How the Government Can Bring Down Drug Prices


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What if we could save millions of lives, eradicate a contagious disease, and repair a structural defect in the U.S. economy, all by asking the question: What is reasonable?

This question—put another way, What is just?—is at the center of a health-care initiative brewing in, of all places, Louisiana. If successful, it could eradicate hepatitis C and put a fatal crack in a drug-pricing system that systematically balloons costs and kills the sick.

The word “reasonable” comes from a piece of federal law known as 28 U.S. Legal Code 1498. It establishes the government’s right to infringe on privately held patents, should doing so serve the national interest. The government, in return, is obligated to give the patent holder what the code calls “reasonable compensation.” As with eminent domain, the government determines “reasonable” by the specifics of the case.

In the case of the gestating Louisiana initiative, the patent in question covers a grotesquely overpriced new cure for hepatitis C, a highly contagious blood disease that kills more Americans than every other infectious disease combined.

In the interests of commerce, public health, and national defense, the U.S. government has been disrespecting patents since it stole proprietary designs for cannonballs during the Revolutionary War. The government has routinely excercised the right ever since. In 2009, the U.S. Treasury invoked its soverign immunity under 1498 to assume liability for banks using patented check-fraud software. Tragically, and curiously, 1498 has only fallen out of use with regard to pharmacueticals. Up until the early 1970s, it was often used to spur the production and import of cheap generic drugs. During the Vietnam War, for example, the Pentagon’s Medical Supply Agency used the law to procure dozens of generics and name-brand drugs at pennies to dollars. In the case of the antibiotic nitrofurantoin, the Defense Department decided that a “reasonable” reimbursement for the patent holder was 2 percent of the sticker price.

In recent years, there have been blips about reviving 1498 to make the new hepatitis C cure accessable. Articles have explored the subject in leading legal and medical journals such as the Yale Journal of Law and Technology; in 2015, Bernie Sanders asked the Department of Veterans Affairs to use its 1498 prerogative to produce cheap generic versions for veterans. But nowhere is the rubber closer to hitting the road than in New Orleans, ground zero of the nation’s hepatitis C epidemic. In mid-June, Louisiana Health Secretary Rebekah Gee closed a month of open public comments on a stated plan to bring affordable hep C drugs, one way or another, to the people of her state.

Of the routes Gee’s office is considering, the most likely is a formal 1498 request to the Department of Health and Human Services. Under this scenario, the government would contract with companies to produce generics in violation of 20-year patents currently held by Gilead Sciences, Inc. The government would assume liability for those companies, and settle with Gilead according to the “reasonable compensation” language of 1498.

“Hep C is the prime example of a broken system, and one of the options for challenging this system is 1498,” says Dr. Gee, a Democrat appointed by Governor John Bel Edwards in January of 2016. “People are dying instead of receiving treatment, because the companies can price what they want, with no acccountability. It’s unacceptable.”

In her previous job as director of Louisiana’s Medicaid program, Gee had a front-row seat to two overlapping phenomena: The known cases of hepatitis C in the state tripled to more than 70,000, and Gilead began rolling its three-month cures onto the market with pricetags upwards of $100,000.

“Last year, we could only afford to treat 3 percent of the 35,000 people who need treatment under my purview, which is the uninsured and Medicaid,” says Gee. “It would cost us almost $1 billion to treat everyone. Our state budget is already in crisis. We just can’t afford it.”

Neither can other states with large infected populations. Kentucky spends $50 million—7 percent of its Medicaid budget—to treat fewer than 900 people with the new drugs. Even under its most generous discount programs and negotiated reductions, Gilead charges tens of thousands of dollars for a single patient’s treatment, putting the cure out of reach for the vast majority of the five million-plus Americans with the disease.

The result is a brutal rationing system.

“The way Medicaid and managed care organizations have it structured, you have to be very, very sick to gain access to the cure, meaning you have to be pretty close to needing a liver transplant,” says Alice Riener, a community health expert with the Louisiana Hepatitis C Coalition.

Gilead, meanwhile, has been doing just fine. Since 2014, its hep C drugs have reaped the company tens of billions in profits—dwarfing the R&D and buyout costs it expended along the way to acquiring the patents. The company’s gold-plated cure is actually not expensive to make. One study presented at last year’s International Aids Conference in Durban estimated the most important regimens could be produced for between $62 and $216. (These numbers find a more accurate reflection in developing countries, where Giliad-licensed generics are sold for a fraction of the U.S. price. Some Americans have begun procuring the drugs from India, the way they once traveled to Canada to buy HIV medication.)

The price of the drugs not only keeps people from being cured, it actively exacerbates the spread of the disease. Because most at-risk people know they can’t afford treatment, they decline testing, preferring ignorance to shame and helplessness.

“It’s hard to convince someone to get tested if they know there’s nothing anybody can do to help them,” says Alex Niculescu, a volunteer with Trystereo, a harm reduction group in New Orleans. “There’s a lot of stigma around hep C, and if they know they can’t get the cure, what’s the point? It’s a silent disease, so they figure they can live with it for decades. And it keeps spreading.”

If invoking 1498 only alleviated human misery and eradicated a communicable disease, it would be worth breaking Gilead’s patents tomorrow. But there’s another baseline urgency, a malignancy at the core of the national economy. The failure to restrain drug prices is a major reason the United States spends more than $3 trillion a year and rising on health care—close to a fifth of GDP, the most of any country. In recent years, Gilead’s hep C drugs have singlehandedly driven spikes in drug spending, despite the relatively minuscule number of people taking the drugs. Treating every American with the disease would cost well over $200 billion at current prices; doing so with off-label generics would cost, on the outside, $1 billion.

With experts predicting the rise and spread of new infectious diseases in a warming world, now seems like an especially good time to dust off 1498. Pointing to the Zika virus as a sign of things to come, Dr. Gee sees the fight for affordable hepatitis C drugs as part of an inevitable shift toward a new public health paradigm.

“If there is a serious outbreak of Zika, or something like it, we’d have to invoke 1498,” she says. “If the government is going to pay for the development of a vaccine, then why give it to Sanofi so they can price it however they want? It would break state budgets. We need to come up with a better mechanism. We’re already in a public health crisis, but the day is coming when the public will cry out to fix pricing, and quickly.”

Hepatitis C affects more than 1 percent of the U.S. population, but is unlikely to generate much of a public outcry. It is transmitted most commonly through IV drug use and generally affects those on the social margins. 

“It’s just not a sexy disease,” says Niculescu. “Unlike HIV, it doesn’t kill rich white stockbrokers in their thirties. The closest hep C has to a celebrity spokesperson is Pamela Anderson. There’s a widespread feeling in this country that drug users are a burden, that they deserve to suffer and die. We just don’t care about these people, or that drug companies are profiting from their deaths. I’m against going the usual advocacy-reform route of begging Gilead for deals and crumbs. It legitimizes the idea that some lives matter more than others.”

At the moment, Gee is busy collating the public comments posted to her office’s website on how to proceed. She and her extended team of advisers—including local and national experts—will devise an attack plan over the summer. Some are advising her to pursue 1498, others are leaning in other directions, such as a bidding system supported by the National Academy of Medicine.

Whatever plan Gee eventually adopts, she says national political pressure will be key to fixing the crisis in drug prices. Louisiana politics is not friendly turf for building this kind of pressure behind bold progressive ideas, but Gee has a base in the state’s advocacy groups and the liberal population of New Orleans. She’s also working to expand this base to include Louisiana political leaders. Most notably, Gee has been meeting with Republican Senator Bill Cassidy, a hepatologist who, she says, “cares about the issue.”

“There is a lot of political will in this country to fix health costs before they eat our state education budgets alive, but Pharma is incredibly powerful, and we’re going to need a coalition to get it done,” she says.

Unfortunately, if one man embodies the system that prizes shareholder value over human life and public health, it is the current Secretary of Health and Human Services, Tom Price. It is a irony of history that Price—who has made his career and fortune as a self-dealing defender of medical industry profits—could very well decide the immediate fate of the first attempt to use 1498 against a drug company since the Ford administration.

“Right now, we’re deciding on a plan,” says Gee. “Then we’ll take it to Tom Price and say, ‘This is the best option in the interest of public health. People are suffering and dying in my state because we can’t afford this medicine. It is unacceptable. Let’s fix it.’”

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