Should drugs cost "their worth"? What is the fair price?

Pedro Rey

 

There is a significant tension between the promise of medical innovation and affordable access to such innovation. The introduction of new drugs on the market at ever-increasing prices is perceived as the main inducer of the uncontrolled increase in healthcare spending in most developed countries, putting the viability of proper healthcare at risk and creating access barriers. This trend, which had been moderated in recent years by the exhaustion of the development of new products through chemical synthesis, has been reactivated with the new biotechnological products. In many countries, not only in less developed ones, the cost of treatment for diseases such as cancer can be unaffordable, either because it falls entirely on the patient or because the public system that finances it cannot afford it. Similarly, when a potential cure for hepatitis C became available recently, even high-income countries found themselves rationing treatment and looking for ways to guarantee access.

On the other hand, the pharmaceutical industry argues that the development of new drugs is a risky investment, with long lead times, uncertain scientific results and changing political environments that affect future sales forecasts and that, therefore, all this must be reflected in the sale prices. For this reason, the industry seeks the protection of governments to block competition through patents and other monopolistic exclusive rights, so that companies can more easily set a price premium justified by the need to finance R&D. of new drugs.

Thanks to high revenues and information asymmetries, pharmaceutical companies also have a broad capacity to induce demand for their products through their influence on prescribers and patients. This influence also extends to those who must authorize and finance their prescription and consumption, at prices in which the laboratories try, above all, to avoid the bargaining power of the most important collective consumers, such as public health services. The situation is becoming unacceptable. For example, a study with 1,500 patients from 78 countries shows that only 9% of them consider that pharmaceutical companies “have fair prices”. But what is the "fair" price of a drug?

Agreement on a single definition of a fair price is difficult to reach, and in this context, health systems have struggled to balance affordability and necessity. The usual resource that health economists have traditionally proposed, referring to the willingness to pay, to have a real approximation to the "value" of a drug is very difficult to justify. Behavioural economists have known for a long time that willingness to pay depends on who it’s who ends up paying the bill and on the need created in a client/patient for a new drug, in a context in which it's very difficult to provide it with sufficient information to make a reasonable estimate of the value. Therefore, estimating a fair price from the demand side is a complicated exercise.

It may be easier to find a definition of the fair price from the supply side, taking into account production costs. Transparency can be a key element in determining what is fair. However, there are no reliable and unbiased databases on true costs for the development of a new drug. Without data, it’s difficult to accept the argument that due to R&D costs, even taking into account failed research, and high prices for new drugs are unavoidable.

In turn, there are empirical doubts about the positive effect of the protection granted by patents in pharmaceutical innovation. Moreover, under such protection, it’s argued that biases have been produced not only in the communication of research results but also in the orientation of said research towards products where commercial interests could be more important than public health interests.

A monograph in The British Medical Journal describes the evidence and additional research that is needed to balance affordability and innovation. The 2019 World Health Assembly agreed to move towards improving the transparency of health product markets. The resolution formulated at the time aimed to improve the public exchange of information on the real prices paid by governments and other buyers of health products and to increase transparency on pharmaceutical patents, results of clinical trials and other determinants of pricing throughout the value chain, from the laboratory to the patient. He also requested the WHO secretariat to support efforts regarding transparency and monitor the effect of transparency on the affordability and availability of health products.

Social awareness about the problem of sustainability of public health spending while maintaining high prices is the fundamental reason for an ambitious popular legislative initiative that seeks to obtain up to 500,000 signatures to "address the lack of transparency and the pricing system" to obtain medicines at a fair price (more information can be found here). That society is informed about the causes and effects of a problem, and that it shows its ability to react to it, is an important first step in reaching a more reasonable agreement on how drug prices should be set.

In a recent report by the Fundación Alternativas, "Monopolies and drug prices: an ethical and public health problem", which Cristina Roure already told us about in this blog, Ramón Gálvez and Fernando Lamata propose a series of short-term measures that could be established both at the national level and in the coordination between various governments: "Reduction of prices (setting them by real cost and not by the value considered); strengthening the negotiation capacity of public administrations with the establishment of a single large buyer, instead of segregating it into 17 autonomous buyers; promotion of modifications in European legislation on exclusivity to apply for compulsory licenses; increase in direct public investment in R&D; complaint of violations of the Treaty on the Functioning of the European Union about competition; promoting the participation of health professionals and seeking the support of society as a whole".