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Competition in health products good for consumers

Free Market Foundation

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Critics of the pharmaceutical and medical-device industry assert that new products to treat the same ailment as existing medication or devices are wasteful and drive up the costs of health care.

However, Thomas Lee, writing in the New England Journal of Medicine, says the evidence suggests this is not the case. Through the power of competition, these newly introduced drugs (or medical devices) actually serve to lower rather than to increase consumer health costs:

  • For example, when drugs are first approved for consumer use, the product developers are rewarded with high prices, reflecting both the demand for new and better drugs, but also to offset costly research and development.
  • Over time, new products are introduced into the marketplace by competitors as a result of ongoing research that, at times, has stretched back for decades.
  • Because these newer products – sometimes referred to as “me-too” drugs – treat the same ailment as established first tier drugs, they can only be profitable if they are more effective or come at a lower cost.

    The study argues that competition amid many popular products has been a boon for consumers:

  • Celebrex, a COX-2 inhibitor drug approved in 1998, costs on average $171 per month, while its newer counterpart released in 2001, Bextra, costs an average of $115.
  • Similarly, statin drug Zocor, approved in 1991, costs an average of $138 per month, while newer drugs such as Lipitor and Crestor cost $109 and $77, respectively.

    In addition, me-too products have been shown to be less expensive for other commonly used classes of drugs.

    Source: Thomas H. Lee, ‘Me-Too’ Products – Friend or Foe? New England Journal of Medicine, January 15, 2004.

    For NEJM text (subscription required) http://content.nejm.org/cgi/content/full/350/3/211

    For more on Health Issues (Drug Research and Development) http://www.ncpa.org/iss/hea/

    FMF Policy Bulletin\10 February 2004

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