Maybe I'm missing something from your post, but I feel like you haven't addressed the classical neoliberal/econ 101 reason why we might want to subsidize pharma innovation. Which is that gov't should intervene when there's sufficiently large private market failures (e.g. the massive undersupply of a good, or oversupply of a bad).
Classically, government should positively subsidize activities that have large public benefit where private actors can only capture a small share of it. And this seems much more plausible for medical innovation than for homeownership. I'm not saying people owning houses have *zero* public benefit, but I would guess it's within a factor of 3 (and likely within a factor of 2) of the private benefit.
In contrast, pharma wins like covid vaccines and Ozempic have profits measured in the billions or tens of billions with social benefit measured in the trillions. Seems good to want to have more of it!
I am not a physician, just an observer of my partner's auto-immune disease and the treatments on the horizon for such conditions. Some of what we're experiencing confirms Matt's insights, but other issues arise with new therapies that involve genetic modification.
Clinical trials in other countries for genetically modified treatments, e.g. Chimeric Antigen Response with T-cells (known as CAR T therapy), seems to be advancing from treating cancers like leukemia to treating conditions like scleroderma and lupus. Yet, despite the positive results found in clinical trials in Europe for treating scleroderma (Germany, Spain, the Netherlands) and government-funded provision of this therapy for lymphoma (in Spain), patients with scleroderma in the U.S. are just now being recruited for clinical trials here.
Another issue with treatments that involve genetic modification, is that, even with proven success in clinical trials, expanding the availability of such treatments will not be like producing thousands of new pills. Rather, each treatment requires a procedure of its own, involving the taking blood from the patient, re-engineering it and returning it to the patient. That is a high-cost process and may remain so. Nonetheless these therapies can be life saving for those who get access to them and tend to involve small numbers of the population, so the societal costs can be manageable.
Thus, I think the case for funding medical innovation via genetic modification therapies and making them available and affordable for affected populations requires a different model for assessing investment, cost, risk and benefits.
The claim was made in comments from authority (the poster is more qualified than I am) that large studies are needed to show efficacy relative to current standards of care, but I don't really think that's the case. I thought "Safe and Effective" was the standard, and effective can mean better than placebo or no treatment. It might be unethical to have placebo controls where effective treatments already exist so I thought that's why companies search for (impoverished) populations that don't have access to alternatives as standard care. Testing vs nothing vs known alternatives was one of the main points of Angell's (2005) book. Can people here confirm? You do need large sample sizes to show either rare side effects (or to be able to say with high power that side effects were not seen), or slight differences from current treatments, but that ends up justifying huge price rises for statistical but not clinical differences (1.5 weeks of life!). The many larger issues are whether testing hurdles are the greatest problem, vs incentives against developing inexpensive cures or preventative (antibiotics, vaccines) vs expensive therapies for chronic illnesses (depression/cholesterol/blood sugar).
The "high prices afford innovation" argument seems sort of bad faith. We don't need innovation in insulin. We got innovation in the 1970s, and the problem of making human insulin was solved. The highly innovative company went on to make a bunch of money, the patent expired, decades went by, then the price went up significantly. By this point, the companies making money on gouging had nothing whatever to do with the original innovation, nor was there cross-subsidy with R&D as far as I can tell.
People got very upset about this with Marin Skhreli, seemingly because he was personally unlikely, then rejoiced when he was sent to jail for other reasons. But the underlying problem wasn't fixed, and even the Biden approach (price controls for insulin, negotiation at Medicare) don't address the* root issue that generics manufacturers should have extremely weak pricing power.
* Well OK, a root issue. There are also genuinely innovative drugs (eg ones treating hepatitis C or rheumatoid arthritis) that are expensive. But we shouldn't pretend all drug pricing issues involve on-patent innovative drugs.
I was afraid that with Matt finally writing on a topic I know a lot about I would be disappointed, but this is solid content. No easy fix in the post, but it is genuinely a difficult process to regulate well.
Since Tester and Brown both won their last three elections, saying that both only have a ~20% of winning this time seems rather bold. Since Rick Scott only got 50.06% of the vote in 2018 (in a year in which the Republicans flipped three Democratic seats) that also seems a rather bold prediction. We'll see about Nevada which may be shaky for the Democrats (though I really respect the Harry Reid machine).
Like I said, I'd definitely take the bet against a 100% certainty that the Republicans take the Senate.
I would like to emphasize that research & development is no longer the largest cost to providing medical care. Reducing regulations can and will help real people, but only on the margin.
When I worked on an R&D team at Stryker, our net cost for all researchers on my team including all our failed projects was somewhere under $10 million a year. Our most successful project alone brought in $1 billion a year. I still have no idea where exactly the other $990 million was going. I can only guess based on my knowledge of insurance. It wasn’t FDA regulations though, as we made medical software not drugs.
Also, regarding the recent insurance ransomware incident blocking up pharmacies: anyone else notice that there are no people left able to manually make pharmacy insurance claims? It’s all automated, yet people have to pay absurd amounts of money for brokers and PBMs to do that automation.
A more fundamental fix would be to replace government-issued patents with government-issued prizes.
The sole point of a drug patent is to outlaw a free market in the production of a new drug for 20 years, thus ensuring far higher drug prices than a competitive market would ever allow. Sure this ugly bargain is well-meaning—those monopoly profits motivate inventors to discover wonderful drugs that will prolong and enrich our lives But that doesn’t change what the patent system is: a blunt, market-distorting tool that the government uses to manipulate private behavior.
Replacing patents with cash prizes is a radical idea with an ancient pedigree. In 1714, the British government offered a £20,000 prize that led to the invention of the chronometer. In 1837, the French government bought the patent rights to Louis Daguerre’s early photography equipment, and then put the invention in the public domain. More recently, prizes have led to major improvements in human-powered airplanes, energy-efficient refrigerators and suborbital space craft.
Under a drug prize system, the U.S. government would simply pay cash for the rights to any drug that wins FDA approval, then put the U.S. (but not foreign) rights in the public domain. Yes, getting the prizes sized correctly would be impossible to do with perfect precision. Still, a prize system would avoid the much greater distortions of the monopoly prices inherent in the patent system.
> "If you’re at very high risk of dying in the very near future from a fatal disease, then you probably aren’t as worried about the downsides of experimental treatments."
"A pandemic reverses the usual asymmetry of risk. Now it is the status quo that is immensely dangerous, and a typical sort of medical intervention (such as an experimental drug or vaccine) is comparatively less so. As a result, we should expect to find many cases in which the potential benefits of innovation outweigh the potential risks. Doing nothing new, and allowing the pandemic to continue unabated, should be recognized as a far riskier prospect—for many individuals, and especially for society at large—than trying experimental or otherwise uncertain solutions for which the risks are orders of magnitude lower than the risk otherwise posed by the virus."
(Of course, it's also importantly true of many individuals in non-pandemic contexts too!)
Great article. Matt could easily write about this as often as yimby issues. It's that important. Love the cost benefit and foreign angles. There's also an angle of focusing directly on reducing the cost per patient of clinical trials.
Regarding the harms of not approving medications I 100% agree but this seems like part of a broader human fallacy that's hard to block.
Unfortunately, you have the double problem that people just seem to be naturally disposed to see action as more blameworthy than inaction and they can't see that someone is suffering because you didn't approve a drug but do see the thalidomide babies that happen because you did approve it.
It's the same problem that causes IRBs to obsessively consider harms that might occur from allowing a study but not (at least equally) the harms that might occur from blocking it -- and certainly not the harm to individuals autonomy who might *want* to take an informed risk to help others by participating.
That's why I'm tempted to think the best you can do is remove efficacy as a necessary component for approval. Instead just add a tax to pharma sales and have the government fund efficacy trials to inform patients and doctors.
As far as consistency goes anyone who argues that women have a right to bodily autonomy and hence that the government can't prevent doctors from giving them drugs/treatments to enable abortion should also believe that same justification protects the right of patients to try experimental or untested medications.
Sure, maybe you can justify restricting genuine snake oil consistent with that moral position but the underlying principle is that when deciding what kind of medical treatments you are allowed to get the government doesn't get to tell you how you should weigh values/risks be they the moral status of the fetus or the chance you paid for a medicine that just harms you.
I mean if your bodily autonomy doesn't let the government stop you from legally accessing drugs to remove a fetus why does it let them stop you from drugs designed to remove a tumor? What if it's an effective drug but just hasn't passed the regulatory hurdles here? What if abortion drugs only worked 50% of the time, 85%, is there some threshold of probability of success at which it becomes moral for the government to substitute their judgement re: risks/benefits to your body over yours?
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To be clear one can, as I do, support abortion rights for good old fashioned consequentialist grounds but it's the attempt to claim a special moral status that's dubious.
No, that's a perfectly cogent consequentialist argument for treating the positions differently. As I said, I accept such arguments.
My point is that you can't short circuit the whole abortion debate and push the anti-abortion position from the board without getting into the messy consequentialist details unless you are willing to do the same thing with drugs generally.
The existence of some other reasonable argument isn't at all helpful for the whole right to bodily autonomy position.
I think it's wrong for the government to forcibly extract someone's kidney and give it to someone else to save their life. But I still think the government can ban medical treatments that don't work. (It's easy to say "patients should be allowed to make their own decisions" but that doesn't really address the institutional problems you create when companies can make profits by pushing treatments with weak or no evidence.)
Exactly the same thing goes for abortion. A person's body is not a public resource that can be forcibly exploited for the benefit of others. But I don't have a problem with regulating abortion methods that don't work or are particularly unsafe, or imposing malpractice liability on doctors who botch abortions, etc. The trouble in that sphere is that most of the safety concerns turn out to be pretextual trumped-up stuff driven by motivated reasoning.
But that's not what the government is literally doing when they ban abortion. If you break it down they are banning the use of certain medications and surgical treatments because they judge the harms exceed the benefits. Sure, making it literally murder is a different level but just banning abortions requires no more than saying those drugs/surgeries are not approved for that purpose and no off label.
Sure, when they judge those harms they are substituting their values about the fetus's life for your values. But how is that different than when they come in and say: nah if we think the evidence says it's only a 5% chance of a cure but a 20% chance of a nasty side effect and a 95% chance of losing your money you can't legally take the med any different?
You're looking at it at too high a level of abstraction. The intent of an abortion ban is to prevent someone from terminating a pregnancy. The intent of medical regulation is not to prevent someone from extending their life. It's literally true of course that banning a medical treatment infringes on "autonomy" in that you can't choose to get the treatment, but the substantial autonomy interest at stake in abortion is not the specific procedure but the outcome. The same thing is true of life-extending drugs (the autonomy interest is in being able to choose to do treatment to live longer) and precisely for that reason regulation aimed at effectiveness is different in kind from regulation that rejects the goal as such.
Ok, suppose I want to be in the state of being really fucking high -- not just drunk but feeling the intense state of reward provided by many hard drugs. Now you can't argue that the government isn't systematically trying to block all the treatments that put my brain into that state. Fuck, it's specifically legal to use many of the drugs that produce this effect as long as that isn't the purpose of the use.Sure, maybe it's legal to be happy but that's analagous to it being legal to have a miscarriage.
The whole idea of the abortion autonomy debate is that the individual gets to say: I want to change my body in a way that wouldn't happen without intervention and you don't get to tell me I can't.
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But even if we leave that issue aside I think you have another problem. Your changing the argument from a right to bodily autonomy to a right to be free from interference with a certain kind of intent.
I think it's going to be very hard to formulate any such principle in an attractive way. Exactly what is the kind of intent that triggers this right and why is that an attractive principle.
The appeal of the autonomy argument was always the simple: but I get to decide what happens with my body. Once you start stacking on extra qualifications it's no more persuasive than just saying I think this particular thing should be allowed.
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However, if you can formulate a compelling principle that rules out the examples I raise that would be the kind of thing that could convince me. Like tell me what exactly it is that one has a right to.
I don't think it's true in reality that bans on hard drugs are about preventing intense highs--they're primarily about the other effects of those drugs. You can take some of them for medical reasons but that's because we think the dangers are worth it in those cases. But you're getting the point--a ban on drugs because they produce intense highs directly implicates an autonomy right to have an intense high. I'm not sure such a right exists though.
Intent does matter a lot to rights. An incidental burden is different from a direct burden. It's one thing for the government to say "you must pay $20 to go to the Legalize All Drugs rally" and another thing for the government to charge you the normal highway toll to get there.
It sounds to me that you are getting stuck on the difference between a slogan that you want to read to its furthest semantic potential ("my body my choice") and the actual views non-libertarian pro-choicers hold. But that's just to say that reality is always more complicated than slogans. The case for abortion rights has a lot to do with autonomy involving the body but it doesn't hinge on or require thinking that every choice involving the body in some way is equally protected. I'm sorry you don't find my argument appealing but the idea that there's a difference between safety regulations on medicine (or bans on hard drugs), on the one hand, and bans on terminating a pregnancy, on the other, is obviously very widely accepted.
Sure, they don't intend to stop you from getting high just like they don't intend to stop you from becoming non-pregnant -- just block the associated consequences (addiction/intentional death of a fetus).
And look I'm a huge fan of abortion rights on consequentialist grounds and "my body my choice" is a fine slogan but people frequently advance the bodily autonomy consideration as both a serious moral and legal argument (though my point would be valid regardless -- but only relevant to those who do accept this argument). For instance.
1) See Thompson's violin argument. A famous philosophical argument claiming to argue for abortion rights on something more than consequentialist grounds. This is covered frequently in college philosophy classes.
2) The legal argument for Roe has always turned on the notion of 'privacy' as articulated in Griswald which really means something very close to personal autonomy.
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And sure, I'm happy to admit that you can understand the notion of autonomy in a more consequentialist fashion -- reproduction is especially salient and important to women's self-identity and ability to fully participate in careers etc like men do. And I believe all that.
The problem is that once you admit it's this muddy notion that turns on disputable value judgements (it's important that women can compete for jobs with men, it's really important that people get to control their reproduction etc) then you can no longer blast supreme court decisions or people who go the other way as acting illegitimately or similar invectives. You can strongly disagree and wish they brought your values to the table but it's no longer an illegitimate deciscion.
And while it's a bit off topic I think that distinction is hugely important. Trump trying to steal an election was illegitimate. The supreme court going the other way on Roe is a legitimate result of our country's system of government that is dealt with by winning enough elections for long enough to change the court (or just passing a federal law protecting abortion).
I 100% agree with your first paragraph, which is why I also roll my eyes at all the lefties who claim that the U.S. Constitution mandates anarcho-capitalism for a handful of specific medical procedures/products.
(Seriously, I would love if the Constitution contained an express "right to privacy," but it doesn't -- I say that as someone who has co-authored a book on privacy law -- and if you're going to interpret the "penumbras and emanations" of the Constitution to create such a right, then it should at least be applied in a logically consistent manner. If there's bodily autonomy for abortions, birth control, and puberty blockers, then there should certainly be bodily autonomy for taking any other sort of medication you want to take, at least so long as there's full disclosure about the experimental/untested status of it.)
I don't per se disagree but I'd argue, a la Balkin's originalism, that the OPM of the constitution included an understanding of the courts as engaged in a common law practice of substantively explicating what the law means -- even to the extent of finding new rights (I mean the rule of lenity, suppression, and virtually all 1a law aren't written in the constitution and the later was clearly not OPM either).
But what matters is coherence. What makes the court not a legislature is the need to follow or overturn precedent. So I'm fine with the court extending Griswald to Roe but it's got to take the principal seriously and apply it to drugs generally etc.
I worry that without the US non-monopsony pricing to at least create a price signal for other countries to use in their negotiations with drug companies there won't be sufficient price discovery about what's necessary to recover development costs and the whole system breaks.
The issue is that the political agents acting as monopsony buyers can't really evaluate the true costs to the drug maker and always have an incentive to push the price lower and the development costs are sunk cost for the drug maker. At least being able to look at what the drug is being sold for on the us market sets a reasonable default to negotiate around.
I don't know if it will break or even which way (too high or low payments) but I fear that the issue goes beyond just the us subsidizing other countries.
Yes it's unfair but not sure if I have a good solution.
The "market" price isn't really a market price though--it's a patent-protected monopoly price. That's why the "price controls" charge is a bit misleading here; it's totally reasonable to worry that the price might be set too low but it's a choice between pharma price setting and government price setting, a competitive market value price isn't on offer.
Right, it's not a great system but I misspoke when I said we need to figure out the competitive price. We want to price it proportional to the social value so that companies are incentivized to spend money on cancer drugs not Viagra.
Implicitly (even if poorly) we get that signal by figuring out if people would rather go without the drug at a given price point. Certainly that is disguised to some degree by the insurance intermediary but for drugs not on the mandatory list I do suspect they at least sorta track whether people would say nah it's too much at that price.
You're begging the question by postulating that cancer drugs have higher social value than Viagra, here. "Approximating total social surplus" is one of those situations where markets are among the best tools we have. This is actually IMO one of the strongest arguments against prize-based systems rather than patents: widely immiserating but unpopular-to-sponsor-a-prize-for conditions may be systematically underincentivized, in addition to needing to be very confident in your overall social-utitily and QALYs-to-dollars estimations to get the prize amounts right.
Ed.: For the record, I'm not claiming that cancer drugs don't likely have very high social value. Rather, by the same token I'm saying that people will obviously pay a lot for cancer drugs. One advantage of patents is that they make the extractable rents more or less directly proportional to social value.
Per individual effectively treated I think that's clear given that most people would pay far more to cure their cancer than get a boner. But yes I was speaking quickly and I indeed worry that governments w/o a price signal would undervalue lifestyle drugs.
Re: patents not quite. The problem is they have a huge first to market benefit. Take a look at many major inventions... multiple inventors were often solving the same problem within the same year meaning the marginal contribution of each was far less than the total value of the patent to the first to the patent office.
With medications another problem is more the difficulties with the insurance companies as intermediaries.
But still I broadly agree it offers an important price discovery signal that we don't have a good alternative for hence my original comment.
"Re: patents not quite. The problem is they have a huge first to market benefit. Take a look at many major inventions... multiple inventors were often solving the same problem within the same year meaning the marginal contribution of each was far less than the total value of the patent to the first to the patent office."
You're correct about a lot of the effects and shortcomings of patents in general, but my impression has always been that this is much less characteristic of pharma than it is in other fields. It's often not enough to just use academic research on mechanisms, agonists and receptors and assume a treatment will be forthcoming. Instead, the massive investment required for identification and isolation of candidate compounds is essentially driven by the existence of the patent system. Even if it were accurate to characterize pharmacological development as a race between similarly-capable entrants working towards a known and reachable goal awarding everything to the first finisher (and my sense is that while that's true sometimes, it often isn't--e.g. AIUI there aren't a any competitors for Harvoni.), you don't even have any entrants to said race without the patent system.
I agree with that. My primary concern here is really about the intermediating role of insurers.
I mean we aren't actually asking people with the condition to decide how much it's worth to them to have treatment A or B. We are asking someone else to make a choice about what will be paid for if they get that disease to make them pleased now.
The incentivizes faced by the insurer (even when coverage isn't mandated) looks alot like the incentivizes faced by the government official deciding whether to pay for that drug in their national health system.
Sure, insurers are somewhat more responsive in that a few people can sometimes switch insurers but there is similar pressure from neighboring states who do decide to carry the drug despite the higher costs.
The problem is that consumers bear little of the cost (even uninsured people usually benefit from immense price discrimination) and are poorly informed about comparative effectiveness, so you don't get meaningful price signals. And it's not unreasonable for the government to want some consumer surplus.
I didn't say this system was great. It obviously sucks alot. Though, TBF everything after the drug goes off patent is almost pure consumer surplus. But yes obviously the patent system is a really inexact and imperfect way to set incentives which should depend on the marginal benefit of extra R&D dollars in a perfect world (some of which go to waste because of inefficiencies of duplicated effort).
My concern is destroying the last price signal has outsized effect.
In an ideal world we'd figure this out a different way. Pick a representative same of people balanced to include individuals with each illness and just give them enough cash (immune from being collected for any debts) to buy the most expensive treatments for their conditions and see how much $ they choose to spend and how much they keep.
That would be a way better signal than insurance based intermediated prices we could use as a basis to negotiate. But I doubt anyone is willing to do it.
To me, there is no policy as important as preventing price caps on medicine. Everything we know tells us that price caps reduce investment, and that reduced investment leads to fewer goods being brought to market — because drug creation has so many positive externalities, the harms are even more magnified.
Let us not be mistaken — medicare price caps will kill hundreds of millions of people. If that is worth cheaper drugs, so be it. I would have hoped that when evil comes, we would see through its glamour.
They are not. The cost of insulin is a big lie. The kind of insulin invented in the 90s is available as a generic at Walmart on the cheap. Insulin is a complex molecule, which has been steadily improved upon. It is these newest kinds which are expensive. It is like saying meat is expensive, and citing the figures for Wagyu beef.
I am ashamed you have not done even the most cursory research on this.
So people are still rationing their insulin, it’s just the new stuff that gets reformulated to juke patent laws. Not the slam dunk you think it is dude.
The new stuff is an improvement in quality over past variants. It is indeed a different molecule, fulfilling similar functions, and it was searched for only because it would be profitable to do so. In capping prices, you are saying that the gains to getting cheaper drugs now outweighs the benefits of improving it in perpetuity.
The figures on rationing are like the figures on food insecurity — they sweep up perfectly benign behavior, like varying the times you buy medicine at.
If you are concerned about the price to the consumer, then subsidize the consumer. Do not place an immense tax on an enterprise with positive externalities!
Maybe I'm missing something from your post, but I feel like you haven't addressed the classical neoliberal/econ 101 reason why we might want to subsidize pharma innovation. Which is that gov't should intervene when there's sufficiently large private market failures (e.g. the massive undersupply of a good, or oversupply of a bad).
Classically, government should positively subsidize activities that have large public benefit where private actors can only capture a small share of it. And this seems much more plausible for medical innovation than for homeownership. I'm not saying people owning houses have *zero* public benefit, but I would guess it's within a factor of 3 (and likely within a factor of 2) of the private benefit.
In contrast, pharma wins like covid vaccines and Ozempic have profits measured in the billions or tens of billions with social benefit measured in the trillions. Seems good to want to have more of it!
I am not a physician, just an observer of my partner's auto-immune disease and the treatments on the horizon for such conditions. Some of what we're experiencing confirms Matt's insights, but other issues arise with new therapies that involve genetic modification.
Clinical trials in other countries for genetically modified treatments, e.g. Chimeric Antigen Response with T-cells (known as CAR T therapy), seems to be advancing from treating cancers like leukemia to treating conditions like scleroderma and lupus. Yet, despite the positive results found in clinical trials in Europe for treating scleroderma (Germany, Spain, the Netherlands) and government-funded provision of this therapy for lymphoma (in Spain), patients with scleroderma in the U.S. are just now being recruited for clinical trials here.
Another issue with treatments that involve genetic modification, is that, even with proven success in clinical trials, expanding the availability of such treatments will not be like producing thousands of new pills. Rather, each treatment requires a procedure of its own, involving the taking blood from the patient, re-engineering it and returning it to the patient. That is a high-cost process and may remain so. Nonetheless these therapies can be life saving for those who get access to them and tend to involve small numbers of the population, so the societal costs can be manageable.
Thus, I think the case for funding medical innovation via genetic modification therapies and making them available and affordable for affected populations requires a different model for assessing investment, cost, risk and benefits.
The claim was made in comments from authority (the poster is more qualified than I am) that large studies are needed to show efficacy relative to current standards of care, but I don't really think that's the case. I thought "Safe and Effective" was the standard, and effective can mean better than placebo or no treatment. It might be unethical to have placebo controls where effective treatments already exist so I thought that's why companies search for (impoverished) populations that don't have access to alternatives as standard care. Testing vs nothing vs known alternatives was one of the main points of Angell's (2005) book. Can people here confirm? You do need large sample sizes to show either rare side effects (or to be able to say with high power that side effects were not seen), or slight differences from current treatments, but that ends up justifying huge price rises for statistical but not clinical differences (1.5 weeks of life!). The many larger issues are whether testing hurdles are the greatest problem, vs incentives against developing inexpensive cures or preventative (antibiotics, vaccines) vs expensive therapies for chronic illnesses (depression/cholesterol/blood sugar).
The "high prices afford innovation" argument seems sort of bad faith. We don't need innovation in insulin. We got innovation in the 1970s, and the problem of making human insulin was solved. The highly innovative company went on to make a bunch of money, the patent expired, decades went by, then the price went up significantly. By this point, the companies making money on gouging had nothing whatever to do with the original innovation, nor was there cross-subsidy with R&D as far as I can tell.
People got very upset about this with Marin Skhreli, seemingly because he was personally unlikely, then rejoiced when he was sent to jail for other reasons. But the underlying problem wasn't fixed, and even the Biden approach (price controls for insulin, negotiation at Medicare) don't address the* root issue that generics manufacturers should have extremely weak pricing power.
* Well OK, a root issue. There are also genuinely innovative drugs (eg ones treating hepatitis C or rheumatoid arthritis) that are expensive. But we shouldn't pretend all drug pricing issues involve on-patent innovative drugs.
I was afraid that with Matt finally writing on a topic I know a lot about I would be disappointed, but this is solid content. No easy fix in the post, but it is genuinely a difficult process to regulate well.
Since Tester and Brown both won their last three elections, saying that both only have a ~20% of winning this time seems rather bold. Since Rick Scott only got 50.06% of the vote in 2018 (in a year in which the Republicans flipped three Democratic seats) that also seems a rather bold prediction. We'll see about Nevada which may be shaky for the Democrats (though I really respect the Harry Reid machine).
Like I said, I'd definitely take the bet against a 100% certainty that the Republicans take the Senate.
I would like to emphasize that research & development is no longer the largest cost to providing medical care. Reducing regulations can and will help real people, but only on the margin.
When I worked on an R&D team at Stryker, our net cost for all researchers on my team including all our failed projects was somewhere under $10 million a year. Our most successful project alone brought in $1 billion a year. I still have no idea where exactly the other $990 million was going. I can only guess based on my knowledge of insurance. It wasn’t FDA regulations though, as we made medical software not drugs.
Also, regarding the recent insurance ransomware incident blocking up pharmacies: anyone else notice that there are no people left able to manually make pharmacy insurance claims? It’s all automated, yet people have to pay absurd amounts of money for brokers and PBMs to do that automation.
Why isn't insulin basically free, given that there's no patent on it? I don't believe it's expensive to make.
A more fundamental fix would be to replace government-issued patents with government-issued prizes.
The sole point of a drug patent is to outlaw a free market in the production of a new drug for 20 years, thus ensuring far higher drug prices than a competitive market would ever allow. Sure this ugly bargain is well-meaning—those monopoly profits motivate inventors to discover wonderful drugs that will prolong and enrich our lives But that doesn’t change what the patent system is: a blunt, market-distorting tool that the government uses to manipulate private behavior.
Replacing patents with cash prizes is a radical idea with an ancient pedigree. In 1714, the British government offered a £20,000 prize that led to the invention of the chronometer. In 1837, the French government bought the patent rights to Louis Daguerre’s early photography equipment, and then put the invention in the public domain. More recently, prizes have led to major improvements in human-powered airplanes, energy-efficient refrigerators and suborbital space craft.
Under a drug prize system, the U.S. government would simply pay cash for the rights to any drug that wins FDA approval, then put the U.S. (but not foreign) rights in the public domain. Yes, getting the prizes sized correctly would be impossible to do with perfect precision. Still, a prize system would avoid the much greater distortions of the monopoly prices inherent in the patent system.
How would it save any money? The prize would have to be equal to the net present value of the monopoly profits during the patent period.
> "If you’re at very high risk of dying in the very near future from a fatal disease, then you probably aren’t as worried about the downsides of experimental treatments."
100%. My paper 'Pandemic Ethics and Status Quo Risk' - https://academic.oup.com/phe/article/15/1/64/6499206 - offers a sustained exploration of this kind of argument:
"A pandemic reverses the usual asymmetry of risk. Now it is the status quo that is immensely dangerous, and a typical sort of medical intervention (such as an experimental drug or vaccine) is comparatively less so. As a result, we should expect to find many cases in which the potential benefits of innovation outweigh the potential risks. Doing nothing new, and allowing the pandemic to continue unabated, should be recognized as a far riskier prospect—for many individuals, and especially for society at large—than trying experimental or otherwise uncertain solutions for which the risks are orders of magnitude lower than the risk otherwise posed by the virus."
(Of course, it's also importantly true of many individuals in non-pandemic contexts too!)
Great article. Matt could easily write about this as often as yimby issues. It's that important. Love the cost benefit and foreign angles. There's also an angle of focusing directly on reducing the cost per patient of clinical trials.
‘…but companies would end up essentially exiting the market of serving poor people” in poorer countries.
Instead of price discrimination, this could be fixed by giving these countries some of the money saved
Regarding the harms of not approving medications I 100% agree but this seems like part of a broader human fallacy that's hard to block.
Unfortunately, you have the double problem that people just seem to be naturally disposed to see action as more blameworthy than inaction and they can't see that someone is suffering because you didn't approve a drug but do see the thalidomide babies that happen because you did approve it.
It's the same problem that causes IRBs to obsessively consider harms that might occur from allowing a study but not (at least equally) the harms that might occur from blocking it -- and certainly not the harm to individuals autonomy who might *want* to take an informed risk to help others by participating.
That's why I'm tempted to think the best you can do is remove efficacy as a necessary component for approval. Instead just add a tax to pharma sales and have the government fund efficacy trials to inform patients and doctors.
As far as consistency goes anyone who argues that women have a right to bodily autonomy and hence that the government can't prevent doctors from giving them drugs/treatments to enable abortion should also believe that same justification protects the right of patients to try experimental or untested medications.
Sure, maybe you can justify restricting genuine snake oil consistent with that moral position but the underlying principle is that when deciding what kind of medical treatments you are allowed to get the government doesn't get to tell you how you should weigh values/risks be they the moral status of the fetus or the chance you paid for a medicine that just harms you.
I mean if your bodily autonomy doesn't let the government stop you from legally accessing drugs to remove a fetus why does it let them stop you from drugs designed to remove a tumor? What if it's an effective drug but just hasn't passed the regulatory hurdles here? What if abortion drugs only worked 50% of the time, 85%, is there some threshold of probability of success at which it becomes moral for the government to substitute their judgement re: risks/benefits to your body over yours?
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To be clear one can, as I do, support abortion rights for good old fashioned consequentialist grounds but it's the attempt to claim a special moral status that's dubious.
You’re forgetting that people are idiots. They will be exploited by fraudsters selling snake oil to a degree the public won’t find acceptable.
No, that's a perfectly cogent consequentialist argument for treating the positions differently. As I said, I accept such arguments.
My point is that you can't short circuit the whole abortion debate and push the anti-abortion position from the board without getting into the messy consequentialist details unless you are willing to do the same thing with drugs generally.
The existence of some other reasonable argument isn't at all helpful for the whole right to bodily autonomy position.
I think it's wrong for the government to forcibly extract someone's kidney and give it to someone else to save their life. But I still think the government can ban medical treatments that don't work. (It's easy to say "patients should be allowed to make their own decisions" but that doesn't really address the institutional problems you create when companies can make profits by pushing treatments with weak or no evidence.)
Exactly the same thing goes for abortion. A person's body is not a public resource that can be forcibly exploited for the benefit of others. But I don't have a problem with regulating abortion methods that don't work or are particularly unsafe, or imposing malpractice liability on doctors who botch abortions, etc. The trouble in that sphere is that most of the safety concerns turn out to be pretextual trumped-up stuff driven by motivated reasoning.
But that's not what the government is literally doing when they ban abortion. If you break it down they are banning the use of certain medications and surgical treatments because they judge the harms exceed the benefits. Sure, making it literally murder is a different level but just banning abortions requires no more than saying those drugs/surgeries are not approved for that purpose and no off label.
Sure, when they judge those harms they are substituting their values about the fetus's life for your values. But how is that different than when they come in and say: nah if we think the evidence says it's only a 5% chance of a cure but a 20% chance of a nasty side effect and a 95% chance of losing your money you can't legally take the med any different?
You're looking at it at too high a level of abstraction. The intent of an abortion ban is to prevent someone from terminating a pregnancy. The intent of medical regulation is not to prevent someone from extending their life. It's literally true of course that banning a medical treatment infringes on "autonomy" in that you can't choose to get the treatment, but the substantial autonomy interest at stake in abortion is not the specific procedure but the outcome. The same thing is true of life-extending drugs (the autonomy interest is in being able to choose to do treatment to live longer) and precisely for that reason regulation aimed at effectiveness is different in kind from regulation that rejects the goal as such.
Ok, suppose I want to be in the state of being really fucking high -- not just drunk but feeling the intense state of reward provided by many hard drugs. Now you can't argue that the government isn't systematically trying to block all the treatments that put my brain into that state. Fuck, it's specifically legal to use many of the drugs that produce this effect as long as that isn't the purpose of the use.Sure, maybe it's legal to be happy but that's analagous to it being legal to have a miscarriage.
The whole idea of the abortion autonomy debate is that the individual gets to say: I want to change my body in a way that wouldn't happen without intervention and you don't get to tell me I can't.
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But even if we leave that issue aside I think you have another problem. Your changing the argument from a right to bodily autonomy to a right to be free from interference with a certain kind of intent.
I think it's going to be very hard to formulate any such principle in an attractive way. Exactly what is the kind of intent that triggers this right and why is that an attractive principle.
The appeal of the autonomy argument was always the simple: but I get to decide what happens with my body. Once you start stacking on extra qualifications it's no more persuasive than just saying I think this particular thing should be allowed.
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However, if you can formulate a compelling principle that rules out the examples I raise that would be the kind of thing that could convince me. Like tell me what exactly it is that one has a right to.
I don't think it's true in reality that bans on hard drugs are about preventing intense highs--they're primarily about the other effects of those drugs. You can take some of them for medical reasons but that's because we think the dangers are worth it in those cases. But you're getting the point--a ban on drugs because they produce intense highs directly implicates an autonomy right to have an intense high. I'm not sure such a right exists though.
Intent does matter a lot to rights. An incidental burden is different from a direct burden. It's one thing for the government to say "you must pay $20 to go to the Legalize All Drugs rally" and another thing for the government to charge you the normal highway toll to get there.
It sounds to me that you are getting stuck on the difference between a slogan that you want to read to its furthest semantic potential ("my body my choice") and the actual views non-libertarian pro-choicers hold. But that's just to say that reality is always more complicated than slogans. The case for abortion rights has a lot to do with autonomy involving the body but it doesn't hinge on or require thinking that every choice involving the body in some way is equally protected. I'm sorry you don't find my argument appealing but the idea that there's a difference between safety regulations on medicine (or bans on hard drugs), on the one hand, and bans on terminating a pregnancy, on the other, is obviously very widely accepted.
But really its just inconsistency that bugs me. If people want to respond -- ohh totally it's just a slogan that's what I want.
Sure, they don't intend to stop you from getting high just like they don't intend to stop you from becoming non-pregnant -- just block the associated consequences (addiction/intentional death of a fetus).
And look I'm a huge fan of abortion rights on consequentialist grounds and "my body my choice" is a fine slogan but people frequently advance the bodily autonomy consideration as both a serious moral and legal argument (though my point would be valid regardless -- but only relevant to those who do accept this argument). For instance.
1) See Thompson's violin argument. A famous philosophical argument claiming to argue for abortion rights on something more than consequentialist grounds. This is covered frequently in college philosophy classes.
2) The legal argument for Roe has always turned on the notion of 'privacy' as articulated in Griswald which really means something very close to personal autonomy.
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And sure, I'm happy to admit that you can understand the notion of autonomy in a more consequentialist fashion -- reproduction is especially salient and important to women's self-identity and ability to fully participate in careers etc like men do. And I believe all that.
The problem is that once you admit it's this muddy notion that turns on disputable value judgements (it's important that women can compete for jobs with men, it's really important that people get to control their reproduction etc) then you can no longer blast supreme court decisions or people who go the other way as acting illegitimately or similar invectives. You can strongly disagree and wish they brought your values to the table but it's no longer an illegitimate deciscion.
And while it's a bit off topic I think that distinction is hugely important. Trump trying to steal an election was illegitimate. The supreme court going the other way on Roe is a legitimate result of our country's system of government that is dealt with by winning enough elections for long enough to change the court (or just passing a federal law protecting abortion).
“Euphoria” is considered a side effect of some drugs that counts negatively, because it leads to abuse potential.
I 100% agree with your first paragraph, which is why I also roll my eyes at all the lefties who claim that the U.S. Constitution mandates anarcho-capitalism for a handful of specific medical procedures/products.
(Seriously, I would love if the Constitution contained an express "right to privacy," but it doesn't -- I say that as someone who has co-authored a book on privacy law -- and if you're going to interpret the "penumbras and emanations" of the Constitution to create such a right, then it should at least be applied in a logically consistent manner. If there's bodily autonomy for abortions, birth control, and puberty blockers, then there should certainly be bodily autonomy for taking any other sort of medication you want to take, at least so long as there's full disclosure about the experimental/untested status of it.)
I don't per se disagree but I'd argue, a la Balkin's originalism, that the OPM of the constitution included an understanding of the courts as engaged in a common law practice of substantively explicating what the law means -- even to the extent of finding new rights (I mean the rule of lenity, suppression, and virtually all 1a law aren't written in the constitution and the later was clearly not OPM either).
But what matters is coherence. What makes the court not a legislature is the need to follow or overturn precedent. So I'm fine with the court extending Griswald to Roe but it's got to take the principal seriously and apply it to drugs generally etc.
I worry that without the US non-monopsony pricing to at least create a price signal for other countries to use in their negotiations with drug companies there won't be sufficient price discovery about what's necessary to recover development costs and the whole system breaks.
The issue is that the political agents acting as monopsony buyers can't really evaluate the true costs to the drug maker and always have an incentive to push the price lower and the development costs are sunk cost for the drug maker. At least being able to look at what the drug is being sold for on the us market sets a reasonable default to negotiate around.
I don't know if it will break or even which way (too high or low payments) but I fear that the issue goes beyond just the us subsidizing other countries.
Yes it's unfair but not sure if I have a good solution.
The "market" price isn't really a market price though--it's a patent-protected monopoly price. That's why the "price controls" charge is a bit misleading here; it's totally reasonable to worry that the price might be set too low but it's a choice between pharma price setting and government price setting, a competitive market value price isn't on offer.
Right, it's not a great system but I misspoke when I said we need to figure out the competitive price. We want to price it proportional to the social value so that companies are incentivized to spend money on cancer drugs not Viagra.
Implicitly (even if poorly) we get that signal by figuring out if people would rather go without the drug at a given price point. Certainly that is disguised to some degree by the insurance intermediary but for drugs not on the mandatory list I do suspect they at least sorta track whether people would say nah it's too much at that price.
You're begging the question by postulating that cancer drugs have higher social value than Viagra, here. "Approximating total social surplus" is one of those situations where markets are among the best tools we have. This is actually IMO one of the strongest arguments against prize-based systems rather than patents: widely immiserating but unpopular-to-sponsor-a-prize-for conditions may be systematically underincentivized, in addition to needing to be very confident in your overall social-utitily and QALYs-to-dollars estimations to get the prize amounts right.
Ed.: For the record, I'm not claiming that cancer drugs don't likely have very high social value. Rather, by the same token I'm saying that people will obviously pay a lot for cancer drugs. One advantage of patents is that they make the extractable rents more or less directly proportional to social value.
Per individual effectively treated I think that's clear given that most people would pay far more to cure their cancer than get a boner. But yes I was speaking quickly and I indeed worry that governments w/o a price signal would undervalue lifestyle drugs.
Re: patents not quite. The problem is they have a huge first to market benefit. Take a look at many major inventions... multiple inventors were often solving the same problem within the same year meaning the marginal contribution of each was far less than the total value of the patent to the first to the patent office.
With medications another problem is more the difficulties with the insurance companies as intermediaries.
But still I broadly agree it offers an important price discovery signal that we don't have a good alternative for hence my original comment.
"Re: patents not quite. The problem is they have a huge first to market benefit. Take a look at many major inventions... multiple inventors were often solving the same problem within the same year meaning the marginal contribution of each was far less than the total value of the patent to the first to the patent office."
You're correct about a lot of the effects and shortcomings of patents in general, but my impression has always been that this is much less characteristic of pharma than it is in other fields. It's often not enough to just use academic research on mechanisms, agonists and receptors and assume a treatment will be forthcoming. Instead, the massive investment required for identification and isolation of candidate compounds is essentially driven by the existence of the patent system. Even if it were accurate to characterize pharmacological development as a race between similarly-capable entrants working towards a known and reachable goal awarding everything to the first finisher (and my sense is that while that's true sometimes, it often isn't--e.g. AIUI there aren't a any competitors for Harvoni.), you don't even have any entrants to said race without the patent system.
I agree with that. My primary concern here is really about the intermediating role of insurers.
I mean we aren't actually asking people with the condition to decide how much it's worth to them to have treatment A or B. We are asking someone else to make a choice about what will be paid for if they get that disease to make them pleased now.
The incentivizes faced by the insurer (even when coverage isn't mandated) looks alot like the incentivizes faced by the government official deciding whether to pay for that drug in their national health system.
Sure, insurers are somewhat more responsive in that a few people can sometimes switch insurers but there is similar pressure from neighboring states who do decide to carry the drug despite the higher costs.
The problem is that consumers bear little of the cost (even uninsured people usually benefit from immense price discrimination) and are poorly informed about comparative effectiveness, so you don't get meaningful price signals. And it's not unreasonable for the government to want some consumer surplus.
I didn't say this system was great. It obviously sucks alot. Though, TBF everything after the drug goes off patent is almost pure consumer surplus. But yes obviously the patent system is a really inexact and imperfect way to set incentives which should depend on the marginal benefit of extra R&D dollars in a perfect world (some of which go to waste because of inefficiencies of duplicated effort).
My concern is destroying the last price signal has outsized effect.
In an ideal world we'd figure this out a different way. Pick a representative same of people balanced to include individuals with each illness and just give them enough cash (immune from being collected for any debts) to buy the most expensive treatments for their conditions and see how much $ they choose to spend and how much they keep.
That would be a way better signal than insurance based intermediated prices we could use as a basis to negotiate. But I doubt anyone is willing to do it.
To me, there is no policy as important as preventing price caps on medicine. Everything we know tells us that price caps reduce investment, and that reduced investment leads to fewer goods being brought to market — because drug creation has so many positive externalities, the harms are even more magnified.
Let us not be mistaken — medicare price caps will kill hundreds of millions of people. If that is worth cheaper drugs, so be it. I would have hoped that when evil comes, we would see through its glamour.
That’s great but I think people shouldn’t be rationing insulin in the richest country in history
They are not. The cost of insulin is a big lie. The kind of insulin invented in the 90s is available as a generic at Walmart on the cheap. Insulin is a complex molecule, which has been steadily improved upon. It is these newest kinds which are expensive. It is like saying meat is expensive, and citing the figures for Wagyu beef.
I am ashamed you have not done even the most cursory research on this.
So people are still rationing their insulin, it’s just the new stuff that gets reformulated to juke patent laws. Not the slam dunk you think it is dude.
The new stuff is an improvement in quality over past variants. It is indeed a different molecule, fulfilling similar functions, and it was searched for only because it would be profitable to do so. In capping prices, you are saying that the gains to getting cheaper drugs now outweighs the benefits of improving it in perpetuity.
The figures on rationing are like the figures on food insecurity — they sweep up perfectly benign behavior, like varying the times you buy medicine at.
If you are concerned about the price to the consumer, then subsidize the consumer. Do not place an immense tax on an enterprise with positive externalities!