Providing Essential Medicines While Encouraging Innovation

In class, we discussed the need for neoliberalism to incentivize innovation, especially of pharmaceutical products. We also discussed the problems with neoliberalism in allowing access to essential medication. They are seemingly conflicting in nature. After doing some research, I have discovered an article with two creative solutions to this problem. This is what Jayadev and Stiglitz suggest:

We here proffer two proposals that should be considered: (1) replacing existing price-regulatory structures with a value-based approach to pricing; and (2) moving toward public funding of clinical trials. The former can serve to realign national regulators’ budgetary allocations in a non-arbitrary fashion to maximize access to innovative drugs. The latter could simultaneously direct research into more productive areas and reduce the cost of drug development, while having a number of potential ancillary benefits.

I believe these are steps in the right direction. Many times, especially with cancer drugs, new drugs will come on the market that has been shown to increase survival by a month or two. These drugs, however, may cost upwards of hundreds of thousands of dollars and cause awful side effects. If we used value based purchasing, pharmaceutical companies would not invest in products that offer little benefit to the consumer and be able to charge so much for them.

Currently, the pharmaceutical industry creates a drug and then sets whatever price they want. When they set prices for drugs, they take into consideration how to maximize their profits. If we changed to a value-based pricing approach, pharmaceutical companies would no longer set their prices however they see fit. Rather, in countries which have a single payer model through the government, the government will decide how much a drug is worth. They would do so using measures such as the QALY or DALY. These measurements, as we discussed in class, are imperfect, as they do not consider social implications. They would, however, help focus pharmaceutical companies on products which would be of more benefit to society.

The next question is who will determine how much patients are willing to pay for a drug? The answer to this is not policymakers, as they may have limited clinical knowledge. It should be managed care pharmacists. These are pharmacists who understand how to evaluate clinical evidence for their clinical significance. They understand the use of DALYs and QALYs and have no stake in the profits of a drug. This would be flawed if managed care pharmacists are lobbied to by pharmaceutical companies or patients. Therefore, laws should be in place to prohibit such activity.

The next proposal suggests moving toward public funding of clinical trials. While this would certainly focus researchers on exactly what consumers want, it has many drawbacks. As discussed in the article we read by Kremer, there are two types of funding: push and pull. Push funding rewards outcomes, whereas pull funding pays in advance (Kremer, 2002). This proposal would be an example of pull funding. Pull funding is not always as efficient, as research is paid for regardless of results (Kremer, 2002). In addition, a research project may not receive funding, even if it is near completion (Kremer, 2002).

Certainly, there is need for the pharmaceutical industry to be incentivized to create drugs that will benefit society, while not over spending on products that are only marginally useful. These are steps in the right direction, but much more needs to be considered in assessing best solution.

Kremer, M. (2002). Pharmaceutical and the developing world. The Journal of Economic

                Perspectives,16(4), 67-90.

Jayadev, A., & Stiglitz, J. (2009). Two ideas to increase innovation and reduce pharmaceutical

                costs and prices. Health Affairs, 28(1), 165-168.