Thursday, January 21, 2016

Cheap drugs - yeaaahh!!

We hear a lot these days about the "greed of big pharma" and how it pushes up drug prices.
Well, rather than taking the easy way and demonizing companies here's an opinion from someone not particularly qualified to give one (me!) on what could be done..

1) A tax holiday for repatriating offshore cash stashes under the condition that the money all be spend to increase R&D spending. A Merck manager once told me they had $13B stashed offshore. Lets get it back. Then think of ways of discouraging companies from doing it again (lower corporation tax rates?).

2) Banning marketing of prescription drugs. Isn't prescription drug advertising tantamount to recognizing that MDs don't know what they're doing? They should be up to date on the best treatments based on the scientific literature, rather than being swayed by rep visits and clamoring patients. I know marketing works for drug companies, but for something so technical plain, dumb ads seem wrong.

3) Allowing insurance companies and government entities to negotiate the costs of drugs.  Without this in place you are preventing market forces from working. This is what happens in other countries and certainly reduces prices there. Also, while we're at it, the purchase of prescription drugs from other countries (e.g. Canada) should be legalized.

4) Government initiatives to discourage companies ploughing profits into share buybacks. Here I am on slightly wobbly ground, not knowing an awful lot about this aspect of corporate economics, but it seems to me that many companies  spend a large portion of their earnings in  buying up their own shares. They do it to artificially drive up the value of the remaining shares, increasing their value to shareholders. Indeed, in 2015 about a trillion dollars of US company earnings was spent in this way. Money spent in share buybacks is not being invested in the future of the company. Short-termism kills pharma R&D.

5) Increasing federal R&D spending on drug discovery. This, of course, removes some financial R&D burden from pharma, but is necessary to counteract the short-termism in the industry. It is not anti-market, because pharma companies have the choice of doing this research themselves or buying expensive licenses from government-funded institutions later on. Of course, as I'm one of those who believes in  not increasing the overall tax burden on the country, that federal R&D money would have to come from somewhere. Hmm...At least some of it would be regained in the future, though,  through cheaper Medicare and Medicaid drug costs  and the availability of more effective medicines with fewer side-effects and hospital readmissions, reducing overall health care costs.

Cheap drugs - wayhayyy!

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