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Life Health > Health Insurance

Replacing the drug research contest

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One big obstacle to cutting U.S. drug costs is that, at this point, the world’s approach to paying for drug research involves getting public and private U.S. health insurance plans to create a winner-take-all contests for biotech investors.

The U.S. Food and Drug Administration puts a great big moat of red tape around our drug stores.

The biotech investors pour zillions of dollars into companies that have many different drug research projects under way. (And, of course, some of the craziest, least-promising projects may be the ones that shock everyone by producing the best results.)

If a biotech company sells a developmental idea to a big pharmaceutical company, and that company can actually get a new product past the FDA moat, into the drug stores, and U.S. payers agree to pay big bucks for the new drugs, then investors make a fortune. They cash in first when a publicly traded biotech company sells the idea to the drug manufacturer, and then again when the drug manufacturer sticks it to the payers.

But the manufacturer really has to try to stick it to the payers, because, according to the Tufts Center for the Study of Drug Development, the average direct cost of developing a new drug (which includes the cost of promising candidates that fail) is about $1.4 billion. 

Related: Pharma group punches back on drug prices as pressure rises

Winner-take-all contests can be fun, but they’re frightening, and I think they seem to have a lot more value for risk-tolerant speculators on Wall Street than for the kinds of quiet, conscientious people who actually do the biotech research. I’m looking right now at a bio of a former roommate who’s a principal scientist at one of the biggest pharmaceutical companies, and I don’t think he’s the kind of guy who would want to be in a winner-take-all contest. When I knew him, he’s the kind of guy who would have wanted to earn enough of a steady living to pay for a house, and a lab equipped to support his research.

One idea for the far-off, wonderful future, when the troubles of today pass, and life and health insurers get both feet out of the grave: Maybe they could take some of the cash they have invested in the publicly traded, winner-take-all biotech and pharmaceutical companies, and put that cash in a drug development center that would commit to providing a modest but steady amount of drug researching and development funding, in good times and in bad times, in exchange for the center agreeing to hold the cost of drugs to a reasonable level.

If insurers could try replacing the slot-machine funding model with a steady-check funding model, maybe they could test to see which model produces the best drugs fastest. 

It could be that the slot-machine model is a necessary evil, and that it simply maximizes productivity better than the steady-check model, but some insurers have had good luck with running their own hospitals and clinics. Maybe some could get results from funding their own drug development companies.

Allison Bell is a senior editor at LifeHealthPro.


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