🌊 Why Drugs Are So Expensive

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You go to your doctor complaining of abdominal pain, fatigue, and a fever. They run a few tests and diagnose you with a serious illness: Hepatitis C.

If left untreated, it can lead to liver failure, cancer, or scarring – all potentially fatal. But your doctor delivers good news: There are a range of drugs, and 90%+ of patients who take them are cured within 8-12 weeks.

Your research finds the following costs for 12-week treatments:

Epclusa: $74,760

Harvoni: $94,500

Mavyret: $39,600

Vosevi: $74,640

Zepatier: $54,000

Sovaldi: $84,000

These “list prices” – set by pharmaceutical companies – are an entry point into a murky world of middlemen and insurers that world results in Americans paying more for drugs than anywhere else. Americans spend $1,400+ on pharmaceuticals annually; Germans spend $1,042, Canadians $914, Australians $681, and the British $517.

So what’s that process? And how did this happen?

The drug development process begins with pharmaceutical companies developing new drugs. That is an uncertain process – 90% of drugs don’t make it to market – and expensive: One drug industry analyst told Roca it costs $1.1B on average to bring a drug to market; other studies suggest it’s double that. (Some critics say these prices are overstated.)

Once the drug is ready for sale, the company needs to set the price. In many countries, governments negotiate the prices directly with the drug companies. If the companies can’t reach a deal with the government, they can’t sell the drug in the country.

In the US, insurers – rather than the government – negotiate with pharma companies to buy medications, which they later provide to customers at discounted prices. But because there are many insurers and often just one pharma company selling a certain medicine, the insurance companies have limited bargaining power. They therefore turn to “pharmacy benefit managers” (PBMs) to negotiate for them.

To many, these PBMs are the chief villain in American healthcare.

Editor’s Note

We’re curious to hear your thoughts: Who do you blame? Is change overdue or is the problem overstated? Let us know, and see you soon.

–Max and Max

RocaNews co-founders