Martin Shkreli Case - Opening a Dialogue about Generic Drug Costs

[Abstract]

Martin Shkreli, the maligned former CEO of Turing Pharmaceuticals, was called before a Congressional committee this week to discuss his decision to increase the price of the drug Daraprim. Daraprim treats toxoplasmosis that can be fatal to HIV patients. Shkreli’s action raised its cost overnight from $13.50 to $750.00 per pill. The 5000% increase incensed the country. But the increase was completely legal.

The Recent Rise in the Cost of Generic Drugs

Although Shkreli has become the poster boy for pharmaceutical company greed, we should applaud him for calling attention to a significant driver of health care costs: the steady cost increases in generic drugs. AARP reports that 80% of all pharmaceuticals now sold are generic, which are supposed to sell at a fraction of the cost of brand name drugs. The system for controlling drug costs is threatened when the cost of generic drugs rises faster than inflation.

Causes for Sharp Increases

The reasons for these cost escalations are varied and complex. Industry watchers cite the following factors for cost increases:

Lack of competition. Drug companies constantly cull their product line and drop drugs that are less profitable than others. When there are few manufacturers left, those remaining can increase prices and the others may follow suit. (Turing was the only company manufacturing the Daraprim.) Economists have opined that a generic must be manufactured by at least four manufacturers to insure that pricing will remain competitive.

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