How can we fix Big Pharma?

With healthcare reform winding its way slowly through the Senate, and Senate Majority Leader Mitch McConnell vowing to get it to passage, expect some very tired talking points to get trotted out. Liberals will complain that the GOP’s version of healthcare reform should not leave the poor vulnerable to a disproportionately expensive system, and conservatives will reply that America should return to having the best healthcare system in the world unhampered by socialized medicine.

The irony is that both are, in their own way, right. Conservatives are correct that America has the best healthcare system in the world. Liberals, meanwhile, are correct that America spends more on the same healthcare than other parts of the world do, and that this is something to be concerned about. Further, liberals are right that expensive care and superlative care do not have to go together, while conservatives are right that Europeanization of our healthcare system would produce neither expensive care nor superlative care.

What both miss is that there is a simple fix to this, and it is to tailor regulations on the pharmaceutical industry with a simple, Reaganesque approach: Trust, but verify.

Today, in contrast, our regulatory regime toward pharma assumes good faith on the industry’s part. To assume this with any industry is problematic, but doubly so in this case. Two specific areas of law suffice as examples: the regulations concerning so-called orphan drugs, and the treatment of generic drugs.

The term “orphan drugs” refers to drugs designed to treat rare diseases—diseases whose rarity would make them otherwise less-than-profitable to treat. The official government standard for what counts as an “orphan” drug is that the drug has to treat a disease affecting less than 200,000 people nationwide, which comes out to less than 0.1 percent of America’s population, or that affect more but would still be unprofitable to create without financial assistance. Drugs that meet this standard are given substantial government-sponsored financial incentives and are protected from competition and many healthcare regulations,as a means to encourage their development.

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