Pfizer Suit Could Be an ‘Earthquake’ for Drug Pricing

Last year, Pfizer posted a billboard outside its midtown Manhattan headquarters showing a larger-than-life patient smiling at his partner. “Dedicated to the brave of heart,” it read.

The patient, Walter Feigenson, 72, of Portland, Ore., says he was paid roughly $1,000 for taking part in the launch of tafamidis—sold by Pfizer (ticker: PFE) under the names Vyndaqel and Vyndamax—a $225,000-a-year treatment for a potentially fatal heart condition. The price, which makes tafamidis the most expensive cardiovascular drug ever launched in the U.S., is “unconscionable” and “completely unjustified,” Feigenson said in an interview with Barron’s.

As a retired entrepreneur living on Social Security income of about $26,000 a year, Feigenson has his prescription covered through Medicare and funding from independent charities, filling in the gaps with free drugs he gets through a Pfizer program for lower-income patients. “I’m in a race to see if I can bankrupt Medicare faster than anybody else,” he says. “I’m not cheap.”

If Pfizer has its way, taxpayers could soon be on the hook for many more doses of tafamidis. In June, the pharmaceutical giant filed a lawsuit against the federal government in U.S. District Court for the Southern District of New York, seeking a judgment in favor of proposed patient-assistance programs that would allow the company to help cover tafamidis copays for many Medicare beneficiaries.

Such programs, which can be sponsored directly by drug companies or independent charities funded largely by the pharmaceutical industry, often cover much or all of patients’ out-of-pocket drug costs, leaving third-party payers such as insurers and Medicare to pick up most of the tab.

The case could reverberate far beyond Pfizer and patients prescribed tafamidis. Patient-assistance programs covering out-of-pocket costs remove a powerful market force—patients’ price sensitivity—that would otherwise push down drug prices, and drugmakers can use them to boost sales of pricey medications, researchers say. A ruling for Pfizer “would be a major earthquake” that could send drug prices soaring, with taxpayers footing much of the bill, says Ge Bai, an associate professor at Johns Hopkins Carey Business School and the Bloomberg School of Public Health, who has studied patient-assistance programs.

Pfizer’s lawsuit takes aim at federal policies that prohibit drugmakers from providing direct copay assistance to Medicare beneficiaries and restrict their funding of and communications with independent patient-assistance charities. Companies straying outside those policies risk violating federal anti-kickback laws, which prohibit them from offering anything of value to induce Medicare patients to purchase the company’s drugs.

Over the past few years, the Department of Justice has collected more than $1 billion in settlements from pharmaceutical companies, including Pfizer itself, that allegedly violated these prohibitions. A Pfizer victory in the tafamidis case could stymie such enforcement efforts, says Max Voldman, an attorney at Constantine Cannon who specializes in health-care industry fraud. A decision in the case could come early next year.

Pfizer and several other drugmakers involved in the settlements have said that their charitable giving helps people lead healthier lives and that all patients deserve access to their prescriptions.

The fact that Pfizer can’t offer the same type of support to Medicare patients that it provides to the commercially insured is a “fundamental inequity,” says Suneet Varma, global president of Pfizer’s rare-disease unit. “That’s what brought us to this point.” As for tafamidis’ price, he says it’s “responsible, because of the transformational value this delivers for patients and the size of the rare-disease population it treats.”

The legal battle is playing out as President Donald Trump and lawmakers of both parties look for ways to rein in Medicare Part D drug spending, which grew nearly 10% annually from 2009 to 2018, reaching $168 billion, according to the Medicare Payment Advisory Commission.

“Tafamidis is a canary in the coal mine” that will help determine the future pricing of similar drugs, says Dr. Dhruv Kazi, a cardiologist and health economist at Beth Israel Deaconess Medical Center in Boston. His research has found that treating all patients eligible for tafamidis—estimated at 120,000 people—would boost total annual U.S. prescription-drug spending by 9%, or $32 billion. If there’s one thing we’ve learned from the pandemic, he says, it’s that “even in wealthy countries like the U.S., ultimately health-care resources are limited, and we have to decide what to opt into and what to forgo.”

Many Medicare patients prescribed high-cost drugs know all about those unpleasant trade-offs, because Part D places no cap on their out-of-pocket spending. Even when they reach catastrophic coverage, they’re responsible for 5% of the drug costs, which is often unaffordable.

Independent patient-assistance charities have stepped into the breach, growing rapidly in the years after Part D took effect in 2006. These nonprofit organizations can take cash donations from drugmakers and use them to help cover Medicare patients’ copays and other out-of-pocket costs, so long as they’re following guidelines issued by the Department of Health and Human Services’ Office of Inspector General that are meant to ensure their independence. Drugmakers aren’t supposed to exert any control over the charities, for example, or receive data that can correlate their donations with sales of their own drugs.

From 2006 to 2015, total giving by major independent charities such as the Patient Access Network Foundation and HealthWell Foundation climbed more than 750%, to $1.4 billion, according to research by the U.S. Treasury’s Office of Tax Analysis. Since then, several charities settled Department of Justice allegations that they helped drug companies steer donations to patients taking their own drugs. Even so, five major patient-assistance charities gave a total of more than $1.1 billion to assist patients in 2018, according to Internal Revenue Service filings.

The programs help drive up drug prices and boost drugmakers’ profits, critics say. The median annual cost of drugs covered by the programs is $1,157, compared with $367 for drugs not covered, and off-patent brand-name drugs are more likely to be covered than their generic equivalents, according to a 2019 study by Bai and others that examined 274 disease-specific programs offered by the major independent charities.

A drugmaker’s $1 million donation to a charity that helps Medicare patients access high-price drugs “has the potential to generate up to $21 million for the sponsor company, funded by the U.S. government,” according to a 2017 Citigroup report. Drugmakers also get tax deductions for their contributions to the charities.

The charities tend to ignore patients who may most need their help, researchers say. Ninety-seven percent of the programs exclude the uninsured from eligibility, Bai’s study found, ensuring that their biggest donors, the drugmakers, get paid for each prescription the charities help cover. Uninsured patients may be eligible to receive free drugs directly from drugmakers, says Krista Zodet, president of the HealthWell Foundation. “One of the main reasons foundations like us are in place is that we can help Medicare patients” in ways that drug companies can’t, she says.

Tafamidis is the only Food & Drug Administration–approved treatment for transthyretin amyloid cardiomyopathy, or ATTR-CM, which causes the heart to stiffen and limits its ability to pump blood. Even before Pfizer filed its lawsuit, some doctors involved in tafamidis clinical trials took the unusual step of publicly criticizing its $225,000 price tag. Early this year, a JAMA Cardiology article co-written by a principal investigator in a tafamidis clinical trial called the drug a “particularly egregious example of price gouging.”

To determine tafamidis’ price, says Pfizer’s Varma, the company first considered the drug’s clinical value, which includes prolonging life and reducing hospitalizations.

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