There is a big problem with how we finance drugs. We have private companies work to get patents who then sell drugs for whatever the market will bear.
The are a number of problems with this.
One is that at the foundation of the whole biotech industry is public funding for basic science research. Industry takes chemistry already brought just short of being ready for market in universities, and then does research and safety tests that take the final step, yet get all the profits.
Another is that very often, government is the primary consumer. With Medicare Part D (drug coverage) we are very close to a single payer system for all drugs directed at the elderly. Medicaid overwhelmingly, although not quite entirely, pays for health care for those with long term disabilities, like cystic fibrosis and Down's syndrome. Even when government doesn't pay for the drugs themselves, it often pays for the long term care made necessary by the lack of good drugs. About 70% of nursing home care is paid for by Medicaid.
Particularly in the case of drugs for geriatric illnesses, the government (which also does an excellent job of controlling senior executive pay in large organizations and doesn't make a profit) would be better off simply commissioning research on drugs, rather than waiting for private industry to do so and then paying a premium for government created patent based profits. Government should own the patents to many of these drugs in the first place.
Another aspect of drug research, the reason that drugs like those mentioned get invented at all, is health problems we must urgently want to fix, and health problems we know how to fix, often don't match up. Ritalin was developed as a diet drug, but the side effect turned out to be more valuable. The best bang for your buck heart drug today is asprin, again something it was not designed to cure. Drug research is glorified playing around with chemicals and finding out what they do to people, with a little targetting at the most promising prospects.
Insurance is designed to deal with differences in risks between patients. But, in the area of drug research, one of the better reasons for public funding, as opposed to private research, is that the real risk issue that needs to be spread out is over what conditions we end up finding cures.
Drugs like Remodulin® (a drug that costs $100,000 a year for life to treat a rare circulatory condition known as PAH) were the product of generalized research on circulatory system drugs. PAH sufferers got lucky. One of the things that R&D ended up being able to cure was PAH. It could have been the blood clots people get on long airplane flights. It could have been hemaphillia. It could have been strokes in people with high cholesterol. Everybody pays in, in the hope that somebody is going to win the lottery and have a disease that they suffer from cured. But, it is more a product of accounting rules than scientific fact that the R&D cost was allocated to PAH sufferers, instead of someone else. Making the pills themselves isn't all that expensive. The $100,000 a year drug prices are amortization concepts in action. But, sometimes, it would make better sense to finance drug R&D the same way we finance the lottery. All potential winners pay in a little on a regular basis. Now and then, somebody gets a big payoff. People who participate think the payoff is a good thing. So the game continues. And, unlike the lottery, coming out behind in the drug research game isn't a near statistical certainty.
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There are also many people who think that the reason that drugs should not be handled by a pure market based approach is that they are necessities. I don't agree. That is an argument for making sure that people have health insurance, not for changing the way the drug market is organized.
Lots of real necessities, food, clothing and housing, for example, are provided perfectly well through a primarily market mechanism. Being necessary isn't what makes the market problematic for drugs. If people can't afford necessities, the solution is to give them more money, not to redesign the goods market.
(Likewise, the reason other necessities, like water, are provided by public enterprises for the most part, is not because they are necessities, but because of the economies of scale involved. It is a natural monopoly.)
The biggest reason that the market is doing a poor job with drugs has nothing to do with their necessity. It is a combination of the fact that most of the value of a drug is government created intellectual property value rather than ordinary good value, and the fact that government is already and inextribably deeply involved in the market.
Notably, nobody is complaining seriously about problems with the generic drug market. It is working just fine to provide quality products at a reasonable price to large numbers of people, largely free of political games, with only minimal government involvement mostly to insure safety standards, just like the markets for food, clothing and housing.
What the market is turning out to be doing a rather poor job of doing is financing drug research. It isn't that it doesn't finance drug research. Private enteprise spends loads of money on drug research. It's that the wrong people are paying for that research, that people are paying too much for that research, and that economic incentives to conduct that research don't match the health based needs very well.
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