Pharma eats the US economy

AIDS, argued Thabo Mbeki, was a syndrome, not a disease treatable with antiretroviral drugs. The roots of his denialism will be endlessly debated but of one there can be little doubt. He was deeply suspicious of Big Pharma. His enforcer Essop Pahad told me straight out that AIDS was invented by the likes of Merck and GlaxoSmithKline. They had lumped together a host of existing assaults on African immune systems to construct a new disease and with it a new market for their monopoly-priced drugs.

He and Mbeki were grotesquely wrong, of course, condemning hundreds of thousands to premature death. But they had good reason to question the bona fides of American and other western drug companies. Recall that as the AIDS epidemic exploded, the companies and their lobbyists were fighting tooth and nail to stop SA and others in similar straits from exercising their WTO-enshrined right to override patents on essential medicines. Mbeki was not about to cede SA’s sovereignty to what he saw as a new form of extractive colonialism.

As he prepared to leave office in 1960, President Eisenhower famously warned against state capture by what he called the military-industrial complex. His successors have paid no heed. In 2015, according to the Stockholm International Peace Research Institute, China, Russia, India, Britain, France, Saudi Arabia and Japan collectively spent $567 billion on defence. By itself, the US spent $596 billion, or roughly half of all federal spending that is not committed to the (relatively skimpy) social safety net and interest on the public debt. President Trump wants to spend more on guns and bombs.

That said, as far as capture of the American state goes, today the really crushing elephant in the room is not the military-industrial but the medical-industrial complex, a vast, metastasizing behemoth that employs one in 9 working Americans and chews through close to 20 per cent of GDP, half as much again as the health spend of any other high income country and nearly double the average, while consistently delivering inferior results. At least in health terms. For investors, the outcomes have been excellent. In the five years through April, health-related stocks in the S&P 500 outperformed every other sector, posting a total return of 120 per cent.

Drugs (the legal kind) now account, by value, for around 12 of every 100 dollars spent on goods at the wholesale level in the US — $54 billion out of $465 billion, seasonally adjusted, in February alone, according to the latest Commerce Department report. They are the single biggest item, bigger than petrol ($53 billion), food ($52 billion) and cars ($38 billion), and their relative claim on national income is growing. In February 2012, drugs were 9 per cent of wholesale purchases; five years before that, 7 per cent.

How are the manufacturers achieving this? Principally by raising prices at many times the inflation rate, according to a Wall Street Journal dive through the Securities and Exchange Commission filings of the top 20 firms. They game the patent system to stifle generic competition and preserve monopoly power. To head off any risk of price controls, they have fat war chests to keep Congress bought and to propagate the lie that they need every dime they can get in order to “innovate”. And right now they have a reptilian Secretary of Health and Human Services — the official in overall charge of regulating them — who is entirely in their pocket. Tom Price, as a member of Congress, pressed for rule changes that benefited drug companies in which he owned stock.

Meanwhile, direct-to-consumer advertising — $5.2 billion of it in 2015 — not only fuels demand, it buys quiescence from the media. Only one other advanced economy, New Zealand, permits such pitch-making. To watch news broadcasts on the major networks, CBS’ flagship “60 Minutes” included, is to be bombarded with prescription drug ads. CBS, according to Kantar Media, netted $511 million from Big Pharma in 2015, ABC $296 million, NBC $250 million, Fox $128 million and all other TV stations $607 million.

What ails American health care, and why, in spite of President Obama’s now besieged Affordable Care Act, so many millions of Americans cannot afford to get seriously ill, is not down exclusively to the drugmakers. The sickness is systemic. The prime directive driving every element of the system from medical practitioners, to hospitals, to device manufacturers, to insurance companies to a swelling army of administrators, billing consultants, debt collectors and other ancillaries, is not to heal, protect or care for the sick.

It is to extract in every case the maximum possible payment from whomever — taxpayer, insurer or individual patient — is footing the bill, regardless of the actual costs of treatment. In American medicine, there are no hard and fast prices for anything. So bills for everything rise inexorably, as does the number of things that are billed for. Billers constantly test what the market will bear, and use resultant windfalls to fight any attempt to rein in the madness. Thus does the medical-industrial complex cannibalise the American economy. There is no hope of Trump fixing it.

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