Editor's Corner: Dear Pfizer, Your prices are not trade secrets

Editor's corner
Ron Shinkman
Ron Shinkman

Texas Attorney General Ken Paxton and I are rarely going to agree on political matters for reasons that can best be expressed by the fact that I live in California and he's over yonder in Texas.

But I imagine we're both shaking our heads about a lawsuit pharmaceutical giant Pfizer filed against the Lone Star State last week.

A corporate entity, no matter how large, is usually reluctant to litigate against state or federal governments because of their adversary's sheer size and access to dirt cheap resources. Governments have their own staffs of lawyers who are reasonably paid (about $50 an hour versus the $500 hourly rate of a private sector attorney). Moreover, they're going to be on the payroll whether said government is sued or not, so fighting a lawsuit costs that government next to nothing.

Nevertheless, Pfizer sued the Texas Health and Human Services Commission (THHSC), claiming it trounced on its competitive trade secrets.

That's perfectly understandable, as Pfizer holds hundreds of highly sensitive patents on the components of lifesaving drugs that are potentially worth hundreds of billions of dollars.

You actually thought for a moment it would be that simple, right? Wrong!

You see, as The Dallas Morning News reported, THHSC was sued because it engaged in the entirely unconscionable act of divulging the Medicaid negotiated prices of some of its drugs to two state lawmakers. For some reason, Paxton thought that didn't break any laws—even in Texas.

Pfizer begged to differ. “Small differences in pricing and rebates can make the difference between success and failure,” the company said in a statement to the newspaper. “If public disclosure were to lead to uniform pricing, the low rates that Texas Medicaid enjoys would disappear.”

I spent an unhappy but instructive year in law school about a decade ago. My tort and contract law classes fairly pored over what constituted a trade secret. A quick perusal of my Black's Law Dictionary indeed convinced me that I was not suffering early onset dementia. A trade secret is information not generally known that confers a competitive economic advantage to its holder.

In a free market economy, the competitive advantage conferred by pricing is supposed to be transparent. That's among the reasons cars from the South Korean automakers have become so popular in the last decade: They offer the same features and reliability as their competitors but are priced lower. That becomes obvious after you walk into the showroom and start perusing the window stickers.

Of course, would you buy a new car if you just drove one off the lot and you got the bill later? I don't think many people would be willing to shell out well into the five figures to engage in that sort of guessing game.

The Dallas Morning News slyly suggested that since the prices of brand-name drugs have increased more than 98 percent in the U.S. over the past five years, Pfizer is concerned with ensuring there is as little cost data as possible. Given a year's prescription of drugs these days can easily cost the same as a new car, there is no doubt that the price opacity gives Pfizer and other drug companies a competitive advantage: The less you know how much a product should cost, the more you will get screwed. Hospitals know that game pretty well already, which is why you can rarely get a straight answer from them about what procedures and treatments actually cost.

That Pfizer is engaged in this kind of chicanery is actually slightly more honorable than what some of the other members of Big Pharma are doing: Jacking up the prices of drugs because patients will simply die without them.

Pretty much every party to a lawsuit hopes the problem goes away as quickly as possible. My hope out of this litigation is that Pfizer loses and that more negotiated price information is made public. That will only help to make drug prices go down. In the environment of U.S. healthcare finance, every little bit helps. – Ron (@FierceHealth)