August 29, 2008

A Solution To The Pharma Problem

The problem so far is all arguments against Pharma (prices too high; no interest in making meds people need; no interest in cures, only maintenance treatments, etc, etc) fail because they are ethical arguments.

The problem and solution require our reluctant acceptance that the problem is an economic one, and only economics will solve it.

(If you haven't, read Part 1 here.)

Though I divide the solution into a "Doctor Side" and "Pharma Side," it is imperative that both solutions be executed simultaneously.  Doing only one will absolutely fail.

Doctor side:

Pharma does not make meds for patients, it makes them for doctors-- they represent the demand.  Read that again, that's Axiom #1.

Doctors have no current incentive or pressure to consider the cost (effectiveness) of the meds.  
But without the pressure, there is no incentive from Pharma to create products that are cost-worthy.  If doctors don't have to consider cost, then Pharma can effectively get doctors to add on, say Nexium.  It works, so why not?  If doctors must explicitly consider cost, then not only can't Pharma successfully market Nexium, it will not even bother to create it.  Pharma will work on something that's really worth the money.

Consider also that unlike other consumer products, price has no relationship to relative value.  Nexium and Lipitor are the same price, but (arguably) Lipitor is more important.

So doctors need to consider cost, which in turn will force Pharma to consider cost.  So doctors-- not patients, President Bush-- must be given a healthcare budget, specifically a pharmacy budget.  $20 per patient per day.  Go.

That changes the market.  If you do that, prices come down, especailly for "luxury goods" (e.g. Nexium.)  And Pharma will create wonderful things (not that they haven't already.)

Pharma Side

Axiom #1 is: Pharma makes meds for doctors, not patients.

Corollary:  They don't need to make a drug that is useful, or is awesome; only a drug that doctors will prescribe.  Sometimes the two are the same, but that isn't by design.

Pharma gets no points, no credit, for creating drugs that work, only drugs that sell.  No one I know has hugged a Lilly rep, thanking them for having a drug that works, even if imperfectly.  Their only thanks is the money.

The single problem from the Pharma side is the blockbuster drug model. 

The common criticism against the blockbuster model is that it entices other Pharma companies to invent "me too" drugs-- another SSRI, another statin, another Nexium.

But there is a much greater, critical, consequence of the blockbuster model: it makes doctors think that the mechanism of action of the blockbuster is the only, or most, important one-- it creates a paradigm that is hard to think outside of.  In other words, the blockbuster model confuses science.  It may be that lowering cholesterol is itself a red herring, and that the actual benefit is something else-- consider Vytorin lowered cholesterol more than simvastatin alone, yet was not better at preventing intima thickening.  But because cholesterol drugs-- nay, HMG co-A reductase inhibitors specifically-- are the big drugs, that's all doctors think about.

From 1980-1998, SSRI were all psychiatrists thought about.  So obsessed were they with SSRIs that they tried to explain nearly all psychic phenomena by serotonin.  Depakote was such a blockbuster that people couldn't even comprehend a "mood stabilizer" that wasn't an antiepileptic. 

You can't get a novel mechanism passed an NIH grant reviewer; Pharma isn't interested either.  How is it that 6 atypical drugs all have prominent serotonergic activity, but no one investigated glutamate?  You have a  working paradigm, you have stuff that is well established, it's hard to abandon it and try something new.  Not when you operate on the blockbuster model.

And meanwhile, Pharma loses out on new opportunities.  Pharma may have already invented a novel mechanism drug  that reduces heart attack risk-- but not only does it have to bring it to market, it has to retrain doctors that they trained to be statin obsessed-- that cholesterol, after all, isn't everything.  Strattera and Cymbalta-- both invented at the same time as Prozac-- languished in Lilly's basement because the world (of doctors) was not ready to hear about drugs that weren't "selective" or serotonergic.

But as long as doctors don't have to consider cost, blockbusters are the best way to make money.  You want to make a drug that doctors will simply add on to everything-- and they will, if they're not paying.   

The Incentive Model:

Broadly, there are three categories of people working from different incentives.

  1. For Pharma researchers, the incentive is to get FDA approval for an indication.
  2. For reps, it is to get market share. Many reps compete against other reps in their own company.  (e.g. if they come up with a great sales pitch, or have an awesome speaker, etc,  they don't want to share them with other territories.)
  3. For managers, it is indirectly market share, more directly certain rep based metrics (reps made growth targets, reps conducted the right number of programs, all expense reports were done on time, etc.)
  4. For the company itself, the current incentive is to create what doctors will prescribe.

It's obvious that the incentives are different, and none are actually in alignment with the company's goal of increased revenue.

1. Bringing a drug to market should not be incentivized, even from the basic profit perspective.  Just because it gets an indication, doesn't mean it will generate any money.  But since researchers are incentivized precisely on that, you see a lot of obvious "me-too" drugs and indications. The fix here is to incentivize researchers based on the future success of the drug, not the indication.  Coupled with a pharmacy budget for doctors, the incentive will be to invent a drug of value-- whether in a disease that has few treatments; or a significantly better/safer alternative.  While more difficult, it will be more profitable to the researcher than another SSRI (which doctors won't want to spend their budget on.)

2. Market share is also a bad metric, yet it's the one everyone uses.  It does not matter at all that Seroquel has more market share than Zyprexa because they may not be used for the same things.  It's not Coke vs. Pepsi.  As an example, for Lilly, Zyprexa competes against Geodon, but not against Depakote-- because it doesn't share the same FDA indication-- even though in the treatment of bipolar, Depakote is a much bigger competitor than any antipsychotic.  If Zyprexa wins all of Geodon's market share, it gains very little in real dollars.  But convert all the Depakote to Zyprexa, and Lilly wins.

3. Managers.  I am not really sure if there is any value to managers.  I am not being glib or insulting, and I'm open to information.  But my read is that Pharma could easily cut the number of managers in half, reducing expenses but also freeing reps to focus on selling.  Or, it could use a mentor model where good or senior reps are paid extra to mentor newer reps.

4. Next, you have to incentivize Pharma to make valuable drugs; at least don't de-incentivize.  There is a gigantic likelihood that any really useful drug will be commandeered by the NEJM's Marcia Angell and her band of merry socialists.  Why would any company would want to spend any money on a cure for HIV, when there is a real chance it will be stolen by the UN even before it gets approve?.  And we're supposed to accept that, because society "needs" it.  "Sanction of the victim" is what Ayn Rand called it (and I'm confident I just lost readers by invoking her name.  Bite me.)   So instead, you know what Glaxo's next big drug is?  Treximet: Imitrex + naprosyn.  Commandeer that, Dr. Angell.

The Research Model:

The current model is completely broken.  Allowing "thought leaders" to peer review grant proposals is as good an idea as allowing senior Senators to choose your next President.   Letting Pharma do it is like letting Coca-Cola decide your breakfast cereal.

I recognize that it can't be fixed all at once, so I propose an incremental solution.

Pharma puts money into a pot to fund independent research, no strings attached.

They can still fund their own stuff, of course, but we need a pool of non-taxpayer capital that private research can use. I recognize this is an expense for Pharma-- but not huge, NIMH budget is $1.5B-- but it earns considerable respect, and will likely lead to new ideas and directions-- and someone at Pharma will ultimately benefit. 

The problem is who will manage this pot: putting it in the hands of "thought leaders" and academics is stupefyingly obviously a bad idea.  You may as well let the Politburo decide.  (Yeah, I said it.)  Want to know what that would look like?  The NIH.

The solution is a "Digg" style voting of research projects.  Any doctor-- not just psychiatrist, because you need people with different mindsets to make good evaluations-- can vote up or down a research idea/protocol.  If you want to get fancy, they can also vote up the amount the study gets (as opposed to simply approving an amount.)  It's possible that allowing other scientists to also vote could be of benefit, but there are some problems with it that I haven't worked out.

Again, Pharma and the NIH can continue the same biased, barely readable quasi-research they have always done, this is just another funding source.


"pharmacy budget for doctor... (Below threshold)

August 29, 2008 8:30 PM | Posted by Anonymous: | Reply

"pharmacy budget for doctors"

This is not politically or legally possible. Why would you propose it?

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Because it would solve the ... (Below threshold)

August 29, 2008 10:57 PM | Posted by Anonymous: | Reply

Because it would solve the problem. Those two factors are part of it.

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"If doctors don't have to c... (Below threshold)

August 30, 2008 8:29 AM | Posted by mark p.s.2: | Reply

"If doctors don't have to consider cost"

Cost of the NEW drug makes it better!
Higher price makes cheap wine taste better
In addition, the brain scans showed when the volunteers tasted the wine they thought was more expensive, their brains showed increased activity in the medial orbitofrontal cortex (mOFC) and its surrounding area, the rostral anterior cingulate cortex (rACC), both areas of the frontal lobes.
A study published in the Journal of the American Medical Association in March subjected 82 healthy subjects to painful electric shocks, offering them pain relief in the form of a pill which was described as being similar to the opiate codeine, but with a faster onset, in a lengthy and authoritative leaflet. In fact it was just a placebo, a pill with no medicine, a sugar pill, like a homeopathy pill. The pain relief was significantly stronger when subjects were told the tablet cost $2.50 than when they were told it cost 10c.

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"Pharma puts money into a p... (Below threshold)

August 30, 2008 8:37 AM | Posted by mark p.s.2: | Reply

"Pharma puts money into a pot"
Money, get back.
Im all right jack keep your hands off of my stack.
Money, its a hit.
Dont give me that do goody good bull
Im in the high-fidelity first class traveling set
And I think I need a lear jet.

Money, its a crime.
Share it fairly but dont take a slice of my pie.
Money, so they say
Is the root of all evil today.
But if you ask for a raise its no surprise that theyre
Giving none away.

pink floyd

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"Sanction of the v... (Below threshold)

August 30, 2008 8:24 PM | Posted by Navy Shrink: | Reply

"Sanction of the victim" is what Ayn Rand called it (and I'm confident I just lost readers by invoking her name. Bite me.)

Ha ha. I was afraid of the same thing when I invoked her name in a comment on your last blog entry. It's sad, but I usually do fear that mentioning her name will automatically allow people to discard whatever follows.

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I think citing Ayn Rand is ... (Below threshold)

August 30, 2008 10:47 PM | Posted by Anonymous: | Reply

I think citing Ayn Rand is probably much less damaging to one's credibility than listing Pink Floyd lyrics, all things considered.

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re: anonymous credibility .... (Below threshold)

August 31, 2008 10:56 AM | Posted by mark p.s.2: | Reply

re: anonymous credibility . I'm a paranoid schizophrenic I have no credability to start.
Kirk Lazarus: Man, just cause it's a song don't make it not true.Tropic Thunder

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1. If pharma makes meds for... (Below threshold)

August 31, 2008 9:57 PM | Posted by Jack Coupal: | Reply

1. If pharma makes meds for doctors, is that the main reason that most doctors hate DTC (direct to consumer) advertising? With DTC, the patient becomes an active - and noisy - player in the decision game. Two's company, but three's a crowd!

2. Fortunately, Marcia Angell can no longer destroy the reputation of NEJM. She can still do her damage to other publications, tho, or to the CNNs of the world who still pay attention to her.

3. The luxury goods or me-too drugs sometimes have incremental improvements in clinical performance over what's currently out there. Manufacturers of such products hope to eventually push the original to irrelevance.

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Very interesting analysis a... (Below threshold)

August 31, 2008 11:07 PM | Posted by Duncan: | Reply

Very interesting analysis and suggestions.

You forgot the problem of the mindset that views most medical problems as pharmacological problems, i.e. which drug should I pick for this problem?

In lockstep industries such as pharmaceuticals and conventional medicine, one needs to invoke Ayn Rand just to shake things up.

She was a lunatic but she has her uses.

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Agreed, it's an economic pr... (Below threshold)

September 1, 2008 6:04 PM | Posted by SusanC: | Reply

Agreed, it's an economic problem.

Psychiatry has several features that ought to give an economist concern:

- Some patients are medicated against their consent. So the person making the decision to prescribe the drug - the doctor - doesn't personally suffer the harmful side-effects and doesn't gain the benefit if the drug works. Economically, we would expect the consequence to be drugs that don't work, with harmful side-effects.

- The effect of treatment or non-treatment can effect people other than the patient themself. E.g. Suppose a drug will typically improve the patients symptoms, but increases the probability that they will murder someone by X%. Or coversely, the patient has a condition that if left untreated has a Y% increased chance of murdering someone. [Two caveats: murder by psychiatric patients is rare, and murder is a complex phenomenon that makes it difficult to know the value X and Y%. But the same economic principle applies in less extreme cases, where refusal to treat the patient causes harm to someone else.]

The point of the latter is, that if my $20 allocation is to be spend the in way that benfits me the most, that way might be to drug someone else, not me.

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Also, there's the corruptio... (Below threshold)

September 1, 2008 6:23 PM | Posted by SusanC: | Reply

Also, there's the corruption issue.

There are pretty strict rules against bribing U.S. government officials (or making any gift or payment that might look like a bribe). Compare, if you will, the way pharma sales reps treat doctors. Over in the U.K., NHS doctors could plausibly be considered government employees, which makes the contrast even more striking.

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Everything is ultimately an... (Below threshold)

September 2, 2008 3:23 PM | Posted by Joseph Bergevin: | Reply

Everything is ultimately an economic problem (at least to an economist). I see ignorance of this fact as central to most political debates, typically in the form of "wouldn't it be nice if..." being floated without honest regard given to the consequences of the proposed policy. Sure it'd be nice, but probably won't fall into line as anticipated, and will generate fun side effects.

Generalist noise over global warming reminds me of this. Regardless of your position on it, hand wringing and intuitive solutions are an empty exercise when they ignore the ineluctable fact that people/industry will continue to use oil as long as doing so is cost effective. The CO2 fuels issue will only be addressed by a similarly priced alternative. Period. No amount of strictures on "green living" or future calamity are going to accomplish the task. Pragmatism isn't as pretty as idealism, though.

Your comments on SSRIs resonate with me, as well. From the first Zoloft commercials I saw (those cute cartoon synapses!), I wondered how such a broad range of ills should hinge so centrally on serotonin. As you've said, the double S explains that. For once, it was relatively clear what transmitter was being targeted. Couple that with clear benefit to some people, and it narrows the focus. You hear "imbalance of neurotransmitters" often enough, it becomes a starting point.

Speaking of glutamate, I recall seeing a study underway a while ago to determine the efficacy of memantine on depression. Apparently it didn't work ( Plenty of other doors to open. Heck, even aspirin affects mood (

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what if doctors have are "t... (Below threshold)

September 3, 2008 12:39 AM | Posted by charlie h0tel: | Reply

what if doctors have are "taxed" x% of the cost of all rx they subscribe?

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The problem with your solut... (Below threshold)

September 5, 2008 12:13 PM | Posted by nokommonsense: | Reply

The problem with your solutions is that it doesnt fit in a free market environment. We cant get the gov. to put limits on HMO and managed care and we probably cant get them to put restrictions on pharm either.

Within these contrstraints doctor (us) have to be aware (just realized I cant spell /kog-na-zant/) of our motivation in medicine choice. And consider factors like necessity and cost. Which I admit never thought of as a med student but learned as a resident.

I maybe the only person out there who thinks that the problem isnt the interaction with drug companies. The vendor/client relationship is essential to free market capitalism. The problem is how we assimilate the commercials.

If we are talking ideals and assuming the gov. would impose regulations. Then we should lobby decreasing restriction on patent laws and increasing stringentcy( i know i cant spell) on generics to make sure they are up to par with trade brands. If all medicines cost the same than that would decrease motivation to create new ones. but if you could only hold patents and generics were better this whole debate would be moot.

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There is a fundamental misa... (Below threshold)

September 17, 2008 9:21 PM | Posted by Ozzy: | Reply

There is a fundamental misapprehension in this proposal, which seems to underlie several of the posts I've read so far. Government is not a magic wand, and government handouts change the game by creating incentive structures which alter behavior. There is also the cost to consider - we're talking about hundreds of billions per year to implement this scheme, using conservative assumptions. Look, government is not some magical sugar daddy nor some kindly, philanthropic uncle with access to endless amounts of free dollars. Government is an anti-social rapacious predator, which funds itself through theft via coercion and threats and violence, and one that works hand in glove with Big Pharma and other large, well connected corporations whose members move in and out of government just as government players move in and out of the executive suites. Is this really news to anyone?!?

This is not, contrary to popular illusion, a capitalist system. It is a corporatist system (Mussolini's favorite term for his ideology). It has been for something like a century. Big Gov and Big Biz are simply different facets of the same beast, working toward the same ends, ruled by the same individuals for the same ends: power and wealth. This is obvious to anyone with eyes and a brain who is prepared to be diligent in studying the actual history of this country (Howard Zinn or Noam Chomsky would be a good place to start), and can be objective in assessing the actual reality which surrounds us. It's not that the incentives the author notes are inaccurate - it's that the *context* in which this scheme would be put into place is not what he thinks. Government is an active and corrupt player - not a disinterested, effective and efficient route of transmission of money to noble causes. That fact - that context - supported by any honest reading of history, renders the scheme senseless.

More money for the government to spend would only result in more money for lobbyists, corporations, etc. That's all it ever comes to, with the supposed 'benefactors' profiting to the tune of 6 cents on the dollar - IF they are lucky. After all, the government has to maintain *some* pretense of the money going to where it was supposed to go.

The author is absolutely right that this is an economic problem - but absolutely mistaken in thinking that collectivist policies which empower government and can be made to enrich its trusty corporate friends and which involve ever more predation over the productive spheres of the economy will produce anything but diminished standards of living for all. And then we'll scratch our heads and wonder: why didn't it work? Just like we currently wonder: why do we still have so many living in poverty?

After all, if the government spends $400 billion dollars (assuming 10% of the population qualifies for the $20/patient/day and administrative costs are an astoundingly low 50% of the total project) to implement such a scheme (and you'll note, at present rates of deficit spending and mounting debt, that amount of money is not exactly easy to come by and borrowing it means it will cost far more than the original sum - IF by this time next month anyone is still even willing to purchase US Treasury bonds, which seems less and less likely every day), that is $400 billion which is not spent by you and me voluntarily, on things WE consider to be important to us and our families. Instead, it goes to government to spend as IT thinks best on our behalf (and most of it winds up being spent on innumerable other, notably less worthy, projects). Does anyone here believe the government - which we see daily bailing out its friends on Wall St at the expense of Main St - *really* has our best interests in mind as individuals and citizens?!?! If so, I have some ocean front land in Phoenix I'm trying to unload and am willing to dicker.

And this entire line of thinking ignores a far more troubling ethical aspect: the money that the government skims from such schemes always wind up in the same place: the military-industrial-congressional complex, used to fund wars and other murderous schemes far from our shores. So - are we willing to pay that price? Endless war is OK if it drives down med costs by a few bucks and incentivizes Big Pharma in the "right way"? Even if it worked, would it be worth it? Not in my book.

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Alone's response: Oh my... (Below threshold)

September 18, 2008 9:48 AM | Posted, in reply to Ozzy's comment, by Alone: | Reply

Alone's response: Oh my God, I suck as a writer.

Did you seriously come away from this post thinking my solution was MORE governmetn intervention and spending?

By suggesting a $20/d limit, I was not suggesting that the government be responsible for that $20 (though for Medicaid/Medicare patients, obviously it would be.) I mean that in order for drug prices to fall without using price caps; and in order to incentivize Pharma to come up with novel drugs instead of me too agents, then ALL insurances should move to a "per day budget." Remember, the fundamental problem with drug prices is that the price is completely uncoupled from the demand, which is in turn uncoupled from actual necessity.

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My name is John Diamond and... (Below threshold)

November 21, 2008 11:28 AM | Posted by Nexium Side Effects: | Reply

My name is John Diamond and i would like to show you my personal experience with Nexium.

I am 58 years old. I have bee taking Nexium on and off for 2 years. For the last 3 months I have been taking 1-40mg daily. I have been cycling for 10 years riding avg. of 150 miles a week. I noticed this year I had no energy. Was riding 4 to 5 times a week and could hardly go. A fellow rider told me last week about the vitimin B absorbtion problem and other side effects he had from Nexium. I quit the Nexium last week and I could really tell the differance in my energy level. I was riding regularly and watching what I ate but could not see a weight loss. Now I see that others are having the same problems. I had never had the itchy rectum problem in my life untill a couple of months ago, when I started back on the Nexium on a regular basis.

I have experienced some of these side effects-
Fatigue, weight gain, itchy rectum

I hope this information will be useful to others,
John Diamond

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Hmm your proposals are inte... (Below threshold)

June 29, 2010 1:06 PM | Posted by Anonymous: | Reply

Hmm your proposals are interesting, but I think you glazed an issue without talking about it. The truth of the matter is that as long as medicine and healthcare are capitalic ventures than there will always be market forces at play. The only true solution would be to socialize medicine, but then you run into the problem of no private system checks on the government and all the possible abuses therein.

I think one simple answer you have to "me too drugs" that I missed if you mentioned. Is to change FDA efficacy rules to say drugs have to be superior in some way to an established "golden standard" instead of just against placebo.

Also, I think we have to stop vilianizing and over correcting necessary vendor supplier relationships between physician and pharm.

If napa came out with new self steering car technology shouldnt they be allowed to pitch it to Toyota? Now if the information presented is flawed and Toyota invests in a bad product than correct the way the information is given. Making it illegal for Napa and Toyota to talk is silly.

I have never taken a penny from pharm, and I practice in a "pharm free" academic university. In the three years since we have been that way I have already seen the effect of being less educated about new drugs. In an academic setting. Resdient aren't getting exposure and attending dont try new things.

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Interesting. How would the ... (Below threshold)

April 18, 2014 3:45 PM | Posted, in reply to Anonymous's comment, by johnnycoconut: | Reply

Interesting. How would the golden standard(s) be operationalized?

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