Drug pricing poses danger to all

The drug companies are ripping us off, pill by pill, shot by shot. Instead of working to earn reasonable returns by relieving our suffering and saving lives, they now focus on profits above all. Their main targets are insurance companies. But when insurance companies take a hit, they bump up premiums to employers or the government. So we all pay – in taxes, reduced take-home pay, copayments and deductibles.

This problem brought an 84-year-old patient to my office in tears. She had been diagnosed with hepatitis C years ago when the virus was first recognized. An old interferon-based treatment caused months of severe side effects and ultimately failed. Her lab tests and physical exam showed advancing cirrhosis. Sovaldi, a new drug that eliminates the virus in about 90 percent of such patients and reduces the risk of hepatitis-related liver cancer and other complications, seemed to offer an answer.

The cost turned out to be huge, more than $80,000 for the three-month course of treatment. She was covered by a Medicare HMO plan, but not well enough. Her copayment would be $3,000 per month. The $9,000 total would wipe out her remaining life savings.

When Sovaldi hit the market it set a new standard for drug pricing. The $80,000-plus treatment charge meant that if every American who could benefit received the drug, the annual cost would exceed that of all other drugs prescribed in the U.S. combined.

The road to this break-the-mold pricing started when Gilead Sciences Inc. acquired the drug’s developer, Pharmasset, for $11 billion in fall 2011. Pharmasset’s chief executive made an estimated $255 million on the deal and its 82 employees each averaged an estimated $3.3 million. Sovaldi was not yet on the market, and Gilead took a double markup on the drug, charging enough to more than cover not only Pharmasset’s costs of research and development, but also the high price paid for the company.

The pharmaceutical industry has learned to expect such windfall profits because it knows insurance companies can’t say no to unique, patented drugs that have no competitors. Insurance becomes a lever that releases massive payments to the drug companies. If Gilead had to sell its drugs to individuals using their own dollars, how many $80,000-plus treatments could it sell?

The drug companies defend their pricing practices by stoking fears that curbing exorbitant profits will kill the golden goose of drug development. The fallacy of this claim can be seen in pricing shenanigans in the post-patent and generic drug market, where research costs have long since been paid for.

Turing Pharmaceuticals, for example, attracted attention when it acquired sole rights to the post-patent drug Daraprim, the first-line treatment for toxoplasmosis. Finding itself with a monopoly, Turing promptly marked up the price 5,000 percent. The transparency of its actions and the striking magnitude of the increase prompted criticism even within the industry. But Turing’s profiteering was merely a more extreme version of the standard industry practice – “gotcha pricing” on unique drugs that maximizes profit at the expense of all other values.

Gilead and others point out that Sovaldi is cost effective compared with paying for other health care services that the drug might prevent. Compared with having a liver transplant, for instance, Sovaldi’s price tag still allows for some overall savings. This argument is a lot like a plumber billing a customer $20,000 to fix a leaky pipe under the sink. Considering the costs of a possible flood, it might seem defensible. In the real world, any plumber charging based on “what you saved” by preventing a potential catastrophe would lose business to competitors. Gilead’s Sovaldi doesn’t have competitors; insurance just pays the bill.

Fortunately, my patient’s story ends well. After many anxious weeks, she qualified for help from the Patient Assistance Network, a nonprofit that has funded care for more than half a million underinsured patients. She’s nearing the end of her treatment and has no detectable virus in her blood. The outcome represents a miracle of American biotechnology, but the back story is a travesty. Americans who paid into Medicare shouldn’t have to depend on charity for the treatment they need. And philanthropy should not support windfall profits for drug companies.

With other new drugs in the pipeline set to impose Sovaldi-like prices, drug costs will continue to lead the growth of America’s economy-killing health care expenditures. In the area of generic and post-patent drugs, the Food and Drug Administration needs to start regulating pricing practices to protect the public. Reforming the financing of drug development will require more creativity. The government should consider subsidizing research and development to reduce the industry’s risk, in return for oversight on pricing that would allow reasonable returns on investment.

Sovaldi’s price tag is an unmistakable warning sign – the drug pricing system is a danger to the health of the nation.

Dr. Daniel J. Stone is an internal medicine and geriatric medicine specialist in Los Angeles. He wrote this for the Los Angeles Times.