The myth of the big bad drug companies

[2bthinner!]

http://www.latimes.com/news/printedition/opinion/la-oe-epstein22dec22,1,6350430.story?coll=la-news-comment

The myth of the big bad drug companies
They're not greedy, they're over-regulated. The result is fewer pills to cure our ills.
By Richard A. Epstein
RICHARD A. EPSTEIN is a professor of law at the University of Chicago and a senior fellow at the Hoover Institution who has often consulted for the pharmaceutical industry. His recent book is "Overdos

December 22, 2006

THE PHARMACEUTICAL industry is getting bad press. Recent books by Marcia Angell, the former editor of the New England Journal of Medicine, and Jerome Kassirer, another former editor of the journal, have harshly condemned the industry for recklessness, insensitivity and all-consuming greed. They gain sales by spicing up their titles with inflammatory phrases about "deception," "complicity" and how drug companies "endanger your health."

I take a different approach. I don't defend every business decision made by the great pharmaceutical research houses. To the contrary, much recent commentary suggests that many such companies have committed themselves to a blockbuster-drug model — in which a company's success or failure depends on a few vital, high-selling drugs — that may prove unsustainable over the long haul. If so, I believe that those firms should suffer the financial consequences of their mistaken business choices. Government bailouts are no more appropriate for Merck and Pfizer than they are for Chrysler or Ford.

Nonetheless, critics like Angell and Kassirer are absolutely wrong to portray the nation's big drug companies as heartless, avaricious behemoths that act in whatever manner they choose and always get their way. The truth is, the pharmaceutical industry is too heavily regulated. Its big problem today is not that it's free to run roughshod over the needs of consumers, but that it operates in a hostile and excessive regulatory environment that frustrates sound business decision-making and keeps down pharmaceutical company share prices in the stock market.

Consider the following: Ever-tougher conflict-of-interest rules in the National Institutes of Health and such academic medical centers as the University of Pennsylvania, Stanford and Yale have reduced opportunities for fruitful collaboration between industry, government and universities. More stringent requirements for clinical drug trials — including rules that demand larger test populations and more extensive documentation — have reduced the flow of new drugs to market. (Between 1996 and 2000, the FDA averaged about 153 new drug approvals. Between 2001 and 2005, the number was down to 55, with only 15 in 2005 and 29 in 2004.)

In addition, the industry faces major liability risks. Consumer fraud legislation adopted in many states has generated massive, often eye-popping claims for refunds of the original purchase price — in some cases even for drugs that have worked as promised or on the part of people who have not taken the drugs at all.

All these developments spell higher costs for the companies. Simultaneously, regulatory attacks on the industry's pricing model, including recent proposals to have the government negotiate rates for all senior citizens covered under Medicare Part D, threaten its revenue stream. The pharmaceutical industry operates in a high-fixed-cost and low-margin environment. It costs, on average, more than a billion dollars to get the first pill to market. All subsequent pills, however, can be made and marketed for only a few additional dollars or cents. Of course, no user ever wants to pay the big bill for that first pill. Instead, each fervently hopes to pay as close to marginal cost for the subsequent pills.

The problem with that is that unless someone pays for developing that first pill, there's no second pill to take. The central challenge to drug pricing is to figure out, quite literally, who swallows (and in what proportions) that huge front-end cost. Unfortunately, no company has a precise method to fairly, reasonably and palatably allocate the cost of drug development among the varied classes of subsequent consumers — large HMOs, hospitals, full-service pharmacies and Medicaid for starters. Each buyer has a strong incentive to push as many of those costs as possible onto someone else.

The upshot is a rough-and-tumble bargaining game in which drug prices vary substantially across different market segments. But the corner drugstore doesn't have the same leverage to play one drug manufacturer off against another, so it usually pays higher prices for its wares than a large HMO. The resulting confusion leads to loud calls for equitable, industrywide price controls. But price controls would have the same dire consequences as they would in any other industry. Investment dollars will quickly move elsewhere if the regulatory system does not allow manufacturers to maximize their revenues over the useful life of the drug (which, incidentally, never exceeds the 11 or so years of patent protection).

Repeated studies, both domestic and foreign, have shown that price controls dull the incentives of pharmaceutical companies to develop new drugs. Even talk of price controls depresses investment.

Because of its high-fixed, low-variable cost structure, the drug industry will never reach perfect competitive equilibrium. But in our second-best world, ponder carefully the different consequences of two strategies. The first seeks to expand supply by avoiding regulation and encouraging the entry of new companies into the business. The second seeks to hold down prices by direct controls.

The second approach leads to low prices today but systematic shortages tomorrow, while the first leads to greater innovation today and greater choice tomorrow. We must be careful not to mistake price controls for a cure when they are in fact a disease. Let our new reformist Congress beware.

[2bthinner!]

The truth is, the pharmaceutical industry is too heavily regulated. Right. That's why there were two cholesterol controlling drugs, recalled for deaths.

ETA: It doesn't help that when some people complained to their doctor about their symptoms (there's one poster on this board) they are told it's "age" or "inactivity". Couldn't be a problem with the drug... :rolleyes:

I know that there are many caring doctors out there. But, there are a lot of them who think that their MD status covers everything. And it doesn't. There is only one God. (I really hate those that say stuff like; who has the medical degree here? The poster had a great answer, which I will use if necessary. "Who here has to live with the consequences?")

[ojoj]

"The truth is, the pharmaceutical industry is too heavily regulated."

Well lets hope it stays that way. Can you imagine what they'd be like if this wasnt the case???

Jo

[Nancy LC]

Anyone interested in the subject should read "The mould in Dr. Florrey's Pocket", it is about the discovery of penicillin. One of the only books to credit the development to the right people, btw. Anyway, after it was developed but not really in production the scientists worked really hard to try to interest Pharma companies in producing it. They were TOTALLY uninterested. They didn't want the burden or cost of figuring out how to ferment the stuff. It wasn't until someone finally figured out how to produce it in large quantities that they pretty much stole penicillin for themselves.

This was in the 1940's. So they've been acting like jerks for quite a long time now.

[Dodger]

Seeing as how he makes his living from the big drug industry
RICHARD A. EPSTEIN is ... has often consulted for the pharmaceutical industry. , Mr. Epstein is hardly unbiased.

[2bthinner!]

Seeing as how he makes his living from the big drug industry

I saw that too. He makes it almost sound like designing clothes or something.

I don't defend every business decision made by the great pharmaceutical research houses. To the contrary, much recent commentary suggests that many such companies have committed themselves to a blockbuster-drug model — in which a company's success or failure depends on a few vital, high-selling drugs — that may prove unsustainable over the long haul. If so, I believe that those firms should suffer the financial consequences of their mistaken business choices. Government bailouts are no more appropriate for Merck and Pfizer than they are for Chrysler or Ford. HOWEVER, your doctor doesn't tell you that if you don't go buy a new Chrysler or Ford that you'll die of a heart attack or stroke!! And my doctor was insistent that I go on some cholesterol reducing drug. Um, NO. I cited the recent recalls. Not to mention that if my GOOD cholesterol was lower, my cholesterol wouldn't be "high". You can't compare a "luxury" item to something your doctor is telling you is "vital" to your life.

[ysabella]

I think it's true that the system could be better. There is a lot of worthless, time-wasting red-tape regulation of various health practices. I think that a case can be made for less, and better, regulation of drugs and of medical practice. The whole system could stand to be WAY more efficient.

That said, there are still going to be new drugs that cause harm and even death in some cases. There can never be enough testing to totally prevent any of that from happening. For some cures, that risk is acceptable.

2bthinner wrote: HOWEVER, your doctor doesn't tell you that if you don't go buy a new Chrysler or Ford that you'll die of a heart attack or stroke!!

I'm not sure what you mean, though. Surely you don't think the government should bail out pharmaceutical companies that fail and go bankrupt?

[2bthinner!]

No, I guess what I wasn't saying very well, is that I just don't think he should compare the two. One, buying a vehicle, is a choice and it's not life threatening. The other, I guess is still a choice, but I feel we're getting pushed into taking these drugs that companies are manufacturing. Whether it's appropriate or not. ie many statins haven't been proven to be beneficial for women in the first place. It makes me think of that Star Trek episode where the one planet "needed" this medicine for their plague. Well, their plague had been gone for generations, but the "medicine" was addictive and they would get withdrawal symptoms so they thought they needed it. And the other planet knew it, and was living off of them buying this "medicine" that they didn't need in reality.

[LC FP]

time-wasting red-tape regulation
The FDA makes drug companies run studies that prove their drugs are safe and effective. That doesn't sound too burdensome or outrageous to me.

There are 2 problems, though. The drugs aren't monitored after approval to see if they are really safe. Many people must die before 2 and 2 are put together.

Secondly the drugs don't need to be more effective than existing drugs. They only need to be more effectrive than no drug. They may be less effective than existing drugs, it doesn't matter. Smart promotion to doctors and consumers can sell almost anything.

Marcia Angell is right on in her destruction of the industry in her book The truth about the drug companies. I'd suggest reading it before deciding on its merits.

[ysabella]

The FDA makes drug companies run studies that prove their drugs are safe and effective. That doesn't sound too burdensome or outrageous to me.
I didn't mention the FDA; I was way more general, and I meant not only drugs, but medical care and other things. I certainly didn't say to throw out all standards/enforcement.

Here's what I was actually thinking about when I wrote that:
I go for one routine medical checkup and get a freaking avalanche of paperwork for it. I pay a copay at the desk, and get a receipt. The doctor's office mails my health insurance a bill; I get a statement from the health insurance company about what they paid, and they mail a check to the doctor's office. I then get a bill for any remainder from the doctor's office, which I have to mail back with a check. That's five pieces of mail from one office visit. And of course, if I had any lab work, that's a separate order, a separate note from the insurance company, and a separate final bill. Surely that costs money, to generate all that paper trail? And for WHAT? It annoys me, and I know I'm paying for it, which annoys me even more. :mad:

The health insurance company now offers paperless interaction, when I can go online to check my claim status, so that's an improvement. But still...what a stupid mess.

There are 2 problems, though. The drugs aren't monitored after approval to see if they are really safe. Many people must die before 2 and 2 are put together.
I'm not sure if there is a formal, official obligation but there is a system in place. That is one of the good things done by the FDA - tracking nationwide health statistics, very important. Patients are supposed to be warned about potential side effects (those written drug inserts are required by law) and report back to the doctor. Doctors help the patient (changing meds if needed), make notes in the chart, and report the side effect (generally to the FDA). At least, they are supposed to; I don't think there's any penalty if they don't, but surely they recognize the value.

But a lot of this ends up in court, and the decision as to whether harm was done falls into the hands of laymen who aren't doctors. For an example, there's the history of a drug called Bendectin, which was made up of B6 and an antihistamine and was used to treat morning sickness for pregnant women from 1956 to 1983. It was then pulled off the market - voluntarily - because of court cases claiming that it caused birth defects. Unfortunately, the incidence of birth defects was demonstrably not higher when pregnant women took the drug vs. not taking it, but women who took it and gave birth to children with defects blamed the drug.
The end result was, the safest treatment for nausea went away, so pregnant women had fewer (and worse) choices for handling it. Not a positive result. Although some doctors did tell women to combine B6 and certain Unisom tablets to make the same thing (a friend of mine used that).

Secondly the drugs don't need to be more effective than existing drugs. They only need to be more effectrive than no drug. They may be less effective than existing drugs, it doesn't matter. Smart promotion to doctors and consumers can sell almost anything.
They have to be more effective than placebo and they have to pass through quite a lot of trials. But the way drug companies are trying to squeeze more profits these days is by redoing existing drugs for which the patent may be expiring - releasing them in a new format such as time-release or the newer powdered asthma inhalers. The company can patent this new format, and then they push that product by spending a lot on advertising. But I do feel everyone is told about generics - if not by their doctor, then by the pharmacy, and possibly by their health insurer.

Marcia Angell is right on in her destruction of the industry in her book The truth about the drug companies. I'd suggest reading it before deciding on its merits.
I found this (http://www.nybooks.com/articles/17244), which is a good read. Thanks.

[ReginaW]

I go for one routine medical checkup and get a freaking avalanche of paperwork for it. I pay a copay at the desk, and get a receipt. The doctor's office mails my health insurance a bill; I get a statement from the health insurance company about what they paid, and they mail a check to the doctor's office. I then get a bill for any remainder from the doctor's office, which I have to mail back with a check. That's five pieces of mail from one office visit. And of course, if I had any lab work, that's a separate order, a separate note from the insurance company, and a separate final bill. Surely that costs money, to generate all that paper trail? And for WHAT? It annoys me, and I know I'm paying for it, which annoys me even more.

Totally! And, how about the letter from the insurance company that they're reviewing the claim - I get one of those too as if I need to know they got the paperwork from the doctor's office and are now making a decision - HELLO - just pay the doctor, don't waste my time with a letter telling me you're looking at the paperwork you just got and then have to send me an EOB once you pay the doctor (or deny payment hoping I won't notice it is something you're supposed to pay and now have to start the process again to get you to pay!)

[Lisa N]

I go for one routine medical checkup and get a freaking avalanche of paperwork for it. I pay a copay at the desk, and get a receipt. The doctor's office mails my health insurance a bill; I get a statement from the health insurance company about what they paid, and they mail a check to the doctor's office. I then get a bill for any remainder from the doctor's office, which I have to mail back with a check. That's five pieces of mail from one office visit. And of course, if I had any lab work, that's a separate order, a separate note from the insurance company, and a separate final bill. Surely that costs money, to generate all that paper trail? And for WHAT? It annoys me, and I know I'm paying for it, which annoys me even more

This is beginning to change, Ysabella. I work in the medical insurance industry and can tell you that providers have the option of submitting claims electronically via the internet or through vendors that perform those services and that we offer our subscribers the option of electronic EOB as well as a host of online self-serve options relating to their coverage and questions about their claims. Companies as a whole are moving towards a paperless environment; it's faster, more cost efficient and wastes less natural resources; probably 75% of our claims are handled electronically today. Why don't all companies do business this way? HIPAA regulations that require lots and lots of safeguards to make sure that protected health information (PHI) doesn't fall into the wrong hands, not only on our end, but on the doctor's end as well. Some offices decide that it's less expensive for their practice to continue submitting paper claims than it would be to put the money into the e-claims technology. The technology is available, but for one reason or another, not everyone chooses to use it.
Also, administrative costs are a very small percentage of an insurance company's overall budget; the majority of it goes into paying claims. Better to look at how much your doctor (and the lab and the radiologist and the pharmacy, etc..) charges than to complain about the cost of processing your claim; that's what's driving the cost of health insurance. :idea:

[ceberezin]

The original article is based on a number of assumptions which are demonstrably false:

1. All research done by drug companies benefits the public, and for-profit corporations are the appropriate bodies to be conducting that research.

2. The job of the drug companies is to keep the flow of new drugs moving; all new drugs benefit the public.

3. Anything that increases corporate expenses is bad for the consumer since corporations have an alienable right to pass on all costs to the consumer.

The only way these assumptions could be even partially correct is if drugs were commodities, like nails or logs.

[ysabella]

ceberezin, that's interesting. Can you now demonstrate why these are false?

[ceberezin]

Some of the explanation for these statements has already occurred in this post, some even referenced by yourself. At the risk of being repetitive, I shall attempt a response as to why these assumptions are false.

1.All research done by drug companies benefits the public,
and for-profit corporations are the appropriate bodies to be
conducting that research.

During my stint working in the pharmaceutical industry, I saw that one of the primary concerns of the development group is that they develop a drug that gets paid for. They carefully consider the different payment schemes around the world and concoct a molecule that fits into these payment schemes. It’s hardly an altruistic process. As Marcia Angell points out, much of the research for which the costs get passed on to the consumer goes into slight modifications of an existing molecule to extend a patent or to get around a patent owned by another drug company, resulting in “me too” drugs. Why do we need multiple versions of statins when one or two versions would be just as ineffective? The research to do that does not benefit the public in any way, and, as readers of this bulletin board are aware, it is highly questionable whether the original research that produced statins did much good, yet we’re paying for it.

The California Stem Cell Initiative provides an interesting alternative to drug company research which deserves to be considered as a general model. The cost of the research is paid by a public bond issue. The research is overseen by a mixed academic-government board for whom conflict-of interest is minimized because they do not share in the profits of the research. The patent for any resulting drugs is owned by the people of California, and profits go to pay off the bond. The only role for drug companies is to compete for a license to manufacture and distribute the drug, which is the only role they should ever have. I doubt that this model would produce the plethora of “me too” drugs currently on the market. Drug companies like to claim that their development costs justify their exorbitant prices, so let’s take development away from them.

2.The job of the drug companies is to keep the flow of new
drugs moving; all new drugs benefit the public.

All drug companies maintain a development pipeline as the key to their profit margin. Even if they have a blockbuster drug, they know very well that their stock price depends on what’s in the pipeline, and the job of corporate management, these days, is to defend the stock price above all. As a result, drug companies view diseases as marketing opportunities and have a vast array of techniques to manipulate the market, from labeling, to providing free physician continuing education, beauty queen sales reps, and paying “key opinion leaders” to influence other MDs. Manipulating research data and publications is only the tip of the iceberg. The flow of drugs is designed to benefit the stock price, not public health.

3.Anything that increases corporate expenses is bad for the
consumer since corporations have an inalienable right to
pass on all costs to the consumer.

I realize that this is a basic tenet of capitalist economics, but I feel obliged to challenge it anyway. Specifically, with regard to the drug companies, I think we have shown that the vast majority of development costs has nothing to do with improving our health. Even so, much of the costs the drug companies pass on to us is not development costs at all, but marketing costs. All those annoying, misleading ads we see on the evening news cost a lot of money. If these drugs were such wonderful health-improving necessities, why would they need to be advertised at all?

Drug pricing is an art form that has very little to do with costs, anyway. Drug companies divide the world into “payer environments” and calculate what they can get away with in each environment. That’s why the same drug is so much cheaper in Canada than in the US. Canada, with its National Health Service, is a different payer environment that will not tolerate the price that is acceptable in the US, where Congress prevents Medicare from negotiating drug prices.

Let the public bear the cost of improving public health, but that’s not what we’ve been paying the drug companies for. As I tell my children: never trust health information from someone who’s trying to sell you something. Why do we assume that the drug companies are any better than the tobacco companies?

[LC FP]

Why do we need multiple versions of statins when one or two versions would be just as ineffective? The research to do that does not benefit the public in any way, and, as readers of this bulletin board are aware, it is highly questionable whether the original research that produced statins did much good, yet we’re paying for it.
Haha. ce you slay me!

But you're right, we really are paying for it. In this recent N+M article the researchers determined the prevalence of statin use at Time 1 (FHS T1) which was approximatley 1995, and at Time 2 (FHS T2), approximately 2002, to be 1% and 24%, respectively. This is for US adults aged 20-70.

In the FHS-T1 there were 0.98% of subjects that used cholesterol lowering drugs and 19.1% that used anti-hypertensive medications. In the FHS-T2 this group broadened to 24.5% that used anti-hyperlipidemics, and to 33.5% that used anti-hypertensive medications.

http://www.nutritionandmetabolism.com/content/3/1/41

1% of US adults is probably about 2 M people, and 24% would be about 50 M. Talk about an effective job of marketing!!!

You also make a lot of other great points, but none more true than this one--

paying “key opinion leaders” to influence other MDs
In my medium sized town, a few specialists service a bunch of family doctors. The cardiologists present some of the "grand rounds" at the hospital on Friday mornings, and discuss the wonders of statins and Plavix etc. to us peons. And how not using them is probably malpractice. Plus they tell my patients the same thing, and when they get them in the hospital they start them on Lipitor, no matter how high their HDL is. I don't know if any of them are on the speaker's bureau of any drug companies, but I know they have all participated in numerous drug trials of various new drugs. (Plus their office staffs haven't had to buy their own in years.)

[ceberezin]

In my medium sized town, a few specialists service a bunch of family doctors. The cardiologists present some of the "grand rounds" at the hospital on Friday mornings, and discuss the wonders of statins and Plavix etc. to us peons. And how not using them is probably malpractice. Plus they tell my patients the same thing, and when they get them in the hospital they start them on Lipitor, no matter how high their HDL is. I don't know if any of them are on the speaker's bureau of any drug companies, but I know they have all participated in numerous drug trials of various new drugs. (Plus their office staffs haven't had to buy their own in years.)
How insufferable to be patronized by fools and knaves! Their giving your patients advice without your consent or knowledge strikes me as unethical.

[2bthinner!]

when they get them in the hospital they start them on Lipitor, no matter how high their HDL is. That's scary. My doc put me on iron pills, which my research showed will increase your LDL, then wanted to put me on some (didn't give me a name) cholesterol lowering pill. I flat told him no. Then, the next appt., he's like "We'll see what your cholesterol is and then get on something, yes". I'm like. NO. Those things are killing people. They've taken two off the market and I'm not taking any. Period. Then he's like, "Okay, okay, if you don't want to take it, you don't have to." Well, I knew THAT!

ETA: The thing is though, a LOT of people won't tell their doctor no. My mom won't. But, what she does, is nod a lot and never fill the script.. :lol:

ETA: my cholesterol
9/14/06 My non fasting numbers were

235..Total cholesterol ( Range 100-199)
..51..Triglycerides (range 0 really? -149)
..75.. HDL (shows up in abnormal column! ) (40-59)
...3.1 CHOL/HDL Risk (acceptable range 0 to 4)
160...NON HDL (acceptable range 0 to 0, guess they want to see it no matter what)
150..Calculated LDL (range 80-130)


10/31/06
230...TC
..64...Triglycerides
..67...HDL
150...LDL