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Create a more efficient supply chain for drugs.

No question in the biopharmaceutical industry is as divisive as this: why do drugs cost so much? People approach the issue according to their ideological preference—is the prospect of price regulation alarming or comforting? Those who are divided on this subject cannot even agree about how much drugs cost to develop, manufacture, and sell.

One much-cited study indicates that the total amount is more than $800 million; another, $71 million. Amid all the acrimony, it is very common to blame one party—either pharmaceutical companies, for their greed, sloth, or incompetence; or health maintenance organizations and pharmacy-benefits managers for their indifference to patients� interests. But as Kevin Kelleher explains in “Who Pays for What” on page 30 of Acumen, Volume II — Issue 1, it�s no wonder that drugs cost so much.

The market mechanism by which products are efficiently priced—the supply chain—does not exist for drugs in a recognizable way. When a product like milk, say, moves from farmer to farmer�s coöperative to distributor and finally to market, the costs accruing are sufficiently well known to encourage competitors to slash prices at every link in the supply chain. But with drugs, everything is different. Patents bestow upon pharmaceutical companies a kind of temporary monopoly; payment for drugs is a hopelessly opaque system of private and public insurers, health care providers, pharmacies, and obscurer organizations; and the actual distribution of drugs is by no means simple either. New medications will always be expensive compared to many other products because the costs of scientific research are high and success is uncertain. But it is not helpful to blame one group when the whole mechanism is flawed.

In addition to negotiating an international drug treaty to ensure a more equitable sharing of drug prices in the developed world—as Acumen advocated in “Rx: Price Controls,” in the October/November issue—the most useful service the U.S. government could provide patients would be to reform the drug supply chain to make it more efficient and its workings more transparent.



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» Business: Create a more efficient supply chain for drugs.

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