Prescription drug spending increased by more than 13 percent in the United States in 2014, raising health insurance premiums and the ire of consumers and politicians. The reasons behind the rise are many, including the high cost of drug development—as much as $2.6 billion per drug, according to one study—and the limited lifespan of patent rights. What can the pharmaceutical industry and government regulators do to improve conditions?

We put your queries to Fred Hassan (MBA 1972), a managing director at Warburg Pincus whose four decades of pharmaceutical experience has included top posts at Schering-Plough and Wyeth.

Are there structural reforms that could be implemented in the drug industry to lower the market-driven price of drugs? Forcing pharma firms to invest in R&D a minimum percentage of the sales of any FDA-approved drug? Longer patent protection post-approval? Less red tape to approve drugs? What is the drug industry’s own view on why there is this constant inflation in the cost of prescription drugs?
—Etienne Locoh-Donou (MBA 2002)

HASSAN: Governments are not good at managing markets or driving innovation. “Forcing” a minimum R&D ratio to sales is unnecessary because the present ratio in pharma R&D spend is in the high teens. The best way to improve the cost of prescription drugs is to improve the supply of new drugs. The two best approaches to this are modernizing the FDA so it gets a “pro- innovation” mandate in addition to its present “protecting the public health” mandate; and extending patent life proactively in areas such as Alzheimer’s to help open up the supply of new drugs.

Is there a framework in another country—could be a hybrid model of multiple developed or developing nations—where public and private payers, providers, and producers of pharmaceuticals and medical devices work in a more coordinated way?
—Rebecca Leung (MBA 1996)

HASSAN: Smaller, highly advanced countries with long-term industrial strategies, such as Singapore, have a relatively well-coordinated system to achieve their health-care goals while keeping costs under control. They also control health funding deficits by encouraging, or even requiring, their main populations to aggressively set aside medical savings during their earning years to help with older age health care. Such actions are much harder to accomplish in the United States.

Who is really making much of the money in this large and rapidly growing market? It doesn’t seem like the drug companies, physicians, or hospitals are seeing big profit increases. Is it research labs? Drug distribution? Insurance? Where is all this additional spend going?
—Richard Kaung (MBA 1995)

HASSAN: All entities are following their own business models—whether they are for-profit or not-for-profit. The additional spend on health care is due to increased utilization of health-care services as the population gets older. Costlier innovations and longer patient lives in areas such as cancer are part of the increase as well.

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