Tags: Healthcare Reform

Price Control Could Dangerously Limit Rx Drugs

Thursday, 04 June 2015 11:42 AM Current | Bio | Archive

Two articles appeared in the same issue of the Wall Street Journal this week that caught my eye. The first, “U.S. Drug Shortages Frustrate Patients, Doctors,” draws attention to the growing drug shortage in the United States. I covered this in a post back in March, so it isn’t exactly news.

The Journal describes a current shortage of BCG, a modified tuberculosis bacillus used as a vaccine, but also in the treatment of bladder cancer as an immune system stimulant.

This shortage has real life consequences, as patients are being forced to do without what is considered the best current treatment for bladder cancer, a devastating disease.

They report that drug shortages have increased by 74 percent over the past 5 years, and mention some of the other drugs in short supply: the antibiotic Zosyn, the pain killer ketorolac, the anti-spasmodic droperidol.

They cite production difficulties — a mold infestation led to a Sanofi plant shutdown, leaving only one other producer, Merck, with problems of their own. They go on to quote the usual industry, hospital, and regulatory sources who blame the shortages on companies failing to build enough production capacity, failing to ward off contamination in aging plants, and failing to maintain equipment.

This sounds very much like what happened to apartment buildings in New York at the height of rent control. Of course, these are simply convenient excuses. The real culprit in drug shortages, as in virtually all shortages, is price controls.

Well into the body of the Journal piece, the truth emerges:

“BCG, a liquid delivered into a patient’s bladder, is expensive to manufacture because it is derived from live bacteria. Yet because the therapy is 25 years old and no longer protected by patent, it fetches only about $145 a vial, compared with about $2,700 for a vial of Avastin, a newer, patented drug for other forms of cancer that hasn’t had shortage issues.

"BCG’s low price, coupled with the complexity and cost of manufacturing, has made the drug unattractive for many companies to produce, says Erin Fox, director of the drug information service at the University of Utah.

“The Medicare and private-insurance reimbursement system for drugs that are administered in hospitals and physician practices, such as BCG, makes it harder for companies to raise prices for those drugs" . . .

“Insurers reimburse doctors and hospitals that buy BCG based on the average price charged over the past year. So if any single manufacturer tries to boost prices significantly, its customers would take an immediate financial hit until reimbursement rates catch up."

In a free market, prices signal an imbalance between supply and demand and seamlessly adjust both to restore equilibrium. A rising price for BCG, for example, would provide impetus to overcome manufacturing difficulties, or perhaps lure other companies into the market.

The other Journal article, “High Prices for Drugs Attacked at Meeting,” reports on a talk given at a plenary session of the American Society of Clinical Oncology meeting by oncologist Leonard Saltz criticizing the high price of some anticancer agents. Dr. Saltz suggested allowing Medicare to negotiate prices directly with pharmaceutical companies, i.e., impose price controls.

He also (correctly) criticized the way Medicare pays for infused drugs, which allows the doctor to make money based on a percentage of the cost of the drug.

If Dr. Saltz has his way, and Medicare imposes price controls on cancer chemotherapeutic drugs, there will very likely be fewer new agents, and worsened shortages of existing agents.

The drug shortage is a major issue and requires creative solutions. The most pressing need is to move away from the elaborate price controls that have permeated pharmaceutical sales. This will be difficult within the third party payment system, which will continue to dominate the high end of the drug market, such as chemotherapy drugs.

However, most routine drugs (which account for the lion’s share of drug spending) should come out of the third party system and be returned to the consumer. Consumer pressure will moderate prices in this zone.

The FDA is a major contributor to the high price of drugs. The drug approval process is far too expensive and lengthy, and is frankly obsolete. It should be radically streamlined, which will lower the cost of bringing a new drug to market.

It can take up to ten years in some cases, which significantly cuts into the twenty-year period of patent protection and virtually mandates high prices for brand name drugs.

And speaking of patent protection, why do drug patents expire? Does the patent expire on a new Intel chip? I don’t think so.

Doubling or tripling the patent duration for drugs would have a salutary effect on drug prices, and on the industry in general. Companies would be liberated to develop truly breakthrough products, rather than slightly modified versions of existing drugs.

Since 1990, Dr. Amerling has been on staff at the Beth Israel Medical Center (now Mount Sinai Beth Israel) in New York. He served as director of Outpatient Dialysis from 1995-2012. Amerling is board certified by the American Board of Internal Medicine for Internal Medicine and Nephrology. He also is president of the Association of American Physicians and Surgeons. He has been published in many journals. For more of his reports, Go Here Now.


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The FDA is a major contributor to the high price of drugs. The drug approval process is far too expensive and lengthy, and is frankly obsolete. It should be radically streamlined.
Healthcare Reform
Thursday, 04 June 2015 11:42 AM
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