By Alex Slusher
In the past year, Purdue Pharma, the privately held pharmaceutical company, has fallen under harsh scrutiny for its development and distribution of OxyContin.
OxyContin is a powerful and dangerously addictive painkiller which sparked the Opioid epidemic in America. The epidemic has been covered well in the news – however the widespread use of prescription opioids has cost the United States not just lives, but billions of dollars. The story of Purdue Pharma is a tragedy, but it is also ripe with examples of concepts we have discussed through the first two units of Economics.
The economic story of Purdue Pharma begins with asymmetrical information. In 1995, the FDA approved Purdue Pharma’s drug labeled OxyContin. Oxycontin was intended to be used as a moderate to severe pain killer; Purdue Pharma argued that it would be a less addictive replacement for other opioids because its release was continuous over many hours. The drug was aggressively marketed by Purdue Pharma: Sales representatives for the company instructed doctors that the drug was “virtually non-addicting” and that “fewer than 1% of users became addicted”. Purdue Pharma issued each of these claims without conducting a single clinical trial on the addictive nature of the drug they were producing. As early as 2001, Purdue Pharma began receiving complaints regarding the addictive nature of their drug. However, the company continued to market its drug just as belligerently. Despite information that the drug could be deathly addictive, the company continued to profit. They racked up billions of dollars in pharmaceutical capital while their consumers fell into deathly traps of addictions. Why? Because Purdue Pharma had information that their consumers did not.
So, how did Purdue Pharma manage to get their drug into just about every crevice of America? It is simple – they used incentives. Purdue Pharma, as well as many other prescription pain medicine companies, incentivized doctors to promote their products by paying them handsome fees to speak positively at conferences and other events about the medicinal use of opioids. Furthermore, much of the medicare incentive package for doctors is based on patient surveys, which incorporate questions about pain. Studies report between half and three fourths of doctors feel pressure to prescribe opioid due to patient surveys. Additionally, Purdue Pharma rewarded their most successful sales representatives handsomely: in some years they passed out as much as $40 million in bonuses. These financial incentives helped motivate people to spread OxyContin like a forest fire.
This now leads me to my third point, the evident externalities of the epidemic that Purdue Pharma had a lion’s share in creating. The founding family of the company, the Sackler’s, have made a fortune off their painkillers. The families net worth is estimated at $13 billion, and the company has generated over $35 billion in revenue. Meanwhile, the public cost of their business has been incredibly high. From 1999 to 2017, more than 700,000 people have died from an opioid overdose. On average, 130 Americans die from an opioid overdose everyday. While not all of these deaths can be attributed to Purdue Pharma, their work in marketing and enabling these drugs to the free market was crucial to the emergence of this epidemic. However, the public cost exceeds that of simply lost lives. The Centers for Disease Control and Prevention estimates that the total economic burden of prescription opioid misuse is $78.5 billion including the costs of healthcare, lost productivity, addiction treatment, and criminal justice involvement. This is a prime example of an externality: while the Sackler family has reaped the profits of a multi-billion dollar pharmaceutical conglomerate, the United States people and government have been forced to compensate massively for the negative impact this drug had on the country.
Keefe, Patrick Radden. “The Family That Built an Empire of Pain.” The New Yorker, The New Yorker, 28 Feb. 2019, www.newyorker.com/magazine/2017/10/30/the-family-that-built-an-empire-of-pain.
Khullar, Dhruv, and Anupam B. Jena. “Do Incentives Nudge Physicians to Prescribe Opioids for Pain?” STAT, STAT, 6 Oct. 2017, www.statnews.com/2016/08/18/opioids-pain-prescribing-physicians/.
National Institute on Drug Abuse. “Opioid Overdose Crisis.” NIDA, National Institute on Drug Abuse, 22 Jan. 2019, www.drugabuse.gov/drugs-abuse/opioids/opioid-overdose-crisis.
“Opioid Overdose.” Centers for Disease Control and Prevention, Centers for Disease Control and Prevention, 19 Dec. 2018, www.cdc.gov/drugoverdose/epidemic/index.html.