How Big Pharma is Playing Games with Employers

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shutterstock_230894965There are many disliked industries in our country, but few of them are as despised (or as necessary) as pharmaceutical companies. Unfortunately, these companies are playing games with employers like you. Here are two of the main ways they do it.

1) Misrepresenting their costs

One of the most common justifications for price-hikes is that “research and development are expensive.” That statement, taken by itself, is true. It neatly avoids the fact, however, that they are also spending a lot of money on other things like advertising. In fact, a recent study found that ten major drug companies had collectively spent over $30 billion more on advertising than they did on actually developing their products.

Essentially, pharmaceutical companies are making you and your employees pay through the nose for the advertising they do to healthcare professionals and patients alike. In fairness, all customers ultimately end up paying for the advertising a company does.  Pharmaceutical companies, however, aren’t selling toys or vacations, they’re selling life-saving drugs and most people cannot afford the price they want to charge.

To add further insult to injury, so to speak, these companies tend to have incredibly high profit margins.

2) Pretending they’re charitable

Many pharmaceutical companies like to “donate” to charities that exist to h

elp patients afford the drugs, but they’re not giving money to these groups out of the goodness of their hearts. As explained in a report by Bloomberg, the real goal here is to ensure patients can get the pills no matter what, and to charge Medicare for them. If the patients genuinely couldn’t afford the pills, they would have to try another treatment, and Medicare would pay nothing to the company producing the drug.

To maximize their profit from this arrangement, drug-producing companies tend to raise the cost of their products just before donating to charities. It’s a fairly straightforward system – people who can no longer afford the drugs look for help, and the charities provide that help. These patients continue using the drugs and Medicare (or, less often, insurance companies) pays the higher price the company is demanding.

In a very real sense, pharmaceutical pricing is designed to dip into what your business pays in Medicare taxes. If their prices weren’t so high to begin with, there’s a very real possibility that your company wouldn’t have to pay so much in taxes.

These two techniques – pretending their costs are higher than they really are and creatively taking advantage of payment systems through the use of charities – are collectively responsible for a significant amount of the nation’s healthcare costs. And in the end, those added costs fall on employers like you.