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Opinion: The Looming Crisis in Drug Pricing

By Martin Delaney

April 2002

By any measure, the present system of paying for expensive anti-HIV therapies is on the verge of collapse. The AIDS Drug Assistance Program (ADAP) is failing to meet needs in many states, leading to lengthy waiting lists and reduced coverage. Nor can Medicaid keep up. Even people with private insurance programs are affected. More and more of them are reaching the life-time cap or limits on their prescription drug benefits, forcing them to join those already dependent on federal and state programs and hastening the day when these programs will become insolvent. And, as the drug prices go up, so too does the cost of private insurance. Every year, more and more people are priced out of the market for insurance and forced into the government programs, again increasing the demand on those programs. Even the wealthy few that were once able to purchase treatment for themselves cannot keep up with the upward price spiral.

To be fair, many factors contribute to this. Certainly, the increased number of people seeking treatment puts growing pressure on all payer programs. But there is simply nothing that can be done about that, other than to create better prevention programs, a vaccine or a real cure. In contrast, the upward spiral of drug prices is both unnecessary and something we should be able to change. The continual increase in the price of drugs seems to say that the pharmaceutical companies have put a higher priority on paying dividends to their stockholders than they do on saving human lives. They seem to believe that people with HIV will constantly create enough political pressure to force government and other payers to foot the bill.

In the last round of Federal negotiations over the ADAP program, the final amount agreed to by Congress and the Administration fell far short of what was needed just to keep up with the growing demand. To make matters worse -- far worse -- almost all of the pharmaceutical companies announced, without warning, sudden price increases in late 2001 and early 2002. As a consequence, roughly half the amount of new money allotted was consumed by price increases, further diminishing the number of people served. Though exact figures aren't available, a similar scenario almost certainly occurred for the Medicaid program.

Even if the needs of ADAP and Medicaid were being met (which they most certainly are not), allowing these annual price increases for private insurance and retail sales still ends up creating havoc. Each time the price goes up on the retail or wholesale level, that new price impacts on the federal price. It also pushes price thresholds higher for entire classes of drugs, and when a new drug comes out, pricing negotiations begin at record high levels. Onward and upward goes the spiral.

There is no economic justification for constantly increasing prices. The development costs of the new drugs are typically recovered within the first few years of sales. Not only are AIDS drugs already among the highest priced, but such drugs are used for a lifetime. Each new drug is a new and virtually permanent profit stream for industry and its stockholders.

That's fine for the shareholders and the companies, but unacceptable to the rest of us. It must stop. No one wants to deny industry a fair profit, nor does anyone want to drive companies away from working in AIDS. But surely there must be room for a compromise that places a higher value on human life. After years of quiet acceptance, the HIV community is rising up against drug pricing, just as it did in the early years of the epidemic.

In the last few weeks, one company, Pfizer, announced a "two-year price hold" on prices for ADAP programs, while another, Bristol-Meyers Squibb announced a one-year hold. They didn't hear the applause they were seeking, however. Unless guarantees are built in that prevent them from simply postponing a large leap in prices until the end of the "hold," such offers are meaningless. Moreover, any offer which is limited to the price paid by a single program, such as ADAP, makes little or no difference to the larger problem in the long run.

The HIV community must unite in demanding an end to the price spiral for existing drugs and an end to increased price thresholds for new drugs. There is perhaps no more critical domestic battle around HIV than the fight to stabilize, if not reduce prices. Without it, our entire system of paying for medical care for people with HIV is in jeopardy, brought about by the companies that already profit most from the disease.

Martin Delaney is the founding director of Project Inform.

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