More on the “just price” of lifesaving drugs

It’s one thing when academic ethicists complain about drug prices.  It’s another when, as I discussed two weeks ago, physicians raise their voices.  And it’s yet another thing when a major industry scientific journal weighs in.

In the June 2013 issue, the editors of Nature Biotechnology, following on the discussion of the high cost of drugs to treat certain leukemias, broaden the discussion to cover expensive specialty drugs in general.  They are concerned.  A few snippets:

  • “[P]rice tags for drugs entering the US market continue to skyrocket.”
  • “To make matters worse, in the United States, most of this price inflation is being passed on directly to patients, leading to financial hardship.”
  • US drug costs are “increasing twice as fast as other healthcare services.”
  • While “in many cases, new drugs addressing unmet needs or offering major advances…do warrant high price premiums,” “companies also seek price premiums for drugs that have only marginal benefits…[and] industry’s dirty little secret is that the greatest contributors to increases in US spending are not new drugs, but year-on-year price increases for older drugs.”
  • “Thirty percent [a common co-pay rate] of a single $100,000 drug is a crippling burden.”

Read the whole thing.

Sure, the Nature journals originate in the UK, so we might expect a broadside from there aimed at the US.  But this particular journal is directed at biotech scientists and entrepeneurs trying to build successful companies.  So if its editors think industry’s behavior should change, maybe that says something.

Why the mess?  The editors charge that customers (public and private insurance entities) have an “asymmetry of information…that drug companies exploit,” and pharmacy benefit managers make money by selling more drugs at high prices negotiated behind closed doors with industry.  This strikes me as about as anti-free-market as one can get.  Defensible pricing should come as a result of a more open process of price discovery—negotiation and competition for business.

As a possible alternative, the editors suggest industry consider suggestions like one made by Harvard Business Review blogger Rafi Mohammed.   His idea:  differential pricing, with discounts, analogous to the way we buy, oh, just about everything we buy—cars, hotel rooms, airline flights, stuff at J.C. Penney (depending on who their CEO is today), and so on.  A patient’s out-of-pocket payment would be limited by the actual maximum amount a patient “should” pay.  That, in turn, would be determined by income, family size, etc—with an “independent third party agency” making the call.

Hmmm.  That sounds to me too much like eligibility for welfare, or unemployment insurance, or college financial aid.  A “FAFSA” for your medical bills, anyone?

I think I prefer an approach by which different levels of insurance coverage were offered, with different levels of co-pay, perhaps even different “formulary” drugs—and different premium structures.  But for it to work, there would have to be some level of societal/market agreement that the costs for truly effective and expensive drugs would be almost fully covered, and the out-of-pocket payments starkly limited to an absolute dollar amount that contributes to one’s overall out-of-pocket maximum for all coverage under a policy or program.  And, again, I don’t see how we can escape having a more explicit and open payer negotiation of prices and a firmer limit on paying for marginally effective new drugs or allowing previously-introduced drugs to increase in price year-on-year.

But the current state of affairs can’t go on like this, unchanged.

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