Phixing Pharmaceutical Costs

Price competition is fundamental to the capitalist system. Competition for customers leads to the right price for product and value. Such competition however is anathema to health care. Why? On one hand we have patent monopolies which allow patent holders to charge whatever they want for a product for a generation. This eliminates competition. On the other hand, we find it difficult as a society, as health providers and as consumers to place a monetary value on health care, a surrogate for life. We don’t shop for value.

We’ve focused on cancer medicines in previous posts in part because their pricing is extreme and also because patients with cancer perceive that they face the ultimate dilemma—pay or die. Cancer pharmaceutical pricing is indeed a death tax, a system that redistributes wealth rather than assures quality care at reasonable price.

The question is whether there is, or should be, a quid pro quo for a government granted pharmaceutical patent monopoly. One that will assure reasonable pricing. This article on Financing Drug Research offers some suggestions. Medicynic suggests we:

1. Require the government and pharmaceutical companies to negotiate prices for patented medications purchased for government programs and benficiaries. Including Medicaid, Medicare, the Federal Employee program and Tricare this would affect 100 million citizens (1/3 the population of the U.S.) Since we like transparancy we should make the negotiated prices public.

2. Enforce the reasonably pricing provisions of Dole-Bayh. Retrieve the taxpayer’s contribution to drug development costs (approximately 20 billion a year to basic medical research) from patent holders and use these proceeds to defray pharmaceutical prices to consumers. This would also require the disclosure of the real development costs of pharmaceuticals.

3. Prohibit direct to consumer (DTC) advertising. In a 30 second ad full disclosure as outlined below is not possible. As a result patients do not fully understand the limits and costs of any given product. Few countries allow such advertising.

4. If we don’t wish to completely prohibit DTC advertising, require full disclosure. This would include mention of the risks of treatment and a summary of proven benefits and competing approaches in clear language that a lay person can understand. The price of the medication, with estimates of monthly and yearly costs as well as a measure of cost effectiveness (cost/unit of additional survival time or other approved measure) must be also be provided to fully inform the consumer.

5. Require clinical studies to include cost data as well as a measure of cost effectiveness (QALY-Quality adjusted life year or other) in the discussion of any phase II, III or IV study reporting positive results.

6. Monitor the FDA approval process to be certain that generics come to market quickly on patent expiration.

7. The Canadian system controls patented drug prices by not allowing marketing unless the drug is priced right. A similar program could be instituted here to decrease our pricing to the level of other industrialized countries.

8. Alternatively, link the length of patents to reasonable pricing. As part of the FDA approval process the proposed price of the new medication would be compared with similar medications already on the market and with the same medication in other countries. The same process that the Canadian patent drug review board uses. If priced 10% over the comparator, the patent length would be decreased by a similar 10%–there are many ways such a link could be structured. For unique innovative drugs the cost of development could also be factored into the pricing length of patent equation. Price increases during the duration of the patent would be tied to the rate of inflation. If they exceed that rate the patent would be proportionally shortened.

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