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The increasing controversy over rising prescription drug prices prompted the National Academy for State Health Policy to issue nearly a dozen proposals Tuesday for state governments to explore to lower their costs. Among them is an idea that has emerged periodically, but never gained any traction — regulating the pharmaceutical industry like a utility.

The academy, which is a collection of people who work for a variety of state governments around the country, points to some obvious comparisons — rate reviews and approval mechanisms for electricity and gas. And the academy notes that states already review health insurance premiums and can accept or reject proposed annual increases.

Its paper suggests that states could create a board to “review, approve, or adjust launch prices for all newly approved drugs, or drugs with list prices above a certain threshold,” as well as price hikes for any drug that exceeds a certain threshold. And open hearings could be held to review data submitted by drug makers.

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The academy argues that “prescription drugs are an essential good; they are as necessary to quality of life — and life itself — as water and sanitation. (And) the prescription drug market does not operate well for most consumers” due to “federally-granted market exclusivities that enable manufacturers to charge monopolistic prices.”

There are caveats, of course. For one thing, the academy acknowledges that state-mandated price caps could affect the availability of medicines through state Medicaid programs. And drug makers could simply decide to walk away and not provide medicines subject to price controls.

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But what do you think? Is there merit to this notion? What do you like or not like about the idea?

*Required

Should pharma be regulated like a utility?*
  • Take Alzheimer, only one new drug in the last 30 years, yet billions are invested to find new drugs against it. About 99% of the effort has been met with failure.

    Certainly NIH funds basic research here, but the most important cost are clinical trials conducted in large populations over a long time and these are not substantially funded by NIH.

    Tough nut to crack if there is one, all funded by pharmaceutical companies.

    Clearly this development cost was supported by the profitability of the existing drugs affecting other disease.

    If the pricing of new drugs is only function of cost directly incurred there is no way new medicines for difficult diseases will be funded the risk is way too big: billions and decades.

  • Utility, Utilitas (Latin). Utilitarian, there are all. There are inequities created by utilities, for doing the greatest good for the greatest number (utilitarian drug pricing) will still leave inequalities in affordability. Live saving drugs are like a Harvard degree, they are called Giffen Goods. Their price goes up as their perceived benefit goes up, which is why folks desire and will find ways to pay.

    • There is no reason to price drugs according to expected QALY gains. A more rational approach is pricing based on cost of development and production. That can be enforced if it is a regulated utility. If we priced drugs according to expected QALY gains then we would charge $100,000.00 for penicillin to treat pneumococcal pneumonia in a 3-year old child.

  • Keiner, how can one tell ahead of time where big success is?

    There are hundreds of great drugs that save live every day. Look at the life expectancy over the last few decades.

    Most unfortunately there are still too many diseases for which there are no really good drug available.

    Obviously many challenge remain.

  • (Second try) I have often thought that it would be better if pharma stocks could be treated as those of regulated public utilities. Heavily- capitalized, long term holds that would pay a reliable return in dividends rather than the speculative vehicles they have become, expected to make 1,000% gains in terms of stock price. It would take better minds than mine to work out the flaws/ benefits in that model. Fortunately, this is an election year with such solid and insightful candidates available, I’m sure those minds will be available in congress and the regulatory agencies to thrash this all out. (Now, what was in that coffee again?)

  • We should have an open mind how to incentivise drug innovation. Rewards should be proportional to the long term benefit it gives the patient. Perhaps the payment for expensive treatments should only be triggered once a patient is cured or have evidence of improved health. There many other possibilities than the current system of upfront payment for approved therapies. Let’s experiment.

  • Utilities cost of capital is easy to measure
    Bio/Pharma has a largely unknown cost of capital that change over time
    Note 1: cost of capital is proportional to risk
    Note 2: Given cost of capital and capital employed you get allowed profits in regulated industries

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