By Josh Keefe
While both political parties
have denounced the rising cost of prescription drugs, neither Democrats nor Republicans have done much to address the
problem. But this summer, a new tool to restrict the rising prices of drugs
developed with taxpayer dollars has been introduced by the two U.S. senators
who don’t belong to either party.
The mechanism works like this:
Drug manufacturers who take federal money to develop drugs must keep their U.S.
prices in line with the prices they charge in other economically advanced
nations — typically much lower than drug prices in the U.S.
The system would prevent
pharmaceutical companies from effectively double-charging U.S. consumers by
using their tax money for research and then charging them some of the steepest
prices in the world at the pharmacy. Pharmaceutical companies, who pour
millions of dollars into both the Democratic
and Republican parties, are against the idea, which is perhaps why the fix
is being pushed by Bernie Sanders of Vermont and Angus King of Maine, the only
independents in congress.
The U.S. has the highest level
of per capita pharmaceutical spending of any nation on Earth,
according to the Organisation for Economic Co-operation and Development (OECD).
And while Americans spend more than any other country to buy their drugs, they
also spend more than any other country to develop
those same drugs.
In June, King successfully
added language to the 2018
military spending bill (still working its way through congress) that would
allow the Department of Defense to take away exclusive patents from drug
companies that benefitted from DoD funding if their drug price in the U.S.
rises above the median price in seven foreign countries with similar economies.
Then last week, Sanders
introduced legislation that would tie the prices of drugs made with
government funding to costs in other countries. Unlike King’s language,
Sanders’ bill would expand the concept beyond the DoD. The bill requires
companies taking federal funds to develop drugs to enter into “reasonable
pricing” agreements with the Secretary of Health and Human Services.
“Under this insane system,
Americans pay twice. First we pay to create these lifesaving drugs, then we pay
high prices to buy those drugs,” wrote Sanders in a New York Times op-ed. “Our government must stop being
pushovers for the pharmaceutical industry and its 1,400 lobbyists.”
The bill defines a “reasonable
price” as no more than the lowest prices charged in countries with GDP and per
capita income similar to the U.S. (The bill specifically pegs pricing to
countries in the Organization for Economic Co-Operation and Development.)
The proposal is the latest salvo in Sanders’ effort to stop the military from
granting French pharmaceutical company Sanofi Pasteur the exclusive right to
sell a Zika vaccine.
“The days of allowing Sanofi
and other drug makers to gouge American consumers after taking billions in
taxpayer money must end,” Sanders told HuffPost this week. “That is why I am introducing
legislation to demand fairer, lower prices for the Zika vaccine and for every
drug developed with government resources.”
But just how much government
support the industry receives is up for debate. While industry estimates put total annual private R&D
spending by biopharmaceutical companies at about $60 billion per year, the government’s contribution is much
harder to nail down. The National Institutes of Health, the government’s main
funder of health research, told International Business Times in a statement
that “there is no exact number which would accurately capture NIH investment”
in drug development. In total, NIH spends about $32
billion on medical research annually.
Last year, the National Center
for Science and Engineering Statistics estimated that in 2014, total federal
government R&D spending on pharmaceuticals and medicines was
just $267 million. But that number takes into account only money given
directly to drug makers.
“Federal support of biopharma
R&D isn’t going to take the form of big checks cut to companies,”
Scott Hinds, a pharmaceutical industry analyst for investment research
firm Sector and Sovereign Research told IBT in an email. “Rather, it’s going to
come through funding grants and research for academics, government employees
and other non-industry scientists.”
“Typically, then, if anything
of commercial value is discovered in this sponsored research, those compounds
will be sold or licensed to drug companies who have the capital and resources
to spend on later phase (more expensive) clinical development necessary to
bring them to market,” Hinds said.
Other experts told IBT federal
support of drug development goes well beyond just funding research.
“It’s not so much the money we
are actually spending through NIH. We are providing huge value to companies in
tax credits, other incentives, expedited FDA approval, exclusivity agreements…
all of these are benefits,” Rachel Sachs, an associate professor at the
Washington University in St. Louis School of Law told IBT.
Sachs cited a 50 percent tax
credit for the development of “orphan” drugs as an example of the government’s support of
the pharmaceutical industry. The value of that orphan drug tax credit is
estimated to be worth $50 billion between 2016 and 2025, according to the Treasury Department.
But the benefits flow both
ways between the pharmaceutical industry and Washington, which is why the
Sanders bill faces an uphill battle to reach the floor for a vote. The bill was
sent to the Senate Health, Education, Labor, and Pensions committee, which is
chaired by Lamar Alexander. Pharmaceutical and health products companies gave
more to Alexander’s campaigns between 2011 and 2016 than did any other
industry, according to the Center for Responsive Politics. And even if the bill gets
to the floor, it would face opposition from the industry’s 1,350 lobbyists, who don’t come cheap. The pharmaceutical
and health products industry has spent a remarkable $144 million on lobbying so far in 2017, more than double
what the defense industry has spent over the same time period.
“Proposals to insert a
reasonable pricing clause ignore the substantial R&D investments and risks
undertaken by the private sector in developing and bringing a new medicine to
patients,” the Pharmaceutical Research and Manufacturers of America (PhRMA),
which has spent $14 million on lobbying so far this year, told IBT in a
statement. “Such proposals undermine critical intellectual property rights and
incentives, create substantial uncertainty for companies and establish
completely arbitrary criteria for taking intellectual property. This could
chill critically needed collaborations and investment by the private sector to
address some of our most serious unmet medical needs.”
The pharmaceutical industry,
which says it costs $2.6 billion to bring a drug to market (while
spending more on marketing than research) made a
similar argument against “reasonable pricing” more than two decades ago, when
it successfully persuaded the Clinton administration to repeal a “reasonable
pricing” rule implemented by President George H.W. Bush.
After the 1980
Bayh-Dole Act, private researchers could patent intellectual property they
developed using federal funding. But by the late 1980s, outrage over the $8,000
annual cost of AIDS drug AZT, which was the only drug approved for
treatment of the disease at the time, prompted the Bush administration to
implement price control measures. In 1989, NIH was granted the right to review
the introductory prices of drugs that were produced with government research,
over the objections of the pharmaceutical industry.
“The Bush administration felt
it was appropriate to expect some concessions on pricing if the government was
involved in the drug and funding research,” James Love, director of Knowledge
Ecology International, told IBT. Love researched the original rule while
working for Ralph Nader’s Center for the Study of Responsive Law in the early
1990s.
But unlike the specific
criteria for reasonable pricing put forth in the Sanders bill, the Bush rule
was a bit ambiguous. “The agreements said something to the effect that it had
to show some relationship between price and government’s role in developing the
drug... Nobody really knew what it meant,” Love said.
Just six years later, the Clinton administration rescinded the order on the grounds
that it was harmful to innovation.
“The pricing clause has driven
industry away from potentially beneficial scientific collaborations... without
providing an offsetting benefit to the public,” NIH Director Dr. Harold Varmus
said at the time. “Eliminating the clause will promote research that can
enhance the health of the American people.”
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