Stratospheric Drug Prices Are Curable

Most of American’s activity is focused on work, education, entertainment, and social interactions. Some exercise intentionally to maintain their health and some get healthful exercise through their employment, but it’s unlikely that much of our attention is focused on health care.  One sixth of our economy is tied to health care, but we can remain unaware of the costs since payments are often made for us by a proxy – our insurance company or the government.

That all changes when we face a serious illness. Anguish over the efficacy of treatments and the overriding problem of cost become constant worries for us and our families.  Those problems are prominent for three examples – Hepatitis C, advanced colon cancer, and chronic myelogenous leukemia.

Hepatitis C is a viral infection of the liver that can cause fatigue, fever, jaundice, nausea, vomiting, and joint pain. Hepatitis C is spread through contact with an infected person’s blood (e.g. needles, or toothbrushes).  There are 2 million people with Hepatitis C in the US and another 150,000 become infected each year. Gilead Sciences released a drug called Sovaldi that is an effective cure for 90% of cases, but it is priced at $84,000 in the US.  Gilead has introduced a newer drug called Harvoni that may be even more effective.

Chronic myelogenous leukemia (CML) represents about one-fifth of adult leukemias. CML can cause upper quadrant and bone pain, loss of appetite, weight loss, mild fever and bleeding. There are 29,000 people with CML in the US and another 5,900 cases arise each year.  The cause of CML remains undetermined, but Novartis’s Gleevec drug, used regularly can repress the symptoms over periods of 10 years or more at a US price of $92,000 per year. Ariad’s Ponatinib is another viable treatment for CML, but it costs $138,000 per year in the US.

Advanced colorectal cancer is a treatment-resistant malady with a disheartening 5-year survival rate. Symptoms include rectal bleeding, fatigue, anemia, weight gain, nausea, vomiting, and sensation of incomplete bowel evacuation.  The causes of colon cancer are age, diet, alcohol, diabetes and other factors. Colorectal cancer is the second leading cause of cancer deaths, and 96,800 new cases of colon cancer are found each year. Chemotherapy improved the 5-year rate from 8% to 11%.  Genentech’s Avastin ($5,000 per month) and Sanofi’s Zaltrap ($11,000 per month) each extends life for an advanced colorectal cancer patient by an average of just 42 days.

Treatments for these illnesses are outrageously expensive. The drugs alone can cost $100,000 per year, and patients without insurance or government backing can face daunting out of pocket costs and often bankruptcy.  Medicaid faces similar financial stress when its beneficiaries show up with prescriptions for these “miracle drugs.”  To slow the pace of these outsized costs, Medicaid and states are requiring prior approval, further medical screening, or in the case of Hepatitis C patients, a significant delay and illicit drug screening. To provide Sovaldi to all Medicaid and prison patients who have hepatitis C would cost $55 billion.

Compared with the US, prices of these drugs are about 50% less in Australia and Europe and up to 80% lower in countries where governments negotiate prices they will pay for drugs. Prices are lower still in underdeveloped countries.  To demonstrate social responsibility, Novartis provides Gleevec treatment without charge for 50,000 low-income people, of whom 5,000 are in the US.

The law in India specifies compulsory licensing for life saving drugs, and places “drug cap” pricing on any drug of significant value. The Indian government uses persuasion that could be called extortion — drug companies must sell at prices the government accepts or else they will withhold the drug’s patent in India and let Indian pharmaceutical makers manufacture without paying royalties.  These hardball tactics are the Indian government’s reaction to a Gilead price offer of $900 for Sovaldi in India (99% discount off US prices).  Earlier, Novartis’ Gleevec was similarly hamstrung and Novartis still sells no Gleevec in India.

Medicaid might tinker with preferred drug lists and require patients to jump through administrative hoops, but they cannot negotiate for more affordable prices. The “Omnibus Budget Reconciliation Act of 1990 mandates that drug makers give all Medicaid programs a 23 percent rebate off the Average Manufacturers Price (AMP) for all prescription drugs purchased.”  Even at the discounted $77,000 price the drug is still unaffordable.  A few states have begun negotiating better prices, but they cannot band together to bring the clout needed to push prices down to foreign country levels.

The “inducement” granted to the pharmaceutical industry in 1990 needs to be rethought in light of public needs in 2014 and beyond. Pharmaceuticals should be available in a free market, not in a government protected cartel or monopoly.  Government should be a smart consumer, not a brainless wallet.  Ordinary Americans cannot afford the miracle drugs for themselves and they certainly cannot afford the outrageous taxes that will be needed for Medicaid and prisons to buy miracle drugs.  Anti-negotiation laws need to be removed so that market forces can replace US government’s imposition of monopoly pricing on consumers.

Alan Daley is a retired businessman who writes forThe American Consumer Institute Center for Citizen Research

 

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