It’s Time for Public Pharma
Medicare for All was perhaps the best policy litmus test for progressive politicians in the second half of the 2010s. Today, it has rarely looked less likely to become law. Insurance industry lobbying groups, in tandem with the Chamber of Commerce, have figured out how to beat back the popular policy’s advance, even in one-party blue states like California. And yet the necessity of excising the profit motive from the American health care system, which continues on its ignominious pace to produce bottom-barrel results at maximal prices, has never been clearer.
The COVID-19 pandemic showcased the profound inadequacy of the uniquely privatized and financialized American system, where for-profit (and “nonprofit”) hospitals and for-profit insurance companies teamed up to help the United States secure its worst-in-the-world national death toll while notching one best-ever earnings call after another. Perhaps most egregious of all, pharmaceutical companies like Moderna took public funding for vaccine development, tied up the patents, and converted the greatest public-health crisis and mass death event in 100 years into a 100-year flood of profits. Moderna, which in 2019 posted just $60 million in revenue and didn’t have a product to its name, banked $12.2 billion in profit on $18.5 billion in revenue in 2021; its CEO simultaneously cashed out $400 million in stock during the course of the pandemic.
The vaccine payday was just another manifestation of pharma’s sweet deal in the U.S. Much of the research and development for new discoveries is publicly funded, and yet drugmakers charge whatever they want, with exclusive monopoly patent grants. Not content to just enjoy that bounty, those companies work to extend that monopoly period, through slight changes to the treatment (known as “patent evergreening”) or even bribing generic companies to not compete (“pay for delay”). As a result, the median net profit margin for large pharmaceutical companies is almost twice as high as other companies in the S&P 500.
But it doesn’t have to be like that. The federal government can establish its own drug manufacturing apparatus. The path to redeeming our failing public-health sector, and to extricating the profit motive from health care in the decade to come should go through the establishment of public pharma.
It’s by now commonly known that American drug prices are by far the highest in the world. In 2019, the U.S. spent $1,126 per capita on prescribed medicines; comparable countries spent $552. This is not solely due to exorbitantly priced name-brand pharmaceuticals, which make up just 10 percent of all prescriptions filled. Getting a generic drug through the patent thicket is so costly that those companies have to bulk up: 40 percent of all generics in 2016 were made by a single manufacturer. That can lead to abuse; a 2019 lawsuit from 44 states alleged a mass generic drug price-fixing ring that increased prices by as much as 1,000 percent.
Insulin, the poster child for the failure of the American pharmaceutical system, which has existed for over 100 years, cost $21 a vial in 1999 and $332 in 2019, a price increase of more than 1,000 percent for a basically unchanged product. That’s to say nothing of the widespread mislabeling and misbranding practices, all of which contribute to a wave of excess deaths. It’s not only the American people being robbed blind. States are similarly price-gouged on everything from naloxone to EpiPens for Medicaid to public schools to police departments, to say nothing of federal programs like Medicare, which have been barred from negotiating any drug prices for nearly 20 years. (A potential reconciliation deal would change that, but only for a handful of treatments.)
A national manufacturer could plug holes in the supply chain where shortages have become commonplace.
Many large drug companies “routinely distribute more than 100 percent of profits to shareholders, generating the extra cash by reducing reserves, selling off assets, taking on debt, or laying off employees,” according to a 2017 paper from the Institute for New Economic Thinking. Fifteen of the 18 largest pharmaceutical companies have effectively vacated research and development entirely, spending far more money on advertising than innovation. In fact, major pharma firms spend roughly twice as much on marketing as R&D on average.
What those companies do for Wall Street pales in comparison to what they do for drug discovery, which has been left almost entirely to the public sector already. Federally funded studies contributed to every single one of the 356 drugs approved in the previous decade. The obvious solution, if the public sector is already paying to invent new drugs, is to also manufacture and sell them, providing a powerful springboard for tackling the profit-sickness that ails American health care.
“PUBLIC PHARMACEUTICAL MANUFACTURING in the U.S. could be a game-changer because it would break the monopoly that pharma has on our medicine supply, and start to shift the balance of power,” said Dana Brown, director of health and economy at the Democracy Collaborative.
An all-in public pharma program could operate on multiple levels, fabricating pharmaceutical products (everything from insulin to IV bags) where private companies currently hold monopoly positions and charge exceptional rates, while also working as a purchaser, importing cheaper drugs from elsewhere and selling them at cost. The government could also contract with generic producers to run factories, while setting the cost and other parameters. And a federally run program could work in close conjunction with the National Institutes of Health, which is already responsible for the overwhelming majority of the research that goes into creating new drugs and helping to bring them to market, such as with Moderna’s COVID vaccine.
A national manufacturer, too, could plug holes in the supply chain where shortages have become commonplace, or with therapeutics that pharmaceutical companies are disinterested in producing themselves. This is a not-insignificant part of the sector, including low-margin products like antibiotics, preventive medicine, and vaccines, which are not as remunerative as medicines for treatment of chronic issues.
There’s reason to believe that public pharma might appeal as much to conservatives looking to minimize public spending on social services, like prescription drugs in Medicare, as it does to progressives looking to get the profit motive out of care. Indeed, Utah’s Republican-dominated state legislature has entertained public-purchasing options in the name of fiscal conservatism. And while a program that appeals to parsimonious conservatives might not seem to have the ambitious allure of other topline progressive programs, public pharma might be a necessary first step to not just win Medicare for All, but to sustain it and keep it solvent once it’s in place.
“If we got Medicare for All tomorrow, the management of hospitals and provision of care is right now so highly privatized and highly financialized, and so highly controlled by private equity, that it would make you cry,” added Brown. “There’s an extraordinary amount of money going out of provision of care and into financial markets bleeding us dry, to the point that Medicare for All and no other changes would be a really expensive public handout to the private sector in a lot of ways.”
While it would take a level of commitment and money to get such a program off the ground, it’s not as much of a moon shot as one might think. As recently as the 1990s, departments of health in places like Michigan, Massachusetts, and New York City produced things like the diphtheria vaccine, before it was privatized. Other countries, including Brazil, Cuba, Thailand, and South Africa, have public drug manufacturers, evidence that it is hardly cost-prohibitive to create.
CRUCIALLY, THE GROUNDWORK HAS ALREADY BEEN LAID in the nation’s biggest state. In 2020, in a bill that came as a surprise to many, California passed SB 852, the California Affordable Drug Manufacturing Act, which empowered the state legally to create a public label for buying and selling drugs at cost, called CalRx. A second provision, which passed the state Senate in May and awaits passage in the Assembly, would direct millions more from the annual budget toward the production of a generic manufacturing plant in the state. Meanwhile, Gov. Newsom has pushed state lawmakers to put $100 million into developing CalRx and getting the state’s manufacturing operation off the ground.
Not surprisingly, the program is beginning with insulin, as roughly four million state residents suffer from diabetes, a quarter of whom cannot afford the insulin they rely on. Not for nothing, the California program is also backed by the highly organized diabetes rights groups in the state.
The details of California’s program remain under negotiation and will have to be watched closely. But the considerable amount of resources already allocated not only to developing a public label for selling drugs at cost but to establishing FDA-approved facilities capable of producing those products themselves has drawn major public attention from neighboring states. Not long after California passed its initial legislation, Washington state followed with a bill of its own that created an even broader authority. A regional consortium of Western states, including Washington as well as Oregon and Nevada, have begun talking about arrangements on public bulk purchasing.
A public pharmaceutical manufacturer would not only upend the regime of high prices, it could have huge knock-on positive effects for the biosciences industry. Most drugs are currently produced overseas, but new public plants could offer the sort of well-paying manufacturing jobs that the political class loves to celebrate but seems incapable of reproducing. “I think that doing the actual production in the public sector is an industrial strategy for the country,” said Brown. It could even change the nature of white-collar lab-coat work, she added. “[It’s] good for scientists who are in it for the science and not just patent chasers, who would no longer have to work at big pharma firms. Working in public pharmaceutical research could be much more equitable, with something more like tenure jobs.”
It might be unrealistic for the government to manufacture every single drug. But the for-profit industry would have to consider the risk of the public sector forcing their golden-goose products to face public competition if they set prices too high. That threat alone could moderate prices all across the industry.
For example, it’s unlikely Aduhelm maker Biogen would have initially priced its Alzheimer’s medication at $56,000, in a move that threatened to singlehandedly bankrupt Medicare, if it knew that came with the risk of a public manufacturer creating a generic version of its multiple sclerosis medication Tecfidera, which accounted for more than a third of the company’s revenue in 2020. (Medicare ultimately decided not to cover the drug widely; Biogen cut the price tag after public outcry—to $28,200.)
AT LEAST SINCE NANCY PELOSI first grasped the Speaker’s gavel in 2007, Democrats have pledged to be committed to regulating the sky-high cost of prescription drugs, and on the verge of passing reform legislation. Unsurprisingly, such an overhaul polls extremely favorably among Democrats and Republicans alike. But even if something finally passes this year, it won’t go far enough to truly reverse the misaligned incentives of the business model.
The most popular refrain from progressives regarding drug prices during the most successful moments of the Medicare for All push has looked to points north, like bulk importation from Canada, where drug prices are notably lower. But that solution is hardly durable, and given the era-defining fragility in supply chains, relying on imports is not a long-term solution that can be trusted in moments of crisis. Making needed medications at home is an enduring reform.
California has provided proof of concept for ambitious national programs in the past, setting in motion things like tailpipe emission regulations. Given the state’s size and economic might, a successful foray into public pharma could facilitate the embrace of a program at a national level. Already, a bill has been stranded in Congress since 2018, when Sen. Elizabeth Warren (D-MA) introduced legislation with Rep. Jan Schakowsky (D-IL) for an Office of Drug Manufacturing within the Department of Health and Human Services. With the tailwind of burgeoning programs at the state level, a public pharmaceutical build-out could be the beginning of a liberalism that actually builds, and a consequential first step toward health decommodification.
This article appears in the August 2022 issue of The American Prospect magazine. Subscribe here.