Dr. Sharon Levine, for example, an executive from Kaiser, recently criticized the $84,000 price of Solvadi, Gilead’s new hepatitis C drug, noting, “It’s an outrageous price.”
The problem is that the reason firms invest in developing new drugs is that there is an opportunity to set a high price and make a lot of money. If pharmaceutical companies can’t generate significant profits, then they won’t invest in R&D.
Pricing is particularly important when it comes to diseases with small patient populations. If you can’t charge a lot, there is no way to justify doing a big clinical trial on a product with only a few potential customers.
When there isn’t an opportunity to make money, companies don’t invest. This is one reason why we don’t have a treatment for Ebola.
For many years, Ebola broke out occasionally in just a few small villages in Africa. Scientists knew Ebola was a terrifying disease with the potential to spread quickly. Companies, however, didn’t invest in R&D for Ebola because there wasn’t much of a market. There were only a few customers. More important, companies couldn’t set a high price; most people and governments in Africa simply don’t have the resources to pay a lot for new therapies.
People should be careful about making snap judgments on the price of medical innovations. The easy answers, capping prices or refusing to pay for expensive treatments, will slow down medical research and innovation.