the United States.

When eminent scholars, scientists, and accomplished professionals voice a suggestion, it is worth

listening to.

In conclusion, a solid limit should be placed upon how much American consumers can be

charged for their medications.While there are a great variety of possibilities in how the out of

pocket costs of prescription drugs can be lowered, the most simple and effective would be to

simply outlaw excessive overcharging of drugs to American consumers specifically. More

tightly-regulated markets of other nations see little effect when further regulations are added, but

the effects of regulation upon the fairly unregulated U.S. market would yield dramatic

improvements. Such regulations would need to cover a wide variety of medicines, but the human

cost of inaction is too great to ignore. It is imperative that as medicine advances, access to
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lifesaving treatment keeps pace. The fact that a significant number of Americans forgo treatment

due to financial inaccessibility should never be acceptable, and measures must be taken to put an

end to it.
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Works Cited

Anderson, Richard. “Pharmaceutical Industry Gets High on Fat Profits.” ​BBC News,​ BBC, 6

Nov. 2014, ​www.bbc.com/news/business-28212223​ .

Benishek, Lauren, and Sekerka, Leslie E. “Thick as Thieves? Big Pharma Wields Its Power with

the Help of Government Regulation: Emory University School of Law: Atlanta, GA.”

Emory University School of Law,​ Emory Corporate Governance and Accountability

Review, 2018,

law.emory.edu/ecgar/content/volume-5/issue-2/essays/thieves-pharma-power-help-gover

nment-regulation.html​ .

Herkert, Darby et al. “Cost-Related Insulin Underuse Among Patients With Diabetes.” JAMA

internal medicine vol. 179,1 (2019): 112-114. doi:10.1001/jamainternmed.2018.5008

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6583414/​ .

Lipska, Kaisa J. “Hearing on ‘Priced Out of a Lifesaving Drug: The Human Impact of Rising

Insulin Costs.’” ​Democrats, Energy and Commerce Committee,​ 8 Apr. 2020,

energycommerce.house.gov/committee-activity/hearings/hearing-on-priced-out-of-a-lifes

aving-drug-the-human-impact-of-rising​ .

Paavola, Alia. “Eli Lilly Caps Insulin Cost at $35 per Month amid COVID-19 Pandemic: Eli

Lilly Is Capping the out-of-Pocket Cost for Insulin at $35 per Month in an Effort to Help

Patients Afford the Drug amid the COVID-19 Pandemic. .” ​Becker's Hospital Review,​ 7

Apr. 2020,
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www.beckershospitalreview.com/pharmacy/eli-lilly-caps-insulin-cost-at-35-per-month-a

mid-covid-19-pandemic.html​ .

Pearl, Robert, M.D. “4 Regulations That Would Terrify U.S. Drug Companies Ahead Of The

2018 Midterms.” ​Forbes​, Forbes Magazine, 17 July 2018,

www.forbes.com/sites/robertpearl/2018/07/16/drug-companies/#31da1c001e41​.

Sigaud, Liam. “Price Controls on Drugs Would Stifle Innovation, Reduce Access.”

RealClearHealth​, 11 July 2019,

www.realclearhealth.com/articles/2019/07/11/price_controls_on_drugs_would_stifle_inn

ovation_reduce_access_110927.html​ .

Sood, Neeraj et al. “The effect of regulation on pharmaceutical revenues: experience in nineteen

countries.” Health affairs (Project Hope) vol. 28,1 (2009): w125-37.

doi:10.1377/hlthaff.28.1.w125

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3829766/​.