Why drug price regulation should not be ruled out

I’m a proponent of free markets and in general defend drug companies in their price setting, especially when they’re introducing new, innovative products with real clinical and financial benefits. See, for example, Hooray for high-priced hepatitis treatment Sovaldi.

But we have to remember that the reason high prices can persist in the market is that drugs are protected by patents and other restraints on competition such as the orphan drug law. Those rights are monopolies granted explicitly by the government. There’s really nothing free-market about them. Since the government grants these rights it should also be able to regulate the benefits that result from them.

In many cases the government wisely stands back and lets the market do its work. The generic market for small molecule pharmaceuticals is a case in point. When it works well –which is most of the time– prices fall by 90 percent or more once a patent expires.

But there are exceptions, where the government should consider stepping in. One example (highlighted on this blog in 2007: Abusing the orphan drug law to rip off customers) is when an old, generic drug gains new intellectual property protections for a use that is already common.

Another example that’s becoming more common is when large molecule drugs go off patent. The government is making a big mistake with its ‘biosimilar’ approach, which wrongly tries to apply the generic drug precedent to products that can’t be copied exactly. Instead, as I’ve been advocating since 2006 (A better idea than biogenerics) would be better to leave the original manufacturer with a monopoly, post-patent expiration but to regulate the price. This would be fairer and safer for patients.

We’re hearing a lot of noise about drug prices from politicians, doctors, drug companies, and patients. I won’t repeat what they say here, since you can easily find it elsewhere. This is a substantive issue, with no black and white answers. I’m glad to see it being brought forward into the public sphere.

—

By healthcare business consultant David E. Williams, president of Health Business Group.