Good Idea: Pay for Medical Value

British regulators are toying with the idea of setting drug prices based on their medical value. Besides saving money, one interesting side effect of this policy, according to these wire stories, would be to focus drug industry research and development on pressing health care problems, which is long overdue.

However, drug industry officials do not appear interested in "pricing for value" schemes. One official, quoted near the end of the story, suggested that pricing for value will put a floor on the price of generics and wind up costing consumers more money for those particular drugs.

Is this really such a bad thing? Setting an accurate price-to-health value for generics sends the proper signal to companies interested in developing potential new entries in that particular "market" (the disease that a particular drug or class of drugs treats). If the payoff for better new drugs is slightly higher prices on some older generics, so be it. It's a better deal than the one we now have, which is very high prices on all new drugs, many of which don't provide much in the way of additional medical benefit, but, through the adroit marketing enabled by their high prices, achieve dominance in their field.