Gilead’s COVID-19 drug isn’t cheap. Does the pricing make sense?
Gilead says the cost is justified because a long hospital stay may be more expensive. That logic is off.
Drugmaker Gilead says it’s doing you a favor by setting the price for its pending COVID-19 treatment, remdesivir, at more than $2,000 for government agencies and over $3,000 for private insurers.
“In normal circumstances, we would price a medicine according to the value it provides,” the company’s chief executive, Daniel O’Day, said in an “open letter” posted Monday.
He said faster hospital discharges resulting from treatment with remdesivir would result in “savings of approximately $12,000 per patient.”
“We have decided to price remdesivir well below this value,” O’Day said, adding that this will “ensure broad and equitable access at a time of urgent global need.”
There are a few things wrong with this.
First, there’s this bizarre argument that just because a drug may save money on hospitalization costs, a pharmaceutical company is entitled to pocket at least some of the difference.
That’s like a car mechanic charging thousands of dollars to rotate your tires because, if you got into an accident due to wear and tear, your healthcare costs could be stratospheric, so don’t complain.
Then there’s the broader issue of pricing a drug relative to its “value” to society.
In theory, there’s no limit to the value of any drug that keeps you alive, so a drug company is entitled to charge as much as it wants.
Finally, and perhaps most important, you’re not a passive bystander in this equation. You’re an investor.
In developing remdesivir, Gilead received at least $70.5 million from taxpayers, according to the advocacy group Public Citizen, which reviewed regulatory filings related to the drug.
“Initially tested by Gilead as a hepatitis C treatment, remdesivir was refined, developed and evaluated by federal scientists for Ebola and coronaviruses,” the group said.
“Federal scientists led the team that found that remdesivir was active against coronaviruses, and the federal government provided funding for Gilead’s work on the compound,” it noted.
“The National Institutes of Health ran the trial that led to remdesivir’s emergency use authorization, and public funding is supporting clinical trials around the world today.”
Which is to say, you’re as much a stakeholder in remdesivir as any Gilead stockholder. Yet you won’t share in Gilead’s profit from the drug. You’ll pay whatever the company charges.
“At this point, they have us over a barrel,” said Victoria Perez, an assistant professor of public and environmental affairs at Indiana University.
“In absolute terms, the price for remdesivir seems pretty expensive,” she told me. “They seem to be pricing it as aggressively as they can.”
There’s a reason for this. Perez said Gilead knows it’s playing Beat the Clock with a COVID-19 treatment.
“Once a vaccine becomes available,” she said, “demand for their treatment will go way down.”
Ben Wakana, executive director of Patients for Affordable Drugs, said the pricing of remdesivir “proves that Gilead aims to profiteer off the COVID-19 pandemic.”
“Gilead will realize profits far in excess of its cost to develop and produce a drug that has yet to demonstrate it will save lives,” he said.
These are tricky issues. On the one hand, no one wants to stifle innovation or research into potentially life-saving medicines.
On the other, how much is too much when it comes to drugmakers profiting off the sick?
“The price of remdesivir is set to maximize profits,” said Jose Manuel Fernandez, an associate professor of economics at the University of Louisville.
“What this means is that you cannot set it too high as people would be unwilling or unable to pay,” he said. “If you set it too low, then you are leaving money on the table.”
Nearly all other developed countries limit how much pharmaceutical companies can charge for prescription medications. Fair profits are fine. Price gouging is not.
The United States doesn’t operate like that. We allow drug companies to charge as much as they please, which is why, to cite just one example, the cost of insulin has nearly tripled in recent years for people with diabetes.
So excuse us, Gilead, if we’re a little wary of drug industry claims that you have our best interests at heart.
O’Day said the company is “in uncharted territory in pricing remdesivir.”
“As the world continues to reel from the human, social and economic impact of this pandemic, we believe that pricing remdesivir well below value is the right and responsible thing to do,” he said.
This is disingenuous on a number of levels. First, this is anything but uncharted territory. This is a huge business opportunity for any drug company that can come up with a working treatment or vaccine as quickly as possible.
Gilead isn’t doing things differently. It’s beginning the pricing conversation at an artificially high level based on the drug’s “value” to the public rather than its actual development cost.
The company is also admitting that the price of remdesivir isn’t just a reflection of its R&D cost. The price is also intended to help Gilead “maintain our long-term research in antivirals and to invest in scientific innovation that might help generations to come.”
In other words, it’s intended to support future research that may have nothing to do with the coronavirus. Such work is potentially important. But it’s not the responsibility of COVID-19 patients to pay for.
What’s needed are laws similar to those in other developed nations that ensure drug companies aren’t abusing their market power. Allowing Medicare to negotiate drug prices would be a valuable first step.
What’s also needed is greater transparency. I’ve long believed that prescription drugs should be treated like utility costs. Drug companies should be required to justify their pricing before a panel of experts.
If a sky-high price is warranted, so be it. If not, the panel of experts could help guide the manufacturer to a more equitable price, as state regulators do with power and water rates.
“I don’t really expect transparency from Gilead in its decision making,” said Colleen Carey, an assistant professor of policy analysis and management at Cornell University.
“I largely expect Gilead to make decisions that are good for Gilead and then issue press releases that put those decisions in the best possible light,” she told me.
Still, Carey said the pricing of remdesivir may be reasonable compared with other big-ticket treatments, such as cancer drugs, for which Americans pay more than anyone else.
“One thing that I am very curious about is why Gilead is announcing a price now,” she added. “Was Gilead trying to get a price out there before more data is published?”
Again, transparency is key. If Gilead wants to charge government agencies $2,340 for a five-day course of remdesivir — and 33% more, or $3,120, for private insurers — let it clearly explain why these prices are necessary.
Out-of-pocket costs for most people with insurance will be lower. But high list prices are a key factor in annual rate increases.
I, for one, would appreciate Gilead addressing the fact that remdesivir wasn’t even originally intended to help fight COVID-19. Would the pricing be as high if the drug was being used for its initial goal of treating Ebola?
I suspect otherwise. COVID-19 opens the door to the lucrative U.S. market and other developed nations. Ebola, which was largely confined to the developing world, did not.
Drug companies keep insisting they only want to help people and we should trust them to do right.
There’s a name for that: the honor system. And it’s a lousy way to practice healthcare.