The Covert Rationing Blog

A Modest Proposal for Controlling Drug Prices

October 23rd, 2007 by DrRich

Last week DrRich proved that waste and inefficiency cannot possibly account for healthcare inflation, and that instead, the unsustainable increase in our healthcare expenditures must necessarily arise, to a very large extent, from healthcare services that are actually useful to patients. This means, of course, that if we’re really going to control spiraling healthcare costs, we’re going to have to substantially cut back our spending not just on waste, but also - indeed, primarily - on useful healthcare. And that means rationing.

In his new book, Fixing American Healthcare, DrRich outlines in some detail a method of controlling healthcare costs, in the face of the unavoidable need to ration, that is fair and equitable, and that jealously supports the fundamental American ideal of the autonomy of individuals.

But DrRich is not naive. He does not think that policymakers will read his book and say, “By Jove, he’s right! Let’s ration openly!” Indeed, he does not think they will read his book at all unless they are forced to.

So, wishing to be as helpful as he possibly can, DrRich today offers an immediate and ready solution to at least one cause of the continually escalating cost of healthcare - the price of prescription drugs.

Everyone knows that the cost of new prescription drugs is extraordinarily high, and that the rising cost of drugs has been one of the prime drivers of healthcare inflation. Many proposals have been made to control drug prices, ranging from the absurd (i.e., repurchasing them from Canada), to the autocratic (i.e., turning over the purchase of drugs to the government, which will then “negotiate” prices). All of these proposals will operate by greatly restricting if not eliminating 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, who point out that the majority of new medicines are “me too” drugs that the world can do without, like one more arthritis drug, or yet another allergy pill, or worse, lifestyle drugs like Viagra or Botox. Individuals who feel this way would sacrifice pharmaceutical progress for a saner pricing policy.

Others, however, appreciate the fact that every few years some truly earth-shattering drug will hit the market - one that significantly improves the odds of beating a certain cancer, for instance, or that vastly improves one’s chances of surviving a heart attack. Many Americans 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 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 declare individually 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 executives and their shills will be specifically excluded from participation.

3) “Available prescription drugs” under this price control system will be any drug whatsoever appearing in the U. S. Pharmacopoeia, 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 be charged whatever the drug companies feel like charging them for all their prescription drugs, but will be allowed to receive any drug, as soon as it is approved for marketing, without the 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.

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 - will fund virtually all progress in drug therapy. This is a burden they ought to feel obligated to bear, being rich and therefore, well, obligated.

Under a universal, mandatory price control system of the kind that many politicians seem to favor, drugs available to our citizens would be essentially “frozen in time,” and henceforth there would be little or nothing new under the sun. Similarly, under DrRich’s Voluntary Price Control System, access to new drugs also would be restricted for participants. Yet this voluntary system would be far better to its participants than would be a universal system - because drug progress would continue. And as new prescription drugs matured in the marketplace, and after their hidden dangers and side effects, during the 5-year “shakedown period,” revealed 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 someone else.

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

The punch line:

The happy news is that, once you understand the wisdom of DrRich’s proposal, you will be delighted to know that don’t actually have to wait for federal legislation and the establishment of a vast new price-control bureaucracy in order to participate. You can participate today, right now, with nobody’s acquiescence but your own.

Simply “pretend” that the system is already in place, and that you are a participant, and that the only drugs available to you are the ones that have been on the market 5 years or longer. When you see your doctor, insist - demand - that he/she prescribe only older drugs. This way, by avoiding the new drugs that are being sold at the highest premium, your personal drug costs will be remarkably reduced - just as if price controls were in place. Indeed, if you really want to reduce your costs insist on only 10-year old drugs, or better yet, on generics.

Further, since mandated price controls are not yet in force, drug companies are not yet constrained from investing in new drugs. As long as this situation continues, there will be a steady stream of new drugs reaching that magic five-year status, and thus becoming available to you under your personal, voluntary price control plan.

And best of all, if you were suddenly to develop a medical condition that clearly calls for one of the brand new drugs, one that wouldn’t be available to you, either temporarily under DrRich’s Voluntary Price Control System, or ever under a government-mandated price control system, you won’t need to wait five years (or forever) in order to get your drug. You can simply ask your doctor to write you a prescription.

So: those clamoring for pharmaceutical price controls can have them today - this very afternoon. They can do so in a way that places them in no worse a position (indeed, in a far better position) than if a mandatory price control system were in place, and without reducing the options for everyone else. Indeed, the only way it would make sense to continue demanding mandatory price controls would be if something other than reducing drug prices were the chief motivating aim.

Now, what do you suppose that could possibly be?

Posted in General Rationing Issues

One Response to “A Modest Proposal for Controlling Drug Prices”

1. drmatt wrote on 10/26/07 at 8:55 am :

   I agree that price control is not the answer. Your plan is not bad either. Couple of points though, good drugs (not like the 70s) continue to be discovered in countries that have removed the incentives that you claim as the driving force for research. Also, as you know about a decade ago Bob Dole and some other evil politician passed a bill that allows the NIH fund research on new medication and then pass the findings discover off to private industry. Thus we are currently, in some cases, paying for these medications not once, not twice, but yes three times. Your taxes funded the research, your taxes pay for medicare part D, and alas if you have or feel the need to buy this medication you have to pay a third time. I think instead of price control we should do evidence control, if a new medication does not show significant benefit (and more benefit if it is a copycat/mee too med) in neutrally funded, well designed double blinded randomized controlled trials, then it should be kept from the market. This alone would drive the pharmaceutical industry to develop only these medications and yet they could still have thier profit. I think the end is the same as yours, I also like the waiting period.

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