Is it true that drug price regulation would be as bad as Mao’s Great Leap Forward?

“True” is far too strong a word. But the estimate is neither ridiculous nor a troll, despite the use of such an inflammatory comparator.

The argument is simple – a cited RAND study estimates the disincentivization to pharma R&D of drug price regulation would end up costing the average North American or European of ages 55–65 about 0.7 year of life expectancy. A few actuarial calculations then get you to 1000M life-years lost via drug regulation vs 900M life-years lost via the Great Leap.

The logic is sound, but no argument is better than its premises. I haven’t read the RAND report (nor do I intend to) but the argument is based on a couple of premises that are likely flawed:

  1. Future drugs will not add as much life expectancy as existing drugs have. In terms of life expectancy, no new drugs are ever going to add as much value as the vaccines and antibiotics of the first half of the 20th century. Or the cardiovascular disease medications of the second half. The number of new drugs approved every year is holding steady in our era of unregulated pricing, yet the fraction of them that are orphan drugs has gone from nearly zero to one-half in the last two decades. Orphan drugs by definition (less than 200K patients) cannot have as big an effect on population life expectancy as blockbuster drugs. In short, the new drugs of the 2030s will not have the clinical value of the new drugs introduced in the 1990s and earlier, no matter how much revenue they generate.
  2. Increasing the life expectancy of people in their 60s arguably harms society rather than benefitting it. We (I’m 61) are no longer raising children or starting businesses. Instead we spend our time on self-indulgent activities like hiking the 800-mile Arizona Trail. We get all kinds of tax breaks and senior discounts, and drain the public Treasury with our Medicare and Social Security benefits. The loss of a year of a leisurely retirement is not remotely comparable with the Holocaust-level suffering caused by the Great Leap Forward.

It’s always helpful to think of the limit cases in arguments like these. We can all agree that if pharma revenue were reduced to zero, we would have no new drugs from pharma companies. I think we can also agree that if pharmas are allowed to charge whatever the market will bear, we will get lots of new drugs, but many of these will be low-value, with sales driven by marketing power rather than clinical utility. This is close to the current situation in the US, as illustrated by the Nexium-Prilosec example.

The greatest benefit to mankind is to be found between these two extremes. Tying government drug payments to clinical utility, as the UK does, seems like a reasonable approach in principle. And in practice, it does not seem to clobber innovation. One study finds that Europe leads the US in drug innovation. Another concludes that

Higher prescription drug spending in the United States does not disproportionately privilege domestic innovation, and many countries with drug price regulation were significant contributors to pharmaceutical innovation.[1]

I think it’s plausible that we can have drug price regulation without setting off a humanitarian catastrophe.



Leave a Reply