Oregon’s naked truth on drug pricing

Clearly there is a drumbeat to address the problems related to the costs driving health care. However, the current picture painted by the media — or insurance executives — is neither broadly accurate, nor proportionate.

Historical and present trends show pharmaceuticals represent just 10 percent of the total costs of health care—a percentage that’s remained stable for decades. This demonstrates the cost of health care will probably not be impacted by focusing exclusively on such a small, fractional driver of the total health care budget.

Considering this, naysayers have focused almost exclusively on the most inflammatory “corner-case examples.” This does little to solve the overall problem.

In particular, it is important for us to consider more than just the upfront costs of today’s miracle drugs. Yes, front-line drugs to treat hepatitis, HIV, cancer and other conditions often carry big price tags. But those initial costs are only a fraction of the equation.

Consider the evidence. The introduction of antiretroviral therapy in the mid-1990s to treat HIV/AIDS. At the time, these drugs were also considered expensive but provided much-needed relief from what had been a uniformly deadly disease. The therapy’s ultimate dollar value in lives saved has been enormous; its emotional value incalculable.

As public health improves – most often when the right medicine is delivered at the right time – these breakthroughs will continue to provide tremendous value for both individuals and society. Since 1991, the overall death rate from cancer has fallen by 20 percent. That’s real people who can proceed with their lives: working, contributing to society, having children. One estimate puts the societal value of cancer medicines at $1.9 trillion.

The opportunity cost of not introducing new therapies and technologies is also an important consideration. As noted above, bringing new medicines to patients is expensive, approaching $2.5 billion per drug and taking as long as 20 years.

Reduced investment, and increasing barriers by insurers to access, could deny future patients the benefits of breakthrough therapies as investment in these inherent risk endeavors.

If past market behavior is any indicator, we will see pricing on the latest round of newly approved drugs (a record number in the last several years) come down in price as competitive products are released. It would be very misguided to react to a short-term trend with potentially crippling long term legislation.

There’s no question that we need to analyze the high costs of health care, but there are many factors to consider. Any cost assessment must include opportunity costs, short-term pricing aberrations and the societal benefit of reduced mortality and increased productivity.

By these metrics, breakthrough drugs not only deliver solid value now, but provide the basis for future innovative breakthroughs in the future.

The vast majority of biotech companies are pre-revenue enterprises focused on innovative R&D to develop novel products. In fact, of the approximately 1,200 biopharma companies in the United States, upwards of 90 percent do not earn a profit. Yet these small companies are developing more than 60 percent of the new products, providing hope to patients and their families facing so many life-threatening diseases.

These companies depend on a carefully balanced system that requires billions of dollars in private investment to further the research and development needed to bring these new cures to patients, and this unique aspect of our industry must be part of any serious debate. All while facing the ultimate fate of competing against companies who will commoditize their discovery once their patent coverage expires.

Oregon Bio hopes future discussions of health care costs include a proportionate analysis of how the other industry stakeholders responsible for other 90 percent of our nation’s health care costs can participate in lowering costs.

Above all, the United States must be careful not to endanger the free market characteristics that stimulate the medical innovation and our best hopes to fundamentally improve the health of future generations.
Dennis McNannay is executive director of the Oregon Bioscience Association. This column is a response to the Oct. 20 piece “How to fight back against drug price gouging — in Oregon and beyond.”

Dennis McNannay
Oregon Bioscience Association
Nov 9, 2015

Portland Business Journal




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