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An End To Drug Price Gouging

10.30.2015

A Cure for the $750 Pill

Baltimore Sun Editorial

October 30, 2015

By Brian Frosh

Bottled water, canned food and fuel become life-sustaining necessities after a hurricane, so most states have adopted laws to prevent exorbitant price hikes during such an emergency.

Likewise, the drug Daraprim becomes a life-sustaining necessity for those stricken by the parasitic infection toxoplasmosis. But when Turing Pharmaceuticals announced it was raising the price of a single tablet of the 62-year-old medication from $13.50 to $750, there was little that states or the federal government could do to stop it.

The shocking case of Daraprim — and other drugs like it — highlights the need for a national law to prohibit pharmaceutical price gouging.

When a drug company doubles or triples — or multiplies by 50 — the price of medication, it imperils the health and finances of patients and their families, and it threatens public health. In most cases, the price bears no relation to how a functioning market rewards a company for research and development. Nor, in most cases, is the new price driven by an increase in the cost of making the drug. Instead, it reflects the company's power to make an offer that patients and even insurers can't refuse.

American courts, however, have long refused after the fact to enforce bargains like these, aptly describing them as "unconscionable."

The eminent judge J. Skelly Wright, in a 1965 case involving an installment contract for the purchase of furniture with onerous consequences for non-payment, wrote that a bargain is unconscionable if it involves "an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party."

Modern price-gouging laws, on the books in 34 states, are direct descendants of this common law doctrine.

The principles underlying the unconscionability cases and state price gouging laws can be applied to the pharmaceutical industry. A company's decision to dramatically increase the price of an essential drug simply because it can is every bit as unconscionable as a merchant's decision to raise the price of clean water during flooding. The principal difference is that the drug company, unlike the merchant, has caused the emergency that it is exploiting.

A federal law is needed because one state acting on its own cannot solve the problem. There is every reason to believe that a drug company that has set an unconscionably high price for an essential drug would have sufficient leverage and sufficient lack of conscience, to refuse to sell the drug in a state that sought to rein in its misconduct. Indeed, in the face of a drug company's imposition of a dramatic price increase, even state Medicaid programs, committed to providing medically necessary care to vulnerable populations, lack power to strike a fair deal for taxpayers.

A federal pharmaceutical price gouging law would need to address two questions. First, when is a drug essential, such that a suffering family has no meaningful choice about whether to purchase it? Second, when is a change in drug pricing grossly disproportionate to the costs of research, development and production and therefore unreasonably favorable to the drug company?

 These are not simple lines to draw, but courts applying the doctrine of unconscionability have long drawn them. A pharmaceutical price gouging law, in defining what is unacceptable, should also look to the expertise of health care professionals, public health scholars and economists. In Maryland, an interdisciplinary group of faculty at the Johns Hopkins Bloomberg School of Public Health has begun to identify new ways of analyzing drug prices. This analysis will prioritize the need to incentivize research and development, but it will also recognize how, in many cases, a dysfunctional market for essential drugs allows windfall profits while failing to accommodate other values, including fairness to patients and taxpayers and the promotion of public health.

The new law should authorize federal and state governments, in limited instances that meet established medical and economic criteria, to challenge unconscionable pricing behavior. Courts should be authorized to declare that a company has engaged in price gouging and to prohibit the company from selling a drug at or above the price it had demanded.

Such a law would be targeted to the most egregious behavior and would not, of course, address all the complexities of drug pricing. It is important for companies to earn a reasonable rate of return for their investments, including especially their investment in the research and development of drugs that save and sustain lives, and it is important for insurers to cover therapy needed by patients.

A tough but narrow national price gouging law would help frame this discussion by giving definition and force to the widely-shared intuition that certain conduct is unconscionable — and therefore unacceptable.

Brian E. Frosh is the attorney general of Maryland. Twitter: @BrianFrosh.

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