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Pharmaceutical and Medical Device Companies

Pharmaceutical Companies and Medical Device Companies are virtually all publicly or privately held, and are obliged to maximize shareholder returns (ie profits).  Pharma and device companies are motivated to sell as much product as they can at the highest possible price.  They aggressively use patent law and other protections to secure a monopoly for their products and then charge premium prices that reflect the lack of alternatives.

Perhaps more than any other stakeholder, they take advantage of a market where the person making the decision to use their products isn’t encumbered with price during that decision making process.  When physicians write a prescription for a medication or device, or when they use a device during a surgical procedure, they most often don’t know what the patient or insurance company will be billed for that product.

Pharma and device companies interact with all physicians (PCP and specialty), but tend to focus on whichever specialty or area of practice has the highest potential for their product sales.  They use field sales representatives to personally visit physician offices to ‘detail’ the virtues of their products.  Until outlawed, they would often provide lavish gifts to physicians in exchange for prescribing their products.  Pharma and device companies also provide significant funding for professional medical association and continuing education events, and are perceived by many to be influencing the standards of practice in their favor by introducing bias for use through ‘educational’ forums[1].  It is very common for ‘thought leader physicians’, leaders of academic medical institutions, and the Food and Drug Administration – who is responsible for approving prescription medications – to have financial relationships with pharma and device companies in the form of consulting/advisory agreements, speaking fees, and board memberships[2].  In any other environment, most would consider this an extraordinary conflict of interest.

Pharma, and to a lesser degree device companies, interact with insurers by negotiating prices for the group purchase of their products (instead of competitive products).  This is as close as they come to the win/win normally found in a free market.  The exception is in the sale of prescription medications to Medicare, the nation’s largest insurer.  More on that below.

Pharma companies cultivate direct relationships with consumers via direct to consumer advertising in hopes of encouraging consumers to request their prescription medications from their doctors.  In some cases, pharma companies have actually been accused of creating ‘disease-like’ descriptions for what most of us would consider to be normal human conditions to increase demand for their products. Examples include ‘seasonal affective disorder’ and pre-menstrual syndrome.   Pharma companies have offered rebates, either directly or through shell non-profit charities,  to compensate consumers when they have a co-pay for prescription medications when that medication has strong generic or other competition.  This is an effort to motivate consumers to use their products by offsetting or eliminating the consumer’s out of pocket expense, leaving the insurer to pay the premium on the brand drug that is under patent protection.

Perhaps pharma’s most interesting relationships of all, however, are with the various agencies of our federal government.

The pharmaceutical industry’s lobbyists are, by far, the most powerful in Washington; more powerful than even the notorious ‘defense industrial complex’.   There are 6 registered, paid lobbyists for every elected member of Congress.  As an example of their influence, when the Medicare Part D (prescription drug coverage) legislation was passed in 2004, the pharma industry was successful at including legislation that prohibited Medicare from negotiating prices on bulk purchasing agreements.  Medicare simply had to pay whatever pharma charged.

Like hospitals, when PPACA came into effect pharma essentially had millions more paying customers (or paying at insurance vs Medicaid rates) pour into their revenue stream, with no accompanying increase in costs.  Like the hospital lobbyists, pharma was also generally successful in mitigating or even eliminating drafted ‘give backs’ in the form of lower reimbursements or taxes.

Through their unparalleled lobbying success, they have created an extremely favorable environment in which to get their new drugs approved.  The FDA’s primary role is to assess safety and effectiveness.  Effectiveness, however, can be asserted with scientifically questionable clinical trials, and those trials are done either by the pharma companies themselves or by Contract Research Organizations (CRO’s) formed specifically to conduct clinical trials, and paid for by the pharma companies.  The result is trillions spent on prescription medications that either have little or no independent, scientifically valid comparative effectiveness data, or worse, that do have data indicating they actually harm more people than they help.

Finally – research. Pharma has long spent enormous sums of money from their marketing and public relations budgets to condition us to believe that without seemingly large profits, there could be no research for the next ‘wonder drug’.  But the truth is that the vast majority of all of the most risky stage 1 and 2 clinical trials aren’t done by pharma; they’re done by the National Institutes of Health, either directly or in partnership with academic medical institutions.  And those are our tax dollars at work, my friends.  A small minority are done by private venture capital funded startups.  Once stage 1 and 2 trials produce the proverbial golden needle from the haystack of failed initiatives, the pharma companies step in and license the intellectual property for stage 3 trials, manufacturing, distribution and sales.  And at what price?

When pharma spends money on research, it’s most often going into what the industry calls ‘me too’ drugs.  They look at successful drugs currently in the market and under patent, make one clinically inconsequential molecular change, re-run stage 3 clinical trials, and submit for a new patient.   If it was another company’s original drug, they now have a competitor.  If it was their own drug, they’ve now just restarted the patient clock that protects their monopolistic pricing model.

And no, I am not making this up.

[1] The Truth about the Drug Companies, Marcia Angell.

[2] The Truth about the Drug Companies, Marcia Angell.


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