Wanted: Better drugs
I often complain that "innovation" is a fuzzy concept that's difficult to talk about in a concrete way. That gets less true, thankfully, when you zoom in on specific industries. Then it becomes easier to identify specific problems and specific policies that could help.
Take the pharmaceutical industry. We know that the discovery of new drugs has been slowing down. We don't really know why. Some people say it's because the easy profits from developing me-too drugs -- which eat up about 80 percent of the sector's R&D budget -- are just too tempting, and real innovation is just too difficult. Others say it's because discovering new drugs has simply gotten a lot harder. What isn't in doubt is that we could do a better job aligning the incentives for innovation. Writing in Health Affairs, Arjun Jayadev and Joe Stiglitz have two suggestions that both make a lot of sense:
1. Governments should pay more for innovative drugs than standard ones. This is called "value-based insurance design," and it's a hot idea in health-policy circles. Instead of Medicare paying whatever Pfizer says its drugs are worth, Medicare would decide payments based on "the marginal clinical benefit of additional drugs." Under a system like this, Medicare would pay the full cost of a new drug that's a big improvement over what's out there, but only, say, 70 percent of a me-too drug. That'd make the market for truly innovative drugs a lot larger than the market for me-too drugs. In other words, the market would be tilted toward innovation.
2. Governments should pay the cost of clinical trials. Clinical trials are one of the most expensive parts of developing a drug, and pharmaceutical companies have to bear the whole cost. This presents a couple of problems: It's a conflict of interest, for one. It's a disincentive to try drugs that might not work out. It forces small companies with innovative cultures and products to sell themselves to larger companies who can front the cost of drug trials. It means the trial data, which could be of great help to other innovators and to medical researchers, are proprietary. Some form of public funding for trials could solve all these problems, and you could even bias it toward innovative drugs and away from me-too drugs.
I should note that there isn't really anything wrong with me-too drugs. Some of them are slight improvements on their predecessors, or work for different people in different ways. But if we want to encourage breakthrough innovations, the system should be set up to heavily advantage the innovators, rather than the companies that are trying to play it safe.
Photo credit: Francois Lenoir/Reuters.
| January 31, 2011; 12:13 PM ET
Categories: Delivery system reform, Health Reform
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