Last week, we focused on incentives for developing clinical evidence supporting the use of remdesivir for COVID-19 and analyzed the FDA’s grant of an emergency use authorization (EUA) for the drug. This week, we consider mechanisms for allocating access to the drug, including distribution, payment, and patents. Importantly, many of these issues are relatively uncommon to encounter in the prescription drug space. The government does not usually control the allocation and distribution of new drugs after marketing authorization has been granted, although it is doing so for remdesivir. These novel issues raise opportunities, but also concerns, for law and policy.
Why and how is the federal government controlling remdesivir distribution in the US?
In granting the EUA for remdesivir, the FDA stated that the drug’s distribution will be “controlled by the United States (U.S.) Government.” The government played a similar role in the distribution of hydroxychloroquine under the FDA’s EUA for that product, and in both cases the government seeks to control distribution and ensure that the products are being prescribed for their restricted, authorized uses. But for remdesivir, the federal government has taken a heavier hand in the product’s distribution. Unlike hydroxychloroquine, for which public health authorities can obtain distributions from the strategic national stockpile, remdesivir is in relative scarcity because of the time needed to ramp up manufacturing capacity. For now, Gilead is planning to donate its existing supply of the drug to governments around the world, placing them in charge of the distribution process.
Unfortunately, the federal government’s initial distribution of remdesivir across the country was chaotic and opaque. In early May, the government made distributions directly to hospitals in many states. But news reports suggested that the distributions seemed “random.” The drug did not go to hospitals treating the most patients, or the sickest patients, or to hospitals in states with the highest burdens. Procedurally, physicians expressed frustration with the lack of transparency as to which hospitals were receiving the product (information which was crowdsourced on Twitter), or even who in the federal government was responsible for ordering the distribution to occur as it did. Subsequently, Dr. Deborah Birx, a member of the White House Coronavirus Task Force, expressed that there was a “misalignment of the therapeutic and on-the-ground current need in the first shipment.”
On May 9, HHS issued a press release to provide more information about how remdesivir would be distributed going forward. The drug would be sent to the “areas of the country hardest hit by the pandemic,” and the federal government would distribute the product to states, which would themselves need to decide how to allocate the drug among their many hospitals. Yet this explanation also raised more questions than answers. Substantively, HHS’s list of states that have received distributions of the drug did not seem to match data on disease burden among states. Whether in terms of case count or cases per capita, several states near the top of each ranking were left off the initial distribution lists for remdesivir. More procedurally, it was still not clear who within the administration was responsible for the decision of allocating the drug to the states. HHS also provided no additional explanation for why the initial shipments were made to hospitals, rather than the states, nor guidance for states on how to make their internal allocation decisions.
HHS is now stating that all 50 states have received doses of remdesivir. But these states must then decide how to allocate the drug to the patients who may need it. Different states appear to be adopting different approaches. Some states are considering a lottery among patients. Others are assembling teams of physicians to decide how to allocate the drug based on medical need. How to best allocate a scarce, potentially life-saving drug is just one of the bioethics-laden policy issues made especially salient by the pandemic.
Is intellectual property a significant barrier to access?
In other circumstances, one possible cause for supply not fully meeting demand is intellectual property protection, such as patents. This is because, in the classical economic account at least, patents may encourage the artificial restriction of supply if there’s an absence of acceptable substitutes. But while there’s been public focus (and outrage) on IP and regulatory protections for COVID-19 drugs—including remdesivir—patents have little, if anything, to do with the drug’s scarcity.
Remdesivir particularly suffers from a disconnect between the drug’s sudden, enormous demand and its current capacity to be safely manufactured (a process which takes six to eight months, at least). This is similar, in many ways, to the other drug shortages we’ve previously explained. The key problem here, as there, are the physical limits of supply chains—the same supply chains rent by the pandemic. Encouraging manufacturers to make supply chains more robust to sudden spikes in demand, like this one, is likely well worth the effort; the cost of retooling drug manufacturing supply chains is likely marginal relative to the economic and social cost of the crisis.
Far from using patents to restrict supply, remdesivir’s sky-high demand means that Gilead has a strong profit—and PR—incentive to manufacture as many doses as it possibly can, including licensing its product to generic manufacturers in India and Pakistan for distribution in 127 countries. Under these licenses, generic firms have been allowed to set their own prices and will not have to pay Gilead royalties until the WHO declares an end to the public health emergency, or another therapy is approved for prevention or treatment.
To be clear, Gilead still owns patents that cover remdesivir, and those patents might cause access problems in the future. Gilead applied for, received, and—after some intense controversy—withdrew FDA orphan drug designation for the therapy. Remdesivir also has principal patent protection until at least 2036. These may very well be used—as with virtually all other branded drugs—to stymie competition. And this is so even though, as noted by Professors Justin Hughes and Arti Rai, remdesivir seems more the product of public investment than is typical of similar drugs.
But for now, these concerns are far enough out in the future that they should not be the principal focus of COVID-19-related pharmaceutical policy. Hughes and Rai, even while questioning whether there are omitted government inventors on remdesivir’s patents, recognize the importance of incentivizing continued private-sector investment in this area and the ability to address access concerns without eliminating patent rights:
Going forward, policymakers considering what to do about the patents on remdesivir need to think carefully about the precedents they may establish. Our system of collaborative public/private biopharmaceutical research is messy, and perhaps far from optimal, but it produces a steady stream of innovations like remdesivir. And we need that system to continue churning out drugs that may someday work against viruses we cannot yet imagine but we know will threaten millions. . . . As long as the public role is properly accounted for, the current emergency does not need to set fundamentally new rules for patents.
How should remdesivir be distributed?
Normally, decisions about who gets what drugs are relatively obscured—the market allocates access through price, and everyone who can pay for a drug (and whose doctors will prescribe it) can get it. Sometimes that system breaks down, and we have shortages of drugs, for a host of reasons that have generated a lot of scholarship. In those situations, access is often determined through patchwork, ad-hoc mechanisms. This is different.
For remdesivir, every country has limited access. In the US, the government is currently making the decisions about which hospitals get the drug at two levels: state and federal. Only then does the decision shift to hospitals, which have to determine which patients within their walls actually receive the drugs. These decisions are tremendously fraught. Some states will get more and others less; some hospitals within states will get less or nothing; many patients will not get remdesivir.
The shortage raises many ethical questions without easy answers; a host of commentary and articles addresses these issues. Should the drugs go just where there is the greatest need (i.e., the most or the most severe cases), or where they might do the greatest good (i.e., systems with the resources best to use the drugs or patients most likely to respond)? Should the drugs go to many states, or just the few with the most cases? Within a class of similarly situated patients, should they be allocated first-come, first-served, randomly, or by some other metric? Should allocation of treatment take account of preexisting conditions that may affect outcome, and if so, should we change that account if those preexisting conditions are based on societal inequity? These issues have been raised before in other rationing situations, whether about drugs, ventilators, or donated organs.
Making all of this substantially worse is the lack of good information. We might wish to give remdesivir to the patients who are most likely to benefit, but there is limited evidence as to who those patients are. On the disparate racial impact of COVID-19, we know there are disparities, but are missing many details; many states are not even reporting racial or ethnic information in their statistics and the groups hardest hit by the pandemic are generally underrepresented in clinical trials.
Transparency clearly helps if for no other reason than it can inform us about how treatments are actually being allocated. On this front, the initial federal response certainly fell short; we hope that further responses will do better. On the hospital front, transparency also seems useful, though hospitals that shared their guidelines for distribution of other scarce resources received substantial backlash.
How should the price for remdesivir be set?
For now, COVID-19 patients are receiving remdesivir for free. In addition to supplying the drug for compassionate use and clinical trials, Gilead committed in April to donating its existing supply of 1.5 million doses of remdesivir (enough for over 140,000 treatment courses). After the FDA granted an EUA in May, 607,000 of those doses were pledged to the US, and Gilead has since increased the number of doses donated to the US to around 940,000. But there is already enormous interest and speculation in how remdesivir will be priced.
On May 1, the nonprofit Institute for Clinical and Economic Review (ICER) issued an expedited report on remdesivir pricing, which described two different approaches. On the low end, if the drug is priced based on allowing Gilead to recover its costs, then a 10-day course should cost about $10. On the high end, a model based on cost-effectiveness—including a reduction in mortality (“a critically important uncertainty”)—suggests a 10-day course price around $4,500. Drug pricing experts have given a similarly wide range of suggestions, including noting the difficulty determining the drug’s value from the limited clinical trial data released so far.
Importantly, the price of remdesivir in the US will have only a limited effect on access. For uninsured patients, the federal government has already committed to paying for COVID-19 treatment at Medicare rates. Rather, the main effect of the remdesivir pricing will be on the dynamic incentives for further innovation.
As we discussed last week, there are really two innovation policy problems here. First, we need better evidence of how effective remdesivir actually is. Using randomized trials when allocating access to scarce supplies would improve this evidence base, and Gilead would have an incentive to continue these trials if the size of reimbursement were conditioned on producing stronger evidence of efficacy. Second, development of drugs that are more effective at treating COVID-19 should still be a first-order policy priority. Other firms will be watching what kind of evidence Gilead is required to produce and how much revenue it brings in—and how the revenue compares with the company’s spending on remdesivir’s development and distribution, which “could be up to $1 billion or more, primarily comprising manufacturing scale-up costs” according to a recent SEC filing. So far, investors have been skeptical that Gilead will see a real return. When regulating the price of remdesivir, policymakers should make clear that truly effective drugs will be handsomely rewarded. Given the daily social costs of COVID-19, ensuring robust profits for treatments and vaccines with robust evidence of efficacy seems like one of the most cost-effective investments we can make.
Disclosure: Rachel Sachs sits on the Midwest Comparative Effectiveness Public Advisory Council for ICER. She has had no involvement with ICER’s analysis and publications on remdesivir.
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