We are fortunate to live in an era of tremendous medical advances. In the last few weeks alone, the Food and Drug Administration (FDA) has approved breakthrough products for pediatric cancer, a rare form of blindness, and now adult non-Hodgkin's lymphoma.
These breakthroughs have been enabled by tremendous progress in science, as genetic technologies are beginning to live up to some of hopes of the scientists who sequenced the human genome two decades ago.
Now, Kite Pharmaceutical has a CAR therapy lymphoma product for adults priced at almost $400,000. Speculation in the trade press on the price of Spark Therapeutics gene therapy for blindness suggest prices of up to $1,000,000.
This rapid flurry of unprecedented pricing benchmarks for new drugs has not given us time for public debate about the appropriateness of these pricing strategies, nor their impact on the health insurance premiums we all pay.
All of these technologies are based on science funded by the National Institutes of Health. The core technology underlying the Spark and Novartis products are licensed from the University of Pennsylvania, while Kite Pharmaceuticals has licenses from the NIH, the University of California, San Francisco and ongoing cooperative development agreements with the National Cancer Institute.
In these cases, pharmaceutical manufacturers are packaging publicly funded science, and being paid handsomely for their efforts.
Kite Pharmaceuticals, which was acquired by drug manufacturer Gilead on Aug. 28 of this year for $12 billion, just received FDA approval for their lead lymphoma therapy. It is now left to Gilead, the company that priced the hepatitis drug Sovaldi at $85,000 per patient, to control the future pricing of Kite’s technology. Sens. Hatch and Wyden led the Finance Committee’s scathing review of Gilead’s pricing practices for Sovaldi in 2014.
What is the unique in the pharmaceutical market is the lack of outcry from hospitals and physicians over these unprecedented prices. In any other industry, if the cost of your core technology faced astronomical price increases, you’d quickly see a backlash.
Unfortunately, in health care, the federal government has developed a pricing program that make many hospitals a beneficiary of this aggressive pricing strategy on the part of pharmaceutical manufacturers. You see, hospitals buy drugs at a significant discount from the list prices under a program called 340B, and then are able to sell them at above the list price to Medicare and private health insurance plans. This markup on drug costs is now the largest profit center of many of these hospitals.
Currently, we lack any tools to understand or reconcile these prices with any concept of the value to taxpayers who funded this innovation, or to those with private health insurance or who pay taxes to support the public health insurance programs, or to individuals receiving these therapies who struggle with the financial consequences of their illness. We cannot allow this lack of any reasonable pricing strategy to be the new standard in healthcare and expect anything but a significant escalation of this price war.
Politicians on both sides of the aisle should be concerned about this overt exploitation of both public science and public health insurance. We need to quickly develop a consensus approach to responding to this crisis. In this discussion, we will need to consider radical approaches, including price negotiation and regulation, and maybe even a windfall profits tax on NIH-funded products.
We all want innovation in new medical technologies. However, we cannot afford innovation at any price. Fortunately, prices of pharmaceutical products don’t represent the cost of the underlying technology but a choice managers at pharmaceutical firms make about their leverage in negotiating prices with insurers and the government.
To date, we have removed all of the tools that would make this a fair negotiation for those of us paying for innovation. This is not a tenable strategy going forward.
Kevin A. Schulman, M.D. is a professor of medicine and an associate director at Duke Clinical Research Institute and a visiting scholar at Harvard Business School.