Pharmaceutical Pricing

pills and money
How much should a given pharmaceutical cost? Should that be determined by supply and demand? By the value of the productive factors (raw materials, labour, overhead, etc.) that went into developing and manufacturing it? Or should cost be based on ability to pay, or some other criterion?

(About a year ago, the VP of a mid-sized pharmaceutical company told me that he thought pricing would be “the” ethical issue for pharmaceutical companies for the coming years. I think he was probably right.)

The issue arises in this story in today’s New York Times, A Cancer Drug’s Big Price Rise Disturbs Doctors and Patients, by Alex Berenson

In practice, the question of how prices should be set (and at what level they should be set) gets reduced to the simpler question of whether they should be lower than they are. Many drugs — including many life-saving ones, and ones that greatly improve quality of life — are so expensive that many people who need them either can’t afford them at all, or are driven into financial ruin in the process of paying for them. So, should drug companies lower their prices?

The issue of pricing can be crudely divided into two separate questions, I think.
1) How should pharmaceutical corporations price their products domestically?
2) How should those same corporations price their products for sale overseas (especially in developing nations, where the vast majority of people can’t afford to pay North American or European prices)?

I argued (in a paper I presented at the Annual Meeting of the American Society for Bioethics and Humanities this past October) that those questions ought to be treated separately, and in that order. In the case of the domestic market, consumers who buy a company’s products are also:
a) taxpayers, whose taxes help fund much of the basic science that results in pharmaceutical discoveries, and who might thus make some claim to mere customers,
b) “neighbours”, members of the corporation’s moral community.
Those two factors are both morally relevant (though whether they’re morally convincing is a larger question.) So, if we can’t construct a case for an ethical obligation to reduce prices in the domestic market, then it seems much less likely that we’ll be able to construct a case for reductions in prices overseas. Africans (for example) are generally not (from the point of view of North American or European drug companies) either a) taxpayers or b) neighbours. What about the moral requirements to help those desperately in need? Many people in Sub-Saharan Africa, of course, are in dire need of pharmaceuticals they can’t afford. But (like it or not) North American and European societies accept only fairly weak norms of charity. So, need alone won’t make the case.

In my humble opinion, the amount of advocacy on this issue has NOT been matched by a like amount of good scholarship.

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