Map of life expectancy at birth from Global Education Project.

Thursday, November 18, 2021

Wonking out on prescription drug prices

 

A couple of essays in today's New England Journal of Medicine inspired today's posts. I can't link you to them because of the impenetrable NEJM paywall -- abstracts are here and here -- but that's okay, I can talk about this my own self. 


In the U.S., we pay the highest prices for patent-protected drugs in the world. The Medicare program, which constitutes the federal government's most powerful potential leverage, is not allowed to negotiate with drug companies over prices. Once a drug gets FDA approval, we the taxpayers pretty much have to buy it at whatever price the company demands. A bill in congress, H.R.3, would give the secretary of HHS power to establish prices for high-cost drugs that lack competition, and to limit price increases for most drugs to the rate of inflation. The Congressional Budget Office estimates this would save taxpayers $500 billion over the next decade.


The drug companies response to such proposals is and always has been that they would limit innovation -- that the companies need  the high prices to generate capital to invest in innovation. Before we go any farther, let me point out that reflexively yelling Free Market™ is completely irrelevant in this case. The reason these drugs are so expensive is precisely because the postulates of the Free Market™ do not pertain. It is interference in the market by the government -- patent protection and marketing exclusivity -- that gives the companies monopoly power and enables them to set whatever price they want. There are often monopoly conditions even when drugs go off patent, but those are complexities I'll leave aside for now.


Indeed, the CBO estimates that H.R.3 would result in 2 fewer new drugs in the next decade and 30 fewer in the next 2 decades. I don't know that I trust their crystal ball on this, but even if it's true, so what? Right now, Conti et al (the first link) tell us that 29% of Americans can't afford drugs they need, while exorbitant prices divert resources from other medical and public health services that would provide more benefit to society. Furthermore, most of the research investment by drug companies isn't for drugs that meet important clinical needs, it's for minor tweaks on existing drugs that will enable them to extend marketing exclusivity, or drugs that promise them the most profit. That doesn't mean looking for cheap cures, obviously, it means looking for drugs that people will have to take for a long time, even the rest of their lives. As Conti et al say:


The first step would be to shift the current drug-pricing environment to one that better rewards value. Tying prices to demonstrated clinical and economic benefit ensures that private investment will continue to flow into the development of drugs that address Americans’ unmet needs — while boosting public confidence that public investment in biopharmaceuticals is worthwhile.

 

Allowing Medicare to negotiate drug prices based on value is the key mechanism. To be sure, quantifying the value of a drug is not straightforward -- the second essay, by Neumann et al, discusses this in more detail. I'll take that up next. Value metrics probably will never exactly satisfy everyone, but they can be good enough to get us to a much better place. Another strategy is to increase the NIH investment in pharmaceutical development. Right now, NIH-funded research is the basis for nearly all drug development -- the for-profit companies take over at the stage of large-scale trials, and they end up reaping 100% of the profit from ideas the taxpayers paid for. If NIH takes products farther down the pipeline, and then licenses them to companies only after negotiation about pricing, we'll get R&D that's based on social need more than profit, and products whose price better reflects their value. 

 

Yeah, I know, socialism. That's not a thought. 



1 comment:

Don Quixote said...

I believe that “-ism”s in general fuck up people’s thinking processes. Labels and organized religion aren’t helpful because they limit receptivity and imagination. (And are inherently incompatible with critical thinking.) So much for cries of “socialism.” Just one more red herring that allows people to shut a gate closed in their minds.