How to solve the prescription drug problem

[zoidberg]

http://www.washingtonpost.com/wp-dyn/articles/A29306-2003Aug21.html

Great editorial on a prescription drug pricing idea in the Washinton Post today by a Northwestern University professor. The problem today with prescription drugs is that they are priced at a level that many people simply can't afford. But if we impose limits on what drug companies can charge, they will have a hard time recouping the massive R&D costs associated with creating a new drug. People can wail about drug companies making profits all they want, but the fact is that without proper incentives, no new drugs will be developed (NIH funding is a fraction of private R&D). In reality, drug companies make money from creating the idea for new drugs. The actual production of the drugs is quite mundane, but that is where the revenue comes from. So here is the solution:

First, massive awards would be made to the developers of safe and effective new patented pharmaceuticals. In effect, government would purchase drug patents; developers of successful new drugs would be rewarded for successful R&D. Second, use of the patents would be freely offered to any firms wishing to produce the pills. This would ensure active competition among generic producers and low prices, as competition forced prices down toward their low marginal production cost.
The two elements of the process, R&D and pill production, would be separated. Consumers would get low prices, and innovators would get financial awards.

There are some major potential problems with the impementation of this program (determining the size of the award, making sure the system isn't abused...), but there is no reason why the details can't be worked out. Would it be too expensive? Does this reek of corporate welfare? Should government scientists research all new drugs? What do you think?

[ret5hd]

1. The REAL problem is not R&D costs...

the pharma companies spend more on advertising drugs (that are only available by prescripton) than they do on R&D.

banning the advertising of prescription drugs to consumers would solve the problem

[zoidberg]

2. How would that solve the problem?

A company only advertises if they think it will be profitable to do so. So you ban advertising, you reduce profits and reduce incentives to create new drugs. If you banned advertising and could somehow give all the savings in costs to the consumer, prescription drug costs would still be too high for many. Drug companies spend $32 billion in R&D in 2002 (http://www.phrma.org/issues/researchdev/ - a biased site, but I doubt they would outright lie on a number that could be verified). That's a huge cost to be recouped in the price of drugs.

Besides, advertising has some merit to it.

[ret5hd]

4. advertising has some merit, agreed...

but not to the (medically) uneducated.

let them advertise to the ones with the knowledge and training to decide if a drug is applicable--the physician (unless you are touting the position that people should have access at any time to any drug they wish, which i could agree with, but let's start with marijuana)

and i am not diputing the $32B figure, but their advertising budget is larger.

[TAH6988]

5. Really?

What is it?

[calm_blue_ocean]

3. Another idea

Have a drug patent expire when profit on the drug reaches some multiple of the R&D costs that were spent on the drug.

In this scheme, the tough issues would be: (1) setting a fair multiple; (2) tracking R&D costs; and (3) tracking profits.

Despite the difficulties, this plan is nice because it correlates research risk and patent reward in a transparent manner. If drug research falls off, then you up the multiple. If we have steady drug research, then you slowly shave the multiple until drug research is negatively impacted.