Health Reform Job One: Stop the Gouging! | Part 2


We Need Legal Assaults On The Greediest Providers!

When a patient is hospitalized, or diagnosed with a deadly disease, they often have no choice about the cost of their treatment.

They are legally helpless, and vulnerable to price gouging.

We need more legal protection of patients. In some cases we need price controls.

Next in this three-part series, I discuss how we could challenge Big Pharma by lessening regulation of generic drugs, having the government take over production and establishing price review boards.

Assault Phase Three – Challenge Big Pharma

Step OneLess Regulation of Generic Drugs

If an off-patent drug has been approved by other first-world nations, this would constitute automatic approval by the FDA.

The price gouging around Epipen would have ended quickly, if new versions of genetic drugs did not require an FDA approval process. We should let reputable drug companies produce whatever generic drugs they want.

If an office products company like Staples tried to charge $50 for a box of paper clips, a competitor would have a price of $1 on the street in a week.

But not in the drug industry!  Thanks to the FDA, Staples paper clips would in effect be protected for years even though no patent is involved. Competitors would be bogged down for years in litigation, or in waiting for the FDA to prove that no one could cut their finger on a non-Staples clip.

It is wasteful for the FDA to take over two years to review competitive generic drugs, when the original version has been on the market for years and poses zero danger to anyone. Companies must be prevented from ‘stealing’ popular and effective drugs that have been in the public domain for years, and then claiming them as private property until their competitors can slog through FDA approval. By the time the FDA gives anyone else permission to compete, the price gougers will have made their fortune and can move on to their next scheme.

 Step Two – The Government Could Take Over Production

For drugs with no  competitors,   the Government can still stand up to the drug companies….and here’s how…………

Under 28 U.S.C. § 1498 (“Section 1498”), the federal government has the power to use or manufacture any patented product, and must provide only “reasonable” compensation to the patent holder. The government could therefore elect to contract with another manufacturer to produce a cheap generic version of expensive patented drugs;

 Section 1498 was used routinely by federal agencies in the 1960s and early 1970s to obtain cheaper  drugs. In one notable case, the Defense Department purchased an antibiotic from a generic manufacturer in Italy at a 72 percent discount on the price charged by Pfizer, the drug’s patent owner.

During the Anthrax scare in 2001, the Bush administration threatened to use Section 1498 to purchase generic versions of Bayer’s antibiotic ciprofloxacin, which proved enough to coax Bayer to cut its price in half.

Recently, Louisiana health secretary Rebekah Gee has been urging federal officials to employ this  law to cut the price of hepatitis C drugs. The state’s 35,000 uninsured or Medicaid-enrolled residents with hepatitis C are projected to cost Louisiana $764 million per year at the drugs’ retail rate.

 Section 1498 is a big stick, and if the administration bothered to pick it up, the threat of this power alone could compel drugmakers to slash prices.

Sen. Elizabeth Warren and Rep. Jan Schakowsky (D, Il)  have introduced a bill to allow the federal government to start manufacturing prescription drugs, when:

  • no company is producing a generic version of the drug
  • only one or two companies are producing a drug and there is either a price hike or a drug shortage
  • only one or two companies are producing a drug, the price makes it difficult for some patients to afford, and the World Health Organization classifies it as an “essential medicine”

Step Three– Establish Pharmacy Price Review Boards

Unfortunately, not all drugs can easily be produced at a government-run company.  The ‘bio-similars’ and genetically-engineered drugs today are aimed at relatively tiny numbers of patients ,and are virtually impossible to copy. A new drug to prevent infant paralysis has been priced by Novartis at $725,000 a year, and will help only 2,000 patients.

Why are we allowing Novartis to set the price in the first place? I would argue that we should not spend that much on any one patient; and if we do so, it ramps up insurance rates relentlessly.

For these drugs, we will  need to impose ‘price ceilings.’ We should have a full=fledged ‘Pharmacy Price Review Board’ as exists in numerous other nations.

The Board would review all new drugs, plus all existing drugs that have prices over $30,000 a year.

Drug companies will have the opportunity to present their case for current prices; however, as their usual motive is just ‘greed’ I suspect they will not have much success. These drugs might never be able to be copied as generics for $100, but they certainly do not really cost $100,000  or more per patient.

This process will take some time. Whereas surprise billing in hospitals tends to be  caused by a few bad actors, the entire American drug industry is currently based on price-gouging. We will have to try a series of reforms.

Bob Hertz is a retired insurance broker. He learned about health care from Uwe Reinhardt, Joseph White, Dr. Robert Evans, and George Halvorson a fellow Minnesotan.

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