Big Pharma Plans to Bankrupt States

The Associated Press reports, “New $710-a-day drug hailed as a lifesaver but shows how treatments can strain Medicaid budgets.”

A newly approved drug is being hailed as a major advance in treatment of cystic fibrosis, a life-threatening genetic disease that clogs the lungs with mucus and forces patients to struggle to breathe. But it comes with a punishing price tag — about $710 per patient per day.

The treatment takes a bite out of Medicaid programs that are already facing big budget problems, and a small state like Vermont will be on the hook next year for $3.6 million for a drug expected to treat only 40 people.

Orkambi — taken as two pills, twice daily — is a combination of two cystic fibrosis drugs that won approval from the Food and Drug Administration on July 2. Federal law requires Medicaid programs to cover FDA-approved drugs, and the U.S. government picks up more than half the tab.

But what’s left over will make up nearly 7 percent of Vermont’s estimated $54 million Medicaid budget deficit next fiscal year.

“States that have small budgets in their Medicaid also can’t afford … to pay for 40 people in their state when they’ve got many others who need diabetes drugs and whatever other drugs,” said Dr. Brian O’Sullivan, who specializes in childhood lung disorders at the Dartmouth-Hitchcock Medical Center in New Hampshire and has written on drug pricing. “So yes there is a breaking point. As more and more expensive drugs come out, we’re reaching that breaking point.”

I want people with cystic fibrosis to live long and happy lives. But notice what is going on here. If there was no Medicaid then there would be no way to demand $710 a day from people who suffer from cystic fibrosis. If companies wanted to sell drugs they would have to find a way to do it at a reasonable price. If the drugs were too expensive to produce then the company would have to devise a way to make them for less.

[See also, “Big Pharma Makes Two Glasses of Wine into a Disease.”]

But if federal law requires the government to pay for the drugs, then they have no incentive to make them cheaper. Just the opposite.

Some might argue that Medicaid incentivizes the development of life-saving drugs. At best it stimulates the development of expensive drugs that may be life-saving. It depends on how much you trust the FDA’s approval process. I worry, with so much money at stake, that pharmaceutical companies might be highly motivated to find ways to influence that process.

But even if the entire process is free of corruption, eventually we are going to run out of money.