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by: Marlin Effertz


Marlin Effertz
GPA 3.88


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Class Notes
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This 7 page Class Notes was uploaded by Marlin Effertz on Saturday September 12, 2015. The Class Notes belongs to JRMC 8350 at University of Georgia taught by Staff in Fall. Since its upload, it has received 65 views. For similar materials see /class/202225/jrmc-8350-university-of-georgia in Journalism and Mass Communications at University of Georgia.

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Date Created: 09/12/15
Some Economics of the Pharmaceutical Industry Angela Fertig PhD College of Public Health December 5 2007 1252007 CEO salaries are nign Pfizer s CEO rnade 40 rniiiion in 2000 But drug therapy is often cneapertnan nonrdrug therapy Increasingly important industry gets bad rap 200 billion spent on drugs in us in 2005 ionu ortotai neaitn expenditures Dernand forprescriptions increased 7 between i994 and 2000 Prices increase 7 5 annually Profits orig 0 in 2000 cornpared to 0 3 forall Fortune 500 cornpanies 7 Eg Depression mgtherapy cost perpatient peryearED56 Rx1398 Nundrugtnerapyustll 47l x352 And newermedicines may extend lives Today s talk Drug pricing and profits Direct to consumer advertising Medicare Part D donut hole When relevant some economic reasoning as well Today s talk lg on g u proii ze Direct to consumer advertising Medicare Part D donut hole When relevant some economic reasoning as well 1252007 Drug prlcmg and profits First need to know how drugs come to market Basic investigatorinitiated research at universities sponsored b NIH Commercial application becomes apparent get patent Drug companies buy patent and continue research at applied level 7 Costlv uperront spend 20 ofsales revenue on researcn estimated cost of new drug program is 800 million 7 Risky l000 compounds are evaluated foreverv l tnat enters clinicaltnals nee a lot dr drugs in develdpment td spread risk eedndmies dr scale need a lot dr dirrerent klnds drresearen because dr spllluvers eeendmies dr sedpe 7 Discounted prorits come later Dlscuuntlngjuture mdnev is warm less than mdnevtedav Then FDA process Preclinical testing RampD with animal testing l8 mentns Phase I trials initial safemtesting on humans 20100 voluntary patients 0 drugs fail Phase II trials initial ef cacy testing several hundred patients 50 ofdru s fail 5 vears Phase III trials extensive ef cacy and safety sting New Drug Application NDA Review 20 of all drugs brought to FDA receive marketing 14 munths approval Phase IV postmarketing surveillance doctors y and pharmacists required to submit an adverse events 1252007 This means Very high fixed costs Fixed costscosts paid before rst product made Without patent protection no one would invest in new dru s But patent protection leads to monopoly pricing Monopolistonly seller of product Chooses price and quantity of product to maximize pro t 9 price will be high High prices on new drugs Are necessary to promote innovation Hurtthose who can t afford the drugs But price discrimination is an option ationchargirig different prices to different to split the market 7 Across countries oor rs E J o can negotiate lower prices poris scriior oiscoorirs crc companies get same or more ororir Price discrimination example US drug company offers drug to Africa at marginal cost no profit Marginal costcost to produce additional pill Company makes profit in US bc monopoly Selling to Africa does not affect US market 9 US is not subsidizing sales to Africa 9 However company would not offerthis deal to Africa if they didn t have US market Today s talk Drug pricing and profits Dir st to consumer advertising Medicare Part D donut hole When relevant some economic reasoning as well 1252007 Direct to Consumer Advertising DTCA is the promotion of availability andor drug product characteristics through mass media Types of ads Health seeking ads no mention ofbrand informs consumer about health condition and availability of treatme Reminder ads no mention of condition makes consumer curious about drug ask ph sician Productspeci c ads mentions drug and condition most common Current events FDA and congress are considering restrictions on DTCA Senator Edwards health plan includes restricting DTCA VVhy Economic theory about advertising Informative Inform consumers to make better choices Increases competition 9 lowers price Could increase overall demand 9 increases price Eg antidepression meds Brandloyalty Tries to get consumerto differentiate brands Reduces competition 9 increases price Eg Hallmark 1252007 Pros of DTCA Increases consumer knowledge Quicker diffusion of medical advances Patient more active participant in own health Increases conversations with physician Satisfies consumer demand for info May increase competition amp decrease price Increases patient complianceadherence Cons of DTCA Increases utilization in overmedicated society More adverse drug reactions bc increased utilization Shift away from other proven medical treatments Increases demand on physician s time May confuse patients May reduce competition amp increase prices Evidence on effects Increased sales to drug companies Increased prices Increased conversations with doctors Increased probability of filling and taking prescription 1252007 Today s talk Drug pricing and profits Direct to consumer advertising dicaro 339art D donut When relevant some economic reasoning as well Medicare Part D Medicare Prescription Drug Improvement and Modernization Act of 2003 established voluntary drug overage bene tforthe e ery In effect January 1 2006 Government federal and state subsidizes private insurance companies to offer seniors drug plans with certain ru es Prohibits Medicare from negotiating drug prices directly 7 Democrats trylrigto repealthls art Premiums paid by enrollees 2793month on average In 2007 e 875 standralone prescription drug plans available nationWioe e 24 million beneficiaries enrolled in a plan What is the donut hole standard Medlcare Prescrlphun Drug Benefit zone I ElmllAePlys l Plan Fays1539h Median any 539quot r 39y sms m min Drug Casts luan mm Enmllee Pays mm 3251 m Yulil am 60515 Enmllee Pays Plan Plays 15 25 mu 5275 a 304 Average Annual Premium m w m mum mum mm m MM mmim MutualquotEmuwmm tm N 1252007 Why did they set it up this way Helps everyone a little Donut hole deals with moral hazard oral hazard the tendency to buy more unnecessarily because insurance makes it cheaper 3 million 125 are estimated to have spending in the coverage gap in 2007 Coverage kicks in when catastrophic Effects of Part D Increased coverage Among those with no coverage in 2005 61 have part D coverage in 2006 Only 4 million Medicare bene ciaries 10 2007 lack drug coverage In Spending 50 billion in 2007 Lower than projected originally due to competition pushing generics according to CMS


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