By now most of us have seen the news about GlaxoSmithKline and the $3 billion (billion with a b – $3,000,000,000) fine levied against them for promoting off-label use of medications, improper marketing, and failure to report safety data. It’s a staggering sum of money (the largest fine to date under the government’s whistle-blower law), but it’s only a fraction of what GSK made during the years covered by the settlement (late 1990s to the mid 2000s). On the three main drugs addressed in the lawsuit – Avandia, Paxil and Wellbutrin – GSK made almost $28 billion during those years. In 2011, GSK had $44 billion in sales with a profit of $9 billion.
In the US healthcare reform debate over the past few years, much of the attention has focused on the health insurance industry. A poll conducted in 2008 found that overwhelmingly Americans placed more of the blame for spiraling healthcare costs on health insurance carriers than on any other part of the healthcare industry. Many people assume that the health insurance industry has vast profit margins (60% of consumers polled in 2009 thought that the health insurance industry had profits in excess of 20%!), and are unaware that the pharmaceutical industry has far higher profit margins. When it comes to medications, prices are set by the manufacturers. Patients and health insurance carriers are then on the hook for ever-increasing drug costs, with little in the way of viable alternatives.
The fine against GSK is addressing transgressions that occurred several years ago, and the company notes that they have taken steps to remedy the problems and make sure that similar problems won’t happen again. But it still sheds light on the tremendous marketing machine that is Big Pharma, and the huge sum of money that is earned every year by the pharmaceutical industry. I’m reminded of an article I wrote on the Colorado Health Insurance Insider in the fall of 2010, when the Medical Loss Ratio rules were issued and scheduled to go into effect the following January. I wrote about how the MLR rules (requiring health insurance carriers to spend at least 80% of premiums on healthcare services, with admin costs capped at 20%) would surely drive health insurance carriers to be more innovative and efficient. But I also lamented the fact that the rest of the healthcare industry wasn’t being held to similar standards.
If the government can regulate the administrative costs of private health insurance carriers, why can it not do the same with the rest of the private healthcare industry? Why not cap administrative expenses and profits for pharmaceutical makers, medical supply companies and hospitals? It has always seemed a bit backwards that we addressed the cost of health insurance (and directly limited profits and other administrative expenses) without addressing the cost of the products that health insurance buys.
