Wednesday, 24 September 2014

How to fund drug research

Healthcare costs money.  To decide whether to spend that money, we have to go through the unattractive process of putting a price on life and health.  In writing what follows, I remain painfully aware that I am talking about human beings who love and are loved.

We have a bottle of pills which will improve a particular patient's health by an amount we value at $10,000.  The bottle of pills costs $100 to produce.  One way or another the patient has $100 to pay for it.  So he buys the pills, takes the pills, and the world is $9,900 better off.

But it doesn't work like that.  It costs a lot of money to develop a new drug - $1bn is a round-number estimate.  That cost is paid for through the price of the pills during the period of patent production.  Patents in the USA and EU last for twenty years, but much of that period can be taken up with testing and licensing.  (An extension of up to five years is available to compensate for the delay.) Let's assume that leaves ten years (another round number) for the drug company to make some money selling the drug.  And let's suppose the drug could benefit 10,000 patients a year.  That's 100,000 patients over the ten years; to get a billion dollars out of them you need to charge $10,100 for the bottle of pills.  Unfortunately, for half the patients there's no chance at all of their paying that much.  And you need to run a $1bn advertizing campaign to persuade the other patients and their doctors to use the drug.  So now you need to charge $40,100 for the bottle.  Which makes giving the drugs to the patient we started with a heavily losing proposition.

Sometimes we do unattractive, even inhumane things for sound economic reasons - devoting resources to where they can do most good.  But this situation is economic madness.  We have created a system where a transaction which would make the world $9,900 richer can't happen.

Let's clear our minds of any destructive obsession with the granting of patent monopolies, and think of a way to pay for the development of new drugs which will encourage the development of the new drugs we want without making it impossible to use them to best advantage.

First, we abolish all patent restrictions on drug manufacture - we allow any manufacturer to make and distribute any licensed drug, subject only to regulatory controls on quality.  Instead, we will award patent holders a share of a global drugs fund, according to how much good their patented drug is doing.

What's should be the measure of the value of a drug?  It should be how many people take it multiplied by how much they benefit.  And we should assess that benefit relative to the previous best treatment.  NICE in the UK uses the Quality Adjusted Life Year to measure as the basis for its decisions on what drugs to fund.  Personally, I'm not comfortable with the assumption that one person's life is worth more than another's just because they're in better health, and I'd be content to use unadjusted life years.  However, it's important that the measure we use should reflect the impact of side effects, so that a treatment which is as effective as another but with milder side effects can be properly rewarded.

In any case we assume that a year of healthy life is worth the same for everyone in the world, rich or poor.

We establish an international body to assess the expected life-year benefit of each drug in each class of patient, using published data.  We log the use of the drugs.  And we award benefit years to each patent holder accordingly.

There's one wrinkle, which is that the patent holder of the drug actually used gets only the marginal benefit value over the previous best treatment, and if that previous best treatment is still in patent its patent holder is assigned its marginal benefit over its previous best treatment, and so on.   The point of this is that the developer of a slightly superior "me-too" drug gets paid only for the drug's slight superiority.  (There's the complication that an alternative drug may be much better for a particular patient, perhaps because of idiosyncratic side effects: we would need a mechanism for the doctor to record this so that the benefits can be assigned appropriately.)

Now we need a big pot of money to feed all those billions of dollars to the patent holders.  That's not an impossible problem: global drugs spending is currently about a trillion dollars, of which about three quarters is spent on branded drugs, almost all of it in the developed nations.  The price of the branded drugs will fall precipitously once all drug manufacturing becomes generic, freeing up perhaps $700 billion a year of healthcare spending.  We just have to collect that up and distribute it to the drug companies according to their logged QALY contributions.

Individual governments would be responsible for gathering the money by whatever mechanism works best for them.  Initially, the amount would be assessed according to the savings in each country as prices fall.  Over time we would transition to a specified share of GDP from each country.

For distribution, either the money could either be treated as a pool to be distributed proportional to QALY contributions, or a price per QALY could be set, and funding managed to fulfil it.  The latter would be require more financial structuring, but be simpler for drug developers.

Who would gain and lose out of this scheme?  Marketing spending on drugs would fall dramatically - there would be little gain in promoting a drug unless its life-year contribution had been established, and little need to do so once it had.  So it would be bad for the marketing guys.

It would be very good for people in poor countries who are vulnerable to diseases not affecting the rich - sleeping sickness for example.  Because their lives would become as valuable for drug development purposes as anyone else's.

That implies that relatively less effort would go into developing drugs for the rich.  But that needn't be the case in absolute terms, because of all the marketing money being saved.  And the drugs being developed would at least be the ones with the biggest life-year benefits.  (I suppose it would be possible for opponents of this scheme to point to some useful drug which might not have been developed under it: it's inevitable that making the best decision a priori will occasionally result in an inferior decision a posteriori.)

Everyone everywhere would be able to get the drugs they need so long as they or their insurance or their national health service could cover the manufacturing cost of the drug.  In the UK we would no longer be making hard decisions about whether to fund a drug costing tens of thousands of pounds to extend the life of cancer patients by a few months - if the drug worked, we'd use it.

The big weakness is that we would be creating a body of experts whose decisions would determine the destination of hundreds of billions of dollars.  There could be a lot of money available to suborn them.  To make that harder, its decision making process needs to be open - , all the quality-adjustments should be published, all the criteria for an acceptable drug trial should be published, and all the (anonymized) trials data should be published,  so that every calculation is repeatable.

This body could use its power for good: one of the major weaknesses of drug research is that unfavourable results get buried.  By requiring all trials it considers to have been registered with it in advance, and by requiring all registered trials to report results, it can end the cherry-picking which bedevils drug research.

One of the defects of the current licensing system is that a patent owner need not seek a licence for all uses of a drug, so long as it is licensed for one use, and so can suppress adverse findings for an 'off-label' use - notoriously GSK withheld results suggesting that Paroxetine should not be prescribed to adolescents.  This scheme would end that - a drug's developer would not be rewarded for off-label uses, and would therefore be incentivized to seek to demonstrate the effectiveness of its drug for any widespread use.



For a change I've left links out of the main text: I'll gather them here instead.

The cost of a new drug
Marketing spending compared with development spending

Discussion of the EQ-5D QALY measure used by NICE

Global spending on drugs

US proposal for a Medical Innovation Prize Fund
Joseph Stiglitz on prizes instead of patents

GSK and Paroxetine
Bad Pharma by Ben Goldacre

Thursday, 18 September 2014

Hell and high water

Voting is under way in the independence referendum in Scotland.  The media and politicians keep telling us how important a decision it is, so naturally I ask myself what they're lying about.  Westminster politicians of all parties have promised more devolution if the answer is 'no', whereas the (devolved) Scottish government intends to "work in partnership with the rest of the UK" if the answer is 'yes'.  What difference does it make which way the vote goes?  If the vote is 'yes' (the bookies are quoting 4 to 1 against that) there will be 18 months of negotiations to decide what actually happens, so we don't know.  But we can at least look at what the parties say...

An independent country is responsible for its own foreign policy and defence.  The Scottish government's intends to stay in the EU and NATO: the only concrete change would be that "we would make early agreement on the speediest safe removal of nuclear weapons a priority. This would be with a view to the removal of Trident within the first term of the Scottish Parliament following independence."  There's no good alternative to Faslane as a base for Trident-carrying submarines, so if the Scots sticks to this, the logical choice for the (rest of) UK government would be to abandon plans to replace the current system, and plan to phase out the system from 2016.  They hate that option*, so they'll make continued use of Faslane a priority in the negotiations.  It's less important to the Scottish government, so I'd expect the roUK to win this point.

Scotland needs a currency: the Scots government says it will keep the pound.  No one can stop any country using any currency it chooses, so that's certainly possible.  Osborne says he won't agree to any sort of currency union, which means that Scotland would get no say in UK monetary policy, instead of almost no say as at present.  It could try to negotiate a seat for itself on the BoE's Monetary Policy Committee - I don't see why the roUK shouldn't agree to that, since the Scot could be outvoted 8-1.  But much more importantly, the Bank of England would not act as a lender of last resort to Scottish banks.  So if Scotland wants any sort of financial sector, it would need to set up its own central bank.  However, the Scottish government blithely claims that "The Bank of England, accountable to both countries, will continue to provide lender of last resort facilities".  I don't think Faslane is enough of a bargaining chip for it to win this one.

Scotland would get most of the oil.  That would make Scotland a bit richer than the rest of the UK.

Scotland would get some of the debt, and it would find itself borrowing to fund the debt at a slightly higher interest rate.

Sorting out the separation would be difficult and expensive.  And in the end, there would be more politicians and civil servants, costing more money.

Scotland would get its own team in the Olympics.

Scotland would no longer send MPs to Westminster.  The Conservatives won no MPs in Scotland in the 1997 election, and has won one in each general election since, with the result that Labour gets a net gain of about 40 MPs.  Without Scotland, the Conservatives would have a majority in the House of Commons, and the Liberal Democrats would not be in opposition as usual.  However, the overall result of most UK general elections would be unaffected.  Over time, one might expect the political centre to shift a little to the right as Labour strives to improve its electoral prospects.

Overall, independence would make some difference.  Arguments for it are:
- smaller states are more democratic
- it's a cleaner constitutional settlement that increased devolution, in which the role of Scottish MPs in Westminster would be questionable.
- if you don't want Trident renewed, you might get your way
- if you're a Scottish athlete not quite good enough for the UK team, you get to go to the Olympics anyway
- if you're a Conservative politician in the rest of the UK, you're more likely to get into government.
- if you're Scottish, your country gets the government share of future oil revenues

Arguments against it are:
- separating two countries is difficult and expensive
- if you want Trident renewed, you'll run into difficulties
- the Olympic ceremonies will get that bit longer, and the roUK will win fewer medals
- if you're a Labour politician in the rest of the UK, you're less likely to get into government.
- if you're in the roUK, your country loses the government share of future oil revenues.  And if you're Scottish, isn't it a bit tawdry to demand independence just because you've lucked into some mineral resources?
- we'd need to think of a better name that 'roUK' for the rest of the United Kingdom,

* Because having nuclear weapons makes politicians more important globally.  Or perhaps because they think Trident is needed to stop Putin invading.

Wednesday, 13 August 2014

Mens sana

Jessica Valenti, a feminist blogger, argues in the Guardian that "feminine hygiene products should be free for all, all the time".  I respectfully disagree that the best way to help poor people get what they need is to subsidize supply of some goods to everyone, but that's not what I want to write about.

This is the bit that struck me:
Women in the UK are fighting to axe the 5% tax on tampons (it used to be taxed at 17.5%!), which are considered “luxuries” while men’s razors, for some baffling reason, are not.
It seems to imply that men's razors are VAT-free, which is simply not the case - they carry VAT at 20%.  There are three VAT rates in the UK, the standard rate of 20%, the reduced rate of 5%, and the 0% rate. And some items are VAT-exempt, which is not quite the same thing as being zero-rated.  HMRC has a list of goods and services in the non-standard categories: the list mentions sanitary protection but not razors, which therefore are taxed at the standard rate.

EU VAT policy is discussed quite readably in this UK parliamentary document.  In summary, the reduced rate of VAT applies only to items selected by the UK from an EU-specified menu, and the zero rate applies only to items which the UK zero-rated before the 1991 VAT harmonization - including food, books and newspapers, children's clothes and shoes, public transport, and drugs and medicines on prescription.  The European Commission would like to abolish zero rating, and likes to see its continuation, principally in the UK and Ireland, as a temporary measure.

The much less readable EU documentation is mainly in the 2006 VAT directive : Annex III has the list of items eligible for reduced-rate VAT, and includes "protects used for sanitary protection", but has nothing about shaving.  Title IX of the same document specifies what goods and services should be exempt from VAT.  Chapter 4 of the document, containing "Special provisions applying until the adoption of definitive arrangements", contains Article 110 "Member States which, at 1 January 1991, were granting exemptions with deductibility of the VAT paid at the preceding stage ... may continue to grant those exemptions" ("exemption with deductibility" means a 0% rate).

So where has Valenti, who, to be fair, is not European, got the idea that men's razors are zero rated?  Searching the internet suggests that it's something that UK feminists just know, perhaps because they've read it on the internet, mostly in comments on online forums. This website thunders "We’ve discovered that men’s razors do not carry any VAT at all.  Lowered to 0% in 2001, they became exempt from any VAT."  How can one discover something which is not just untrue, but legally impossible?  This ePetition simply notes that "men's razors are tax free".  This article ("men’s razors are not subject to tax") announces another online petition, these two articles link to the petition ("the list includes men's razors"), but the petition itself, while having fun with the zero-rated status of crocodile meat (which is zero-rated because it's a food), doesn't mention razors at all.  It seems that the authors of the petition discovered their mistake, and quietly deleted it.

Nowadays it's quick and easy to check facts online - anyone who, like me, has in the distant past spent hours in libraries searching for some minor piece of information marvels at what one can discover.  And yet the internet seems to be used much more to spread misinformation than to get things right.

Meanwhile, shouting at George Osborne about this is pointless: he doesn't have the power to change EU VAT law - that would require the agreement of all the EU governments.  And most of the EU governments would like to abolish zero-rating altogether.

Sunday, 10 August 2014

Minimum Unit Price

A study by researchers at the University of Southampton has come up with the dramatic result that the median heavy drinker is paying 33p a unit for alcoholic drinks, whereas the median low-risk drinker is paying £1.10, so that almost all the effect of a Minimum Unit Price of say 50p would fall on the heavy drinkers.  That's encouraging for proponents of minimum pricing, but it doesn't address the question of whether heavy drinkers would respond to a price increase by cutting down how much they drink or by saving money on less important things such as food, clothes and lodging.

I ask myself what they're actually drinking for 33p a unit or less.  Since I last wrote about this, the government has abandoned its plans for a minimum alcohol price (in England and Wales), but banned via the licensing laws the sale of alcoholic drinks below the level of duty+VAT.

Duty on alcoholic drinks is not simple.  EU rules insist that whereas duty on beer and spirits should be proportional to alcohol content (or degrees plato), duty on wine and cider should be proportional to the volume of drink (with provision for different levels of duty for various bands of alcohol levels, and for sparkling drinks).  I don't know why this inconsistency has arisen, but I guess it's because they did what the Germans wanted for beer and what the French wanted for wine.

Following these rules, the UK's current levels of duty per unit of alcohol are:
- beer up to 7.5% ABV:    18.74 p
- spirits:                             28.22 p
- cider 7.5% ABV:              5.288 p
- cider 8.5% ABV:              7 p      
- wine 15% ABV:              18.22 p
- fortified wine 22% ABV:  16.56 p

For cider and wine, the duty per unit is higher if the strength is lower than what I've specified, because the duty is charged per volume of drink not per volume of alcohol.

Adding in VAT at 20% gives the minimum permitted price per unit.  I've compared these prices with the cheapest I could find in a few minutes' searching the internet:

Lager   7.5 cider  13% wine  Whisky  Vodka 
Duty+VAT per unit£0.225  £0.064 £0.252 £0.339 £0.339
Cheapest price per unit£0.325  £0.20 £0.307 £0.375 £0.381
Margin£0.10  £0.136 £0.054 £0.036 £0.042

It's remarkable how cheaply it's possibly to make alcoholic drinks and bring them to market, so long as you spend no money on advertizing (the cheap drinks are all brands I'd never heard of), take the cheapest legal options in making them, and use the lowest cost retailers (Aldi, Iceland...).  Cider seems to be the most expensive of these cheap drinks to make - the regulations (since 2010) require at least 35% apple juice, and apple juice - even if it's imported pomace from eastern europe - is not very cheap.  However the duty on cider is so low that it's still easily the cheapest way to buy alcohol to drink.

If the government wants to make very cheap drink more expensive, I have a simple suggestion for it: increase the minimum apple juice content of cider.  Comparing the margins, I guess that at about 80% apple juice content cheap cider would cost as much as cheap lager (the experts can work out the exact level to achieve this).  Manufacturers would then have a choice of making cider in the way television adverts imply it's made - out of apples - and getting the low rate of duty which, I suppose, was intended to support that traditional process, or making it, as they mostly do now, with less apple and plenty of added sugar, and have it taxed as "made wine" - at wine rates.

Incidentally, the Scottish parliament passed a law imposing a minimum price of 50p a unit in May 2012.  Following legal challenges by the Scotch Whisky Association the law has been referred to the EU Court of Justice, so it's still not been implemented, and isn't likely to be in the next year or so.

Friday, 6 December 2013

Nelson Mandela

Nelson Mandela was the greatest statesman of my lifetime.  I'm glad that he enjoyed such a long life.

Meanwhile, I learned in a bar tonight that the International Rugby Board retains the rights to BBC radio's commentary on Nelson Mandela awarding the 1995 rugby union world cup to Francois Pienaar, but will graciously allow the BBC to use it for the next 24 hours, or perhaps longer.  Which is good, but why have we allowed such ludicrous extensions of intellectual property rights?

Thursday, 5 December 2013

Do markets improve healthcare?

Tim Worstall's UKIP-supporting blog is where I go to get a different angle on the news.  He didn't disappoint me with his spin on a Guardian story from which he quotes "More than 2,000 people have died of dehydration or malnutrition while in a care home or hospital in the last decade".  "Just shitty care" he concludes, "Wonder of the world."  Which is his stock sarcasm about the NHS.

My immediate reaction was that it's foolish to blame the NHS for this.  It's not the hospital's fault if a usually elderly patient is too weak to be saved when admitted with dehydration or malnutrition.  Nor is it the hospital's fault if a patient refuses to eat or drink.  And, while there have reports of patients becoming dehydrated or malnourished while in hospital, I doubt that accounts for more than a few of these two thousand cases, if only because the doctor completing the death certificate will usually rely on the medical problems detailed in the patient's hospital notes.  Hence this statistic tells one little or nothing about the quality of NHS care.

So what did the original story have to say?  The headline in the Guardian story is "Dehydration and malnutrition led to 2,162 deaths in care since 2003", wrongly suggesting that the deaths occurred in care homes, as most of them did not.  Worstall must have read past this, since he's blaming the NHS.  The body of the story is more careful about the statistic, but concerns itself entirely with care homes not hospitals.  And it links prominently to a story in the Telegraph.

Now, Worstall's usual choice of newspaper to link to is the Telegraph, so why has he chosen to use the Guardian for a story it's lifted from his favourite paper (and not even had a go at its misleading headline)?  Because, I suppose, the latter's story doesn't mention hospitals at all.  And Worstall wants to bash hospitals, which are mostly in the NHS, not care homes, which are mostly privately run.

The source of the numbers in both newspapers' stories is this spreadsheet published by the Office for National Statistics, "following an ad hoc request by the Sunday Telegraph".  (The spreadsheet notes that it does not distinguish between state and private provision of either care homes or hospitals.)  Only 14% of deaths in the last year "where either malnutrition or dehydration were mentioned on the death certificate" took place in care homes, but the newspapers are quite right to concentrate on the role of care homes because they are unambiguously responsible in a way that hospitals are not.

We should be cautious in assuming that poor care is likely to be involved in all these deaths.  There may be cases in which dehydration or malnutrition are unavoidable.  And it may something be better to keep a dying patient in familiar surroundings rather than dispatch them to hospital.  But assuming, to oblige Worstall, that the statistic is telling us that some care homes are providing "shitty care", then what?

Care homes in the UK are a mixture of private for-profit (72%), not-for-profit (14%), and local council or NHS provision (14%, numbers from here).  A meta-analysis in the BMJ has reported that "the evidence suggests that, on average, not-for-profit nursing homes deliver higher quality care than do for-profit nursing homes".  And an unscientific online survey suggests that most (but not all) cases of alleged neglect which reach the press occur in the private sector.  So we can't just blame poor care on state provision.

Advocates of private provision of health care have achieved a massive shift from state to private provision of care homes in the last 30 years (page 13).  Even those sceptical, like me, about how well markets can work in healthcare provision can see potential for their application to care homes.  Relatives of a potential resident can visit several care homes, talk to the staff, see the residents, and smell the air - I've done it.  They can ask themselves whether they'd be content to live in the home if need be.  They can choose to pay more for better care too - while local authorities cover the basic cost for many residents, that's at a standard rate which one can choose to top up.  And if a care home proves unsatisfactory, you can move to a different one.  All this should allow market mechanisms to work better than they can in the choice of doctors or treatments, where the patient has no good way to compare competing providers.  So if in fact the care home market is not working - if care homes are killing their residents through neglect - then that calls into question the whole notion of markets in healthcare.

Let's find out whether care homes are doing an adequate job, and if not why markets are failing to work their magic, before we spend any more money and goodwill on introducing competition to the NHS.

Tuesday, 19 November 2013

National Service

The actor Hugh Grant wants Britain to reintroduce National Service, which was phased out at about the time he was born: he says that his "father and grandfather both served and it shaped them".  Grant comes from a military family of some distinction: his father was a Sandhurst-trained officer and his grandfather was awarded the DSO following the Second World War.  So neither of them was subject to National Service.  Whereas I come from an unmilitary family, my father spent two years on National Service, and he describes it as an utter waste of time.

Grant's proposal puts him in the unlikely company of Philip Hollobone, a Tory MP who has presented a Bill to implement the idea.  But it's not going to happen - what would a modern army do with large numbers of unwilling, short-term recruits?

All the same, mightn't it be a good thing if politicians at least had some experience of soldiering and its dangers before they became empowered to send soldiers off to war?  Or would politicians-to-be find a way to avoid it?  The thought has led me to look up the Vietnam War records of all the main-party US presidential and vice-presidential candidates who were of an age to be drafted.  I present them in order of date of birth:

John McCain, 29th August 1936: son and grandson of US Navy Admirals, naval aviator, shot down, badly wounded, tortured and held for over five years as a prisoner.  Unaffected by the draft.

Dick Cheney, 30th Jan 1941: awarded deferments while taking six years to complete four years' worth of study, and then because his wife was pregnant.

Joe Lieberman, 24th February 1942: awarded deferments to attend college and law school and then because he had a child.

Joe Biden, 20th November 1942: awarded deferments while studying at college and law school, and then reclassified as unfit due to asthma.

John Kerry, 11th December 1943: pre-empted the draft by enlisting in the US Navy Reserve when his college deferments ended.  Commanded a "swift boat" in Vietnam and was decorated for gallantry

George W Bush, 6th July 1946: avoided the draft by joining the Texas Air National Guard

Bill Clinton, 19th August 1946: avoided the draft by joining the ROTC

Dan Quayle, 4th February 1947: avoided the draft by joining the Indiana National Guard

Al Gore, 31st March 1948: pre-empted the draft by enlisting when his college deferment ended.  Spend only five months in Vietnam, where, as the son of a Congressman, he was kept well out of harm's way.

John Edwards: 10th June 1953: only just old enough to have been drafted, awarded deferment to attend college.

Of eight prominent politicians who might have been drafted (I'm leaving out McCain as too old and Edwards as too young), three avoided the draft by spending enough years in college, three avoided service in Vietnam by finding safer military options, one went to Vietnam but was kept out of danger, and one - John Kerry - actually fought.  Following his experiences in Vietnam, Kerry became a strong opponent of the war.  This made him enemies within the US Navy, who participated in a smear campaign against him when supporters of GW Bush wanted to muddy the comparison between Kerry and their man.

So the conclusion, albeit from an inadequate sample, is that most politicians will avoid meaningful service, and the few who don't will be the relatively honourable ones.  And those are the ones who lose elections.