Monday, 30 March 2015

Three cheers for Jeremy Hunt

From The Daily Mail:

A panel of scientific advisers had recommended in October 2013 that the vaccine should not be introduced as it was not deemed cost-effective. But ministers told the Joint Committee of Vaccination and Immunisation to carry out another assessment and this concluded last March that it should be offered.

The Government then spent almost a year negotiating with drugs manufacturers trying to agree a cheaper price. On Saturday, the Mail highlighted how the jab was being denied to babies because of the cost row. Nearly 800,000 babies each year would be eligible for the jab at an average annual cost of £16million.

It's an impossible problem*, and fair play to Jeremy Hunt for going on telly and fronting it out.

The other good news is that a lot of health services around the world take the price the NHS have negotiated as their benchmark price and end up paying the same low-ish amount.

* On the one hand, the marginal cost to the manufacturer is pennies per dose.

But the value to the 'customer' is huge. The approximate cost to the NHS can be estimated in £millions, but how do you estimate the cost of the death and disability of possibly hundreds of people a year, i.e. the value of avoiding it?

The NHS wants to pitch the price closer to the pennies per dose (plus a reasonable contribution towards R&D costs) and the manufacturer wants to hold out for a price which is nearer the value to the customer. The difference is 'rent'. This wasn't an example of the UK government being hard hearted or intransigent, it was the manufacturer who was holding us all to ransom.

And how do you trade off that cost/benefit with the cost/benefit of all the other things people would like the NHS to do? The NHS/Jeremy Hunt's basic argument is (or should be) "Look, we are terribly sorry for the tragedies which have happened over the past couple of years, but with the money we've saved, we'll be able to treat lots of other people for other things."


The Stigler said...

This is why NICE works so well. There's always going to be people who are going to die for not getting drugs, and the fairest way to do it is to calculate extra years and divide by the cost. And you then create competition in different drugs. If a manufacturer wants to make money for their breast cancer drug, they have to provide more extra years of quality life than someone producing a bowel cancer drug.

And of course, the system also means that drugs that keep kids alive (rightfully) get priority - a leukemia drug that cures childhood cancer means another 70 years of life.

mombers said...

NICE is excellent as the name suggests :-) They can call a spade a spade and rightly point out that an expensive treatment for a geriatric is like putting fancy alloy wheels on a jalopy just to tow it to the scrap yard.
How about a similar body is set up to squeeze the economic rent out of landlords receiving Housing Benefit?

Random said...

KLN on an independent Greece implementing a land value tax:
"So...forced land redistribution (no one will want land that comes with 100% tax that all comes on the market at once), and forced employment. Obviously, one would first have to close the borders to stop everyone leaving."
He then proceeds to say this is like the "Khmar Rogue"

Mark Wadsworth said...

TS, I thought this was right up your street.

M, ooh, let me think...

R, of course people will want the land, despite the payment, it's like renting or having an interest-only, non-repayable, non-recourse mortgage.

Do you have a link to that?

Lola said...

TS. NICE is just another useless bureaucracy. It's flawed guidance nearly killed me and quite a few others.

Lola said...

Isn't this one of the fallouts from the patent law issue? In other words if drugs can be reverse engineered to get generics it undermines the ability of the inventor to obtain rent?

Or, if this is an innovation then you'd expect it to be 'dear'. The price will come down over time.

Indeed the buying power of the NHS could be used to bargain for lower prices, but in a free enterprise competitive market wouldn't this happen anyway, eventually?

Mark Wadsworth said...

L NICE's decisions are clearly not to everybody's liking, that goes with the territory. That does not mean that they are wrong.

And yes, of course this is to do with patent law, fair enough, you can't argue against the concept of patent law as such, the issue at hand is whether the protected period (usually twenty years) is too long or too short.

Lola said...

MW. It's not that NICE's decisions are not to everyones liking. It is that a lot of their decisions are positively dangerous. The decision affecting me (and others) was of the same order as that cited in your piece. It was the decision whether or not to supply a drug. It is the 'central planning' problem. They cannot be aware of all the knowledge of all the medics out there and their individual experiences with patients.

Furthermore, enforcement of their 'guidance' is achieved by threats and sanction. One of my doctors told me that if he went against NICE guidance (as he wanted to do) he would likely lose his PI cover. And as we know, PI cover is not to protect the professional, it is to protect his customers. So if he jeopardises his PI cover he jeopardises his patients further.

You do not have to be a nationalised entity to negotiate collective buying power to obtain better terms for your customers. Arguably supermarkets do that all the time. As do I, now. I aggregate trades with my competitors such that every client benefits from price reductions.

That would also be true if health care was denationalised. Groups of treatment centres would combine to negotiate lower prices.

Then also there is 'value pricing'. Something which you will be aware that tax experts do well....!!!

As to patent law, I am not yet clear in my mind about this. I can see both arguments, although I am marginally less persuaded by the full on libertarian one, pro tem.

The Stigler said...


"You do not have to be a nationalised entity to negotiate collective buying power to obtain better terms for your customers. Arguably supermarkets do that all the time. As do I, now. I aggregate trades with my competitors such that every client benefits from price reductions."

It's not the collective buying so much as the decision making of what to buy. You could put it down to an individual medic level, but how much do they know about everything else? Is a heart specialist going to know the cost effectiveness of his heart drug vs a cancer drug, and is he going to defend his corner over that of the cancer specialist?

Lola said...

TS. In my case that was exactly the case. The heart specialist new precisely what drug I should be taking and when.