Medicine at the Mercy of Wall Street.

• Author: Goozner, Merrill
• Position: Victor Roy's "Capitalizing a Cure: How Finance Controls the Price and Value of Medicines"

Capitalizing a Cure: How Finance Controls the Price and Value of Medicines by Victor Roy University of California Press, 245 pp.

Investment bankers turn publicly funded pharmaceuticals into privately held gold mines. Reforming the patent system would change that.

The pharmaceutical industry is the great white whale of American medicine. No matter how many harpoons activists, progressive politicians, journalists, and scholars hurl at its bloated body, it not only survives, it grows fatter by feasting on the patients and payers that are the krill of the U.S. health care system.

The drug price controls in the recently enacted Inflation Reduction Act (IRA)-touted as the first-ever defeat for the drug industry lobby in Washington--offer the latest example of how the industry manages to outrun its harpooners. While the new law finally gives the federal government the power to negotiate drug prices for seniors (who constitute just a third of the nation's drug spending), intense industry lobbying limited its reach to just to drugs starting in 2026, growing to only 20 drugs in 2029.

The law does not apply to drugs purchased by private payers, who cover more than half the population. It does nothing to rein in launch prices for new drugs, which have increased from $1,376 in 2008 to $159,042 in 2021. (The median price for drugs launched in 2022 has reached a staggering $257,000 per year!) And its hard-to-enforce provision giving the government the right to claw back price increases above the inflation rate will undoubtedly be subjected to extensive industry opposition during the rule-making process and eventually in the courts.

The industry's public posture during the debate leading up to passage of the IRA was little changed from its historic justification for high drug prices. Their argument, reduced to its essence, is a form of blackmail targeting patients with chronic and incurable diseases. PhRMA, the industry's lobbying group, repeatedly says that without high prices, industry investment in research and development will decline and medical innovation will wither. It is the same argument the industry made in the late 1950s when Senator Estes Kefauver held hearings on the antibiotic cartel; in the early 1990s when the first biotechnology drugs came to market at exorbitant prices; in the mid-1990s when AIDS activists protested the high price of the new medications that turned their death sentence into a manageable disease; and in the early 2000s when President George W. Bush, anxious to eliminate any potential roadblock to his reelection, pushed through a Medicare prescription drug benefit with no constraints on industry's pricing power.

But while the industry's public posture hasn't changed, its behind-the-scenes argument has shifted subtly in the past decade. Without abandoning its false claim to be the fount of innovation, its top executives and their enablers in think tanks, academia, and patient advocacy groups (mostly funded by the industry) have added the assertion that the high prices charged for the latest FDA-approved drugs are justified by the value they bring to patients and the economy.

To back that claim, the industry applies cost-benefit analysis to pharmaceuticals. Using patient outcomes data gleaned from the clinical trials submitted for Food and Drug Administration approval of a new drug, industry economists measure the number of quality-adjusted life years (QALYs) gained by its use, calculate a net present value for all the personal and economic benefits accrued by averting downstream disease, and set...