It is a truth universally acknowledged that prescription drug prices in the United States of America are far too high. President Trump promised to take action to reduce drug costs, but he has yet to reveal concrete policy proposals. Legislators have introduced several bills to deal with the problem, from Senator Ron Wyden’s C-THRU bill to Senator Amy Klobuchar’s bill to allow Medicare to negotiate prescription drug prices.
Out of the most expensive drugs in America, the cheapest of them is Viekira Pak. It is made by AbbVie, used to combat Hepatitis C and costs $34,600 per treatment. In 2014, the U.S. median household income was $51,939, meaning that this drug cost 66% of that income. In other words, the cheapest drug on this list would have cost two-thirds of what the median American family makes in a year.
And the other medicines are even more jaw droppingly expensive. The two most costly drugs are Sovaldi, which costs $73,800 per treatment, and Harvoni, which costs $87,800. Both drugs are used to treat Hepatitis C and are made by a company called Gilead Sciences. When Gilead first introduced Sovaldi onto the market back in 2013, it demanded $84,000 for twelve weeks of treatment, leading to widespread criticism. The Senate Committee on Finance later issued a report observing that “while publicly saying it prioritized patient access, Gilead set Sovaldi’s price at a level where ultimately many patients would not receive treatment. Sovaldi was on the market for almost a year without serious competitors, allowing Gilead to maintain a high effective price despite efforts by many payers to negotiate volume or treatment discounts or rebates.”
Moreover, it is a stretch to say that Gilead developed Sovaldi. A company named Pharmasset performed the drug’s initial development and started the process of getting it approved by the Food and Drug Administration (FDA). In 2011 Gilead bought the company for $11.2 billion and later completed the approval process.
Such high prices only occur in America; other countries pay much less for prescription drugs. The Senate report notes that “the pricing strategy for Sovaldi in non-U.S. markets contemplated significantly lower prices than what would be set for U.S. consumers.” And Sovaldi’s high cost had a substantial impact—and a harmful one. Medicare, Medicaid, and the Bureau of Prisons reported much higher spending to treat Hepatitis C once Gilead’s drugs were on the market. In 2014, “these programs combined to spend at least $5.2 billion for Gilead’s HCV [Hepatitis C] therapies in calendar year 2014 before rebates--$4.4 billion attributable to Sovaldi and more than $800 million to Harvoni, which only gained FDA approval in mid-October of that year.” Additionally, to manage these costs, state Medicaid programs had to start developing access restrictions to control costs, and in some cases legislatures had to enact new laws and authorize more money. Federal costs went up as well; this high price has wound up costing Medicare billions and led to higher deductibles and out-of-pocket costs for seniors.
Let that sink in: Gilead bought the rights to a drug that another company had developed and set the price as high as they thought they could go without sparking a public outcry. Large numbers of consumers could not access this medicine because the price was too high. This drug’s high cost also caused state and federal healthcare spending on drugs to skyrocket, and Gilead’s new drugs accounted for nearly all of those increased costs. To deal with this crisis, state healthcare programs had to scramble to get additional funding and had to limit patient access to certain medicines.
These are not the signs of a fair, competitive, or remotely just prescription drug system. These are signs of market failure.
Gilead also cannot claim ignorance. It was aware that demanding such a high price for Sovaldi would put strain on Medicaid programs. Gilead repeatedly stated that its primary concern in developing and marketing Sovaldi was to treat the largest number of patients with Hepatitis C possible. But when confronted with evidence that Sovaldi’s $84,000 price tag was harmful, the company refused to offer substantial discounts and made no changes to ensure the drug was more affordable. In fact, the Senate Finance Committee concluded that the price of Sovaldi was not only intended to get as much revenue as possible but to “also prepare the market for Harvoni and its even higher price.”
We are still dealing with these problems today. There is no silver bullet that will reduce drug costs, but there are a number of possible solutions, including the bills we mentioned. In our next post, we will lay out more of these reforms and how they will help.