Designing Disruption in Pharmaceuticals

Almost two millennia ago, Archimedes explained that the shortest distance between two points is a straight line. That fundamental principle has been lost in the strange, meandering design of the nation’s pharmaceutical supply system. The result, as Archimedes would have predicted, is disastrous for the system’s efficiency, not to mention for patients, payors, and taxpayers alike. Systems emerge for a reason. Some develop in response to genuine economic efficiencies. Some blossom in response to legal or regulatory imperatives. Others emerge when perverse incentives within the system encourage distortions. With a structure as entrenched and complex as this, a key question emerges: Is it possible to reorder the system once it has ossified into place? If one could design a system with a much more direct path from drug-makers to patients, what would that pathway look like?The article will proceed as follows. Part I of this article describes the twisted drug supply chain in the United States. Part II presents a snapshot of profits and prices in the pharmaceutical industry. Part III describes the dynamics of prices for medicine, particularly explaining the way in which buy-side constraints that limit price in more typical markets are dampened in the healthcare market. Part IV traces the historic development of the various players and distortions in the pharmaceutical market, describing the context of their emergence and the interests served. Part V sets out a proposal that individual states—as the laboratories of democracy—could pilot to bypass many of the contortions that are strangling the industry