How Americans View the Rise in Drug Prices
Today, thanks to advancements in the pharmaceutical industry, the ability to slow the progression of, or even possibly cure, many chronic diseases is becoming more and more common. While alleviating pain and suffering for those who have been diagnosed with chronic diseases should be celebrated, the focus of news stories tends to focus on concerns around the associated costs and lack of affordability of many prescription medications. There is little denying that these press cycles have, more often than not, been self-inflicted wounds for the industry. And while a few bad actors are doing an especially good job of keeping communications teams busy, the pharmaceutical industry has been on the defensive on a regular basis.
For example, the New York Times’ The Daily recently ran a podcast entitled ‘This Drug Could End HIV. Why Hasn’t It?’ which introduced listeners to Truvada, a drug created and patented by Gilead Sciences. The show tells the story of Truvada (better known as PrEP) which, if taken daily by an HIV negative person, is up to 92% effective at preventing the acquisition of HIV. A remarkable medical innovation, PrEP serves as an additional preventative tool that could potentially help bring an end to the HIV/AIDS crisis. PrEP has been around since 2012, but due to its high price tag, people that would benefit greatly from the drug, haven’t been able to access the medication.
Another company that received a lot of attention recently was Mylan, the producer of the EpiPen. The news around Mylan was certainly not positive after they increased the cost of the EpiPen from $100 to over $600 for a two-pack. And we all probably remember Martin Shrkeli (aka “Pharma Bro”) who increased the cost of his life-saving HIV drugs by a magnitude of 50 after buying the firm, Turing. Not surprisingly, all of this has gotten the attention of Congress who have held multiple hearings on the subject, and most, if not all, of the 2020 Presidential candidates have talked about the need to lower pricing.
Given the stories coming out on this topic, it is also not shocking that public opinion has become quite negative towards pharmaceutical pricing, On the plus side for the industry, a solid majority of Americans feel that prescription drugs have made lives better (59% according to the KFF Tracking Poll). At the same time, almost 8 in 10 Americans (79%) believe that the prices of these drugs are unreasonable.
While these views on pricing are clearly creating the urgency for politicians to be saying something on the topic, its data got us thinking; what do Americans view as a fair price?
Our hunch was that this binary view on pricing, being too high, would be masking more nuance in the views that Americans hold. Instead of just asking if people think prices are too high, we wanted to go a little deeper and instead determine what Americans feel is driving the price of prescription drugs. To do this, we asked our respondents to allocate their estimated costs across five different categories: Research & Development, Manufacturing, Marketing/Advertising, Profit, and Excess Profit. The rationale for breaking out the profit into two types is the idea that Americans typically believe that companies should be making a profit, but the question we really wanted to understand was how much.
As the charts above show, Americans view the price of pharmaceuticals being driven by all of the factors, we asked about, with profits clearly being viewed as the biggest driver. Interestingly, panelists view on how much of the cost goes into the non-profit categories are reasonably close to data that is available. For example, on R&D, the National Science Board Foundation reported that about 17% of revenues are going to R&D (our panelists estimated 23%). And while determining exact costs on these categories are tough, estimates from Dr. David Belk pegged the percent going to marketing at 27% of revenues from 2011–2018. Our panelists estimate 18% goes to Marketing/Advertising which is lower than Dr. Belk’s estimate, but it seems that Americans have a pretty good sense overall of where costs are for prescription drugs. This is somewhat surprising since very few Americans probably notice exactly how much a drug’s total price is since, for most people who have insurance, the co-pay is what they are more familiar with.
With this in mind, the views on where profits on prescription drugs stand are reasonable assessments, based on the other responses we received. On average, Americans feel that 46% of the cost of prescription drugs is going to company profits. This is clearly a big number and given the fact that 79% view pricing as unreasonable in the KFF survey above, it is safe to say that Americans view this profit margin as an unreasonable level. In our data, we see that Americans feel that a majority of the profit is acceptable (56% of profits) while 44% of profits are viewed as excessive.
On the one hand, there is good news here for the pharmaceutical companies given the fact that a 26% mark-up on $1.2 trillion is nothing to sneeze at. However, companies should realize that when their customers feel that 20 cents on every dollar spent are more than what they should be paying, it is not great for perception and support. With that being said, it actually gets worse for the pharmaceutical companies when you dig into the numbers a little more.
Since our panelists are able to allocate the amounts to each category, we can see how they view each category as a driver of costs. For example, as shown in the chart below, only 12% of Americans feel that the majority of the cost of prescription drugs is coming from R&D. It also shows that 38% percent feel a significant amount is being driven by R&D, and 29% think that R&D makes up a minimal amount of the cost (to go along with 21% who feel it basically adds nothing to the cost). This split of those who feel R&D makes up a significant cost vs those who think it is minimal at best is interesting, to say the least, and this divide also exists when we look at Marketing/Advertising.
There is more agreement on the cost factor of manufacturing the pharmaceuticals. 8 in 10 Americans think the expense of manufacturing makes, at best, a minimal amount of the overall cost. Just 2% feel it makes up a majority, while 19% put it in the significant category.
When it comes to profits, the numbers are fascinating. Americans feel that acceptable profits are making up a significant amount of the costs with 13% feeling it is a majority of the costs (and are okay with that fact). Overall, 46% of Americans feel that excess profits are driving a significant amount of the overall price of prescription drugs. Not great news for the companies, but interestingly the number of Americans who feel that a majority of the cost is being driven by excessive profits (11%) is well below the level of those who do not believe that excess profits have any cost implications (39%). A plurality of Americans fall into the category of excess profits being a significant driver of the overall cost.
Given our hyper-partisan world, it is not surprising that there are differing views on excess profit. Indeed, Democrats feel 23% of the costs are coming from excess profits, while Republican voters, on average, place the number at 16%. There are also differing views on how much goes into R&D with Republicans giving a much higher allocation on this factor (26%) than their Democratic counterparts (19%). Interestingly, and somewhat surprisingly, is the common views on marketing, profit, and manufacturing among held by the different party affiliations.
The diverging partisan views are a little clearer when we breakdown the numbers on excess profits. As the chart below shows the views on manufacturing and marketing are very similar in the breakdown of costs. The big differences are in excess profits where among Republicans 48% feel that excess profits basically don’t exist. This number is just 30% among Democrats. Looking at it from the other direction, 51% of Democrats feel excess profits are a significant driver of costs, while just 36% of Republicans feel the same way.
It is worth noting that the views on acceptable profits are not that far off with 63% of Democrats feeling that acceptable profits are a significant driver of costs. Across the aisle, 54% of Republicans share this view.
Unlike partisanship, there is just about no difference in views on excess profits when it comes to the different generation of voters. There is an interesting difference, however, between acceptable profits when it comes to GenX and Millennials. GenX Americans are much more open to bigger profits (feeling 30% on average goes to this category) than their younger counterparts (21%). Millennials, on the other hand, feel that more of the cost goes to R&D (26%) when compared to all other generations, especially GenX (21%).
Politically, it is clear that this can be a winning issue, and politicians certainly seem to be aware of this fact. However, as is often the case, if you are just looking at the topline numbers, you are taking a chance of overreaching and pushing for changes that Americans might not be comfortable with. For the pharmaceutical companies, there is a clear direction in these numbers and the differences between the younger generations are much more interesting than the more predictable political divides. These generational differences create an opportunity, as well as a challenge, for the industry as well as for those who are looking to control costs. The chances of moving too far ahead of where public opinion and perception lie is always present. At the same time, doing nothing about pricing does not exactly seem to be a long-term winning strategy either.
As always, we will be revisiting these topics over time and will see how news events and life stage changes move these numbers (or don’t).
