Book review: Reasonable Rx: Solving the Drug Price Crisis by Stan Finkelstein and Peter Temin.
This book provides a mediocre analysis of what is wrong with drug prices, and presents a solution that is probably a nontrivial improvement on the status quo, but isn’t the most thoughtful solution I’ve seen.
The most important complaint of the book boils down to the fact that knowledge about drug safety and effectiveness is a public good, and the current method of rewarding drug companies for producing that knowledge is mediocre (although the book presents it less clearly than that and seems as interested in blaming drug companies’ lack of altruism as it is in analyzing the incentives).
For example, it is sometimes possible to identify biomarkers which indicate that a drug will be ineffective in a patient, but that would often reduce sales of the drug.
They complain that the current focus on producing a few very profitable drugs is an obstacle to creating personalized treatments. But they do little more than imply that drug companies are misjudging the available opportunities, without presenting any clear evidence that the authors’ have better judgment about what’s feasible.
Their proposed changes to the drug industry involve separating drug development and drug marketing/manufacturing into two different sets of companies, and using a combination of subsidies and contractual price controls (negotiated by a government sponsored nonprofit) to lower the prices of drugs.
They didn’t convince me that splitting drug companies will produce any significant benefits, although I also don’t see it producing harm.
The subsidies and price controls are likely to help mitigate some of the problems created by the patent system. Their attempts to show that this solution is better than Kremer’s patent buyout proposal suggest they don’t understand how much harm patent monopolies cause. Their subsidy mechanism isn’t clearly tied to benefits (unlike proposals for prizes based on Quality Adjusted Life Years). They claim drug prize proposals set arbitrary values for drugs and that their auction system produces a less arbitrary market price, but the subsidy part of their part of their system is at least as arbitrary, and their market based prices reflect the value of an arbitrary patent duration.
Their claim that Medicare savings will pay for their subsidies seems deceptive. When estimating the Medicare savings, they appear to rely on an assumption that prices of existing drugs will drop by a large amount. Yet when estimating the subsidy costs, they appear to count only the costs of subsidizing newly introduced drugs.
They are too quick to complain about drug companies medicalizing conditions that are mere inconveniences. E.g. they say Flomax does nothing more important than reduce sleep disturbances. This ignores the evidence that sleep disturbances cause significant health problems.
The chapter “Are Drug Companies Risky?” is pointless because it only evaluates the most successful companies (i.e. those whose gambles have already paid off).