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  September 11, 2017

US Pharma Industry Converts Monopoly Power into Political Power

An Ohio ballot initiative aims to lower prescription drug prices, but the pharmaceutical industry is circumventing campaign finance laws according to an investigation. Economics professor Lawrence King explains how the pharma industry converts intellectual property rights into inordinate profits and uses these for political power to maintain its privileged position
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Lawrence King is an economist with the Political Economy Research Institute (PERI) and a Professor of Economics at UMass Amhest as of September 1, 2017. For the past 11 years he has been Professor of Political Economy at the University of Cambridge, England, where he has published widely on drug development, pricing and reimbursement as well as other topics related to the Political Economy of Public Heath.


SHARMINI PERIES: It's The Real News Network. I'm Sharmini Peries coming to you from Baltimore.

Citizens of the state of Ohio have taken a controversial but a bold step forward to control drug prices in their state by placing a drug price control on a ballot for their next election on November 7th. U.S. citizens already pay more than any other country in the world for prescription drugs, and Ohio ballot initiative seeks to lower and take control of these prices. If passed, the initiative would require pharmaceutical companies to sell their drugs to the state at or below the price it sells them to the federal government at the Department of Veterans Affairs. The drug prices that the Veterans Affairs gets are the lowest in the U.S. because the department negotiates the price with the pharmaceutical industry. Proponents of the initiative estimate that it would save Ohioans hundreds of millions of dollars per year.

The drug price initiative, though, has become involved in a controversy. According to a report published in the International Business Times, the pharmaceutical industry is trying to circumvent the campaign finance laws in an effort to defeat the ballot initiative. The industry appears to be funneling millions of dollars into a No campaign without disclosing the donors behind it.

Joining me now to explore this issue in greater detail is Lawrence King. He's a Professor of Economics at the University of Massachusetts Amherst, and before that he was Professor of Political Economy at the University of Cambridge in England where he has published widely on topics related to the political economy of public health. Thanks for joining us today, Professor King.

LAWRENCE KING: Thanks for having me.

SHARMINI PERIES: So Professor King, according to the International Business Times story, the pharmaceutical industry did something very similar in California just last year for a ballot initiative that would have controlled prices the same way the Ohioans are trying to do. What is it about the U.S. pharmaceutical industry that has given the U.S. the highest drug prices in the world, and what methods does it use to maintain this status in the country?

LAWRENCE KING: The pharmaceutical industry is enormously profitable, and it has been for years. If you look at the Fortune 500 companies from when Fortune 500 began that series, the pharmaceutical industry far and away is the most profitable sector of any in the American economy. Some years the oil industry and some years military is close, but consistently the pharmaceutical industry has been the most profitable, and since the mid ‘90s this has really been amplified. So they have a huge amount of cash sloshing around, and the use all sorts of tricks to influence the political environment to allow them to continue this extraordinary rate of profitability.

One thing to keep in mind is the profits are so high because essentially the pharmaceutical industry, when they have a new patent on a new medicine, can charge whatever they want. Basically whatever they want. The government grants pharmaceutical industry monopoly protections. So they may talk about free markets and free competition, but this has nothing to do with free competition.

SHARMINI PERIES: Now, skirting campaign finance laws in individual states in order to defeat the ballot initiative, such as they're doing in Ohio and have done in California, is certainly an important means for avoiding regulation. Just how pervasive are these efforts in the US, and have they tried these efforts to influence the price of pharmaceuticals in other countries?

LAWRENCE KING: Absolutely. They are extremely pervasive in the United States. The pharmaceutical industry by far has the greatest lobbying presence in Washington. In every country, they try through various means to influence the political process very successfully. They use many different mechanisms, whatever is available, not just campaign finance, not just lobbying. They influence medical profession. They influence the Food and Drug Administration.

SHARMINI PERIES: A recent episode related to drug pricing was that the EpiPen, which fights allergies in emergency situations, a drug company bought the patent, and then they increased the price by six-fold, I believe. What role do you think that the US patent rights and intellectual property law play in drug pricing?

LAWRENCE KING: They're huge. Huge. If not for the monopoly pricing granted by patents, profits would be still quite robust, but would be an order of magnitude lower, probably. So this is very much about patents and how they extend patents. How they patent. How they create new patents for drugs, which don't have much clinical advantage if any over previous drugs, but they can influence doctors to prescribe those drugs. So it's very much about patents. Interestingly, the Bayh-Dole Act, which allowed for the commercialization of intellectual property generated by universities, had a provision that the government can change prices in the case of public health emergencies or in the public interest. And this has never once been invoked.

SHARMINI PERIES: In most of the countries, at least industrialized countries in the world, have nationalized healthcare and tend to have lower prescription drug costs. What role does the lack of nationalized healthcare system in the US play in drug pricing?

LAWRENCE KING: This is a factor, but even overseas, even in England, which has the iconic national health system, drug prices are very high, and there's a major crisis over the cost of pharmaceuticals. Even with a national health system, while that's incredibly desirable and it's a much more efficient way to deliver insurance, it in and of itself does not necessarily allow you to lower prices that much. So many countries do have national health systems. This is a particular problem in the U.S., but it's still very much a problem in many other countries.

SHARMINI PERIES: Including places like Canada about ten years ago, we had some of the lowest prices for drugs in the world, at least in the industrialized world, and then now it has the third highest. It's U.S., Canada, and Germany occupy the three highest countries in terms of drug pricing. Part of it has been in this era of conservative reign and neo-liberal reign, vis-a-vis Harper government in Canada. They've managed to give lots of leeway to the drug companies, and the drug companies have only offered up higher and higher prices to the government even though it is legislated and the federal government does regulate the price of drugs in Canada, the people really haven't won. Do you anticipate that the drug companies won't give up here in the case of Ohio or even California or in the US, that they'll keep fighting this?

LAWRENCE KING: The drug companies will keep fighting it, I anticipate. I can't think of a single reason why they wouldn't. The only reason they wouldn't keep fighting, if there's a big enough political uproar that they fear a political backlash and even greater legislation. That's the only thing that they're really concerned about.

SHARMINI PERIES: Professor King, I thank you so much for joining us today.

LAWRENCE KING: My pleasure. Thank you.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.


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