Wednesday, September 9, 2015

The Wrong Approach to Pricing

Here is an example of the wrong approach to pricing medications. That really fancy expensive Hepatitis C drug, Sovaldi, is $1,000 per pill and $84,000 for the course of treatment and the price is justified because it saves on the cost of a liver transplant down the road and long term medical costs for the patient. WRONG IDEA!

It has now been revealed that the poor manufacturer, Gilead Sciences, which justified that price on the above reason, grossed $12.4 billion last year for the sales of Sovaldi alone. Sorry Gilead, I have absolutely no sympathy for you because of the revenue generated in the first year.

Yes, I understand the argument that the expensive drugs are justified because of the resulting reduced treatment costs for the patient in the long term and that the costs of and time to developing drugs is high and many possibilities are dumped after years of work. And that these drugs are developed for smaller and smaller potential patient markets for rarer ailments. But $12.4 billion? I think you got your money back and should cut the price significantly, maybe 1/10th of the current price.

So here is my proposal for new drug pricing: Look at your development costs of that drug that made it to market and the costs of the other drugs that eventually lead to the new drug but were dumped on the way and then price it so that your costs are recouped in five years, not one. And completely forget about the patient's long term cost savings in health costs. That is none of your business. Don't you remember HIPPA? Patient health issues are not your problem. You are providing a product that helps recover from it, just like an aspirin would relieve a headache.

Here's an example. Your current pricing method would allow restaurants to charge $3 for the tasty but bad for your juicy, fatty steak or prime rib and $80 for the  healthy side salad because of the diner's potential long term health problems from eating the steak and ensuing cholesterol and other ailment costs.

The current pricing model leads to insurance companies deciding who should receive these new  medications instead of doctors deciding what is best for their patients - which is the way medicine should be practiced.

Okay, this is all my opinion, to which I am entitled, but I really think pharma companies are doing it wrong.

1 comment:

Hsing said...


Pharma companies may provide all sorts of justifications for their pricing (dev costs of failed drugs, pharmacoeconomic benefit, etc), but the truth is that in the US they price as high as they can get away with, and all the other justifications are simply hot air. For better or worse, that is our system right now. Our governments (and us voters) have not gotten bothered enough to change the system, but with drugs like Sovaldi, and with Medicare going more and more into the red, eventually something will have to give - Adrian