February 22, 2006
Discussing the Laffey Plan to Remedy High Drug Costs, Part 1
The most difficult part of Steve Laffey's campaign platform for the traditional Republican base to swallow (so to speak) has been his promise to "fight the big drug companies". On Monday, Mayor Laffey laid out in detail his plan to remedy high drug costs. (Katherine Gregg and Jim Baron both provide good tastes of the overall flavor of the presentation in their reporting in the Projo and the Pawtucket Times, respectively).
Mayor Laffey summarizes his program in terms of six problems with six solutions. The first two problem/solution pairs are based on the assumption that pharmaceutical industry advertising creates an "artificial" demand that keeps drug prices high...
Today's Problem: Direct-to-Consumer advertising can inflate the need for brand name drugs and lead to inappropriate prescribing.Here are some general concerns about this set of solutions.
Laffey's Solution: Re-instate pre-1997 FDA disclosure requirements (for full-disclosure of ALL side effects).Today's Problem: Drug companies are spending more dollars on "Me-too" drugs that don't improve America's health.
Laffey's Solution: Require new brand name drugs to be superior than current drugs (or no patent!)
1. Certainly advertising is influential (after enough TV-ads, people will actually consider voting for Matt Brown for the Senate!) but prescription drugs, by being "prescription", are already supposed to involve a layer of protection between advertiser and consumer. They can only be sold after being prescribed by a doctor. In theory, doctors' judgements shouldn't be swayed by slick advertising campaigns.
If there is a problem with advertiser created demand, doesn't a large measure of the problem have to reside with the doctors who are writing the prescriptions? Also, if advertising is this powerful (and profitable), then why haven't generic drug makers developed their own advertising campaigns announcing that their drugs are just as good as brand name drugs to increase the demand for generic products?
2. The focus on "me-too" drugs -- drugs that have a different enough chemical composition to get their own patent, but serve the same function as a previous drug (the less perjorative term used to describe them is "follow-on" drugs) -- raises some specific concerns. The argument against follow-ons is that they inflate drug prices by discouraging people from purchasing cheaper generic drugs after the latest-greatest brand names hit the market.
Not everyone, however, agrees that follow-ons, because they have the same function as their parents, are all bad. The first argument for follow-ons is that they are necessary for providing treatment to patients who cannot use the orginal due to allergies or side-effects. (John Calfee of the American Enterprise Institute makes this argument). The second argument is good, solid economics. In theory, follow-ons ultimately drive prices down by making negotiation with drug companies possible by increasing the supply of drug options available for treating a particular problem. Too much regulation against follow-ons would restrict supply of available treatments, ultimately driving prices up. (Malcom Gladwell argues this position in the October 25, 2004 issue of the New Yorker).
Have all of the possible consequences of increasing the regulatory burden on developing follow-on drugs been given their due diligence?
Up Next: Some very sensible suggestions in the Laffey Plan on FDA & Patent Reform...
One topic at a time:
You say:
1. Certainly advertising is influential …but prescription drugs, by being "prescription", are already supposed to involve a layer of protection between advertiser and consumer. They can only be sold after being prescribed by a doctor. In theory, doctors' judgments shouldn‘t be swayed by slick advertising campaigns.
If there is a problem with advertiser created demand, doesn’t a large measure of the problem have to reside with the doctors who are writing the prescriptions?
>> No. You are a bit naive here. The advertising is designed to drive consumers to buy not doctors to prescribe. The marketing "proof" or key message is "this drug is good because..." If you have acid reflux buy the purple pill, millions of other people do. If you are diagnosed by your doctor or become aware of an ailment you have by experience and tell your doctor about it and he prescribes a medication, you can ask for a similar med that you prefer. Most doctors will say “sure” since they want you to get better and since you asked for a specific med that is comparable to the one he or she might have scripted anyway.
The ads make this type of transaction happen more often by creating, as you call it, “demand”. The drug works. The patient is happy. The Doc is happy, and the company that makes the med is happy. Not surprisingly very penny of the cost of advertising is ultimately borne by the consumer.
I would ask you this question. Should all consumer adverting of prescription drugs be banned? If you read the Laffey Plan it says Pharm Cos should not be able to advertise the way they do now. If they want to advertise a patented drug on TV they should have to reveal all the same info you get with a printed ad (like in Newsweek or RD). This is the rule he would change.
You say:
Also, if advertising is this powerful (and profitable), then why haven't generic drug makers developed their own advertising campaigns announcing that their drugs are just as good as brand name drugs to increase the demand for generic products?
>> The cost to plan, design, and produce these national TV “branding” ads is prohibitively expensive, let alone the cost of the media (TV time). The generic drug makers, like the true manufacturers they are, simply knock off the original and make their money on volume.
Read Inside the Tornado by Geoff Moore. You will learn about gorillas, chimps and monkeys. The big Pharma are the gorillas, the generic producers are the chimps and monkeys. Market share is everything and the little guys get what they can with little or no marketing because their margins are too tight. Remember if a drug goes generic there isn't much high margin money left in it anyway.
Simple.
SV
Andrew,
Fair points. However, I would note that doctors many times, in order to make their patients happy, prescribe to them what they see on TV. Also, many drug companies spend money marketing to doctors to encourgae them to prescribe certain drugs to their patients. Personally, I don't see the harm of full disclosure of side-effects in ads.
As for me-too drugs, I would also note that me-too drugs are fine, if they are treated like generics. Generics bring down the price of drugs. Me-too drugs however get patents and then ads are made to get people to buy these brand name me-too drugs rather than the generics. Also, drug comanpies spend R&D developing these blockbuster me-too drugs, the new purple pill, rather than developing actually innovative drugs. I think less focus on me-too drugs would lead to more effective drugs which is the real point of drugs.
These are just my points, but I understand reasonable people can disagree about these issues. Your analysis of the issues are certainly thoughful.
Posted by: Fred Sanford at February 22, 2006 10:22 PM