Contagious Disease Pharmaceuticals Regulation

Dismal Arithmetic of Hepatitis C Treatment?

The American Journal of Managed Care has an interesting special issue on treatment for the hepatitus C virus (HCV).  Jay Bhattacharya provides the introductory commentary, and starts off with the following.

Although the medical prospects facing patients with hepatitis C virus (HCV) have never been better, the prospect of gaining access to a cure is another matter for many patients. About 2.7 million Americans suffer from chronic HCV, with 170 million worldwide.1 After decades of research and billions of dollars in investment, we now have a definitive treatment—direct-acting antivirals (DAAs)—that can cure this serious illness.2 Better still, the pills are relatively cheap to produce and future improvements in production technology are likely to make them even cheaper in the future.3  

Despite this obviously great news for patients with HCV, there is good reason to worry about the high costs of DAA treatment: the average cost for a complete 12-week course of one such treatment is $84,000.4 At this price, many insurers are reluctant to provide full access to DAAs for all patients with HCV; Medicaid programs provide only limited access.5   

What does Bhattacharya propose?  He proposes that the government buy the rights to these innovative treatments.

Thus, my proposal is the following: a benevolent buyer could purchase the intellectual property rights to these drugs and make them public. Without patent protection, the cost of the pill would likely fall precipitously toward the relatively low marginal costs of production, subsequently making universal access to treatment achievable not only in the United States, but in many other countries as well. A $50-billion investment by an altruistic philanthropist would unleash more than $1 trillion in value for society, and it would do so without jeopardizing incentives for finding future cures. 

This proposal is not without merit.  It would provide manufacturers incentives to create novel treatments in HCV and other diseases.  At the same time, by ending the monopoly, prices would fall and access would grow.

However, this process requires not only a benevolent buyer, but an insightful one. What if a benevolent buyer decided to pay $50 billion dollars for a drug and 1 year later there was another drug invented that was twice as good?  Maximizing social welfare could require another investment of $50 billion for the next advance.  Additionally, government has historically been poor at setting prices and its ability to set prices for these licenses would likely also be poor and even more likely subject to cronyism.

Paying for licenses is a good idea in theory–and may even be a good idea for treatments that serve as a cure such as direct-acting antivirals–but in practice there are significant challenges to overcome.

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