A cure for all ills of the pharmaceutical benefits scheme
7 March 2012
The Pharmaceutical Benefits Scheme is much criticised for being slow to accept new treatments. But this reluctance is understandable in view of the great risks involved. Patented medicines are very expensive, and a decision to accept one for reimbursement is all but impossible to reverse.
Moreover, the PBS is stuck covering the cost of all the prescriptions that doctors and patients trigger without concern for the cost. The scheme can study the clinical trial data to predict what health gains will result from these prescriptions. But such predictions are highly uncertain because the medicine will be prescribed beyond the profile of the clinical trial to patients who will benefit less or not at all. And many patients will deviate from the instructions and thereby reduce the therapeutic benefit they derive from the medicine.
There is a much better way to pay for the medicines we need. We should pay innovators for a new product according to its actual health impact. This would shift the risk from the PBS to pharmaceutical innovators, who would then have incentives to focus their product promotion on those patients who stand to benefit the most, and to work hard on improving patient compliance. Under such a system, the effectiveness of the new medicine would be much enhanced. Also, because medicines would be paid based on their actual performance - all at the same rate - the PBS would have no reason to hesitate about accepting a new medicine into its scheme.
Sophisticated statistical sampling methods make it quite possible to gather the needed performance data and to convert them into a common metric. To be sure, such follow-up costs money. But with many products in the scheme, the PBS could realise substantial economies of scale. The data gathered would have great ancillary benefits for patients, doctors and drug companies. As we learn to use available medicines to better effect, drug companies would earn more money and citizens would lead longer, healthier lives with fewer hospitalisations, operations and scary emergencies.
If new medicines were rewarded based on their actual performance, drug companies would focus their research more sharply on the products that stand to have the greatest impact on human health. This effect could be quite large, especially if such reforms were also implemented in other countries. Pharmaceutical innovators spend far too much effort on developing products that bring little gain over existing treatments, and far too little effort on tackling diseases primarily affecting the poor.
Here is how it could work. A coalition of countries, bound by treaty, jointly underwrite annual reward pools of initially, say, $6 billion each. Pharmaceutical innovators are invited to compete for these funds. By registering a product, they would undertake to make it available globally, during its first 10 years on the market, at no more than the lowest feasible cost of production and distribution. The innovator would further commit to allowing, at no charge, generic production and distribution of the product after this decade has ended. In exchange, they would receive annual reward payments for a decade based on their product's health impact in all the participating countries.
For this scheme, which we call the Health Impact Fund (HIF), companies would want to register their most effective products, especially those for diseases that also affect many poor people (who could not afford the medicine if it were sold with a huge patent-protected mark-up). And companies would want to develop such products, thus focusing more of their R&D efforts on the most harmful threats to human health.
The fund would at any time support a set of vital new medicines worldwide at very low prices. This would alleviate a terrible and shameful problem today: that millions suffer or die because the patented medicine they need is sold at 20 to 50 times its cost of production. In addition, the fund would motivate participants to ensure their products are widely available, perhaps even below the price ceiling, and that they are competently prescribed and optimally used.
Here and abroad, our present system for the provision of vital drugs is highly inefficient. Much of the $850 billion humanity is spending on medicines goes to patent litigation, lobbying and advertising. Only about one-seventh goes back into pharmaceutical research. In one way, such massive waste is a good thing: it shows there are possible reforms that make all parties better off. We need intelligent collaboration to realise the massive gains that are possible.
Danielle Celermajer is associate professor in sociology and social policy at the University of Sydney. Thomas Pogge is Leitner professor of philosophy and international affairs at Yale University, and gave a Sydney Ideas lecture at the University of Sydney.
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