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Shkreli neither the problem nor the solution

SCOTT PIEPHO
Legal News Reporters

Published: February 12, 2016

With his performance in front of a Congressional committee, Martin Shkreli has become the face of the problem of escalating prescription drug prices. Shkreli, who made headlines when his firm acquired the rights to Daraprim, a drug used to treat the AIDS-related parasitic infection toxoplasmosis, and raised the prices by hundreds of dollars, was called before a committee examining prescription drug price increases initiated by a number of companies, not just his former firm Turing Pharmaceuticals.

During his time in the witness chair, he smirked disdainfully at the committee members, all the while invoking his Fifth Amendment rights, prompting another round of news reports about what a despicable person he might be. All of which is unfortunate, because the problem of escalating costs for drug therapies has less to do with the existence of Shkreli and more to do with the system in which he briefly thrived.

Watching Martin Shkreli’s last week, it was hard not to think about the studies of Wall Street psychopaths from a few years ago. A 2012 study purported to show that one in 10 people working in the financial services industry are psychopaths. Many of the subsequent commentaries noted that certain characteristics associated with psychopathy—superficial charm, lack of empathy, manipulation and fearless risk taking—fit well with the work and culture of Wall Street.

Over the months since he rose to prominence, Shkreli has offered plenty of evidence to tempt people into armchair-diagnosing him. He seemed indifferent to the prospect of harming patients with the price hike (although he later claimed that the anticipated profits could be used to develop drugs better than Daraprim). Then he was indicted on securities law violations based on other business ventures, which only added to the impression that he thinks that rules––whether legal or social—are for everyone else.

The point here is not to argue that Shkreli is in fact a psychopath. I have neither the information nor the expertise to do such a thing. And notwithstanding his hate-me-because-I’m-better-than-you public persona, he may in fact be a very nice and caring man who truly wants to accumulate capital to research more effective therapies for parasitic infections. And he may be an ethical businessman who has been charged based on false allegations by disgruntled former partners.

But the ease with which he can be tagged a “Wall Street psychopath points out the danger of equating the social and public health problem of escalating drug prices with Shkreliism. If the problem is Martin Shkreli, it follows that the solution is purging him from the industry (done—he was shown the door after his indictment and arrest) and hoping that the industry can continue to rid itself of any future Shkrelis.

Turing Pharmaceuticals was not alone in raising prices, especially on drugs that address relatively rare but very serious conditions. In the wake of the controversy over Daraprim, news reports highlighted a number of similar drugs that had seen hikes of similar scale—this in a context in which drug prices in America are already the highest in the world.

America is nearly unique in allowing drug companies to set prices according to market conditions. Other countries either regulate prices directly (usually as part of the approval process) or a government-run single-payer health system negotiates the prices. In America we are allergic to price regulation and increasingly to government negotiation. When Congress created Medicare Part D, the prescription drug coverage plan, the law specifically prohibited the government from negotiating prices with pharmaceutical manufacturers.

We need to stop pretending that the prescription drug market is a free market. A prescription drug begins its life under patent, which works as a government-enforced monopoly. Even after the patent expires, the FDA requires approval for any generic version of the drug, limiting the level of competition.

For example, Turing currently holds a monopoly on Daraprim because no other firm has sought approval for a generic substitute. That is due to the combination of the relatively small market for the drug and an FDA approval process for generic drugs that is overly cumbersome and bogged down due to lack of staffing.

Pure deregulation might lower costs, but would pose a significant risk to both the public health and the industry. Pharmaceuticals have the public confidence that they have because of the approval process, while hardly perfect, has kept most truly disastrous drugs off the market.

Controlling the costs of pharmaceuticals in the American system would require a combination of negotiation, regulatory reform and perhaps price regulation. It needs to go further than hoping that drug companies will not act like psychopaths.


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