In honor of Uwe Reinhardt – the Sahara Model & Why it Matters

Uwe Reinhardt makes a number of brilliant points in this post, published in February of 2017 –

There’s an incredible amount to unpack in this piece. And it’s one of the closest pieces I’ve seen to how drugs are actually priced in the United States. Understand the power dynamics of a given market and you’re on your way to understanding pharmaceutical pricing.

The comments about the middle class, especially as they pertain to out-of-pocket expenses for drugs are also excellent.

Clearly losing Dr. Reinhardt is a big loss.

But where does all this leave us? It depends – fully implemented the new finance models mentioned toward the end of the article completely dismantle the global pharmaceutical model as we know it today. Is that likely to happen? No. Is it important for more people within the industry to understand and appreciate these proposals? Yes.

Why? Because application of the Sahara model as illustrated by the recent spate of $250,000/year and now even $475,000/treatment drugs is creating a furor that the industry, Bio, and Phrma can’t control. Rather than talk about pharmaceutical pricing, why not implement (voluntary!) caps on sales and market expenses as a percentage of gross revenues? If we don’t get control of the narrative, some of these innovative R&D strategies are likely to be imposed, especially in a political climate that’s becoming more polarized, and could swing wildly in any direction with each coming election.

To be clear, I believe in the current venture-backed small company to big company R&D system. I believe many of the recommended R&D funding strategies would lead to even more horrible outcomes for new drugs. But I have serious concerns that we need our political class to focus on creating a stable healthcare payments system that covers as many Americans as we can, instead of focusing on how to pay for innovation. But if we continue to lose the battle, by making spurious arguments about needing high prices to support R&D, when we’re really supporting Sales & Marketing, then we make our industry vulnerable to wholesale changes that threaten patients and investors even more.