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Opinion | Eric H. Schultz

Trip to Caymans could show how out of whack drug pricing is in US

The hepititis-C drug Harvoni, manufactured by Gilead Sciences, has widly varied market prices, depending on what country it’s being sold in. Gilea Science via AP/Associated Press

The pharmaceutical industry in the United States is impressive. It is producing new drugs that can radically improve or even save people’s lives. But as these companies produce amazing advances, why does it appear that some are taking advantage of the very people the drugs are meant to help? Without painting the industry too broadly, if we are serious about controlling health care costs, we must look at the problems in the system.

Pharmaceutical companies set price increases with insufficient accountability. Confounding things is the fact that the prices charged in the United States are significantly higher than in Europe and other countries.

Consider Harvoni, the miracle drug that can cure hepatitis C. It is priced at $94,500 for a standard 12-week treatment in the United States, but only $900 in India; $1,200 in Egypt; $48,000 in the United Kingdom; and $53,000 in Germany, according to the Hepatitis C Society.

Imagine this: Harvard Pilgrim could theoretically offer its members with hepatitis C two options for obtaining Harvoni, at the same cost but in different places with far different amenities. Location is the key. The first option is for the member to get the drug as prescribed by a doctor here in Massachusetts and take it as directed for 30 or 90 days, depending on the severity of the disease.


The second option involves a trip to the Cayman Islands. Harvard Pilgrim could put this same member and the guest of his or her choosing on a plane to the Cayman Islands, a beautiful place that happens to offer excellent health care. The member and friend would enjoy a weekend on the beach, then visit a Joint-Commission-accredited medical facility to pick up a prescription for Harvoni and head back home — all expenses paid. The member would then take the drug as prescribed and when the course of treatment was complete, they would head back to the Cayman Islands, with their guest, for testing and a full-week, all-expenses-paid stay on the beach. Remarkably, this would cost Harvard Pilgrim less than treating the member here in Massachusetts.

US laws prohibit this option, but it’s clear that Harvoni sold in the Cayman Islands and other countries is substantially less expensive than the same drug sold in the United States.


Now, the pharma companies will tell you that health insurers like Harvard Pilgrim routinely negotiate with them for discounts and rebates, like the negotiation Harvard Pilgrim did recently for Harvoni and other new leading drugs. The pharma companies, as part of their contracting process, do not permit health insurers to disclose the amount of the discounts, but market estimates range from 10 percent to a high of about 50 percent. The problem is that the pharma company is in the driver’s seat throughout the whole negotiation because it sets the starting price. It’s like going to a department store that is offering a 50-percent off sale. Sounds great, but when you don’t know what the original price was, there is no way to know if you are really getting 50 percent off. Even with these discounts, drugs cost far more here than in other parts of the world.

There is no transparency around drug pricing methodologies in the United States. The pharma industry is not required to provide information on the actual cost of research and development, manufacturing, or administrative overhead. Dramatic price increases are also not limited to just the new emerging drugs, but are also hitting generic or older name-brand drugs as well. For instance, we have seen the cost of a widely used antibiotic, tetracycline, and a hypertension and heart-failure drug, captopril, increase by more than 4,000 percent over the last several years. Select manufacturers have raised prices for modified versions of generic drugs more than 1,000 percent and remarketed them as brands, with no clear incremental value to the patient or the health system.


One answer is price regulation — something that the pharma industry does not want to happen. There are other ways to get to a solution. A bill was filed in the Massachusetts Legislature last year that would have allowed the state’s Health Policy Commission to require drug manufacturers to report their costs of production, research and development, marketing and advertising, along with the price the company charges entities outside of the United States and the price charged to major Massachusetts purchasers. While the bill was not acted on in Massachusetts, similar legislation passed in Vermont.

The biomedical and pharma industry is important to Massachusetts and the United States. But let’s focus on those with the most egregious pricing practices. Transparency around the real cost of pharmaceuticals would be a big step in the right direction. It’s time we shine a light on the drug pricing system in the United States and get Massachusetts on the map as a leader in requiring the industry to open their books and stop gouging American patients.

Eric H. Schultz is president and CEO of Harvard Pilgrim Health Care.