An innovative solution to the high cost of prescription drugs is emerging in one of the unlikeliest places: Louisiana’s state government.
The Louisiana health secretary, Dr. Rebekah Gee, has called attention to the plight of tens of thousands of state residents suffering from infection with the hepatitis C virus who cannot afford lifesaving treatment. She also is publicly considering the idea of asking the federal government to invoke a century-old law to help them. Using this law, the government could authorize a generic drug company to make a copy of an existing hepatitis C medication more than a decade before patents are due to expire. The pharmaceutical industry has strongly objected, arguing for unrestricted power to set prices.
What happens next could answer the critical question of what comes first: the pharmaceutical industry’s power over pricing or the public’s health.
Louisiana is among the states most affected by hepatitis C — but many patients can’t afford treatment
Hepatitis C is the leading cause of death from infectious diseases in the United States — responsible for more fatalities than HIV and tuberculosis combined. This blood-borne infection slowly and painfully destroys the liver and can lead to liver cancer and death. An estimated 73,000 Louisianans suffer from hepatitis C, placing Louisiana among the 10 most affected states in the nation. There is no vaccine for hepatitis C, and for years, the available drugs were toxic and often unsuccessful.
Beginning in 2014, several medications that cure hepatitis C within weeks of therapy became available, revolutionizing care for infected individuals.
The catch was the price tag.
Initially sold at more than $80,000 per course of treatment, the drugs have remained very expensive even as multiple products entered the market, with discounted prices still in the range of $20,000. In Louisiana and elsewhere around the country, most of the people suffering from hepatitis C have health insurance covered by the state Medicaid program, are uninsured, or are in state prison. As a result, much of the burden to pay for these medicines falls on already strapped state governments. It is therefore no surprise that most of those infected have not been treated, and the disease may even be spreading faster than the cure.
The cruel result is that because of funding constraints, Louisiana’s Medicaid program requires that a hepatitis C patient be suffering from advanced liver disease to qualify for treatment. Delaying treatment can force patients to live with fatigue, nausea, and pain every day, greatly diminishing their quality of life. As they experience more liver scarring, their risk for liver cancer increases as well. “The bottom line for me is my patients are developing organ damage and I have to wait until they have organ damage until I can access medication for hepatitis C,” Jason Halperin, an infectious disease clinician in New Orleans, told the Washington Post.
A reasonable estimate of the additional cost of providing treatment to all in need in Louisiana exceeds $1 billion, roughly 50 times what Louisiana’s Medicaid program currently spends each year for hepatitis C medications. It will be a decade or more before any of the available treatments lose patent protection and cheaper generics become available.
How Louisiana came up with an innovative approach to drug pricing
Frustrated that few people with hepatitis C in Louisiana had been treated, Secretary Gee began exploring alternative strategies last April to lower the cost of the medications. Pursuing a recommendation from a committee of the National Academies of Sciences, Engineering, and Medicine, she asked for input from legal, medical, and public health experts and from the public on an unusual idea:
The federal government could hold a voluntary competition to purchase a license for one of the existing medications at a heavily discounted price. If the price is right, this could dramatically expand access to care; however, it is quite possible no company would voluntarily agree to participate.
Gee also asked for input about a more aggressive option: The Department of Health and Human Services (HHS) could invoke 28 USC Section 1498 of the US patent law, which would allow the government to authorize a company to manufacture a low-cost copy of a hepatitis C treatment for specific disadvantaged populations. The company could then receive approval from the Food and Drug Administration for their copy as a generic drug, but could only sell to the government while the patents remain in force. In turn, HHS would provide “reasonable” compensation to the patent holder. Through established case law, it is clear that this compensation could be far less than market prices.
Many federal agencies take advantage of “government patent use” today to purchase different types of products, and the federal government used it regularly in the 1950s and ’60s to increase access and affordability for pharmaceuticals. The HHS secretary in the Bush administration, Tommy Thompson, threatened the use of Section 1498 during the anthrax attacks after 9/11.
Dozens of Louisiana citizens, clinicians, and patients wrote to HHS in support of these ideas.
The pharmaceutical industry responded with three flawed arguments
Not so for the pharmaceutical industry. In June, the pharmaceutical trade organization PhRMA filed formal comments with the state of Louisiana on the pricing of hepatitis C treatments. PhRMA chose not to respond to Gee’s proposal, supported by the National Academies, that the federal government could attempt to license a patent voluntarily from one of the pharmaceutical companies. This was surprising, since under this option, companies’ participation would be voluntary. What PhRMA decided to take a stand on is revealing: It strongly objected to the use of Section 1498. In doing so, the organization made several arguments that exposed the weakness of its position.
First, PhRMA challenged the idea that Section 1498 can be utilized to lower prices, claiming the government can only use a patent during a time of shortage. However, this isn’t what happened in the 1950s and ’60s, when the government routinely used this statute to achieve lower drug prices. Indeed, in 1960, after the federal government purchased the antibiotic tetracycline from a generic manufacturer at a deep discount, the pharmaceutical industry trade group itself acknowledged in testimony before Congress that the primary driving force for use of Section 1498 was to allow access to “prices […] lower than those quoted by U.S. patent holders.”
Second, PhRMA argued that high prices for hepatitis C treatments are justified because of averted costs, writing that “the cost of such drugs must be evaluated in light of broader health care costs and savings.” This argument, however, rests on cost-benefit analyses that focus on the costs for patients with hepatitis C (which will be lower with treatment) but not the net savings to the health care system (which are far from clear). For example, curing hepatitis C will reduce the number of liver transplants for patients suffering from the infection. However, as other patients will receive these transplants, there may be no reduction in liver transplant costs. From the standpoint of state’s budget, these costs are not averted.
How unlikely is it that states will find hundreds of millions or billions of dollars to invest in hepatitis C treatment that may not produce significant budgetary savings? Peter Bach of Sloan Kettering and Mark Trusheim of MIT have noted that the market is highly skeptical; the value of companies that manufacture hepatitis C treatments assumes that only a small fraction of those in need will receive care at current prices.
Third, PhRMA invoked the need to support innovation, by assuring prices high enough to cover the costs of successful and failed drug development. One response to this argument is to point out that government research funding supported the development of the hepatitis C treatments. Another is to note that these companies have likely already recouped their investment in the development of these treatments many times over or will do so in the near future.
It is a fair point that indiscriminate use of government patent authority would impact incentives for investing in innovation. But to be clear: This is not what Louisiana is considering. The alternatives Secretary Gee has put forward would only apply to populations without access to treatment today. This would expand the base for hepatitis C treatments and, even at a reduced price, would lead to a net increase in pharmaceutical revenue.
Big Pharma's demands and Louisiana's needs are miles apart. Which one will prevail?
Gee is pursuing expanded access that helps patients now, with more revenue for companies to reward shareholders and invest in new generations of medicines. In fact, this approach is already deployed by pharmaceutical companies worldwide. Companies commonly license their products, including treatments for hepatitis C, to be sold at lower prices in the developing world. The same drug that cures a patient with hepatitis C in California for $20,000 may be available for about 1 percent of the price in Egypt.
What is blocking such progress in the United States is the reluctance of the industry to accept that large neglected populations also exist here — in Medicaid programs, among the uninsured, and, most dramatically, in the criminal justice system. A tiny number of more than 100,000 prisoners with hepatitis C receive treatment, even though many are in detention long enough for a full course of care.
This is a missed opportunity of the highest order in public health. An expert committee at the National Academies of Science, Medicine, and Engineering has projected that it is feasible to reduce the number of new cases of hepatitis C by 90 percent by the year 2030, but only if there is “prompt, large-scale treatment of hepatitis C.” The experts recognized that “the price of these drugs is a major obstacle to unrestricted treatment, especially for institutions of limited means such as the prison system and state Medicaid offices.”
To date, PhRMA has put forward only two answers to this challenge: Either states like Louisiana pay exorbitant prices to access the new drugs or they watch as thousands of their citizens continue to suffer untreated. A writer for the conservative Federalist urged Louisiana to spend big for cures, arguing that “when Big Pharma wins, people win.” However, like most states, Louisiana has an annual balanced budget requirement. Therefore, at market prices, providing people better access to the new treatments would require massive tax hikes or cutting budgets for roads and schools. It is obvious that the demands of Big Pharma and the needs of Louisiana are miles apart; which will prevail?
Gee and her counterparts in other states are deciding on next steps. This has created space for pharmaceutical manufacturers to step forward and offer a discounted price that makes addressing the hepatitis C crisis possible. Doing so would mean recognizing that there is a “win-win” opportunity in selling medications at lower prices for people who otherwise would have no access. If companies fail to do so, states should press their case that voluntary licensing of a hepatitis C medication — and, if that fails, government patent use under Section 1498 — is the only option left to protect the health of their citizens.
Dr. Joshua M. Sharfstein is professor of the practice in the Department of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health. Joy J. Lee, BS, is a graduate student at the Johns Hopkins Bloomberg School of Public Health. Rena M. Conti, PhD, is an associate professor of health policy and economics in the Department of Pediatrics and the Department of Public Health Studies at the University of Chicago.