We Finally Know Why Americans Spend More on Prescription Drugs Than Other Nations

By Alice Salles

Last week, Vermont Senator Bernie Sanders sent a letter to U.S. Attorney General Loretta Lynch and Edith Ramirez, chair of the Federal Trade Commission (FTC), requesting that the Department of Justice (DOJ) and the FTC look into some makers of prescription drugs and how they price insulin.

Sanders and Rep. Elijah Cummings (D-MD) wrote that though the original insulin patent expired 75 years ago, “three drugmakers who make different versions of insulin have continuously raised prices.”

In “numerous instances,” the letter continued, “price increases have reportedly mirrored one another precisely.”

Citing concerns over rising insulin prices and their continued impact on federal spending, the two Democrats accused the companies of taking part in “anti-competitive” conduct and urged the DOJ to investigate. The companies accused of colluding to inflate the price insulin are Eli Lilly, Merck & Co., and Sanofi.

Sanders’ theory that the companies are coordinating to ensure insulin prices remain high across the board partly explains the increasing prices. But a study recently published by the Journal of the American Medical Association(JAMA) shows the high cost of prescription drugs might be caused primarily by government granted monopolies.

According to the paper’s findings, researchers learned that manufacturers are allowed to set high drug prices due to market exclusivity, which is “protected by monopoly rights awarded upon Food and Drug Administration [or FDA] approval and by patents.” This is a finding that coincides with the assessment of many Austrian economists, who often argue the FDA causes “death and suffering” when it keeps drugs off the market due to heavy regulations.

In the United States, individuals spend more on prescription drugs than those in all other countries. The JAMA study noted that in 2013, “per capita spending on prescription drugs was $858,” a much higher cost to consumers than those in “19 other industrialized nations.” In those countries, people spent roughly $400 on prescription drugs. And with prices for prescription drugs in the U.S. jumping more than 10 percent in 2015, things are only getting worse for Americans.

Recently, former presidential contender and congressman Ron Paul wrote that “[m]onopolies and cartels are creations of government, not markets.” If the JAMA-published study on the high costs of prescription drugs arrived at the right conclusions, Paul’s explanation seems to point out a reason why.

“Government taxes and regulations,” the retired physician said, “are effective means of limiting competition in an industry.” When large corporations, like the three insulin makers Sen. Sanders is urging the DOJ to investigate, want to eliminate competition, they go to agencies like the FDA.

Since “[l]arge companies can afford the costs of complying with government regulations,” Paul added, smaller competitors are crushed by the high costs of doing business. What’s left? A small group of powerful entities that are ready to do anything to stay afloat. They might even collaborate with one another — as Sanders implies they have — after pushing all other competitors out of the picture with the aid of the FDA’s protectionist policies. After all, Paul explains, “[b]ig business can also afford to hire lobbyists to ensure that new laws and regulations favor big business.”

Examining the lobbying practices of Sanders’ three offenders, we find that Eli Lilly spent $5,470,000 on lobbying efforts in 2016 alone. Merck & Co. went beyond that, spending $5,500,000 on lobbying in 2016. Sanofi isn’t far behind, either; the company has spent $4,390,000 so far in 2016.

In the study published by JAMA, researchers concluded that the “approach the United States has taken to granting government-protected monopolies to drug manufacturers, combined with coverage requirements imposed on government-funded drug benefits” are pushing the prices up, creating an artificial scarcity that hurts those who cannot afford the life-saving drugs they require due to conditions such as diabetes.

Instead of more regulation, the solution is to allow companies to operate without being picked as winners by agencies like the FDA.

“Any businesses that charge high prices or offer substandard products” in a market environment free from government intervention, Paul wrote, “will soon face competition from businesses offering consumers lower prices and/or higher quality.” To put an end to high prices for prescription drugs, then, we must first put an end to monopoly-creating schemes — and yes, that includes terminating agencies like the FDA.

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