Jul 8, 2021 - Health

The drug pricing lawsuit that could blow up Medicare

Illustration of many pills and coins falling
Illustration: Annelise Capossela/Axios

A federal judge will soon determine whether Pfizer can pay Medicare patients' out-of-pocket expenses for one of its heart medications that is priced at $225,000 per year.

Why it matters: A ruling in Pfizer's favor would legalize something that is viewed as a kickback under current law, and would jeopardize taxpayer coffers by spurring a "gold rush" of pharmaceutical companies to cover Medicare copays for expensive drugs.

  • That could include Aduhelm, Biogen's pricey Alzheimer's treatment.

Where things stand: Pfizer sued the federal government last year, arguing rules prohibiting pharmaceutical companies from directly or indirectly funding patients' drug copays were unconstitutional.

  • Pfizer sells Vyndaqel and Vyndamax, which treat a potentially fatal type of heart failure. Because those drugs are priced at $225,000, Medicare patients face out-of-pocket costs of around $13,000 annually.
  • Pfizer argued it should be allowed either to cover those patient costs directly through its own copay assistance program or through a copay program run by a charity that Pfizer funds.

The big picture: The Office of Inspector General has long said most copay programs (and Pfizer's specific proposals) run afoul of federal law because they function like bribes.

  • "Because the federal government can't negotiate [drug prices], the only economic check on the list price is a patient's cost-sharing," Jennifer Michael, a former top OIG lawyer who has worked on copay issues, tells Axios.
  • If pharmaceutical companies cover copays, patients will gravitate toward those companies' drugs, and physicians will prescribe drugs they know are free for their patients — but taxpayers would pick up the bulk of the tab.
  • Pfizer is familiar with these rules. It had to pay $24 million in 2018 to settle allegations it funneled money to a charity as a way to cover Medicare copays for its drugs.

Zoom in: Oral arguments took place last month and showcased how contentious this legal battle is (read the transcript).

  • "Pfizer is asking the court to do something that's unprecedented, to upend decades of settled law and agency guidance in this highly regulated space and bless their program to induce ... Medicare beneficiaries to purchase what is the most expensive cardiovascular drug ever launched in the United States," federal attorney Jacob Lillywhite said.
  • "What Pfizer has effectively done, and admits this, is priced itself out of the market," Lillywhite said. "It has priced the drug so high that most people who are eligible for that drug cannot purchase it."
  • "As soon as, for the patient and the physician, it appears that the drug is effectively free ... Pfizer is able to price the drug whatever it wants. It could say $225,000 this year, and next year it is going to increase it to $500,000, the next year to $2 million," Lillywhite said.
  • Pfizer's lawyers argued the copay program should be allowed in part because "there is no other FDA-approved drug for this condition." After the judge asked if the copay program would still be legal if another drug treating the disease were approved tomorrow, Doug Hallward-Driemeier, an attorney representing Pfizer, said it "would not protect Pfizer to the same extent."

The bottom line: "If this is legal for Pfizer, Pfizer will not be the only pharmaceutical company to use this, and there will effectively be a gold rush until Congress amends the statute," Lillywhite said.

  • Another drug that has a high price tag, no competitors and is mostly for Medicare patients? Aduhelm. Biogen said it is "not planning to comment on this decision."
Go deeper