This post began as a comment to an article posted on Linkedin.
So when drug executives sit down to think about setting prices, they believe they have to recoup most of their development costs from US revenues.
Source: How to Fix Drug Prices | Gurdane Bhutani | LinkedIn
In an otherwise good article, Gurdane Bhutani ignored what I think is an important issue.
Obviously, prices in the US are “too high” for even all but the most nefarious Shkreli-like investor.
The author’s price cap proposal is a seemingly reasonable approach though some, like me, with a libertarian frame of mind, do find exception. We live though in an imperfect world and, as the great economist H.H. Hutt pointed out, sometimes the best course is the politically possible. So, I would not rule out a price cap approach entirely.
Still, I think the author glosses over an important issue. He writes, “they have to recoup most of their development costs from US revenues…” Which seems to take these costs as givens. I wondered by what factor are these costs magnified due to the current system of drug regulation and approval?
Hat tip to to fellow commentator, Tom Cox, who had this to say:
Jack, I was hoping someone would raise this point. Costs to develop drugs are high. There’s been no meaningful effort to sort out which costs are vital (safety) and which are not, and less effort to sort out what delays are vital (again, safety) and which are mere human bureaucracy. For a review of ways the US forces up the cost of development, read:
Theory, Evidence and Examples of FDA Harm.
The article is an excellent gateway, containing links to many vetted, peer-reviewed studies on the question of whether the FDA’s “safety and efficacy” requirements have been, net-net, beneficial.
All manners of indecencies have been promoted, by saying these regulations – particularly in the current form – are necessary to protect the general welfare, promote safety, and so forth. It is true that these regulations are sold as such but, really, do they do any such thing?
Or, do they protect Big Pharma itself, by at the very least somehow providing a stamp of FDA approval on their drug? Never mind the litany of small print, fast-talking disclaimers we read and hear in the drug commercials.
So, there is that.
And, from a demand perspective, the American people have been sold that a pharmaceutical approach to better health can counter balance a lifetime of poor dietary and mental/physical activity habits.
Hat tip to another commentator, Thomas Holland, who had this to say:
The question I have is, why isn’t the market system working as it should? What is stifling the process? Rather than having the gov’t decide what is someone’s ‘fair share’ (which is almost impossible define), let the market do it. But something is stopping that. That needs to be fixed.
To me, what is in the way is the entire FDA approval process itself. And, I think that the data supports that view. The article cited above:
All the systematic evidence goes against the coercive FDA apparatus.
Consumers have an assumption of risk FDA-approved or not. So, why not just put that risk assumption right in the middle of the table, right off the bat? There would be nothing preventing Underwriters Labs, Consumer Reports, or, for that matter, insurance companies and media companies from providing true, competitive due diligence.