The high cost of medications in the United States has been a major topic of discussion since well before President Obama signed the Affordable Care Act into law in 2010. While it is possible to get extraordinarily good health care in the U.S., the price of such care — or any care — is often prohibitive, often far more than in any other developed country.
Hepatitis C is a virus that can cause progressive liver damage, and also increases the likelihood of developing liver cancer or cirrhosis. Because it is a bloodborne illness, hepatitis C often spread through sharing needles or receiving blood transfusions. Until very recently, the disease had no cure.
Enter Gilead Sciences, Inc., a biopharmaceutical company that developed a pill called sofosbuvir (brand name: Sovaldi), which completely cures the disease over a twelve-week period. It is more effective when combined with a newer drug, ledivaspir, to make a cocktail patented as Harvoni.
The treatment is hailed as a miracle drug, especially in parts of India that are dramatically affected by hepatitis, commonly spread there (as in other developing countries) by tainted needles used and re-used for injections and transfusions and exacerbated by impoverished and cramped living conditions.
When Gilead began to market Sovaldi in 2013, it set the price at $1,000 per pill and $84,000 for a full course of treatment — at least, in the United States. Because Gilead entered a series of marketing agreements with generic drug companies in India, and because India is extremely strict in limiting what can and cannot be legally patented there, a month’s worth of sofosbuvir treatment initially retailed there for the equivalent of USD$300 (or, as the meme says, $900 for the full course of treatment; the cost of treatment further dropped over time to about $4 a pill). Patents guarantee exclusive sales for at least a decade in the United States before competition from generic drugs is allowed.
This was excellent news for the estimated 12 to 18 million people who suffer from chronic hepatitis C in India, but a terrible blow to many of the 3.5 million sufferers in the U.S. to whom the far higher costs were prohibitive.
But while it is true that the price of this miracle treatment is eye-poppingly higher in the United States than it is in India (or just about anywhere else in the world), it’s reductive to say that this is simply the end result of Big Pharma owning American politicians. There are several other reasons that drug prices are an estimated two to six times higher in the United States than they are in any other country. The Wall Street Journal found during the course of a 2015 investigative piece about drug pricing that the domestic market is rife with secret deals, shadowy middlemen, and trade secrets:
But for certain drugs—those paid for by Medicare Part B—prices are public. By stacking these against pricing in three foreign health systems, as discovered in nonpublic and public data, The Wall Street Journal was able to pinpoint international drug-cost differences and what lies behind them.
What it found, in the case of Norway, was that U.S. prices were higher for 93% of 40 top branded drugs available in both countries in the third quarter. Similar patterns appeared when U.S. prices were compared with those in England and Canada’s Ontario province. Throughout the developed world, branded prescription drugs are generally cheaper than in the U.S.
The upshot is Americans fund much of the global drug industry’s earnings, and its efforts to find new medicines. “The U.S. is responsible for the majority of profits for most large pharmaceutical companies,” said Richard Evans, a health-care analyst at SSR LLC and a former pricing official at drug maker Roche Holding AG.
The reasons the U.S. pays more are rooted in philosophical and practical differences in the way its health system provides benefits, in the drug industry’s political clout and in many Americans’ deep aversion to the notion of rationing.
The United States’ pricing is as much a matter of the American culture of individualism as it is an issue of big pharmaceutical companies’ greed. In other countries, the state-run health systems do research and negotiations with drug companies directly, often completely refusing to buy drugs in bulk if the prices are too high or the treatments too precarious. Because the medical care is state-run (control that many Americans are unwilling to hand over to the United States government), the state is effectively the only large buyer for drugs in the region.
On the other hand, in the United States, there is no central state-run health care. Even now, in the Affordable Care Act era, the market is splintered and multi-tiered. There are large state-run entities like Medicare, true, but there are also individuals, municipalities, states, and regional entities that are negotiating with drug companies, which does nothing to drive down the prices of drugs in bulk.
But higher drug prices in the United States aren’t just a function of greed. According to health care analysts, American drug costs go a long way toward funding biopharmaceutical research and development, which allows innovation to flourish. A 2012 brief published by the U.S. Department of Health and Human Services examined the costs and benefits of medical and pharmaceutical innovation:
In the health care market, where consumers frequently do not directly pay for their health care, products may be purchased whose price exceeds the consumer’s true willingness to pay leading to over-investment in innovation. Also, developers may innovate by developing pharmaceuticals that do not offer benefits beyond what is already on the market to gain market share. This innovation for “business stealing” may make society worse off, as the fixed costs of development are incurred, but there is no improvement in health outcomes.
On average, research suggests that additional innovation is welfare enhancing. Lakdawalla et al. looked at the welfare impacts (health and medical spending) of lowering U.S. prices to E.U. levels. They constructed a 5 step microsimulation model that 1) calculated new drugs introductions based on new molecular entities mapped to seven diseases, 2) identified the top-selling drugs, 3) estimated health effects of top-selling drugs based on clinical trial results, 4) estimated effects of changes in revenue on innovation, and 5) mapped health status and health care use. They found that price controls have modest benefits in the short run and substantial costs in the long run. Alternatively, reductions in co-payments increased utilization, increased revenues, and innovation benefitting current and future generations. Scherer critiqued their model on several points. One, the estimate for the impact of changes in revenues on innovation was based on Acemoglu and Linn’s estimate, which Scherer believes is too high and was calculated based on population counts, not revenues. Two, the authors limited the model to blockbuster drugs which earn extraordinary profits and so would still be likely to be developed even with lower revenue expectations.
The challenge in the U.S., then, seems to be weighing the benefits of innovation with the drawbacks of having state-of-the-art treatments that are too expensive for anyone but the very rich to be able to afford.
But to return to Gilead and the case of the hepatitis C cure: its sales of Sovaldi and Harvoni has been incredibly lucrative for the company. However, in March 2016, a federal jury in California ordered the company to pay $200 million to Merck, a competing pharmaceutical company that recently released its own hepatitis C treatment, on the grounds that Gilead illegally used Merck’s patents to develop sofosbuvir. (Merck was asking for ten percent of Gilead’s profits through 2015 in damages, plus royalties from all U.S. sales.) In May 2016, a federal judge reopened the case after discovering that a key witness misrepresented himself as a scientist, and then lied to the jury about claims that he was responsible for developing the drugs for Merck.
On 6 June 2016, a federal judge overturned the $200 million jury award and threw out the March 2016 patent infringement judgment that Merck had won against Gilead Sciences, Inc. The judge was scathing in the court document:
Candor and honesty define the contours of the legal system. When a company allows and supports its own attorney to violate these principles, it shares the consequences of those actions. Here, Merck’s patent attorney, responsible for prosecuting the patents-in-suit, was dishonest and duplicitous in his actions with Pharmasset, with Gilead and with this Court, thus crossing the line to egregious misconduct. Merck is guilty of unclean hands and forfeits its right to prosecute this action against Gilead.
For the foregoing reasons, IT IS HEREBY ORDERED that Merck is barred from asserting the ’499 and ’712 Patents against Gilead and Merck shall take nothing by this suit.
Meanwhile, Gilead is working on yet another new treatment for hepatitis. This means that while the prices of treatments for the viruses that cause various forms of hepatitis may soon go down in the United States, although it’s unlikely that the prices will fall as low as $4 a pill (or even $10 a pill) any time soon.
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