AS THE NEW CORONAVIRUS spreads illness, death, and catastrophe around the world, virtually no economic sector has been spared from harm. Yet amid the mayhem from the global pandemic, one industry is not only surviving, it is profiting handsomely.
“Pharmaceutical companies view Covid-19 as a once-in-a-lifetime business opportunity,” said Gerald Posner, author of “Pharma: Greed, Lies, and the Poisoning of America.” The world needs pharmaceutical products, of course. For the new coronavirus outbreak, in particular, we need treatments and vaccines and, in the U.S., tests. Dozens of companies are now vying to make them.
“They’re all in that race,” said Posner, who described the potential payoffs for winning the race as huge. The global crisis “will potentially be a blockbuster for the industry in terms of sales and profits,” he said, adding that “the worse the pandemic gets, the higher their eventual profit.”
The ability to make money off of pharmaceuticals is already uniquely large in the U.S., which lacks the basic price controls other countries have, giving drug companies more freedom over setting prices for their products than anywhere else in the world. During the current crisis, pharmaceutical makers may have even more leeway than usual because of language industry lobbyists inserted into an $8.3 billion coronavirus spending package, passed last week, to maximize their profits from the pandemic.
Initially, some lawmakers had tried to ensure that the federal government would limit how much pharmaceutical companies could reap from vaccines and treatments for the new coronavirus that they developed with the use of public funding. In February, Rep. Jan Schakowsky, D-Ill., and other House members wrote to Trump pleading that he “ensure that any vaccine or treatment developed with U.S. taxpayer dollars be accessible, available and affordable,” a goal they said couldn’t be met “if pharmaceutical corporations are given authority to set prices and determine distribution, putting profit-making interests ahead of health priorities.”
When the coronavirus funding was being negotiated, Schakowsky tried again, writing to Health and Human Services Secretary Alex Azar on March 2 that it would be “unacceptable if the rights to produce and market that vaccine were subsequently handed over to a pharmaceutical manufacturer through an exclusive license with no conditions on pricing or access, allowing the company to charge whatever it would like and essentially selling the vaccine back to the public who paid for its development.”
But many Republicans opposed adding language to the bill that would restrict the industry’s ability to profit, arguing that it would stifle research and innovation. And although Azar, who served as the top lobbyist and head of U.S. operations for the pharmaceutical giant Eli Lilly before joining the Trump administration, assured Schakowsky that he shared her concerns, the bill went on to enshrine drug companies’ ability to set potentially exorbitant prices for vaccines and drugs they develop with taxpayer dollars.
The final aid package not only omitted language that would have limited drug makers’ intellectual property rights, it specifically prohibited the federal government from taking any action if it has concerns that the treatments or vaccines developed with public funds are priced too high.
“Those lobbyists deserve a medal from their pharma clients because they killed that intellectual property provision,” said Posner, who added that the language prohibiting the government from responding to price gouging was even worse. “To allow them to have this power during a pandemic is outrageous.”
The truth is that profiting off public investment is also business as usual for the pharmaceutical industry. Since the 1930s, the National Institutes of Health has put some $900 billion into research that drug companies then used to patent brand-name medications, according to Posner’s calculations. Every single drug approved by the Food and Drug Administration between 2010 and 2016 involved science funded with tax dollars through the NIH, according to the advocacy group Patients for Affordable Drugs. Taxpayers spent more than $100 billion on that research.
Among the drugs that were developed with some public funding and went on to be huge earners for private companies are the HIV drug AZT and the cancer treatment Kymriah, which Novartis now sells for $475,000.
In his book “Pharma,” Posner points to another example of private companies making exorbitant profits from drugs produced with public funding. The antiviral drug sofosbuvir, which is used to treat hepatitis C, stemmed from key research funded by the National Institutes of Health. That drug is now owned by Gilead Sciences, which charges $1,000 per pill — more than many people with hepatitis C can afford; Gilead earned $44 billion from the drug during its first three years on the market.
“Wouldn’t it be great to have some of the profits from those drugs go back into public research at the NIH?” asked Posner.
Instead, the profits have funded huge bonuses for drug company executives and aggressive marketing of drugs to consumers. They have also been used to further boost the profitability of the pharmaceutical sector. According to calculations by Axios, drug companies make 63 percent of total health care profits in the U.S. That’s in part because of the success of their lobbying efforts. In 2019, the pharmaceutical industry spent $295 million on lobbying, far more than any other sector in the U.S. That’s almost twice as much as the next biggest spender — the electronics, manufacturing, and equipment sector — and well more than double what oil and gas companies spent on lobbying. The industry also spends lavishly on campaign contributions to both Democratic and Republican lawmakers. Throughout the Democratic primary, Joe Biden has led the pack among recipients of contributions from the health care and pharmaceutical industries.
Big Pharma’s spending has positioned the industry well for the current pandemic. While stock markets have plummeted in reaction to the Trump administration’s bungling of the crisis, more than 20 companies working on a vaccine and other products related to the new SARS-CoV-2 virus have largely been spared. Stock prices for the biotech company Moderna, which began recruiting participants for a clinical trial of its new candidate for a coronavirus vaccine two weeks ago, have shot up during that time.
On Thursday, a day of general carnage in the stock markets, Eli Lilly’s stock also enjoyed a boost after the company announced that it, too, is joining the effort to come up with a therapy for the new coronavirus. And Gilead Sciences, which is at work on a potential treatment as well, is also thriving. Gilead’s stock price was already up since news that its antiviral drug remdesivir, which was created to treat Ebola, was being given to Covid-19 patients. Today, after Wall Street Journal reported that the drug had a positive effect on a small number of infected cruise ship passengers, the price went up further.
Several companies, including Johnson & Johnson, DiaSorin Molecular, and QIAGEN have made it clear that they are receiving funding from the Department of Health and Human Services for efforts related to the pandemic, but it is unclear whether Eli Lilly and Gilead Sciences are using government money for their work on the virus. To date, HHS has not issued a list of grant recipients. And according to Reuters, the Trump administration has told top health officials to treat their coronavirus discussions as classified and excluded staffers without security clearances from discussions about the virus.
Former top lobbyists of both Eli Lilly and Gilead now serve on the White House Coronavirus Task Force. Azar served as director of U.S. operations for Eli Lilly and lobbied for the company, while Joe Grogan, now serving as director of the Domestic Policy Council, was the top lobbyist for Gilead Sciences.
Aon is proposing to buy Willis Towers Watson in an all-stock transaction that would combine the second- and third-largest insurance brokerages, Bob writes.
Why it matters: Employers hire Aon and Willis Towers Watson to help them choose health plans and pharmacy benefit managers for their workers, but the major consultants don’t always steer companies toward the best deals.
What’s next: The two companies don’t expect to close the deal until the first half of 2021, indicating they know antitrust regulators will be closely scrutinizing this.
Sen. Chuck Grassley, R-Iowa, and Ron Wyden, D-Ore., are demanding Optum and Express Scripts turn over documents on how they determine insulin prices.
Leaders of the Senate Finance Committee demanded Cigna and Optum produce critical documents over the pricing of insulin, with a subpoena threat looming.
Cigna failed to produce any documents related to the committee’s request back in April 2019 and Optum didn’t produce essential documents, according to letters to both companies sent earlier this week by committee leaders. The documents would relate to the actions of pharmacy benefit managers such as Cigna’s Express Scripts on the rising costs of insulin.
“Cigna’s unwillingness to provide the documents we requested fits an industry-wide pattern of fighting efforts to shed light on PBMs’ practices,” the letter (PDF) to the insurer read.
Sens. Chuck Grassley, R-Iowa, and Ron Wyden, D-Ore., the committee’s chairman and ranking member respectively, wrote that Cigna’s failure to comply has “reached an endpoint.” The insurer has until March 10 to provide more information or face a subpoena.
UnitedHealth Group’s Optum did produce thousands of pages for the committee, but a majority of them were irrelevant, already publicly available or duplicative.
“For example, Optum has produced more than 4,000 pages of publicly available formulary information guides and internal formulary drug lists that contain virtually no information related to the insulin therapeutic class,” the senators’ letter (PDF) to Optum said.
The original request for documentation had called for internal communications that would help the committee understand how Optum made decisions on “the out-of-pocket price patients pay for their insulin,” the letter said.
Grassley and Wyden launched the investigation last February into the price of insulin, which has increased up to 500%. The senators sent letters to leading insulin manufacturers Eli Lilly, Novo Nordisk and Sanofi regarding the spike.
The senators also wanted to learn the process used for negotiations and agreements between PBMs and large plans on patient cost-sharing.
Cigna-Express Scripts said that it takes the committee’s inquiry “very seriously and have been engaged with them on this request. We are committed to being cooperative.”
Optum said that it share’s the committee’s concens regarding the high prices for insulin set by manufacturers.
“We have provided thousands of pages of documents in response to the committee’s request, and will continue to work with them on this important issue,” the company said.
My husband, Andy, has Parkinson’s disease. A year ago, his neurologist recommended a new pill that he was to take at bedtime. We quickly learned that the medication would cost US$1,300 for a one-month supply of 30 pills. In addition, Andy could obtain the drug from only one specialty pharmacy and would have to use mail order.
This was our introduction to specialty drugs.
These medications are becoming increasingly common, though many Americans are unfamiliar with the term. In 2018, the Food and Drug Administration approved 59 new medications, of which 39 are considered specialty drugs.
Specialty drugs are generally high-cost drugs requiring special handling such as refrigeration or injection, though Andy’s did not. They treat complex conditions such as cancer and multiple sclerosis.
Specialty drugs are often available only through specialty pharmacies. In addition to filling prescriptions, these outlets provide educational and support services to patients. For example, they provide refill reminders and help patients learn how to inject their drugs.
First, the term “specialty drug” is somewhat elusive and has no clear definition. In addition, government authorities and medical experts are not the ones who decide whether a medication is designated a specialty drug. Rather, the decision is entirely up to pharmacy benefit managers, or PBMs.
PBMs administer health plans’ drug benefit programs and thereby serve insurers. PBMs have been criticized for driving up health care costs. Drugs that are specialty drugs under one insurance policy are sometimes classified differently in other policies. Furthermore, some specialty drugs are simple pills that do not involve complicated instructions, and thus, it is unclear why they are categorized as specialty drugs.
The second problem is the very high cost of specialty drugs. The average price tag of the more than 300 medications that are considered specialty drugs is approximately $79,000 per year. Almost half of the dollars that Americans pay for medications are spent on specialty drugs. In fact, Medicare spent $32.8 billion on specialty drugs in 2015.
Because of these exorbitant costs, some insurers have created what they call a “specialty tier” in their health plans. In this tier, patients’ cost-sharing responsibilities are higher than they are for medications in other tiers. If your drug is placed in a specialty tier, your coinsurance payment, or the percentage of cost that you pay, may be 25% to 33% of the drug’s price.
This leads to a situation in which you may have the least generous insurance coverage for your most expensive drugs. Under some plans you might pay $10 per month for generic drugs but hundreds of dollars per month for specialty drugs. This can translate into many thousands of dollars in annual out-of-pocket costs, even for consumers with good health insurance. There are no federal regulations in the U.S. that limit drug prices or insurers’ tiering practices.
PBMs frequently require patients to purchase their medications from the specific specialty pharmacy that they own. Thus, PBMs have much to gain from designating medications as specialty drugs. Doing so may lead to significant revenues in the form of purchases at PBM-owned specialty pharmacies.
A related problem is the limiting of patient choice. Many specialty pharmacies fill prescriptions only through mail order. Consequently, patients may be restricted to using just one pharmacy and be forced to rely on the mail for delivery.
Some patients enjoy the convenience of home delivery. Others, however, prefer the traditional approach of visiting a drugstore in person. They may worry that the mail will be late, their package will be stolen, or they will be out of town when the drugs arrive. Yet, such patients do not have the option of a brick and mortar pharmacy.
Both political parties have stated that health care costs are a priority for them. However, they have shown a limited appetite for tackling this herculean problem.
The House recently passed a bill that would enable the federal government to negotiate prices with drug manufacturers. Such negotiations could well lower specialty drug prices. The Senate, however, is unlikely to approve the bill, and Congress is unlikely to pass sweeping legislation in a divisive election year.
There has been more success at the federal level in promoting consumer choice. Medicare rules establish that Medicare plans may not force participants to use mail-order pharmacies.
In the meantime, individual states offer useful solutions. For example, some have provided patients with relief in the form of capping out-of-pocket costs. California limits consumers’ expenditures to $250 or $500 for a 30-day supply, depending on the drug type.
Some states have recognized that PBMs should not be entirely free to designate medications as specialty drugs. Because such designations can significantly disadvantage patients and may increase patients’ costs, such states have statutory definitions for the term “specialty drug.”
They generally mandate that the drug require special administration, delivery, storage or oversight. Such requirements may justify purchase from a specialty pharmacy. However, drugs without complicated instructions should not be deemed specialty drugs.
One more option that some insurers have already adopted is allowing patients to obtain just a few pills or doses for an initial trial period. Sometimes individuals quickly learn that they cannot tolerate a medication or that it is ineffective. Such “partial fill” programs can spare patients the exorbitant cost of a full 30-day specialty drug supply.
Specialty drugs contribute significantly to the American health care cost crisis. Additional state, or better yet, federal laws should be enacted to constrain PBMs’ authority over specialty drugs. We need further regulation concerning drug classification, pricing, conflicts of interest and patient choice.
The following seven health insurers recently released their financial statements for the fourth quarter of fiscal year 2019:
1. Anthem saw its revenues and profits grow in the fourth quarter, but the insurer missed analysts’ earnings expectations.
2. Cigna continued to realize higher revenues and profits in the fourth quarter, thanks to its subsidiary Express Scripts.
3. Molina Healthcare ended the fourth quarter with lower net income than a year prior as premium revenues declined.
4. Humana saw total revenue and net income grow in the fourth quarter, thanks in part to growth in its Medicare Advantage business and health services segment.
5. Centene Corp. saw its revenues grow in the fourth quarter, but experienced higher-than-expected flu costs.
6. UnitedHealth Group saw its revenues just miss analysts’ expectations in the fourth quarter, but the health insurance giant’s Optum unit boosted profits.
7. Aetna‘s parent company, CVS Health, exceeded Wall Street’s expectations with its fourth-quarter results, boosted largely by its pharmacy benefit management business.