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The New Face of US Health Care: $1,000 per Pill

Federal law mandates that drugs like Sovaldi, priced at $1,000 per pill, may be subject to price regulation.

For all the talk of bending the cost curve under the Affordable Care Act, there has been a resounding silence when it comes to constraining pharmaceutical prices. (Image via Shutterstock)

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For all of the outrage about the $1,000 a day cost for Sovaldi, the new hepatitis C pill marketed by Gilead Sciences, why hasn’t anyone been arguing that federal law mandates that it be made available to the public at a reasonable price? If it is not, according to the 1980 revision of US patent law known as the Bayh-Dole Act, the government can use its “march-in” rights and insist that the drug be licensed to other manufacturers that will make the drug more widely available.

More than 3.2 million people in the United States and as many as 150 million worldwide are infected with hepatitis C. The staggering cost of providing new treatments to even a fraction of this population raises well-justified concerns in public and private insurance markets. But, because these drugs were most likely invented with federal funding, government rights under US patent law may offer a solution to skyrocketing costs.

For all the talk of bending the cost curve under the Affordable Care Act, there has been a resounding silence when it comes to constraining pharmaceutical prices. But now, the implications of financing these drugs in the Medicaid and Medicare programs, the Veterans Administration, the Department of Defense, and federal and state prisons can no longer be ignored. Needless to say, the private insurance industry is also scrambling.

The Kaiser Family Foundation reported that if only 30 percent of hepatitis C-infected Medicare enrollees were treated with Sovaldi over the next two years, program costs would increase by $6.5 billion, and premiums and outlays for all Part D (prescription drug plan) enrollees would rise by 8 percent. A view from prison looks even worse. An estimated 1.8 million people behind bars have hepatitis C, and treating even a fraction of them would cost billions of taxpayer dollars. On the Medicaid side, where hundreds of thousands of enrollees may have hepatitis C, things look equally dire.

The National Association of Medicaid Directors recently voiced its concerns to congressional leaders:

Simply put, the federal Medicaid statute is not designed to allow states to respond to this new pricing approach for pharmaceuticals. Sovaldi is just the first of many such exceptionally high-cost ‘curative’ specialty drugs. As more of the specialty drugs that are brought to market adopt this same pricing rationale, new thinking and approaches are required to safeguard the financial integrity of state Medicaid programs and ensure low-income patients are able to access appropriate medical innovations.

One classic pharmaceutical industry rationale for high drug prices is the claim that new medications save money in the long run by reducing other costs, such as hospitalizations and, in the case of advanced chronic hepatitis C, liver transplants. But the money potentially saved in the future from the reduced need for transplants will most likely not go to the insurers paying for the drugs now.

The second major rationale is the high cost of research and development. But did Gilead really spend vast sums of money on Sovaldi? No doubt the company had expenses, but the federal government most likely played a vital role in the development of this drug.

The Bayh-Dole Act is a provision of US patent law that states that almost any new drug invented wholly or in part with federal funds must be made available to the public on “reasonable terms.” (1) Otherwise, the government can use its “march-in” rights to insist that the drug be licensed to other manufacturers. (2) If the company refuses, the government can then license it to third parties that will make the drug more widely available. That’s the patent law.

The $1,000-per-pill price of Sovaldi can hardly be considered reasonable. But was it in fact developed through federal funding? The statute is, again, quite clear. Any invention that is even “conceived” (not necessarily performed, manufactured, produced or synthesized, but simply thought of in all its details) with federal funding becomes a Bayh-Dole invention, no matter when the patent is obtained. (3)

Since only the inventors have all the facts, we can say nothing with absolute certainty. But for at least 10 years, the National Institutes of Health (NIH) funded research seeking nucleosides or nucleotide blockers precisely like Sovaldi for hepatitis C. This makes it extremely likely that the inventors conceived it during this period of publicly funded, intensive research. Gilead, the current manufacturer of Sovaldi, stepped in only after the science showed great promise and the final phases of clinical trials were underway. And step in it did – with $11 billion in cash to buy the small company, Pharmasett Inc., where much of the work was being done.

Pharmasett’s founders, Raymond Schinazi and Dennis Liotta, both academic scientists at Emory University, received millions of dollars of grants from the NIH for this work. It’s hard to call buying a company, which has already done the bulk of the risky and speculative research for a promising new drug, research and development.

It is inconceivable that health-care costs in this country will ever be brought under control without addressing the issue of pharmaceutical prices and expenditures, particularly for this emerging wave of specialty drugs. This is the new face of US health care. Yet, unless prices are reined in, people will suffer and die unnecessarily and financing for the entire health-care system will be undermined. Policy makers in Washington should seriously consider enforcing the public’s rights under Bayh-Dole. In the 35 years since it was enacted, the government has never seen fit to use this provision. Now might be a good time.


1. 35 U.S.C. §201 (f)

2. 35 U.S.C.§203

3. 35 U.S.C. §201 (e)