Drug Pricing – Coming Up

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

74 thoughts on “Drug Pricing – Coming Up

  1. I recently listened to a Freakonomics Radio podcast series called “Bad Medicine.” Part 2 discussed Drug trials.
    There are several issues with drug trials.
    I can’t remember all that they discussed, but here are a couple which, if resolved, could make drugs cheaper in the long run.

    1) One problem is that drug trials cherry pick candidates that are more likely to be successful participants, e.g., having above-average health compared to the average target user. On average, something like only 7% of trial participants have health factors comparable to the target user’s health factors.

    This causes what are likely skewed results as compared to a real-world application. For example, a cheap cancer drug may extend life by 6 months. A new cancer drug may extend life by 8 months. This 2 months, although representing a 33% increase in trial results, may net out to about the same 6 months in real-world use. When the new cancer drug costs 100k / year in treatment and the old one costs 5k / year treatment, the difference in pesos is likely unjustified.

    One example was a trial for an anti-depressant where none of the participants was a regular user of alcohol. In the real world, depression and alcoholism are linked. A trial under such circumstances does little to inform how the drug would react on, say 75% of potential users.

    2) Another issue was that unsuccessful trials are not required to be publicized. On the one hand, requiring publication may increase the cost of the trial. On the other hand future research could be more focused, non-redundant, and be more incremental.

    1. “On the one hand, requiring publication may increase the cost of the trial. On the other hand future research could be more focused, non-redundant, and be more incremental.”

      I’m going to go out on a limb here and say that you could write up a brief note about how trials for x failed for several thousand if not hundred thousand of trials which would be paid for by even one redundant trial being avoided. That’s absurd that they don’t have to disclose what is going through trial and then whether it passes/fails.

      1. That’s absurd that they don’t have to disclose what is going through trial and then whether it passes/fails.

        It is even more absurd than that.

        Take a look at how many failures are out there – and such failures are direct evidence that the required possession of utility was absent at time of patent filing.

        Then look for ANY such actual evidence of actual possession of the (projected) utility in most any Pharma patent…

        1. I take it you mean failures to be “effective” rather than to be “safe”. I think they test both.

          But no, I’m not sure how many of them are effective to do something medically and how many turn out not to be.

    2. Well TLG, getting FDA approval is costly and is probably the reason that drug prices are so high, not patents.

    3. It’s actually much worse than this. For statins, they have data which they use to “prove” that statins are effective, yet refuse to let others look at the data. They often will apply the studies to unique populations (say, men with very high cholesterol or having other unique factors), but then apply those results to everyone, including women. That can’t be done but is routinely done.

      The latest trend is to get a good result at say 6 months into a trial that’s supposed to last 2 years, and then stop the trial because the results “were so good”. That is bad, as many side effects, such as heart disease and cancer, take time to develop. Stopping the trial early should only be done when there’s a deleterious effect of the drug.

      The other thing commonly done is to set up a study you know will work. Another is to use relative risk instead of absolute risk or number needed to treat. Another is failure to actually double blind the study. Another is to say that “lives will be lost” or “you’ll kill people [if you don’t give the people a drug]” but in reality all you do is delay death. At least for cancer drugs, they provide an indication of how life (on average) is extended. If you perform the same analysis for drugs like statins, you realize you have to have many people taking the drug for a long time to get a few days benefit for certain populations of people (and no benefit for other populations). Yet that’s not what’s reported. Another is to aggressively advertise to both doctors and patients (the last time I went to my doctor’s office, they had screens everywhere advertising drugs). It goes on and on…

      These are reasons why we should NOT try to speed the process of drug approval, except perhaps in those instances where the drug is used for a disease having no other or very few drugs.

      1. What if Government provided a “Review” of products and trials, a sort of Consumer Reports, grading risks and providing recommendations and warnings associated with products offered in the market?

        The products would be salable as long as the review and the recommendation were available (on the label?). People and doctors alike would make decisions based on their situation, how dire the need for the new drug, etc. As products become more well tested (perhaps research by Government and Medical Associations) more information may be provided in the Review and more guidance to consumers and doctors. As products become more reliable, safe, and effective they gain better position in the market and the converse occurs for competing products which are not as good.

        In a similar manner people now decide whether, drinking, smoking, rock climbing, or running with scissors (not yet banned by the State, even though quite sharp and very dangerous) according to the best available information regarding the risks…

        1. Perhaps all well and good, but how does your proposal deal with patents in gen eral and with possession at time of filing in particular?

          One is not allowed to file on a mere possible maybe utility….

          1. The above has nothing to do with rights to inventions … its a hypothetical alternative to restrictions and regulations regarding sale of drugs in the market.

            1. Yes, I know it had nothing to do with it – that’s why I asked the follow up question, so as to complete the picture and see how that would have something to do with it…

              1. My post was addressed to the original topic of drug trials as originally posed by TLG @ “8” and more generally to topics such as the FDA and the role of government in the market of medicine.

                If you have something to offer by way of a proposal regarding any change to patent laws or the application process wrt pharmaceuticals please feel free to voice them.
                ?
                Honestly you seem to be interested in it… I assume you have some ideas.

                1. I definitely have ideas, the simplest expression of which is to make Big Pharma actually have utility (possessed) at time of filing – as is necessary for ALL those seeking patents.

                2. How sound is it given the number of failures?

                  That’s just not possession – that’s a “maybe it works.”

                  File when you have possession.

                3. In the sense that you don’t need to actually build a mechanical or electrical manifestation of an invention to know that it will work. There is no requirement that a prototype must be built to obtain a patent, but the science must show possession.

                  Science is constantly making progresses in health care, there is a point at which research, simulation, and scientific knowledge (genome research included) will tell you that a particular chemical will have predictable effect on a human body (or a population within the known variations in the gene pool) – a point at which a scientific prediction which is solid can be made.

                4. Your premise of “knowing that it will work” simply is not borne out because of the number of failures during the trials.

                  Under your view, there would be no such number of failures, thus, your logic cannot hold.

                  This is quite distingusishable from the constructive reduction to practice paradigm that you seem drawn to compare Pharma to.

                  Sorry, but those wanting to separate Pharma based on lack of “ability to predict” have poisoned that argument for you. You cannot have it both ways (non-predictability AND predictability).

                5. Again, you misconstrue.

                  When one knows, one has possession. This is context dependent and it does not in every case require trials. Sometimes, given the particular context, science is good enough to know something will work prior to any trials. To arbitrarily assert trials are ALWAYS necessary is irrational.

                6. I am not misconstruing anything.

                  The plain fact remains of a high number of failures during trials.

                  You seem to not want to either acknowledge that fact or deal with that fact.

                  I keep on pointing to it until you do acknowledge and deal with it (it’s not going away).

  2. No clue here as to what or how. But just a reminder that the recent largest (percentage-wise) drug price increases getting the most bad press were NOT on drugs still covered by patents, but rather unpatented drugs from sole source suppliers controlling an entire relevant market, and not cost-justified. Might that raise AT questions?

    1. Paul, what do you mean by “controlling an entire relevant market”?

      I assume you mean setting their own prices for the product they sell?

      Specifically here, absent patents, are there any “controlling” factors preventing competition, preventing anyone else jumping into a market? Are the bad players somehow stifling or preventing competition? Is government or regulation an impediment to entry into the market?

      1. Anon2, I suspect you are being facetious, but I’ll bite.

        I think the assumption is that:
        1) Even with an unpatented drug, there are many regulations (as there should be) making it hard to enter the market.
        2) When the margins are too low to justify costs to stay in the market (or enter the market), manufacturers leave the market.
        3) When only one mfg. is left by attrition, and that one raises the price arbitrarily (i.e., because there is no competition left) and unreasonably, that can be problematic in light of 1).

        So, lets say someone jumps back in, seeing a competitive market once again. Now that they’re back in, competition will drive the price back down and the incentive for entering is gone, leading to attrition, leading to a sole-manufacturer, leading to an arbitrary price hike.

        In highly regulated markets, it makes sense to have some price regulation. I don’t know what that looks like, and I generally disfavor price regulation, but I can see the argument. In the case of drug manufacturing, the market correction time is too slow in light of the regulatory issues. The problem with price regulation though is the regulation part. Regulation is never perfect and costs more money. If the regulation drives the last manufacturer out of business, then we are presumably worse off for it.

          1. You seem to presuppose that a natural market somehow leads to attrition and a sole manufacturer… this might be true for certain particular markets with particular goods or services, particular consumer habits/desires, and perhaps in a particular regulatory framework, but this is far from a general rule of economics.

            You seem to presuppose there is no range of price where margins are good and self sustaining where multiple suppliers remain in the market…. it’s either “too low to justify costs” or “arbitrarily” or “unreasonably” high.

            Do you have any reasons for your presuppositions?

            1. I don’t think I presuppose that this holds for a natural market. My comments were trying to describe what might happen in a particular circumstance. There could be other reasons for the number of drug manufacturers to dwindle. I don’t really know enough to elaborate on what those might be.

              Whatever the reason, when there is one manufacturer left, because of the regulations as a barrier to participation, there is a risk of profiteering.

              Clearly, there are many drugs where there are three or four generic manufacturers, which I presume participate because they make enough profit to do so at the price they receive for the drug.

            2. Also, I assume there are drugs with only one generic manufacturer that charges a reasonable mark up (e.g., comparable to other drugs where there is competition).

              Maybe the potential for abuse is at the margins or maybe those fair players are the ones at the margins.

              1. Where a single provider of goods or services can set his/her own price, what would you define is a reasonable markup or price which does not constitute abuse versus unreasonable markup or a price which you would characterize as abuse?

                1. Where a single provider of goods or services can set his/her own price, what would you define is a reasonable markup or price which does not constitute abuse

                  A price where the provider makes a profit sufficient to keep itself in business and feed/shelter itself is reasonable. A price where a provider earns 1000x more than its own manufacturing/purchasing cost seems unreasonable and is probably “abusive” where other people’s health suffers as a result of not being able to afford the product.

                  Was this supposed to be a difficult question?

                  I suppose it could be difficult if you start from the proposition that The Most Important Thing Ever is for business owners to be able to charge whatever they want for whatever they sell in every possible circumstance because … super important!

                2. Lol – perhaps returns on all efforts should be legislated…

                  (At least in the Commune of Malcolm’s mind)

                3. Where a single provider of goods or services can set his/her own price, what would you define is a reasonable markup or price which does not constitute abuse versus unreasonable markup or a price which you would characterize as abuse?

                  I don’t think this is the question. You have to put it “in the context of a heavily regulated industry.”

                  However, to answer the question, in a free and open market, the provider is free to set the price to whatever floats his boat.

                  In a highly regulated industry, profiteering can occur because the provider can leverage his advantage. Notably, we are not talking about intellectual property. We are talking about a windfall based on happenstance.
                  What is a reasonable markup or price in a regulated industry? I don’t know. Maybe a fixed fee. Anyway you try to calculate it, it would be difficult. At least in some contexts you could have historical price data.

                4. (the opposite of Malcolm’s snideness is already captured in Adam Smith’s Invisible Hand (see Wealth of Nations).

                  I would rather stick with Adam than join Malcolm’s collective.

                5. anon – I agree with the Invisible Hand. However, Adam Smith’s theory includes the presumption that the market is a “free market.” Will that ever be the case for the prescription drug market? Can it?

                  Maybe deregulation can get us there. For example, maybe the pharmacist could provide options and alter a prescription to a less expensive alternative (not just a generic version), perhaps in the same family of drugs. Presumably the pharmacist is more knowledgeable on drugs. Maybe even a call back to the doctor to confirm.

                  Unfortunately, regulation seems to consistently go for taking away independent authority.

                  A few years ago, I had a doctor prescribe Bromfed (a cough syrup) for my kids. We had had good results with it before. It is a particular not so special concoction of three generic drugs at a dosage for each that is available over the counter somewhere in the world under some brand name that you cannot find in any major pharmacy. As a result, our insurance did not cover it. The $90 bottle was worth it to us at the time, but had the pharmacist been able to recommend and alter to a generic version with 5mg more of this or less of that per dose, then maybe we would have been able to get one that was covered by insurance and the cost would have been $7.

                6. Be careful of “free” – as in “free beer.”

                  Most people kind of miss that when they use the term “free market.”

                  Free market does NOT mean totally unregulated market – and never has.

                7. anon:

                  “Free market” does not mean a “free market”? Aristotle is shaking his head, and reality if it were conscious would be snickering…

                  I’ll agree that a free market has not, as of yet existed in reality but I do not agree with your implication as to what “free market” means.

                  The public is wrong to use the term “free market” to describe the heavily regulated mixed economies of the modern world, which might not even qualify as a “generally free market”… perhaps “moderately free market” is diplomatically accurate.

                  Misuse of a term does not change the actual meaning of a term. (If you are a subjectivist with respect to language, then I will of course expect you will dispute this)

                8. Anon2,

                  Nice straw man, as I did not say what you post as being said.

                  Aristotle is not the only one shaking his head (and most definitely not shaking his head at what you think he would be shaking his head at).

                9. anon:

                  No straw man. A “totally unregulated” is a necessary condition of a free market. (remembering of course a valid concept of what “regulation” means must be kept in mind)

                  You may or may not disagree whether a proper society should have a free market, but I do not accept that the definition of “free market” as such means regulated market including economic interference by the State.

                  No more snark or headshaking from me, words mean what they mean.

                10. Your statement of:

                  A “totally unregulated” is a necessary condition of a free market.

                  is false.

                  That is not a free market; that is anarchy.

                11. anon

                  We’re talking only about regulation in the economy… not about allowing crime, fraud, negligence, or ignoring contract law, or permitting any citizen to violate the individual rights of any other.

                  The term “Anarchy” is little melodramatic to use in this context.

                12. Not at all – the presence of a market requires the underlying stability that anarchy just does not provide – the very point I make with the “Free Beer” comment.

                13. anon:

                  I realize you may be used to arguing with irrationals, anti-conceptual, whim ridden, subjectivist types… which is perhaps why you misconstrue what I believe to be so clearly simple and straightforward.

                  The concept of a free market of which I speak is completely unregulated economic activity.

                  Economic activity MEANS voluntary trade between private individuals. I am stating that for it to be free it must be free from interference in the form of the injection of force or fraud of any kind by any entity. Economic activity, does not include noneconomic activity, such as military activity, criminal activity, solitary non-transactional activity, and hence to advocate freedom of “economic activity” is not to advocate free reign to engage in ANY activity. This is basic reasoning. To draw a conclusion that advocating free markets is advocating anarchy is irrational.

                  A free market does not create or require anarchy, it requires total freedom, i.e. total non-regulation, of “economic activity” only.

                  Disagree if you like but please don’t presume and claim that I meant what I clearly do not.

                14. Your argument here is false.

                  You want to simply deny the fact that the presence of an orderly market dictates that “Free Market” is not like “Free Beer.”

                  You have no basis for making such a condition. That’s just not reality.

                15. …if you think economics is devoid and divorced from those other social interactions, you don’t know economics.

    1. IV v. Capital One is the first precedential CAFC decision where a patent has been deemed ineligible in some time.

      [T]hese data structures do not sufficiently transform the abstract concept into a patentable invention under step two. …. The mere fact that the inventor applied coined labels to conventional structures not make the underlying concept inventive

      This is nice but let’s not forget: there is no “structure” to a data “structure” except in the abstract sense. Data is data.

      the recited dynamic document provides little more than an unspecified set of rules

      Ouch. McWrong just called. It’s on life support.

      the claim language here provides only a result oriented solution, with insufficient detail for how a computer accomplishes it

      It’s called “functional claiming at the point of novelty.” It’s standard practice in the logic arts.

      1. functional claiming at the point of novelty.

        Where in the Act of 1952 is that covered, and which direction did that Act set the topic?

        Yeah, thought so.

        1. “functional claiming at the point of novelty.”

          Where in the Act of 1952 is that covered

          112P6. What’s your point? Gosh, I hope it’s a serious one and not some silly pedantic game. <— sarcasm; I know it's a pedantic game — you're favorite kind!

          1. You do – or rather, SHOULD – realize that 112P6 is merely an optional claim format and that words sounding in function were permitted FAR more extensively by Congress in the Act of 1952.

            In other words, such use is NOT limited to merely 112P6.

            Try reading some Federico on the matter.

            Better yet, try actually reading my posts on the matter.

    2. A second opinion published today, IV vs. Erie Indemnity, also precedential and also affirms the district court’s finding of ineligibility under 101.

  3. I’m thinking competition from re-imported drugs.

    Americans pay much more for some drugs than their cost in other countries. I think the theory is that allowing re-importation of these drugs will cause drug makers to lower prices here to compete.

    Such a move is likely fraught with unintended consequences, but it could be interesting.

    1. Do you mean the “unintended” consequence that my paying so much more here in order to subsidize the profits of Big Pharma elsewhere might end?

      1. I’m pretty sure that’s the intended consequence – that and that more Americans could afford the drugs that could not before.

        Some examples of unintended consequences might be – (1) pharma would just stop providing those drugs outside the U.S. so they could not be reimported, (2) pharma could raise the price elsewhere to counteract falling prices in the U.S. so that possibly thousands in those countries can no longer afford the drugs, or (3) pharma could lobby other governments to prevent the exportation of drugs to the U.S.

        1. You are right – I should have been holding up my big “S” sign.

          s
          a
          r
          c
          a
          s
          m

          is what that “S” stands for…

          But ANYHOW you slice it – I do not want to (by force) subsidize the rest of the world. That’s akin to usury.

          1. anon:

            I hope your injection of the term “by force” is referring somehow to activity of Government, which has a monopoly on the use of force. Literally, no one other than Government has the rightful authority to use “force” to make you buy something, force you to part with money in your pocket.

            As a consumer you certainly can be unhappy with a private company charging you more because of where you live, on the assumption you both A. Value their product enough and B. have the ability to pay. Given that the supplier aims to maximize profit, you of course will understand that as long as you are not unhappy to the point of not buying what the supplier offers (or changing how much you buy, or warning others away from their product), your unhappiness is literally of no consequence.

            Ask also whether or not, if FORCED by government to offer product at one price everywhere, (and assuming they are not forced regarding the particular price chosen) given the statistics of populations and their ability to pay and their buying habits, whether the supplier is better off RAISING prices a little bit everywhere, losing a large volume sold in the “rest of the world”, i.e. losing whole customers, making up the shortfall domestically incrementally with each customer, knowing that enough domestic buyers will pay a little more to make up for the lost customers abroad.

            Was the previous divided/differentiated pricing scheme really an example of subsidization? Once abolished I suppose you would feel better paying the slightly higher price?

              1. Not a presumption, but a proposed possibility. Your higher price per unit here might in fact be subsidized by high volume sales in other countries, which volume if priced out of existence might necessitate increasing the price per unit here.

                Furthermore there is no basis for your presumption, that by virtue only of the existence of a price differential you can conclude the higher price paying customers are subsidizing the lower paying customers. Although a possible conclusion, such is not logically necessitated, and is in actuality, context dependent.

                1. Your economics are off. Dropping the artificially surpressed items from being carried (in other markets) means that the subsidizing would end and the costs here drop – not rise.

                2. I disagree.

                  Nothing is artificial about setting a prices which are profitable and which maximize profit in two different markets.

                  If you can sell a drug in a poor market above costs you are making *some* profit, and you can set the price to maximize profit A from that market. If you can at the same time sell the drug at a higher price in a richer market then you set the price there to maximize profit B in that market.

                  These two maximizations take into account price and volume achievable – higher prices tend to reduce volume if people cannot afford it. A+B is your overall maximized profit and there is nothing artificial in it.

                  Of course you have to take into account some people in the rich area will try to ship the drug sold in the poor area. If the shipping costs are low enough, and if it is not illegal to do so, it might be prudent for people to do so if they wish.

                  Now, if you are forced to set one price by the State, then to get A+B profit, knowing you will lose market B (possibly in its entirety) you may have to raise prices.

                  Why wouldn’t you?

              2. I am beginning to believe you are not a Classical Liberalist when it comes to medicine or the trade of health care goods and services.

                I also begin to believe you like to argue, sometimes, just for the sake of argumentation.

                The former is your business, and I will admit to the latter from time to time.

  4. Is Donald telling us that in the “Drug Industry” up to now there has been no “competition” and that if, as from now, we can detect in the Drug Industry any sign of “competition” then we should all thank him for that?

    It reminds me of Margaret Thatcher’s opening words on arrival at No 10 Downing Street. That was immediately before she destroyed the UK’s manufacturing industries. Piously, stomach-churningly, sick-makingly, she quoted Francis of Assisi on replacing discord with harmony:

    link to azquotes.com

    “Where there is discord may we bring harmony. Where there is error, may we bring truth. Where there is doubt, may we bring faith. Where there is despair, may we bring hope.”

    How’s that for chutzpah? Only a matter of time, I fancy, before Donald comes out with the same quote. Doubtless he’s “working on it” already.

    1. MM, if a drug is approved in Europe, in Japan, in Canada, etc., couldn’t we just give full faith and credit, getting drugs to market sooner?

      1. I don’t know about full faith and credit, but certainly a fast track system may be in order. Call it a drug prosecution highway.

        It was the FDA who prevented German drug thalidomide from entering the U.S. in the 60s, which saved probably thousands of Americans from the horrific side effects to babies in utero.

        link to helix.northwestern.edu

      2. LOL – full faith and credit…?

        When China starts living up to the actual standards, and not putting poison in its products, let me know.

        On a related note, let me also know when EVERY other country has the same standards (and costs thereto) that the US has.

        Until that day, ALL that you have is Big Corp playing one country against another with ZERO allegiance to ANY country.

        Talk about your “race to the bottom”….

    1. So anon, care to speculate on the type of so called “Right” system/policy we will have to deal with? Will there be Statist moves toward onerous interference/regulation and violation of rights (patent rights) which is no different from the “regressive left”, or will we see a glimpse of the right “Right” in the form of freedom, capitalism, and the protection of valid individual rights (e.g. patent rights)?

      He’s no Roosevelt or Kennedy but then again, of a certainty, he is no founding father either…

      Realistically speaking, perhaps he’ll have a system where Altruistic Gummy Unicorns magically research, discover, and perfect drugs in exchange for nothing for the fruits of their mental and physical labor, and armies of sub-sentient donkeys and flying money slaves will manufacture and distribute them to the poor in exchange for noumenal intrinsic gold stars and hearts emanated by the public up-swell of emotion… I mean let’s keep it real right, drugs “SHOULD” cost next nothing… just CAUSE, am I right?.. you know I am brosef.

        1. Me neither… just so uncertain about what kind of system is going to be pushed from the POTUS… uncertainty is bad enough but when one of the so called Right, makes left promises… focusing on some end … the uncertainty of the proposed means is unnerving.

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