Pharmacogenetic interventions, orphan drugs, and distributive justice: The role of cost-benefit analysis

Social Philosophy and Policy

Volumn 19, Issue 2, 2002, Pages 246-269

  Rai, Arti K ^a  

^a UNIVERSITY OF PENNSYLVANIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ANALYTICAL APPROACH; ARTICLE; COST BENEFIT ANALYSIS; DRUG MANUFACTURE; ECONOMICS; ETHICAL THEORY; ETHICS; FINANCIAL MANAGEMENT; HEALTH CARE AND PUBLIC HEALTH; HUMAN; MANAGEMENT; MEDICOLEGAL ASPECT; ORPHAN DRUG ACT; PATENT; PHARMACOGENETICS; QUALITY ADJUSTED LIFE YEAR; RESOURCE ALLOCATION; SOCIAL JUSTICE; UNITED STATES;

ANALYTICAL APPROACH; HEALTH CARE AND PUBLIC HEALTH; ORPHAN DRUG ACT;

COST-BENEFIT ANALYSIS; ETHICAL THEORY; FINANCING, GOVERNMENT; HUMANS; LEGISLATION, MEDICAL; ORPHAN DRUG PRODUCTION; PATENTS; PHARMACOGENETICS; POLICY MAKING; QUALITY-ADJUSTED LIFE YEARS; RESOURCE ALLOCATION; SOCIAL JUSTICE; UNITED STATES;

EID: 0037852107     PISSN: 02650525     EISSN: None     Source Type: Journal    
DOI: 10.1017/S0265052502192107     Document Type: Article

References (118)

1. David J. Lockhart and Elizabeth A. Winzeler, "Genomics, Gene Expression, and DNA Arrays, " Nature 405, no. 6788 (2000): 827-36.
2. The amount of genetic data available has been increasing tenfold every five years. See Jon Cohen, "The Genomics Gamble, " Science 767, no. 5303 (1997): 767-68.
3. An individual's phenotype is the physical profile he or she presents to the external world. Thus, for example, one might say that an individual's phenotype includes asthmatic breathing.
4. An individual's genotype comprises the genetic information contained in his or her chromosomes.
5. Lucid discussions of the use of SNPs in medicine include Allen Roses, "Pharmacogenetics and the Practice of Medicine, " Nature 405, no. 6788 (2000): 857-65; and Jeanette J. McCarthy and Rolf Hilfiker, "The Use of Single-Nucleotide Polymorphism Maps in Pharmacogenomics, " Nature Biotechnology 18, no. 5 (2000): 505-9.
6. Lucid discussions of the use of SNPs in medicine include Allen Roses, "Pharmacogenetics and the Practice of Medicine, " Nature 405, no. 6788 (2000): 857-65; and Jeanette J. McCarthy and Rolf Hilfiker, "The Use of Single-Nucleotide Polymorphism Maps in Pharmacogenomics, " Nature Biotechnology 18, no. 5 (2000): 505-9.
7. Indeed, in "The Information Revolution Reaches Pharmaceuticals: Balancing Innovation Incentives, Cost, and Access in the Post-Genomics Era, " Illinois Law Review 2001, no. 1 (2001): 173-210, I argue that one of the chief benefits of making drug development an information science involves the possibility of reduced preclinical and clinical development costs.
8. To be sure, an orphan group created through SNP testing is not necessarily worse off than it would have been in the days before SNP testing. In the days before SNP testing, the group would have been prescribed either a drug that had adverse effects, an ineffective drug (that is, a drug that worked only for other genotypic groups), or no drug at all (if the population with the relevant phenotype was so fragmented into separate genotypic groups that no single drug for the phenotype could have passed the Food and Drug Administration's efficacy standards). Nonetheless, in the past, the orphan group would have been difficult, if not impossible, to identify. In the same way that ordinary diagnostic techniques have given us the ability to identify groups with rare phenotypic diseases, SNP testing will give us the ability to identify, and perform further study on, groups orphaned by their SNP inheritance.
9. In some cases, drugs developed to treat a particular orphan phenotype have emerged as treatments for more common diseases. Thus, for example, the human growth hormone developed to treat hypopituitary dwarfism ended up being useful in treating other growth deficiencies; see Robert A. Bohrer and John T. Prince, "A Tale of Two Proteins: The FDA's Uncertain Interpretation of the Orphan Drug Act, " Harvard Journal of Law and Technology 12, no. 1 (1999): 381. For this reason, the designation of human growth hormone (and other drugs that have ended up being useful for relatively large populations, such as the anti-AIDS drug AZT) as orphan drugs that deserve protection under the Orphan Drug Act (discussed below) has proved controversial. Ibid., 332. This possible problem with orphandrug protection is but one example of the general difficulty biomedical-research regulators face when the implications of the research they are considering are not fully known. A discussion of this general problem is beyond the scope of this essay.
10. In addition, if a particular phenotype has no genotypic subgroup that is sufficiently large to provide an appropriate market, then the entire phenotype could be considered orphaned. The analysis in this essay would apply to each of the orphan genotypes within the orphan phenotype.
11. In addition, even if pharmacogenomics does not ultimately yield many new orphan genotypes, the number of orphan phenotypes that are emerging may be sufficiently large such that reconsideration of the current system is warranted.
12. See SNP Consortium, "SNP Data Release: September 2001, " available on-line at http: //snp.cshl.org/data; and Celera Corporation, "Academic and Non-Profit Offerings: From Data to Discovery, " available on-line at http://www.celera.com/genomics/academic/ home.cfm?ppage=cpage=snps.
13. See SNP Consortium, "SNP Data Release: September 2001, " available on-line at http: //snp.cshl.org/data; and Celera Corporation, "Academic and Non-Profit Offerings: From Data to Discovery, " available on-line at http://www.celera.com/genomics/academic/home.cfm?ppage=cpage=snps.
14. See SNP Consortium, "SNP Data Release: September 2001, " available on-line at http: //snp.cshl.org/data; and Celera Corporation, "Academic and Non-Profit Offerings: From Data to Discovery, " available on-line at http://www.celera.com/genomics/academic/ home.cfm?ppage=cpage=snps.
15. These so-called coding SNPs (or "cSNPs") may be more common than was previously thought: a recent study of 313 human genes found an average of fourteen SNP variations per gene. See Geeta Anand, "Genaissance Publishes a Study Outlining Variations in 313 Genes, " Wall Street Journal, July 13, 2001, C1.
16. See Urs A. Meyer, "Pharmacogenetics and Adverse Drug Reactions, " Lancet 356, no. 9242 (2000): 1667-82; and John Weinstein, "Pharmacogenomics - Teaching Old Drugs New Tricks, " New England Journal of Medicine 343, no. 19 (2000): 1408-9.
17. See Urs A. Meyer, "Pharmacogenetics and Adverse Drug Reactions, " Lancet 356, no. 9242 (2000): 1667-82; and John Weinstein, "Pharmacogenomics - Teaching Old Drugs New Tricks, " New England Journal of Medicine 343, no. 19 (2000): 1408-9.
18. Judes Poirier et al., "Apolipoprotein E4 Allele as a Predictor of Cholinergic Deficits and Treatment Outcome in Alzheimer Disease, " Proceedings of the National Academy of Sciences 92, no. 26 (1995): 12260-61.
19. A promoter is a DNA sequence that is responsible for regulating the expression of a particular gene.
20. J. M. Drazen et al., "Pharmacogenetic Association between ALOX5 Promoter Genotype and the Response to Anti-Asthma Treatment, " Nature Genetics 22, no. 2 (1999): 168-70.
21. On such patients, see Marc Wortman, "Medicine Gets Personal, " MIT Tech Review 104, no. 1 (2001): 72-78.
22. Orphan Drug Act of 1983, Pub. L. No. 97-414, 96 Stat. 2049 (1983) (codified as amended in scattered sections of 21 U.S.C. and 42 U.S.C.).
23. Food, Drug, and Cosmetics Act, 21 U.S.C. § 301 (1994).
24. 21 U.S.C. § 360bb (1994).
25. Orphan Drug Act § 1, 96 Stat. 2049 (1983).
26. 21 U.S.C. § 360ee(b)(2) (1994). Because the United States represents the only major market in which drug prices are not tightly regulated (and hence is the major market in which profits from drug sales are realized), the Orphan Drug Act focuses on U.S. sales. Similarly, in this essay, I will focus on the U.S. market for drugs.
27. See 21 C.F.R. § 316.23 (1999): (a) A sponsor may request orphan-drug designation at any time in the drug development process prior to the submission of a marketing application for the drug product for the orphan indication. (b) A sponsor may request orphan-drug designation of an already approved drug product for an unapproved use without regard to whether the prior marketing approval was for an orphan-drug indication. One difficulty with the current system is that it appears to require the manufacturer to identify a particular drug candidate before Orphan Drug Act protections are triggered. Because even initial identification of a candidate drug can be costly, this requirement may place too great a burden on the would-be researcher into an orphan disease. This difficulty could be alleviated by altering the language of the relevant regulations so that Orphan Drug Act protections are available to manufacturers with a research plan for work on a particular orphan disease.
28. See 21 U.S.C. § 360aa(a) (1994) (specifying that an orphan-drug manufacturer may request from the FDA written recommendations for clinical and nonclinical tests that must be conducted for a drug's approval).
29. See 21 U.S.C. § 360ee(a) (1994) (providing that "The Secretary may make grants to and enter into contracts with public and private entities and individuals to assist in (1) defraying the costs of qualified testing expenses incurred in connection with the development of drugs for rare diseases and conditions. ").
30. 26 U.S.C. § 45C (1994). By contrast, most firms that engage in costly R&D receive a tax credit equal to only 20 percent of R&D spending that exceeds a certain base amount (typically defined by a firm's spending patterns in the previous three years).
31. Under the patent statute, an invention must not only be new (see 35 U.S.C. § 102 [1994]), but it must also be something that would not have been obvious, at the time it was made, to a person of ordinary skill in the relevant field. See 35 U.S.C. § 103 (1994).
32. See Jean O. Lanjouw, "The Introduction of Pharmaceutical Product Patents: Heartless Exploitation of the Poor and Suffering?" (NBER working paper, 1998).
33. See, e.g., Richard Epstein, "Rationing Access to Medical Care: Some Sober Second Thoughts, " Stanford Law and Policy Review 3 (1991): 81-89; and Loren E. Lomasky, "Medical Progress and National Health Care, " in Marshall Cohen, Thomas Nagel, and Thomas Scanlon, eds., Medicine and Moral Philosophy (Princeton, NJ: Princeton University Press, 1981), 115.
34. See, e.g., Richard Epstein, "Rationing Access to Medical Care: Some Sober Second Thoughts, " Stanford Law and Policy Review 3 (1991): 81-89; and Loren E. Lomasky, "Medical Progress and National Health Care, " in Marshall Cohen, Thomas Nagel, and Thomas Scanlon, eds., Medicine and Moral Philosophy (Princeton, NJ: Princeton University Press, 1981), 115.
35. See President's Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research, Securing Access to Health Care: A Report on the Ethical Implications of Differences in the Availability of Health Services (Washington, DC: U.S. Government Printing Office, 1983), 1:3-6, 1:18-47; and also Tom L. Beauchamp and James F. Childress, Principles of Biomedical Ethics, 4th ed. (New York: Oxford University Press, 1994), 356 (developing the argument for an individual right to basic health care and noting that such a right holds out the potential for "compromise among libertarians, utilitarians, communitarians, and egalitarians").
36. See President's Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research, Securing Access to Health Care: A Report on the Ethical Implications of Differences in the Availability of Health Services (Washington, DC: U.S. Government Printing Office, 1983), 1:3-6, 1:18-47; and also Tom L. Beauchamp and James F. Childress, Principles of Biomedical Ethics, 4th ed. (New York: Oxford University Press, 1994), 356 (developing the argument for an individual right to basic health care and noting that such a right holds out the potential for "compromise among libertarians, utilitarians, communitarians, and egalitarians").
37. See President's Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research, Securing Access to Health Care: A Report on the Ethical Implications of Differences in the Availability of Health Services (Washington, DC: U.S. Government Printing Office, 1983), 1:3-6, 1:18-47; and also Tom L. Beauchamp and James F. Childress, Principles of Biomedical Ethics, 4th ed. (New York: Oxford University Press, 1994), 356 (developing the argument for an individual right to basic health care and noting that such a right holds out the potential for "compromise among libertarians, utilitarians, communitarians, and egalitarians").
38. See generally Allen E. Buchanan, "The Right to a Decent Minimum of Health Care, " Philosophy and Public Affairs 13, no. 1 (1984): 55-78.
39. See, e.g., Amy Gutmann and Dennis Thompson, Democracy and Disagreement (Cambridge, MA: Harvard University Press, 1996), 213-23. Gutmann and Thompson discuss not only health care but also the full range of social goods that are, in their estimation, necessary to protect basic opportunity. These include food, shelter, education, and health care.
40. See Norman Daniels, Just Health Care (Cambridge: Cambridge University Press, 1985), 36-58.
41. See, e.g., Einer Elhauge, "Allocating Health Care Morally, " California Law Review 82, no. 6 (1994): 1493-96.
42. In order to comport fully with utilitarianism, cost-benefit analysis should not assume (as it often does) that the benefit an individual derives from a particular item is equivalent to his or her willingness to pay for that item. While an individual's willingness to pay is clearly income-dependent, utilitarians reject the idea that utility is necessarily income-dependent. See Donald Hubin, "The Moral Justification of Cost-Benefit Analysis, " Economics and Philosophy 10, no. 2 (1994): 187-88 (noting that because cost-benefit analysis often measures benefit in terms that reflect ability to pay, it tends to discount the utility of poor individuals). As discussed further below, the calculation of benefit that is used in medical cost-benefit analysis is not dependent on willingness to pay. Thus, medical cost-benefit analysis is not subject to the critique that it favors wealthy individuals over poor ones.
43. Oregon subsequently revised its initial application of cost-benefit methodology, primarily in response to criticism that that application of the methodology undervalued the saving of identifiable lives. See Arti K. Rai, "Rationing through Choice: A New Approach to Cost-Effectiveness Analysis in Health Care, " Indiana Law Journal 72, no. 4 (1997): 1054. Although Oregon's revised methodology placed greater emphasis on saving identifiable lives, it placed much less emphasis on overall medical benefits. Ibid., 1073-74. The focus on health benefits was further diluted by the federal government's determination that efforts to assess quality of life in measuring medical benefits violate the Americans with Disabilities Act. As a consequence of this determination, Oregon was forced to ignore quality-of-life improvements when it assessed medical interventions. When the Oregon plan was finally implemented in February 1994, it did not incorporate cost-benefit methodology to any significant degree.
44. Oregon subsequently revised its initial application of cost-benefit methodology, primarily in response to criticism that that application of the methodology undervalued the saving of identifiable lives. See Arti K. Rai, "Rationing through Choice: A New Approach to Cost-Effectiveness Analysis in Health Care, " Indiana Law Journal 72, no. 4 (1997): 1054. Although Oregon's revised methodology placed greater emphasis on saving identifiable lives, it placed much less emphasis on overall medical benefits. Ibid., 1073-74. The focus on health benefits was further diluted by the federal government's determination that efforts to assess quality of life in measuring medical benefits violate the Americans with Disabilities Act. As a consequence of this determination, Oregon was forced to ignore quality-of-life improvements when it assessed medical interventions. When the Oregon plan was finally implemented in February 1994, it did not incorporate cost-benefit methodology to any significant degree.
45. See generally Daniels, Just Health Care, 36-58.
46. Ibid., 35.
47. Ibid., 103-5. While Daniels argues for preferring the young from a liberal egalitarian standpoint Daniel Callahan reaches a similar conclusion from a communitarian standpoint Callahan asserts that once an individual has achieved her "natural life span, " society's goal should be to relieve suffering rather than to pursue life-extending care. Daniel Callahan, What Kind of Life: The Limits on Medical Progress (New York: Simon and Schuster, 1990), 141.
48. Ibid., 103-5. While Daniels argues for preferring the young from a liberal egalitarian standpoint Daniel Callahan reaches a similar conclusion from a communitarian standpoint Callahan asserts that once an individual has achieved her "natural life span, " society's goal should be to relieve suffering rather than to pursue life-extending care. Daniel Callahan, What Kind of Life: The Limits on Medical Progress (New York: Simon and Schuster, 1990), 141.
49. Gutmann and Thompson, Democracy and Disagreement, 192-94. Utilitarianism is also controversial to the extent that it focuses on the informed preferences of individuals and not on the deliberative process by which groups of individuals might come to a collective understanding of their preferences. Ibid., 173-77. However, as I will argue below, even though utilitarian philosophy may not stress deliberation, utilitarian methodologies like cost-benefit analysis can significantly enhance the deliberative process.
50. Gutmann and Thompson, Democracy and Disagreement, 192-94. Utilitarianism is also controversial to the extent that it focuses on the informed preferences of individuals and not on the deliberative process by which groups of individuals might come to a collective understanding of their preferences. Ibid., 173-77. However, as I will argue below, even though utilitarian philosophy may not stress deliberation, utilitarian methodologies like cost-benefit analysis can significantly enhance the deliberative process.
51. See, e.g., Rai, "Rationing through Choice, " 1024 (discussing this sort of "bottomless pit" problem).
52. See ibid., 1021-30; Einer Elhauge, "Allocating Health Care Morally, " 1465-72; and Ezekiel Emanuel, The Ends of Human Life (Cambridge, MA: Harvard University Press, 1991), 114-45.
53. See ibid., 1021-30; Einer Elhauge, "Allocating Health Care Morally, " 1465-72; and Ezekiel Emanuel, The Ends of Human Life (Cambridge, MA: Harvard University Press, 1991), 114-45.
54. See ibid., 1021-30; Einer Elhauge, "Allocating Health Care Morally, " 1465-72; and Ezekiel Emanuel, The Ends of Human Life (Cambridge, MA: Harvard University Press, 1991), 114-45.
55. See John Rawls, Political Liberalism (New York: Columbia University Press, 1993), 9: "The aim of justice as fairness, then, is practical: it presents itself as a conception of justice that may be shared by citizens as a basis of a reasoned, informed, and willing political judgment" (emphasis added).
56. See generally Norman Daniels and James Sabin, "Limits to Health Care: Fair Procedures, Democratic Deliberation, and the Legitimacy Problem for Insurers, " Philosophy and Public Affairs 26, no. 4 (1997): 303-50.
57. Gutmann and Thompson, Democracy and Disagreement. As Gutmann and Thompson emphasize, they diverge from some advocates of deliberation in believing that political deliberation cannot itself be the "sovereign guide" to resolving moral disagreements. Rather, Gutmann and Thompson contend that liberty and basic opportunity must operate as substantive concepts that guide the content of deliberation. Ibid., 17-18.
58. Gutmann and Thompson, Democracy and Disagreement. As Gutmann and Thompson emphasize, they diverge from some advocates of deliberation in believing that political deliberation cannot itself be the "sovereign guide" to resolving moral disagreements. Rather, Gutmann and Thompson contend that liberty and basic opportunity must operate as substantive concepts that guide the content of deliberation. Ibid., 17-18.
59. Ibid., 53.
60. Daniels and Sabin, "Limits to Health Care."
61. Ibid., 323. In their essay, Daniels and Sabin are focusing on allocation decisions made by private health-insurance organizations. However, their arguments are equally applicable to public institutions.
62. Ibid., 326 n. 24, citing Frederick Schauer, "Giving Reasons, " Stanford Law Review 47, no. 4 (1995): 657.
63. Ibid., 326 n. 24, citing Frederick Schauer, "Giving Reasons, " Stanford Law Review 47, no. 4 (1995): 657.
64. Matthew D. Adler and Eric A. Posner, "Implementing Cost-Benefit Analysis When Preferences Are Distorted, " Journal of Legal Studies 29 (2000): 1106.
65. For example, individuals often do a very poor job of assessing the probability of uncertain events. See generally Cass S. Sunstein, "Cognition and Cost-Benefit Analysis, " Journal of Legal Studies 29, no. 2 (2000): 1059-97; see also Rai, "Rationing through Choice, " 1069.
66. For example, individuals often do a very poor job of assessing the probability of uncertain events. See generally Cass S. Sunstein, "Cognition and Cost-Benefit Analysis, " Journal of Legal Studies 29, no. 2 (2000): 1059-97; see also Rai, "Rationing through Choice, " 1069.
67. Adler and Posner, "Implementing Cost-Benefit Analysis, " 1106.
68. Ibid. (observing that many moral and political theories hold that "a policy's effect on people's welfare is a relevant, though not necessarily conclusive, consideration").
69. See generally Adler and Posner, "Implementing Cost-Benefit Analysis"; and Sunstein, "Cognition and Cost-Benefit Analysis." Even Gutmann and Thompson, who offer a vigorous critique of cost-benefit analysis and of utilitarianism more generally, note that utilitarian analysis "deserves a place in deliberative democracy." Gutmann and Thompson, Democracy and Disagreement, 196. Similarly, Daniels and Sabin suggest that private insurance companies should use cost-effectiveness criteria and should be forthcoming about such use. See Daniels and Sabin, "Limits to Health Care, " 335: "If people share the goal of meeting the varied medical needs of a population covered by limited resources, and they share a commitment to justifying limitations by reference to reasons all can consider appropriate and relevant, then they will be interested in a reason that says a particular technology falls below some defensible threshold of cost-effectiveness or relative cost-worthiness."
70. See generally Adler and Posner, "Implementing Cost-Benefit Analysis"; and Sunstein, "Cognition and Cost-Benefit Analysis." Even Gutmann and Thompson, who offer a vigorous critique of cost-benefit analysis and of utilitarianism more generally, note that utilitarian analysis "deserves a place in deliberative democracy." Gutmann and Thompson, Democracy and Disagreement, 196. Similarly, Daniels and Sabin suggest that private insurance companies should use cost-effectiveness criteria and should be forthcoming about such use. See Daniels and Sabin, "Limits to Health Care, " 335: "If people share the goal of meeting the varied medical needs of a population covered by limited resources, and they share a commitment to justifying limitations by reference to reasons all can consider appropriate and relevant, then they will be interested in a reason that says a particular technology falls below some defensible threshold of cost-effectiveness or relative cost-worthiness."
71. See generally Adler and Posner, "Implementing Cost-Benefit Analysis"; and Sunstein, "Cognition and Cost-Benefit Analysis." Even Gutmann and Thompson, who offer a vigorous critique of cost-benefit analysis and of utilitarianism more generally, note that utilitarian analysis "deserves a place in deliberative democracy." Gutmann and Thompson, Democracy and Disagreement, 196. Similarly, Daniels and Sabin suggest that private insurance companies should use cost-effectiveness criteria and should be forthcoming about such use. See Daniels and Sabin, "Limits to Health Care, " 335: "If people share the goal of meeting the varied medical needs of a population covered by limited resources, and they share a commitment to justifying limitations by reference to reasons all can consider appropriate and relevant, then they will be interested in a reason that says a particular technology falls below some defensible threshold of cost-effectiveness or relative cost-worthiness."
72. See generally Adler and Posner, "Implementing Cost-Benefit Analysis"; and Sunstein, "Cognition and Cost-Benefit Analysis." Even Gutmann and Thompson, who offer a vigorous critique of cost-benefit analysis and of utilitarianism more generally, note that utilitarian analysis "deserves a place in deliberative democracy." Gutmann and Thompson, Democracy and Disagreement, 196. Similarly, Daniels and Sabin suggest that private insurance companies should use cost-effectiveness criteria and should be forthcoming about such use. See Daniels and Sabin, "Limits to Health Care, " 335: "If people share the goal of meeting the varied medical needs of a population covered by limited resources, and they share a commitment to justifying limitations by reference to reasons all can consider appropriate and relevant, then they will be interested in a reason that says a particular technology falls below some defensible threshold of cost-effectiveness or relative cost-worthiness."
73. By executive order, Presidents Reagan, George H. W. Bush, Clinton, and George W. Bush have all required cost-benefit analysis of major regulations.
74. See generally Stephen Breyer, Breaking the Vicious Circle: Toward Effective Risk Regulation (Cambridge, MA: Harvard University Press, 1993); and W. Kip Viscusi, Fatal Tradeoffs: Public and Private Responsibilities for Risk (New York: Oxford University Press, 1992).
75. See generally Stephen Breyer, Breaking the Vicious Circle: Toward Effective Risk Regulation (Cambridge, MA: Harvard University Press, 1993); and W. Kip Viscusi, Fatal Tradeoffs: Public and Private Responsibilities for Risk (New York: Oxford University Press, 1992).
76. NIH Working Group on Priority Setting, "Setting Research Priorities and the National Institutes of Health" (NIH publication number 97-4265, September 1997). As Rebecca Dresser has pointed out, current levels of NIH funding for particular diseases are strongly correlated with the welfare losses that the diseases cause. Rebecca Dresser, When Science Offers Salvation (New York: Oxford University Press, 2001), 83. As discussed further below, these welfare losses are typically calculated in units called quality-adjusted life-years, or QALYs.
77. NIH Working Group on Priority Setting, "Setting Research Priorities and the National Institutes of Health" (NIH publication number 97-4265, September 1997). As Rebecca Dresser has pointed out, current levels of NIH funding for particular diseases are strongly correlated with the welfare losses that the diseases cause. Rebecca Dresser, When Science Offers Salvation (New York: Oxford University Press, 2001), 83. As discussed further below, these welfare losses are typically calculated in units called quality-adjusted life-years, or QALYs.
78. See Rai, "The Information Revolution Reaches Pharmaceuticals, " 181. This $500 million figure includes the cost of drugs that fail preclinical or clinical testing.
79. The marginal cost is effectively zero because the cost of the chemical(s) that make up the drug is generally negligible.
80. See Alfred Engelberg, "Special Provisions for Pharmaceuticals: Have They Outlived Their Usefulness?" IDEA 39, no. 3 (1999): 420 (noting that it is common practice to file patent applications before human testing has begun, because waiting might result in the information relevant to the invention becoming generally known and therefore unpatentable).
81. The Drug Price Competition and Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended throughout 21 U.S.C. [1994]).
82. 35 U.S.C. § 156 (1994). Hatch-Waxman imposes a five-year cap on the extension term that can be granted.
83. See Engelberg, "Special Provisions for Pharmaceuticals, " 420 (citing analysis issued by the Patent and Trademark Office). Indeed, with respect to particularly lucrative drugs, drug manufacturers sometimes manage to gain patent protection for more than fourteen years after FDA approval. They obtain this additional protection by strategically seeking additional patents on a drug several years before the basic patent that received the Hatch-Waxman extension is set to expire. Ibid., 415, 420. Although these additional patents are often somewhat marginal in that they claim uses for the drug that have not previously been approved, specific drug formulations, or even tablet shape (see ibid.), they can succeed in delaying competition by generic drugs. Such delay results because the Hatch-Waxman Act contains a provision requiring the FDA to stay the approval process for a generic drug for thirty months if a brand-name manufacturer claims that one of its patents, no matter how marginal, is being infringed by the generic. I discuss these problems with the Hatch-Waxman Act in Rai, "The Information Revolution Reaches Pharmaceuticals, " 183-85.
84. See Engelberg, "Special Provisions for Pharmaceuticals, " 420 (citing analysis issued by the Patent and Trademark Office). Indeed, with respect to particularly lucrative drugs, drug manufacturers sometimes manage to gain patent protection for more than fourteen years after FDA approval. They obtain this additional protection by strategically seeking additional patents on a drug several years before the basic patent that received the Hatch-Waxman extension is set to expire. Ibid., 415, 420. Although these additional patents are often somewhat marginal in that they claim uses for the drug that have not previously been approved, specific drug formulations, or even tablet shape (see ibid.), they can succeed in delaying competition by generic drugs. Such delay results because the Hatch-Waxman Act contains a provision requiring the FDA to stay the approval process for a generic drug for thirty months if a brand-name manufacturer claims that one of its patents, no matter how marginal, is being infringed by the generic. I discuss these problems with the Hatch-Waxman Act in Rai, "The Information Revolution Reaches Pharmaceuticals, " 183-85.
85. See Engelberg, "Special Provisions for Pharmaceuticals, " 420 (citing analysis issued by the Patent and Trademark Office). Indeed, with respect to particularly lucrative drugs, drug manufacturers sometimes manage to gain patent protection for more than fourteen years after FDA approval. They obtain this additional protection by strategically seeking additional patents on a drug several years before the basic patent that received the Hatch-Waxman extension is set to expire. Ibid., 415, 420. Although these additional patents are often somewhat marginal in that they claim uses for the drug that have not previously been approved, specific drug formulations, or even tablet shape (see ibid.), they can succeed in delaying competition by generic drugs. Such delay results because the Hatch-Waxman Act contains a provision requiring the FDA to stay the approval process for a generic drug for thirty months if a brand-name manufacturer claims that one of its patents, no matter how marginal, is being infringed by the generic. I discuss these problems with the Hatch-Waxman Act in Rai, "The Information Revolution Reaches Pharmaceuticals, " 183-85.
86. To be sure, the widespread presence of insurance in health-care markets may lead purchasers to consume health care whose costs exceed its benefits. For the purposes of this essay, however, I assume that health-care markets function efficiently because insurers have implemented mechanisms for curbing this insurance-induced tendency to overspend.
87. See, e.g., Milton C. Weinstein and William B. Stason, "Foundations of Cost-Effectiveness Analysis for Health and Medical Practices, " New England Journal of Medicine 296, no. 13 (1977): 718. There is some debate about whether future medical costs unrelated to the relevant disease and/or future nonmedical costs should be included in the cost calculation. See ibid. (arguing that future unrelated medical costs should be included); and David Meltzer, "Accounting for Future Costs in Medical Cost-Effectiveness Analysis, " Journal of Health Economics 16, no. 1 (1997): 33-64 (arguing that future nonmedical costs should also be included). See also U.S. Department of Health and Human Services, Office of Public Health and Science, Office of Disease Prevention and Health Promotion, Panel on Cost-Effectiveness in Health and Medicine, Cost-Effectiveness in Health and Medicine (Washington, DC: U.S. Government Printing Office, 1996) (arguing that future nonmedical costs should not be included). Resolving these debates is not essential for the purposes of this essay.
88. See, e.g., Milton C. Weinstein and William B. Stason, "Foundations of Cost-Effectiveness Analysis for Health and Medical Practices, " New England Journal of Medicine 296, no. 13 (1977): 718. There is some debate about whether future medical costs unrelated to the relevant disease and/or future nonmedical costs should be included in the cost calculation. See ibid. (arguing that future unrelated medical costs should be included); and David Meltzer, "Accounting for Future Costs in Medical Cost-Effectiveness Analysis, " Journal of Health Economics 16, no. 1 (1997): 33-64 (arguing that future nonmedical costs should also be included). See also U.S. Department of Health and Human Services, Office of Public Health and Science, Office of Disease Prevention and Health Promotion, Panel on Cost-Effectiveness in Health and Medicine, Cost-Effectiveness in Health and Medicine (Washington, DC: U.S. Government Printing Office, 1996) (arguing that future nonmedical costs should not be included). Resolving these debates is not essential for the purposes of this essay.
89. See, e.g., Milton C. Weinstein and William B. Stason, "Foundations of Cost-Effectiveness Analysis for Health and Medical Practices, " New England Journal of Medicine 296, no. 13 (1977): 718. There is some debate about whether future medical costs unrelated to the relevant disease and/or future nonmedical costs should be included in the cost calculation. See ibid. (arguing that future unrelated medical costs should be included); and David Meltzer, "Accounting for Future Costs in Medical Cost-Effectiveness Analysis, " Journal of Health Economics 16, no. 1 (1997): 33-64 (arguing that future nonmedical costs should also be included). See also U.S. Department of Health and Human Services, Office of Public Health and Science, Office of Disease Prevention and Health Promotion, Panel on Cost-Effectiveness in Health and Medicine, Cost-Effectiveness in Health and Medicine (Washington, DC: U.S. Government Printing Office, 1996) (arguing that future nonmedical costs should not be included). Resolving these debates is not essential for the purposes of this essay.
90. Weinstein and Stason, "Foundations of Cost-Effectiveness Analysis."
91. See, e.g., Paul Menzel, "How Should What Economists Call 'Social Values' Be Measured?" Journal of Ethics 3, no. 3 (1999): 249-73; and Rai, "Rationing through Choice, " 1070-77.
92. See, e.g., Paul Menzel, "How Should What Economists Call 'Social Values' Be Measured?" Journal of Ethics 3, no. 3 (1999): 249-73; and Rai, "Rationing through Choice, " 1070-77.
93. See David Eddy, "Oregon's Methods: Did Cost-Effectiveness Fail?" Journal of the American Medical Association 266, no. 15 (1991): 2140. For a similar suggestion, see Menzel, "How Should 'Social Values' Be Measured?" 261-65.
94. See David Eddy, "Oregon's Methods: Did Cost-Effectiveness Fail?" Journal of the American Medical Association 266, no. 15 (1991): 2140. For a similar suggestion, see Menzel, "How Should 'Social Values' Be Measured?" 261-65.
95. See David M. Cutler and Mark McClellan, "Is Technological Change in Medicine Worth It?" Health Affairs 20, no. 5 (2001): 1129-45.
96. I analyze the arguments put forward by some of these commentators in Rai, "Rationing through Choice, " 1076-97. A recent interesting treatment of the discrimination issue is found in Menzel, "How Should 'Social Values' Be Measured?" 259-73.
97. I analyze the arguments put forward by some of these commentators in Rai, "Rationing through Choice, " 1076-97. A recent interesting treatment of the discrimination issue is found in Menzel, "How Should 'Social Values' Be Measured?" 259-73.
98. The Americans with Disabilities Act, 42 U.S.C. §§ 12101 et seq. (1994).
99. See Alan L. Hillman, "Economic Decision Making in Healthcare: A Standard Approach to Discounting Health Outcomes, " Pharmacoeconomics 7, no. 3 (1995): 199.
100. r. By contrast, in a more formal mathematical treatment, interest might be calculated instantaneously.
101. See Michael Parsonage and Henry Neuberger, "Discounting and Health Benefits, " Health Economics 1, no. 1 (1992): 71-79.
102. Ibid., 73. See also Lisa Heinzerling, "Regulatory Costs of Mythic Proportions, " Yale Law Journal 107, no. 7 (1998): 2046-49; and Hillman and Kim, "Economic Decision Making in Healthcare, " 200. The available data here has generally been gathered from experimental studies of subjects who are asked questions about how they value future harms and from evidence on workers' willingness to accept wage premiums in exchange for future health risks.
103. Ibid., 73. See also Lisa Heinzerling, "Regulatory Costs of Mythic Proportions, " Yale Law Journal 107, no. 7 (1998): 2046-49; and Hillman and Kim, "Economic Decision Making in Healthcare, " 200. The available data here has generally been gathered from experimental studies of subjects who are asked questions about how they value future harms and from evidence on workers' willingness to accept wage premiums in exchange for future health risks.
104. Ibid., 73. See also Lisa Heinzerling, "Regulatory Costs of Mythic Proportions, " Yale Law Journal 107, no. 7 (1998): 2046-49; and Hillman and Kim, "Economic Decision Making in Healthcare, " 200. The available data here has generally been gathered from experimental studies of subjects who are asked questions about how they value future harms and from evidence on workers' willingness to accept wage premiums in exchange for future health risks.
105. Hillman and Kim, "Economic Decision Making in Healthcare, " 200.
106. Ibid.
107. See Richard Revesz, "Environmental Regulation, Cost-Benefit Analysis, and the Discounting of Human Lives, " Columbia Law Review 99, no. 4 (1999): 975-79; and Daniel Farber and Paul A. Hemmersbaugh, "The Shadow of the Future: Discount Rates, Later Generations, and the Environment, " Vanderbilt Law Review 46, no. 2 (1993): 283-85.
108. See Richard Revesz, "Environmental Regulation, Cost-Benefit Analysis, and the Discounting of Human Lives, " Columbia Law Review 99, no. 4 (1999): 975-79; and Daniel Farber and Paul A. Hemmersbaugh, "The Shadow of the Future: Discount Rates, Later Generations, and the Environment, " Vanderbilt Law Review 46, no. 2 (1993): 283-85.
109. To the extent that the time horizon is extended because particular drugs yield appreciable benefits even after one generation, considerations of intergenerational justice might require using a somewhat lower discount rate for future generations than is used for the current generation. The lower the discount rate for future generations, the greater the weight attached to their interests.
110. 0.
111. For purposes of this essay, I make the simplifying assumption that benefits accrue, and are discounted at, the end of each year.
112. In fact, there is reason to believe that the pharmaceutical industry uses a discount rate significantly higher than the real interest rate for money. To the extent that the pharmaceutical industry demands rates of return higher than those found in other industries (in order to compensate for the high level of risk involved in pharmaceutical development), it may discount future income flow more steeply than other industries do. For purposes of this essay, however, I will make the conservative assumption of a 3 percent real discount rate for money, even in the pharmaceutical industry.
113. The precise nature of a drug manufacturer's monopoly power will depend on the scope of its patent, the possible availability of substitutes for the relevant drug, the price-sensitivity of consumers, and the amount of price discrimination that health insurers can secure in virtue of their bargaining power. In the case of pharmaceutical products, patents are often broad and consumers (particularly insured consumers) are quite price-insensitive. Thus, even though competitors to a patented drug generally emerge after a few years, their potential impact on price competition is softened by the fact that they are imperfect substitutes that price-insensitive consumers will not readily embrace. Rai, "The Information Revolution Reaches Pharmaceuticals, " 206.
114. Hal Varian, Intermediate Microeconomics: A Modern Approach, 5th ed. (New York: W. W. Norton, 1999), 420-24. Unlike the competitive producer, who produces to the point where price equals marginal cost, the monopolistic producer typically operates only at prices well above marginal cost. Ibid., 420. This is particularly true in industries like the prescription-drug industry, where the marginal costs of production are virtually zero.
115. Hal Varian, Intermediate Microeconomics: A Modern Approach, 5th ed. (New York: W. W. Norton, 1999), 420-24. Unlike the competitive producer, who produces to the point where price equals marginal cost, the monopolistic producer typically operates only at prices well above marginal cost. Ibid., 420. This is particularly true in industries like the prescription-drug industry, where the marginal costs of production are virtually zero.
116. Ibid., 422-24.
117. See William Sage, "Funding Fairness: Public Investment, Proprietary Rights, and Access to Health Care Technology, " Virginia Law Review 82, no. 8 (1996): 1741-42: "[A]n obvious side-effect of patent monopolies - like other monopolies - is to increase price and decrease output. As a result, patented inventions may not be affordable to those who need them. If equity is a concern in the provision of health care services, awarding patents, especially for breakthrough therapies, tends in the opposite direction."
118. For an extended discussion of how subsidies for the purchase of insurance could be used to secure access to drugs, see Rai, "The Information Revolution Reaches Pharmaceuticals, " 198-210.