Sure worked great for Viagra.
(In response to: “The one thing that we can do that will immediately and drastically lower drug prices is to extend the period of patent protection.”)
I assume not. The argument runs that if you have (say) twenty years instead of ten to make your money, then you are able to charge less. Yes, I said are able deliberately.
Historically the counterargument has been that a short period of profitability (before generics/similars enter the market) means that in order to maintain profitability then pharma companies have to innovate, which means more new and better medicines and the world is therefore a better place. And some the obvious weaknesses in this argument are:
[ul]
[li]Just look at the rate of introduction of innovative new drugs (I won’t touch on other therapy areas for the sake of simplicity). There has been a decline from perhaps 50 a year thirty years ago to maybe ten a year now (depending on what you consider to be truly innovative). And…[/li][li]…This is due to a combination of factors - including the increasing cost of drug development, the decreasing number of significant “market opportunities”, and the fact that most common conditions already have pretty effective (and often generic) treatments available. To which you can add the reluctance of many countries to pay a stack more for a very marginally better new drug. And…[/li][li]…In the US at least, pharma companies have found easier ways of maintaining profitability.[/li][/ul]
So maybe significantly extending patent life (or data protection periods) is an idea that deserves another look. It isn’t going to solve your problem on its own, but it could be a useful measure if you can figure out how to stop it being abused (and find other ways to reward (useful) innovation).
j
Downside of extending patent life is, of course, then there are not generic drugs for conditions, and therefore, you pay more for the drugs you need to keep you alive.
Maybe do a hybrid system, where you get a monopoly for a while, and then you lose the monopoly, but you still get royalties for a little longer off of generic drug sales.
True. But if we started the system tomorrow we would be doing so with a wealth of available generic drugs as a starting point. (And that in itself is a hybrid system of sorts).
And I agree with what you imply - there isn’t going to be a Eureka! moment - any system which contributes will be multi-faceted.
j
Point #1 is (mostly) stupid because the US already has a thriving generics industry, and in some cases the plethora of competitive market forces actually makes generic prescription drugs cheaper in the US than in some other places.
The problem is patented name-brand drugs. And the solution that they inexplicably forgot to mention is the policy of making drug companies justify their prices, and only allowing price levels that can be rationally and quantitatively supported.
There is no price that can be “Rationally and quantitatively supported” unless you want them to make no profit at all, and thus only allow them to charge cost. 50 percent margin isn’t more or less rational than 80 percent margin or, really, 450 percent margin.
IF you want to hold down drug costs, asking the drug companies to “justify” a price is silly; simply give the government the power to collectively negotiate a better price. Or allow importation. Or some other solution that makes sense in terms of economics.
Nearly 90% of scripts filled are generics in the US. But there are ways for manufacturers to keep prices high.
Pharma companies pay manufacturers to not make generics. Fda regulations make it hard for more than one manufacturer to enter the marketplace. Pharma uses tricks to extend patents. Importation of cheaper generics from overseas is illegal.
There are probably many other issues too but as has been said there are some generics that are far far cheaper overseas than in America due to things like this.
If my interpretation is correct, you appear to be arguing against any form of price controls for patented drugs. But just why do you think that patented prescription drugs are far cheaper in Canada than they are in the US, while just about everything else – from electronics to cars to many generic drugs – is more expensive?
I refer you to this FAQ from the Patented Medicine Prices Review Board, and specifically FAQ questions 12 through 16, which explains how the board regulates prices in these terms:
What controls exist to ensure that the prices Canadians pay for drugs are reasonable?
What factors affect the cost of prescription medicines?
How do drug prices in Canada compare to prices in other countries?
What process does the brand name pharmaceutical industry (patentees) follow to ensure they comply with the PMPRB guidelines?
How does the PMPRB review the pricing information for all patented medicines sold in Canada?
And also this CNN article (emphasis mine):
Tom Sackville, CEO of the IFHP, said that American consumers have little recourse against the high prices. “Consumers are pretty much unprotected from whatever price,” he said.
… Dr. Peter B. Bach, director of Director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes, says that pharmaceutical companies charge high prices simply “because they can.” Bach added. “We have no rational system in the U.S. for managing prices of drugs.”
Your interpretation is wrong.
Because the Canadian government in effect negotiates the price. The purpose of the Patented Medicines Review Board is to force pharma companies to sell to a single negotiator.
(I work in this industry, for a CRO, and should perhaps point out that the process is WAY more complicated than we could get into here, but you likely guessed that.)
Remember, the board isn’t asking the drug manufacturer to “justify” a price, as you suggested. The board is determining the price they’re willing to pay, and then the pharma company is free to refuse to sell it in Canada, or negotiate, or accept the price. What makes drugs cheaper is that the Canadian government is, in effect, a monopsony. A perfectly good solution based on good economics, as I suggested.
Perhaps, because prices for different drugs vary wildly for many reasons. But check out this analysis. Broadly speaking, within large variations for individual drugs, US prices for generics tend to be broadly in line with the rest of the world, while prices for patented drugs are crazy high. This speaks clearly to lack of regulation. Canadian prices for patented drugs tend to be in the median of the rest of the world and far lower than in the US, but generics tend to be high due to being unregulated. Note Table 3. In Canada the generic citalopram costs 14 times what it does in the US! Meanwhile, traditionally expensive patented drugs, under price controls from the PMPRB, cost far less than they do in the US.
I’ve often agreed with you, but not on this one. I have lupus. What my body can and does do naturally is attack itself. My immune system is like Barney Fife with unlimited ammo in a hall of mirrors. Before modern medicine started intervening, most people with lupus were dead by the five-year mark. Today the 20-year survival rate is better than 80%.
I don’t call that “very little.”
That seems like an incredibly convoluted attempt to distort the argument. How can the Canadian government be a monopsony when it isn’t buying anything? Was there a reason that you left out the word “price” in your mention of “Patented Medicines [sic] [Prices] Review Board”? The word “price” is there because it’s a price control board. Neither the federal nor the provincial governments, as you well know, are the purchasers of these pharmaceuticals, so they don’t “negotiate” the prices of things that they’re not buying. The mandate of the Patent Medicine Prices Review Board as a price control agency of the federal government is clearly laid out in the links I already posted, with this part of particular relevance (again, emphasis mine):
… the prices of patented medicines** are subject to direct price controls through the PMPRB**.
To determine if the price of a patented drug sold in Canada is excessive, the PMPRB applies factors set out in the Patent Act and in its price guidelines
You can’t regulate individual drugs unless you take into account R&D for other failed drugs. That cost has to be factored in to the big picture. Otherwise R&D is going to take a hit and will fade away over time.
Per your link, you left out the word “only” from your quote, ONLY the prices of patented medicines are subject to direct price controls…which consists of some judiciary board action to set the selling price of a newly patented drug. And nothing else.
So who pays that price? The consumers?
Prices which allow profits can be rationally and quantitatively supported. When AT&T was a monopoly the rates we were allowed to charge included both a profit and money for R&D.
But I agree that letting the government negotiate - and banning much of the marketing that goes on now - would be simpler.
Because it is the common negotiator for those that do.
The board cannot set a price if the manufacturer of the drug subsequently refuses to sell it because the price is too low. The process is an ongoing one of the Board determining what it’s willing to set the price at and then ongoing appeals and applications - and yes, backroom negotiations - with the manufacturer.
The point, which you’ve missed, is that prices aren’t really based on a magical determination of what price is “correct”; they’re set based on a compromise between the government and the drug company. The Board’s rationale list is a negotiation tactic, like presenting evidence in a salary arbitration case. The government’s ability to negotiate is based on the fact that they legally are the only ones who can, thus giving them a degree of bargaining leverage for which there’s no equivalent in the USA. That’s what prevents Canadians from paying exorbitant prices; they are, in effect, all negotiating together.
Of course, all this gives lie to the silly Republican theory that other countries are free riders on drug research. If pharma companies didn’t make money on drugs in Canada, they simply would not sell them there.
I’m careless.
I left out the word “only” for the sake of clarity in order to emphasize the key point that the PMPRB is incontrovertibly and absolutely a price control authority for patented drugs in Canada. This is not a frivolous or academic point, as it is the sole reason that brand-name patented drugs in Canada typically cost just a fraction of what they do in the US.
As for the “only” part, I’ve been downright vocal about the fact that they only regulate patented drugs and not generics – see my post #50 for example about the outrageous cost of some generics in Canada for that very reason.
My understanding is that the regulated price is the wholesale price paid by pharmacies and other institutions making wholesale purchases.
Some valid points, there, Rick, but you still seem to be trying to skate around the fact that the PMPRB is a government authority that regulates the prices of patented prescription drug prices, period. It’s what their name says they do, and it IS what they do. They aren’t some sort of collective purchasing agency. Naturally if a foreign pharmaceutical company objects to a price ruling and refuses to sell a particular drug in Canada, it can’t be obligated to do so. I’d be interested to know if that has ever happened, because I’ve never heard of it. But it’s the kind of argument that can be made about ANY price controls: if the price is set too low, the company will simply not sell / go out of business / move to the Caymans / whatever. But it’s still price control.
Price controls, incidentally, is a concept that in principle I don’t particularly like, but the essence of good policy is to recognize special cases where extraordinary measures are necessary. Drug prices, for many reasons, are one of them because they’re so subject to so many kinds of abuse (an assertion that can be supported by just two words: Martin Shkreli, current serving a seven-year sentence in federal prison).
I noticed that, it’s why I asked the question. I’m trying to square the existence of a pricing authority with a hands-off approach to most drugs.
As much as I hate to ever defend silly Republican theories 
, I don’t quite get your argument. There are big sunk costs with drug research. So, could it not be that they are making money on the drugs they sell in Canada (in the sense that the cost that they sell them is greater than the marginal cost of making the additional quantity), but that it would not be profitable to have made the drug at all if they had to sell it everywhere in the world (including the U.S.) at that price (because of the large fixed cost of the research)?
Just to clear up confusion, Shkreli is not in prison for setting drug prices too high.
But if that were true* it has nothing to do with the central Republican argument that Canadian prices make American prices higher. If the lack of added profit in Canada is what makes Newdrugatrex unworthy of research then it will not be researched. What will not happen is that American prices will rise to account for lost profits in Canada; that just doesn’t make any sense. American prices are the market clearing price in the USA.
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- Just insanely unlikely in practice; it’s not really how this stuff works. No one can really guess the eventual R&D cost of a specific compound that early on, and by the time costs are reasonably predictable you’re in Phase I or Phase II and the drug will either work and be profitable or not and it won’t. The overall high R&D cost of drugs is not because each drug costs a fortune, it’s because most fail.