This is the second in a series of posts that together seek a balanced approach:
Complaints About the High Price of Miracles
Partial Prescription for Medical Cost Reduction
"Novartis’s new heart-failure treatment [Entresto] should cost about 17% less than what Novartis is charging for it in the U.S. because expected wide use of the drug will strain health-care budgets"
On the face of it, one could easily understand that health-care budgets being strained is a bad thing - not that 101 things are not already straining it every day - so we would like the new drug to be cheaper. But really, two questions come up:
1. Is it, in fact, "Overpriced"?
2. Is this the critical exception where government should disrupt our market economy, and, if so, what would be the side effects?
To address the question of overpricing, we need look no further than the article's second paragraph:
"The Boston-based Institute for Clinical and Economic Review issued a report saying that Entresto's list price fairly reflects the clinical benefit it provides over older treatments for heart failure. But ICER also predicts that nearly two million U.S. patients could be prescribed the drug in its first five years on the market, which would create 'a budget impact so high that excessive cost burdens would be placed on the overall health care system.'"
Essentially that's like NFL management saying, "Yeah, it really is the best helmet to protect against concussions (and extensive medical care and lawsuits down the road), but we don't want to pay that much because it will eat into our annual NFL profits." NFL ownership wouldn't find too many ardent supporters for this opinion, and neither should the well-meaning accountants of ICER.
The second issue touches upon the special times when we think government should interfere in our capitalistic markets, war time or healthcare emergencies, for example. Such is not the case here, but some politicians at the other end of the spectrum, seek to take these exceptions and make them the rule. State officials of Massachusetts and California are lobbying and proposing laws to effect stricter regulations on pharmaceutical companies. A couple of these laws would have private companies disclose all their internal costs and R&D work to justify the prices (who needs Chinese hackers?), require companies to give the same price to the states that they charge to certain impoverished nations in the world, and/or install price controls.
In the case of internal cost disclosures, that totally ignores the basic tenet that it's NOT the cost to the company that should determine the price (frankly, why would a pharma company have any incentive to reduce manufacturing costs?), but what it is worth to the market ==> pay for performance. This is where many of the best minds tell us healthcare should be going, at least as a start. Then there's the ludicrous assertion that companies should lay bear all their proprietary information as a supplicant to the state. Given that the FDA only "approves" 12% of drugs that go into clinical trials, and that just 3 in 10 drugs on the market make a profit beyond the company's investment, pharmaceutical companies would have to reveal intimate details on virtually all drugs in their pipelines to meet this state requirement. That's either state-enforced spying or socialism. Conversely, if a company declined to play ball, and chose not to sell their unique life-saving leukemia pill in Massachusetts for example, what would the state do? ## & ~~
On the subject of price-matching, the companies could just stop charging lower prices to impoverished nations, necessitating huge assistance packages from the richer countries.
Now, mind you, the MA/CA legislation is not without some ideas of merit, as the drug lobby would have us believe, but overall it has been seen that the negative effects outweigh the short term benefits. I'll expand on a couple of these in a follow-on article, but lastly here let's consider the ever popular, anti-capitalistic approach of price controls. Per the PhRMA group:
"Government price controls should be avoided: experience in Europe and Japan show they reduce incentives for investment in research and development and restrict patient access - some patients have been denied crucial treatments for years while governments decide on prices. If price controls were in place in the U.S. between 1952 and 2001, economists estimate that between 330 and 365 new medicines would not exist today." ^^
And if selective facts from drug lobbies are not convincing, David Francis in the National Bureau of Economic Research relates a study by Abbott and Vernon, that analyzed the effects of price controls and concluded, "That cutting prices by 40 to 50 percent in the United States will lead to between 30 and 60 percent fewer R and D projects being undertaken in the early stage of developing a new drug." ~~
Think about it: A 50 % cut in the pace of advancement or number of new drugs - that could be the elimination of the cure to Hepatitis C by Gilead and Abbvie, or deep-sixing the vaccine for Malaria that GlaxoSmithKline has developed. Is that really the smarter long term deal for mankind?
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