Profiting from the sick.

Society says that there are some things you shouldn’t make money out of. One of those is sex. Prostitution in many societies is either illegal or is considered a disgrace. Surprisingly for some of us, no society thinks it is disgraceful to make money out of sick people. Sick people need help. No one wants to die, and people will pay good money if you can offer them something which they think will help them live a little longer. Is it morally acceptable to exploit that situation and make BIG bucks out of sick people?

A great way to make money out of sick people is to sell them drugs. The companies that sell them don’t seem to worry too much about the morality of exploiting the sick. Drugs are BIG business. And the centre of that business is the US. Many of the largest drug companies are American, and America has the largest market in drugs in the world. It was recently estimated that sales of prescription drugs worldwide came to 400 billion US dollars, with sales in the US making up half of that figure. In other words, Americans spend 550 million dollars a day on prescription drugs. (That makes the business that profits from sickness almost as big as the one that profits from war.)

In 2002 the average price for one of the 50 drugs most commonly prescribed to senior citizens was 1,500 dollars for a year’s supply. To deal with a number of chronic conditions like arthiritis, diabetes, high blood pressure and Alzheimer’s the elderly individual could easily need six of those drugs, which would take their annual bill up to 9,000 dollars. Many people without adequate health insurance cover simply cannot afford the medicines.

The companies producing these drugs are making huge profits. During the 1990’s, when economies generally were booming, drug company profits were around 25% of sales. After the recession in 2003 the average figure for the large American companies had dropped to 14.3%, but this was still way above the average for all of the 500 strongest companies, which was only 4.6%. While the profit margin has dropped, sales have risen so that the amount of money actually being made is going up. More drugs are being prescribed now than ever before.

People in the drugs industry can earn HUGE amounts of money. Everyone knew about Magic Johnson, and many knew that he managed to earn a few million dollars a year playing basketball, supplemented by around 30 million dollars in sponsorship deals. But who has heard of Charles A. Heimbold Jr.? He was the chief executive officer of one of the biggest drug companies (Bristol-Myers Squibb) and in 2001 his salary was $74,890,918 (excluding the offer of 76 million dollars’ worth of shares) – that’s 205,000 dollars a day!

In response to the criticism that they are charging too much, drug companies often claim that they have to keep their profits up so they can invest money in the research and development of new life-saving drugs (R & D). Unfortunately it is very difficult to know how much the companies actually spend on real research into genuinely new drugs. The industry has managed to persuade the politicians to allow it to keep a lot of its operational details secret. However, even going by their own figures the proportion of sales revenue going on R & D was only 11% in 1990 rising to 14% in 2003 – still less than the profit margin.

It is also clear that a lot of that R & D money goes into producing drugs that are almost identical to already existing drugs, enabling the company to compete for a share of an already established market. Furthermore, the money spent on R & D is much less than the money these companies spend on marketing drugs which are really just new versions of old drugs. All that expensive marketing wouldn’t be necessary for a genuinely new and unequivocally effective drug (imagine having to advertise a cure for cancer).

As it happens a large proportion of the really innovative drugs are not discovered by the large private companies but by university departments and publicly funded research institutes. Changes in the law in the 1980’s made it possible for these institutions to sell the intellectual property rights (patents) for their discoveries. Instead of doing their own R & D, drug companies can now buy patents from university departments and then have the exclusive rights to produce that drug for up to 14 years. The law guarantees that the company will be able to set the price and there will be no competition to drive the price down for all that period of time. The new laws were a godsend to the big companies, and their profits soared as a result.

If you tried to argue that the government should intervene and exert some control over the actions of drug companies, you would immediately face the criticism that any such measures would be an attack on free enterprise. After all, this is supposed to be a liberal economy. But the practice of buying monopoly rights to produce something is not the most outstanding example of free enterprise.

More importantly, the question is whether this vital element of healthcare should be treated as just another business. One aspect of this is whether business considerations alone should determine which drugs are produced. At the moment, governments might fund groundbreaking research, but the big companies decide which new drugs will be produced. Inevitably they choose the drugs that they feel they can make the most money out of, so there are lots of drugs for the problems faced by high-income Americans but very few drugs for diseases like malaria that claim the lives of so many people in the poorest countries in the world. There is simply no money to be made from saving people from malaria.

Until recently drug companies in India managed to ignore patents granted in the US and they produced illegal and cheap copies of drugs for poorer Asian and African countries (this, by the way, may have been illegal but it certainly was a good example of free enterprise). On the whole, this system meant that many of the poorest people in the world could get treatment that they could not otherwise have afforded. It’s days are now numbered. The large western drug companies have succeeded in persuading their governments to put pressure on India to stop this trade in cheap drugs. Supposedly, the reason for this is that every country that wants to be a part of the new global economy has to respect certain principles of “fair” trade . In practice what it means is protecting the privilege of the largest companies to make the biggest profits, even if this is at the expense of the health of millions of the poorest people in the world.