Dispelling myths from facts in the drugs cost conundrum
It is quite amazing how health policy discussions are often held in a distorted and simplified manner. Nowhere does this apply more than in discussions on drugs and the pharmaceutical industry. Although a large portion of public health spending is accounted for by hospitals, doctors, other health care personnel, and services, the pharmaceutical industry is usually the focus of the cost discussion. This is understandable as the discourse on what is a fair price of highly innovative medicines is multi-faceted. But by looking at the issue holistically and from a bird’s eye view, myths and facts can be quite easily separated.
Myth: Drugs are key drivers behind higher cost in healthcare system
It is a myth that pharmaceuticals are the key drivers behind escalating health care costs. The fact is that the medicines’ share of health expenditure in the industrialized countries varies from just 10 to 15 percent. And despite the success of the pharma industry in bringing new highly innovative medicines, expenditure on drugs is rising at a lower rate than other parts of the health care system. Pascal Strupler, Director of the Federal Office of Public Health in Switzerland and known for his critical views on pharmaceutical pricing, recently wrote in the Swiss magazine ‘Die Volkswirtschaft’ (‘The Economy’): “Only in the area of ‘medicines’ costs remained stable: drug costs per capita have hardly changed between 2009 and 2015.” Still, the myth that drugs as the biggest driver of escalating costs, leading to rationing and different levels of care for the rich and the poor, persists.
Myth: Society pays twice for new medicines
This also applies to the myth that society pays twice for new medicines – first by paying a large part of research through publicly funded research, second by paying for “overpriced” medicines. The fact is that even though basic academic research is quite often at the origin of new approaches in the fight against cancer and many other diseases, a much larger part of research is privately funded, in the US as well as in the UK or in Germany or Switzerland. Critics tend to forget the fact that the expensive and risky part of research does not lie in basic research but in development of a new drug, in other words, in the clinical research phase where only one out of ten drugs starting clinical development makes it to the market.
Myth: Pharma make excessive profits
Another criticism concerns the “excessive” profits of the large pharmaceutical companies. Indeed, successful pharmaceutical companies are highly profitable and a breakthrough is mirrored in business figures, such as achieved in the treatment of hepatitis C, where today treatment with new drugs leads to a cure for 95 percent of patients. However, such breakthroughs, which are truly disruptive innovation in the best sense of the word, are rare and rightly rewarded. The fact is that overall pharma profits have declined over the past twenty years. This is due to continuing increase in research costs for new drug development as well as a shift to more difficult, riskier research areas, but also to the impact of competition and pricing pressure – not just after patent expiry with generics eating up to 90 per cent of sales within months, but already during patent protection. According to a recent study presented by Deloitte, blockbusters or drugs with annual sales of several billions have become less frequent and the return on research investment has fallen from 10 to 4.2 percent between 2010 and 2015.
Certainly, our industry has to been subject to critical debate. However, in the face of some daunting and challenging global health problems, be it diseases of ageing societies such as dementia, antimicrobial resistance or pandemics, an industry developing new and more potent medicines and vaccines is part of the solution and not the problem. Thus, as I recently did it in a lecture and constructive debate with postgraduate students of the London School of Economics (LSE), it is helpful to lead the discussions rationally, debunking myths from facts.
Lecture on ‘The role and value of the pharmaceutical industry in the innovation ecosystem’, LSE, 14 March 2017
(This blog is a re-posting that was first published on Monday 20 March in the Basler Zeitung)