Categories:
Economics of Health Care
Regulation
Why are pharmaceutical prices so high while the prices of so many other items we buy are low and even falling? The difference is competition. Drug companies typically have a monopoly on the drugs they sell, and monopolists charge high prices. So to get lower drug prices, we need more competition.
This is the opening paragraph of David R. Henderson and Charles L. Hooper, “Want cheaper drugs? Increase competition.” Washington Post, December 9, 2016.
Read the whole thing.
I’m particularly proud of this piece because it’s the first time I’ve cracked the Washington Post other than with letters to the editor.
It was a pleasure working with editor Robert Gebelhoff.
READER COMMENTS
Woodrow McClure
Dec 9 2016 at 12:00pm
A further point, would be that once the FDA process is streamlined it would be easier to curtail the patent life to something more sensible like 5-10 years. I have a personal issue with the idea of a patent in general, but without the FDA cost burden it would allow the reduction of patent life.
All that being said, if we only got the FDA reduction we would be miles ahead as consumers.
Woodrow McClure
Dec 9 2016 at 12:03pm
It was a great article, and I am glad that WaPo published it.
David R. Henderson
Dec 9 2016 at 12:08pm
@Woodrow McClure,
I agree with everything in your first comment.
And I appreciate your second.
Eric Johnson
Dec 9 2016 at 5:10pm
I am in favor of changing the mission of the FDA to a safety only standard like mentioned in the article.
However I worry that the rest of our health institutions are not ready for this change.
Will insurance companies be forced to pay for prescriptions for the flood of drugs that have shown no evidence that they are effective?
Will health insurance companies deny patients access to drug A because they cover drug B as a treatment for a condition even though drug B hasn’t been demonstrated to work?
In a normal free market, these things get sorted out. I just worry that our health institutions have little in common with a normal free market, even if you ignore distortions introduced by the FDA.
Alex
Dec 9 2016 at 7:49pm
Great post.
The FDA process is absurdly slow and expensive, and the result is thousands of deaths every year that could be prevented.
I would also add that the safety standards should be set very clearly and explicitly, otherwise the FDA would come up with more and more requirements of safety.
Dylan
Dec 11 2016 at 12:40pm
I appreciate your points in the piece, but I don’t think you really dig deep enough into the mechanisms of how a drug would be determined to be efficacious once it was on the market. As far as I know, we don’t have a good way to really tell that for many indications without carefully controlled and long randomized trials*. If drug companies didn’t have to show that their drugs worked I’m not sure if there would be enough incentive for them to pay to conduct those trials themselves and the market for pharmaceuticals could easily become indistinguishable from the market for homeopathic and other “natural” remedies (which are only required to show safety and not efficacy). What market mechanism do you see that would prevent this? My feeling on the issue is that it costs so much to develop a new drug, not primarily because of the regulatory burden, but because we know so little about human biology that 9 out of 10 drugs will never make it to market either because they are unsafe or don’t work. Getting the FDA out of the business of deciding which drugs work or don’t only makes sense if we have a good idea of how else we’d get that knowledge.
*Take Alzheimer’s for just one example. So far nothing that has been tried has been shown to have any effect at all on the disease, but the trials to figure that out have taken many years and cost many billions of dollars. Most of the drugs that have been tried are relatively safe** and have a good theoretical basis for working, and seem to have shown some benefit in smaller trials, but that benefit disappears when larger trials are done. To really know that the drugs did or didn’t work outcomes will need to be measured on some kind of objective and consistent scale, otherwise you will end up with anecdotal evidence from doctors and patients that suggest thatdrug X is amazing…but we will have no actual increase in knowledge.
** The other aspect is that the safety of a drug is not something that can really be determined in isolation, because what you really want to know is if this drug is safe enough relative to its efficacy. We’re of course willing to tolerate much worse side effects for a cancer drug than we are from a decongestant…but are we willing to tolerate the same side effects for a cancer drug that doesn’t actually help the patient?
Hinmon
Dec 14 2016 at 12:22am
It was a great article and I completely agree. The FDA has monopoly over new drugs. They decide when new drugs are introduced and implemented into society. Many drugs can be developed; however, the FDA doesn’t implement them because they believe all the cost to making the medication is more than the potential profit like you stated. For example in the provided arictle from you by David R. Henderson (“Markets Can Determine Drug Efficacy”), he says,” One of us (Hooper) has helped kill drugs for brain cancer, ovarian cancer, melanoma, hemophilia and other important conditions–not because they weren’t good drugs, but because the anticipated clinical development costs were greater than the anticipated financial returns.“ Lastly, I really like the idea of cutting the FDA’s power by having the FDA serve as an information agency rather than a gatekeeper. As stated this way. companies that wanted to sell drugs without FDA approval could do so if they state it clearly on their label. Then those patients and doctors who insist on only FDA-approved drugs would be no worse off and those of us who trust other information sources would, by our own standards, be better off.
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