Why you should care

Because drug prices are too damn high.

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For the more than 3 million Americans infected with potentially deadly hepatitis C, a relatively new cocktail of drugs is considered a miracle cure. The problem: Gilead Sciences’ list price is $84,000 for a 12-week treatment.

From Martin Shkreli’s Turing Pharmaceuticals jacking up the AIDS drug Daraprim from $13.50 per pill to $750 in a single day to Mylan’s allergy-fighting EpiPens rising from $100 to $600 in just a few years, Americans are getting sick of astonishing drug prices. It’s why Donald Trump and Bernie Sanders both used their presidential campaigns to roast Big Pharma. In a primary-season rally in south Georgia, an overflow crowd egged on Trump when he invoked “the pharmaceutical industry,” each syllable dripping with disdain.

Americans pay some of the highest drug costs in the world, disproportionately footing the bill for research and development …

His proposal that day was to allow Medicare to use its purchasing heft to negotiate lower prices, a popular but unproven cost-cutting move that would require Congress to buck one of Washington’s mightiest lobbying groups. But as one-party Obamacare talks languish and Trump searches for bipartisan wins, he has powerful but controversial executive-branch tools at hand to tackle the problem. For example, under an obscure law, the government can essentially invoke the concept of eminent domain on Gilead’s patents to make a generic version of the hepatitis C drugs for a few hundred dollars per treatment and reimburse the company a “reasonable amount.” Harvard and Yale professors writing in the journal Health Affairs posit the government could treat hepatitis C patients on Medicaid or other programs for $1,000 apiece — the drug’s price in India — and send additional royalties to Gilead but still spend a tiny fraction of the drug’s published cost.

Americans pay some of the highest drug costs in the world, disproportionately footing the bill for research and development that has saved and improved countless lives. A skewed pricing system is hard to decipher, with astronomical list prices, rebates to certain customers and a thicket of rules around generics and market competition. Meanwhile, Canada, the United Kingdom and other countries negotiate far lower drug prices for access to their massive national health systems. Two popular remedies, bandied about for years, are to allow administrators of the Medicare Part D prescription drug benefit to negotiate prices with pharmaceutical companies, or to let Americans import drugs from Canada. Both have their shortcomings.

In 2007 the nonpartisan Congressional Budget Office projected that savings from Medicare negotiation would be minimal, in part because Medicare allows almost every drug into the program, so it has little leverage to negotiate lower prices without the threat of exclusion for its more than 40 million customers. “There can be a trade-off between lower prices and greater access,” says Juliette Cubanski, Medicare policy analyst for the Kaiser Family Foundation. “In the [Department of Veterans Affairs health system] that trade-off kind of tilts in the direction of lower prices. And in Medicare for the most part that tilts in the direction of greater access.”

In January a Sanders-led effort to allow drug imports fell short in the Senate in an unusual vote that saw a dozen Republicans join Democrats in support, while 13 Democrats voted no. Food and Drug Administration officials from both parties are concerned about counterfeit drugs crossing the border. Joshua Sharfstein, a public health professor at Johns Hopkins University and former top FDA official, tells OZY the idea is questionable if it involves monkeying with manufacturers’ supply chains. But the government could make it workable for generics by finding reputable overseas drugmakers. “If the FDA could have brought in another version of Daraprim, we wouldn’t have had the problem we had with Martin Shkreli,” Sharfstein says.

Trump frequently has expressed support for Medicare negotiation. He took an Oval Office meeting in March with Democratic Reps. Elijah Cummings and Peter Welch to discuss proposals to let Medicare bid for drugs and get more rebates for Medicaid from manufacturers. (The legislature in Cummings’ home state of Maryland also is trying out a novel approach: allowing the state attorney general to sue drugmakers for price gouging.)

Yet Trump also met with drug company CEOs and Stephen Ubl, the head of the manufacturers’ lobby group known as PhRMA, in January, dispensing more industry-friendly rhetoric. The president vowed to “streamline” the FDA approval process and make sure other countries “pay their fair share” for American pharmaceuticals. PhRMA, one of Washington’s heaviest hitters, spent $19 million on lobbying in 2016 and has swatted away price controls for years. The pharmaceuticals and health products industry overall spent $244 million on lobbying last year, according to the nonpartisan Center for Responsive Politics.

The Trump administration has yet to make a significant policy move. In late March, Health and Human Services Secretary Tom Price told Congress “we’re in the process with the White House of formulating a strategy to address” drug prices. Congressional Democrats have pushed HHS to invoke a 1980 law allowing the government to sidestep a patent if taxpayers paid to help develop the drug and it’s not “available to the public on reasonable terms.”

Then there is the eminent domain-style power, which has been used by the Department of Defense on night-vision goggles and lead-free bullets. During the post-9/11 anthrax scare, the George W. Bush administration threatened to invoke the law, known as Section 1498, on Bayer’s antibiotic Cipro — leading the manufacturer to cut the price and amp up production. There’s no equivalent panic today, but the eye-popping headlines keep accumulating. In December, Biogen announced the list price for the first year of a new treatment for a rare spinal disorder: $750,000.

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