State challenge to Gilead would hinge on untested legal theory
If Massachusetts Attorney General Maura Healey makes good on her threat to sue Gilead Sciences Inc. for overcharging for its hepatitis C drugs, her case probably will rely on an untested legal theory that could be applied widely to other specialty pharmaceuticals.
Healey hasn’t yet said whether she will go to court. In a letter to Gilead last month, the attorney general called on the nation’s largest biotechnology company to reduce its prices. But the letter also said her office was considering legal action, noting that costs for the company’s hepatitis drugs “may constitute an unfair trade practice in violation of Massachusetts law” because they are too expensive for many hepatitis C patients.
Gilead’s Sovaldi pill costs $84,000 for a 12-week treatment course, and the company’s Harvoni, a two-drug combination regimen, runs $94,500.
Lawyers in Healey’s office are studying the potential for a complaint that would be brought under the state’s consumer protection law, known in legal circles at Chapter 93A. To win such a case, the attorney general would have to prove that Gilead engaged in “unfair and deceptive” practices that harmed people needing treatment for the liver-ravaging virus.
“They’d be relying on the statute of choice for business litigation in Massachusetts,” said Michael C. Gilleran, partner in Boston law firm Burns & Levinson and the writer of a book on Chapter 93A. “It’s very broad, it’s very vague, and it has huge firepower. It provides for triple damages and attorneys’ fees.”
Still, the statute has never been used to force a drug company to drop the original price it has set for a drug.
The attorney general’s office won’t discuss how it would build a case against Foster City, Calif.-based Gilead. But its lawyers have been known to deploy other legal tools beyond the consumer protection act, as well as regulatory and investigatory levers and public pressure against businesses. There is also hope that new competition from Merck & Co., which last week won US approval for its own hepatitis C therapy, might help prompt Gilead to voluntarily lower its prices.
But the company, which is scheduling a meeting with Healey and her lieutenants, has fought off previous legal challenges. Last year, a Pennsylvania judge threw out a hepatitis C drug price-gouging suit filed against Gilead by the Southeastern Pennsylvania Transportation Authority.
In Massachusetts, Gilleran cites a case that could be viewed as a precedent for arguing excessive drug prices, under some circumstances, violate the consumer protection law. In 2007, a state judge levied fines against four drug giants — AstraZeneca PLC, Schering-Plough Corp., Bristol-Myers Squibb Co., and Johnson & Johnson — after ruling they illegally increased their average wholesale prices to bill Medicare for treatments for everything from asthma to prostate cancer.
But that case involved changing an already established benchmark price. Legal action against Gilead would seek to extend the state law’s standard — unfair and deceptive practice — to setting drug prices for people who can’t afford them. Less than 10 percent of hepatitis C patients nationally have been treated with Gilead’s drugs, partly because many of the public and private health insurers covering them have limited immediate access to the sickest patients.
“I don’t think there’s any general authority under 93A to regulate prices,” Gilleran said. “I’m not aware of any state court in the United States that has ruled that overpricing itself is an unfair and deceptive practice.” To make that argument, he suggested, Healey’s office would have to prove that “general harm to a vulnerable population” — hepatitis C patients — meets that standard.
Healey’s letter is being closely watched among both drug makers and their critics because it raises broader issues in the debate over rising prices of prescription medicines. Among other considerations, it noted that Sovaldi, priced at $1,000 a pill in the United States, costs about $4 a pill in India and $10 a pill in Egypt. Drugs generally cost more in the United States than other countries, though sometimes insurers are able to negotiate discounts or rebates from list prices.
Unlike in Europe, Canada, or developing countries, there’s no legal precedent for regulating drug prices in the United States, according to Gustav Ando, director of global life sciences research for IHS Inc., a research firm. He said hepatitis C drugs marketed by Gilead and its rivals are inexpensive compared to new medicines that treat cancer and rare diseases.
“There’s very little meat on the bones” of a potential Massachusetts suit, Ando said. “The United States is a free-pricing market, and that’s why most of the Big Pharmas are there. What this highlights is the drug industry is under pressure from every avenue in the United States right now — the public, the politicians, and now the attorney general. This is the first time we’ve seen an attorney general use this avenue. But I don’t think this goes anywhere.”
Last year, the Institute for Clinical and Economic Review, an independent Boston-based watchdog group, concluded that the hepatitis C drugs, despite their pricetags, represent relatively good value. That’s because they save money for health care providers in the long term by preventing liver scarring and cancer and reducing the number of liver transplants and hospitalizations.
But even with those savings on the horizon, the drugs have strained the finances of public health insurers, including state Medicaid plans, the Veterans Administration, and corrections departments, that pay for the care of a larger share of hepatitis C patients.
“There can be a tension between long-term cost effectiveness and the ability of a health care system to afford something in the short term,” said Dr. Steven D. Pearson, president of the Institute for Clinical and Economic Review. “Long term, these drugs are great and they represent relatively cost-effective treatments. But if we tried to treat the millions of people who are eligible for these drugs at once, it would break the budgets” of some health insurers.
In the case of high-priced drugs for hepatitis C and other diseases, Pearson said the choice may come down to restricting immediate access for many patients, cutting state budgets to pay for the drugs, or reducing prices to make the drugs more affordable.