Pharmaceutical manufacturers profit during market exclusivity periods, when no generics can compete with their drug. Evidence from the economics literature shows that innovation responds to these profits, along with market size; when we expand market size by insuring more people or paying more, we see more innovation.
Sometimes that innovation is impossible to walk away from, according to economist Amitabh Chandra — and someone still must pay the price. What if the new drug is a cure? “It’s going to be hard, very, very hard, to walk away from cures,” says Chandra. “The pharmaceutical company knows that, and so they’re going to charge and get a very high price.” But without the budget to pay for those drugs, we will have to walk away from them, “which is going to introduce tremendous anxiety in patients and in voters, which is why we have to think about alternative models.”
Another issue to consider is, what type of innovation do we want? A cure for hepatitis C would receive the same type of exclusivity period as a new form of eczema treatment, for example — and one of those seems a lot more valuable than the other. “Why do we give manufacturers the exact same incentives to build these drugs?” asks Chandra.
From the NEJM Catalyst event Navigating Payment Reform for Providers, Payers, and Pharma, held at Harvard Business School, November 2, 2017.