With pharmaceutical companies marching inexorably toward successfully developing a COVID-19 vaccine, debate has erupted over who will have the eventual rights of ownership and pricing of the drug. This argument has become all the more heated since Congress passed the CARES Act that did not adequately address these issues. Most noticeably, the Act fails to mandate Medicaid, Children’s Health Insurance Program (CHIP), or private insurers to cover the COVID-19 vaccine. Therefore, states have enormous discretion in determining the cost sharing for their citizens using these forms of coverage. [1] Some states may decide to create reasonable restrictions and guidelines for how the vaccine should be distributed and priced. However, it’s hardly a stretch to say that other states will favor a more laissez-faire approach and allow market forces to control the vaccine price.
Many Americans covered by ACA insurance or Medicare will never see a direct cost for the vaccines, given their healthcare coverage and legislation specifically prohibiting passing costs onto patients. However, this only applies to the cost of the vaccine itself, not of the associated administration fees.[2] For Medicaid and private insurance policies, the power to regulate vaccine pricing passes to the states. This vulnerable group has only grown larger as vast numbers of Americans have applied for Medicaid after losing their employer-subsidized health insurance along with their jobs in the midst of the pandemic. Moreover, lockdowns have caused major financial losses to millions of self-employed citizens, and they can no longer afford health coverage and must rely on Medicaid as well. To make matters worse, in the past, states struggled, or entirely failed, to reimburse healthcare providers for administrative and management costs on Medicaid. These fees would be astronomical for a mass distribution of a COVID-19 vaccine. [3] Lastly, should the FDA bring a vaccine to market through an Emergency Use Authorization (EUA) instead of the usual approval process, the vaccine would ironically be ineligible even for Medicare coverage as well. [4]
Currently, there are 136 potential vaccines in some stage of development in the US, and six have been approved for early or limited use. [5] The U.S. has contracted with large pharmaceutical companies like Moderna, Pfizer, and Johnson & Johnson in an effort to accelerate the development of a functional vaccine. [6] These same companies appear to be setting their own policies for pricing and distribution of the finished product as testing continues. The government has already placed orders for well over 100 million doses from these corporations. Prices for the vaccine range anywhere from $19.50 to $37 per dose, a difference of incredible magnitude given the number of doses required to inoculate the US population. [7] Moreover, it is unclear what the long-term efficacy of any vaccine will be. A one-time expenditure could easily become a seasonal expense if COVID-19 proves to be more like the flu than not.
Some would argue that allowing companies to set their own prices is only fitting. Companies need to recoup their expenses for their research efforts. This argument doesn’t track to the fact that only a few companies have expressed an interest in selling the vaccine at cost. Many have openly stated they intend to make a profit. [8] Companies have even begun to globally market their vaccines before completion. Outrage at French pharmaceutical company, Sanofi, for reserving the first shipments of their developing vaccine for export to the U.S. prompted more than 140 world leaders to sign pledges stating that the vaccine technology shouldn’t be patented and instead should be shared globally. [9] Few companies have actually elected to join the pledge. If the vaccine technology is not shared and the free market is allowed to decide its price, then there is little in the way of yet another Martin Shkreli situation.
Shkreli entered national headlines in 2015 when he created a business plan for the company Turing that involved the acquisition of an antiparasitic, and antimalarial drug called Daraprim. Shkreli increased the drug’s price by a factor of 56, an enormous financial burden to the patients who depended on the drug, many of which suffered from AIDS. [10] [11] While Daraprim’s patent had technically expired, the drug was not widely used enough to prompt companies to create a generic version. Turing quickly secured patent protection and created roadblocks for any competitors by restricting sales to regular wholesalers. [12] Despite immense pressure from the public and eventually Congress, Turing did not actually ever lower the list price of Daraprim. [13] They did, however, lower the price for hospitals to buy and administer the drug. [14] While this would make the drug less expensive for hospitals to acquire, patients using the drug were often only hospitalized for a few days and upon leaving the hospital would go right back to having to pay the exorbitant price for Daraprim. Shkreli and Turing (now Phoenixus) faced backlash for their deeds, but little legal action actually materialized. [15] Shkreli would eventually find himself in prison for unrelated securities fraud. While other companies were able to step in to provide lower cost alternatives to Daraprim in the face of its enormous price hike, the vulnerability in our business system remains the same. [16]
Price gouging is something that most people would agree is wrong, especially when it comes to medication required by a specific group of essentially captive consumers. Yet, it would seem little actually prevents it from happening. For example, “orphan drug” users are stuck dependent on a single medication that is not lucrative enough to encourage the development of a generic drug to lower prices. This dependency can leave them vulnerable to a company acquiring the rights to the drug and raising the price sharply. Users have no market alternatives and are then forced to pay the higher price. More pressingly, the punishments for price gouging are a reaction to an event. Even if Shkreli had been punished for the Daraprim price hike, that wouldn’t have actually benefitted any victim of the exploitative move until potentially many years later. Litigation is not a swift process, but a $750 price tag per pill can very rapidly consume a patient’s savings.
In the current case, there is no guarantee that companies will not be predatory in their pricing. The trouble is the total lack of transparency in contract creation around the production of the vaccine. Essentially, the American people are trading on trust that the corporations developing the vaccine will play nice or that the government will be capable of stepping in before too many citizens become collateral damage of exorbitantly priced treatments. As of now, the CDC has yet to put forward a “provider agreement” with major pharmacy giants like Walgreens and CVS. [17] Without such an agreement, there is no maximum cap on what healthcare providers may charge citizens to administer the vaccine, essentially shifting the cost of shipping and handling to the consumer for a “no-cost” vaccine. Pharmaceutical companies are making individual statements about potential price ranges and commitments to no-cost administration. But federal contract details are nonexistent, and there are no hard protections against excessive charges that some citizens may have to pay, either through taxes or out-of-pocket.
Unlike in the case of Martin Shkreli, there are powerful outside actors who may be willing to step in to check the power of these companies before a potential wrong has occurred. An Axios investigation has uncovered that the National Institute of Health (NIH) within the US Health Department actually owns a number of critical technologies—like spike proteins—that are required to develop and produce the COVID-19 vaccine in addition to holding the purse strings to public funding. [18] While this would not allow the NIH to directly oppose companies like Moderna commercializing their vaccines, it would allow them to enable multiple companies to produce their own vaccines by sharing the license as partial owner. The Bayh-Dole Act passed in 1980 would also allow the federal government to claim rights to distribute a vaccine that was publicly funded and the power to “march-in”; that is, to seize control of prices to ensure the effective commercialization of a publicly funded. The Act also allows the government to force companies to license production rights to 3rd parties. The U.S has never actually exercised the “march-in” power, and many oppose its use. [19] Either option has the potential to undercut exorbitant price hikes by allowing companies more amenable to lower prices to enter the market, with the assumption that such companies even exist or won’t be hampered in some way by other actors on the market. Bipartisan bills addressing pricing issues have been introduced in Congress, such as the Make Medications Affordable by Preventing Pandemic Price gouging (MMAPPP) Act. [20] It would aim to ensure the federal government sets reasonable prices for drugs and specifically prohibit price gouging and monopolies on the COVID-19 vaccine. Although comprehensive, an unpassed bill is hardly comforting to those citizens who may find themselves stuck choosing between a vaccine with an enormous price tag or the ravages of COVID-19.
Footnotes
[1] https://www.healthline.com/health-news/how-much-will-you-pay-for-a-covid-19-vaccine-heres-what-we-know
[2] https://www.rollcall.com/2020/09/02/doctors-fees-may-mean-a-free-covid-19-vaccine-isnt-free/
[3] https://www.healthaffairs.org/do/10.1377/hblog20200910.575538/full/
[4] https://www.fool.com/investing/2020/09/21/medicare-wont-cover-cost-of-coronavirus-vaccine/
[5] https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html?auth=login-facebook
[6] https://www.fiercepharma.com/pharma/pfizer-biontech-s-u-s-supply-deal-price-tag-leaves-room-for-decent-profit-covid-19-shot
[7] https://www.fiercepharma.com/vaccines/moderna-prices-covid-19-vaccine-at-32-to-37-for-small-purchasers
[8] See supra note 1.
[9] https://www.aljazeera.com/news/2020/5/14/coronavirus-vaccine-should-be-free-of-charge-for-all
[10] https://www.nytimes.com/2015/09/23/business/big-price-increase-for-an-old-drug-will-be-rolled-back-turing-chief-says.html
[11] https://www.healio.com/news/infectious-disease/20150917/daraprim-price-jump-raises-concerns-among-id-groups-providers
[12] https://www.cnbc.com/2015/11/30/express-scripts-imprimis-to-offer-daraprim-alternative.html
[13] https://www.bloomberg.com/news/articles/2015-11-24/drugmaker-turing-suggests-it-won-t-cut-list-price-of-daraprim
[14] https://www.washingtonpost.com/business/economy/turing-reneges-on-drug-price-cut-rivals-version-sells-well/2015/11/25/d2c22bd8-93cd-11e5-b5e4-279b4501e8a6_story.html#:~:text=TRENTON%2C%20N.J.%20%E2%80%94%20After%20weeks%20of,%24750%2Dper%2Dpill%20price.&text=Most%20patients'%20co%2Dpayments%20will,%2410%20or%20less%20a%20month.
[15] https://www.nbcnews.com/health/health-news/competitor-offer-1-pill-after-turing-price-hike-outrage-n449661
[16] See supra note 2.
[17] https://www.wsj.com/articles/martin-shkreli-steers-his-company-from-prisonwith-contraband-cellphone-11551973574
[18] https://www.axios.com/moderna-nih-coronavirus-vaccine-ownership-agreements-22051c42-2dee-4b19-938d-099afd71f6a0.html
[19] https://theconversation.com/whoever-invents-a-coronavirus-vaccine-will-control-the-patent-and-importantly-who-gets-to-use-it-138121
[20] https://www.merkley.senate.gov/news/press-releases/merkley-smith-unveil-plan-to-prevent-pharmaceutical-companies-from-price-gouging-covid-19-vaccines-treatments-2020