Prescription Drugs
Richard A. Epstein has written an interesting article about a couple of books that criticize the Drug Industry. He gives some very good reasons why some of these criticisms haven't been thought through properly.
Jerome P. Kassirer and Marcia Angell, both former editors in chief of The New England Journal of Medicine, are two of the industry's harshest critics. The titles of their new books - On the Take: How Medicine's Complicity with Big Business Can Endanger Your Health and The Truth About the Drug Companies: How They Deceive Us and What to Do About It, respectively - reveal Kassirer and Angell's shared conviction that the current practices of pharmaceutical firms border on intentional misfeasance. But the authors are wrong. Their inability to grasp fundamental economic principles about market incentives, gains from trade, the time-value of money, and the importance of innovation leave the authors open to easy attack. Reading these books, I felt proud to be an occasional consultant for PhRMA, the industry trade association, and Pfizer, the largest pharmaceutical firm.I generally think that our drug industry is producing miracles and that we would be unwise to tamper with it, especially to tamper with it in a revolutionary manner. That doesn't mean it is above all criticism, or that we can change any of the regulations governing it, but that we should be very careful in doing so.
posted by Dave Justus | 1/12/2005 10:59:00 AM
3 Comments:
Given my recent post on this topic, I suppose that you would know that I'd want to respond. I can't resist pointing out that Richard Epstein is well known in legal circles for being somewhat on the fringe. The man is respected, no doubt (he wrote my law school torts casebook), but he is perhaps most famously known for arguing that there should be no laws against racial discrimination, because the free market would take care of all that. Add to that his (admirably) disclosed status as being on the payroll of drug companies, and I'm taking a lot of what he says with a couple of salt shakers. Sorry, had to get the ad hominem stuff out of my system -- I promise to just address the substance of the argument from here on out! Here goes:
I haven't read the two books that he references, so I can't comment on his characterization of their arguments, but I did just read "Powerful Medicines" by Jerry Avorn (a Harvard Med school professor), and a lot of what I'm commenting on is based on Avorn's book.
The biggest problem I have with Epstein is his defense of redundant new drugs. Avorn's book cites a study that 75% of new drugs represent no advancement over what's available. Epstein makes two arguments in favor of redundancy: new drugs will compete with what's out there in the marketplace, the implication being that the consumer will benefit, and redundant drugs are a safety valve in case it turns out that there's something wrong with one of the available drugs.
The two drugs that Epstein cites, however, don't prove his point. Vioxx and Celebrex were pointless drugs to bring on the market, as they duplicated drugs that were already available. The reason drug companies do this is because the real source of their profits are temporary monopoly pricing power patents give them. When patents expire, the drugs may be produced generically and much more cheaply -- the real benefit to the consumer. New copycat drugs are a way for companies to get new patents to milk for inflated profits -- they don't really represent an increasingly competitive marketplace that benefits consumers. And for the safety aspects? The study Avorn cites also takes into account drugs that replicate what is already out there but don't have some of the negative side effects. The life of the patent is long enough to gather epidemiological data to assess the safety of the drug (which Avorn goes into almost painful detail about). The old reliables that are now generic are a lot more likely to be safe than the newer Vioxxes and Celebrexes.
How would you possibly get people to prescribe drugs or buy them if they do the same thing but are more expensive than available drugs? As far as buying the drugs, medical patients aren't like ordinary consumers -- if my doctor prescribes something I feel that I'd better take it. Doctors are persuaded by the advertising Epstein defends. He thinks that doctors won't let advertising get in the way of letting their best judgment guide their prescribing patterns. However, Avorn disputes that in his book. Avorn points out that prescribing is not taught in medical school, that the merits of various drugs are not universally known (most of them are dissected in medical journals that doctors may or may not read, but don't have to), and that continuing medical education requirements are inadequate to the task of educating doctors about prescriptions.
In other words, doctors often have no idea that the pill they prescribe does the same thing as a generic pill but costs five times as much. That's not the model for the consumer in a competitive market economy. Drug company advertising and wining and dining obscures much more than it elucidates.
Lastly, Epstein criticizes the idea of price controls. I don't know what kind of model of price controls are advocated in the books Epstein reviews -- I didn't read them. Avorn talks about one congressional attempt in 1980 to "regulate" drug prices that the drug companies lobbied furiously against that went down in defeat. The bill recognized that a good part of the research that goes into new and innovative drugs is not in fact done by the drug companies but by the government (the National Institutes of Health, mostly). The bill would have limited to some extent the money that could be gained through the extremely lucrative patenting process to reflect the fact that the drug companies were not the ones who put their cash at risk in the R & D.
Patents don't exist in a state of nature. They are a government grant, given to advance the policy of increasing innovation. As they are a governmental interference anyway, what's wrong with tweaking them to give the government researchers their due and cutting the corporate welfare a bit?
Avorn points out that other countries regulate their drug prices more than the U.S. does -- that's why identical drugs are so much cheaper in Canada. Yet on all major health indices, they are just as healthy, if not more so, than the U.S. (Strange how such an advocate of free markets as Epstein is mum on the issue of restricting Canadian drug imports.)
Anyway, interesting topic.
I did indeed expect a comment from you on this post, and am pleased to have recieved one. You make some good points but I think I have pretty good counters for all of them.
First, as to redundant drugs, I have not read the book you mention but a couple of quick questions pop to mind. First, how similar does a drug have to be to be considered redundant? You mention side effects, but I know for a fact that different people will have different side effects to the same drug, so a drug that is not an improvement in general my be a great improvement for an individual. In any event, the fact that the same thing can be accomplished in two ways does not seem to me to be a reason to only allow one of them to exist. I will freely admit that this distinction is clearer and easier to make when it is two companies we are talking about. The situation in which a company takes an existing drug and makes an 'improvement' to simply get a new term on a patent is far more problematic. The real problem here though, is what you talk about next.
If, and I see no reason to dispute this, Doctors have inadequate knowledge of what medicines are availible, and what their various benefits are then that is indeed a problem. Probably it is a problem that drug companies are exploiting. However, I do not see how not advertising drugs to doctors would make this problem less (unless you are happy with the idea that if drug companies don't advertise they will end up not making new drugs thus making it easier for doctors to keep current.) It does seem obvious to me that Doctors should be aware of as many drugs as possible and have a comprehensive knowledge of the benefits and detriments of each. Requiring a pharmacology class as part of medical school makes sense to me. I would even go so far as to support stricter monitoring and control of the sales tactics and information that drug companies are giving to Doctors but the idea that drug companies should not advertise at all seems very unwise and to be just a way to hide the problem, rather than deal with it.
As to the concept of government funding for private research that is indeed something that I, with my libertarian bent, am opposed to. I believe that a remedy could be crafted for this situation but it would be difficult as a lot of special interests (not just drug companies) would have a large stake in the outcome. That being said, there is plenty of government research that goes into other private industries and I fail to see a difference between the other industries and drug companies in this regard.
Patents are, as you describe, something that we can change. I would certainly be willing to look at other patenting schemes, as an aside, I think we need to look at how we deal with patents in regards to technology, particularly software. However, I think it fair to say, as I did in my post, that are drug companies are producing miracles and the incentive of profit is what makes that happen. Thus, I think we should tread carefully.
Lastly, in regards to price controls. You stated that 'Epstein is mum on the issue of restricting Canadian drug imports.' This is perhaps a common misconception. As far as I know, no one is campaigning for Canadian drug imports. What people want is re-importation of American drugs that have been sold to Canada. The difference is quite signifigant. The drugs in question are produced by American and sold to Canada for a slight profit above their production cost. The R&D for their development is pretty much entirely supported by American consumers. The drug companies sell these drugs to Canada at a low price because if they did not Canada would, in the interest of public health, allow Canadian companies to produce the drugs regardless of the patent held by the U.S. company. Therefor it is not surprising that Canadians are just as healthy as Americans but spend less money to achieve it. American consumers are subsidizing research into medicines for the rest of the world.
Am I happy with this situation? Not entirely. But I would rather pay for their research in addition to our own rather than not have the new drugs at all. Pretty much all the increases in life span over the past 2 decades (about 2 years if I remember right) has been attributed to the drug industry. In addition, quality of life improvements not directly related to lifespan have been made (Viagra anyone?) I certainly don't want to kill this golden goose.
Nice to see you V.F. Was sad to see your blog disappear.
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