Big Pharma Profits and the Public Loses.

Abstract

I n the December 2015 issue of THE MILBANK QUARTERLY, I discussed why it is important for the public’s health that physicians disclose their financial relationships with pharmaceutical companies, including payments made to physicians by these companies to help market their drugs.1 But that is only part of the story, a tale that has had a significant impact on the health of both the public and individual patients. Equally troubling are the enormous profits that pharmaceutical companies make on the sales of their drugs and how pharmaceutical executives determine the costs of those drugs, which must be paid by the public, either through their insurance companies or directly out of pocket. I have no problem with pharmaceutical companies making a reasonable profit from the drugs they develop. After all, these often are medications that contribute substantially to the public’s health, and these companies certainly deserve credit and financial remuneration for drugs that have saved much pain and suffering and many lives. The essential question is what a fair and legitimate profit for drugs should be. Let’s first look at a few numbers. In 2013 the profit margin for pharmaceutical companies ranged from 10% to 42%, with an average of 18%. Pfizer was at the top of the profit list, and 4 other companies (Hoffman-La Roche, AbbVie, GlaxoSmithKline, and Eli Lilly) had profit margins of more than 20%. As a point of reference, the profit margin of pharmaceutical companies was essentially the same as that of banks, but the banks’ range of profit was lower, from 5% to 29%.2 Although most of us might be able to survive without a bank, many of us who need life-saving, life-extending, and pain-relieving medicines do rely on pharmaceutical companies. If drug prices are too high, people stop filling prescriptions, leading to complications and sometimes even death. What has accounted for the pharmaceutical companies’ very large profit margins? For one thing, the United States, unlike other developed countries, allows pharmaceutical companies to charge whatever they