Skyrocketing drug prices: Justice Department must take antitrust actions against Big Pharma

For a year or two I have been regularly buying a particular brand of hot dog for its flavor, relatively low calorie count and the fact it's organic.

When I started buying this product, it cost $4.99 for eight franks, which was on the high side but made up for by its quality. Then it went up to $5.99. I grudgingly continued to buy them. When the price went up to $6.99, I immediately stopped.

I must not have been alone, because the next time I was at the market, I noticed the price was back to $5.99.

The same type of price increases have been occurring for drugs, although on a much larger scale. And the peculiarities of the way our healthcare is financed means that drug companies are often insulated from any meaningful market pushback.

This is the case with a drug called Daraprim, which is used to treat toxoplasmosis. It is potentially life-threatening to people with compromised immune systems and to newborns if their mothers contract it and pass it on during gestation. Last month, Daraprim retailed for $13.50 a tablet.

Now, Daraprim is $750 per tablet.

The dramatic price increase occurred because the maker and distributor of Daraprim was purchased in August by a company called Turing Pharmaceuticals, according to the New York Times. Turing is operated by 32-year-old Martin Shkreli. The day the Times article ran, Shkreli was compelled to go on CNBC to defend his company's practices. His rationale for raising the prices: Toxoplasmosis is an extremely dangerous disease that needs an improved treatment.

Toxoplasmosis infections are associated with a few hundred deaths a year in the U.S., and a few thousand hospitalizations, according to the American Journal of Tropical Hygiene. About 10 times as many Americans die each year in pedestrian mishaps.

"At this price, Daraprim is still on the low end of what orphan drugs cost," Shkreli explained. "And we're certainly not the first company to raise drug prices."

Let's examine the first part of that quote. Daraprim has been on the market so long that it celebrated its 30th birthday the year Shkreli was born. The year 1983 was also when the U.S. Orphan Drug Act was actually signed into law, intended specifically to help develop drugs for patients with rare medical conditions.

Toxoplasmosis is extant in as much as 20 percent of the U.S. population--it is when someone has a compromised immune system that it becomes a problem. And comprised immunity is not a rare medical condition. Daraprim is also used to treat malaria, which while rare in the U.S., remains a global scourge.

So, Daraprim is not only not an orphan drug, it was created so long ago that the term "orphan drug" was decades from being coined.

Let's visit the second part of Shkreli's quote. It loops back to the New York Times article, which noted many instances of old-line drugs having their prices raised overnight. Hospitals, rather than patients, acquire Daraprim. It is mostly a nuisance cost for an operation with hundreds of millions or even billions in annual revenue. Patients are mostly shielded from this sudden sticker shock until they're discharged, presented with their bill and can't demand an alternative treatment.

But if this business technique was practiced with another old-line product--say Oreos--a package of them in the supermarket would shoot up from $3.99 to around $225. And since consumers love Oreos and they are, in healthcare terms, a pure "out-of-pocket cost," the immediate outrage would prompt Nabisco to drop the price. But this cannot occur outside of the realm of healthcare delivery because any outrage is muffled by financial design. And that is among the reasons Shkreli cheerfully replied "no" when the CNBC reporter asked if he intended to drop the price.

Yet price gouging is not the only troubling recent business practice of Big Pharma. Turing Pharmaceuticals has apparently put strict controls on the supplies of Daraprim in order to ensure a much cheaper generic version cannot be brought to market. That's a practice other drugmakers follow as well. 

Steven Brill's sometimes rambling but ultimately damning series now being published in the Huffington Post has detailed Johnson & Johnson's decision to push the anti-psychotic drug Risperdal down the throats of children and the elderly despite clear clinical contraindications--data the company diluted or concealed. Johnson & Johnson has paid a steep fine for its conduct, but no executives ever faced racketeering or other criminal charges. As a matter of fact, the brainchild behind this chilling practice has since become CEO of Johnson & Johnson.

The Justice Department regularly joins qui tam lawsuits regarding the abuses of drug and other healthcare companies when it involves federal dollars (including the Johnson & Johnson case). But it needs to start engaging more proactively on the antitrust front. If someone with a hedge fund background such as Shkreli is buying up drug firms, the only reason is to raise prices unconscionably and engage in anti-competitive practices to keep those prices in place. Some of these deals need to be unwound.

The reasons are clear: Eating too many hot dogs will kill you in the long run--so, there's probably an actual benefit built into them becoming too expensive. Not having access to the right drugs could kill many Americans very quickly. It is not only causing healthcare costs to rise dramatically, but Big Pharma has decided to exploit the "your money or your life" conundrum inherent to the products they sell. It needs to stop. - Ron (@FierceHealth).