Single pricing – what do you think?


Category : Pharma

Several days ago, I outlined a plan to decrease pharmaceutical expenditures. Admittedly, some of these thoughts occured while typing. I had not thought through all the ideas carefully. One idea that I had that morning has increasing appeal the more I consider it.

I (and many others) would like to see a free market solution to drug costs. Free market solutions require knowledge of costs and comparability. For exa;mple, I can buy a shirt for $40 or $10. I might buy the more expensive shirt if:

  • I believe the $40 shirt looks much better
  • I believe the $40 shirt will last 5 times as long
  • I like the label, and the money does not really matter

As a conscientious physician, how do I choose which ACE inhibitor to prescribe, or which statin, or which quinolone? I need to know several things:

  • The cost of each drug
  • The efficacy of each drug (e.g., if my goal is lowering cholesterol, what % lowering does each drug provide
  • The side effect profile of each drug (sometimes drugs in the same class have very different side effect profiles)

This information would allow us to develop solid strategies for all our patients. We could have independent groups to review each class, pricing, efficacy and side effects and develop recommendations.

This would only work if we knew the price of a drug. However, the prices of most drugs vary widely. Companies offer deep discounts to some hospitals (a bidding situation) and some insurance plans – but not all. The government (through the VA hospital) goes through a bidding process. Periodically we have to switch patients from one drug of a class to another because the bids changed.

If we required that each pharmaceutical company have a standard pricing for everyone – insurance companies, hospitals, drug stores – then physician groups and consumer could better compare the drugs. If these prices were known, then we could make decisions knowing the costs, rather than responding to marketing hype.

I mentioned this to my wife who raised the point that retail works on varying prices. Check out grocery stores and compare prices for various products. This objection is understandable, but I will argue that health care is different.

The drug companies would not like this transparency of costs. However, if so imposed, then the me-too drugs would have a great purpose. They would cause competition! And that is the only way the free market can work to influence pharmaceutical purchases.

I expect that there are many reasons why this seemingly simple solution will face difficulties, but I need your help. Please comment on the strengths and weaknesses of this concept. As a physician would published single pricing help you? As a patient would access to pricing influence you? If you happen to be an economist, what do you think this proposal would accomplish?

Thanks in advance


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Comments (7)

I think you have a good suggestion here, DB and it would likely help physicians. But it may not have a lot of influence on patients. As you point out in a previous post, it takes quite an effort on your part to overcome the influence of DTC drug advertising on even intelligent consumers.
Drugs are NOT your average consumer good and choosing them is a bit more complicated than choosing a shirt.

The essential question: What structural incentives would single pricing create?

One answer: Much of pharma’s institutional advertising might be redirected to influencing the few hundred honchos who have to sign off on the One Price. Ditto for the AARP’s influence effort.

Another point: How would differential pricing for drugs in the same class be determined? (Derek Lowe recently mentioned that one of the me-too statins caused an entirely-unexpected improvement in CRP.) The safety/efficacy battle would become a political battle in D.C. Sounds like a bad idea to me. (The me-too drugs already have multiple purposes anyway. Absent price fixing collusion, they drive the cost down to what the market will bear. They also give another chance to people who cannot tolerate one drug.)

Re. DTC advertising: I’m all for it. Otherwise it is difficult to get the word out on important new drugs. Take the non-sedating antihistamines. Without advertising, a lot of people would have continued to self-treat with the sedating kind, with major impact on quality of life, job and school performance, and safety while operating machinery. As another example, I bet a lot of people who have given up on their diabetic neuropathy will give it another try once the Cymbalta advertising hits.

How big of a problem is it anway with the people who insist on some drug they have seen on TV? I understand it must be incredibly annoying for the poor doctor, but what is the actual economic cost? How many people would you have to “treat” by detoxifying them from advertising to prevent one adverse outcome?

Interesting question. I think I would shop for prescription drugs the same way I shop for over the counter ones. The effort I would spend would be proportional to the price and the severity of the illness.

On a broader perspective, I was told by my marketing prof that people will buy goods or services based on perceived value. How can Bayer sell aspirin for a higher cost than the generic? It is EXACTLY the same chemical. Well, it is in the perceived value of having that Bayer name. It would probably work the same with non-OTC drugs. Clever marketers can add some value to their me-too drug regardless of it’s efficacy. However, information on head to head comparisons would allow some of us to make better choices. This would only really be worth it for expensive drugs. And like choosing a Lexus over a Lincoln, based on the consumer reports stats, personal preferences would play a huge role.

My understanding is that the usual result of a regulation forcing a standard price on a product that started with a variety of prices is that everyone ends up paying a price near the high end of the original range. This has been observed with gasoline prices, for example. I’m not an economics expert and I have not spend any time trying to think through the specific conditions of pharmeceuticals.

The difference to the consumer would, I think, be minimal – at least in urban/suburban areas. I suspect Stop-and-Shop supermarket in-store pharmacy gets roughly the same discounted price as Brooks Pharmacies, yet the price difference to me is about ten percent at these two outlets – with S+S being the cheaper(??). Other factors heavily influence cost-to-consumer.

As of the moment, despite higher price, I use a drugstore [Walgreen] chain for my ‘scrips – not for any real reason, just seems more comfortable.

This may change, though, as an online supplier [NOT a “re-import” house] charges roughly forty per cent less than the brick-and-mortar. For ten percent I would not change, the convenience and turn-around time at the local facilities would keep me there. But FORTY? Roughly $110/month, or eight percent of monthly income?

And again, I suspect the difference is largely in overhead other than price-from-manufacturer. Heck, go to any for-profit hospital and look at what they charge for aspirin or Tylenol vs the local drugstore: the difference can be amazing, and it is not because the hospital pays more than the drugstore.

I am a bit leery of on-line, as the local pharmacist also acts as a sort of synthesist checking that prescriptions from different doctors unaware of each other’s scrips have not inadvertently interfered with each other.

Perhaps owing to lack of clarity in rcentor’s description, I detect some misunderstandings about his proposal. If I read you correctly, your single pricing proposal is NOT a call for bureaucratically fixed pricing (which would involve a process of evaluations and negotiations subject to lobbying efforts from drug companies or interest groups like AARP) but instead simply a requirement that drugs be sold at a single price to everyone. The drug companies could decide where to set that single price, but would be restricted from offering discounts to anyone (except, I would hope and expect, to participants in need-based give-away programs like most companies already have). The resulting pricing clarity would introduce competition because any pricing descrepancies between drugs in the same class or with similar functions would have to be justified in terms of measurably increased efficacy or more favorable side effect profiles.

An interesting variation on your general anti-regulation position.

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