PHARMACEUTICAL COMPANIES AND THE MARKET FOR MEDICAL CARE
I. Function of drug companies
A. Develop, manufacture, distribute, market, and price drugs
II. Development of new drugs
A. Risk of developing new drugs
1. Cost
2. Likelihood of profit
B. Financial incentive to develop new drugs
1. Patent
2. Blockbuster drugs
C. Stages in development of new drugs
1. Basic research
2. Animal testing
3. New drug application
4. Phase I clinical testing
5. Phase II clinical testing
6. Phase III clinical testing
7. New drug approval
D. Safety and effectiveness of new drugs
1. Effective
a. Placebo
b. Average person
c. Population studied
2. Safe
a. Known side-effects for population studied
b. Post-market surveillance system
c. Medwatch
d. Deaths from prescription drugs
3. Condition for which drug was approved
a. Off-label use
III. Manufacturing drugs
A. Insourcing and outsourcing
1. On-shoring and off-shoring
IV. Distributing drugs
A. Producer, wholesaler, retailer, third-party payer, physician, patient
B. Patient choice of drugs
V. Marketing new drugs
A. Three approaches
1. Physician advertising
2. Physician consultants
3. Consumer advertising
B. The effect of drug advertising on social economic welfare
1. Informational or persuasive
VI. Pricing drugs
A. Monopoly price
B. Drug markup
1. Price elasticity of demand
2. Value of health effect
3. Availability of close substitutes
C. Substitute drugs
1. Therapeutic class
2. Therapeutic advance drug
3. “Me too” drug
D. Price discrimination
E. Medicare and Medicaid
F. Patent expiration and generic competition
1. How do generic producers set price?
2. How do brand name producers respond to generics?
3. Three-tier drug formularies
4. Preferred brand
G. Drug company profits
1. Price elasticity and size of the market
VII. Criticism of drug companies
A. General criticisms of pharmaceutical companies
1. Drug prices are too high
2. Profits are too big
3. The U.S. is an overmedicated nation
B. Specific criticisms of pharmaceutical companies
1. Development of new drugs
a. Basic research
1. National Institutes of Health (NIH)
2. Bayh-Dole Act
b. Drug testing
1. Contract research organization (CRO)
c. Phase IV clinical trials
2. Drug marketing
a. Drug companies as big marketing firms
b. Marketing diseases
c. Bribing physicians
d. Drug information
3. “Me too” drugs
4. Drug pricing
a. Price regulation
VIII. Special topics
A. Orphan drugs
1. Rare disease
2. Orphan Drug Act of 1983
a. Economic incentives
1. Tax deduction
2. Extended patent protection
b. How successful?
B. Vaccines
1. What is a vaccine?
2. Vaccine as “high technology”
3. Market for vaccines
a. Buyers
b. Sellers
1. Why so few sellers?
4. Vaccine shortages
a. Causes of shortage