On Friday, I discussed the fact that there are some clouds on the horizon for the image of the pharmaceutical industry as the Medicare Drug Benefit matures.
Today, I’m looking further out on the horizon. The Pharmaceutical Research and Manufacturers of American (PhRMA) states that $51.3 billion dollars were invested in research and development during 2005 and that $39.4 billion was invested by PhRMA member companies. That is significant growth over the $33.2 billion invested by member companies in 2003. It should be good news for patients.
However, this significant investment in the pipeline doesn’t seem to be producing as robustly as the numbers might reflect. And, the added costs associated with R&D imply that, for those drugs that make it out of the pipeline, the price is going to reflect that investment. The industry pegs price to value. And, because the medicines being studied, other than the "me-too" drugs, are going to be targeting serious disease with serious consequences, hopefully those drugs that emerge from the pipeline will be quite valuable to patients.
But with the Medicare Part D program, the government has become the largest purchaser of prescription medications. Given that reality, combined with the reality of the federal budget, where is the money going to come from to pay for this investment? The Medicare Part D program is already exquisitely expensive. As more new and better drugs emerge, reflecting this serious investment on the part of industry, will those drugs be approved at the same time that Congress begins looking at how the costs associated with that program can be pared? If so, either prices, or the benefit, will have significant pressures that pale by today’s standards. While there are many cheerleaders for the Part D benefit, they should be keeping their eyes on the horizon.