Blame the Pharmaceutical Industry

By Debra Grace Khattab for the Women’s Economic Agenda Project

I have read many articles about the failure of President Obama and Congress to enact either Single Payer, or at least a public option, in the health insurance legislation currently struggling its way through Congress. One thing that bothers me about those articles is that everybody is pointing fingers at the insurance companies, but nobody is really seeing that the pharmaceutical companies are the real culprits behind the collapse of decent healthcare.

Yes, the insurance companies need to be regulated, they have made terrible decisions that have caused suffering and even death to people denied care, but better healthcare isn’t going to happen until somebody reigns in the pharmaceutical companies’ astronomical charges for new medicines.

Right now the insurance companies only make a profit of about 3.4% (and some like Kaiser Permanente are nonprofit), but the pharmaceutical companies are making 16.4% profit off of overcharging people for medicines they desperately need (1). The pharmaceutical companies rank 7th among the 215 industries that Morningstar tracks. (1) They have been one of the top ranking industries for decades. (2) At this point, pharmaceutical companies are driven only by the bottom line of bringing in huge profits for their shareholders; they have given little to no thought to what their high prices are doing to the public.

For instance, our family has Kaiser Permanente, and Kaiser has now begun a policy with almost all of the companies they contract with for health insurance, of charging patients a large deductible per patient, per year, for non-generic drugs, in our case that meant a sudden increase with no warning of $250 per patient per year deductible for non-generic drugs. This meant that our older son, a teenager who has been mostly bedridden for a few years due to uncontrollable migraines and fibromyalgia, had to suddenly stop taking the only painkiller that helped him when Kaiser implemented these charges a year ago, because our family just couldn’t afford the extra cost dumped on us just one week before Christmas. I’m not happy with many things about Kaiser Permanente, but if you are going to point fingers and assign blame, this time blame needs to be assigned to the pharmaceutical companies.

It is even worse for the elderly, most of whom are on Medicare. The pharmaceutical companies make deals with favored groups like HMOs and the Veteran’s Administration (VA), but people on Medicare before the prescription drug benefit kicked in, and those without any insurance, don’t get these deals and they pay much, much more for their medicines. In 2002, using the 50 drugs most used, the average price per drug that the elderly needed averaged $1,500 per drug per year. (2) With multiple drugs often needed to prevent life-threatening conditions, the cost could easily be much higher, and this was at 2002 prices. A Medicare reform bill with a prescription drug benefit began in 2006, but the rising costs of non-generic drugs will inevitably outpace it. (2)

Few people realize that the pharmaceutical companies have gotten grants from the government to develop some medicines that they are now overcharging the public to purchase, the same public who paid the taxes for the grants. (2) The pharmaceutical companies also have partnered up with colleges and universities, most of them public institutions at least partly supported by taxes, to research medicines that they then consequently sell for profits with the college/university often getting perks of one kind or another, perks that are not passed on to the students who do the research. Pharmaceutical companies are another sign of the privatization of our colleges and universities by large corporations. The graduate students who work with the professors, and often do the lion’s share of the work, are completely cut off from any profits that are made off of their brains and hard work.

The pharmaceutical companies claim that they need the profits for R&D, Research & Development, but as of 2002, only $1 out of every $5 went to R&D. Many companies spent twice as much for advertising and marketing as they did for R&D. (3) They are also using the health insurance regulation to prevent some drugs from ever becoming generic, leaving them perpetually expensive and out of reach of the majority of people unless they are well off. These are dugs being developed for rheumatoid arthritis, diabetes, cancer, multiple sclerosis, HIV/AIDS, and many more. They are in the biologic category, drugs made from living organisms, the newest and most promising drugs coming up in the future, and they may only be available to the rich unless something is done. (4)

The only true way to reign in the skyrocketing costs of not only health insurance, but also Workman’s Comp., is to regulate the profits and methods of the pharmaceutical companies. President Obama has chosen not to even mention or touch the pharmaceutical companies, and yes, has made too many concessions to the health insurance companies. Unless he changes and quits trying to cater to very negative Republicans who are not concerned with the public suffering, or even dying, due to poor health insurance, or a lack of health insurance, no true change will happen. So far the health care legislation being mangled on its way through Congress means: 1) more regulation, which won’t always work to the good of us the citizens, 2) loads more paperwork, and 3) increased health insurance costs endangering small businesses as well as the well being of both the lower and middle classes who might not be able to pay the premiums which they will be legally required to pay. Until someone stops President Obama from catering to the pharmaceutical companies just because they are a profitable industry in bad economic times, we will still see people being hospitalized because they couldn’t afford the drugs they needed to take, or dying because they had to choose between rent and food, or paying for their drugs.

Debra Grace Khattab

(1) 8/25/09 Why Health Insurers Make Lousy Villains, Rick Newman, U. S. News & World Report

(2) 7/15/04 The Truth About the Drug Companies, Marcia Angell, The New York Review of Books

(3) 2002 Drug Companies, Marc Lacasse, Healing Daily Website

(4) 10/27/09 Protecting Pharmaceutical Profits: The Cost Is Human Lives, Jane Hamsher, The Huffington Post


  1. John Barker on March 16, 2010 at 2:43 pm

    Insurance premiums reflect all costs and profiteering in healthcare whether it be by pharmaceutical companies, hospitals, medical products, fee for service abuses, or insurance company paper work and profits. Insurance companies are easy targets but to say the insurance company profits are “only” 3.4 % and pharmaceutical company profit is 16% is not all that informative. Insurance company profits are “only” 3.4 % of what? Is it 3.4 % of the private portion of spending on health care of our National Health Expenditure? If that supposition is made, in 2007 National Health Expenditures amounted to 2241.2 billions and of that 53.8% was private spending (US Dept. Health and Human Services web site Fifty three point eight percent of 2241.2 billions is 1205.7 billions and 3.4% of 1205.7 billions is 41 billions. The point is that use of a low percentage with the word “only” is vague even suggests that the subject of concern is trifling when in fact it may not be. Using the above figures, it would “only” be 41 billion that would be totally unnessary to spend on healthcare if the totally unnecessary insurance companies were out of the picture. The often cited 30% cost of insurance company paper work and overhead are over and above their profits so insurance companies are nothing to sneeze at. Although pharmaceutical company profits are obscene, pharmaceutical companies, unlike insurance companies, contribute something to healthcare. It’s just that the value of their contribution needs negotiated fair value adjustment.