NCPA - National Center for Policy Analysis

THE WRONG ANSWER TO HIGH DRUG PRICES

March 10, 2009

In state-run health care systems, cost pressures typically prompt governments to ration access to treatments for patients, often via waiting lists or low usage of medical technology.  In order to provide a veneer of scientific rationale for these restrictions, governments often employ cost-benefit analyses, known as "health technology assessments" (HTAs), says the Fraser Institute.

Though these assessments may save money in the short term, they unleash a number of hidden economic consequences creating undue distress for dying patients.  Many countries are increasingly turning to these types of "comparative effectiveness" reviews to restrict access to expensive new drugs, says Fraser:

  • In 1988, Canada instituted a Health Technology Assessment program in Quebec; today, HTAs are widely used at the national and provincial level.
  • Since 2004, Germany's Institute for Quality and Economic Efficiency in the Health Care Sector has provided "comparative effectiveness" information to health care insurers.
  • Even the United States is poised to give more prominence to HTAs, as President Barack Obama has proposed to "establish an independent institute to guide reviews and research on comparative effectiveness."

But before marketing approval for a drug can occur, it must pass through 4 phases of clinical trials, says Fraser:

  • Less than 1 in 1,000 makes it past the first stage and the chance of a drug making it to approval are less than 0.03 percent.
  • Moreover, every year, regulators add more mandatory tests; as a result, the average cost of bringing a new drug to market has risen from US$119 million (1975) to almost US$900 million (2003).

To solve the problem of high drug prices, it is necessary to radically overhaul the drug approval process.  One solution is injecting a degree of competition.  Bringing in competition could liberate innovation, speed up the development of new medicines, remove the need for expensive surgery and limit the need for costly in-patient care.  This would be good for patients and health care funders alike, says Fraser.

Source: Philip Stevens, "The wrong answer to high drug prices," Fraser Forum, February 2009.

 

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