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E-DRUG: E-DRUG Setting Drug Prices

E-DRUG Setting Drug Prices

Chris Green makes some arguments against government intervention in markets. 

In principle I agree with him so long as the market is functioning properly.
A market should have symmetry of information, and consumers who are able to
make informed choices.  I don't think such a market has existed in the case
of pharmaceutical products. As Richard Laing points out, the intervention of
government in setting pharmaceutical prices should be as a 'proxy' consumer
rather than a regulator.  

The information required to make decisions about the comparative
effectiveness and cost-effectiveness of drugs is complex. To translate and
update this information continously for prescribers and consumers, to assist
their decisions, would be highly desirable but very difficult.  In addition,
it seems unfair to ask the prescriber and consumer to worry too much about
the social opportunity cost of the purchase when their minds are on the
clinical problem.  

So, someone has to intervene.  If the market is left alone, as it has in the
past in some countries, distortions in pricing occur, because no-one is able
to judge value for money.  'What the (uninformed) market will bear' becomes
a recipe for profiteering and inequity. 

Judging the cost-effectiveness of drugs IS possible if there is sufficient
information and political will.  Using Chris Green's example of AZT, some
assessment in the 1980s would have depended on early estimates of the impact
of therapy on morbidity and mortality. A range of assumptions about
survival, quality of life, and cost-offsets could have been tested, and this
would have yielded a range of incremental cost-effectiveness ratios (eg
$/life year gained).  These could have been compared with what different
'markets' were prepared to pay for the drug.   For instance, in Australia
there is reasonable evidence that the (national) Pharmaceutical Benefits
Advisory Committee is not prepared to pay more than around $70000 Aus per
life year gained with new drugs, but will frequently recommend drugs for
funding with ratios below $30000 Aus/LYG, if based on good quality data. It
is reasonable to assume that this interval will vary between countries -
such a variation could be both wide, and quite legitimate, according to
national goals and priorities.  

However the other factor to consider is affordability.  A drug may be
'cost-effective' in terms of the dollar cost per unit of health gain
(according to local standards), but quite beyond the capacity of the
community to pay for; so a societel cost-effectiveness analysis is not a
panacea.  However I think it is preferable to leaving pharmaceutical price
setting to vendors trading in an imperfect market.

David Henry
Discipline of Clinical Pharmacology,
Faculty of Medicine and Health Sciences,
The University of Newcastle,
Newcastle Mater Hospital,

Phone   +61 (0)49 211856
Fax     +61 (0)49 602088
Home    +61 (0)49 505576


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