by Julian Sanchez

This Ezra Klein post is making my brain hurt. In response to a New York Times piece which discusses how pharma is able to charge astronomical prices for cancer drugs of dubious benefit, he writes:

In other words, we can't say "no." Even a drug that probably won't work is worth mortgaging the house. Your spouse's life, after all, is priceless. But this ends with us in a fairly troubling place: The ranks of pricey new drugs that might work particularly if "might" doesn't have to refer to a high probability is advancing a whole lot faster than GDP, or wages.

This might not matter if we didn't believe that every American had some basic right to these treatments, at least after they turn 65. But we do. And for those who think we should just dismantle Medicare, keep in mind that a lot of this innovation is predicated on people being able to buy these drugs with government subsidies. Take away those subsidies, and those customers, and you lose a lot of this innovation, arguably. My stopgap, second-best answer is to pump a lot of money into research that ascertains both effectiveness and cost-effectiveness, and to allow the government to bargain down the best deals and act as a countervailing force against the pharmaceutical industry's realization that people will pay any price for these drugs because they feel like they have no choice.

Do we believe that? That every American has basic right to extremely expensive drugs that provide very little benefit? It's one thing to say there's a shared obligation not to let people suffer or die when we know how they could live many years longer, or in much less pain. I find it a whole lot less compelling to suggest that people are entitled to public provision of, say, Tacervawhich the Times article says was approved to treat pancreatic cancers because it improves survival time by a whopping 12 days at a monthly cost of $3,500. Another is good for an additional month and a half on average, at a per-patient cost of $50,000. Is it only people who favor dismantling Medicare who might think that this goes beyond what people must have as a matter of basic justice?

The "innovation" argument also rings oddly. On the one hand, it's apparently very important that we continue signaling to pharmaceutical companies that this is a good way to allocate their R&D budgets. But the government also needs to bargain down drug prices... which also has the effect of reducing these innovation-fueling subsidies. I'm not sure how those fit together, but as an oncologist quoted in the Times piece notes, there's a risk of displacing more useful potential innovation:

As long as the marketplace does not distinguish between modestly effective drugs and dramatically effective drugs, there won’t be an incentive to shift resources to a greater emphasis on a larger benefit.

In any event, it doesn't sound like the primary problem here is that we need a lot more research on cost effectiveness, but that we don't eschew the treatments we know aren't very effective. One thing that's not really clear from the article is how much the market failure here is a function of third-party payments, and how much it's a psychological phenomenon that would persist under alternative arrangements. But judging by the panic over "death panels," my suspicion is that we shouldn't expect too much political will for saying "no" to expensive longshots.

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