Let the Market Decide? Not if Pharma Can Help It

By Daniel R. Hoffman, Ph.D.

The Right's reflexes on matters of drug therapy are consistent with the way they feel about everything else.  Trumping even considerations of whether or not the bible offers specific guidance, the Right claims that an unregulated market represents the best way, in fact the only way, of obtaining broader access to care, high quality and more affordable costs.

This reference to biblical fundamentalism is appropriate, but not just because the oligopoly corporations and the top 1% operate in unholy alliance with the repressive segments of evangelical Protestantism.  (A former partner at Bain Capital let that point slip out on television this month while he was trying to argue that enormous disparities of income and wealth are good!)  No, the point here is that the very idea of a completely unfettered market creating optimal benefits for everyone is as much a matter of non-empirical faith for the Right as anything to be found in a religious tract.

Now the positive results from markets that function the way they should are often highly beneficial.  That in itself is not an argument for doing away with regulatory oversight, but it does explain why both developed and emerging nations generally try to make commercial markets the cornerstone of their mixed economies.  Top-tier pharmaceutical companies, for their part, all give public lip service to the benefits of "free" markets.  In reality, however, Big Pharmas seek a truly unencumbered market about as much as they want root canal procedures.

Consider some of the fundamental requirements for markets to exist.  Since the Scottish Enlightenment of the 18th century, the theory behind markets holds that buyers and sellers must possess roughly comparable levels of bargaining power and essential information.  For example, big, savvy buyers with ample resources and options are needed to match up against similarly endowed sellers.

This seems reasonable, but pharma is now having fits that buyers of their products -- provider groups, pharmacy benefits managers and insurers -- offer growing resistance to paying outrageous drug prices for benefits that don't appear any better than what's already available from cheaper alternatives. 

For example, just a few weeks ago Sanofi offered to sell its colorectal cancer drug, Zaltrap, for approximately $9.600 a week, roughly double the cost of existing medications.  To justify this exorbitant price, Sanofi was unable to provide any evidence that Zaltrap produces results appreciably better than the less expensive alternatives.  As a result, one of the top cancer centers in the world, New York's Memorial Sloan Kettering Cancer Centre, refused to include Zaltrap on its formulary.  Stunned into devising what is elsewhere a typical marketplace response, Sanofi came back a week later and reduced the price of Zaltrap by 50%, a move that was nearly unprecedented for pharma.

The hand wringing and gnashing of teeth that were set off by this bit of typical market behavior might have led someone to suspect pharma was anticipating Armageddon and the end times.

A week later CVS Caremark, the retail drug and PBM conglomerate, announced that starting January 1, they will discontinue reimbursement on 17 branded drugs.  CVS Caremark also expanded the list of more than 30 drugs on which they already bar reimbursement.  The company explained its action by noting, "For those drugs that are removed, equally effective products with lower overall costs – including many generics – remain available."

Here again, the typical activity for competitors a marketplace caused pharma to shriek and wail.  Their cheerleaders, in effect, claim the drug industry should be exempt from these usual aspects of commerce because they will stifle the innovation needed for developing curative therapies.  Instead, they claim the unconscionable profits of a monopoly or at least an oligopoly are required for them to do their jobs.

In stark terms, pharma resists a central idea of the market concept: that drugs launched with substantial price premiums need to demonstrate better efficacy and/or safety than lower-priced alternatives.

Even the idea that payers/providers plan to more carefully scrutinize the drug benefits they're actually getting in return for escalating prices sends shivers across pharma.  A consultant to payers recently reported that approximately 80% of them are developing new reimbursement approaches and almost half of these will require pharmas to share coverage risk -- in other words, payment will depend on the extent to which drugs improve outcomes and reduce overall costs.

Now that's the way markets and capitalism are supposed to work.  Let's crack the top one-percent's cartel and actually force them to try it sometime.  Maybe genuine competition in the marketplace can do some good.