A Brilliant Plan For Preserving Pharmaceutical Progress

Posted on March 10, 2009
Filed Under Gekkonian Rationing, General Rationing Issues, Healthcare economics, Investment "advice", Uncategorized |

Here’s a Podcast of this post:

 
icon for podpress  A Brilliant Plan For Preserving Pharmaceutical Progress [15:14m]: Play Now | Play in Popup | Download (519)

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Almost a decade ago, during the antediluvian period of the internet, on a now-defunct and little-read precursor to this blog (before actual “blogs” were even invented), DrRich wrote a piece entitled, “Phillip Morrissing The Drug Companies.”  In that piece he predicted that, since the American media and the American legal profession had just finished savaging the tobacco companies, they would turn their great engine of destruction (highly-tuned engines of destruction being a terrible thing to waste) on a new target, one that some might consider less worthy of destruction than the evil tobacco companies but a ripe target nonetheless, namely, the pharmaceutical industry.

Many of DrRich’s readers laughed at him, but a few wisely sold all their drug stocks. (These latter would be very happy campers today had they not re-invested their profits first in Pets.com, then in REITs. If one is going to follow DrRich’s investment advice, one ought not jump too far ahead.)

Today the editors of the Wall Street Journal, for all practical purposes, have placed the official seal of validation on DrRich’s long-ago prediction (though, unaccountably, they fail to mention DrRich by name).   The WSJ notes that the big drug companies, in the few weeks since the Obama budget was sent up, have engaged in an incredible acceleration of mergers - though not in the manner of “creative destruction” that usually typifies such deals, but rather, in the manner of trying to construct a hardened shelter in which to survive the coming nuclear winter. The government price controls and the rationing of drugs which the drug company executives seem to have found in that proposed budget (apparently lobbyists take their jobs seriously enough to actually read legislation before it is voted upon, even if our congresspersons do not) appear to have convinced said executives that the game is about up.

Now, nobody needs to remind DrRich that drug companies are evil. DrRich has watched along with all his readers as the drug companies have fired off a never-ending parade of “me too” drugs mainly aimed at keeping the joints, bowels, bladders and genitalia of aging baby boomers nicely lubed up, then running a steady stream (so to speak) of television commercials regarding same, that render it far too embarrassing to watch prime time television any more with preadolescents. DrRich has watched the drug companies systematically fail to publish research that makes their products look less than spectacular; routinely over-hype research that suggests a modicum of effectiveness; callously corrupt doctors with plastic, logo’d ink pens, and legislators with huge campaign contributions and rides on private jets equipped with plenty of booze and bimbos (causing the indignant legislators to propose rules against logo’d ink pens); and most annoying of all, gouge American citizens with astronomical prices for their new drugs while selling those same drugs to Canadians and other undeserving foreigners at greatly discounted prices.

Still, most objective observers will reluctantly admit that, unlike the tobacco companies, every now and then a drug company will do some good. Here and there they manage to come up with a real breakthrough product that cures a disease, prolongs survival, restores functionality, or relieves suffering. That is, the pharmaceutical industry (in spite of all their evil behavior, which DrRich hastens to remind his readers he has formally acknowledged, as recently as in the prior paragraph) has done a lot of good over the years. Ask a parent whose child has survived acute leukemia, or the person who has survived a life-threatening infection, or the woman whose heart attack or stroke was aborted with clot-busting drugs, or - yes, this too -  the aging Lothario who once again can enjoy fine and durable erections upon demand. For such individuals, even if today they would join us in cheering on the demise of the pharmaceutical industry, recent advances in drug treatment have undeniably improved their lives.

But the real question we must address before allowing the pharmaceutical industry to roll itself into a ball and hide in the shadows for the duration, is not, “What have you done for me lately?” (since their inventions will live on even if they do not), but rather, “What can you do for me tomorrow?”  Some of us in the boomer class, for instance, would like to think that current research in the areas of Alzheimer’s, Parkinson disease, kidney disease, heart attack, stroke, arthritis, osteoporosis and cancer will allow us to remain healthy and functional for a few extra years. And judging from the massive amounts of money American citizens of all ages donate to medical research of all types, it is apparently not held among the whole of the populace that medical progress has already gone far enough. Many of us would not be entirely pleased to stand pat right here. Many of us would like to see more improvements.

And here is where we run into a dilemma.

Everyone agrees that the cost of new prescription drugs has been kept obscenely high in the name of maximizing profits, and that the rising cost of drugs has been one of the prime drivers of healthcare inflation. Accordingly the plans that apparently have been included in the Obama budget proposal to check those prices - techniques such as federal price controls, drug re-importation and the like,  (but again, who’s actually read the thing?) - will greatly restrict if not eliminate the huge profits made by the evil men (and, one must say it, women) who run these drug companies.

The problem, of course, is that if the potential for reaping large (obscene, if you insist) profits from new drugs is significantly curtailed, the hugely expensive process necessary for drug companies to bring new drugs to market will be proportionally curtailed. So if we place price controls on drugs, then we’d better be happy with the drugs we have today, because those are likely the only drugs we’ll have tomorrow.

There are some who would be quite satisfied with this outcome, and who would readily sacrifice pharmaceutical progress to keep prices low. And judging from the recent election results, these may even constitute a majority of Americans. Still, others of us appreciate the fact that every few years some truly earth-shattering drug will hit the market, and would think it a shame if progress on such drugs - even if they are but a few scattered islands in a sea of boutique pharmaceuticals - were to come to a halt, and even if for a good reason.

So here’s the question: Can we have our cake and eat it too? Can we bring down the price of the drugs we buy, while at the same time allowing at least some pharmaceutical advances to continue?

DrRich is delighted to reply, “Yes, we can!”

And he hereby humbly offers a plan to achieve this very end. It is a system of voluntary price controls. Of course, DrRich is talking here about us doing the volunteering - we the consumers - and not the drug companies.

DrRich’s Voluntary Price Control System works like this:

1) Each American will make a formal declaration of whether or not he/she wants to participate in a system of voluntary price controls on drugs.

2) Those who opt to participate will receive immediate, substantial discount pricing on all available prescription drugs, such pricing to be fixed by a sympathetic government agency whose makeup includes a wide diversity of representation, except, of course, that drug company representatives and their physician shills will be specifically excluded.

3) “Available prescription drugs” under this price control system will be any drug whatsoever appearing in the U. S. Pharmacopoeia - that is, any legal prescription drug - as long as that drug has been on the market for at least five years.

4) Individuals who choose not to participate in the price control system will pay whatever price the drug companies feel like charging them for all their prescription drugs, but they will be allowed to receive any drug, as soon as it is approved for marketing, with no five-year waiting period for new drugs.

5) Individuals may switch their status (between participant and non-participant) only during one 30-day window every 2 years, determined by their month of birth.

Why DrRich’s Voluntary Price Control System is brilliant:

For drug companies it is the prospect of making large profits from new drugs, and only that prospect, that drives drug development. So as long as we want new drugs to be invented we’ve got to allow for the profit incentive to continue, as odious as we may believe that to be. The chief advantage of DrRich’s system is that it maintains at least some of the profit motive - to whatever extent citizens opt to be non-participants in the Voluntary Price Control System.

Given the growing hue and cry for price controls on drugs, one can confidently predict that only rich people will opt for this non-participant status. Therefore, a side benefit of this plan is that the rich - those who, after all, can afford it, and who, by virtue of the very fact that they are rich, owe much to the rest of us - will fund virtually all progress in drug therapy. Again, this is a burden they ought to feel obligated to bear, being rich and therefore, well, obligated.

In contrast, under the universal, mandatory price control system of the kind that many politicians seem to favor (and which may be voted into existence in a matter of days) drugs available to our citizens would be essentially “frozen in time,” and henceforth there would be little or nothing new under the sun.

Of course, under DrRich’s Voluntary Price Control System, access to new drugs would be similarly restricted for participants. Yet this voluntary system would be far better to even those who choose to participate than would be a universal price control system - because under DrRich’s plan at least some drug progress would continue. And as new prescription drugs matured in the marketplace, and once their hidden dangers and side effects - during the 5-year “shakedown period” -  manifested themselves on the physiology of the wealthy (nya-ha-ha), these drugs would (eventually) become available even to plan participants, and at a substantial discount to boot.

The bottom line: a five-year lag in gaining access to new drugs is vastly better than never having any new drugs at all, especially when the burden of paying for all that drug development, and the risk of becoming early adopters of new, relatively unproven, relatively risky pharmaceuticals, falls entirely on the rich.

So, while at first blush you may not like DrRich’s system - it being two-tiered and all - on further objective and logical reflection DrRich is confident you will see that it is far better for everyone than the universal system of price controls which now appears imminent.

DrRich suggests you contact your legislators immediately to recommend to them this brilliant new plan, before it is too late. In making your case, you might remind your dedicated congresspersons that a robust pharmaceutical industry is inherently good for America (what with all the campaign contributions, airplane rides, booze, bimbos, etc. it provides to grease the wheels of American democracy).

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Note to readers: DrRich has added a follow-up to this post, in which he reveals the punch line. You will find it here.

Comments

7 Responses to “A Brilliant Plan For Preserving Pharmaceutical Progress”

  1. tribulation periwinkle on March 11th, 2009 7:20 am

    Absolutely.

    Why did you choose a five year period? Is there a known turnaround median time to “shakeout” as you put it, the adverse rxns, validity/reliability of efficacy,etc.? How does off-label use fit into this scheme?

    You might be interested to learn that a key piece of Paul Krugman’s lecture yesterday at Harvard Medical School for its annual ethics lecture was about rationing and how to insert it into national reform policy discussions. Podcast is promised soon I’m told. Link at my name.

  2. DrRich on March 11th, 2009 7:46 am

    Trib,

    I chose five years by the time-honored method of arbitrariness. If we want more people to opt out of the voluntary system (thereby to create greater resources for new drug development) we would lengthen that time accordingly. Here we might want to consult with our pharmaceutical friends to figure an optimal “shakeout period” that would maximize revenue for new drug research. This would look something like a price-point analysis (or, alternately, like a Laffer curve).

    If Prof. Krugman would like to know how to ration healthcare fairly, effectively and efficiently, he should have his people call my people. We can do lunch.

    Rich

  3. Sandra Brown MD on March 11th, 2009 1:26 pm

    The pharmas slung the rope around their own necks when they started spending billions on direct-to-MD bribery and then direct-to-patient gimme-gimme. They utterly commercialized and debased their product. Their product is not little yellow pills, it is basic pharmaceutical research.

    So I don’t feel too sorry for them.

    I hypothesize a rosier scenario: people do continue to fund medical research. They start funding pharmaceutical research into drugs that treat diseases that worry them. So the HIV positive patient funds the anti-viral/vaccine labs, the boomer funds the Alzheimers research, etc. This is the market at work. Smaller and more flexible mini-pharmas develop that use a lot of public/private partnerships with universities. Think Genentech. By keeping overhead throughout the development cycle lower, profit can be made without extortionate pricing.

    Of course there is the little problem of the FDA. However, the fine folks in DC will be a lot less occupied with Big Pharma. Maybe they can downsize some, keeping the smart people. [I have read FDA correspondence that suggests that they do employ some pretty smart people.]

  4. Guiac on March 13th, 2009 12:25 pm

    Of course none of this accounts for the recent SCOTUS Wyeth vs. ?Plaintiff? case in which drug companies maintain lifelong liability for adverse drug reactions likely to include idiopathic ones if I am reading the new reports properly. That’s a lot of overhead for small drug or drug/Univ partnerships to maintain.

    Also wouldn’t your plan violate the rules against open rationing?

  5. David on March 13th, 2009 8:45 pm

    DrRich,

    Perhaps your finest post yet. Indeed ‘post’ is such an inadequate word - perhaps enlightened essay is more appropriate.

    I don’t think people in government realize the real damage they are doing to the long-term development of life-saving technology and medicines. To them, drugs, and drug companies, simply appear - no explanation is necessary. Interestingly, if the FDA did not control the prize (”approval”) in the first place, the system would be improved. Why not propose that the FDA simply advise patients on what drugs to take, allow the free market to determine what products are actually offered, and let physicians and patients decide what should actually be consumed!

  6. HealthBlawg on March 19th, 2009 1:04 pm

    Health Wonk Review: Spring has just about sprung…

    Welcome to Health Wonk Review, where everyone is above average. We enjoy above-average health care costs per capita, above-average uninsured rates, and above-average obsession with health care reform. That’s what it’s like today in America. Our presi…

  7. Aviva Gabriel on September 26th, 2009 7:11 pm

    Why, Sandra Brown MD, I like your answer so much: You fill several gaping holes in DrRich’s thin, disingenuous rhetoric. I’ll highlight just one:

    You remind us that pharma spends __% on marketing vs __% on research. If a drug truly works, bribery in the form of honoraria, payment for ghostwriting, annoying reps visits to beleaguered doctors, etc. can be erased from ‘overhead.’ Folks will clamor for drugs that work.

    Thanks! Your honest post was a relief in a world of manipulative discourse!

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