Applying a software licensing model to pharmaceuticals

January 15, 2008

I’ve suggested in the past that the software licensing model might make sense for pharmaceutical pricing. Now the journal Health Affairs has an article on the subject (Drug Licenses: A New Model for Pharmaceutical Pricing). From the abstract:

High drug prices are a major barrier to patients’ access to drugs and compliance with treatment. Yet low drug prices are often argued to provide inadequate incentives for innovation. We propose a drug-licensing model for health care, which has the promise of increasing drug use without altering patients’ out-of-pocket spending, health plans’ costs, or drug companies’ profits. In such a model, people would purchase annual drug licenses that would guarantee unfettered access to a clinically optimal number of prescriptions over the course of a year. Using the example of statins, we illustrate how such a model could be implemented.

The authors lay out an interesting case and call for a pilot of the idea. (You’ll need a subscription in order to access the article¬† –too bad it wasn’t published in a PLoS journal so everyone could read it.)

I have an enhancement to suggest: modifying the licensing terms and pricing depending on the indication. For example, this would get around the Avastin/Lucentis controversy that’s been covered here extensively. As you may recall, Lucentis costs about $2000, while Avastin can be repackaged and sold for ocular use for about $40, since the amount of drug required is so tiny. The two drugs are made by the same company and are almost the same. In a software licensing model, Avastin’s price would vary depending on how it was to be used. Someone who wanted to use it for the eye would pay a licensing fee¬† based on that indication –not on the volume of product used. This is similar to the way Microsoft licenses Office. The Home and Student edition is cheap and can be loaded on multiple machines, but its use for business purposes is restricted. (Granted, it’s not a perfect example because the products differ slightly.)

As much as I like the licensing idea, I fear that diversion and cheating on indications may be too big of an issue to make it practical any time soon. A patient who is granted a license for a year’s worth of a product may be tempted to sell the extra prescriptions. And unless the prices for different indications are fairly close, it may be hard to get physicians and patients to report the actual indication instead of just reporting the cheapest.

Still, there may be some areas where this model can be applied in the near term. Longer term –as Big Brother continues to grow– there may be enhanced security measures to prevent pill piracy.

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