How liability lawsuits drive up drug prices, stifle innovation, and harm patients

A single drug can cost up to 2 million dollars per treatment. In the light of COVID-19, patient groups and activists have been using the crisis of the moment to call for capping drug and vaccine prices and cracking down on barriers to access for patients. In developing countries, large parts of drug prices are caused by tariffs, taxes, and other regulatory barriers. The United States, on the other hand, has the highest per-capita drug expenditure and drug prices in the world.

Bringing a drug to the US market is usually critical for a company to recoup the roughly 2 billion dollars of development costs per successfully launched medicine. At the same time, the country’s unique legal liability and injury system (called tort law) leads to higher drug prices without necessarily creating benefits for patients. Once a drug has passed the rigorous approval process demonstrating safety and efficacy to the US Food and Drug Administration (FDA), it is still subject to various liability laws at the state level.

In the last two decades, Pfizer set aside a whopping 21 billion dollars for settlements following tort lawsuits against the diet drug Fen-Phen. Those who were harmed by the drug were able to seek legal recourse. That said, thousands and thousands of people who were not harmed by the drug were also able to seek compensation. So much so that it is assumed that at least 70% of the payouts went to claimants who weren’t harmed at all by the drug.

Johnson & Johnson was ordered to pay 8 billion dollars to one patient for side effects caused by the antipsychotic drug Risperdal. These are just a few examples of a plethora of multi-billion-dollar payments drug companies have been compelled to make after being dragged to court, despite them being deemed safe by the FDA.

Patient advocates who are passionate about lowering drug prices in the USA should take a serious look at liability laws and how their misuse inflates prices. Abolishing liability beyond FDA requirements could reduce drug prices in the United States by 12 to 120 billion dollars a year and therefore give many more patients access to medicines. 

In 2019, US patients spent a total of $360 billion on prescription drugs. Between 3 and 30% of this amount could be freed up for other treatments or price cuts if liability rules for FDA-approved drugs would be reformed. This change might seem radical, but it is what Congress has approved for FDA-approved medical devices. A similar preemption was extended to vaccines in the late 1980s via the Vaccine Injury Compensation Program.

Another impact of lawsuits following product withdrawals of FDA-approved drugs is that they negatively affect new investments in development. Pfizer’s settlement for Fen-Phen alone could have been used to bring 10-15 new innovative and life-saving drugs to patients.

Rather than using these financial resources for more research and development, or to lower drug prices, pharmaceutical manufacturers have to fight law firms who enrich themselves by abusing the US tort system. Tort law on top of FDA regulation is not just stifling innovation, but also an expensive way to compensate for the harm caused to patients. Paul H. Rubin suggests that the costs of settlement for the legal process account for half of the total settlement fees. Reducing this burden could increase the speed of new drugs being developed and reduce their price. Critics of tort reform will say that changing liability rules will endanger patients, but that’s far from the truth. A 2007 study shows that tort law reform in some states led to a total of 24,000 fewer deaths due to price reductions and the arrival of new innovative drugs. That’s something to keep in mind.

As long as we keep existing tort law on top of the FDA approval framework, consumers are being de facto forced to pay a massive markup on drugs in order to get insured against potential side effects. This is a very expensive and inefficient way of insuring patients against harm. 

A smarter way of designing such a compensation scheme is to either expand the vaccine compensation scheme to pharmaceuticals or to allow consumers to personally purchase insurance against such damages. This could, for instance, be supplementary insurance on top of the patient’s existing health insurance plans. Such a system would allow patients who opt-in much lower fees than the existing mandatory tort law system.

Exempting drugs from state tort law would be an easy step to reduce drug prices without putting patients under more risk. American patients would save billions a year and be able to access more treatments than they can currently. This will lead to a net benefit for patients and the health of the nation. Why not give it a try?

I celebrated World IP Day but many didn’t

Last Sunday (April 26th) marked World Intellectual Property Day. While the existence of IP has allowed innovators to enjoy the rewards of their invention, more and more voices speak up against patents and IP in general. So while I celebrated World IP Day many didn’t even want to show up to the party.

The current COVID-19 crises triggers many voices that ask to ban all patents of COVID-19 related tests, drugs, and vaccines. I stumbled ac ross some very wrong statements and want to highlight these and explain what their authors got wrong.

Happy World IP Day to me…

Michael Barker for instance writes:

Flowing from the relentless drive for super-profits, we can also understand the process by which big pharma makes decisions on the type of drugs they will prioritise for mass production. Medicines that can be sold to wealthy consumers in developed countries, are fast-tracked, while drugs and treatments that might benefit the poorest billions simply fall by the wayside. Human life is secondary to the pursuit of profits.

The author might not know that depending on the country you live in and the insurance you have, drug prices can vary enormously, not because of the decisions of the manufacturer, but because of the local reimbursement models. However, producers also sell at different initial costs in developing countries. The British company GlaxoSmithKline usually caps their drug prices in emerging markets at 25% of the price they ask for in developed countries. In many cases the price is way below the 25% cap. The same company offers their HIV/AIDS treatment at merely variable cost in South Africa. Since 2001 the Swiss company Novartis supplies the fixed-dose artemisinin-based combination therapy (ACT) without profit to public-sector buyers. Over 850 million antimalarial treatments have been delivered to patients in more than 60 malaria-endemic countries. American biotechnology company Gilead has an access partnership campaign that licenses out their drugs to local partners in low- and middle-income countries, selling drugs at cost.   

Another group that sometimes totally misunderstands the pharmaceutical research industry is the well-respected NGO Doctors without Borders (MSF). While I am a personal fan of their work on the front lines of health conflicts, I wholeheartedly disagree with their understanding of patents and profits.

MSF states:

The international medical humanitarian organisation Médecins Sans Frontières/Doctors Without Borders (MSF) today called for no patents or profiteering on drugs, tests, or vaccines used for the COVID-19 pandemic, and for governments to prepare to suspend and override patents and take other measures, such as price controls, to ensure availability, reduce prices and save more lives.

Price controls will actually lead to shortages – We have seen this in the past and see this in the current COVID-19 crisis. Whenever a government limits the price of a good, its supply tends to go down. To controlling prices and at the same time ensuring availability is just and oxymoron. If MSF genuinely wants to save more lives (which I believe), they should encourage flexible prices and patent-protection – At the same time they might want to reconsider their own policy of not accepting in kind donations of the pharmaceutical industry…

MSF campaigners raise a point in favour of eliminating private property protection, saying that the ownership hasn’t even been established through private funds. Since manufacturers receive public grants for their work, their results should also be public ownership. While it is true that one in three Euros spent on pharmaceutical research is public money, it is also true that this public expenditure is offset by the taxes paid. The industry, employees, and customers pay directly a much higher amount of taxes than is received subsidies. Total R&D expenditure in the UK in 2015 was 4.1bn GBP (of which roughly 1.2 GBP are public funds) and direct tax contribution was 300% higher at 3.7. Billion.

6 Amazing Medical Breakthroughs we should be thankful for

Thanks to continuous innovation in medical sciences and biotechnology we have seen amazing breakthroughs in medical technology and pharmaceuticals in the past two decades. These breakthroughs would not have been possible without incentives for inventors and investors. We can still only cure or treat 5% of all known diseases. Reducing incentives for innovation and intellectual property rights would risk finding cures for the remaining 95%.

This is a list of just six innovations of the last two decades that dramatically improve the lives of millions of people.

Boris Sparks Hope for Science

In his first speech as Prime Minister, Boris Johnson has delivered a promising outlook for the UK’s tech and agricultural sector, by committing to a more innovation-prospering future after Brexit. Johnson mentions “a bioscience sector liberated from anti genetic modification rules… we will be the seedbed for the most exciting and most dynamic business investments on the planet.” He also adds: “Let’s develop the blight-resistant crops that will feed the world”, in a move cheered by the National Farmers Union.

If you’re reading op-eds in the Guardian and blog entries from certain environmentalist groups, you’d think that this is some sort of gift from the PM for the sake of inflating British business. They’re mistaken, as unleashing scientific innovation in the United Kingdom means much more than that.

We know for instance that that growing a GM pest-resistant crop like this in the UK could save about £60 million a year in pesticide use. This is certainly good news for farmers, yet lest we forget – £60 million in savings means more leeway for competitive food pricing within the United Kingdom. With food prices in the EU rising by 2 per cent, the new government can send a powerful message that yes, food can become cheaper through more than just dropping tariffs, but through more efficient and technologically advanced farming. As of now, GM crops aren’t grown in the UK, but imported genetically modified soy is used for animal feed.

We also know that upcoming generations have much more favourable views towards scientific innovation in the agricultural sector than their parents. A 2018 poll of 1,600 18 to 30-year-olds, carried out for the Agricultural Biotechnology Council (ABC), found that two-thirds support agro-tech innovations – only 22 percent being concerned about the use of gene-editing or genetically-modified crops.

So why agro-tech, and why now?

As the UK looks towards a free trade future after the withdrawal from the European Union, Boris Johnson knows that the UK economy needs to be competitive and up to the challenge of changing environments and markets. Genetically-modified crops and gene-editing present amazing opportunities in the years to come, not only in the area of food, but also in patient choice. Gene-editing technologies could have a huge impact in reducing the death toll from diseases such as dengue fever, yellow fever, and the Zika virus.

This why the scientific community in the European Union will be more inclined with Boris Johnson than its own political leadership. 117 European research institutions have recently signed an open letter calling on ECJ to enable gene editing, bemoaning the strict legislation currently in place.

They write: “The strict legislation will make precision breeding hyper-expensive and, by consequence, a privilege of just a few large multinational companies. As such, European farmers will miss out on a new generation of hardier and more nutritious crop varieties that are urgently needed to respond to the results of climate change.”

One year ago, the European Court of Justice (ECJ) decided in Case C-528/16 that gene-editing should be treated the same way that genetically-modified organisms are handled at the moment, keeping them in essence practically illegal.

In the future, the European Union will have its own challenge of dealing with scientific innovation. For Boris Johnson, the hope needs to be that he can follow-up his promises with actions, delivering a prosperous era of innovation for Britain. By setting an example of breeding technologies and their benefits for human health and consumer choice, the UK could even become a new beacon of scientific research, to which the EU could eventually aspire to.

Originally published here

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