Skip to content
Link copied to clipboard

SEPTA's suit against Gilead raises bigger questions

SEPTA's lawsuit raises the question of why there has been no consortium of large, self-funded companies to act in unison and haul pharma to the woodshed for its pricing?

Last week the regional transportation authority in this area, SEPTA, filed suit against pharmaceutical company Gilead for its "exorbitant pricing" of Sovaldi, a product to treat hepatitis C.

SEPTA is a self-funded organization that covers the health benefits for its employees and their families, so Gilead's $84,000 per person price tag for a course of treatment represents a jolt to the agency's health care costs.

SEPTA's lawsuit raises the question of why there has been no consortium of large, self-funded companies to act in unison and haul pharma to the woodshed for its pricing?

In the past, large, self-insured employers have formed organizations to pursue common interests in health care, but no significant initiatives have emerged from any of them as far as altering the trend of escalating drug costs.  Employer groups have also failed to do anything that might retard the consolidation of providers into cost-raising, integrated delivery networks (IDNs).  Even after IDNs buy up medical practices, hospitals and outpatient providers in local/regional areas, employer groups have not forced the competing networks to seriously compete on prices.

Now it's possible that employer groups are behind the formulary narrowing that Express Scrips (ESI) and CVS/Caremark are developing to control drug prices, but the major companies could do considerably more to constrain medication costs.  In fact, employer groups could function as a private, U.S. counterpart to public agencies in Europe (e.g., NICE in the U.K. or IQWIG in Germany) by reining in pharma's longstanding policy of extorting the world's highest drug prices from American consumers/taxpayers.  Given the sanctity with which Americans treat private enterprise, forceful action by large employer groups to control drug prices could vindicate the country's totemic faith in the market as the omniscient, benevolent standard for all things.

A few sources who work in health economics claim that employers remain quite limited in their ability to take concerted action because providers and manufacturers could initiate anti-trust suits.  While employer coalitions possess something known as a legal "safe harbor," the opportunities for even these associations to make health care players abandon extortion as a routine way of doing business remains highly limited.

Despite this contention, it is still an open question whether the law limits employer groups as much as these sources claim.  More probably, even if the long-term cost to employers of protracted, expensive litigation remains less than the exorbitant and growing expenses associated with health care coverage, not many companies would be game for getting into a lawsuit.  The management interests of most companies skew heavily to short-term earnings and away from longer involvements.  Activist hedge funds seeking to challenge company managements could easily mischaracterize the process of battling against price gougers as a quixotic, public interest venture that jeopardizes shareholder value.  Instead of buying into litigation against manufacturers and providers that specialize in thwarting competitive markets, most companies simply find it easier to pass along greater shares of the rising health care burden to their own employees.

Public purchasers such as CMS, the agency that runs Medicare and the federal portion of Medicaid, may represent the best way of pushing back on rising drug prices, but typically in the U.S., government agencies don't get involved in altering market fundamentals until things have already crashed and burned.  Especially now, with the reactionary Friedman-Reagan mentality embedded in America's popular consciousness and Tea Party legislators — funded by billionaire plutocrats — inordinately influential in Congress, it seems highly unlikely that CMS or any other government agency would act to control prices.  The process of bringing the U.S.'s health care system in line with those of other, advanced nations must wait for another day.

It is more probable that the country will have to endure another access-funding crisis in about 10 years, once the cost of health care exceeds 20% of GDP.   When that time comes, one can only hope the leading Democrat will be someone with a more progressive attitude, more political savvy, more backbone and more taste for political conflict than Barack Obama.

Read more from the Check Up blog »