@Abe That was a really good and concise summary while also capturing much of the nuances of the topic.
Are there reasons other than marketing to why we are paying excess costs for these marginal products when cheaper alternatives are available? Are the physicians to blame here?
I am under the assumption that if the US hops on the national drug plan wagon the companies would either open new lines of business or jack up prices (in negotiation) elsewhere to preserve both the top and bottom line. Do you think this thinking is valid or is it irrelevant and if it does happen the govt would just eat the cost regardless?
Also, in the national drug plan scenario, would the companies ask for more grants to make the clinical trials more cost-viable or would they change the way they do things to better adapt to the new paradigm? Thanks.
Thanks for the compliment. Regarding your first question:
I would say that when direct-to-patient advertising ramped up after a 1997 FDA ruling change, there was a fair amount of blame due to physicians. The typical scenario is company B created a competitor drug in the same class as company A's blockbuster drug. They sent out marketing reps to convince physicians why drug B is better than A (or at least different enough to use over A). Occasionally prices are mentioned, but the main reasons touted were lower side effects or more efficacy. they were required to have data to back up these claims, so it became a question of how much marginal benefit there was versus cost. In my training, for most drug classes this benefit was really minimal for the majority of scenarios. This creates a quandary for the drug companies, because it was really expensive to develop whole new classes of drugs. Solution 1: spend that money on advertising to patients. Solution 2: spend that money on "conferences" for physicians. The latter was eventually called out by the public, the FDA and other physicians. The former has not been addressed to any real extent.
In the last decade, insurance companies caught onto the drug companies' schemes and this resulted in "drug benefit managers" like ExpressScripts. These companies ostensibly negotiate with drug companies on behalf of a group of insurance companies to get one of two deals. Either the name brand, expensive drug is negotiated to be the preferred drug that insurance will cover if the drug company gives it at a discount, or one of several generic equivalents is negotiated for a substantially lower price. This would theoretically be good, except what happens is that who gets on the "preferred" list can change every few months, creating havoc for physicians and patients. The NY Times recently reported on this regarding insulin. Also, there is absolutely no transparency regarding what price the insurance company is paying, how much of the total cost is being covered by the patient, or how that deal was negotiated. Sometimes a drug company will throw in a steep discount for an older drug in one category if the insurance will make their new, super expensive drug preferred in another, more lucrative class. All kinds of fancy ways to negotiate, and hard to determine how much (if any) corruption is involved since these deals are almost always 'trade secrets' and confidential.
Long story short: there's plenty of blame to go around. Physicians for the most part have caught on to the bad optics of prescribing unnecessary brand-name drugs, so that has been fixed to a large extent. Also, insurance companies caught on to the drug companies' strategy. Now, use of marginally better drugs at higher costs is more driven by the game taking place between drug companies and insurance companies, rather than physicians' perceptions of their relative worth.
Regarding your second question:
In general, the cost of treatment for most chronic diseases is markedly cheaper than they were 20 years ago. This is mostly because the 1990s had a spurt of new cardiovascular, very effective drugs that are now all generic with multiple competitors. This includes statins for cholesterol, drugs for hypertension, and drugs for heart failure. All three conditions can be treated for fairly cheap ($5-15/month per condition). In addition, the standard, effective chemotherapy drugs used for most cancers were all developed in the 1970s-1980s and are far cheaper than newer, incrementally better chemotherapy agents. For example, colorectal cancer hasn't really had a significant chemotherapy breakthrough since 2004, using a drug developed in the 1980s. I'm citing these examples to point out that new lines of business are hard to develop.
Companies have responded by jacking up costs for other drugs that can have complicated formulations (since those are patent-worthy even if the underlying drug molecule is not new - best example are insulin variants, some of which are extremely cheap and others extremely expensive for no medical reason). This is where a lot of "drug discovery" is now going: trying to find more effective and targeted ways to deliver older drugs that are off-patent and cheap. If you can do this, then the cost of manufacturing is very low, but you get a brand new monopoly on a new medicine. Unfortunately, again, the marginal benefit is quite low.
If the US were to negotiate like other countries did, I think two things would happen:
Initially, pharmaceutical companies would drop out of less lucrative classes of drugs. This has happened with antibiotics since they are not very profitable. No significant breakthrough antibiotic has been developed since 2000, and most antibiotics we use today were developed in the 1970s! They may cut back on drug discovery in general since it is expensive and prone to failure (only 10% of drugs make it all the way to clinical use!). But, as is happening with antibiotics now, and with chemotherapy drugs in the past, governments will likely provide funding to promote drug discovery.
I doubt companies would drop out of an entire country-wide market because the manufacturing costs for current drugs are so low that they would still make a profit just selling them like any other normal business. I don't think European countries would budge on their price controls because they know the drug companies would still make a profit. The drug companies don't want to entirely drop drug discovery, because if development is funded entirely by governments they will have a weaker claim to the profits from its sale, and eventually there will be no reason for drug companies to exist other than manufacturing. Then, they will be destroyed by offshoring, just like every other non-technical manufacturing sector.
It is just really really hard to make major breakthroughs in medicines. Many of the low-hanging fruits have been picked. Now it is a hard, 20-year slog to get a historically significant drug class developed. Private companies are not driven by 20-year action plans, they are driven by quarterly and annual profits. The long-term result is a hybrid system that has informally existed for decades: some government or government-funded entity lays the groundwork, a company buys the patent for clinical development & marketing, and the profit is shared. The big question will be how regulated are the companies and how much profit they will be allowed to have.
