Tuesday, July 12, 2005

Wanting our cake and eat it too

The NYT's article Cancer Drugs Offer Hope, but at a Huge Expense whines about the cost of new cancer drugs being developed. Porkopolis offers some food for thought to balance the article:


  • The article states that "The government does not control drug prices, and Medicare is prohibited from making coverage decisions based on cost; it must base its decisions solely on the drugs' performance."

    The reader is referred to a study entitled 'Are Drug Price Controls Good for Your Health?' in which it states:

    "Collecting national data for the U.S. for 1960–2001 and using multiple regression analysis, we find that from 1992 to 2001 a 10 percent increase in the growth of government's share of total spending on pharmaceuticals was associated with a 6.7 percent annual reduction in the growth of pharmaceutical prices. Two new laws, OBRA of 1990 and the Veterans Act of 1992, aimed at controlling drug prices under public programs, account for much of this impact."

    OBRA: "Under the Omnibus BudgetReconciliation Act of 1990 (OBRA), drug manufacturers must provide rebates to state Medicaid programs for their outpatient drugs in exchange forMedicaid coverage. For brand-name drugs, the minimum rebate is 15.1% of theaverage manufacturer price (AMP). During fiscal year 1999, the rebates stateMedicaid programs collectively received amounted to about 19% of overallpayments for prescription drugs."

    Veterans Act of 1992: "The 340B Drug Pricing Program was established in response to the passage of Section 340B of U.S. Public Law 102-585, the Veterans Health Care Act of 1992. Section 340B of this law limits the cost of drugs to federal purchasers and to certain grantees of federal agencies. Significant savings on pharmaceuticals may be seen by those entities who participate in this program."

    While these controls are not in the much larger Medicare program the article refers to, it does illustrate that the government is already involved in drug price controls. What impact have these controls had so far?

  • 'Are Drug Price Controls Good for Your Health?' makes a resonable assertion on the impact of current and prescribed (pun intended) controls:

    "Using these regression results, we then simulate how the prices for medicines would have differed throughout the period from 1960 to 2001 in the absence of any government influence. The simulation implied that the ratio of the pharmaceutical price index to the general price index would have been 1.27 rather than 0.94 in 2001, suggesting that pharmaceutical prices would have been about 35 percent higher, on average, in the absence of this government influence.

    Using the predicted trend in pharmaceutical prices without government influence and an established elasticity of R&D spending with respect to drug prices from prior research, we determined that the resulting government-induced loss of capitalized pharmaceutical R&D expenditures was $188 billion (in 2000 dollars) from 1960 to 2001. This "lost" R&D may be translated into human life years "lost"—literally, increased pain and suffering and shorter lives caused by the absence of new medicines and future research—by using results from recent econometric work on the productivity of pharmaceutical R&D in the U.S. over the same period. We conclude that the federal government's influence on real drug prices cost the U.S. economy approximately 140 million life years between 1960 and 2001."

    This makes economic sense...you limit the financial resources drug companies have for additional research and development, you limit the drugs that come out of that lost research and development. No resources/profits...no research; at least from private drug companies.

  • Many will say that drug companies (executives, shareholders, doctors/reseachers, etc.) are just getting rich when they sell the results of their research at high prices. To that Porkopolis says: YES!; that's the idea. Along with getting rich they're also being motivated to keep managing (executives), taking investment risk (shareholders), studying hard and conducting research (doctors/researchers).

    If you advocate drug price controls, ask yourself this question...Why don't you personally stop whatever you're doing right now and go off to medical school, pay for all your tuition out of your own pocket, become a research scientist, go work for a pharmaceutical company and donate your salary to the cause of lower drug prices? The question is not meant to be snippy, but it does aspire to put you in an economic supply and demand mindset.

    Still have angst about all the profits being made? Then become a shareholder in drug companies creating all these new expensive, life saving drugs (by the way, don't forget there will be risk) and donate your profits to charitable institutions.

    If you're an individual that may need these life saving drugs in the future, consider becoming a shareholder yourself and utilizing future profits to pay for your treatment...almost like a hedge.

  • Finally, one angle that should have been covered in the Time's article is personal responsibility. Many Americans to this day still lead unhealthy lifestyles; smoking, eating to obesity and not excercising. Should their fellow Americans subsidize these life choices when the result of their actions results in ailments that could be cured with expensive drug therapy? Many advocate government price control, why don't they also advocate government lifestyle control by saying, "Hey Mr. Two-Pack-a-Dayer, in light of the choices you made, we're not going to squander the Nation's resources in treating your lung cancer. You've made your bed...now lay in it." Oh....almost forogt, we're the 'want our cake and eat it too' nation.


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