How To Solve The Crisis Over Drug Prices
13 CommentsBy Ed Silverman // March 17th, 2008 // 1:00 pm
Well, this is one suggestion, anyway. Two professors from the Massachusetts Institute of Technology propose separating drug discovery from drug marketing - and then establishing a non-profit company to oversee funding for new meds.
“Drug prices in the United States are higher than anywhere else in the world. Right now, the revenues from those drugs finance research and development of new drugs. We propose to reduce prices, not at the expense of innovation, but by changing the way innovation is financed,” says Peter Temin, an economics professor and co-author of “Reasonable Rx: Solving the Drug Price Crisis,” in a statement.
“Nationally, if we keep the current structure, in 50 years only hedge fund managers will be able to afford prescription drugs. Drug development will focus on therapies for those small groups of people who can pay a thousand dollars a pill. With income distribution widening and insurance carriers already refusing some coverage, this would be a disaster,” he continues. (Actually, fewer fund managers may be able to afford their meds this month).
So Temin and Stan Finkelstein, a senior research scientist in MIT’s Engineering Systems Division, propose eliminating the linkage between prices and the cost of discovery. As they see it, dividing drugmakers into separate entities would be akin to the division of electric utility firms into separate generation and distribution companies in the 1990s.
Following the utility model, Finkelstein and Temin propose establishing an independent, public, non-profit Drug Development Corporation (DDC), which would act as an intermediary between the two new industry segments - just as the electric grid acts as an intermediary between energy generators and distributors. The DDC also would serve as a mechanism for prioritizing drugs for development.
“It is a two-level program in which scientists and other experts would recommend to decision-makers which kinds of drugs to fund the most, “says Finkelstein. “This would insulate development decisions from the political winds.”
In their view, societal needs for medicines are swiftly extending beyond national boundaries: Diseases affecting the developing world -afflicting people too poor to make drug development attractive for businesses - will soon affect health inside the US.
“Global travel and climate change both require that U.S. drug development and innovation policy rethink the way drugs are developed, and for whom. Air travel, migrations, a global workforce–all these mean unusual diseases could become usual here,” Temin says, adding that climate change also may affect drugs their proposed DDC would select for funding.
“Especially in the southern states, tropical diseases are likely to increase with global warming, and people will need treatments for them,” he says. “In our plan, the DDC would encourage research in advance of the market - and, we hope, in advance of disaster.”
Dave Hamil
This idea seems to be based on some pretty questionable observations.
Janet
> propose eliminating the linkage between prices and the cost of discovery.
Drug pricing is done according to what the market will bear and what competition is doing. From my experience in doing drug pricing studies, it really has very little to do with the cost of discovery.
Outside the Box
Ignoring for one moment the fact that the title of this paper assumes that there is a drug price crisis, I suppose devising a system for managing drug development based on the utilities model would be fine if all drugs and all diseases were identical - just like all the electrons being transmitted through the grid. Then we get an assumption (the one about hedge fund managers) that assumes that the drug industry and pricing will not change at all as a result of economic shifts (and one of the authors is an economist). Added to this is the broad assumption about the “block buster drug development model” using hypertension as an example which totally fails to recognise that this is an already discredited method of analyising the development decisions of the industry. What a totally ludicrous set of premises upon which to base any analysis relating to the so-called issue of high drug prices.
Have they also considered the fact that the current model allows US-based drug companies to explore the possibilities of in-licensing compounds from all over the world, so the new model would have to do this as well. So, how is this new body going to review the tens of thousands of compounds going into research every year. And what about products developed entirely outside the US - would they have to come under the same system? And then one has to consider the fundamental changes to the patent laws that would be required for this to come into effect.
Just one last thought - who is going to select the scientists who will form this new DDC? Given that public funds are involved (and lots of them) this will undoubtedly include some form of political input - oops, there goes another of the core suppositions upon which this idea is based.
I’m sure these two gentlemen mean well, but isn’t there some practical way in which they can apply their skills?
Dr. Sal Giorgianni
The current system of discovery, research and distribution is based on the economic market models of the 1950-60 and the state of pharmaceutical technology from that era. Clearly changes and advances have been made since then in both domains.
This is one of the more creative ideas that are floating around out there. No doubt that something must be done as there is too much societal dissatisfaction with the system now in place, even though it has yielded an amazing amount of advances. But, as with all systems, they may not be relevant forever. Yet, I am not quite sure that a completely non-profit model or even a model that is structured as a public good will work. As evidence, take a look at the NIH. Venerable, and very important institutions that play an important role in expanding our knowledge base. Several years ago the esteemed physician Bernadine Healy, when assuming the role of Director, NIH, announced a new mandate for NIH labs –to find practical medicines. Makes sense to this taxpayer. A practical way, you would think, to begin to address the issues that were just beginning to bubble up about R&D. Yet, poor Dr. Healey received such push back from NIH scientists, fundees and Congress it was rather stunning. Back to the drawing board. In the current proposal, I wonder how that non-profit entity would fund its work. Would it take on the structure of an AARP non-profit, or maybe an American Heart Association non-profit? Would it be quasi-governmental such as the USP or the NSF? Or would it be non-profit in the sense of MIT or Harvard. And if it were non-profit who would it be accountable to? Lots of details for the-devil to work out here.
I will not claim to have THE solution to the current situation. It could just be that there is none. Innovation costs, someone has to pay for that cost and it is fair for companies to recoupe that cost. Now, if someone can only tell me what society believes is a contemporary answer to “a fair return” on those costs (all of them, including the cost of the risk) we may be able to come up with a good and workable idea.
Nathan
My question is this:
How does the money flow? Drug distribution inherently EARNS money while drug development is a continual drain of money. It sounds like this: money flows from the consumer to the drug distribution company to the DDC and then to the drug discovery company. If so, how is this ANY different than the current model? The only difference I see is that you have introduced a new government agency that will likely have more power, more bureaucracy, and greater inefficiency than the FDA. This doesn’t sound like a step forward to me…
Frankly, if the system is as broken as many people say that it is, the only way that significant change is going to happen is if the entire industry collapses and is rebuilt from scratch. While the current system may not be sustainable for 50 years, I don’t see it completely falling apart in the next 10-20 years. I could be wrong… but I hope not.
Nathan
By the way: I’ll point out that the free-market is well on the way to a similar system, albeit without the government regulation: Big pharma is becoming more of a drug distribution engine while the biotech industry is making many of the major advances again disease. This dichotomy is doing exactly what the professors are proposing: separating drug discovery and drug development into distinct entities.
Outside the Box
Nathan makes a good point that raised another set of thoughts in my mind.
I think the idea is that the DDC is funded publicly and that this pays for all drug development. The approved products are then passed to a distribution and marketing company and, because the development was publicly funded, the price in the market is substantially lower and the marketing company is permitted a reasonable return (what ever that is). Presumably the new DDC will be significantly more efficient as a result of removing duplicate efforts - although I am not sure how the DDC will determine which compound within a given class will be the successful one given that the industry hasn’t solved that problem after trying for decades.
Who does the manufacturing now that one group of companies is just discovering and another group is just marketing?
Who carries liability for the product in the event that post-launch shows adverse events not seen in trials (one assumes it must be the DDC - this non-profit that is publicly funded and therefore potentially immune?)?
Who manages the export market? Who owns the IP?
It is almost worth buying the book just to find out how these issues are answered.
Jack2
almost
Lewis R. Schwarz
Government funding of research is not only desirable, it is necessary. Consider how many OTC, “natural” meds, and legend medications there are that are being used in untested, wasteful,and possibly dangerous applications only because industry will not finance the studies needed to show efficacy or its lack and proper dose regimens. The creation of the GRAS list has helped, but it is only part of a process that needs expansion to be truly effective.
Nick Evans
“It is a two-level program in which scientists and other experts would recommend to decision-makers which kinds of drugs to fund the most, “says Finkelstein. “This would insulate development decisions from the political winds.”
Frankly, if the government can’t insulate the Justice Department from the “political winds” I don’t fancy their chances with a DDC.
Can you imaging the brawl that would be generated by the religious right over the development of ANY drug with a potential impact on women’s reproduction? Forget “Plan B”, there’d be open warfare on the streets…
(PS - apologies if this comment appears twice, something strange happened when I tried to submit it the first time).
Former pharma Marketing Exec
Actually, this kind of fits with the proposal that was floated last week regarding the government review board overseeing research.
So, sure hope that the folks at MIT are talking to the authors of the CPER report we learned about last week here.
Nathan
Derek Lowe over at “In the Pipeline” has a nice commentary on this idea. He brings up many of the same concerns that were voiced in the above comments.
http://pipeline.corante.com/archives/2008/03/18/a_solution_courtesy_of_the_mit_faculty.php#comments
Jack2
Derek Lowe makes some great points Nathan, and typed them out for me, better than I could have, and it saved me the time and outrage. Thanks for the link.