What happens when the volume of an industry's unit sales remains essentially flat for five years?
In most cases that would create stagnant revenue and falling net profits as costs rise. Not so in pharma, an industry that relies on lobbyists to exempt it from the usual processes of economics such as market competition.
Between 2010 and 2014, the number of prescriptions written for the 30 top-selling drugs rose by 20 percent, but the prices on those same products increased by an average 76 percent, the Wall Street Journal reported. That resulted in a revenue increase from those brands of 61 percent. The price increases amounted to more than eight times the rate of inflation.
Pharma for several years has enjoyed this pattern in the U.S. where revenue growth far outpaces demand. A report from Credit Suisse in May of last year found that 80 percent of growth in net profits among the world's 20 largest pharma companies came from price increases in the U.S.
Pharmaceuticals are now the fastest growing cost component of all health care sectors, a realization that led both major presidential candidates and several members of Congress to wag fingers at the industry.
Have there been any concrete steps to restrain prescription medicine price increases? Beyond some sound bites and legislation that went nowhere, the politicians haven't done anything.
Nevertheless, the industry is planning a counterattack.
This month the Pharmaceutical Research and Manufacturers of America (PhRMA), the main trade and lobbying group, acknowledged, according to Politico, that they are "gearing up to spend hundreds of millions of dollars" to oppose elected officials of both parties who have criticized high drug prices. The campaign, which will start soon and move into full swing after the election, "will dwarf the $20 million that health insurers spent on the iconic 'Harry and Louise' campaign" that sank President Clinton's botched health reform plan of 1993-94, Politico reported.
The pharmaceutical industry "routinely spends more on lobbying than any other health care group," according to the article, and funds it by taking in "more than $200 million in member dues in 2014, compared to about $80 million for the American Hospital Association and about $41 million for America's Health Insurance Plans."
Elements of the PhRMA blitz will include ads to influence closely contested Congressional races and a campaign aimed at improving the public's perception of the pharmaceutical industry.
Step back for a moment and consider the political context in which pharma is planning this media and lobbying assault.
The Republican presidential candidate, Donald Trump, has made some general references saying that drug prices are too high and Medicare should obtain the authority to negotiate prices with the manufacturers. Yet he has offered few if any specific steps for restraining drug costs and, increasingly, his drift toward conventional, Republican boilerplate on the economy (i.e., less regulation, tax cuts) suggests that he will pose no threat to excessive pharma profits.
The Democratic candidate, Hillary Clinton, also represents no clear and present threat to the drug companies. Although she has spoken more vituperatively against them – and agrees that Medicare should be given the authority to negotiate prices currently forbidden by law -- she has clearly stated her opposition to a single-payer health care system, which would empower the government to regulate pharmaceutical charges. Her campaign and the Clinton Foundation have also received more contributions from pharma companies and its executives than any other candidate that participated in either party's presidential primaries.
The gerrymandered way in which Republican-controlled statehouses have drawn U.S. House districts also guarantees that even if Democrats win the presidency and control of both Congressional branches (as they did in 1992 and 2008), the chances for a fundamental reform of the health care system are minimal to none.
No wonder the CEO of Pfizer, Ian Read, publicly stated that he is unconcerned about the election of either Donald Trump or Hillary Clinton.
Yet the industry is preparing a major campaign aimed at changing public opinion.
In his celebrated Of the First Principles of Government, the 18th century British philosopher David Hume asked why "the many are governed by the few," while the majority often acts with "implicit submission" against "their own sentiments and passions" in deference "to those of their rulers."
The reason for this was not difficult for Hume to discern. It is not force or its threat that leads the majority to act against its own interests in most situations.
It is public opinion.