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By Matt Barg
Over the last several decades, there have been intermittent, but unsuccessful, efforts to rein in the pharmaceutical industry with legislation and increased regulation affecting pricing, corporate tax, and intellectual property protections. Pharmaceutical corporations invariably argue that such actions would harm innovation. The industry’s contention under this theory is that profits need to be higher than what the market would normally demand in order to supplement research and develop (R&D) costs. If their profits are not protected, there will be no incentive for pharmaceutical companies to innovate, either by developing new drugs or making novel improvements on existing drugs. As a result, pharmaceutical companies are the beneficiaries of, for example, 20-year patent protections, R&D tax credits, and minimal regulation of drug pricing in order to ensure higher profits to augment R&D spending and bolster innovation.
While this seems to be a logical theory to boost innovation, are pharmaceutical corporations actually allocating their profits for R&D? Or, are these corporations exploiting a longstanding and well-accepted public policy stance in order to reap greater profits? A 2017 study by the Institute for New Economic Thinking (INET) suggests the latter.
The study shows that instead of allocating profits to innovation, pharmaceutical companies are spending almost all of their profits on delivering dividends to stockholders and repurchasing their own corporate stock (buybacks). In recent years, pharmaceutical executives have increasingly shifted their business models away from drug innovation to one that is preoccupied almost entirely with finance. While various factors that have led to this shift, one of the most apparent reasons for the shift is that pharmaceutical executives have strong incentives to move in this direction as they receive much of their compensation in stock.
The industry contends that more drug innovation is beneficial to the health of the U.S. and the rest of the world. Perhaps, but pharmaceutical companies are, in fact, allocating almost all of their profits to buybacks rather than spending on R&D for developing new drugs. The INET study shows that on average, the 18 pharmaceutical companies currently in the S&P 500 Index distributed 99 percent of their profits to shareholders between 2006 and 2015—50 percent as buybacks and 49 percent as dividends.
In his Harvard Business Review Article, one of the authors of the INET R&D study, William Lazonick, insists the that personal incentivizes to do buybacks in order to increase stock prices provide the only logical explanation for mass stock buybacks. From 2012 to 2015, stock-based pay for pharmaceutical executives accounted for roughly 90 percent of their compensation. Executive pay packages reward stock-price manipulation and speculation over the company’s innovation successes.
Pharmaceutical companies are now growing their businesses through corporate finance, rather than by innovating and producing new drugs. They prefer to acquire other companies for their drugs and innovations. The companies have also notoriously acquired or merged with another company incorporated in a country with low corporate tax rates and favorable tax policies, such as Ireland, Luxembourg, and the Cayman Islands, in order to reduce their tax bills. Such transactions are known as tax inversions. The pharmaceutical industry may have been built on scientific innovation, but the industry has now become overwhelmingly preoccupied by finance, leaving innovation to fall by the wayside.
The short-term thinking focused on bolstering stock prices rather than innovating new drugs could have tremendous implications for access to medicine across the globe. Currently, there is a growing anxiety that the pharmaceutical industry is going through a productivity crisis for discovering new drugs. Over the past 15 years, R&D investments by pharmaceuticals companies have led to few new blockbuster drugs, even as the 20-year patents on the previous generations of drugs expire. Companies like Merck and Pfizer have been living off of patented drugs with few new drugs in the pipeline. Pfizer, for example, has not launched an internally developed product since 2005, with only four internally-developed products launched between 2001 and 2005.
During Pfizer’s attempted merger with Allergan, which the Obama Administration later blocked, Pfizer CEO Ian Reed said the company’s U.S. tax bill put it at a “tremendous disadvantage” in global competition. Reed said, “[w]e’re fighting with one hand tied behind out back.” However, from 2011 to 2015, while Reed was CEO, Pfizer’s distributions to shareholders were 4.7 times its U.S. tax payments. During this same time period, Pfizer also spent $45 billion in buybacks and Reed’s annual compensation averaged $54.9 million (81 percent from stock options and awards). Given these figures, it’s difficult to believe that Pfizer was strapped for cash.
The pharmaceutical industry’s steadfast R&D argument is flawed, if not a complete fallacy. It can no longer justify the multitude of profit protections the industry is afforded. In light of the financialization of the pharmaceutical industry, policy makers need to reconsider the rationale for the legal regime providing the industry certain protections. Global health is at stake.
Matt Barg is a student at Northeastern University School of Law. Matt did research on the pharmaceutical industry while working as a PHRGE Fellow with Oxfam America’s Private Sector Office in 2017. The opinions expressed in this post are his own.
By Jason Blanchette
Those of us who believe that access to medicines should not differ by wealth status are nervously waiting for President Trump to pursue what will likely turn out to be an industry friendly approach to pharmaceutical prices. I, for one, hope that it turns out differently than what is expected. Kaiser Health News first broke a story about discussions within a White House Working Group. One prominent talking point within the group concerned increasing patent protection outside the United States – which would further extend Big Pharma’s monopoly pricing into developing countries. They are talking about increasing monopoly protection outside the United States as a means of decreasing monopoly prices in the United States.
Framing foreign monopoly pricing protection as a means to reduce domestic pharmaceutical prices suggests that the enforcement of intellectual property (IP) rights in foreign countries would (supposedly) ensure “that American consumers do not unfairly subsidize research and development for people throughout the globe.” In other words, the high price of Research and Development (R&D) is the central cause of high pharmaceutical drug prices: If pharma executives increase their revenue elsewhere they will voluntarily lower prices in the United States.
This is nothing new: The policy priority of big pharmaceutical companies has long been to block developing countries from licensing generic drugs to increase the affordability of otherwise unaffordable medicines in their countries.
The approach is also aligned with decades of U.S. trade policy. The Office of the United States Trade Representative (USTR), has regularly sought to favor domestic industries—especially the pharmaceutical industry—by increasing patent protection in developing countries. But this could be the first time such trade policy has been framed as a domestic pricing policy by government officials so closely connected to the White House.
Much has been written about the Working Group documents since Kaiser Health News first wrote about them. Commentators point out the absurdity of the idea that discouraging competition would somehow decrease U.S. drug prices. They similarly question the notion that higher profits overseas would magically stimulate big pharma philanthropy toward U.S. consumers.
But I think something has been missing from this discussion that further highlights the irrational policy stance that underlies it. My public health education and experience leads me to evaluate this proposed policy by considering how the differences between countries, regarding the most prevalent diseases, would inform discussion on pharmaceutical prices. At the very core of public health – what separates healthcare from public health – is that in public health we identify problems and solutions within groups of people by comparisons between and among populations. The proud public health nerd in me keeps a copy of Geoffrey Rose’s highly cited article, “Sick Individuals and Sick Populations,” on my desk because of its simplistic way of highlighting the importance of cross-population comparisons.
The Working Group’s identification of the problem – outrageously high pharmaceutical prices in the U.S. – is in agreement with public sentiment and makes sense. We need only identify the problem’s underlying cause and assess whether or not the proposal – strengthening intellectual property protections outside the United States – might help solve the it.
The big pharmaceutical companies have little interest in designing drugs for the diseases most prevalent in developing countries, which is one of the reasons that those diseases have barely been researched. Over the past two decades, the disease profiles of multiple middle-income countries have shifted quite rapidly toward the profiles of the United States and other developed countries. That is, non-communicable diseases such as cancer, diabetes, and heart disease are becoming more common in these countries. In addition, the governments of many developing countries have been making great strides toward increasing access to healthcare, including access to medicines. These improvements have led to rapid growth in pharmaceutical spending in developing countries. These countries, termed by Big Pharma as “pharmemerging” markets, now account for roughly one-third of global pharmaceutical spending.
Because of the convergence described above, entrance into the “pharmemerging markets” does not require new Research and Development (R&D) by the pharmaceutical companies that have been thriving on developed countries> Instead, these markets offer expanded revenue for already existing drugs. However, this ability of the industry to spread the R&D costs of drugs over a larger sales base, drug pricing by pharmaceuticals in the United States continues to escalate, and is increasingly out of control. This trend the conclusion that pharma executives will charge whatever the market will bear (a high price when it is a matter of life and death). It certainly does not support, and probably counters, the conclusion that monopoly enforcement internationally would somehow reduce prices domestically.
Per capita pharmaceutical spending in the United States is roughly twice that of other high-income countries even though . United States per capita pharmaceutical spending—which continues to grow at a rate higher than in other developed countries—is expected to reach roughly $2,000 by the year 2021. This is an important comparison because of the similarities between the United States and other high-income countries. As members of the World Trade Organization and state members of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the developed countries share similar Intellectual Property protections. Our pharmaceutical needs are similar because our populations suffer mostly from the same non-communicable diseases. And as high-income countries, we have similar abilities to pay outrageously high prices for pharmaceuticals.
What, then, could be the cause of the disparity of pharmaceutical costs? Answers to that question would require a different blog post, one centered on differences in domestic health policy.
Jason Blanchette is a third-year law student at Northeastern School of Law
By Tanisha Canty
People are suffering from nausea, vomiting, diarrhea, parasites, hair loss, permanent neurological disorders, anemia; raw sewage pools in their yards, separated from the children’s toys by thin scraps of metal; even their livestock are diseased from grazing in sewage. When I read these descriptions, they elicited thoughts of developing countries, of remote villages in Africa and India, but certainly no place in the developed world. And then the author revealed these are the circumstances under which millions of people in the United States live daily, in Michigan, in Alabama, in Maryland, in California, and other places. I could barely reconcile that knowledge with my perception of life in the U.S. People are losing their children and homes because they cannot afford to pay for water. For some who can afford water prices, the quality is so abhorrent that the water is essentially unusable.
The United States does not currently recognize the human right to water. The U.S. Department of State writes that “because the promotion of human rights is an important national interest, the U.S. seeks to hold governments accountable to their obligations under universal human rights norms and international human rights instruments.” A person can live at most seven days without water, but millions of people have to choose between consuming the water they have and potentially permanent illness. Without recognizing and enforcing a human right to water, we are signaling to those individuals that being put in the position of choosing between good health and consuming water is acceptable. But, because that choice, and all similar choices regarding access to quality water, are unacceptable, we must examine that U.S. government’s contention that it is not bound by the human right to water.
According to the International Court of Justice (ICJ Treaty, Article 38), the three primary sources of international law obligations are international conventions, international custom (termed customary international law), and the general law principles recognized by civilized nations. The U.S. position is that obligations are not binding until the treaty is ratified. Ratifying a treaty creates international obligations for the U.S. to protect and implement the rights established in the treaty. If the U.S. chooses to sign, but not ratify a treaty, then it is bound to refrain from measures that would contravene the purpose and goals of the treaty. None of the agreements that the U.S. has ratified have expressly included a right to water for all people.
That position taken by the U.S. ignores the obligations created by international custom. The ICJ has held that to establish international custom, the practice must be “very widespread and [have] representative participation in the convention,” along with “virtually uniform practice…that demonstrates a general recognition of the rule of law.” To summarize, for a right to become international custom, it must be generally accepted and practiced, and supported by judicial opinions (opinio juris). The human right to water has been reinforced by regional courts, including the Inter-American Court of Human Rights, in multiple cases since its adoption in 2010. The human right to water satisfies the requirement of being supported by judicial opinion.
After nearly two decades of statements by United Nations bodies about the human right to water, the UN declared the years between 2005-2015 the International Decade for Action, “Water for Life,” citing the fact that 884 million people lacked access to safe drinking water, and 1.5 million under the age of 5 were dying annually as a result of water-and-sanitation-related diseases. Further, in 2010 the United Nations General Assembly voted in support of Resolution 64/292 formally recognizing the human right to water and sanitation. The resolution also urges states and organizations to make available financial and technological resources in efforts to provide safe, clean, accessible, and affordable drinking water and sanitation for all. Though U.S. abstained from voting on the resolution, the resolution passed with 122 votes in favor and 43 abstentions.
Following the right to water resolution, the UN adopted Resolution 15/9, affirming that countries have the “primary responsibility to ensure the full realization of all human rights.” As a part of that realization, the UN charges states with developing legislation, plans, and strategies for the realization of human rights obligations, specifically access to safe drinking water and sanitation. For these reasons, the human right to water has been universally accepted and practiced enough to satisfy the generality requirement of international custom.
Although the U.S. has not recognized the human right to water, it is a legally binding right under the international custom source of international law. What remains is for the government to take steps to provide the people of the U.S. with sufficient and sanitary water, and for officials to recognize that the people do have a fundamental right to water. Recognizing the human right to water at the federal level would provide a stronger legal basis for claims against localities in which the water sources are polluted and unfit for human use. But, most importantly, a human right to water in the U.S. would give all citizens the most fundamental right there is—the right to live.
Tanisha Canty is a second-year law student at Northeastern University School of Law
By Aja Watkins and Kevin Murray
The Boston City Council held a March 7 hearing on a resolution, introduced by Councilor Tito Jackson, to declare Boston Public Schools sanctuary schools. A sanctuary school would refuse to participate in any action to enforce federal immigration policies, including the signed by President Trump. Around 200 community members met at St. Stephen’s Youth Programs on March 7 and heard testimony from teachers, students, activists, and BPS personnel regarding the proposed resolution.
Those who argued in favor of the resolution cited fear of deportation as an impediment to learning. Students who are undocumented, or who have undocumented relatives, are particularly impacted by policies of the new administration. However, proponents of the sanctuary schools resolution said that the issue at hand wasn’t immigration policy, but the right to education. If children are afraid of attending school or related stress, they will be distracted and unable to learn. School nurses and teachers cited research and cases establishing that a worry of deportation can be destabilizing for families, both economically and psychologically, and Councilor Ayanna Pressley related this proposal to current work regarding school responses to trauma. Because traumatized children cannot adequately exercise their right to education, policies that increase fear to attend school undermine that right.
Some community members and policymakers questioned the resolution’s possible impact on students’ ability to focus at school. For example, a resolution protecting children while they are at school would not be able to mitigate fears children may have about deportation of their family members. In response, Councilor Jackson emphasized the importance of taking steps in the right direction, and the power of simple declarations to set the tone for policy implementation. Parents spoke about children in their community who are too afraid to go to school – the most extreme case – who have the most to gain from a sanctuary schools resolution. Jackson also referred to a complementary proposal for an Immigration Defense Fund that would help supply lawyers to defendants in immigration court cases.
A panel of BPS administrators answered questions about the district’s current policy regarding federal law enforcement. When any kind of law enforcement enters a school, the central office is notified first, consults their legal team, and acts accordingly. Instances of this are rare, according to the BPS representatives. Furthermore, BPS does not collect data about students’ citizenship or immigration status, and panelists emphasized that they strictly observe all confidentiality requirements regarding student data. Jackson suggested that the superintendent, himself should be required to sign off on any cooperation with federal law enforcement, and noted that the resolution was aligned with the BPS mission to create “safe, healthy, and welcoming” school spaces.
When questioned about their response to the executive orders, panelists from the BPS cited the activation of an emergency response team, and recent correspondence with school leaders requesting that they communicate any effects of the November presidential election on school climate. So far, no district-wide teacher training on appropriate responses to the orders has been provided, although a representative from Massachusetts Immigrant and Refugee Advocacy Coalition (MIRA) invited teachers to their workshops about immigrant rights.
The hearing close with many questions in the air and no action on the resolutionl, but the next day the Council unanimously endorsed a resolution affirming the “right to safe education.” The resolution is not legally-binding on the City of Boston or the BPS, and several questions remain about how Boston might implement a sanctuary schools program. First, it is unclear whether the City Council or the Boston School Committee has jurisdiction over the schools in this case. Second, the legal ramifications of enforcing the resolution – and thereby declining to cooperate with Federal law enforcement – have not been clarified. Finally, no one at the March 7 hearing was clear about what legal remedies would exist if agencies such as the US Immigration and Customs Enforcement Agency (ICE) simply ignored such a policy. Boston may be able to look to other cities such as Oakland, Des Moines, and Pittsburgh that have instituted similar policies in order to answer these questions. Serious questions notwithstanding, that the Boston City Council resolved to take action based on concern for the right to education of Boston’s children must be seen as a positive step.
Aja Watkins is a PHRGE research intern and an undergraduate at Northeastern University majoring in Philosophy and Mathematics. She is a national finalist for the 2017 Truman Fellowship Program
Kevin Murray is Executive Director of PHRGE.
By Caroline Kelley
Since November 9, 2016, citizens of the United States, Mexico, and the world have wondered who will advocate for their rights in the new geopolitical landscape. They have fearfully ruminated on the breadth of executive power, and have reached out to allies in the hope that collective actions will have greater effect than individual ones. There are some groups of citizens, however, who—while threatened by the policies and conflicts of interests of the new administration—have never enjoyed a robust framework for the protection of their rights. One such group is seasonal workers who migrate from Mexico to the United States to work under the H-2A and H-2B visa programs.
The H-2 visa programs are established by the Immigration and Nationality Act, and are governed by regulations issued by the Department of Labor, the Department of Homeland Security, and the State Department. The DOL’s regulations, which concern the issuance of temporary certifications allowing American businesses to apply for visas, contain most of the worker protections afforded by the H-2 process. The regulations include a requirement that US employers contractually forbid any recruiters they use from charging fees to workers seeking H-2 employment. This provision represents an attempt to control the largely unregulated process of recruitment under the H-2 programs, which neither sending nations nor the United States has taken significant steps to control. Mexicans attempting to enter the US to work under the H-2 program are vulnerable throughout the recruitment process, when they are likely to encounter actors who will lie to them about the work that is available abroad, charge them exorbitant fees, or otherwise take advantage of their strong desire to find employment.
When I was first introduced to the H-2 programs, during my winter co-op job at the Proyecto de Derechos Económicos, Sociales y Culturales (ProDESC), located in Mexico City, I felt hopeful that Donald Trump’s destructive policies would bypass them altogether. He had not denounced the H-2 programs as he had the H-1 visa program, and it was not a topic which, like immigration, was discussed on his website and in speeches. Furthermore, Donald Trump is an H-2 program employer through his hotels and other business ventures. He also briefly hired an H-2 recruiter to his DOL transition team, a woman who has suggested that the H-2 programs support small businesses, legal immigration, and American jobs. Initially, these facts indicated to me that the H-2 program was not in danger from a Trump presidency.
However, as I began to dig deeper, I found that H-2 workers were even more exposed than I realized, due to the nature of the visa program and the likelihood of executive inaction over the next four years. Though the program was created by statute, and therefore cannot be completely eliminated without congressional approval, its form and function are established entirely by regulation. This means that the President and the heads of his executive departments, if acting in concert, could strong-arm their way to a new regulatory scheme by promulgating rules that cut back on H-2 worker protections. Congress would be able to issue joint resolutions of disapproval against such regulations, if there was sufficient consensus to do so, but the President could veto those resolutions. Overall, the extent of the President’s power over regulations, paired with the conflicts of interests present in having an H-2 employer in the White House, paint a troubling picture for H-2 regulation over the next four years.
Even if the structure of the H-2 programs is not changed during this term, relaxed enforcement of the few worker protections found in H-2 regulations could be devastating. Mexican workers who are exploited during the recruitment process may not be able to successfully recover fees in their home country due to flaws in its justice system, and even if they are able to procure a judgment, it will likely extend only to the Mexican recruiter, who may be judgment-proof. Establishing the liability of a US employer for illegal fees can be even more difficult. The DOL’s regulations do not contain a private right of action, which means that workers must rely on the agency to enforce them. To recover fees themselves, workers must rely on alternate sources of law, such as the Fair Labor Standards Act, the Migrant and Seasonal Agricultural Worker Protection Act, or contract. Each poses unique obstacles, and taking any legal action in a foreign country can be difficult. Workers often fear that if they speak up, they will be fired, or their visas will not be renewed, even though H-2 regulations technically prohibit retaliation.
Coming to understand the challenges H-2 workers face in their attempts to access justice for themselves and their fellows has inspired me to think more critically and holistically about a client group’s situation. ProDESC, having identified these challenges, has begun to partner with U.S.-based legal services and public interest organizations to pursue test cases concerning recruitment abuses in the H-2 context. In order to truly make the H-2 program safer for workers, organizations on both sides of the border must partner to educate workers about their rights, to identify illegal activity, and to pursue legal action whenever possible. Lobbying for a private right of action under the H-2 program would also make a difference, if successful. It has been a great pleasure for me to work with talented Mexican and U.S. attorneys over the last three months, and I believe that the H-2 context is only one of many which would benefit from increased legal partnership between our two inextricably linked nations.
Caroline Kelley is a third-year student at Northeastern School of Law. During the Winter 2017 quarter, she worked with Proyecto DESC in Mexico City through Northeastern’s Cooperative Education Program.
By Tara Dunn
“Going to prison is like dying with your eyes open.”-Bernard Kerik.
These are My Brothers, Uncles and Fathers
My second day on co-op, my supervisor and I visited the Washington, D.C. Central Detention Facility to see clients. Once we made it through security, the air got thicker and began to reek of sweat and rotten meat. As we rounded the corner, there were about 14 men in orange suits sitting along the wall, every single one of them African-American. I lagged behind my supervising attorney, making eye contact with every single man in there. I wasn’t staring at “criminals,” some shadowy villains starring in a scary, fireside tale. I was staring at men who looked like my father, brother, uncle, cousin, and grandfather.
I had a hard time holding myself together that first trip to the jail. I watched client after client, those who had previously experienced all but hell itself, many of whom were fighting addiction, mental health disabilities and poverty, pleading for freedom on a charge from which a state court had already absolved them. Witnessing their plight never got easier, but my clients made it easy to spend every minute of my co-op fighting for their freedom. Every hour I dedicated to preparing for a parole revocation hearing became a religious, cleansing experience. It became an opportunity to force the system to uphold its constitutional obligations.
I spent eleven weeks learning from men and women who bear the burdens of the United States’ darkest human rights violation, the criminal justice system. Daily, attorneys at the Public Defender Services, District of Columbia, fight for their clients, tooth and nail, clutching what little is left of due process. Parole is currently one of the least protected criminal procedures. The court in Morrissey v. Brewer established that revoking parole is “not a part of the criminal prosecution” and thus the usual procedural protections are not extended to what many consider a “privilege”. When working in the parole system, the rule of law is tertiary to the mercy of the whimsical and arbitrary practices of the United States Parole Commission: its methods an accessory to the inexorable death of due process. Clients could spend an exorbitant amount of time incarcerated waiting for a parole revocation hearing, there is often no opportunity for judicial review, the rules of evidence do not apply, there is no right to counsel.
Under the federal parole system, revocation hearings are held for clients that are arrested for violating provisions of their parole. A parolee can be arrested for anything from a serious violation of the law, to merely testing positive in a urine test for alcohol or marijuana. Double jeopardy does not apply. For example, if a client on parole is arrested in Maryland for attempted distribution of cocaine, and the case is dismissed in the District Court of Maryland, the parolee can still be “tried” for that same charge during his parole revocation hearing under a lower standard of proof (preponderance of evidence). Once the parolee is transferred to the federal system jail, he could sit there for months waiting for his hearing, which could result in release or a sentence to additional time in jail. The examiner is a “neutral” party that simultaneously represents the judge, the jury, and the prosecutor, and ultimately recommends the length of the client’s sentence. The examiner’s recommendation is then sent to the U.S. Parole Commission, where commissioners arbitrarily approve or modify a sentence with little or no justification. The Parole Commission’s decisions are appealable, however the same commissioner who issued the final decision sits on the body reviewing the appeal.
The examiners are not judges, and the majority have never practiced law or attended law school. As such, in such hearings I was challenged to craft a legal argument to present to an individual that lacked formal legal training and often lacked the motivation to consider the relevant law. The client’s fortunes depended entirely on the moods and personal whims of the examiner and it was my job to carefully navigate those rapidly shifting waters. How is one to prepare a client when the rules of evidence do not apply and a client can be penalized for refusing to answer incriminating questions? How to explain to a client that they must wait behind bars for months while waiting for a hearing on a charge that was previously dismissed in court? And then comes the wait to receive notification from the Parole Commission confirming or modifying the examiner’s recommendation, which could take weeks.
As I made my way through this frustrating and disheartening process, I had the opportunity to serve the most phenomenal clients I have ever met, and to work under the supervision of an attorney who inspired me in every way. For this privilege, I feel extremely thankful.
Tara Dunn is a third-year law student at Northeastern University School of Law.