Friday, October 29, 2004

Sanity and Prescription Drugs

This is a remarkably good Malcolm Gladwell piece in the New Yorker about the truth behind prescription drugs. Personally, I find the current hatred towards companies that have done more to prolong and improve human life than any other indicative of how difficult it is for people to think sensibly about healthcare. I've used the Behavioral Economics example to illustrate this before, so I'll point to it again now.

The piece by Gladwell is a response to Marcia Angell, ex-editor-in-chief of The New England Journal of Medicine, who has written a recent book called "The Truth About the Drug Companies: How They Deceive Us and What to Do About It". I have not read the book but I think the title says it all--greedy drug companies waste too much money on cooking up "me-to" copy-cat drugs and advertising, instead of focusing on real research, which results in these crazy high prices we have to pay nowadays.

While haven't read Angell's book, and I don't intend to, based on my experience, being a doctor does nothing to improve one's understand of the pharmaceutical market (apologies to my wife). While I am sure that drug companies engage in all sorts of shady practices, government research efforts would be as shady but without the results, and taking money away from drug companies would only reduce the quantity and quality of new drugs. So while I am open to the drug industry needing more competition and accountability, I don't think it is bad the way Angell seems to. In fact, I think it is great.

Some interesting points from the Gladwell piece include the (obvious) point that the meme of high cost drugs only apply to new, brand name drugs still under patent, and that generic drugs (which work just fine) are cheaper in the US than anywhere else. While people may feel that people have a "right" to free medicine, it's not clear that they have a "right" to the latest and greatest drug that just came out for free.

I was also interested to learn that most of the increase in drug spending comes from higher quantities of drugs being taken, not higher prices for drugs. So, some combination of more people taking a particular drug, and individuals taking more drugs, leads to higher quantities, with prices being the same. Beating on pharmaceutical companies will do nothing to fix this "problem" because they have nothing to do with how many people take a drug or how many different drugs they take. Volume is driven by customers, not companies.

Finally, ironically, the "me-to" drugs that pharma-bashers hate so much actually drive prices *down* because they produce more substitutes, and therefore introduce competition (which lowers prices).

If the main problem is around volume, then the solution rests on giving people who make decisions around consumption (third party payers, prescribers, and patients) the right incentives.

Anyway, it's worth reading the whole thing. It's also worth reading this Arnold Kling post on the same article.


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