How a Leading Medical Journal Helped a Pharmaceutical Company Exaggerate Medication Benefits


How excited would you be about a medication that lowered your risk of cardiovascular death, heart attack, or stroke by 1.5%? Excited enough to spend a few thousand dollars a year on the drug? I expect not.
What if, instead, the drug reduced those same terrible outcomes by 20%? That’s probably enough benefit to interest some in the drug.
Well, those statistics come from the same clinical trial, evaluating the same drug. In fact, they present the exact same results, but they simply do it in different ways. The 1.5% number refers to the absolute reduction in the risk of those outcomes—the drug reduced the two-year risk of cardiovascular death, heart attack, and stroke from 7.4% to 5.9%. That’s an important reduction by any account. That’s on par with many medications that have become critical in combating cardiovascular diseases. But that 1.5% reduction sounds much less impressive than the “20% reduction” that the authors describe in the discussion section of their New England Journal article, and was repeated, practically verbatim, by the physician who wrote an accompanying editorial in the same journal.
How can these experts claim a 20% reduction in risk when the study showed only a 1.5% reduction? Because 1.5% is approximately 20% of 7.4%. When summarizing the impact of this drug, the researchers and the editorialist chose to emphasize the relative risk reduction of the treatment rather than the absolute risk reduction.
(To read the rest of this article, please visit Forbes.)

What Is Maddening about Pharmaceutical Prices?

Imagine that you are gasping for breath, literally on the verge of death. Then someone injects you with a medicine and – miracle! – you are perfectly healthy again.
Would you pay $300 for that injection?
The treatment is epinephrine; your illness was a life-threatening allergy. And that $300 price? That reflects a six-fold increase from a couple years ago. It’s one thing for medications to be expensive. But why does the same medication become more expensive over time?!?
Americans are justifiably angry about rising prices for drugs that have been on the market for years.
Many medications come to market at high prices, in part because it is expensive to identify, develop, and test new drugs. First, there’s the basic research. Admittedly, much of this work is funded by the federal government, but sometimes pharmaceutical companies pour significant money into such efforts too. Then there’s the cost of clinical trials – often hundreds of millions of dollars to test one drug, with no guarantee that the molecule being tested will work. When the trials go well, companies spend money and time (and remember: time is money!) jumping through regulatory hurdles, marketing their drugs, ramping up production facilities – this all adds up. It shouldn’t be surprising that pharmaceutical companies want to charge high prices for their products.

But what explains the frequent price increases that occur after drugs are already on the market, increases that far exceed the rate of inflation?

(To read the rest of this article, please visit Forbes.)


Cost of Treating Hepatitis C Is Soaring

Here is a fascinating picture from the Wall Street Journal, showing how much Medicare has been spending on hepatitis C treatments lately. You can see that the cost is rising dramatically:
Cost of Hepatitus C Soaring
Keep in mind, however, that the new and expensive hepatitis C treatments currently on the market will dramatically reduce costs in the future, because they are curing people of this chronic disease, and therefore preventing liver failure and even liver transplantation. In other words –money well spent!

These Americans Are Rich – Should We Celebrate?

Expensive medicineAmerican manufacturing has declined precipitously in the past few decades. Companies that were once the source of fabulous wealth for Americans – the U.S. Steel profits that enriched the Carnegie family, the Ford Motor F -1.29% Company profits that enriched its eponymous family – are now struggling to keep up with foreign competitors.
Thank God for American pharmaceutical companies, which are a rare source of wealth in United States. The CEO of Eli Lilly , John Lechleiter, made $11.2 million in take-home pay in 2013. That was dwarfed by the $18.1 million pay package of Richard Gonzalez of AbbVie ABBV +0.24%, which still couldn’t compete with the $20.5 million that Miles White made running AbbVie’s former parent company, Abbott. And Pharma isn’t just a source of hefty c-suite income. Senior chemists at pharmaceutical companies bring in a median salary of $76,000 while senior biostatisticians make around $135,000. Drive through beautiful suburban neighborhoods in Jersey, Indianapolis, and Raleigh-Durham, and you are witnessing the benefits of this thriving industry.
I’m really glad the American pharmaceutical industry is a success. So why did a recent conversation I had with a retired pharmaceutical executive end with him storming away after proclaiming: “I’m sure glad you’re not a member of Congress!”?
Let me explain. (To read the rest of this article, please visit Forbes.)

Side Effect Warnings Can Increase Pharmaceutical Sales

warningI must not be the only person to wonder how pharmaceutical companies succeed with direct to consumer advertisements when, stuck in the middle of all their TV ads, are those long lists of side effects. You know what I mean. After watching a smiling and attractive person running through a field after receiving some wonder pill, the narrator tucks his voice down an octave and intones that the medication “could cause rashes, constipation, heartburn, bladder dysfunction and cardiogenic syncope.” How could anyone listening to this ad want to take this product?
Research by Yael Steinhart and colleagues suggests that such warnings may increase how much people like the product, but only after they have had the time to get over their immediate aversion to the side effects.
Steinhart presented people with product advertisements that either did or did not include product warnings. In the short run, such warnings scared consumers – they were less inclined to buy the products. No surprise here.
But for some people, the researchers didn’t ask for their immediate attitudes towards the product. Instead, they re-contacted them two weeks later… (Read more and view comments at Forbes)

People in the US Are Footing the Bill for Switzerland's Medical Care

People have criticized The Affordable Care Act for amounting to a large transfer of wealth, from wealthy Americans to those not as well off. But the real transfer of wealth has been from United States to other developed nations, whose healthcare costs we have subsidized for many years by paying so generously for many of our healthcare services. No better example of this comes to mind than the price we pay for pharmaceuticals in the US versus elsewhere. Below is a picture of what we pay  for brand-name drugs here compared to peer nations.
Pharmaceutical products are cheaper abroad in part because companies know they can make money in the US market, and thus are willing to tolerate smaller profit margins in other countries… (Read more and view comments at Forbes)

Promoting Social Responsibility Among Pharmaceutical Companies

Last fall, an article in the New England Journal presented a powerful picture of just how much effort different pharmaceutical companies make to give poor people access to their products. Here is the picture from that article:


The captains of industry are a competitive group of people, I am told. They like to see where they rank on list of the most wealthy people, and where their companies rank in profits and market share. If we promote this social responsibility index, perhaps they will feel competitive enough to try to move up its ranking!

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What's Fair About Price Discrimination in Pharmaceutical Markets

underground economistA while back, DVD companies hoping to sell their products in countries like Poland faced a dilemma.  They could sell their products at a nice profit in the booming U.S. market, but to sell products in those other countries, they had to lower their prices.  Such variable pricing is a common business practice.  All kinds of services are less expensive in Poland than in the United States.  An hour with a psychotherapist or personal trainer, for instance, is significantly cheaper in Warsaw than in New York City.  But small, non-perishable products like DVDs create big problems for manufacturers.  If the going price of such a product is significantly lower in Poland than the U.S., savvy business people will purchase large numbers of DVDs in Poland and ship them back to the United States to sell them for a hefty profit.  They can’t do the same with personal trainers or psychotherapists, to the chagrin, no doubt, of some people in those professions.

So DVD manufacturers came up with a clever idea.  As Tim Harford describes in his book The Undercover Economist: “The DVD industry agreed on a system of regional coding so that DVDs bought in the U.S. would not work in Europe,” and vice versa.
When some people found out about this arrangement, they were creeped out.  It seemed like the companies were up to their slimy old tricks.  How dare they doctor a DVD so that an honest consumer can’t play it on his or her DVD machine?  It felt like the DVD manufacturers were getting greedy.  If they were willing to sell DVDs at that price in Poland, after all, then clearly such lower prices must still be profitable.  Why wouldn’t they sell DVDs at that same price in the United States? …(Read  more and view comments at Forbes)

Bad News for Pharmaceutical Companies about Spending Trends

For years now, the pharmaceutical industry has justified its prices and its profits by reminding us that their products eventually go off patent, and are then offered cheaply to people around the world in generic form. They warned us that the pipeline for new and innovative drugs is less and less promising, because so many major advances have already taken place. Skeptics retort that the pharmaceutical industry has been talking this way for decades, with no sign of their profits coming to an end.
But the pharmaceutical industry may finally be correct. And here is some more evidence to back up that claim. This comes from a study  published in October that looks at health care spending among Americans under age 65, receiving health insurance through their employers. The picture below shows a number of spending trends bouncing up and down over the last four years. But there in orange, steadily declining, is a line representing spending on prescription drugs. Such spending reached the point in 2011 that it rose less than the general rate of inflation.

hc spending chartFour years might be a trend, but it is not an established pattern. Nevertheless, it is just the kind of evidence that brings plausibility to those in the pharmaceutical industry who say their best days are behind them.