New Prescription Drugs Will Begin To Test Our Commitment To The Socialism That Is Health Insurance: Very Expensive Treatments For Very Few People

Pharmaceutical research and development during the past 30 years has resulted in the paradoxical situation faced by most drug manufacturers today: With the frustrating exception of cancer, the drug therapies that mitigate, manage, or “cure” the diseases that are most common in developed economies are not only available, they are available from “non-original” sources (i.e. generics).  This is why 75% of the number (not the cost) of prescription drugs sold in the USA have lost their patent protection.  Long term drug development success has created an almost-certain reduction in profits coming from “blockbuster” drugs.

High blood pressure, too high/low cholesterol, depression, and diabetes are all very prevalent diseases in developed countries; all of these maladies have multiple choices of generic drugs available for their treatment.  And the generic drugs are attractive to patients and physicians not only because of their comparatively low cost; they are also attractive due to their proven history and well-understood ‘side effects.”

For many years after the “first” generation of drugs used to treat these common diseases were being prescribed, it was possible for drug manufacturers to continue to create “newer and better” version of these drug categories (which was sometimes an accurate description). This trend has continued into the 21st century with many of the “new and better” drugs offering only either slight improvements over their predecessors, or through “reformulations” or slight molecular modifications, purely extended patent rights for the drug manufacturers.  But that “easy” time of either reformulating existing medications (think timed release) or minimal molecular modifications (“me too drugs”) is coming to an end.

Since many of the “big” problems (again, excepting cancer) have been effectively solved through drug research, there is no target for drug manufacturers except diseases that impact smaller populations of people. On the face of it, focusing research on previously neglected diseases is a great circumstance. People who previously had no hope since little research was being devoted to creating drug therapies that would help them now have a spotlight being focused on their conditions. As with the rest of health care, the challenge is in the financing.

It is fairly simple to understand the issue- If it costs about a billion dollars to research and develop a new drug, then the larger the number of people that those R&D costs can be “recovered from” via sales, the lower the cost that the drug to each patient. If a new drug applies to far fewer people, then the development cost recovered through sales to each patient will accordingly rise.  As we continue to experience increasing health care costs across most segments of the population, societies willingness to pay for treatments that apply to fewer and fewer people is likely to be challenged by the people paying for those treatments (employers, individuals, and taxpayers).

Health insurance by its very nature is socialistic. Health benefits are financed by spreading the costs that are experienced by few people across the larger population: ten percent of the population is responsible for seventy percent of health care costs.  This “Pareto Curve” (known by common-sense observers as the 80/20 rule) of health care utilization is actually a great reality. It means most of us aren’t sick; most of us don’t incur high health care costs. And it is great that our society has been able to support a socialistic structure to finance the care experienced by a minority of people.

The question we are facing is whether the broad society at large is willing to pay more and more for treatments that impact fewer and fewer people. And whether society willing to pay shareholders in drug manufacturers the high rates of investment return they have been used to when those profits must be extracted from fewer and fewer people.

We should not stop developing drugs that treat diseases that have few therapeutic options. But we should probably stop investing in treatments that are very similar or identical to existing medications as a method of subsidizing the profit requirements of the new drugs that treat smaller populations.

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About Benjamin D. Zelman

www.zelmanandcompany.com
This entry was posted in The Health Care Cost Crisis and tagged , , , , , . Bookmark the permalink.

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