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Pharma Economics - 101

Wed, 07/30/2014 - 3:22pm
Mike Auerbach, Editor In Chief

There has always been much hand-wringing and shouting regarding the costs of new medications. Most of this comes from people outside the industry – politicians, public health advocates, and a smattering of those that just like to hear themselves talk.

I was reminded of this recently when a story crossed my desk that Gilead’s hepatitis C treatment, Sovaldi was being sold for $1,000 a pill and even at that price it had become the treatment of choice for hepatitis c sufferers. Apparently the prospect of a cure with fewer side effects had driven the number of prescriptions way up – and subsequently brought out the congressmen, insurance industry reps and Medicaid reps demanding answers as to why the treatment cost so much – and digging their heals in regarding payment.

Well, I’ll tell you why it costs so much. Developing a drug costs a ton of money. It also takes a long time. The company that develops the drug undertakes a huge financial risk and technical challenge to bring a product to market – with absolutely no guarantees. A company that succeeds in getting a drug to market should be able to price it at what the market will bear and what they think will allow them a return on investment to continue research into other products.

Also, regarding the $1,000 a pill price tag – I have my reservations that that is the actual price paid by consumers. As anyone who has filled a prescription and is lucky enough to have health care coverage knows, there is the “retail” price and then there is the insurance company’s “negotiated” price, which is usually far less. Unfortunately those that don’t have insurance because they can’t afford it are also forced to pay full price for the medical bills and to have their prescriptions filled. A “double-whammy” if you will.

Would this conundrum be solved if there was some sort of universal healthcare plan? Maybe you should ask your congressional representative

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