The pharmaceutical industry is among the most politically powerful business sectors in the United States today. This article describes how this industry has successfully entrenched its power, with attention to four sources of power: property power, vertical power over politics, ideational power, and material power. Attempts to reform the industry must grapple with these forms of power, which are not easily separated and which, in the current environment, tend to reinforce one another.
Democracy has a fundamentally uncertain relationship to political entrenchment. As a form of government where the people rule themselves, a democracy only remains a democracy if the locus of power remains an empty place (Lefort 1988: 17). To prevent elites, elected officials, and other groups from seizing control, a democracy must have durable rules that allow the whole people to exert power under a principle of political equality. Yet inevitably, these rules come to express preexisting social relations that constitute them, and can themselves frustrate the expression of democratic will. Throughout modern history, purportedly democratic arrangements have been used to enable domination by elites and powerful groups. Indeed, liberal democracies have emerged in part because they promise to durably protect the interests of the elites who held power before them, for example through entrenchment of rights of property, of limited franchise, and so on. As Paul Starr (2019: 131) put it recently, “concessions to property have been the price of democracy.”
Forms of entrenched democratic inequality evolve over time, in conjunction with class relations, state formation, and technological change. In the period of agricultural capitalism, rules of primogeniture, feudal land entailments, settler land seizures, and enslavement all encoded domination into property law and institutions (Beckert 2015; Johnson 2020; Starr 2019; Wood 2017). As industrialization emerged and then globalized, the contours of corporate law and banking law took on greater importance as a means to entrench private power and “encode” capital (Pistor 2019). In the late 20th century, technological changes made data and information increasingly important sources of power and productivity, making capitalism more “informational,” and rendering property rights over these forms of immaterial capital more important to democracy (Kapczynski 2020). With this in mind, then, it is important that we better understand how law and institutions today entrench political power in informational industries.
There are few industries—informational or not—that are viewed as more politically powerful today in the United States than the pharmaceutical sector (Florko and Facher 2019). Though often celebrated as both innovative and efficient, the industry today routinely produces products of doubtful impact and extraordinary price, and sometimes both at the same time. The drug Aduhelm, for example, was approved in 2021 for the treatment of Alzheimer's disease over the vehement objection of the FDA's own expert advisory committee (Belluck and Robbins 2021). The drug has a vast potential market and was initially priced at $56,000 per year, despite the fact that there is no good evidence that it works. Clinical trials designed to show its efficacy were halted for futility, making this the first drug ever approved to have that ignominious honor (Lowe 2021). The agency approved it on the slimmest of reeds: evidence that it impacts amyloid plaques in the brain, though every attempt to connect that impact to actual clinical benefit has failed (Lowe 2021). Three members of the FDA's advisory committee resigned in protest, in part because the drug also may put patients at risk of potentially serious brain swelling and bleeding (Belluck and Robbins 2021).
The broader trend in recent years, in fact, is toward drug approvals on the basis of less rigorous trial design, such as by making use of surrogate endpoints (Downing et al. 2014; Rathi et al. 2015; Zhang et al. 2020). At the same time, drug prices are soaring. US spending on brand-name drugs grew by 61% from 2007 to 2018 (Hernandez et al. 2020). The average new cancer drug in the United States today costs more than $175,000, and its price does not track with benefits or R and D costs in any logical way (Prasad, De Jesús, and Mailankody 2017). The industry's profits also come at an increasingly obvious cost to many ordinary Americans. Three in ten Americans report that they did not take their medicines as prescribed in the last year because of the drugs' cost (Kirzinger et al. 2019). Industry's control over prices and manufacturing also compromises community health and imposes unjustified long-term costs on our health care system. Cures for life-threatening diseases like hepatitis C, for example, have been de facto rationed in the United States because of their high price, extending the impact of this infectious disease and discouraging efforts to eradicate it (Brennan et al. 2016).
Evidence of industry power is also present in the global rollout—or not—of COVID-19 vaccines in 2021. The new COVID-19 vaccines are a scientific marvel, yet despite their potential to save millions of lives, as of this writing they are still not available in most of the world. When Americans lined up for third doses in September 2021, only 4% of the African population had been vaccinated (Gostin 2021). Indeed, only 0.5% of COVID-19 vaccinations by that time had occurred in low-income countries (Gostin 2021). Persistent vaccine inequities amplify community risk from existing strains and create fertile ground for new variants to emerge. Rapid scale-up of manufacturing of mRNA vaccines would have made a real difference at a critical stage (Gostin 2021). Yet originator companies such as Pfizer and Moderna refused to collaborate with companies in countries such as South Korea and Brazil and with a World Health Organization vaccine hub in South Africa, all of which contended that they could help dramatically increase supply (Gebrekidan and Apuzzo 2021; Nolen and Stolberg 2021). Private power over vaccines has increased pain and death as well as the reverberating political crises caused by the COVID-19 pandemic, despite the billions of dollars of public investment that made these vaccines possible and substantial formal US government power over vaccine suppliers (Nolen and Stolberg 2021).
The stakes of these conflicts could not be higher. What, then, is the basis of the pharmaceutical industry's power, and what might it take to contest or democratize it? I call attention to four aspects of the industry's power, which reinforce one another in ways that make each individual aspect hard to overcome. The first is the industry's “property power,” enhanced by expansions in intellectual property (IP) law in recent decades. The second are the “vertical” forms of power over the political process that help industry entrench the status quo, such as the Senate filibuster and the courts. The design of our health care system and the influence that the industry has over patient groups has also contributed to a lack of organized countervailing power that could insist on popular reforms. The third form of the industry's power is ideational power. Industry can call on powerful neoliberal narratives about the inability of anyone but the private sector to innovate and a skepticism about government power, which help to explain why the executive has not acted where it can. Fourth, the industry has material power: governments appear to be reliant on it for certain technical experience and expertise, particularly in the short run.
Each of these forms of entrenched private power must be confronted if we are to construct a more effective and democratically responsive health sector—a prospect made difficult by the fact that these forms of power tend to reinforce one another. The dramatic legislative success of a modicum of drug pricing reform that passed as this article was going to press affirms that the industry's power is far from absolute. The precarious and limited nature of the recent reforms, however, also show the difficulty of the road ahead for those who would render the industry more accountable.
Analyzing Entrenchment: Four Aspects of Power
A growing body of scholarly work investigates dynamics of political entrenchment, broadly understood as the process by which political changes are made difficult to undo (Starr 2019; Patashnik and Zelizer 2013). The idea of “entrenchment”—harkening back to trench warfare—implies a form of exceptional or extraordinary resistance to reversal, one that generates obstacles to ordinary democratic lawmaking. For instance, when a decision is constitutionalized, it is more difficult to change through ordinary politics. Scholars of entrenchment also recognize that power can be entrenched in more complex fashion, such as by calling forth new political identities or coalitions, or altering state capacities (Patashnik and Zelizer 2013).
With this capacious understanding of entrenchment in mind, I map below four salient aspects of the pharmaceutical industry's power. It has “property” power, because IP is afforded special legal protections under US and international law. It has “vertical” power over politics, both because of the many barriers to democratic lawmaking in the United States and for other reasons more specific to the industry. For instance, it can leverage its property power into campaign spending, and it has successfully advocated for a fragmented health care system that makes countervailing power difficult to mobilize. The industry also has “ideational” power—it benefits from popular ideas about innovation and markets, for example, that help justify its power and profits. Finally, the industry also has raw material power over production processes and forms of expertise that make change difficult, particularly in the short run.
Each form of power interacts with and, under current conditions, tends to amplify the others. “Property” power is sustained not only because it enjoys formal legal protection but also because narratives about property and innovation influence the political process and the executive's willingness to use existing tools to curb the industry's property power. Property power in turn helps to reinforce vertical, ideational, and material power, because, for example, it gives companies the legal right to control information and earn profits that can be used to shape narratives, build new factories, and influence politicians. This suggests that these forms of power can reinforce one another, but also that diminished power in one area might impact power in another.
Property rights are a key source of power in our society, as scholars of entrenchment rightly recognize. Property, including intellectual property, can be used to generate profits and serves as a source of authority and control. It also frequently enjoys enhanced protection in constitutional and international law. The pharmaceutical industry's property power stems from a complex web of overlapping rights in information, which interact with ideas that help reinforce this property power, for example, by deterring regulation of the permitted uses of industry's property rights.
New drugs in the United States commonly enjoy three kinds of government-granted exclusivity: patents, which give their holders a 20-year exclusive right to make, use, sell, or import a covered invention; data or marketing exclusivities, which give companies residual control over the safety and efficacy data that they submit to regulators by blocking regulators from relying on that data to register generics for a term of years; and trade secrecy and related rights, which are used to shield safety and efficacy data, manufacturing secrets, and broadly any competitively valuable but secret data or information.
These rights have all become stronger in recent years, with particular inflection points in the 1980s and 1990s, consistent more broadly with the consolidation of the “20th-century synthesis” in American legal policy and thought (Britton-Purdy et al. 2020). For example, in the 1980s, the United States created the Federal Circuit, a special court to hear patent appeals, which proved extraordinarily friendly to patent holders. Key decisions in the 1980s and 1990s from that court and the Supreme Court made patents easier to secure, such as by expanding their subject matter to include genetic material and software. As corporate complaints mounted about patent thickets and trolls obstructing innovation in industry—and a small group of activists and nonprofits concerned about access to medicines and freedom to tinker with technology mainstreamed critiques about patents—some of these rights were trimmed in the courts and by Congress. These revisions, though important, have not fundamentally altered the industry's property power, in part because barring or invalidating some patents still may leave many others alone, and in part because industry has overlapping forms of property power, which it can fall back on where patent rights fail.
These overlapping rights include rights over regulatory data and rights to trade secrecy. In our current R and D environment, we rely on industry to produce a great deal of the evidence that drugs are safe and efficacious. These studies are expensive, costing millions or even hundreds of millions of dollars to conduct, and their results must be turned over to regulators. Industry lobbied for additional protections for this data, which often overlap with patent protections but can also protect companies where patents are invalidated or unavailable. Data and marketing exclusivity laws forbid the agency from approving generic versions of a drug on the basis of the originator's data for a certain number of years. These rights are the strongest in the area of biological drugs, which were granted twelve years of exclusivity by the Affordable Care Act (ACA).
In addition, trade secrecy law in recent years has grown more capacious and has been constitutionalized so that companies can argue that almost any valuable and secret information cannot be revealed to competitors or the public without government compensation. In this industry, that has highly troubling implications for what the public can know about medicines and also for competition policy.
Today, drug companies commonly argue that they own not only details about processes for making drugs but also the evidence about the safety and efficacy of drugs that they produce (Morten and Kapczynski 2021). Companies keep some data entirely secret, and researchers have little chance of accessing hidden data through Freedom of Information Act (FOIA) requests to the FDA, even when they suspect that harms are being concealed (Morten and Kapczynski 2021). Companies' arguments for protection are not necessarily legally sound, but they do not need to be to be effective, given the cost of marshaling a legal challenge and the prevailing regulatory culture. The FDA generally defers to companies when they assert that data requested under FOIA is confidential commercial information and should not be disclosed. In recent decades, the agency also made assurances to industry that they would not release certain clinical trial data, although there are good arguments that they are permitted by law to do so and that they regularly should (Morten and Kapczynski 2021).
Companies have more clear legal authority under trade secrets law to refuse to share manufacturing secrets, as they currently do for COVID-19 vaccines. Manufacturing secrets thus create important barriers to entry for competitors, particularly for so-called biological therapies. Older practices of chemical synthesis produced “small molecule” drugs such as aspirin or AZT that are relatively simple to copy, while newer biotechnological processes rely on more complex production processes that are not susceptible to the same kind of reverse engineering, for example, because they require access to certain validated cell lines. Because of this, the regulatory pathway for the approval of biological generics (“biosimilars”) is more complex and time-consuming. In addition, biologic drugs and vaccines play a larger role than they once did, making this power over manufacturing details and cell lines or other biological materials increasingly important in recent years.
Companies' patents, trade secrets rights, and barriers to entry that operate through the FDA all operate to reinforce one another in important ways. For example, a generic company can successfully invalidate a patent and still not be allowed to enter the market if a marketing exclusivity is still in force, which in turn means that fewer patents will be challenged. Corporate secrecy protections work together with these rights to afford companies greater profits by allowing them to shape the perceived efficacy and safety of their medicines. (Fines for misleading and dangerous marketing have, as a rule, been too small and uncertain to curb these practices.) Like a network of roots that makes a tree difficult to uproot, these rights work separately and together to entrench the status quo.
The impact of these rights together is evident in pharmaceutical sales data. So-called branded drugs, which are sold by the company that first registered them and are typically protected by both patents and regulatory exclusivities, are vastly more expensive than generic or biosimilar drugs that are sold by multiple suppliers. For example, in 2019, branded drugs accounted for only 10% of prescriptions but 80% of drug spending (AAM 2020). Thus, the most important reason why American drug prices are high, and rising, is the government-granted entitlements that often enable companies to monopolize markets and set prices as they wish (Kesselheim, Avorn, and Sarpatwari 2016).
In other countries, public regulatory regimes work to discipline industry's property power, particularly over pricing. The United States pays almost 2.5 times more for prescription drugs than do other OECD countries (Mulcahy et al. 2021). That is because other countries all have regulatory regimes that help to curb the prices of medicines. In the United States, there has been no system of price controls, making the only strong regulatory authority the one that operates at the point of market entry.
Patents and other exclusivities do not give companies an affirmative right to sell their medicines, and companies since the 1960s have been forbidden from marketing medicines in the United States without giving regulators substantial evidence to support their safety and efficacy (Carpenter 2014). The FDA, in fact, is one of the strongest regulatory authorities in the country and has long been the leading drug regulator on the global stage. The FDA's relative power has been ascribed to a combination of highly salient crises, like the thalidomide disaster, and the savvy of agency insiders who have developed strong expertise and also cultivated a trusted reputation with the public (Carpenter 2014). The agency's power, however, has diminished in recent years, with the creation of more pathways for drug approval requiring less evidence, on the theory that this will speed cures to market and allow confirmatory evidence to come later (Kapczynski 2018). Unfortunately, companies have incentives to delay such trials once their product is on the market, and they often drag on years past the deadlines that regulators set. Congress has nonetheless endorsed these changes, urged on by industry, patient groups that often have the support of the industry, and right-wing nonprofits like the Goldwater Institute (Kapczynski 2018). Increasingly conservative courts have played a role too, cutting back on the FDA's power through decisions suggesting that drug companies have constitutional rights to “speak” about their products—and thus to market them—even when making statements with which the agency disagrees (Kapczynski 2016).
Misleading marketing can be challenged by both government and private attorneys bringing tort and qui tam suits. However, the fines levied appear to be too small to curtail these practices, for they persist. Part of the difficulty lies in the complexity of proof and the secrecy of data: we do not know what we do not know about the dangers of drugs on the market. Product liability law is also not a good alternative to drug regulation. Judges and juries are not experts in clinical trial design or the evaluation of scientific evidence, and tort law does not work effectively to penalize a failure to conduct research.
Other regulatory institutions can also step in to try to compensate for the failures of existing regulation. As the FDA's demands for evidence decline, other agencies have begun to step in to create market barriers for drugs without a strong evidence base. The Centers for Medicare and Medicaid Services is trying to do this for the Alzheimer's drug Aduhelm, for example, by restricting its use for Medicare patients to those enrolled in approved clinical trials. But as I will note in a moment, federal law has broadly moved in the opposite direction, with more and more statutory mandates to cover medicines that are approved by the FDA. States have also sought to act against high drug prices, but there are many things states cannot do, in part because courts have struck down attempts at state pricing measures as being preempted by federal patent law or in violation of the dormant commerce clause of the Constitution, for example.
In theory, public rights to health care might also help discipline corporate power. Such rights do not, of course, exist in the United States, but even if they did, the outcome would likely not be as straightforward as it might seem. In countries where such rights do exist, such as Brazil and Colombia, companies have worked these rights to their own advantage, promoting their high-priced drugs to doctors and teaching them how to “judicialize,” leading to spiraling spending on medicines (Wang 2015; Ferraz 2011; Kapczynski 2019). The right to medicines could be—but mostly has not been—understood to have implications for the political economy of medicines and for industry's structural power (Kapczynski 2019).
In the United States, there are increasingly what we might call statutory rights to medicines, but these too have so far operated to enhance industry power. As public demands for access to health care have grown stronger, Congress has added requirements for pharmaceutical coverage but has not yet created mechanisms to control prices. For example, in recent decades programs such as Medicare Part D and the ACA were created, expanding drug coverage for many Americans. And federal law also requires that Medicaid and Medicare “cover most, and in many cases all, FDA-approved drugs” (Sachs 2018: 2309). Private insurers are also required to cover many drugs, mandated by the ACA's “essential health benefits” requirement and many state laws (Sachs 2018). Industry thus in many instances enjoys something close to a government mandate to buy a monopolized product, with almost no measures to curb the prices that monopolists command—a recipe for extravagant prices if ever there was one. The only forms of control that insurers can effectively employ, moreover, tend to limit patient access. If an equally effective alternative exists, insurers can favor it in certain ways, but such an alternative often will not exist. Insurers facing high prices sometimes therefore try to restrict patients' access to high-cost medicines in other ways, for example by limiting coverage to a small subset of eligible patients, or by creating other barriers such as the requirement that a specialist approve the prescription. These restrictions can be struck down by courts, however, in decisions that defend the ability to access medicines as well as the ability of companies to charge high prices (Sachs 2018).
As of this writing, Congress had just passed a historic bill—over immense industry opposition—creating the first direct drug price control system in US history. It gives the Department of Health and Human Services (HHS) the power to set maximum prices for Medicare for a very small number of drugs several years in the future, and for many years after the drugs' introduction. The bill also limits price increases for a subset of Medicare drugs. It does not reach pricing in the private market, however, because parliamentary rules and the slim Democratic majority prevented it.
On its own, it is a small first step in modulating the industry's property power. The negotiation portion of the bill will save an average of $10 billion each year over the next 10 years (Cohrs 2022) against annual drug spending of $577 billion (Tichy et al. 2022). But it could serve as a platform for expanded public powers in the future. Once the mechanism exists it would be relatively straightforward to add more drugs or reduce the years in which new drugs are permitted unilateral pricing power. The law faces enormous future challenges, however. Industry has threatened not only litigation but also retaliation against those legislators who voted for it, and it has redoubled lobbying to revoke the law in the next Congress.
Vertical Power over Rules of Change
This brings us to a second form of industry power, which is power over the process of legal change. All democracies require rules for lawmaking, and contemporary democracies often have rules that make majoritarian change difficult, such as creating multiple veto points, imposing supermajority requirements, or enshrining certain protections in constitutional law. Paul Starr (2019: 7) calls these the “rules of change,” and we can call power over the rules of change a form of “vertical” power to designate that it operates over the constitution of democratic power itself.
There are many features of the American political system that make majoritarian lawmaking difficult, including the Electoral College, the design of the Senate, parliamentary rules (e.g., the filibuster), judicial review, and the role of money in politics. There are few industries that use these rules more effectively to their benefit than the pharmaceutical sector. The industry is widely reputed to have the most fearsome and effective lobbying operation in Washington, DC (Florko and Facher 2019). Of course, this is made possible by the extraordinary profits that its property power creates, and is not unexpected given the enormous importance of property and regulatory rules to those profits. Examples of the industry's power are also littered across the recent history of health care reform. When Congress created the Medicare Part D program to ensure coverage for seniors, for example, it included a now-infamous clause forbidding the government from negotiating for lower prices. During the fight for the ACA, the pharmaceutical industry was spared again, protected from any efforts at price control and in fact gaining years of biologic exclusivity in exchange for supporting the ACA, which included the industry spending $150 million in advertising (Norman and Karlin-Smith 2016). The recent passage of limited drug pricing reform has punctured the sense of industry invincibility, showing that organizing efforts, especially when supported by deep-pocketed donors and overwhelming public opinion, can have an impact. The limited nature of the reform, however, also shows the industry's continued power.
American courts are a source of significant entrenched power for business interests generally, particularly in the wake of the broader neoliberal turn in legal thought and judicial doctrine in recent decades (Britton-Purdy et al. 2020). That turn, for example, created expansive takings doctrines that protect private property from not just appropriation but also regulatory action; reinterpreted antitrust law to allow much more consolidation in business; undermined class actions; expanded arbitration, making private suits against industry more difficult; and rewrote constitutional doctrine to undermine campaign finance laws and the power of unions, and to give corporations growing “free speech” rights. All of these shifts have helped entrench the power of pharmaceutical companies.
In 1984, for example, in a case called Ruckelshaus v. Monsanto, the Supreme Court expanded regulatory takings doctrine to include trade secrets within its ambit. The case can be read narrowly, to hold that trade secrets are protected only after a specific government promise to that effect. But some lower courts have read it much more broadly, generating precedents that serve as a powerful weapon against attempts to regulate pharma even in modest ways, such as mandating price transparency (Kapczynski 2022). In 2011, the Supreme Court decided Sorrell v. IMS Health, striking down a state law that sought to curb pharmaceutical marketing to doctors, and declaring that prescription data sales were protected by the First Amendment. The industry has used that case to dramatically challenge the FDA's power over marketing by arguing that rules for marketing and labeling drugs restrict companies' “speech,” with some notable successes so far (Kapczynski 2016).
And this is just the beginning. When new legislative proposals emerge to constrain industry power, industry lawyers quickly go to work to find ways to challenge them in the courts. The first wave of drug pricing reforms, at the state level, ran into a buzz saw of the takings clause (which derailed a Nevada law that would have made drug prices more transparent) and the dormant commerce clause (which was used to invalidate a Maryland fair pricing law). Industry has also argued that Democratic proposals to enable the government to negotiate drug prices violate constitutional provisions such as the Tax Clause and the Takings Clause (CRS 2019).
In addition, many of the industry's entitlements are protected by international law. The World Trade Organization's (WTO) TRIPS agreement, which entered into force in 1996, imposed strong substantive patent law requirements as a matter of international law for the first time. All WTO members must adhere to these rules upon threat of WTO dispute resolution and sanctions. The impact of this was most acute in developing countries, many of which limited patents on medicines and foodstuffs before TRIPS. These agreements generally track legal requirements in the United States and other developed countries, but they have an important impact there too. They lock in issues at the local level that might otherwise be up for policy debate, such as the question of how long patents and regulatory exclusivities should last.
Finally, industry power over politics is conditioned by the absence of effective countervailing power. Given the broad bipartisan majorities that support action on drug prices, and the enormous importance of medicines for our everyday lives, one might expect strong, organized demands for change. But the fragmentated, partially privatized nature of the sector presents a barrier to organizing. Patients with different insurers may not share similar experiences, and they may find fights with insurers over coverage more attractive than a challenge to the broader power of the industry to set prices. Organized patient groups also often receive direct support from industry and have historically argued against reforms, repeating the industry position that any such reforms will harm innovation (Goozner 2020). Over the last several years, this has begun to change, with new organizations (e.g., Patients for Affordable Drugs) being formed explicitly to help patients fight for lower drug prices, and organizations such as AARP and unions taking the issue up on behalf of their constituents. These efforts have found some support from new foundations like Arnold Ventures, and they were critical to the recent legislative success.
The ideas that we have about the proper role of government and industry in our political economy also play an important role in sustaining industry power. The industry benefits from our broad cultural investment in medicines as a means to treat disease and risk (Dumit 2012). Studies show that many patients in clinical trials operate under a “therapeutic misconception” that experimental drugs will help them, even though the point of such trials is that those benefits are unknown (Jansen 2020). Even more remarkably, drug-trial patients with Parkinson's disease who are given a placebo that they are told is “expensive” rather than “cheap” do better on certain brain function tests, suggesting that our belief in the efficacy of expensive new medicines runs deep indeed (Espay et al. 2015). Our health care system as a whole clearly overinvests in high-tech care as compared to primary care and systemic and public health interventions that can improve health more for less. Pharmaceutical companies clearly benefit from such beliefs, and they—and many organized patient groups—commonly point to them to justify high prices.
Surveys also reflect some skepticism about these claims, and extraordinary levels of dissatisfaction with the industry's pricing practices. For example, national surveys show that a large majority of Americans believe that companies suppress innovations to protect their profits (Gerber et al. 2014), and Americans have expressed a fairly negative view of the industry in recent years (Blendon et al. 2011). Large bipartisan majorities are also extremely concerned about high drug prices, and they support significant action to bring prices down (Lopes and Stokes 2021). Despite these real concerns, however, the public continues to view the industry as a source of important innovation (Patashnik, Gerber, and Dowling 2017; Blendon et al. 2011).
The broad sense that the industry is, despite its flaws, critical to drug innovation is also part of the reason why those who in fact have the power to act, such as to lower drug prices, do not use it. Industry's property and political power could not be sustained without ideas that help legitimate them, and not just in the legislative realm. The list of possible ways that the executive can gain leverage over industry prices is surprisingly long. For example, the US government has, and has always had, a broad right to “government patent use” (Brennan et al. 2016). The right is enshrined in 28 USC 1498, which provides that patent holders cannot prevent the government from using their inventions and are only entitled to sue for royalties, which are limited to “reasonable” amounts. This right is used regularly in the defense sector and enables any government procurement officer to accept a bid from any supplier, leaving disputes about patents to the federal courts, and often yielding royalty rates of just a few percent of the cost of the competitor's goods. This right, in fact, was used in the pharmaceutical context in the 1960s and 1970s. And it could be used today on any approved drug to enable the executive to negotiate lower drug prices by threatening to import generic alternatives, or in fact importing them (Brennan et al. 2016).
The government also has so-called march-in rights on any drug developed with government funding under the Bayh-Dole Act. But no administration has ever used this right, in part because HHS has adopted the industry's preferred reading of the law, which suggests that it cannot be used as a remedy to high drug prices (Thomas 2016). Leveraging its power as a funder, the US government could also impose contractual terms on those it funds, insisting not only on fair pricing but also that data created via the collaboration be made available to researchers. Instead, it commonly grants control over drug and vaccine pricing and manufacturing to industry, as it did in the COVID-19 vaccines context.
The government also sometimes holds its own patents on blockbuster medications, providing yet another avenue where power can be exerted without any additional lawmaking. For example, government agencies hold a key patent on preexposure prophylaxis for HIV (a pill that dramatically reduces the likelihood of contracting HIV) and on the process for stabilizing the spike protein used in most coronavirus vaccines. Yet government only takes action in rare cases, and often after pressure, as was the case with the HIV medicine (Rowland 2019). The executive has also been timid in using the power it has under existing law to lower prices by importing safe medicines from Canada or altering how drugs are paid for under the Center for Medicare and Medicaid Innovation. All of these measures, it should be noted, are consistent with the TRIPS agreement, which also contains significant flexibilities (Kapczynski 2009).
The government also has arguments it could use to override industry claims to data secrecy. Although the FDA often chooses to withhold industry data when it is requested via FOIA, FOIA exemptions are discretionary, and the agency could create a process of routinized, voluntary disclosure for such data. To do this, some existing regulations would have to be revised, and industry challenges, including on trade secrecy grounds, would have to be navigated (Morten and Kapczynski 2021).
Finally, as we have seen during the coronavirus pandemic, the executive has another powerful tool in its arsenal: the Defense Production Act, which gives federal agents extraordinary power over private production and contracts. That law can be used to meet national defense needs (including public health), not only to order companies to produce certain things but also to mandate sharing of information between firms, including tech transfer abroad (Rizvi, Ravinthiran, and Kapczynski 2021).
All of these flexibilities are within the authority of the executive to deploy, yet they are generally unused. This should strike us as odd, given the broad popularity of ideas such as lowering drug prices or expanding the supply of COVID vaccines. It is difficult to ascertain how much of the barrier is what officials believe, as opposed to their fear of industry threats (for example, of being sued or coming up against industry's lobbying and publicity machine) or their concerns about how increasingly conservative courts might interpret ambiguities in these statutes. But ideas broadly shape all of these realms—risk in the courts, via lobbying and publicity, and in executive action—and so constitute an important substrate of the industry's power. And again, these forms of influence interact. Especially in a political system that makes democratic power hard to exert and that entrenches forms of elite power (such as in the judiciary), ideas that hold sway among elites can be an important source of industry power.
Industry commonly argues, for example, that reductions in their profits or control will mean fewer medicines for those who need them. In its recent campaign against the drug pricing proposal embraced by the Biden Administration, the industry lobbying group PhRMA argued that it would “threaten patients' access to medicines” (Ubl 2021). This argument is an attempt to mobilize the public—and in particular the elderly and others who are medically vulnerable—against legislators, following the model of the infamous “death panels” arguments made against the ACA. It is true that in rare cases, measures to reduce prices have led companies to simply withhold products in Europe rather than accept the price a government is willing to pay. (Notice that this power depends heavily on patents and trade secrets, because without them, another supplier could enter if an originator refused to.) Recent proposals to curb drug prices in the United States have been carefully designed to avoid this result, either by allowing the government to buy generics or by imposing escalating taxes if originating companies refuse to sell. It is not quite clear how these mechanisms would work in practice. Companies have the advantage of a global supply chain and a regulatory structure that creates multiple barriers to generic substitution, and pharmaceutical companies would likely seek to invalidate any proposal of this sort in the courts. But there is no necessary relationship between fair pricing and rationing; indeed, many Americans already forgo medicines because of their high prices, suggesting that fair pricing would reduce de facto rationing.
The second narrative that the industry invokes is that price controls will “sacrifice future medical advances” (Ubl 2021). This is the more durable concern among those making pharmaceutical policy in Washington. Lower prices, it is argued, will result in less R and D because drug development is expensive, and there are by definition certain “marginal drugs” that are only profitable at prices of, say, $900,000 per patient, given the costs of R and D and the size of the patient population. The industry also benefits from arguments that imply that no prices for drugs can be too high, because industry operates on a “portfolio” theory: companies invest in many drugs, some of which will fail, so that the rare success can fund the many necessary failures. This argument tends to occlude other possible baselines from which to measure fair profits, such as risk-adjusted R and D expenditures (Brennan et al. 2016). Even profits wildly exceeding what a company could have expected ex ante for any particular drug can appear justified from this point of view.
This is particularly true given the associated questionable assumptions often imported from neoclassical economics (e.g., that excess profits will incite adequate new entrants to disperse them). Setting aside arguments relying on such assumptions, even neoclassical economics does not prize innovation per se but rather innovation as a means to enhance efficiency, or the joint product of consumer and producer surplus. At some point investment in R and D will come at too much cost to access to medicines, making the dynamic innovation benefits not worth the static costs associated with monopoly prices and restrictions on supply. But this is not how arguments about pharmaceuticals tend to proceed. In the vast majority of the academic literature, particularly in economics, innovation is assumed to be a good in itself, something that should always be maximized (David 2012). Our present-day cultural investment in an ideal of innovation that is assumed to invariably bring progress shows its influence here too.
These narratives are quite powerful; all of us want new medicines, of course. And they are hard to gainsay because they hinge on extremely complex empirical questions and on facts, such as costs of R and D, that are not public. That said, a growing group of academics and advocates for price reform argue that these claims are misleading. They argue, for example, that industry spends far more on marketing and stock buybacks than it does on R and D, and they suggest that the industry is influenced more by the rates paid by the National Institutes of Health for basic scientific research (Kesselheim and Avorn 2021). They also urge that allowing industry to profit from drugs that are similar to older medicines distorts innovation away from riskier and more impactful research (Kesselheim and Avorn 2021).
When analyzing Biden's penultimate drug pricing proposal, the Congressional Budget Office (CBO 2019) concluded that it would cut prices by around half while leading to a very small reduction in the introduction of new medicines—just 8 fewer medicines out of an expected 300 drugs over the coming decade (CBO 2019). And, it admitted, even this estimate was highly uncertain. There is clearly no one-to-one ratio between reduced spending and fewer new drug entrants. The only medicines that would not come to market would be marginal ones, and no one really knows how many of them there are, or whether companies might in fact respond to measures that linked price to therapeutic effect by investing in more risky and innovative research rather than “me-too” drugs.
Academics routinely debate whether it would be net beneficial for innovation to shift more research to government grants or prizes, which could be done through savings from fair pricing rules, for example. Arguments that puncture the industry's claims about innovation have recently begun to make it into public debate, and they likely played some role in facilitating the recent legislative success. The very modest nature of the bill, though, also suggests that the industry's ideational power remains notable.
As Starr (2019: 2) has suggested, property and regulatory regimes are “constitutive”—they help to construct “the social and material basis of things.” Over time, the powers and responsibilities given to industry, as well as to government, leave each sector with different kinds of experience, personnel, and expertise. These, too, can be a source of entrenched power, one that I will call material power. The pharmaceutical sector is characterized by a government and academic sector with expertise that is indispensable to drug development but that dominates in early-stage research. Federal funding, much of it upstream, contributed in some fashion to every drug approved from 2010 to 2016 (Galkina Cleary et al. 2018). Although as many as one in four drugs approved from 2008 to 2017 involved late-stage government research (Nayak, Avorn, and Kesselheim 2019), it is very rare for a drug to which government has contributed even in this fashion to have only government rights attached to it, because industry controls—and then patents the results—of a good deal of R and D, even in these close collaborations.
In the current paradigm, industry invests more in later-stage clinical research and marketing. For example, industry often designs and finances the phase III clinical trials on which drug approval depends. Industry also is experienced in obtaining regulatory approval, creating supply chains, and marketing new medicines, and it completely dominates the medicine and vaccine production process. Though it was once not uncommon for countries to have their own government pharmaceutical manufacturing capacity, few countries have such government-owned concerns today, and the United States is not one of them. All of this has surely generated a certain kind of workforce with a certain kind of expertise.
It is unclear exactly how far this expertise runs and how difficult it would be to recreate in the public sector. That is because much of how industry operates is treated as a (proprietary) secret, and because industry has reason to overstate its expertise. But there is little reason to doubt that industry has some structural power, consisting of its control over personnel, facilities, and know-how that are difficult for government to access or replicate, particularly in a short time frame. One piece of direct evidence is the time it takes for other private companies to reverse engineer a medicine. A recent report commissioned by HHS concluded that, on average, it takes more than two years to develop a generic formulation of small-molecule drugs, and more than three years to do so for more complex molecules and solutions (ERG 2022). However, here is another example of how different forms of industry power interact. Government could seek to force collaboration to speed the process of technology transfer to competitors or to government, but it would face sharp resistance, buttressed by the industry's property and ideational power.
The fact that generic alternatives emerge makes it clear that industry's material power is not absolute and suggests that this power is most important in the short term, and most acutely in emergency situations, when months matter. For example, in the second year of the pandemic many called for more manufacturing of COVID-19 vaccines to create resilient supply chains and scale up to meet global need. The US government awarded billions of dollars to private industry, even covering almost 100% of the cost of the clinical development of Moderna's vaccine (Clouse 2020) without imposing requirements on industry to share technology and with no comprehensive assurances of fair pricing of the results. The stated reason why Operate Warp Speed did not pursue these requirements was that any attempt to negotiate such provisions would have taken precious months—presumably because industry opposed them (Gebrekidan and Apuzzo 2021).
Directly after the approval of the first COVID-19 vaccines, many doubted that manufacturing could be scaled up quickly, citing the complexity of making the vaccines (Arnsdorf and Gabrielson 2021). But global health advocates have argued that evidence suggests that, with concerted effort, new capacity could be brought online quickly, adding billions of new doses in just six months (Kis and Rizvi 2021). However, the Biden administration has refused to mandate that companies transfer the technology abroad or create the local manufacturing capacity necessary to do this (Krellenstein 2021). Tom Frieden, former director of the Centers for Disease Control and Prevention, has suggested that one reason for the administration's lack of action in this area is that industry has been “saying that if they are forced to share technology, they won't meet the needs of the US market” (Frieden 2021). Without its own facilities and experience with vaccines manufacturing, the government has ended up in structural reliance on an industry that influences how it exercises its legal powers, particularly in the short run and where the stakes are high. This fact, buttressed by the industry's threats that they will sue if challenged (Nolen and Stolberg 2021), seems to be sufficient to maintain industry's power in the extraordinary stress test of a catastrophic global pandemic.
This, then, is the final piece of the story of industry power: accumulated power and expertise in industry also give it the power to, in effect, threaten to “strike,” which is particularly important in a crisis like a global pandemic. This power has had its influence on the recent legislative reforms, too. The price control system is actualized through a byzantine tax structure—which will very likely attract distinctive legal challenges—rather than through the more direct route of competitive supply, in part because competitive supply chains cannot be readily guaranteed in the current material and legal environment. Pharma's power is not solely legally constructed, nor solely in its authority over rule change, nor solely in the realm of ideas—it has become material in ways that matter. And these forms of power interact, and in the current policy environment they commonly reinforce one another.
Advocates have in recent years challenged the pharmaceutical industry's entrenched power, seeking to make medicines and vaccines safer, more effective, and more affordable. There have been some dramatic, if narrow, successes. The extension of HIV/AIDS medicines to millions of people around the world after price reductions and IP concessions, and the recent drug pricing reform, are the two most salient. But each is a salvo in an ongoing struggle over power, in which industry holds many weapons. As the leader of the industry's lobbying arm, PhRMA, recently said: “Few associations have all the tools of modern political advocacy at their disposal in the way that PhRMA does” (Wilson 2022).
The account offered here suggests that industry's power is entrenched, but not absolute. It can be challenged, and advocates for access to medicines have pursued strategies that have targeted some of the sources of power described here. For example, groups like Doctors without Borders, the Treatment Action Campaign, and the Consumer Project on Technology have developed sophisticated legal arguments and political campaigns to push governments to override patents to make medicines more affordable, and they have helped bring attention to the government role in innovation and the waste, price gouging, and fraud in the private sector (Hoen et al. 2011; Heywood 2009). Organized groups were central to the passage of the recent drug pricing reform. The high degree of public dissatisfaction with drug prices and skepticism of the industry's profit motives likely reflect the impact that such advocacy has had, particularly as it has become more domestically oriented.
The industry's vertical political power and material power have been central to its ability to stave off broader legislative reform and more muscular assertion of the public's interest and rights in COVID-19 vaccines. More directly tackling the industry's vertical political power and material power may be important to such broader reforms and to public-minded responses to future emergencies.
Each of these forms of entrenched private power likely must be confronted if we are to construct a more effective and democratically responsive health sector. We should ask, in addition, whether the virtuous cycle from industry's perspective can also be run in reverse; that is, whether successful challenges to power in some areas might diminish industry power in other areas. If ideas buttress the industry's power, and if patents help protect their control over production and therefore material power and expertise, then effective challenges to ideas may help loosen the industry's grip on patents and therefore material power. The analysis here also suggests the importance of exploring how counterpower for patients and the public might itself be entrenched, to counter the overlapping powers of industry. Perhaps the most promising aspect of the late-breaking drug pricing reform—if it survives the courts—is the simple fact that it creates a new node of public expertise, regulatory power, and information gathering that could provide a platform for much more to come.
Special thanks to the conveners, reviewers, and editors of this special issue for their superb feedback, and to David Herman and Chris Umanzor for research assistance.