FacebookTwitterGoogle+RedditEmail

Expensive Drugs and Medicaid

by

The media have been full of hand-wringing pieces in recent weeks over Sovaldi, the new Hepatitis C drug. The issue is that Sovaldi is apparently an effective treatment for this debilitating and possibly deadly disease. However Gilead Sciences, the patent holder on Sovaldi, is charging $84,000 for a 3-month course of treatment.

There are 3 million people with Hepatitis C in the United States. This puts the tab at over $250 billion if everyone with the disease got treatment. That would be a major cost to private insurers and public sector programs like Medicaid. This is the basis for hand wringing. Should we require private insurers to pick up the tab for Sovaldi for people with Hepatitis C? Does it have to be everyone or maybe just the very sick? And should already stretched state Medicaid programs have to bear this additional burden?

The answers are much easier for anyone who doesn’t mind bucking the drug companies. Sovaldi is expensive in the United States because we give Gilead Sciences a patent monopoly on the drug. It uses this monopoly to charge a price that is far above the free market price. We know the free market price because a generic version is already available in Egypt for $900 per treatment. Indian generic manufacturers believe that they can produce the drug for less than $200.

This presents a simple and obvious way around the $84,000 question: send people to Egypt or India for a treatment that costs less than one percent as much. We could pay for family members to go as well, and stay a full 3-months, and still come out tens of thousands of dollars ahead. Certainly this can be presented as an option to people, perhaps throwing in a $5,000 or $10,000 incentive to make the trip worth their while.

This should be a simple way for states to save vast amounts of money. They will all have large numbers of people suffering from Hepatitis C, many of whom are covered by the state’s Medicaid program. For example, with a bit less than 12 percent of the country’s population, California would have around 350,000 people with Hepatitis. If one-third are on Medicaid, and the total cost for treating someone in another country is $20,000, the state could save more than $7 billion by offering the option to be treated outside of the United States. For Texas the potential savings by this calculation would be around $4.8 billion, and for New Jersey the savings would be around $1.7 billion.

These huge potential savings should present a great opportunity for governors like Jerry Brown, Rick Perry, or Chris Christie to show themselves as tough guys who are willing to do what it takes to save taxpayers’ money. That is, unless they are scared to stand up to the drug industry.

The industry types will of course yell and scream that they won’t be able to finance their research if people could just evade their patent monopolies by going to countries where generics are available. This is true, but it just points to absurdity of using a 16th century mechanism to finance 21st century research. If we didn’t rely on patent monopolies to finance drug research we wouldn’t face difficult questions about paying tens of thousands of dollars or hundreds of thousands of dollars for drugs that are essential for people’s health or life.

If we just paid for the research upfront, with few exceptions, drugs would be cheap. We wouldn’t have to worry about whether the government or private insurers could pay the vast sums demanded by drug companies with legal monopolies on the sale of a drug.

We do have experience with the government financing research. The bulk of U.S. military research is financed by the government. While there are many tales of inefficiency and corruption, the defense industry does produce highly sophisticated weaponry. There also is a huge advantage of public financing of drug research rather than weapons research; there is no reason for secrecy. Full and prompt disclosure of research findings would be a condition of funding.

There is also a precedent. We spend $30 billion a year on research conducted by the National Institutes of Health, funding that has strong support across the political spectrum. However this is mostly for basic research. It would be necessary to double to triple the level of funding with the explicit expectation that the money would be used for the development and testing of new drugs.

We care about these drugs because peoples’ lives and health are involved, but there is also a huge amount of money at stake. We spent more than $380 billion last year on pharmaceuticals, or roughly 2.2 percent of GDP. Given the enormous waste and corruption in the current system, it would be reasonable to expect that economists would be heavily involved in trying to design a better system.

But, you will find almost no economists even giving the issue of drug research any thought. By contrast, they get hysterical about the possibility that the Export-Import bank may not be reauthorized. The Ex-Im Bank may mean a great deal to Boeings profits, but its impact on the economy as a whole is less than one tenth as large as the amount of money at stake with patent monopolies on prescription drugs.

It would be great if a governor or other prominent figure in public life would be willing to put the public’s health and the economy ahead of the drug companies. It might not be as much fun as suing President Obama, but it would make a much bigger difference in people’s lives.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

This article originally appeared on Al Jazeera.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:
June 28, 2016
Jonathan Cook
The Neoliberal Prison: Brexit Hysteria and the Liberal Mind
Paul Street
Bernie, Bakken, and Electoral Delusion: Letting Rich Guys Ruin Iowa and the World
Anthony DiMaggio
Fatally Flawed: the Bi-Partisan Travesty of American Health Care Reform
Mike King
The “Free State of Jones” in Trump’s America: Freedom Beyond White Imagination
Antonis Vradis
Stop Shedding Tears for the EU Monster: Brexit, the View From the Peloponnese
Omar Kassem
The End of the Atlantic Project: Slamming the Brakes on the Neoliberal Order
Binoy Kampmark
Brexit and the Neoliberal Revolt Against Jeremy Corbyn
Ruth Hopkins
Save Bear Butte: Mecca of the Lakota
Celestino Gusmao
Time to End Impunity for Suharto’s Crimes in Indonesia and Timor-Leste
Thomas Knapp
SCOTUS: Amply Serving Law Enforcement’s Interests versus Society’s
Manuel E. Yepe
Capitalism is the Opposite of Democracy
Winslow Myers
Up Against the Wall
Chris Ernesto
Bernie’s “Political Revolution” = Vote for Clinton and the Neocons
Stephanie Van Hook
The Time for Silence is Over
Ajamu Nangwaya
Toronto’s Bathhouse Raids: Racialized, Queer Solidarity and Police Violence
June 27, 2016
Robin Hahnel
Brexit: Establishment Freak Out
James Bradley
Omar’s Motive
Gregory Wilpert – Michael Hudson
How Western Military Interventions Shaped the Brexit Vote
Leonard Peltier
41 Years Since Jumping Bull (But 500 Years of Trauma)
Rev. William Alberts
Orlando: the Latest Victim of Radicalizing American Imperialism
Patrick Cockburn
Brexiteers Have Much in Common With Arab Spring Protesters
Franklin Lamb
How 100 Syrians, 200 Russians and 11 Dogs Out-Witted ISIS and Saved Palmyra
John Grant
Omar Mateen: The Answers are All Around Us
Dean Baker
In the Wake of Brexit Will the EU Finally Turn Away From Austerity?
Ralph Nader
The IRS and the Self-Minimization of Congressman Jason Chaffetz
Johan Galtung
Goodbye UK, Goodbye Great Britain: What Next?
Martha Pskowski
Detained in Dilley: Deportation and Asylum in Texas
Binoy Kampmark
Headaches of Empire: Brexit’s Effect on the United States
Dave Lindorff
Honest Election System Needed to Defeat Ruling Elite
Louisa Willcox
Delisting Grizzly Bears to Save the Endangered Species Act?
Jason Holland
The Tragedy of Nothing
Jeffrey St. Clair
Revolution Reconsidered: a Fragment (Guest Starring Bernard Sanders in the Role of Robespierre)
Weekend Edition
June 24, 2016
Friday - Sunday
John Pilger
A Blow for Peace and Democracy: Why the British Said No to Europe
Pepe Escobar
Goodbye to All That: Why the UK Left the EU
Michael Hudson
Revolts of the Debtors: From Socrates to Ibn Khaldun
Andrew Levine
Summer Spectaculars: Prelude to a Tea Party?
Kshama Sawant
Beyond Bernie: Still Not With Her
Mike Whitney
¡Basta Ya, Brussels! British Voters Reject EU Corporate Slavestate
Tariq Ali
Panic in the House: Brexit as Revolt Against the Political Establishment
Paul Street
Miranda, Obama, and Hamilton: an Orwellian Ménage à Trois for the Neoliberal Age
Ellen Brown
The War on Weed is Winding Down, But Will Monsanto Emerge the Winner?
Gary Leupp
Why God Created the Two-Party System
Conn Hallinan
Brexit Vote: a Very British Affair (But Spain May Rock the Continent)
Ruth Fowler
England, My England
Jeffrey St. Clair
Lines Written on the Occasion of Bernie Sanders’ Announcement of His Intention to Vote for Hillary Clinton
FacebookTwitterGoogle+RedditEmail