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July 9, 2019

Pharmaceutical regulation ripe for reform

Summary:

As we wait to see what exactly happens because of the executive order that the Trump administration promises to use to cut drug prices in the U.S. (while keeping our fingers firmly crossed), let’s spend a minute understanding just how dysfunctional the system for pharmaceuticals is.

If you want full-on fury, read this article, which likens Big Pharma to organized crime. But, even if you don’t want to go nearly that far, it’s hard to argue that the system isn’t broken. 

Pramod John, probably the smartest person I know on the subject of drug prices, contends that the U.S. Food and Drug Administration focuses on safety but not enough on the effectiveness of pharmaceuticals.

And, once approval is secured, Big Pharma is free to do pretty much whatever it wants in terms of pricing. By law, Medicare has to cover every drug approved by the FDA at whatever price the drug companies want to charge. As this editorial in the New York Times notes, Medicaid likewise has to cover every approved drug; “the program receives an across-the-board discount from drug makers, but, as critics note, that discount has not kept pace with the changing drug market.” Private insurers and the Department of Veterans Affairs can negotiate, but separately, diminishing their power to bargain with Big Pharma.

By contrast, Britain and Germany, among others, tie price to value: The government will only pay for new drugs if they represent a clear improvement over old drugs.  

The situation in the United States is made worse by a trend toward speedy approval for drugs. A system set up to fast track drugs that could help desperate patients has been turned on its head: Now, as the Wall Street Journal reported last week, at least 60% of drugs approved in the past five years have been handled on an expedited basis.

Increasingly, drugs don’t have to demonstrate actual improvement in patients; the drugs just have to show progress on some interim measure. So, a drug company doesn’t have to show that a cancer drug increases patients’ lifespans or improves their quality of life, merely that, say, the drug shrinks tumors.

Improvement on interim measures, no matter how logical, often doesn’t translate into benefits for patients—yet, if no safety problems are found, a drug finds its way into the market, often at a startling price. 

In short, oversight of the pharmaceutical industry has become ineffective and medicine has become wildly expensive. 

Let’s hope we—the patients, insurance clients and taxpayers—get some relief. But it won’t be easy, even if the coming executive order is everything that can be hoped. It’s taken us decades to create the pharmaceutical mess; it’ll take time for us to get out of it.

Cheers,

Paul Carroll
Editor-in-Chief

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About the Author

Paul Carroll is the editor-in-chief of Insurance Thought Leadership. He is also co-author of Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993. Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

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