Setting a "fair price" for a new drug is challenging but not impossible. Because we confer to manufacturers of new drugs a time-limited monopoly, the public has a legitimate claim to participating in the price-setting process. However, today, some aspects of it — like the rebates private insurers receive from manufacturers — are hidden from view.
Another approach: The Institute for Clinical and Economic Review (ICER) recommends prices based on drugs' clinical effectiveness relative to alternative treatments (and the strength of evidence for it), cost-effectiveness, and the extent to which prices are sustainable with health care program budgets. The process is far from formulaic; importantly, it takes account of additional factors like whether treatment outcomes reduce disparities across patient groups or facilitates greater productivity.
ICER's approach isn't perfect, but it is at least is open and includes public input, which is more than can be said for the rebates manufacturers offer insurers and pharmacy benefits managers.
The bottom line: If nothing else, a price for a monopoly drug will not widely be accepted as "fair" if it is arrived at in secret.
Other voices in the conversation:
- Greg Aune, pediatric oncologist, Greehey Children's Cancer Research Institute: Value isn't just about surviving cancer
- David Mitchell, president and founder, Patients for Affordable Drugs: Drugs don't work if people can't afford them
- Usman Azam, president & CEO, Tmunity Therapeutics: How to evaluate breakthrough therapies
- Paul Howard, senior fellow, Manhattan Institute: Price should be based on outcome