A Not-So-Transparent Attempt to Cap Drug Prices

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RxCowboy

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From WSJ:

A Not-So-Transparent Attempt to Cap Drug Prices
Forcing the disclosure of profits on high-cost drugs reflects a misunderstanding of how research works.
By ROBERT A. INGRAM
July 19, 2015 5:47 p.m. ET

At the dawn of the 20th century, life expectancy in the United States was 47 years. Today, it’s 79. Two decades ago, a diagnosis of HIV/AIDS or hepatitis C was a death sentence. The mortality rate from AIDS has since dropped 85%, to fewer than 7,000 deaths a year from 44,000. Hepatitis C cure rates have reached 90%.

These stunning improvements are the result of medical and scientific advances. If they continue, we could someday solve the riddle of such scourges as Alzheimer’s and cancer.

Why, then, are some people so willing to jeopardize if not halt this progress? It’s a question that those who seek to vilify pharmaceutical companies need to answer.

Yes, new medications can be very expensive. A course of the drug Harvoni for hepatitis C runs nearly $95,000. A course of Solvadi, a different hepatitis C medicine, runs $84,000. Both also cure the disease in 90% of patients who would otherwise require extensive medical care for declining liver function for the rest of their shortened lives. A transplant procedure, the best hope when the cumulative liver damage becomes acute, costs about $500,000. Seen in this light, Harvoni and Solvadi are relative bargains.

Yet in response to the price tags on specialty medications, critics of pharmaceutical companies are pushing for “drug cost transparency” laws. Massachusetts, New York, North Carolina and Pennsylvania are currently considering legislation that would force pharmaceutical companies to publicly disclose their profits on certain high-cost drugs, along with their research, manufacturing and advertising expenses. The laws would also compel companies to disclose any government research funding they received.

Massachusetts would even require companies to compare their domestic drug prices to the lower prices they charge internationally. This is a useless apples-to-oranges comparison that ignores pricing considerations including differences in market size, purchasing power and local competition. Such “transparency” also ignores the threat of government patent theft, which forces producers to lower prices in many overseas markets

Of course, the true goal of these laws isn’t transparency. By stoking outrage at drug markups, activists hope to lay the groundwork for government-imposed price controls. The Massachusetts law plainly reveals this to be its ultimate goal by establishing a commission tasked with capping drug prices.

There is no surer way to bring pharmaceutical innovation to a halt in the U.S. than letting governments decide how much companies can charge for their products or harassing them into lower prices. It also represents a fundamental misunderstanding of how pharmaceutical research works. Scientific discoveries involve trying and failing, learning from those failures and trying again and again, often for years.

The reason new medications are so expensive is that research is expensive. It takes, on average, $2.6 billion and 10 or more years to research and develop a successful new treatment, according to researchers at Tufts University. This decade of development is a time of intense trial and error, and often failure. The U.S. Food and Drug Administration approves only 12% of potential medicines that enter clinical trials.

Price controls and other restrictions on an industry that is already among the most highly regulated in the world will make a complex R&D challenge all but impossible. If research companies are unable to recoup their investments, they will effectively be deterred from devoting the necessary money and time to developing new medicines.

Critics seem to think they can have it both ways: A flowing pipeline of new wonder drugs spurred by a free market and government price controls on pharmaceutical success stories. In reality, patients will suffer as companies abandon research on new treatments because of the uncertain prospect of ever breaking even.

There are more than 7,000 drugs currently in development around the world, according to the Pharmaceutical Research and Manufacturers of America. Many of them hold the potential to ward off or even cure deadly diseases.

The recent history of cancer treatment shows this promise. Thanks to new cancer medications, which account for 1% of overall health spending in the U.S., cancer mortality in the U.S. has declined by 20% over the past two decades.

Far from being a driver of costs, prescription drugs reduce overall health-care spending. Medications can eliminate the need for more expensive care, especially hospital visits. For example, a study in Health Affairs a few years go showed that every dollar spent on medicines for heart failure, high blood pressure, diabetes and high cholesterol generates $3 to $10 in savings from emergency room visits and inpatient hospitalizations.

Prescription drugs account for only about 10% of U.S. health-care spending, according to the Centers for Disease Control and Prevention. This percentage has not changed since 1960 and is projected to remain the same for the next decade.

The idea that prescription drug prices are driving the increase in health-care costs is false. U.S. pharmaceutical companies, and the prescription medications they produce, are providing real value to millions of patients. Price controls—masquerading as transparency laws—will only do harm.

Mr. Ingram, the former CEO and chairman of GlaxoWellcome, is a general partner in Hatteras Venture Partners, which invests in early-stage life-science companies. He serves as lead director at Valeant Pharmaceuticals, and on the boards of Edwards Lifesciences and Regeneron Pharmaceuticals.
 

RxCowboy

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steross

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I disagree with them about the fair disclosure and comparison to other nations part of the law. The "market size, purchasing power, and local competition" excuse is pretty weak.

Having said that, all of this would be pointless if we had a reasonable method of paying for health care. If people were paying for it out of their own accounts, those Hep C drugs would not be $84,000. They would be expensive, or maybe $84,000 for a year or two, but not persistently. Just like a Blu Ray player was initially $2000, but now can be had for peanuts.

But, since we doubled down on the stupidity of a mishmash of government and employer based third party payment that shields the consumer from the process, we cannot stand on principles and pretend drugs are just regular free market. Americans are already paying for defending most of the free world from military enemies, it is disgusting that we should be expected to pay to defend the world from disease, too.
 

RxCowboy

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I disagree with them about the fair disclosure and comparison to other nations part of the law. The "market size, purchasing power, and local competition" excuse is pretty weak.
Agree with everything else you've said. But here, if we're going to require this of pharma then we should require it of everyone who sells anything in other markets.

I've said before, we pay higher prices in the US because of price caps in other countries (including Canada). If the iPhone were priced capped in Canada we would pay more for it here.
 

steross

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Agree with everything else you've said. But here, if we're going to require this of pharma then we should require it of everyone who sells anything in other markets.

I've said before, we pay higher prices in the US because of price caps in other countries (including Canada). If the iPhone were priced capped in Canada we would pay more for it here.
Which is an argument for price capping for ourselves. Because the other countries with price caps will not go without, if we do not supplement them, they will have to raise their price caps. Our country is going broke, they make fun of us while taking advantage of us. It is time to stop it.
 

RxCowboy

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Which is an argument for price capping for ourselves. Because the other countries with price caps will not go without, if we do not supplement them, they will have to raise their price caps. Our country is going broke, they make fun of us while taking advantage of us. It is time to stop it.
If you cannot sell at a profit, you cannot sell for long. The largest pharma market in the world capping prices would dry up supplies. Look at what effect de facto prices caps via Medicare D have done to shortages. Do you remember normal saline shortages prior to 2005? Because I don't.

You've already given the solution to rising prices: competition and consumer choice. It sure as heck ain't price caps.
 

steross

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If you cannot sell at a profit, you cannot sell for long. The largest pharma market in the world capping prices would dry up supplies. Look at what effect de facto prices caps via Medicare D have done to shortages. Do you remember normal saline shortages prior to 2005? Because I don't.

You've already given the solution to rising prices: competition and consumer choice. It sure as heck ain't price caps.
But, pharma's profits are not our concern, the price controls are. Countries like Australia, the UK etc are not going to just go without medications. They have low price controls only because we pay the cost. That is unsustainable.

There was no Normal Saline shortage in Australia.
 

steross

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Missing the point...
No you are. You act like the other countries would just maintain the same price controls and run pharma out of business. It is time for us to call their bluff. The only other option, continuing to supplement the world, is unsustainable. We cannot do it even if we thin we can.
 

RxCowboy

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No you are. You act like the other countries would just maintain the same price controls and run pharma out of business. It is time for us to call their bluff. The only other option, continuing to supplement the world, is unsustainable. We cannot do it even if we thin we can.
Okay, if I've missed the point then I want to make sure I understand your position(s). You said earlier that competition would drive down prices in the US. With this I agree. Now you're saying that foreign price caps make it unsustainable and we have to institute price caps to crash the system and show everyone else their folly. Do I have it right?

I agree with your first premise, competition will bring down prices in the US regardless of price caps in the rest of the world. What's more, the lower prices in the US will have effects in the other markets, making their price caps unsustainable, without collapsing our own drug supply.
 

steross

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Okay, if I've missed the point then I want to make sure I understand your position(s). You said earlier that competition would drive down prices in the US. With this I agree. Now you're saying that foreign price caps make it unsustainable and we have to institute price caps to crash the system and show everyone else their folly. Do I have it right?

I agree with your first premise, competition will bring down prices in the US regardless of price caps in the rest of the world. What's more, the lower prices in the US will have effects in the other markets, making their price caps unsustainable, without collapsing our own drug supply.
But we do not, and will not have proper competition it the system we have created. We are pretending. We cannot add a touch of free market in a non- free market system them blame the free market because we bankrupted it.

And no, I'm not talking about crashing the system.
If pharma needs $200 to be profitable and the EU will only pay $50, they will charge us at least $150. If we say, no, we will pay no more than $120, then the EU will have to pay $80 or do without. I don't believe they will do without. And if they do and in the unlikely event it collapses, all we did was collapse it before we were bankrupt instead of after because we cannot keep paying $150 for an $80 dollar drug.

We both believe in competition, but it doesn't exist. I'm talking about the reality we have, not the ideal we want.
 

RxCowboy

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We're already bankrupt, borrowing $0.40+ of every dollar we spend. It won't be long until servicing the debt is our biggest expenditure. And that ain't happening because of pharma prices.
 

steross

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We're already bankrupt, borrowing $0.40+ of every dollar we spend. It won't be long until servicing the debt is our biggest expenditure. And that ain't happening because of pharma prices.
Well, at least now it appears that you understand what I am saying, you are just saying that we might as well supplement other countries to keep pharma very profitable because it doesn't matter anyway. And, as ctaggie often pointed out, if you look at profit margins, pharma is very, very profitable compared to most industries. Similar to the arguments for agriculture subsidies, food stamps, unnecessary military bases, and virtually all the other spending. Compare to the whole pie, my slice is little. Leave it alone.