Single-payer status has nothing to do with drug development. And drug innovation is not as important as you think.
The US spent $325B on prescription drugs in 2015. Medicare spent $147B of this (45%) and Medicaid spent another $57B (18%). That’s 63% of total prescription drug spending in the US. We already have single-payer.
What we don’t have are cost controls. CMS (the agency that administers Medicare and Medicaid) is specifically prohibited from negotiating drug prices or restricting the drug formulary. From the law establishing Medicare Part D:
the Secretary—
(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and
(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.
In other words, CMS has to pay for all drugs and may not negotiate on price. We, the taxpayers, have no leverage and just have to pay up. Private insurers can negotiate, but even the largest of them does not have much bargaining power.
The argument against cost controls is that it would deprive pharma companies of the very considerable capital needed to develop new drugs. This has to be true at some level. The National Bureau of Economic Research estimates that
cutting prices by 40 to 50 percent in the United States will lead to between 30 and 60 percent fewer R and D projects being undertaken in the early stage of developing a new drug. Relatively modest price changes, such as 5 or 10 percent, are estimated to have relatively little impact on the incentives for product development – perhaps a negative 5 percent.
One reaction could be that this conclusion is highly speculative and likely wrong. My reaction is this:
We’ve already gotten most of the benefit from pharmaceutical discovery that we are ever going to get. It doesn’t matter if the flood of new drugs slows to a trickle. Few of them will have much impact on health and lifespan. Access is a bigger problem than innovation.
We’ve all seen this graph or one like it:
Spending a few hundred dollars per capita to provide clean water, vaccines, antibiotics and maternal care has an enormous impact on health and lifespan. Expenditures above $2000 show no clear trend in improving health and life.
That’s at the population level, of course, and large benefits to small numbers of people are masked. And this graph looks at all health expenditures, of which pharmaceuticals are usually only a small portion (they account for about 10% of health spending in the US).
What’s the evidence that innovative (and pricey) new drugs help us live longer lives? It is surprisingly weak. The Manhattan Institute published a study[1] (sponsored by Aventis, J&J, Novartis, Pfizer and Pharmacia) claiming new drug launches added 0.8 years of life expectancy 1986–2000. The methodology of this study has been slapped down hard[2] . But even if correct, new drugs would account for only a fraction of the roughly 4 years of increased world life expectancy in this period.
The picture is a bit clearer when we look at individual drugs and diseases. Statins – hailed as one of the great drug advances of all time – clearly reduce deaths from heart disease. But the overall increase in lifespan? It’s 3–4 days[3] . That’s right. Years of statin therapy buys you one additional long weekend. Yikes.
At least statins are cheap. How about all those new and obscenely expensive[4] cancer drugs? The 48 new cancer drugs introduced in the EU between 2009–2013 added a median of 2.7 months of survival[5] . Half showed no clear benefit at all. Would we, as a society, really suffer if drug companies had decided not to develop them?
If new drugs for heart disease and cancer – the leading killers in developed countries – have so little impact on lifespan, then new drugs for other diseases will have even less impact.
I’ve argued (here and here) that we’ve reached Peak Pharma – that the drug company business model is no longer economically viable. What’s less obvious, but no less true, is that we’re not going to miss them when they go.
Footnotes
[1] https://pdfs.semanticscholar.org…
[2] Do New Drugs Increase Life Expectancy? A Critique of a Manhattan Institute Paper
[3] The effect of statins on average survival in randomised trials, an analysis of end point postponement
[4] High Cancer Drug Prices in the United States: Reasons and Proposed Solutions
[5] Availability of evidence of benefits on overall survival and quality of life of cancer drugs approved by European Medicines Agency: retrospective cohort study of drug approvals 2009-13
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