“Doctors Object to High Cancer-Drug Prices”
— Wall Street Journal headline, July 23, 2015
“We economists don’t know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage.”
— Milton Friedman, Nobel Laureate in Economics
I read with interest a recent editorial in Mayo Clinic Proceedings that called for a grassroots movement to lower cancer drug costs, signed by over 100 academic oncologists. The authors stated that “simple and measured incremental actions can improve the situation and allow market forces to work better.” I was hoping they were going to call for simplifying and accelerating the approval process for new drugs, forcing companies with competing products to consider price when vying for market share. The first solution proffered, however, was to establish a “mechanism” to set a “fair price” for new treatments, a rather vague statement with minatory overtones. Letting a central committee determine the price of goods brings to mind the command economies of countries like Venezuela—not exactly a shining example of success. It behooves us to recall how a free market adjusts to products marked down by fiat. The economist Thomas Sowell put it succinctly:
“A shortage is a sign that somebody is keeping the price artificially lower than it would be if supply and demand were allowed to operate freely.”
Another idea floated by the editorialists is to pass legislation permitting Medicare to negotiate with pharmaceutical companies for lower drug prices. This power is currently used in the United Kingdom to deny coverage for treatments deemed too expensive to benefit the entire population; costly drugs are impeached for siphoning too much money away from too many to benefit too few. If we take this line of reasoning to the absurd, having no product at all guarantees less expenditure on healthcare but how does this advance our quest toward the ultimate control and cure of cancer?
On the other hand, what would happen if pharmaceutical companies capitulate and lower the price of cancer drugs in return for allowing them on the market? This is the question that concerns me. As previously implied, establishing price controls whether by diktat or law subjects the transaction to one of the foundations of economics—the Law of Supply and Demand. Those who lived through President Nixon’s wage and price freezes in the early 1970s can recall the meat and gasoline shortages they produced. If a company is forced to drop the price of a cancer drug, according to the law, the demand for the drug increases and the supply of the product decreases, leading to a shortage. If there no longer is any incentive to make the product, why go through the effort? Again, to quote Milton Friedman:
“The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”
I don’t think we’re about to dissolve the free market in this country, so it might be wise to consider the interests of both producer and purchaser—lest no exchange occur.
The editorialists are to be applauded for pushing for the right to purchase cancer medications from other countries, which would undoubtedly lead to lower prices for American product. Why not let cancer patients reap the benefits of competition in our global economy? Also, the concept of determining “the overall value of drugs and treatments in formulating treatment guidelines” is in my opinion the cornerstone of managing the rapidly expanding and costly armamentarium of cancer treatments. The value of a new drug should be obvious to all within 10 seconds of perusal—and not because it adds another measly 5 weeks of life. If this was baseball, “We only pay for extra base hits, not walks.”
The high cost of new cancer treatments is both ridiculous and unsustainable, and kudos to the oncologists who have taken the lead on solving this problem. Just be careful when fighting “greed” by calls for regulation and price controls. I don’t ever want to read about drug shortages or, even worse, pharmaceutical companies calling it quits (Atlas Shrugged, qv).
1. Tefferi A, Kantarjian H, Rajkumar SV, et al. In support of a patient-driven initiative and petition to lower the high price of cancer drugs. Mayo Clin Proc. 2015;90:996-1000.
2. Gupta G. Business Insider. A clear sign that Venezuela’s economy is decaying. Available at: http://www.businessinsider.com/headhunters-are-taking-advantage-of-venezuelas-decaying-economy-2015-8. Accessed August 13, 2015.
3. University of York. Research says approval of new drugs by NICE is ‘doing more harm than good.’ Available at: http://www.york.ac.uk/news-and-events/news/2015/research/nice-drugs-research/. Accessed August 13, 2015.