This is a story of cause and effect — a tale of repeated and calculated public policy decisions that have now led to a predictable outcome.
This story begins 25 years ago, when the Clinton administration rescinded a rule that required pharmaceutical companies to charge Americans reasonable prices for medicines developed at government expense. Some progressive lawmakers tried to reinstate the rule, but Republicans and Democrats joined together to halt those initiatives.
In the ensuing years, the Obama administration refused Democratic lawmakers’ demand to invoke existing federal laws to force down the price of critical medicines. Meanwhile, the GOP also blocked legislation to let Medicare use its purchasing power to negotiate lower prices for prescription drugs.
All of that reflected the lobbying, campaign contributions and indomitable bipartisan power of the pharmaceutical industry in Washington. And it led to a result that this newsletter has been warning about, as Gilead just announced that it will charge privately insured Americans more than $3,000 each for a 5-day COVID treatment that was developed with financial support from the government.
That’s a $3,000 price tag for a government-sponsored drug treatment that experts say the company could offer at $10 and still make a profit.
It remains unclear how much of the $3,000-per-patient cost — if any — will be covered by insurers, and how much will be yet another out-of-pocket expense for sick people. What is clear is that for many Americans, the price will be significantly higher than the one charged to customers in other countries, whose governments — unlike Medicare — are permitted to negotiate lower prices for all of their residents.
“Price Is In No Way A Hindrance To Ensuring Rapid And Broad Treatment”
In his open letter announcing the pricing scheme, Gilead’s CEO Daniel O’Day cast the pricing scheme as an altruistic and selfless act on behalf of his company, which recently tried to monopolize the distribution of the government-funded drug in order to expand on its $5.4 billion of profits last year.
“We approached this with the aim of helping as many patients as possible, as quickly as possible and in the most responsible way,” said O’Day, who secured a $29 million pay package last year. “In making our decision on how to price remdesivir, we considered the full scope of our responsibilities. We started with our immediate responsibility to ensure price is in no way a hindrance to ensuring rapid and broad treatment.”
To justify the big price tag for the drug, O’Day touted his company’s expenditures on research. He did not mention what we reported way back in April: Various government grants financed tens of millions of dollars of that remdesivir research, and now Americans are being rewarded for that investment with the industrialized world’s highest price for the medicine.
O’Day makes an illustrative reference to the United States having a different system than the rest of the world. In one passage, he suggests that the company is deliberately aiming to recoup higher profit margins from America’s uniquely corporate-controlled health care system.
“To ensure broad and equitable access at a time of urgent global need, we have set a price for governments of developed countries of $390 per vial,” he writes. “Because of the way the U.S. system is set up and the discounts that government healthcare programs expect, the price for U.S. private insurance companies will be $520 per vial.” (The treatment uses six vials.)
The company seems to be arguing that it has no choice but to charge private insurers extra money for the drug. This is somehow its public argument, even though remdesivir research has been subsidized by the U.S. government. The company presumably plans to make a healthy profit margin on the lower prices offered to other countries’ national health care systems.
Gilead positions itself as merely an innocent bystander dealing with that unique “way the U.S. system is set up” — but it is part of an industry that deliberately created a system that is set up to encourage price gouging. It is a member of PhRMA and BIO — two major drug industry lobbying groups that have fought off efforts to reinstate reasonable pricing rules and to allow Medicare to potentially save billions of dollars by negotiating lower prices for medicines. Indeed, amid a flurry of pharmaceutical industry lobbying, legislation to reduce prescription drug prices remains bottled up in Congress to this day.
PhRMA and BIO are both members of the Partnership for America’s Health Care Future, a front group created by the health care industry to oppose Medicare for All and preserve private health insurers’ role in our medical system. BIO donated $300,000 to the group in 2018, according to its tax return.
Azar Insists “We Can’t Control” The Price Of A COVID Treatment. That’s False.
This doesn’t mean that the federal government has to just sit by and let Gilead hoard a government-sponsored medicine and fleece the sick with predatory prices.
For instance, the executive branch could invoke a longstanding patent law known as Section 1498.
“Section 1498 is a tool that the government once wielded with some frequency to tame high drug prices,” wrote Boston University’s Rena Conti and former pharmaceutical executive Paul Kleutghen in 2019. “It was used routinely by federal agencies in the 1960s and early 1970s to obtain cheaper generic drugs. Its use has waned as the pharmaceutical industry’s power grew. In 1965, the pharmaceutical lobby tried and failed to amend Section 1498 to limit the law only to instances that implicated ‘national security.’ Government officials strongly opposed any change that would ‘forgo one of the valuable powers which the Government has to assure fair prices and to remedy ‘exorbitant pricing.’ The rule remains intact today.”
Azar refuses to promise a coronavirus vaccine will be affordable for anyone:
“We would want to ensure that we work to make it affordable, but we can’t control that price, because we need the private sector to invest.. Price controls won’t get us there.”
— Michael McAuliff (@mmcauliff) February 26, 2020
Similarly, bipartisan legislation passed in 1980 created so-called “march-in rights” that empower the government to authorize another company — or the government itself — to produce a lower-priced generic version of a high-priced medicine.
The problem, of course, is that the government’s health care apparatus is controlled by former pharmaceutical industry executive Alex Azar. During a congressional hearing in February, Azar insisted that when it comes to a COVID treatment, “we would want to ensure that we work to make it affordable, but we can’t control that price.”
That’s false. Federal officials most certainly could do things to reduce the price of remdesivir and any other COVID treatment.
They just refuse.
Andrew Perez contributed reporting to this story.