qotd: Is it time to nationalize the drug industry?

Reuters
June 30, 2015
Novartis to test new pricing model with heart failure drug
By Ben Hirschler

Novartis plans to test a novel pricing model with some customers when it
launches its keenly awaited new heart failure drug Entresto, the Swiss
company's head of pharmaceuticals said on Tuesday.

Entresto, also known as LCZ696, is the first new drug in decades for
helping patients whose lives are in danger because their hearts cannot
pump blood efficiently. As a result, it is widely expected to generate
billions of dollars in annual sales.

How the product should be priced, however, is a dilemma for Novartis,
since the company wants to reach as many patients as possible and it
knows it will be competing with very cheap - though less effective -
older medicines.

David Epstein said he was talking to several healthcare customers about
a system under which they would get the drug at a discount but then pay
Novartis more if, as expected, it successfully reduces the need for
costly hospital visits.

"We are beginning to share the risk," he said in an interview.

The idea of moving from a simple pay-per-pill model to one based on
clinical outcomes is being considered by several drugmakers, and
Novartis already has such a system in place for one customer using its
multiple sclerosis drug Gilenya.

But Entresto could be an important test case because the drug will push
up immediate drug costs markedly for a large number of patients, while
having the potential to reduce their long-term medical bills.

The issue of drug pricing has come to a head recently, thanks to the
launch of extremely expensive new medicines for cancer and hepatitis C,
which are straining healthcare systems and adding to co-payment costs
for patients.

Epstein, whose team is in the final stages of deciding the price for
Entresto, declined to detail a likely cost per pill. But he said it
would take into account "cost offsets", such as fewer hospitalizations,
as well as the value added from improving patients' lives.

"We going to try and be fair and reasonable," he said.

http://in.reuters.com/article/2015/06/30/us-novartis-heart-idINKCN0PA1N720150630

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Health Economics
October 2014
Cost-Offsets of Prescription Drug Expenditures: Data Analysis Via a
Copula-Based Bivariate Dynamic Hurdle Model
By Partha Deb, Pravin K. Trivedi and David M. Zimmer

Summary

In this paper, we estimate a copula-based bivariate dynamic hurdle model
of prescription drug and nondrug expenditures to test the cost-offset
hypothesis, which posits that increased expenditures on prescription
drugs are offset by reductions in other nondrug expenditures. We apply
the proposed methodology to data from the Medical Expenditure Panel
Survey, which have the following features: (i) the observed bivariate
outcomes are a mixture of zeros and continuously measured positives;
(ii) both the zero and positive outcomes show state dependence and
inter-temporal interdependence; and (iii) the zeros and the positives
display contemporaneous association. The point mass at zero is
accommodated using a hurdle or a two-part approach. The copula-based
approach to generating joint distributions is appealing because the
contemporaneous association involves asymmetric dependence. The paper
studies samples categorized by four health conditions: arthritis,
diabetes, heart disease, and mental illness. There is evidence of
greater than dollar-for-dollar cost-offsets of expenditures on
prescribed drugs for relatively low levels of spending on drugs and less
than dollar-for-dollar cost-offsets at higher levels of drug expenditures.

http://onlinelibrary.wiley.com/doi/10.1002/hec.2982/abstract

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Comment by Don McCanne

With the marketing success of outrageously priced drugs, the
pharmaceutical industry is now devising schemes to be sure that their
new products that are protected by patents will continue to be
introduced with similar outrageous prices. This concept of adding "cost
offsets" to the pricing is not new, but it now has a label that
supposedly legitimizes its inclusion in pricing decisions.

In the past, pharmaceutical firms have cited the high costs of drug
research as an excuse for high prices of new products (though the high
prices of the past were nothing compared to the five and six digit
prices of today's new products). As the public discovers that the drug
industry's advertising budgets are typically three times their research
budgets, and much of the research is funded through government programs
such as those of the NIH, the firms apparently have decided that this
argument is no longer as persuasive, and so they have to find another
reason to justify outrageous pricing.

"Cost offsets" is a convenient label for adding to the the research,
marketing, administration and profit costs of the products. These "cost
offsets" include such concepts as money saved by fewer hospitalizations,
fewer expensive interventions for progression of disease processes, and
for the added value of prolonged lives or the added value of higher
quality lives.

Think about that. What gall it takes for these pooh-bahs of the
pharmaceutical world to suggest that they are entitled to capture, for
themselves, not just the costs and legitimate profits, but the value of
the benefits of their products, through higher consumer prices, whether
paid individually or through some form of public or private insurance.

This perverse type of thinking is not limited to Novartis' David
Epstein. Bayer's Marijn Dekkers 18 months ago said, about their
expensive cancer drug, Nexavar, "we did not develop this product for the
Indian market - let's be honest - we developed this product for Western
patients who can afford this product, quite honestly."

Perhaps more despicable is this entry from a draft of the infamous
Trans-Pacific Partnership Agreement, which contains the following in its
statement of principles: "(d) the need to recognize the value of
pharmaceutical products and medical devices through the operation of
competitive markets or by adopting or maintaining procedures that
appropriately value the objectively demonstrated therapeutic
significance of a pharmaceutical product or medical device."

Not only did the pharmaceutical industry buy off Congress when they went
the route of the market-based Affordable Care Act instead of an
efficient single payer Medicare for all, they have demonstrated to us
that their primary goal is to achieve the greatest returns for their
executives and shareholders no matter the cost to the ultimate consumers
- the patients.

There could not be an industry that cries out more for government
intervention to protect consumers than the pharmaceutical industry (oh
wait, the private insurance industry, of course, but that's another
topic). Many suggest that it is time to demand negotiation of drug
prices, or even to dictate fair prices. But should that be our opening
position? How about calling for nationalization of the industry, at
least their U.S. subsidiaries. That should get their attention. They
have to know that we're serious about wanting relief from their greed.