More on the cost myth.

46 f) More on the cost myth.

“The drug companies have to put a price on a medicine that reflects the cost of developing them,” John Castellani, the CEO of PhRMA told 60 Minutes. Castellani blames insurance companies for making drugs “artificially expensive” for patients.

How true is this?

University of Medicine and Dentistry of New Jersey Health professor and policy expert Donald W. Light challenged the notion that high drug prices are simply the cost of doing business. He said the actual cost is less than $60 million once all the padding is taken off since the estimate is based on only the most expensive drugs with extensive clinical trials.

The Tufts University Center for the Study of Drug Development, which receives industry funding, came up with the formula to calculate cost, the Fiscal Times reported.

Light authored several peer-reviewed papers on the pharmaceutical industry and wrote “The Risks of Prescription Drugs,” published in 2010, that reveals Big Pharma’s “hidden business model.”

“The hidden business model of pharmaceuticals centers on turning out scores of minor variations (on older drugs), some of which become market blockbusters,” Light writes in a 2012 British Medical Journal (BMJ) article. In other words, there may be an initial high cost of developing a drug, but each minor variation costs less to produce and is priced high.

He says what companies report as R&D is actually unverifiable. Not to mention, companies make billions on most of these drugs, and they receive massive tax breaks for R&D, leading to inflated figures. Another huge portion of the costs are subsidized by taxpayers.

Only 1 in 10 of these “new” drugs actually provides substantial benefit over old drugs, and side effects create the need for more drugs. Some of these drugs also have complications so terrible that people end up filing lawsuits to recover damages.

“We can find no evidence to support the widely believed claims from industry that lower prices in other industrialized countries do not allow companies to recover their R&D costs so they have to charge Americans more to make up the difference and pay for these ‘foreign free riders,’”

stay tuned next week for final comments on this topic.