How to drive down drug

How to drive down drug prices

Malcolm Gladwell writes about high drug prices in the New Yorker: "High Prices. How to think about prescription drugs" .

Marcia Angell, former editor-in-chief of the New England Journal of Medicine, thinks high prices are caused by drug company manipulation. Gladwell disagrees.

First of all, not all prices are high:

"...The �intolerable� prices that Angell writes about are confined to the brand-name sector of the American drug marketplace. As the economists Patricia Danzon and Michael Furukawa recently pointed out in the journal Health Affairs, drugs still under patent protection are anywhere from twenty-five to forty per cent more expensive in the United States than in places like England, France, and Canada. Generic drugs are another story. Because there are so many companies in the United States that step in to make drugs once their patents expire, and because the price competition among those firms is so fierce, generic drugs here are among the cheapest in the world. And, according to Danzon and Furukawa�s analysis, when prescription drugs are converted to over-the-counter status no other country even comes close to having prices as low as the United States."

It bothers Angell that many of the drugs introduced are simple knockoffs of existing drugs, bu the competition drives down drug prices:

"An entire chapter, for instance, centers on the fact that the majority of drugs produced by the pharmaceutical industry are either minor variations or duplicates of drugs already on the market. Merck pioneered the statin category with Mevacor. Now we have Pfizer�s Lipitor, Bristol-Myers Squibb�s Pravachol, Novartis�s Lescol, AstraZeneca�s Crestor, and Merck�s second entrant, Zocor�all of which do pretty much the same thing. Angell thinks that these �me-too� drugs are a waste of time and money, and that the industry should devote its resources to the development of truly innovative drugs instead. In one sense, she�s right: we need a cure for Alzheimer�s much more than we need a fourth or fifth statin. Yet me-too drugs are what drive prices down. The presence of more than one drug in a given category gives P.B.M.s [P.B.M.s are Pharmacy Benefit Managers - Ben] their leverage when it comes time to bargain with pharmaceutical companies."

Gladwell puts his hopes in these P.B.M.s:

"This is why [the cost savings P.B.M.s can bring - Ben] increasing numbers of employers have in recent years made use of... P.B.M.s. The P.B.M.s draw up drug formularies�lists of preferred medications. They analyze clinical-trials data to find out which drugs are the most cost-effective. In a category in which there are many equivalent options, they bargain with drug firms, offering to deliver all their business to one company in exchange for a discount. They build incentives into prescription-drug plans to encourage intelligent patient behavior. If someone wants to take a brand-name oral contraceptive and there is a generic equivalent available, for example, a P.B.M. might require her to pay the price difference. In the case of something like heartburn, the P.B.M. might require patients to follow what�s called step therapy�to try the cheaper H2 antagonists first, and only if that fails to move to a proton-pump inhibitor like omeprazole. Employers who used two or more of these strategies last year saw a decrease of almost five per cent in their pharmacy spending."

I learned about the Gladwell article from Arts & Letters Daily. I posted on an article of Angell's earlier this year: "Do drug companies face the correct incentives?". She now has a book out: The Truth About the Drug Companies: How They Deceive Us and What to Do About It.