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High cost drugs: solutions and steps forward

simple complexity

In two of my recent columns, I examined why the cost of many drugs is so high in this country, and whether or not there might be some sort of normative judgement we can make about “fair” pricing.

In this column, I would like to wrap up that exploration by examining potential solutions, or at least a few steps forward.

In my article “Medicine: What is a fair price?”, I made note of a few basic realities that inform the pharmaceutical space and can help explain why costs are so high. First, there are plenty of barriers to entry, both regulatory (FDA, etc.) and financial (think: high Research & Development costs). Second, there is no transparency on the manufacturing side, which makes price hikes easier to justify (assuming they have a responsibility to justify their prices to begin with). This is to be expected, given that drugs are generally treated as a commodity. Third, patent laws are applied somewhat loosely, allowing manufacturers to “evergreen” their way to longer patents.

These factors inform the market realities surrounding manufacturing drugs, which in turn inform the strategies that the actors employ to maximize their utility. Given the system that develops, there is virtually no downward pressure on the demand for certain kinds of drugs that exist in low-competition circles.

First, there are patented drugs which are given temporal monopolies through patent laws. Second, there are generics that exist in very niche markets, where there is relatively inelastic but low demand. Third, there are what I call “Super Generics” which can exist due to evergreening; this can mean combining two generics into one or possibly devising a new method of administration (think, perhaps, of nasal replacing injection). These drugs are promoted over cheaper options as a result of strategic partnerships between manufacturers and patient advocacy groups (which generally do not consider value-based pricing), pharmacy benefit managers and researchers.

As I previously noted, “it would be ideal for this market to be like any other, where the ‘fair price’ is the price of the market, in which there are plenty of competitors who fight over your business.” However, these interactions—as well as the reality that humans often need certain medicines to survive, making demand very inelastic—beckon us to consider a normative case for some sort of incentive shift in favor of more reasonable prices.

If we want to live in a society where people who become sick with curable ailments can get treatment, then we need to address the pricing of medicine, among many other items.

Should we agree that a problem does exist (i.e. that this market is, in some cases, unhealthy), the question becomes how we can move towards healthier pricing schemes. Simultaneously, we want to avoid stifling research and development, eliminating incentives to enter the market or driving manufacturers away from the marketplace. Basically, how can we promote fair prices without further worsening the situation for patients who need treatment?

In my research with two other undergraduate students, we have come across various players with ideas regarding how to mitigate the problem. The root problem in the three classes of high cost drugs is lack of healthy competition, so we must address that issue head on to address high prices.

It would be ideal to face this problem through new, more effective health policy. However, the status quo benefits all kinds of players in the market who are able to leverage their position to lobby against institutional changes that might mitigate prices. The amount spent on lobbying by drug manufacturers is astonishing.

Given the pressures that currently exist to keep prices up, we have focused on ways that we could put downward pressure on prices without significant legislation.

The first way is the manufacturing of generics—or perhaps patented drugs—by nonprofit corporations more driven by a social need than by a desire to maximize profits. While it is possible that these organizations might be less efficient than profit-driven firms, it seems that their existence in low-demand markets could help mitigate prices closer to the cost of production than they currently are in many generic markets. The first such nonprofit, Drew Quality Group, Inc., is working to make this class of solution a reality.

A second path forward is public/private partnerships, through which these nonprofit manufacturers could first seek funding from venture capitalists and then seek funding from government grants. This is alternative to the sometimes discussed “solution” of making grants to nonprofit manufacturers that somewhat sidesteps the problem of the government choosing winners and losers on the market. While imperfect, it could help nonprofit manufacturers reach the necessary levels of funding without distorting the market too much through unchecked government intervention.

A third partial solution would involve nonprofits that, unlike patient advocacy groups, consider value pricing in addition to promoting optimal patient health outcomes. Currently, patient advocacy groups often consider only health outcomes without making recommendations that consider pricing. A network of nonprofits that educate patients about all options, not only the more expensive ones, could help balance the market.

This is surely a complex space and these solutions are imperfect, but action is needed given the current problem landscape. These are various starting points that individuals in the nonprofit sector and policy circles could consider to make drugs more accessible and ultimately improve people's’ lives.

David Wohlever Sánchez is a Trinity sophomore. His column, “simple complexity” runs on alternate Wednesdays.

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