Scott Alexander on Drug Prices

Here is a link to an informative article by Scott Alexander on drug prices.  SA covers a lot of ground and you will find out why the discussion by politicians, the media, and, possibly, you and your friends, is largely misguided.

SA considers outcomes only through 2060, ignoring that a lower growth rate of effectiveness for drugs leads to a far higher long term savings and life expectancy shortfall than he notes.  I think this makes his conclusions conservative, in the sense that the life expectancy shortfall more than offsets the cost savings - by a lot.

Here are a few excerpts.
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Generic drugs are overpriced because we’re morons who can’t come up with a decent regulatory regime. Brand-name drugs are overpriced because of a deliberate decision to overprice them to encourage research.

The economic argument goes: the more profitable new drugs are, the more incentive a company has to make them. If we didn’t reward pharmaceutical companies for inventing new drugs, then they wouldn’t go through the $2.5 billion, ten-year hassle of seeking FDA approval with no guarantee of success. The way we reward them is by giving them a twenty-year monopoly when they can charge lots of money without anybody telling them not to.

But I guess now I have to. So. Lit review time. I searched the economics literature for studies, models, and arguments used to calculate whether price regulation would decrease drug development, and if so, how the benefits and risks balanced out. Here’s what I’ve got:

So by my count, there are eight-and-a-half studies concluding that price regulation would hurt new drug innovation, and one-half of a study concluding that it wouldn’t. I’ve tried to eliminate all the studies sponsored by the pharmaceutical industry from this list, but I might have missed some, and I am always skeptical of anything that says anything the pharmaceutical industry approves of even I can’t trace the money directly.

One source I do trust is RAND, a think tank which is generally well-respected and pretty objective (despite the name, they are not associated with Ayn Rand or Rand Paul). InRegulating Drug Prices: US Policy Alternatives In A Global Context, they write:

In other words, such prices would be good in the short term as we get all the currently-existing drugs for very cheap:

But bad in the long-term as pharmaceutical innovation declines and we have fewer interventions available to protect our health:

Given the value they place on human life, they argue that this money-for-life-years trade is net negative:

All of this sounds sort of boring and economics-y when you read it like this, and maybe your eyes are glazing over. So let me put this in context. In 2060 there will probably be 420 million Americans and 523 million Europeans. And suppose that whatever changes we make in drug regulations today last for one human lifespan, so that everybody has a chance to be 55-60. So about a billion people each losing about 0.7 years of their life equals 700 million life-years. Since some people live in countries outside the US and Europe [citation needed] and they also benefit from First-World-invented medications, let’s round this up to about a billion life-years lost.

What was the worst thing that ever happened? One strong contender is Mao’s Great Leap Forward, in which ineffective agricultural reforms and very effective purges killed 45 million people. Most of these people were probably already adults, and lifespan in Mao’s China wasn’t too high, so let’s say that each death from the Great Leap Forward cost what would otherwise be twenty healthy life years. In that case, the worst thing that has ever happened until now cost 45 million * 20 = 900 million life-years.

Once again, RAND’s calculations plus my own Fermi estimate suggest that prescription drug price regulation would cost one billion life-years, which would very slightly edge out Communist China for the title of Worst Thing Ever.

And there’s another way we’re not quite on the same team. I’m on Team Left-Libertarian, which luckily is so confusing and contradictory that I can define it however I want. And today it means that while I’m not opposed to all regulation in principle, I at least get really scared when somebody pushes for regulation today and promises to check whether it will have bad consequences tomorrow. I think that’s how we got in this mess where the generics industry is so regulated that EpiPens cost hundreds of dollars, and even if Vox and I are on the same object-level team of Make Epi-Pens Cost Less, I worry we are not on the same meta-level team of Learn From The Fact That Epi-Pens Cost So Much And Worry That The Same Kind Of Thinking That Caused The Epi-Pen Problem Will Probably Cause Other Problems Too.

So the second moral of the story is that almost all gains in prescription drug prices are to be found not in price regulation bringing prices down from $32,000 to $22,000, but in switching from monopoly brand-name drugs that cost $32,000 to heavily-competitive generic drugs that cost $100.

Pristiq is the brand-name of desvenlafaxine, a new antidepressant which is still brand-name only. Desvenlafaxine sounds a lot like venlafaxine – which is Effexor, an old antidepressant which is available in generic. In fact, desvenlafaxine is a tiny change to the venlafaxine molecule which may or may not have any interesting medical benefit over the original, and which was invented solely to have something whose patent hasn’t expired.

Wyeth, the company that makes Pristiq, says that it’s better than Effexor because it doesn’t have as many drug-drug interactions. But Effexor doesn’t really have clinically significant drug-drug interactions, and this seems to be them just saying random stuff and hoping people believe them. There are no good head-to-head studies comparing Pristiq to Effexor, but if you try to piece together a comparison from unrelated studies (not recommended, but we’ll do it anyway) Effexor actually seems better than its newer cousin. Even the data I took from drug rating databases shows patients preferring Effexor to Pristiq by quite a lot. Carlat Psychiatry, which is psychiatrists’ insider news site on pharmacology developments, has a blog post called Top Five Reasons To Forget About Pristiq. Most of the well-informed psychiatrists I know agree that Pristiq is a slightly worse version of an older antidepressant with no proven advantages.

A month’s supply of Effexor costs $20. A month’s supply of Pristiq costs $300. So let me amend the paragraph above. Pristiq is a slightly worse version of an older antidepressant with no proven advantages that also costs fifteen times as much.

It should come as no surprise to anyone familiar with the state of psychiatry that it is thesecond most-prescribed antidepressant in the USA, with three million prescriptions per month.

Why would this happen? The relevant study is called Pharmaceutical Industry-Sponsored Meals And Physician Prescribing Patterns For Medicare Beneficiaries, so you know it’s going to be good. It shows that doctors who often eat drug-company-sponsored free lunches are more than twice as likely to prescribe Pristiq as doctors who rarely eat such lunches. This matches my observations perfectly. Doctors prescribe Pristiq because they don’t know very much about antidepressants, but they attend free lunches by pharmaceutical companies who tell them that Pristiq is great, and they believe it. If this surprises you, be more cynical.

I’m looking at the price of Pristiq in Canada, and it seems to range around $120 to $250. So if we instituted price regulations like Canada’s, we might lower the cost of Pristiq from $300 to $150. If we convinced doctors to prescribe Effexor instead, it would be $20, plus I really do believe Effexor is genuinely better.

Pristiq is far from alone in this. I don’t have good statistics, but I bet that at least half of brand-name prescriptions in the US are more like Pristiq (attempts to rip people off) than like Harvoni (genuinely wonderful breakthroughs in medical science).

So one of the best ways to deal with expensive brand-name drugs is to stop using expensive brand name drugs for no reason.