Reciprocity and Muscular Dystrophy

by on February 15, 2017 at 5:18 am in Economics, Law, Medicine | Permalink

For years, muscular dystrophy patients in the United States have been purchasing the drug deflazacort — used to stabilize muscle strength and keep patients mobile for a period of time — from companies in the United Kingdom at a manageable price of $1,600 a year.

But because an American company just got approval from the Food and Drug Administration to sell the drug in the United States, the price of the drug will soar to a staggering $89,000 annually, the Wall Street Journal reported last week.

Because the FDA restricts the importing of drugs from overseas if a version is available domestically, patients are stuck with the new, expensive version. This makes deflazacort the perfect case for advocates of international drug reciprocity — a reform that would make it easier for consumers to buy drugs that have been approved in other developed countries.

That is the introduction to an interview with yours truly in the Washington Post. I discuss thalidomide and the race to the bottom argument. Here is one other bit:

IT: Do you have any thoughts about the potential for FDA reform under this new administration and Congress?

AT: Peter Thiel’s speech at the Republican National Convention reminded us that we used to take big, bold risks — like going to the moon. Today, to say a project is a “moon shot” is almost a put-down, as if going to the moon never happened. We have become risk-averse and complacent, to borrow a term from my colleague Tyler Cowen. The result of the incessant focus on safety is playgrounds without teeter totters, armed guards at our schools and national monuments, infrastructure projects that no longer get built, and pharmaceutical breakthroughs that never happen.

The new administration is unpredictable, but when it comes to the FDA, unpredictable is better than business as usual.

The administration has yet to appoint a great FDA commissioner. Early names floated included Balaji Srinivasan, Jim O’Neill, Joseph Gulfo, and Scott Gottlieb but Srinivasan seems to have removed himself from the running. O’Neill would be great but I don’t think the US is ready, so that leaves Gulfo and Gottlieb. My suspicion is that Trump will like Gulfo because of Gulfo’s entrepreneurial experience but, as I said, the new administration is unpredictable.

1 Jan February 15, 2017 at 5:30 am

1) Gulfo’s wife is chief strategy officer at Mylan, so appointing him would be exactly in line with what this administration has been doing.

2) Importation of drugs from other countries is a red herring. It wouldn’t actually lower prices for us and may cause shortages of needed drugs in other countries as the massive US market diverts product. This Harvard Business Review article sums it up nicely–the drug companies will quickly and aggressively modify their pricing strategies, making it a whack a mole game.
Addressing drug spending in the US requires us to think hard about what we are willing to pay for, applying some metric of value to drug assessment and refusing to reimburse for products that aren’t cost effective. Every other country in the world does it.

https://hbr.org/2016/02/why-importing-cheap-pharmaceuticals-from-canada-wont-work

2 Slocum February 15, 2017 at 7:45 am

Fine — allow drug importation only from industrialized countries with per capita incomes comparable to the U.S. (Canada, EU, UK, Japan, Korea, Australia). Would we get drugs at current Canadian prices? No. Would we get somewhat lower prices while A) preventing those other wealthy nations from free-riding on U.S. drug expenditures and B) preventing outrages like those with deflazacort and Epi-pens? Yep — and that would all be an improvement over the status quo.

3 Jan February 15, 2017 at 8:28 am

You’re missing the point. This isn’t going to save us money.

4 other derek February 15, 2017 at 8:52 am

Can you explain why it doesn’t save us money in the case of deflazacort? Apparently, the US had been importing it from overseas markets, bidding the price up to a whopping $1600 per year. Now, thankfully, the price will be able to go back down to a more sane level ($1400 per year? $500 per year?) because US consumers will have to pay $89,000 per year. (Presumably, only hospitals will pay this, as US consumers will just illegally import; $90k is more than a plane ticket, right?)

5 Jan February 15, 2017 at 11:55 am

I do think that consumers may continue to illegally import. But in general I don’t think adopting an importation approach wholesale will save our health system money, because the drug companies would just react to it.

Another country will not sacrifice the good deals it is getting on drugs (they all get better deals than us) in order to facilitate US consumers gaining access to cheaper medicine, which is what it would come down to. See comments below.

6 Hazel Meade February 15, 2017 at 1:00 pm

Well, I don’t see why the US would ban the import of drugs in order to facilitate the good deals that Canada gets on them.
If drug imports force drug companies to kill differential pricing, how is that bad for America?

7 prior_test2 February 15, 2017 at 1:29 pm

‘Well, I don’t see why the US would ban the import of drugs in order to facilitate the good deals that Canada gets on them.’

Except the U.S. already does. As noted a month ago – ‘During Wednesday’s late-night Obamacare “voto-rama,” Sen. Bernie Sanders introduced an amendment that would have supported importing cheaper drugs from Canada to help lower the cost of prescription drugs in the United States.

The amendment predictably went down in defeat — but not in the way many expected.

In fact, a total of 12 Republicans, including Sens. Ted Cruz (R-TX) and Rand Paul (R-KY) voted in favor of the amendment. These Republicans were cancelled out, however, by 13 Democrats who joined with the majority of Republicans to kill the amendment.’ http://www.rawstory.com/2017/01/even-ted-cruz-voted-to-import-cheaper-drugs-from-canada-but-these-13-dems-voted-against-it/

(A bit more background – ‘While the practice of reimporting drugs from Canada, Mexico, or other countries is still technically illegal (with the possible exceptions noted below), it is increasingly becoming a custom more honored in the breach than in the observance. The U.S. House of Representatives has passed three versions of bills that would allow consumers to import legal drugs for personal use. A similar measure, known as the Dorgan-Snowe Drug Importation bill, is currently before the Senate.

In the meantime, the mission of the FDA, as always, is to promote and protect the health of Americans. The mission of the U.S. Customs service is to enforce Federal laws and regulations as they pertain to imported substances such as drugs. And here’s where the law gets kind of squishy.

Current law says that if Granny decides she can get her heart medications more cheaply in Alberta than in Alabama, she could be busted for either bringing it over the border or having it delivered to her. Does that mean that dear Granny is likely to do a stretch in solitary? Hardly, experts say, because nobody wants to be seen putting the cuffs on elderly pensioners. Also, they’d have to arrest the governments of the states of Wisconsin, Minnesota, Illinois, Vermont, as well as many city governments and private employers who have turned north for lower-cost prescription drugs.’ http://www.webmd.com/healthy-aging/features/letter-and-spirit-of-drug-import-laws )

8 Jan February 15, 2017 at 2:18 pm

@Hazel, the US bans in the import of drugs for many reasons. The main political reasons are 1) Republicans and many Dems are owned by the drug manufacturers. These companies make tons of money off the US market and they spread it around to lawmakers. 2) Safety reasons. Both legislators and FDA want US regulators to be responsible for ensuring the safety of our drugs, not regulators in other countries who we have no control over. If we establish reciprocity, it will create a framework where drug makers simply shop around for the least burdensome regulatory agency to approve their products and manufacturing processes. The exposure to risk increases substantially and nobody wants to be blamed when a bad batch enters the system and kills a bunch of people

9 Slocum February 15, 2017 at 10:14 am

It’ll save us some money if our wealthy nation counterparts start providing more of the pharma ROI instead of free-riding on the U.S. And in a few cases (like deflazacort and epi-pens) it will save U.S. consumers quite a lot of money.

10 Jan February 15, 2017 at 11:51 am

The companies would immediately take action to prevent the export of these drugs from other countries to the US. They can do this in a number of ways, a couple of which are given in my comment below.

11 Troll me February 15, 2017 at 9:35 pm

More competition means lower prices for consumers. Don’t worry about drug shortages in the other countries. With some rare exceptions, the cost of manufacturing the drug is a very small fraction of the total cost of bringing it to market. I don’t think that Canada, for example, would just sit their and watch American consumers empty pharmacy warehouses, etc., having watched for a long period while the process was about to happen, and not have a plan to be able to upscale production for some paritcular drug. And while it may sound relevant due to overall pharma industry profits, etc., which they are protective of, it’s about rarely used drugs which are exploited because of their huge importance for a small number of people.

Giving them more actualized access to choices should lead to lower costs and better results.

12 Jeff R February 15, 2017 at 9:55 am

…may cause shortages of needed drugs in other countries as the massive US market diverts product.

The pharmaceutical companies won’t increase production to meet the higher demand?

13 Jan February 15, 2017 at 11:50 am

No. If drug companies see a sudden 20% jump in demand of their product in Canada just as US authorities authorize importation from that country, the drug companies will respond by doing one or two things: 1) put in place clauses in all their contracts that prevent anyone in the supply chain, such as wholesalers, buying their drugs in Canada from exporting them to US markets, 2) limit supply of the drug to Canada to what it thinks is a sufficient supply to meet demand.

The US is such a cash cow for these companies that they will always prioritize the persistence of a very high-priced drug market in the US over supplying low-cost drugs to other countries. Canada is such small potatoes that they would let that market go, if it meant preserving the US market at its current prices.

14 Slocum February 15, 2017 at 12:41 pm

Canada is such small potatoes that they would let that market go, if it meant preserving the US market at its current prices.

Canada, maybe. But not the EU. And certainly not the EU, Canada, and Japan. In any case, if you think the pharma companies can successfully prevent re-importation on their own, then you shouldn’t have any problem with the U.S. removing any legal obstacles, right?

15 Jan February 15, 2017 at 2:12 pm

No, totally aside from the fact that I don’t think it would be effective in lowering prices, I don’t think the US should allow importation for safety reasons. When the FDA approves a drug, it is not just approving the chemical entity. It is reviewing and, if appropriate, a very specific manufacturing process, a set of quality measures, a secure supply chain of active and inactive ingredients (including serialization for most drugs, which EU and Canada do not have) and other measures to ensure safety. If the FDA simply cedes the authority to any other wealthy country, it will create a race to the bottom wherein drug makers simply seek approval from the country which the lowest standards.

And back to whether pharma could prevent legal importation from other countries, yeah, I do think they could successfully prevent it. It’s not that hard for them to write it into all their contracts or limiting supply. You create template and follow it in all your markets. Again, I really don’t think any other country that is getting a good deal on drugs now would sacrifice those savings by negotiating the export of drugs to the US into its deals with manufacturers. Those countries would have to pay for it one way or another, and why would they care to?

16 Turkey Vulture February 15, 2017 at 3:17 pm

So it won’t be effective at lowering prices because the pharma companies will prevent their importation, but we need to block the importation (of imports that you say won’t happen anyway) for safety reasons?

Seems like we should at least test the former theory in order to make a knowledgeable cost/benefit analysis. If you’re right, there won’t be any safety harms because there won’t be any imports; if you’re wrong, we may find that any supposed decline in safety is well worth it to achieve the decline in prices.

17 Jan February 15, 2017 at 4:31 pm

I challenge you to define how much safety is worth how much money. We are terrible at tradeoffs when it comes to health care in this country and I doubt we’d be able to come up with a rational way to balance those priorities. Now I also don’t think we’d have people dying left and right, though it does create a regulatory race to the bottom in the long term.

My main point is, if we don’t want to pay so damn much for drugs, why don’t we just do the things that work to keep drug prices manageable in literally every other rich country? Why just do workarounds?

18 Turkey Vulture February 15, 2017 at 5:15 pm

Agencies sometimes incorporate value of statistical life measures into rulemaking. Workman’s comp has come up with specific values for injuries. We have a legal system that calculates the value of life and health in order to arrive at damages figures. When making vaccination recommendations, the CDC’s ACIP considers the trade-off between the gains from immunization, dangers from immunization, and cost effectiveness in deciding whether to recommend vaccination (and how broadly to recommend it).

We have a lot of sources to draw from in coming up with a cost vs. safety analysis.

Allowing importation or re-importation isn’t a workaround, it is eliminating one of the myriad regulations that are themselves workarounds that show a preference for regulation of market mechanisms in drug pricing. The central role of regulation in this area should be twofold: (1) assuring a competitive marketplace through competition policy, and (2) determining the best trade-off between incentivizing innovation with IP protection vs. the loss of competition that IP creates.

19 Hazel Meade February 15, 2017 at 12:58 pm

And then Canada would retaliate by legalizing the sale of generics and buying those instead, and then US consumers would import the Canadian manufactured generics.

20 Roy LC February 15, 2017 at 2:12 pm

If the US allowed parallel import and drug companies responded with exclusive deals with countries like Canada barring export to the US, politics would have changed a lot and blood would be in the water. For example the public safety FDA argument would be completely dead, a stake driven through it.

I suspect it would be politically a lot easier to have those deals declared illegal restraints of trade or pass legislation requiring pharmaceutical companies doing business in the US to grant the US MFN status. After all it would focus attention on drug marketing deals, I regularly encounter people shocked at the current differentials, and the public would have a well defined public enemy number one. You are not going to get the voting public to decide that they would rather pay more so Germans and the French can pay less.

Once that happened drug makers would drive far harder bargains with non US governments.

The result would be much higher prices in the rest of the world, or at least the First World, and somewhat lower prices in the US.

21 bob February 15, 2017 at 8:31 pm

Clauses limiting wholesalers or retailers from selling the product to whomever they want are hard to enforce. For example, many off-price clothing retailers get their product not from the manufacturer but from wholesalers/retailers (Burlington Coat Factory, for one).

Pharmacutecal manufacturers also need to worry about competitive issues. Let’s say a manufacturer cuts off the largest retailer on Canada, Wal-Mart, because they are shipping product to their south of the border. If a substitute drug is available Wal-mart can push that drug or a generic and the manufacturer loses business.

22 Troll me February 15, 2017 at 9:45 pm

It’s specifically about drugs which are available in other markets, but whiuch have not been approved in the USA, and to specify some countries whose standards are high enough that there should (?) be reciprocity.

If they can make money selling at $1600 a person in the UK, they can make money by serving these people at that price and also serving more people at that price. There is no unobtainium in this stuff.

23 Hazel Meade February 15, 2017 at 12:45 pm

he drug companies will quickly and aggressively modify their pricing strategies

You mean like by reducing their prices, right?
I mean, the whole point is to get them to modify their pricing strategies – to reduce prices. So I’m not sure what the hell you mean.

24 Jan February 15, 2017 at 2:21 pm

They won’t reduce them. They’ll increase them in the markets from which the US is importing and try to piss off the payers in that country, until they quit allowing the import of drugs to the US.

The way to get drug companies to charge us less is to establish clear rules for what we will and won’t cover in public programs at what prices, and be prepared to not cover a drug if it is too expensive. We don’t do that, so we get screwed. Every other country has figured it out. We’re stupid about it.

25 Hazel Meade February 15, 2017 at 3:33 pm

nd be prepared to not cover a drug if it is too expensive

The private insurance companies try to do exactly that, and the response is typically government mandates to pay for it, driven by health care advocates who think insurance companies are the epitomy of evil. I don’t see that changing, but then you can always count on hypocrisy.

26 Jan February 15, 2017 at 4:36 pm

They are following the lead of Medicare and Medicaid, which do pretty much cover everything, though Medicaid gets good prices, as mandated by law. And to be fair, the private insurance mandates for prescription drugs aren’t really that extensive.

I don’t think insurance companies are evil. The HMOs did a great job keeping health cost growth low in the 80s, until people didn’t like not having every single thing covered in full. So they revolted.

27 Jan February 15, 2017 at 4:47 pm

Though I will say certain coverage mandates can be costly. I’m thinking of recent state laws to require coverage of oral forms of any cancer drug that an insurer covers in IV form. That’s really expensive. The disease groups who push legislators to enact those requirements are almost universally bought and paid for by drug companies. And really who is going to show up and lobby against covering a cancer drug to help a sick kid, who the patient organization has probably hauled in to talk to the lawmakers? Societal tradeoffs, we don’t do them very well.

28 daguix February 15, 2017 at 5:33 am

Maybe the moon landing really did not happen after all.

29 T February 15, 2017 at 6:37 am

Trump is big on import restrictions, so we should expect more of this kind of thing, no?

30 rayward February 15, 2017 at 6:52 am

If efficacy were dropped as a requirement for FDA approval, as Tabarrok prefers, think of the money-making possibilities, not only for the snake-oil salesmen but the “regulators” who are in charge of the snake pit. Tabarrok is using an example of the greed of pharmaceutical companies to justify the deregulation of pharmaceutical companies.

31 Roy LC February 15, 2017 at 2:17 pm

Then we will see Insurers refuse to pay for those drugs, if you think that is not going to happen you need to hear about my new insurer dragging its heels on paying for my transplant anti rejection meds, all on their formulary, which only cost $99 a month cash at Costco.

32 Troll me February 15, 2017 at 9:49 pm

I thought the assumption was that the regulators tend to be underresourced, not that they are “in charge of the snake pit”. Numerous notable exceptions excepted, of course (e.g., inaction about patently fraudluent statistical and marketing behaviours ..)

33 Rich Berger February 15, 2017 at 7:00 am

Trump’s brazen attack on the status quo has aroused the hatred and fear of many. For others, myself included, it has revealed the corruption and ossification of the government media complex, and the immense possibilities for change. Like a flare shot into the air on a battlefield at night, the nature and disposition of enemy forces is revealed.

Oh, Trump is also the ultimate rebuke to credentialism. Now if that could only seep into the higher ed racket.

34 Jan February 15, 2017 at 7:02 am

Like Trump U.

35 derek February 15, 2017 at 8:59 am

Trump U didn’t take off as a campaign issue because every description of what happened there sounded suspiciously identical to the experience of almost everyone who has a burden of education debt.

Trump is a reflection of what the US actually is as opposed to the rosy nonsense it sells itself as. Trump U is the perfect example.

He must be destroyed.

I was wondering who would jump into this thread to defend the indefensible.

36 Rich Berger February 15, 2017 at 11:06 am

And it was you. Always good to know how mediocre your foes are.

37 Troll me February 15, 2017 at 9:50 pm

One guy went to uni and didn’t get a job after, therefore it’s OK to commit fraud in running a university.

Anyways, he paid some money out, it seems the business is over, and it would be good if he can focus on what’s in front of him.

38 Boonton February 15, 2017 at 7:43 am

Status quo wise the worse thing that can happen is the company gets exclusivity for this drug for 7 years, after than that generic companies would love to flood the market and price down the drug dramatically from $89K.

I was listening to a podcast that interviewed the head of the FTC. The interview concentrated on regulation of homeopathic stuff and ‘supplements’. One interesting point he made was that they lowered the bar for medical claims made by supplements (one controlled trial rather than two). Her argument was:

1. Since dietary supplements are food, it’s impossible for companies to get exclusivity. If someone proves carrots help a disease, everyone in the carrot business can use that claim. So one study combined with the fact that since it’s a food we already have a good safety profile is a lower bar.

2. The study itself is useful and valuable to the public as it adds to our knowledge base.

If this company did the studies to prove the drug works against muscular dystrophy whereas before it was just conjecture and anecdotal experience, that by itself is useful even if they didn’t invent the drug from scratch. I’m not saying $89K is the right price for that but it is something to consider.

39 Slocum February 15, 2017 at 7:54 am

“Status quo wise the worse thing that can happen is the company gets exclusivity for this drug for 7 years, after than that generic companies would love to flood the market and price down the drug dramatically from $89K.”

Not necessarily. It often takes a lot of time and money to spin up a production line for a generic drug and obtain all of the FDA approvals. And then, there’s not necessarily much money to be made because once the generic producer finally enters the market, the original company will dramatically cut the price — ending their own windfall, but assuring that the generic competitor may never recoup its investment. And, of course, the generic manufacturers know this ahead of time, so they may not bother — even for off-patent drugs that are currently selling at astronomical prices.

40 AlanG February 15, 2017 at 9:28 am

@Slocum – generic companies go after high volume pharma products that are going off patent. That’s pretty much been their business model from day one. They focus on the solid oral dosage forms (e.g., pills) as the bioequivalence studies are easy to perform as is manufacturing. the only difficult thing is getting a manufacturing plant up and running and keeping it regulatory compliant. For established pharma companies (generic and brand), the manufacturing plant is a non-issue as they can use existing facilities. Sterile products or those that require a device (inhalers such as albuterol) present a bigger challenge and you don’t see as much competition in those areas. There was little focus at all on niche products until the last several years when opportunistic companies figured out they could buy up older neglected drugs or get an orphan drug act approval (7 years market exclusivity) and then jack the hell out of the prices. If the drug is a generic then they would eventually see competition but that would take a bit of time to get the regulatory approval while the company marketing the drug extorts the American public.

Looking at the history of the generic drug industry, it’s worth noting that a number of mainline pharma companies entered did produce generic drugs in the early stages (Merck had West Point Pharma and there are other examples) but they all ended up exiting as the profit margins were too low to warrant continued operations. The only area they are still competing is with generic biotech products (biosimilars).

41 Turkey Vulture February 15, 2017 at 1:22 pm

“generic companies go after high volume pharma products that are going off patent.”

They will also go after high-volume pharma products that are on patent if they think the patent is questionable. Paragraph IV certifications have become a fairly important part of the generic landscape, as I understand it.

42 Troll me February 15, 2017 at 9:54 pm

It’s unlikely they can expect to recoup the costs of generics trials on small volume when the incumbent, in the small market, can just drop prices.

It’s not like having a marketing machine behind a product that can sell a billion units a year at $5 even when there’s a generic at $2.

43 Turkey Vulture February 15, 2017 at 1:18 pm

“And then, there’s not necessarily much money to be made because once the generic producer finally enters the market, the original company will dramatically cut the price — ending their own windfall, but assuring that the generic competitor may never recoup its investment.”

They often don’t cut the price. Sometimes they increase it. They may launch an “authorized generic” that allows them to compete with the new generic entrant for the genericized portion of the market, while keeping the price of the brand drug high to capture the (ever-shrinking) portion of the market that stays with the brand.

This has the same effect (of decreasing returns to generic entry and hence the likelihood of entry to begin with) but it can happen in a different way from what you are describing.

44 Boonton February 15, 2017 at 4:47 pm

There are some drugs that are extremely hard to make, such as biologicals. These can be such a big undertaking that only the largest and most sophisticated of generics companies are barely in a position to try and even then they may not want too.

There are other drugs that have such a small patient population. Imagine only 100 people use a particular drug. Even if the drug isn’t difficult to make, it costs money to shut down a production line, set it up to make the drug. Run enough off to make a few hundred bottles with 30 day supplies. Then shut it down, return it to other more common drugs then a few months later do it again. The cost per bottle is going to be higher and adding more manufacturers to the field is probably not going to help much (imagine 10 production runs by different companies for 10 patients each).

45 byomtov February 15, 2017 at 11:53 am

Status quo wise the worse thing that can happen is the company gets exclusivity for this drug for 7 years,

WTF??

It sounds as if you think that’s no big deal. Just MD patients paying $623,000 for the drug rather than $11,200 over seven years. Maybe you have a spare $600K or so lying around. Good for you, but I bet most MD patients don’t.

46 Boonton February 15, 2017 at 4:37 pm

Don’t confuse the drug’s price with what people actually pay. Very often very expensive drugs come with copy assistance, assistance for patients without insurance, lower rates and rebates for gov’t programs like Medicaid, VA, etc.

47 Ricardo February 15, 2017 at 11:49 pm

True, but another way of putting this is that high drug prices are a way for private companies to soak taxpayers through Medicare Part D, which is prohibited from negotiating drug prices.

48 Boonton February 16, 2017 at 12:05 pm

But keep in mind at least in this case it isn’t that there’s no social value being created here. Someone had to fund the studies that demonstrated the drug was useful. At the end of their patent life the price will quickly drop down BUT the knowledge that this drug is useful for this disease will last forever.

Imagine a slightly different universe. In that universe the company took a chance and did the study and it showed no particular use. It’s common use in the UK was just a red herring. In that case knowledge that this drug isn’t as useful will again last forever, but the company that funded it gets no reward. The study it funded becomes a sunk cost as does anything they spent to get exclusive use of the drug.

Spending money here is like buying lottery tickets. If you get a drug that happens to have a good use, it pays off. If you happen to discover the drug has a huge use (think Viagra which was originally not even developed for ED), the pay off can be in the billions. But most lottery tickets don’t win. Hundreds of compounds are developed that fail to work, studies are done which demonstrate some compounds either don’t work at all, are dangerous, or offer only the smallest of benefits that fail to be better than what is currently available. Learning what doesn’t work is also a huge benefit to society. It saves time and effort knowing what hasn’t worked. Yet there’s no reward for discovering what doesn’t work other than lower stock prices, angry investors and potential total failure. Just my personal opinion.

49 ED February 15, 2017 at 8:45 am

| “The administration has yet to appoint a great FDA commissioner ”

And just who were the “great” FDA commissioners in previous administrations?

What makes a great FDA commissioner?

How about the great FCC/FAA/FTC/FERC/etc commissioners?

50 Daniel Weber February 15, 2017 at 10:11 am

This doesn’t look like something reciprocity could fix at all. The drug is available in the US already.

51 prior_test2 February 15, 2017 at 1:39 pm

Shh – it makes the Bartley J. Madden Chair in Economics at the Mercatus Center look less than well informed about a product that has been available to anyone interested in purchasing it in the U.S. No one has been intercepting this previously ‘orphan’ drug at the border – until now, products costing less than 70 times the new American price were no concern of anyone. That will likely change, of course. Because nothing says Americans supporting freeloading Europeans more than an American company jacking up the price of a cheap European drug so that Americans get all the benefits of creating profits for American companies.

52 Turkey Vulture February 15, 2017 at 5:18 pm

It looks to be one aspect of reciprocity, assuming the explanation Alex provides here is correct:

“Because the FDA restricts the importing of drugs from overseas if a version is available domestically, patients are stuck with the new, expensive version. This makes deflazacort the perfect case for advocates of international drug reciprocity — a reform that would make it easier for consumers to buy drugs that have been approved in other developed countries.”

It isn’t a case demonstrating the superiority of a very general form of reciprocity, but it at least suggests that a weaker form of reciprocity – allowing importation of drugs that are approved in the U.S. – would be good policy.

53 Dave Smith February 15, 2017 at 11:39 am

So, why could the FDA just not have approved the drug? Oh, wait…

54 byomtov February 15, 2017 at 12:02 pm

Ok, so letting patients continue to import the drug from the UK is a good idea. I certainly agree.

But until that happens, if it does, surely a second-best solution is only to approve Marathon’s application contingent on matching the UK price. I understand that that sort of regulation is anathema to the libertarian mind, but if it is, in fact, more feasible politically, then maybe, just this once, libertarians could abandon purity and go along.

Whatever anyone thinks of the FDA, surely its proper constituency is patients, not drug companies. Doing things that benefit the companies at the expense – both physical and financial – of patients can’t be right.

55 Slocum February 15, 2017 at 12:45 pm

” I understand that that sort of regulation is anathema to the libertarian mind, but if it is, in fact, more feasible politically, then maybe, just this once, libertarians could abandon purity and go along.”

It’s hard to say. The only reason this kind of price-gouging practice is possible is because of U.S. regulations. From a libertarian perspective, it’s far better to get rid of the regulations causing the distortion than to patch over the unintended consequences of the first set of regulations with yet another set of regulations.

56 Jan February 15, 2017 at 2:34 pm

It’s only possible because of US regulations? No, the reason it is so cheap in other country is because they regulate the price of drugs, either directly or indirectly by refusing to pay for things beyond a certain value or cost threshold. We don’t do that in this country because we refuse to have a conversation about tradeoffs in drug payment.

57 Slocum February 15, 2017 at 2:47 pm

Apples and oranges. In the case of deflazacort (and the Epi-pens and Daraprim), the absurd monopoly prices are only possible because of U.S. regulations — as AlanG pointed out:

“There was little focus at all on niche products until the last several years when opportunistic companies figured out they could buy up older neglected drugs or get an orphan drug act approval (7 years market exclusivity) and then jack the hell out of the prices.”

That particular kind of problem would be solved immediately by allowing importation.

58 Jan February 15, 2017 at 4:51 pm

Do you think other countries don’t have generic approval requirements and orphan drug protections? It’s not that our approval requirements are anomalous. It’s that we let them charge whatever they want.

59 Jan February 15, 2017 at 5:01 pm

And I agree orphan drug exclusivity should be reined in. But it undermines the whole intent of the law, which is to incentivize companies to develop and test drug for rare or neglected diseases. If it is an old product but was never demonstrated to help for particular rare condition, you can argue it’s good that the company guys those tests. The prices are the incentive. But what counts as misuse of the law?

60 Hazel Meade February 15, 2017 at 12:48 pm

But the patients are getting the benefit of all the extra testing that the company did to get the drug through FDA approval.
Therefore they should be forced to pay for that benefit, whether they asked for it or not!

61 byomtov February 15, 2017 at 12:59 pm

It’s hard to say. ….. it’s far better to get rid of the regulations causing the distortion than to patch over the unintended consequences of the first set of regulations with yet another set of regulations.

No. It’s not hard to say. It’s trivially easy to say. Whether your solution is sound or or not, and it sort of depends on what regulations you have in mind, the fact is that it’s not going to happen any time soon.

So I suggest that price regulation is better than permitting price-gouging by a government-protected monopoly. That’s what I mean by “abandon purity.” While libertarians flood the Internet with their complaints about regulations the actual patients you purport to be helping are being stuck with $90K annual bills.

62 Hazel Meade February 15, 2017 at 1:02 pm

Libertarians have no influence over this anyway, so there’s is nothing to be gained by abandoning our purity.
It’s not like if we suddenly decided to make an exception and support price controls (just this once) that the FDA would jump up to do our bidding.

63 Jan February 15, 2017 at 2:43 pm

The FDA could remain in charge of ensuring drugs are safe (always) and effective (usually). The payers would be in charge of price controls. It’s not rocket science. It just comes down to whether we think every patient should have access to every drug no matter what the price. It sounds mean, but I happen to think that is bad policy and ends up consuming dollars could be more efficiently deployed to other priorities, both within health care and beyond it.

64 Turkey Vulture February 15, 2017 at 3:13 pm

Patients should have access to every drug no matter what the price. They should just have to pay for it.

65 byomtov February 15, 2017 at 3:14 pm

Well, Hazel, I’m not so sure.

No, libertarians have little direct influence, but these arguments do seep into discussions, albeit sometimes as a cover for doing “nothing hasty, etc…”

If you want to treat it as a purely abstract conversation, that’s fine, but when we are discussing real problems, it’s often worth admitting that interim, patchy, approaches might do some good until Nirvana arrives.

Slocum wants to “get rid of the regulations causing the distortion.” Well, I’m for that. I agree, as I said above, that the patients should be allowed to import the drug from the UK. Stopping the imports is idiotic. Worse, actually, since it does active harm.

66 Turkey Vulture February 15, 2017 at 3:27 pm

It is pretty reasonable to say that a stop-gap approach (like approving it only on condition that pricing be the same as in the UK) causes more harm than good because of a variety of foreseeable (as well as unforeseen) consequences, and that we should therefore stick to advocating for the elimination of the harmful regulation rather than slight modifications and add-ons.

The rule you propose, for instance, wouldn’t necessarily have any broader action than this one drug. If it were implemented for this drug, it would break apart the current disparate coalition united by a sense of outrage, thus greatly reducing the chance for more fundamental change.

If it were a broader rule, it would set up all sorts of inefficient and/or harmful gamesmanship. Drug companies could substantially raise prices in comparison foreign markets in the run-up to expected FDA approval to establish a higher U.S. price cap. They could play all sorts of games with the precise indication they seek in the U.S. to try to escape the rule’s scope.

Presumably there are many other unintended consequences I haven’t thought of. But even just the above make it reasonable to stick to a more hardline “eliminate the bad regulation” approach, rather than “construct a patchwork of regulations over the bad regulation to try to reduce the effect of the bad regulation” approach.

67 byomtov February 15, 2017 at 9:58 pm

TV,

we should therefore stick to advocating for the elimination of the harmful regulation rather than slight modifications and add-ons.

These are not mutually exclusive options. Indeed, part of the criticism of the FDA is that it makes the perfect the enemy of the good. Isn’t that what you are advocating?

Drug companies could substantially raise prices in comparison foreign markets in the run-up to expected FDA approval to establish a higher U.S. price cap.

That doesn’t strike me as a realistic worry. If they could raise prices outside the US they would presumably have done so already.

68 JCW February 15, 2017 at 9:50 pm

“The administration has yet to appoint a great FDA commissioner.”

At the rate that the administration is (not) appointing people, I suspect that it’s going to be a long wait on this post…

69 Abelard Lindsey February 17, 2017 at 1:28 pm

Jim O’neill is the best choice. I fail to see why the U.S. is “not ready” for him.

Comments on this entry are closed.

Previous post:

Next post: