In his book “The Strategic Pricing of Pharmaceuticals,” Kolassa wrote about drug-price elasticity. “It is theoretically possible to set a price that is too high,” he said. “We have yet to identify such a situation in the U.S. market.”

That was in 2009. He’s seen such situations since, and has been persuaded that there are limits by the behavior of drug flippers -- companies that acquire licenses for treatments and jack up prices. He calls Turing Pharmaceuticals AG’s 5,400-plus-percent increase for a parasitic infection treatment “egregious.” (Turing says it has offered discounts to hospitals and has programs to help patients with out-of-pocket costs.)

Turing helped set off a firestorm in the U.S., where drug costs are largely unregulated. The issue is a spark in the presidential campaign, and there have been congressional probes. Mike Pearson, Valeant’s former chief executive officer, apologized at a Senate hearing for being too aggressive. Valeant is under fire for 525-percent and 212-percent boosts for two popular heart drugs. MME advised the company on pricing those drugs; Kolassa, who wasn’t involved, says he can’t comment.

As absurd as he thinks some maneuvers have been, Kolassa says most companies function as they should be expected to in the pharmaceutical free market, which has its quirks.

When it comes to $10,000-a-month, life-extending cancer drugs, for instance, there’s no upside in setting a lower price than a rival, he says; whatever a doctor figures is best will win, even if it’s marginally more effective and much more expensive.

Free-Market Dance

Then there’s Sovaldi, Gilead Sciences Inc.’s $1,000-a-pill hepatitis C remedy, so shockingly costly for a relatively common virus that it prompted a Senate investigation. To Kolassa, it was a steal. Combined with other drugs, it cures the disease in three months -- no earlier cocktail came close -- making liver transplants unnecessary. “I don’t know if they could have priced it any better,” says Kolassa, who didn’t advise Gilead.

Insurers and pharmacy-benefits managers balked at $84,000 for the 12-week course, with some limiting prescriptions to the very sickest. Gilead, which has said it tried to set a price that would allow broad access with minimal restrictions, started offering steep markdowns. Kolassa calls the pushback from insurers unfortunate but understandable. “They’re starting to do the things they have been threatening to do,” he says. It’s all part of the free-market dance.

Some critics of Kolassa’s ideas say that dance is making his value-based theory obsolete, as insurers wield power and public opinion backs them. “Different customer groups see value very differently,” says Roger Longman, CEO of Real Endpoints, which analyzes drug reimbursements, and that definition has changed “radically” as insurers have exerted control. Drug makers won’t be able to push through hikes just because they persuade doctors their remedies are slightly better than others, he says. “That idea is dead.”

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