This Was Not the Plan
I really don’t want to be writing this. I want to be reading obscure things about drug regulation and thinking about how our ideas about governing business evolved and toying around with next projects. But instead I am tethered to a body that won’t go along with my wishes.
I could catalog symptoms, but long story short, it’s been another rough week. I had a few good days, but my life still is completely organized around managing the state of my body. That’s both in the day-to-day (how can I use the capacity I’ve got to get work done/make it through the day), and in terms of priorities (tracking down specialists, going to appointments, being very careful about what I eat and how much I sleep).
Part of dealing with cancer is accepting a new unknown. When you are diagnosed, and given a prognosis, the future collapses into multiple timelines. In some of them, you are treated and then there’s an “after” and life returns to “normal,” with unpleasant thoughts of illness and death banished, hopefully for decades.
In others, there is a rapid foreshortening. The old vision of the future disappears, replaced by an abbreviated period of decline, and then death. Of course these timelines exist as possibilities for the healthy, too, but cancer makes the darker ones bigger and harder to ignore.
Some of the art of living with cancer, or after cancer, is learning to ignore the dark ones, even as you try to use them as a reminder to live in the moment, to not take things for granted, to seize joy where you can find it.
Yet as I deal with my current state, I feel like once again the mix of timelines has changed. The “back to normal” timeline recedes even as I try to hold onto it. The darkest timelines aren’t front of mind, even though I know they’re there. Now a spotlight shines on the murky middle. This “rough patch” has lasted almost four months, though there have been stretches—alas, not in the last two weeks—where things have been quite a bit better. But what if this is as good as it gets? What does my life look like then?
I guess I have always lived in the future as much as the present. Planning, setting goals, daydreaming. Academia encourages thinking on a long timeline—looking six months out, or a year, or five years. Right now, though, I don’t know what kind of future I’m looking at, and it’s very unsettling. Is there a long period of recovery, then a return to something close enough to “before” that I can return to my prior life? Or is that truly gone, and I need to make some kind of new life with a new body?
Of course I can’t know. All I can do is deal with the present, keep looking for ways to make it better, and try not to close off too many possibilities for the future.
Dealing with Brain Fog
It appears that the two modes of this blog are “boring stuff about drug pricing” and “symptoms.” I guess we all process in different ways.
I’ve mentioned before that brain fog has been something I’ve struggled with over the last few months. There are times—whole weeks, even—when I feel cognitively fine, and can’t really tell that there’s anything wrong with my brain. But at other times, a thick fog comes over me. Not a mood fog, although if it persists long enough, it certainly becomes one. But a feeling of cloudiness, of struggling to make sense of things, of feeling like there is a wall between me and the world, like a zombie.
Although I had some mental cloudiness during chemo a year ago—a common side effect, and one that persists for a subset of people—it really seemed to go away in the months that followed. It only reappeared after I had my thyroid removed in October.
Since then, however, I feel like my brain is extremely fine-tuned. The anti-estrogen drugs (which I am not currently taking) bring on the fog, and also crushing depression—though a kind which magically disappears when I stop taking them. I had a terribly foggy few days after trying Prilosec, of all things—an outcome my doctor was skeptical of, but that the internet seems to support as a possibility. I am starting to think that the waves may also follow my monthly Zoladex injection, which is not a pattern I was initially attuned to.
Last week’s fog, though, was especially upsetting both because of its depth and duration, and because it came at a time when there was no obvious explanation—except, possibly, the Zoladex, although that’s not a new variable. It’s one thing to feel like your brain is functional except when you’re taking certain drugs. Even if it’s really bad not to be taking them from a cancer perspective, you still have a choice. It’s quite another to feel like it’s totally beyond your control.
For whatever reason, after a week of awful fog, it largely lifted yesterday. I felt 90% normal again, with no obvious explanation for the change. I am deeply relieved—and yet I don’t know what this means for my life. Can I make it go away for good? Surely there are many things left to try—drugs, closer monitoring of thyroid levels, behavioral experimentation. It’s certainly too early to conclude this is permanent, or if it is, how much impact it will have on my day-to-day functionality.
But it’s very difficult to reconcile this not-normally-functioning brain with my sense of self. As an academic, all the most important parts of my work involve high-level cognitive functioning. And there’s a presentation of self part as well. If I am foggy, do I postpone a meeting? Fake my way through? How do I adapt?
Having to “perform” when I feel drugged is also very anxiety-producing, which in turn makes the brain function worse. I find myself hesitant to make plans that rely on my being able to function normally at a specific moment in time. A couple of times I’ve had to cancel things because I simply can’t do them at the time they are scheduled. And I’ve had moments in public talks where I know I’m not making sense, because I’m not processing normally. Yet I also can’t just stop my life because I can’t always predict how my brain will be behaving.
I know there are risks to putting something like this out there, and pre-cancer I don’t think I could have been public (even on this small scale) about it. But part of finding the new normal is figuring out how to remake my life with the body I’ve got. I’m hopeful that this is something I can learn how to manage. I think I still have contributions to make, intellectually as well as on a human level. But pretending that nothing has changed just isn’t working for me.
Pills, Power, Policy, Part 2
I’m still reading and thinking about Tobbell’s Pills, Power, and Policy, and Chapter 4 really sucked me in. It covers Estes Kefauver’s bid to reform the pharmaceutical industry from 1959 to 1962, culminating in the Kefauver-Harris Act.
Kefauver, a Democratic from Tennessee and recent presidential candidate, was also chair of the Senate Subcommittee on Antitrust and Monopoly. His core concern was why drug prices—particularly antibiotics, corticosteroids, tranquilizers, and oral antidiabetics—were so high, and whether manufacturers were actually competing to lower them.
His subcommittee launched an investigation, as they had for the auto, steel, and bread industries, and asked three still-familiar questions: How did manufacturers determine prices? Why could drugs be purchased more cheaply abroad? And why did the industry have such high profits?
They identified three mechanisms they saw as contributing. First, they argued that product patents lasting seventeen years were too long, and contributing to high prices. Second, they pointed to the expense of intensive advertising and sales, in the form of “detail men” doing physician “education.” Finally, they saw drug companies’ efforts to persuade physicians to use brand names, rather than generics, as part of the problem.
Kefauver introduced a bill that would have limited these practices in several ways—notably, by granting only three (!) years of market exclusivity followed by required licensing for 8% royalties, and by awarding patents only to drugs with “significantly greater therapeutic effect than other drugs already on the market” (p. 93).
Long story short, although the bill got some traction, the drug company successfully mobilized against it, in part by getting physicians—sold on the idea that this could open the door to socialized medicine—on their side. It was almost dead, then was revived in the face of the thalidomide scandal in the summer of 1962.
In the fall of ’62, a much revised version—the Kefauver-Harris Act—passed both houses unanimously and became law. But the final version addressed none of the pricing and competition issues that had motivated Kefauver’s original efforts. Instead, the core provisions were about safety and efficacy—important issues on their own, and newly salient in light of thalidomide. But those provisions strengthened, rather than weakened, the hand of dominant firms. Kefauver’s effort to control prices was largely abandoned, and his approach would not be revived.
Drug Companies, Antitrust, and How We Think about Prices
This story is weirdly compelling to me. I came to it because I wanted to know how drugs were priced prior to the value-based era. Because there is so much controversy around six-figure drug prices today, and because that controversy seems tied to value-based pricing, I imagined the era of (much lower) cost-plus pricing to have been somehow less controversial, at least on the price dimension. I was not expecting to find pitched battles over the high price of antibiotics, and I was certainly not expecting to find an antitrust story.
I am taking two big things away from this. One is that it actually expands my sense the importance of the consumer welfare revolution was in antitrust. In my new book, I write about how the incorporation of industrial organization economics into antitrust policy, and the eventual writing of its policy priority (allocative efficiency) into case law, limited the issues that antitrust could potentially address.
The drug story is consistent with my account. Yet it highlights how seeing prices as more than an issue of market power leads to conversations that are not only about mergers and concentration, but that reach into all sorts of adjoining policy areas—about patent policy, for instance, or the regulation of advertising. Part of the big question that interests me is how the playing field in the U.S. was tilted away from workers and consumers and toward business interests, and how that tilt was naturalized by changing how policymakers thought about regulatory decisions. This is a part of that bigger story that is new to me.
The other takeaway is that there is both continuity and change in how policymakers think and talk about prices. On the one hand, the grounds on which Kefauver challenges pricing seem very foreign. The idea of only allowing three years of patent protection is sort of mindblowing, it’s so far from where we are today. And even the idea that marketing to physicians (let alone consumers) might be an inappropriate activity driving prices up, rather than a form of protected speech providing information, feels unfamiliar from the present.
But on the other hand, the world of value-based pricing feels like it moves back to the era of explicit moral judgments in some ways: that the ideal, or at least best realistic option, is not some sort market that is as close to competitive as possible, in which prices are the result of free competition among multiple buyers and sellers after a reasonable period of IP protection to encourage innovation, with advertising a form of information—but one in which someone (pharmaceutical companies? government? insurance plans?) is calculating the dollar value of additional (quality of) life, and using that to decide what prices are “fair.”
It’s different, of course. But there’s a shift toward advocating for market competition as the way to set prices—and then one back away from it. And it’s the mechanics of that shift—in the “natural” way to think about pricing—that really fascinates me. Who advocates for each approach, and why? How do they justify it, and marshal support for it? And through what pathways does it become taken for granted? These dynamics—through which interests get interpreted, converted into frameworks for thinking about the world, and then put into practice—are the ones I want to understand.
Pills, Power, and Policy, Part 1
This week I’m reading about the history of the U.S. pharmaceutical industry: Pills, Power and Policy: The Struggle for Drug Reform in Cold War America and Its Consequences, by Dominique Tobbell. It’s really fascinating, and I can’t believe I haven’t run into the book before given how closely it overlaps with various topics I’ve worked on (industry funding of academic science, regulatory and antitrust debates around healthcare, etc.).
I’m about halfway through, but am trying to stay committed to my “write as much as read” strategy. So here are some takeaways so far:
1. Drug pricing debates now echo drug pricing debates in the past
Public outrage over the price of drugs goes way back—to the 1950s, at least. (Before that, people were just getting used to the idea that drugs, especially antibiotics, really had the power to save lives.) In this period, there were concerns that prices weren’t declining with competition, that drugs were unaffordable for lower- and middle-income families, that drug companies were colluding to keep prices high, and that there was too much spending on marketing and advertising (to physicians, not the public). All this led government to take up the issue—in debates over greater regulation of the industry, FTC investigations into price fixing, and a congressional subcommittee investigation into pricing.
2. Antitrust is a theme to come back to
Drug pricing was understood at least in part as an antitrust problem. Estes Kefauver, cosponsor of the Celler-Kefauver Act that limited mergers in the 1950s, was a key critics of prices and lack of competition in the pharmaceutical industry, and led a congressional investigation into it. The FTC also played an important role in drawing attention to the issue.
In both of these cases, the investigation was tied to a pre-consumer-welfare conception of antitrust, that understood its purpose broadly and sought to use it to ensure markets were competitive in a variety of ways. The Kefauver hearings are covered more in the next chapter, but I was not anticipating this much overlap between 1950s drug pricing and my interests in antitrust.
3. Pharma invented the “fund academics” strategy.
According to Tobbell, drug companies basically invented the strategy of funding academics—not only to develop a research pipeline but to create political allies and promote the creation of knowledge that would align with their interests. During the 1950s, the industry not only funded postdocs and fellowships for foreign researchers, but supported the creation of clinical pharmacology programs.
It didn’t stop with medical science, though. Concerned that government had “at its command many more facts about the industry,” one firm also funded a Harvard Business School researcher to conduct an “independent” study of pricing in the industry. In fact, drug companies apparently became so good at funding academics to advance their interests that in the 1960s, the tobacco industry explicitly copied their approach.
4. Vannevar Bush is everywhere.
There are a handful of people who pop up over and over in the postwar U.S. at the intersection of academia and policy. One is Carl Kaysen. Another is Vannevar Bush.
It’s commonly known that Bush framed much of postwar science policy with Science—The Endless Frontier. But what I did not know is that as a board member, he apparently also helped Merck take its modern form. He advocated that the company increase its internal R&D capacity, and create a central planning group to estimate markets, prices, and so on for drugs early in the development pipeline. The guy got around.
In the next chapter we’ll get into Kefauver’s 1959 investigation into drug pricing. I am way too excited about this.
Drug Pricing circa 1990: Mapping the Literature
This blog is an early-morning project for me—a time to think and learn about whatever I want, purely for the pleasure of doing so. That means reading as well as writing. But I also know that it’s easy for reading to overtake writing, so I’m trying to spend as much time on the latter as I do on the former.
As I’ve already said, though, this is all very new to me. It doesn’t always feel like I’m ready to write. And it may mean that sometimes this is more like notetaking than well-assembled argument or reflection. So be it.
The next task I’ve set for myself is to learn something about how drug companies were making pricing decisions circa 1990. I started by looking for pharma trade publications of the era, on the theory that the most useful orienting point would be news-type coverage, rather than scholarship.
Identifying those has not been as quick as I expected, though. (If a reader out there knows what I should be looking at, please feel free to drop it in the comments.) So I’ve ended up in scholarship anyway.
So far, what I’m seeing is circling around two main academic spaces. The smaller cluster is work in STS/history of science: Jeremy Green’s work on the history of pharmaceuticals, Dominique Tobbell on the drug industry in the Cold War decades, The Pharmaceutical Studies Reader. Of these, Tobbell’s book appears most focused on pricing, though it also seems to center on the 1950s and 60s. (I will look at it more closely.)
The other, more sizable cluster centers in industrial organization economics. This was unexpected to me (having spent a fair bit of time reading in this area), though it makes complete sense. When I started searching for work on drug pricing actually published around 1990, the most promising pieces included a 1986 JEL by William Comanor on the political economy of the pharmaceutical industry, a 1993 JEP by F. M. Scherer on pricing in pharma, and a 1995 book by Alfonso Gambardella on science and innovation in the industry.
Again, I haven’t really read these yet, but will review more closely. One thing that is worth a mention, though, given my interests outside of this exploration, is that two of the I/O folks cited above (Comanor and Scherer) also pop up in my book on the influence of economics on policy—in the context of antitrust policy.
If I’m remembering correctly, Comanor served as the first Special Economic Assistant to the Assistant Attorney General for Antitrust in 1965, when Don Turner became the first economist appointed AAG. This was a moment when economics was just beginning to gain influence in antitrust policy. Scherer led the FTC’s Bureau of Economics in the mid-1970s, as well as writing the most popular I/O textbook of the era. I was not really expecting this to loop back so quickly.
Beyond those two clusters of work, I’m also hitting a clump of publications on value-based pricing from around 2005 in outlets like Health Affairs, with authors coming from more of a business/strategy space than health economics. This is presumably when the idea was taking off, and Michael Porter’s Redefining Health Care: Creating Value-based Competition on Results is one landmark here. While I’m not sure this cluster of work will tell me much directly about the state of pricing circa 1990, it is obviously relevant to the broader story I’m trying to piece together here, and may be useful for finding citations to follow.
I think my next step is reviewing the Tobbell book, and the JEL and JEP. Then we’ll see whether it makes sense to jump forward to the VBP literature circa 2005, to start reading trade publications or other news coverage from the 1990s, or to take some other direction entirely. Either way, it’s all fascinating so far.
Two Models of Pricing Drugs
For those of you keeping track, I’m feeling mostly back to normal after losing several days to drug side effects. I only took one day of the new medication, which means I’ll have to revisit the dilemma of whether/how to continue some form of risk-reducing endocrine therapy. But for now I’m relieved to be back to writing about drug pricing for my own amusement, if annoyed and frustrated that I continue to lose big chunks of time to bodily management.
Today’s post was motivated by the following paragraph [ungated], which set off all my “interesting problem!” bells when I read it a few weeks ago.
Pharmaceutical pricing is not a context I know much about. I do not know how accurate this is as an empirical description (were prices in the past really not set with regard to willingness to pay? has there indeed been a well-defined shift in practice?). But if it is basically correct, it looks like a fruitful place to think about some of my themes of persistent interest, while writing through the process.
I’m going to break this up into a couple of posts. First, I want to simply articulate—as a learner, not an expert—what these two models look like and why a shift from one to the other might matter. Second, I’d like to verify that pharmaceutical firms really did use cost-plus pricing in the past. Finally, I want to understand how these companies adopted value-based pricing, and how that fits into a larger movement in healthcare for value-based care.
(I suspect that last one may be a bunch of pieces. But certainly definitions are first.)
Cost-plus pricing, as described above, involves setting prices by adding a profit margin to the cost of production. This is common, as it is both relatively straightforward to come up with such costs, and seems reasonable to buyers as well.
From an economic perspective, it doesn’t make a lot of sense; prices should be set based on what buyers are willing to pay—that is, on the value they perceive in the product. Indeed, the economist author of “The Dynamics of Cost-Plus Pricing,” a 1992 article cited in the above excerpt, goes so far as to call cost-plus pricing “normatively suspect!”
As firms have become more economically sophisticated, and as the availability of data on consumer demand has increased, more industries have moved away from cost-plus pricing and toward value-based pricing. Airlines, for example, have become extremely good at setting prices based on what particular types of consumers are willing to pay for particular seats at particular moments in time, and companies like Amazon are able to change prices every second based on expectations about consumer behavior.
Nevertheless, cost-plus pricing remains widespread. The Harvard Business Review compares it to romance novels: “widely ridiculed yet tremendously popular.” Its straightforward nature makes it attractive not only when demand is difficult to estimate, but when sellers want to convey that prices are fair, or to limit competition with other sellers using the same strategy.
In many industries, we would not expect value-based prices to look wildly different from cost-plus prices. Perhaps one consumer is willing to pay 30% more for a shirt than another, and a value-based strategy can ensure that the second customer is offered a discount.
But prices for life-saving drugs are relatively inelastic. People are willing to pay huge amounts for a chance to cheat death, and they expect insurance companies to cover the costs of such drugs. Thus the gap between what a cost-plus price and a value-based price is potentially huge. This makes value-based pricing an attractive strategy for pharmaceutical manufacturers, who like the idea of being able to charge six figures for drugs that do extend and/or significantly improve the quality of life.
But at the same time, value-based pricing is widely embraced by those looking to reduce costs in the health care system. Here, the calculus is different. We know that many of the very expensive drugs prescribed for cancer, for example, don’t have a proportionate benefit—they may, on average, extend life by a couple of months. Yet if they show some benefit, they must be approved and covered, effectively regardless of price.
From this perspective, differentiating pricing between drugs that provide a great deal of benefit—curing a fatal disease, or greatly extending/improving life—and those that provide only marginal improvement seems like an excellent move. We could agree to pay only for the amount of value that drugs do, in fact, provide, and refuse to pay for those that do not provide sufficient benefit. Here, for example, is an extended brief from the Center for American Progress making the case.
Other countries do evaluate the value of drugs in this way and negotiate prices with insurers accordingly. And their costs are indeed lower—although U.S. prices are subsidizing what the rest of the world pays to some extent.
What is interesting here is that both drug companies and their nominal opponents both favor value-based pricing. Advocates outside drug companies think it is possible to price more rationally and reduce costs overall, or at least increase consumer welfare by shifting spending toward drugs that provide the most value. Drug companies, presumably, think that that value-based pricing will allow price increases for genuinely health-improving drugs that will outweigh any price limits placed on drugs that provide limited clinical benefit.
The question is, who is right? Would value-based pricing rein in spending and align it more closely with benefits provided? Or would it be a way to justify ever-higher prices for already existing drugs, without providing much compensating benefit? As someone who is constitutionally inclined to think that complex calculative systems are most likely to benefit the richest and/or most powerful actors in a space, my gut reaction is that it’s the latter. But I could be convinced otherwise, and that’s what I want to explore.
Back to the Body
I was having a good stretch there for a while. Reengaged with work, writing on here about the political economy of drugs rather than the experience of cancer and its treatment. It was all good.
But the “all good” was missing a critical piece. At the end of October, when my body was really falling apart and I was struggling mightily with brain fog, I stopped taking my aromatase inhibitor. This is the drug that suppresses all estrogen production, and reduces the risk of cancer recurrence by 50%.
It has a panoply of side effects, including cognitive and mood problems. I made it through nearly four months but when things started to get bad, my NP suggested a break.
It took weeks, but things very gradually improved. By mid-December things had taken a turn for the better, and this past week was the first week that I really felt fully engaged with work again, vs. just struggling to respond to what absolutely had to be done.
But I knew I had to try again. On Thanksgiving I tried a dose of the old drug, which immediately brought back a deep fog that took several days to go away. Yesterday I tried a new drug, a different one in the same class.
Well, the brain immediately went haywire. Within hours, I felt like I was behind a thick plate of glass. I found myself crying uncontrollably and deeply despondent for no external reason. I spent the day trying to distract myself from the wave of awful feeling that dominated my senses.
So here I am on day two. I didn’t take the drug this morning. I thought if I were going to take it at all, I’d try this evening, on the theory that maybe I can sleep through some of the side effects. But I still feel shitty—depressed and zooey in the head.
It’s really strange how our minds are, at base, such physical things.
At some point I’m going to have to decide whether I push through this misery for a while in the hopes that it gets better—which it could. There are other things I can try. I can add various cocktails of stimulants and antidepressants to try to make the side effects manageable enough to continue. I can try another, slightly less effective drug with a slightly different side effect profile.
But it really, really sucks. And obligations do not pause themselves just because your brain has fallen apart. Of course people would mostly understand if I asked for forbearance. But I don’t want forbearance, I want to have a functioning brain.
I am ambivalent about posting this, because it feels so personal. But that is sort of the point—that just because “active treatment” is over, it doesn’t mean that you’re not still dealing with the aftermath. There are steps forward, and steps back. Writing it down in a rational tone helps, somehow, even if I question my own judgment in putting it out there.
In the meanwhile, I’m going to try a run, in the hope that some endorphins can counter whatever horrible thing the lack of estrogen is doing to my brain. Fuck cancer.
Of Models and Morals: Value-Based Pricing as a Case
I have always been interested in our broad frameworks for thinking about social/economic problems, how those frameworks shape the choices we see as reasonable, and how they remain stable or, eventually, change.
As a graduate student, I found the history of the corporation compelling in this regard. This was the kind of story told by my dissertation adviser, Neil Fligstein, in The Transformation of Corporate Control. Over the course of a century, a succession of “conceptions of control” dominated the large corporation: new ideas about what its purpose was and how that should be achieved. This culminated with the financial conception of control, in which shareholder value was widely accepted to be the firm’s purpose, and people with finance backgrounds the most appropriate leadership—with downstream consequences for business and society.
I have always been interested in our broad frameworks for thinking about social/economic problems, how those frameworks shape the choices we see as reasonable, and how they remain stable or, eventually, change.
In my own work, I initially thought of this in terms of institutional logics: I wrote about the rise of a market logic in academic science, in which people came to understand scientific research as worthwhile because of its potential to produce technological innovation that, in turn, would drive economic growth. The argument of Creating the Market University was that policymakers adopted this framework and made policy decisions (about patent rights, about research funding) within it. This, in turn, promoted the expansion of practices within academic science that were grounded in such a logic (patenting and licensing, academic entrepreneurship, university-industry collaboration).
Thinking Like an Economist is really written within this same broad framework. I’ve moved away from the language of institutional logics to talk about a “style of reasoning”—but at its base, it’s another book about how a new way of thinking (economic reasoning) took over a new space (policy domains), with downstream effects on what choices (policies) seemed reasonable—and thus with political consequences.
The books and articles that most appeal to me are often looking at a similar class of problems: I am thinking, for example, of Gabi Abend’s The Moral Background, which explores the competition in the first half of the twentieth century between a “standards of practice” conception of business ethics, with a focus on “scientific worldview, moral relativism, and emphasis on individuals’ actions and decisions,” and a “Christian merchant” conception, with a “Christian worldview, moral objectivism, and conception of a person’s life as a unity.”
Or Rakesh Khurana’s From Higher Aims to Hired Hands, which similarly explores how business schools came, in the 1950s, to replace a conception of business as a profession with a one centered on shareholder value—again, with intellectual, moral, and practical consequences.
Or, more recently and at a finer grain, Barbara Kiviat’s work on the moral assumptions embedded in insurance pricing. A range of predictive variables—such as race, gender, zip code or credit score—can theoretically be used to set insurance prices; as a society, we have agreed—unevenly—that some of these are legitimate to use and others illegitimate.
Kiviat talks about competing models of what constitutes morally appropriate insurance pricing—one grounded in actuarial fairness, or the idea that it is fair to consider factors that predict likelihood of using insurance; and another she characterizes as “solidaristic,” in which the point of insurance is to distribute costs across a population. These competing models have long been in tension, but this tension has been amplified with our growing capacity to individualize risk prediction.
Changing Models for Pricing Drugs
The crazy world of pharmaceutical pricing appears to be at least partially driven by a similar shift in how the relevant parties think about what prices “should” be—from “cost-plus pricing” to “value-based pricing.” At one level, we’d expect that in a market-driven economy, private producers would charge what the market would bear—but that people would only be willing, or able, to pay so much.
Because it is mostly third parties who are doing the paying, however, the willingness and ability to pay goes much higher than it could for the typical individual—because the cost is spread over many people. At the same time, very high prices are still a problem—especially for uninsured people, but also societally, if we are spending lots of resources on drugs that don’t necessarily have much benefit.
This unleashing of very high prices is dependent on drug companies deciding not to set prices based on the cost of production (including innovation) plus a profit margin. Instead, they are setting prices based on some measure of “value” that is grounded in the additional life/quality of life a drug provides to patients.
Since we typically value our lives quite highly, and are willing to go to great lengths to extend them, this is an approach that is appealing to pharmaceutical companies because it can justify very high prices. In situations where competition is minimal, and deep-pocketed third-parties (government or insurance companies) are paying, this is good for the bottom line.
At the same time, government regulators tend to like value-based pricing because it ties prices to the actual outcomes produced by drugs. At present, new cancer drugs (for example) are all priced at very high levels, even though many only briefly extend the life of very ill people, while a few may be truly transformative for people with some types of disease.
The fact that both pharma and government, which have quite different interests, see this as a beneficial shift—even as there’s no sign that prices are actually being reined in—suggests to me that there is interesting stuff going on here. Value-based pricing is a lot like cost-benefit analysis (discussed at length in Thinking Like an Economist) in that it is a way to produce numbers that is systematic, consistent, and justifiable, but that is also reliant on a lot of assumptions and value choices that are not necessarily evident in the end product.
As such, I assume value-based pricing is similarly shaped by the most powerful actors who have an interest in the numbers it actually produces. In the next few posts, I’m planning to explore it—to learn more about its mechanics, where it came from, and what it means for how drug prices are set in the context of the U.S. medical system—and to try to work out its implications for that system more generally.
The Personal and the Academic
There’s a lot that I could write about my personal experience with cancer. And it’s likely that I will return to that at some point, especially if I feel physically worse.
But one big reason for starting to write publicly was to try to find my way back to my research. During treatment, I finished a book that I’ve been working on for a very long time—but while I was relieved to complete it, I found that in my new reality I didn’t care very much, either about the book itself or, really, academic research in general. As my attention was consumed by my health, I found that I couldn’t really think about much else.
At the same time, at some level I was the same person. As I tried to process the experience of cancer treatment, I found myself looking for books that could help me make sense of it, whether spiritually (Pema Chodron), personally (No Cure for Being Human), or practically (Dr. Susan Love’s Breast Book). As treatment receded but my health problems persisted, I also started reading the sociology of chronic illness. (I did buy Emperor of All Maladies, but couldn’t bring myself to read it while said malady was feeling a bit too immediate.)
Certainly even in the midst of treatment it was clear that some of the things that intrigued, puzzled, or disturbed me were contiguous with my existing academic interests, but in new contexts.
As I decided between two chemo regimens, one longer and harsher but that would statistically reduce the risk of recurrence by two percentage points, I wondered how people make sense of numbers as they make decisions about their health.
As I noticed my oncologist’s dismissal of evidence based on observational, rather than experimental, data, I thought about how differently experts treat evidence depending on whether experiments are possible in their field of expertise—and what experts in such fields underweight by focusing only on the kinds of knowledge that experiments make possible.
And as I blindly tried to navigate a complex medical organization, I wondered why we had produced a system in which expertise is exquisitely specialized and coordinated, yet so little attention is given to how patients experience it.
In the month since I’ve started this writing practice, I’ve quickly generated a long list of topics that interest me. It is refreshing to remember that I can, in fact, still be intellectually engaged.
But I am letting myself be pulled in the direction of the things I already study—because if I’m not writing as a form of therapy, then I’m writing to regain my academic identity. (Maybe those are the same thing.) In the short run, I think that means exploring topics that are closest to my existing research. Not necessarily economics-the-discipline, but more the reason economics drew me in the first place—because I’m interested in how the ways that we think about economic things shape institutions and how we govern them.
In my first book, I wrote about how we came to understand academic science as having an economic role to play, and what that meant for policy (in terms of patenting, funding, and so on) and for the universities that housed scientific research. In the book that’s coming out in a couple of months, it’s about how a broad way of thinking associated with a particular discipline spread across policy spaces, reshaping the range of options that seem reasonable.
The things I’ve been writing about in the last month are very much in this space. Our ideas about how companies generate new inventions intersect with a range of political interests to shape an intellectual property regime that allows companies to protect their inventions from competition for 40 or 50 years. Scientific research evolves from producing simple-molecule drugs to complex biologics, but our model of regulatory policy does not evolve accordingly, with the result that competition decreases and prices rise.
And most recently, I’ve found myself thinking about different models for setting drug prices—and how a shift from cost-plus pricing, based on the cost of production plus a profit margin, to value-based pricing, in which prices are set based on the value they provide to patients, is really a transformative change. I suspect that the people making these decisions, whether they are drug companies seeking to maximize their profits or government agencies looking to control costs, are not fully attuned to the systemic implications of such broad shifts in models—but thinking about these things is very much in my wheelhouse. So that’s what I’m planning to explore next.
Maybe We’re Investing Too Much in Cancer
As a cancer patient, I am really glad there are drugs out there to treat it. That includes chemotherapy drugs like Taxotere and Cytoxan, immunity-increasing drugs like Neulasta, anti-nausea drugs like Zofran, and endocrine therapies like Zoladex and Arimidex. As shitty as some of them are, these drugs have substantially upped my odds of long-term survival after breast cancer.
Yet as I learn more about cancer drugs as a class, I find myself thinking that we’ve gone too far. That—as much as I’m sure I’ll be the first to gratefully agree to a six-figure course of treatment, should my cancer return—we are spending too much on them relative to other treatments and other diseases.
In the last couple of weeks I’ve gone from being shocked by a $15,000 a dose price tag to seeing it as reasonable, relative to $150,000+ courses of treatment. The fact that prices have spiraled ever higher, even as most new drugs don’t greatly extend survival, is an indictment of a broken system.
Some responsibility lies with drug companies—or at least the ever-present pressure for profits. Yet we can’t lay blame entirely at their feet. It is government that structures our healthcare system—however unintentionally—to incentivize these results. Legal scholar Robin Feldman calls our runaway spending on cancer drugs “regulatory failure by success.”
Feldman’s point is that it is rules and regulations that have created a system that 1) allows for super-high prices and long periods without competition, 2) rewards pharma investments in the types of drugs that can charge such prices, and 3) does so without regard to how much benefit they provide for patients. This regulatory environment pulls the entire system toward a focus on cancer drugs, massively driving up costs while only modestly improving outcomes. And that focus necessarily means less focus on other types of treatment—say, antibiotics—with smaller profit margins but that might have greater human benefit.
Feldman identifies four “positive” policies (active regulatory decisions) that have contributed to this “cancer curse,” and two “negative” ones (decisions against particular policies). Several of these we have already touched on, including the difficulty of getting biosimilar drugs approved relative to traditional generics, and the lack of price negotiation by government buyers.
Others I have not yet mentioned. The Orphan Drug Act of 1983, for example, was meant to incentivize research on diseases affecting fewer than 200,000 people with tax credits and extended protection from competition. But over time, as we have come to treat not just “cancer” but increasingly specific subtypes of cancer, staying below the 200,000 threshold has become easier. At the same time, drugs developed and protected as orphan drugs are often repurposed for other treatments—with the result that 7 of the 10 bestselling drugs in 2015—including, notably, Neulasta!—started as specially incentivized “orphan drugs.”
Feldman’s larger framing is that the current cancer drug situation is the product of regulatory success: decisions meant to encourage development have, in fact, made it so profitable that we are now overinvesting and paying way too much. But I think there’s a different lesson to be learned here is well.
This is also about how medicine has developed in the face of a relatively stable regulatory environment: as drug development has shifted toward promising biologics, or genomics has made treatment more precise and treatment groups smaller, the existing framework works less and less well. The regulatory tools no longer fit the scientific landscape. The status quo will eventually stop working.
What, then are our options?
Some of these problems could in theory be fixed with regulatory changes; perhaps 200,000 people is no longer the right threshold for orphan drug benefits, or perhaps we need to limit additional incentives when orphan drugs are approved for other uses.
Others might be helped by more cost-effectiveness analysis—that is, more evaluation that drugs are actually extending/improving life relative to existing alternatives and their prices, something other countries rely on but the U.S. does not. (Yes, I’m suggesting we think a bit more like economists.) This would open up new issues worthy of their own discussion, but relative to the status quo of $150,000 drugs that extend life for three not-very-good months, might be an improvement.
But beyond thinking about investing in drugs that actually provide benefits in proportion to their costs, I can’t help but once again think about “care.” All this money, all this investment—yes, it sometimes cures and other times extends life. But drugs can cause misery as well—side effects often discounted by those who don’t experience them—and there is so much care we don’t provide to people because it isn’t as easily monetized.
For example, an increasingly strong body of evidence shows that exercise substantially reduces the risk of breast cancer recurrence. A drug that produced similar benefits would certainly be covered by insurance, and routinely prescribed. Yet we don’t do much beyond maybe telling people they should exercise; there’s no formal support for encouraging or facilitating this “treatment.”
And this is not even touching on the human side of care—of medical care that treats symptoms as well as diseases, that attends to people as humans and as individuals—which our system is set up so poorly to achieve.
A note moving forward: I will probably not be posting until the new year, unless I am feeling really compelled. But I am looking forward to continuing this writing. I suspect I’ll have more to say on both the personal and the more analytical side. And eventually I’m hoping to walk my way from some of these themes to my existing research, with the goal of reminding myself why I was doing it in the first place. (Cost-effectiveness analysis seems like a good candidate.) It’s all been very therapeutic—thanks for coming along for the ride.