Arnold Relman writes about the pharmaceutical industry in The New Republic. His column is a response to a book by Richard Epstein that blames excessive regulation for stifling innovation when it comes to developing new drugs. Relman picks apart Epstein’s arguments and shows what has happened to the pharmaceutical industry as it has tried to be seen as maintaining a commitment to America’s health while also being beholden to their shareholders.
Epstein comes from the school of thought that believes that health care should be an individual responsibility and that government should not be involved. In this mindset, the forces of the marketplace will theoretically produce the optimal result. What we’ve discovered as we’ve moved more and more in that direction is that it doesn’t happen. The desire to maximize profits in the pharmaceutical industry has often run contrary to what the average American sees as the optimal result. Drugs are incredibly expensive and the companies have tremendous power to limit our ability to find alternatives. In addition, the regulatory mechanisms don’t go away, the pharmaceutical industry just uses them to protect their market position. A good example of this is how the pharmaceutical industry has strong-armed the FDA into keeping people from being able to import cheaper drugs from Canada.
While the pharmaceutical industry has maintained that the high cost of drugs are a result of the need to recoup the costs of R&D, Relman points out that even the former CEO of Merck disputes that claim. The high costs of drugs are based upon what the market will bear for that drug. And as we’ve discovered with health care in general, market forces tend to work better for the things we want than for the things we need. As a result, America’s pharmaceutical industry is one of its most profitable sectors, even as they continue to complain about the high cost of doing business. Drug prices don’t go down over time, they usually go up.
Pharmaceutical companies have given us a lot of new drugs in the past decade or so. Many of them, as Relman notes, are copycat drugs that do things very similar to existing drugs. The market contains a number of anti-anxiety medications, cures for erectile dysfunction, and cures for diseases like restless leg syndrome that we never knew we had. In the end, the system skews towards drugs that are cheaper to produce (many of which appear to be more recreational in nature), which are then heavily advertised to doctors and patients, while fixing more life-critical conditions are a lower priority. Even for the life-critical drugs, Epstein argues for less regulation in the certification process and maintains that safety concerns will just shake out as doctors and patients discover the benefits and drawbacks of particular drugs on their own.
One particular area of the pharmaceutical industry, though, creates some conflict among two traditional factions of the Republican Party. Highly addictive drugs used for pain management are a major source of concern for social conservatives, but have been a major cash cow for certain firms with close ties to high-profile Republicans. Purdue Pharma, the makers of OxyContin, is one company that has had to surf this divide. Some of Purdue’s top execs recently received probation and were fined over $600 million for misleading the public as to how addictive their drug was.
The verdict against the executives was different from the more traditional way that anti-drug officials in the DEA have attacked this problem – by going after doctors who specialize in pain management. Because of the addictiveness of OxyContin (which came to be called Hillbilly Heroin), many doctors were accused of supporting illegitimate drug use and found themselves being aggressively and often unfairly prosecuted. It took action from people who’ve lost loved ones in order for those who manufactured this drug to be held accountable for lying about its medical properties.
This outcome shouldn’t be a surprise. In a profit-driven system, Purdue Pharma’s actions were perfectly rational. Admitting that your product is as addictive as heroin when crushed into a powder is bad for the bottom line. So instead, they hired now-Presidential candidate Rudy Giuliani to lobby in support of the drug. They paid the father of a victim of an OxyContin overdose, Steven Steiner, to travel around the country to campaign against medical marijuana, a drug that has some similar uses to OxyContin, but is much safer (and yet still illegal at the federal level). And to underscore how much pull they had, people at high levels of the Justice Department tried to get the Virginia prosecutors to go easy on Purdue.
OxyContin can be a very useful drug for people living with severe pain. The solution is not to ban doctors from ever prescribing it any more than it’s not the solution to allow the free market to dictate how it’s marketed and sold to the American public. The answer is to ensure that government oversight provides both patients and doctors with the most accurate information possible and give them the freedom to make the most informed decisions possible, not to criminalize addiction so that people aren’t afraid to help others or get help. The FDA and the DEA should exist to protect us, not the pharmaceutical companies.
Do not expect anything from this Democraticly or a Republican controlled congress regarding the pharmaceutical industry. Jim McDermot is the number one defender of these scumballs. As long as they spread the money both sides kiss their pharmaceutical ass.
The one thing that transcends party affiliation, green. Jim has been begging them for money this year to pay off his lawsuit loss.
The popular conception that the private pharmaceutical industry invents new drugs is a myth fostered by the industry’s propaganda. Many of the major drug companies spend less than 10% of their revenues on R&D and more than 50% on marketing. Most new drugs are invented in university or government funded research labs. Most “new” drugs marketed by private drug companies are merely reformulations or combinations of existing drugs whose only purpose is to extend the life of patents.
Lee … lots of issues.
I have knon Relman for thirty years. he is avery good doctor, a former editor of the NE Jpurnal, but he is neither an experience drug compnay researcher not an economist. He is a very good guy.
Let me help by discussing the issue of cost and profit in pharama. Drug companies are profit making. This creates many problems. For example, there is good reason to believe that tetracycline would be a good treatment for abdominal aneurysms. However, tetracycline is not patentable. So its development for this purpose has been very slow. Someone needs to pay for clinical trials and these are likely to cost 100s of millions of dollars. This sort of research, however, is not usually funded by the NIH.
The costs claimed by pharma are quite real. One can argue about efficiency, buy in the real worl a NEW agent is lkley to cost $10^9. Because of the very issue Relman raises, the ability of a competitor to come up with a similar drug at a much lower price is all to real.
BUT .. the result has been an awesome introduction of new successful drugs over the last 20 years. This benefit meanns that the US consumer subsidizes the rest of the world. An overwhelming portion of drug development comes from US located pharma. Why? because the profit structure here is better than in most other countries. When you pay a high price for a blue pill, you are subsidizing the health care costs of Pierre, Hans, Dilip and Chun.
The flip side of this is that the US pharma industry has achieved revolutionary breakthroughs and a LOT more is coming. Unfortunately for Relman’s arguement there is very rela reason to wonder if the current ca;pital structure can keep this going. The VP for research of AMGEN presented an anlysis of one of our big pharama. If that company were to patent every new agent likely to be found in the next ten years, its rate fo return on investment would not be able to pay a high enough rate of return to justify the capital investment. His prediction? More mergers and possible the breakup of some of the biggest companies.
Finally, the US taxpayer through NIH pays for most of the basic research that generates these drugs. Big pharma spends a fairly small part of its money on basic science.
Remember the flu vaccine shortage a couple winters ago? There are only two flu vaccine manufacturers in the world, and neither is a U.S. company. So much for the argument that the free market is the best solution for our health care needs.
BUT .. the result has been an awesome introduction of new successful drugs over the last 20 years. This benefit meanns that the US consumer subsidizes the rest of the world. An overwhelming portion of drug development comes from US located pharma. Why? because the profit structure here is better than in most other countries. When you pay a high price for a blue pill, you are subsidizing the health care costs of Pierre, Hans, Dilip and Chun.
This is an extremely good point that I probably should have mentioned, although Relman doesn’t discuss it. Thanks.
The free market model simply doesn’t work when applied to health care, for a variety of reasons. To start with, consumers can’t shop for the best price, because prices aren’t disclosed. Consumers aren’t even told what they’re buying, much less what it will cost. In any case, there is no fixed price; the price is whatever the provider believes it can soak the consumer for, and the price for the same goods or services varies depending on whether the bill is being paid by an insurance company, a government program, or the patient (i.e., “private pay”). Medical care is so complicated most consumers can’t make intelligent “purchase” decisions. Finally, the private sector has demonstrated horrible inefficiency in delivering health care, with administrative and overhead costs 40 to 50 times those of government-run programs. The free market health care experiment is a failure, and it’s time to replace it.
@6
What’s even worse is that while prescription drugs have gotten more expensive since 2000, the price of cocaine and heroin have been dropping.
One more reason to legalize marijuana. When in need of a painkiller, why buy Hillbilly Heroin, aka Limbaugh’s Little Helper when you can grow your own?
Roger …
You are correct that R&D is relatively small but D esp is very expensive.
You are not really correct about the role if academic research. Essentially guys like me do the basic research that has no commercial promise BUT provides the infrastructure that can be used to discover drugs. For example, we recently have found evidence implicating a certain protein in an autoimmune disease. IF our work holds up, then there could be one or more new therapeutic leads. At that point, research usually switches to pharma because the cost of determining a compound, doing toxicity steps, and than clinical trials is way out of the range of the Government.
Are there reforms that can be made? I think so:
1. Currently about 10% of the NIH budget goes for an intramural research program that is not at the competitive level that would justify that expense. I beliee we should restructure the NIH to provide research infrastructures that would accelerate the rate of work up and decrease the cost of research. we have such a model now, the human genome project but a lot more could be done.
2. Currently the threat of legal action is truly inhibiting drug development. WADR huge part of what we read about is just wrong. Fair disclosure I have been paid to assist more than one big pharma. While I certainly have seen some abuse, by and large I am impressed that the companies sincerely try not to do harm. For example, the current attacks on Merck about VIOXX, although there are legitimate issues in the use of VIOX, have cost Mertck a huge amount of money and deprived patients of a very useful drug. Eventually I suspect Merck will win in the courts but the price will be high.
As a result, there are classes of drugs that are not getting developed because the cost benefit ratio does nto justify the legal risk.
I do not know tryhe real answer buut have wodnered if the current system muight be replaced by some form of expert arbitration?
3. Patents.
As a result of the long time required to satisfy the FDA, it is not unusual for a patent of $1 10^9 to expire in about a decade. Asa result there is huge distortion of research abd development to somewhat SILLY things that can extend tghe patent.
One idea I have here is the idea of a federal buy out of some intellectual poperty. This could pay off the valid need for return on investment while killing the incentive to make copy cat drugs or alternative formulations. Is this a really strange idea? I do not think so. It is exactly this principle that we sue to fund military and space contractors.
There is no doubt we could decrease drug costs but the expense would be the loss of the miracles we have come to expect unless some other mechanims can be found to induce drug development.
Broadway Joe,
WADR … next time you need a pain med I hope they give you something more effective than MJ.
Lee
It is not just that costs per pill have gone up. We can now treat a lot of things that did not have drugs for before.
More of this is on its way.
This issue has engendered a new field called outcomes research. Folks in this field try to decide whether a specific Rx is cost effective. It is exactly this sort of issue that leads to the horror stories of insurance companies denying a therapy that works because ti is too expensive.
Last week of December 2006 , I was just trying to get my last pop medical exams (tax-wise copays & deductible wise). I saw my Eye Doctor. She seemed puzzled when I brought my last prescription bottle for the allergy, once a month, eyedrop meds. Asked what I was showing her, “what is this?”.
I told her that my pharmacist had called in and the very end of the previous month, November, there had been a NEW & generic replacement, which my City of Seattle Retirees insurance would allow coverage.
Eye doc got seriously excited!! Said she hadn’t heard of the new generic, she said “The drug companies SURE weren’t going to let HER know there was a generic available!” and she was simultaneously putting a note in her computer to ask the staff persons to pull up the info for her to check out. Like I said, she was happy to hear there was now a cheaper replacement & very willing to sign a new prescription to give me my new generic once a month.
Frankly, I think the drug companies wish to keep the doctors just as ignorant as the masses, so that the Doctors will CONTINUE to order prescriptions and the drug companies will continue to increase their profits. Which is why there’s so many medical/pharmacy lobbyists (like cockroaches) swarming Congress & BabyShrub so damn effectively.
I don’t believe the doctors want to see the costs inflated, they mostly want to help their patients able to access the drugs which the docs themselves feel are needed to keep their patients stay medically stable. Something’s so WRONG when the drug companies are so much in bed with the government. Like BedBugs perhaps, except harder to get rid of.
Correct me if I’m wrong, but aren’t many government grants (i.e. MY taxes!) for the initial research PAYING for the research that makes the new drugs come into place? Then later the pharmacy folks are saying they NOW own ALL the profits?
Vioxx is an interesting case. At the time Merck pulled it, I argued to my doc that Merck had just put a “sue me” sign on their back. I looked at the figures (I was on Vioxx at the time) and found the risk low enough that I would have continued to take it if I was able to. My sister and I both say we would have signed a waiver to continue taking it. Celebrex just doesn’t cut it. I want my Vioxx back.
@13
Silverstar,
That’s an interesting point, and one area where I agree with the more ideological libertarians on this is that more dangerous drugs should not be banned, but the risks should be clearly identified and people should still allowed to weigh that risk and decide for themselves. In addition, I also disagree with the overall prescription model. Adults should not need a doctor’s permission to buy pharmaceuticals. All this system creates is a system where doctors are paid off to support certain drugs, rather than protecting patients from bad stuff happening. For certain dangerous drugs where abuse is common, you might need to have people sign a registry in order to obtain it, but keeping people from these drugs just creates a more dangerous situation.
Well SJ, you are truly hopeless. Big Pharma doesn’t care if you live or die, they just want your money.
WADR … next time you need a pain med I hope they give you something more effective than MJ.
Depending on the type of pain, MJ can be very effective, especially for people with nerve damage. For other types of pain it’s not. And MJ generally has much fewer negative side effects than other pain meds (not being chemically addictive being a major plus).
Lee
Well … maybe. Nothing I have read in the medical literature supports this but I have not read everything. Can you give me a reference? The more common issues I have read about are use ot THC to restore appetite in patients on chemo. Other than that, I am not sure there is much proven benefit.
@14 Lee
I think you go much too far. The potential for misuse of prescription drugs is immense. Given full ability to mass market I would be frightened about what folks would
be induceto buy.Beyond the potential for self abuse, there is also the effects of such misuse on others. If you choose antibiotics to treat your own rael or imagined infections, the bugs will adapt even more quickly and we will nto have useable antibiotics.
OTOH, the current VIOXX story is only one of several examples where drugs have been taken off the market because the FDA did not trust PHYSICIANS to make proper choices. My Bubbie had a word for this … pfehhhh!
@12
Actually I believe current law allows yout insurance company or the pharmacist to replace an expensive drug with its generic equivalent.
Give the huge pharmacopoeia, the system of letting the MD prescribe by brand and the system replace where a good choice is available seem pretty reasonable.
A much more difficult issue comes when there are sevceral alternatives with subtle differences in function There, the pharmacpoeia of ads in very effective and I, at least, am not sure how we can police the problem without incurring huge costs.
The most difficult issue is setting price when only one comopany has a specific product. A drug I had a distant role in developing extends life by a few monbths but costs $150,000. The company making the drug is one I admire for its morality but it has a major foreign invester who si, IMHO, money hungry.
The only feasible answer I can come up with would be to have some form of review of single source drugs that might either set limits t profit or, perhaps better, force companies to make their profit over a longer time in return for changes in our current too short patent laws.
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