01/10/2017

Does Disneyland Provide A Guide To The Future Of Personalized Medicine?

Tomas Philipson, Forbes.com

Disneyland and other amusement parks often charge a high entrance price at the gate but low prices (or nothing at all) for the rides inside. In healthcare, personalized medicines often have the same two-part pricing: companion diagnostic tests are the gate, and  drug therapies are the rides. Unlike at Disneyland, however, ownership of the gate and rides is often separated and pricing for personalized medicines tends to be reversed, with low costs for diagnostic tests with higher priced drugs. Pricing personalized medicines more like amusement parks—with joint ownership of tests and drugs and higher diagnostic prices with lower drug prices—could enhance innovation in personalized medicine, a space that has lagged relative to past forecasts  on major advances for patients. Stimulating more rapid growth of such new technologies is not just a matter of science, but also economics. 

Personalized medicine has the potential to take the trial and error out of treatment. People are different, and they respond to medicines in different ways. By leveraging our increasingly sophisticated knowledge of the effects of patient-specific factors on treatment responses, treatments can be targeted to the patients most likely to benefit, or the least likely to experience dangerous side effects. For example, personalized medicine can use predictive tests or companion diagnostics to stratify patient populations into likely responders or non-responders, or can even target medicines to individual patients’ specific genes.

As a result, personalized medicines promise greater value to patients and society by directing drugs to the individuals most likely to benefit from them. This is particularly true in contexts where trial and error in treatment can be very harmful, due to severe side effects or the harm imposed by being on the wrong treatment. It is perhaps no surprise that personalized medicine has emerged mainly in cancer care, where knowing which treatment is right before starting treatment can be a matter of life and death.

The development of personalized medicines, however, has been slower than predicted 5 or 10 years ago. Much of the slower than predicted  growth in personalized medicine is due to scientific barriers. However, I think equally important barriers are economic ones. In particular, innovators have a hard time capturing the value of personalized medicines due to current pricing practices that involve cheap diagnostics coupled with expensive drugs.

Disneyland can help illustrate the problem with this type of pricing. Amusement parks like Disneyland have pricing at two stages, similar to personalized medicines: at the gate, the entry fee is the analog to the price of diagnostic testing; and the price of rides inside the park is the price of drugs after testing into therapy. Disneyland could let you walk in the gate for free and pay a hefty price whenever you take a ride. But they don’t. They charge you a large entry fee at the gate, often hundreds of dollars, and nothing for the rides. The reason is that this allows them to better capture the full value of all the fun you have enjoying the cheap rides, without having people being discouraged from taking marked-up rides once inside the park. The late Chicago economist Walter Oi was a pioneer in analyzing the value of such pricing strategies.

Pricing in personalized medicine is generally the opposite of the type of pricing used at Disneyland. In fact, the lab tests that make up companion diagnostics are often priced close to their costs. This distorted pricing is in part due to public (Medicare and Medicaid) reimbursement rates for lab tests, which influence prices for the entire market. This cost-based pricing of lab tests is in contrast to the drugs used once a patient has tested into therapy, which often cost tens of thousands of dollars—well above the marginal cost of production.

The cost-based pricing of diagnostics is a disaster for innovation in personalized medicine, for the same reason allowing generics in at the launch of a new drug would be for drug innovation. It prevents the new part of what personalized medicine offers, the diagnostic, from being priced based on the value it generates to patients and payers. When prices are disconnected from value, it sets the wrong signals to innovators to bring that value to the market.

Read full article


You May Also Like:

Obama Has No Comment On 60 Dems Boycotting Trump’s Inauguration [Watch] Kaitlan Collins, The Daily Caller

O’Keefe: Dems, Left, And Media Should Be Asked If They Disavow Violent Inauguration Protesters [Listen] Dan Riehl, Breitbart

Michigan Teacher Won’t Let Students Watch Trump’s Inauguration Speech Emily Zanotti, Heat Street

Guess Which White House Big Wig Is Boycotting The Trump Inauguration [Watch] Pete Kasperowicz, Washington Examiner

Liz Warren Sums Up How Classless Dems Have Become By Refusing To Shake Trump Nominee’s Hand [Watch] Kyle Becker, Independent Journal Review

Unhinged Protester Sets Himself On Fire Outside Trump Hotel [Watch] Jennifer Smith, Daily Mail

Matt Damon In Davos: We Can Work With Anybody, Even Trump Kim Hjelmgaard, USA Today

Former Obama Activist: Why I’m Leaving The Democratic Party Michael J. Hout, The Hill

Obama Tallies Worst Legislative Record In History Stephen Dinan, Washington Times

For Free Traders, Trump’s Corporate Tax Cut Is The Better Way Donald L. Luskin, Wall Street Journal

Report: Trump Withdrawing From NAFTA Would Kill Thousands Of Jobs [Watch] Hank Berrien, The Daily WIre

A Trump-Sulzberger Deal? New York Sun

New York Gov. Doubles Down On His Failed Corporate-Welfare Agenda Kieran Michael Lalor, New York Post

The War On Betsy DeVos Shows The Left Hates Giving Educational Hope To Poor Kids Rich Lowry, Real Clear Politics

Black Pastor: Former Fellow Rights Marcher Lewis Is On ‘Wrong Side Of History’ [Watch] Jack Davis, Western Journalism

The Myth Of The Stagnating Middle Class Ben Shapiro, National Review

Trump’s Education Nominee Gives Bernie Sanders An Economics Lesson On ‘Free College’ [Watch] Matt Vespa, TownHall

President Trump: Better For Blacks Than 100 Obamas [Watch] Kevin Jackson, The Black Sphere

The 5 Most Irritating Musicians And Bands [Watch] John Ellis, PJ Media

'The Most Transparent Administration In History’ C.J. Ciaramella, Reason

Rand Paul Slams Bernie Sanders’ Assertion That The US Is ‘Not Compassionate’ [Watch] Tré Goins-Phillips, The Blaze

For More go to the Home Page >>>

Search

Bookshelf



Some titles recent, all recommended -

Podcasts

In Search Of History

Capitalism: The Engine Of Human Progress

It took six thousand years from the invention of the wheel until we developed the two-wheeled cart. … From the time of Moses to Wyatt Earp we moved from two-wheeled carts to four-wheeled carts — buckboards and stagecoaches. Yet Wyatt Earp, who is an adult when he participates in the gunfight at the OK Corral, sees the movement from four-wheeled carts to the Model T. My grandparents were born before man had ever seen powered flight, yet lived to see a time when you could buy a trip into space. The rapid increase in innovation and the wealth of the masses occurred because the West gradually developed the economic system of market capitalism and a compatible political system.

-- Gary Wolfram,

Shadow Stats Snapshot

ShadowStats alternate economic indicators are based on the methodology of noted economist John Williams, specialist in government economic reporting.

  • Unemployment:
    BLS: 4.7%
    Shadow Stats: 22.7%
  • Inflation:
    December Year-to-Year: 1.7% (CPI-U*)
    Shadow Stats: 9.4%

*[cpi-u is the Bureau of Labor Statistics inflation rate for all urban consumers]