The Hidden Monopolies That Raise Drug Prices(prospect.org)
prospect.org
The Hidden Monopolies That Raise Drug Prices
http://prospect.org/article/hidden-monopolies-raise-drug-prices-0#main-content
198 comments
Proportionately to their revenue, pharma doesn't spend that much on R&D: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p...
And that's just compared to advertising - throw in other overhead, and separate R&D into genuinely new drugs vs. generics and flavoured aspirin, and the numbers are even worse.
Of course it's hard to get such comprehensive financial data, but that's just one of the advantages of private healthcare - hiding data to hide how much you're being exploited.
And that's just compared to advertising - throw in other overhead, and separate R&D into genuinely new drugs vs. generics and flavoured aspirin, and the numbers are even worse.
Of course it's hard to get such comprehensive financial data, but that's just one of the advantages of private healthcare - hiding data to hide how much you're being exploited.
Drug companies spend the most on R&D out of any industry. The average is almost 20% of revenue. That means if you buy a drug for $1000, $200 of that goes back into R&D.
And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products.
And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products.
> And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products.
That's advertising.
You mentioned 20% of their revenue is R&D - do you have a source, ideally listing what the other 80% goes to? That's a lot of unaccounted revenue, especially given how many drugs were shown to be dirt cheap to manufacture.
That's advertising.
You mentioned 20% of their revenue is R&D - do you have a source, ideally listing what the other 80% goes to? That's a lot of unaccounted revenue, especially given how many drugs were shown to be dirt cheap to manufacture.
> That's advertising.
Anecdotally, a friend of mine was doing post-doctoral work researching and developing cancer drugs. He now works on a pharmaceutical sales team as a scientific liaison.
"Advertising" a drug involves a lot more than running TV commercials - it also includes former scientists making the current research digestible for doctors who don't have the time or specialized knowledge to do that in between seeing patients.
The notion that every practicing doctor has enough free time - or is even smart enough - to keep up on the latest pharmaceuticals, is ridiculous.
Anecdotally, a friend of mine was doing post-doctoral work researching and developing cancer drugs. He now works on a pharmaceutical sales team as a scientific liaison.
"Advertising" a drug involves a lot more than running TV commercials - it also includes former scientists making the current research digestible for doctors who don't have the time or specialized knowledge to do that in between seeing patients.
The notion that every practicing doctor has enough free time - or is even smart enough - to keep up on the latest pharmaceuticals, is ridiculous.
> The notion that every practicing doctor has enough free time - or is even smart enough - to keep up on the latest pharmaceuticals, is ridiculous.
How do doctors in other countries with functional medical systems deal with this problem? Health outcomes across the developed world are very similar.
How do doctors in other countries with functional medical systems deal with this problem? Health outcomes across the developed world are very similar.
There are only ~50 new drugs a year, and many of those are highly specialized. So, it's really not hard to keep up with new drugs. The hard part is actually staying fresh on all the existing knowledge that you don't use regularly and some changes to best practices.
You realize that new data comes out on drugs constantly? Even drugs launched 10 years ago. Just take a look at all the medical journals.
It's not a one-and-done thing with learning about drugs.
It's not a one-and-done thing with learning about drugs.
Yes, but again it's not about "keeping up on the latest pharmaceuticals" that's small chunk of time. The changing landscape of existing drugs that have been out for 2+ years is much larger than the number of 'new' drugs.
Look into AIDS medications for example and pills are often a mix of 2+ existing drugs that work well together. And again, GP's rarely have to worry about the new Cancer drugs etc.
Look into AIDS medications for example and pills are often a mix of 2+ existing drugs that work well together. And again, GP's rarely have to worry about the new Cancer drugs etc.
>The notion that every practicing doctor has enough free time - or is even smart enough - to keep up on the latest pharmaceuticals, is ridiculous.
That's part of the doctor's job, if they can't keep up with new medical/pharma literature then they need to find a different job. Further, most doctors know taking a ton of info from a pharma rep is just asking to be misinformed. A lot of pharma sales reps have no science background and many lie about approved populations and other aspects of a drug (just see the many, many lawsuits out there).
That's part of the doctor's job, if they can't keep up with new medical/pharma literature then they need to find a different job. Further, most doctors know taking a ton of info from a pharma rep is just asking to be misinformed. A lot of pharma sales reps have no science background and many lie about approved populations and other aspects of a drug (just see the many, many lawsuits out there).
That's part of the doctor's job, if they can't keep up with new medical/pharma literature then they need to find a different job.
Do you know any doctors? Have you talked to them about how they spend their days? Most want to maximize the time they spend with patients. Any way they can keep up to date on the latest technology is helpful.
Do you know any doctors? Have you talked to them about how they spend their days? Most want to maximize the time they spend with patients. Any way they can keep up to date on the latest technology is helpful.
Yes, I know a TON of doctors and used to work very closely with about 50 of them.
Well the solution to your problem is not to inundate them with misleading or false information from someone whose entire base of scientific knowledge comes from employer-led seminars. The solution would be to train more doctors, so they have more time with patients AND can be more effective physicians.
Well the solution to your problem is not to inundate them with misleading or false information from someone whose entire base of scientific knowledge comes from employer-led seminars. The solution would be to train more doctors, so they have more time with patients AND can be more effective physicians.
from someone whose entire base of scientific knowledge comes from employer-led seminars
You forgot to add that the scientific information is limited to the FDA approved label.
You forgot to add that the scientific information is limited to the FDA approved label.
While it should be, it's not. There has been lawsuit after lawsuit of pharma reps that promote off label uses of drugs among many more egregious acts (typically at the behest of the pharma companies).
>Any way
Bribes?
Bribes?
> > And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products.
> That's advertising.
It's also keeping physicians up to date on the current science, applicability, and best practices of their products. I think it's a good thing for sales reps and MSLs to inform or remind physicians that there are alternatives to writing a script for Epipens, for example.
> You mentioned 20% of their revenue is R&D - do you have a source, ideally listing what the other 80% goes to? That's a lot of unaccounted revenue, especially given how many drugs were shown to be dirt cheap to manufacture.
Many drugs are cheap to make, but that neglects the astronomical development and regulatory costs.
> That's advertising.
It's also keeping physicians up to date on the current science, applicability, and best practices of their products. I think it's a good thing for sales reps and MSLs to inform or remind physicians that there are alternatives to writing a script for Epipens, for example.
> You mentioned 20% of their revenue is R&D - do you have a source, ideally listing what the other 80% goes to? That's a lot of unaccounted revenue, especially given how many drugs were shown to be dirt cheap to manufacture.
Many drugs are cheap to make, but that neglects the astronomical development and regulatory costs.
FWIW the anecdotal experience of people I know in the health field in the US is that pharma sales reps know nothing about medicine, are hired for their sales / "relationship building" ability, and can't answer any question about the drug they are touting that can't be answered by looking at the brochure. Very disappointing.
You can't expect to get unbiased, quality advice from someone with such a strong incentive. The right way for doctors to stay up to date is for doctors to stay up to date! They need to read a damn book or journal article once in a while and takes responsibility for their own professional development. If doctors aren't doing that, regulators need to suspend their licenses.
You can't expect to get unbiased, quality advice from someone with such a strong incentive. The right way for doctors to stay up to date is for doctors to stay up to date! They need to read a damn book or journal article once in a while and takes responsibility for their own professional development. If doctors aren't doing that, regulators need to suspend their licenses.
> FWIW the anecdotal experience of people I know in the health field in the US is that pharma sales reps know nothing about medicine, are hired for their sales / "relationship building" ability, and can't answer any question about the drug they are touting that can't be answered by looking at the brochure. Very disappointing.
MSLs have advanced degrees in medicine or biomedical research. It's preferred that the traditional sales reps now have bachelor's degrees in the sciences and it is expected that, within the narrow scope of their product's science, they be well-informed regardless of prior academic background. It's preferred because they are more effective reps.
> You can't expect to get unbiased, quality advice from someone with such a strong incentive. The right way for doctors to stay up to date is for doctors to stay up to date! They need to read a damn book or journal article once in a while and takes responsibility for their own professional development. If doctors aren't doing that, regulators need to suspend their licenses.
Continuing medical education is a requirement to maintain licensure. I don't think I get your point here.
MSLs have advanced degrees in medicine or biomedical research. It's preferred that the traditional sales reps now have bachelor's degrees in the sciences and it is expected that, within the narrow scope of their product's science, they be well-informed regardless of prior academic background. It's preferred because they are more effective reps.
> You can't expect to get unbiased, quality advice from someone with such a strong incentive. The right way for doctors to stay up to date is for doctors to stay up to date! They need to read a damn book or journal article once in a while and takes responsibility for their own professional development. If doctors aren't doing that, regulators need to suspend their licenses.
Continuing medical education is a requirement to maintain licensure. I don't think I get your point here.
Well, if the reps I'm talking about had such fancy degrees, they sure didn't show it.
[deleted]
I don't what you're talking about. The pharmaceutical salesmen I've known were retrained coal miners without college degrees.
You should never trust a salesmen to give you advice, because the advice inevitably is, "you need this thing I happen to be selling today."
You should never trust a salesmen to give you advice, because the advice inevitably is, "you need this thing I happen to be selling today."
This sort of hostility is why I keep quitting this damned site. Thanks for reminding me.
Hah. I've actually spent months of my life working with drug reps - including going with them on doctor's visits. They will get five minutes max to go through their spiel, and they are very focused on selling the specific uses or differences to get doctors to switch.
What is also amazing is that it is easy to get doctor level data on your drugs market share in their prescription patterns. So you can target very effectively. Then it's all discipline of frequency and hitting the right docs.
Why do you think so many drug reps are blonde girls? Because the doctors will make time to see 'em.
And what is doubly amazing is how effective this brute force sales technique is. I have graphs of visit frequency vs market share and it is DEADLY effective if you get it right. (Of course there are diminishing returns. Drug reps will game their visit stats by overvisiting friendly docs. So you can't give them credit for those visits.)
Source: I'm a healthcare sales management consultant
What is also amazing is that it is easy to get doctor level data on your drugs market share in their prescription patterns. So you can target very effectively. Then it's all discipline of frequency and hitting the right docs.
Why do you think so many drug reps are blonde girls? Because the doctors will make time to see 'em.
And what is doubly amazing is how effective this brute force sales technique is. I have graphs of visit frequency vs market share and it is DEADLY effective if you get it right. (Of course there are diminishing returns. Drug reps will game their visit stats by overvisiting friendly docs. So you can't give them credit for those visits.)
Source: I'm a healthcare sales management consultant
> It's also keeping physicians up to date on the current science, applicability, and best practices of their products. I think it's a good thing for sales reps and MSLs to inform or remind physicians that there are alternatives to writing a script for Epipens, for example.
There are many very cheap ways of keeping physicians up-to date, such as a conference presentation of the drug, followed by a Q&A session, with a recording freely available online.
> Many drugs are cheap to make, but that neglects the astronomical development and regulatory costs.
Which are covered in the already mentioned 20% that goes to R&D (source pending). Are you purposefully ignoring information you dislike?
There are many very cheap ways of keeping physicians up-to date, such as a conference presentation of the drug, followed by a Q&A session, with a recording freely available online.
> Many drugs are cheap to make, but that neglects the astronomical development and regulatory costs.
Which are covered in the already mentioned 20% that goes to R&D (source pending). Are you purposefully ignoring information you dislike?
> There are many very cheap ways of keeping physicians up-to date, such as a conference presentation of the drug, followed by a Q&A session, with a recording freely available online.
Because most doctors are happy to spend hours watching recordings of drug presentations.
For better or worse, doctors are just people and if you want them to understand the benefits of your new drug, it will fall to you to convince them. Most doctors are not going to thoroughly study every new drug.
Because most doctors are happy to spend hours watching recordings of drug presentations.
For better or worse, doctors are just people and if you want them to understand the benefits of your new drug, it will fall to you to convince them. Most doctors are not going to thoroughly study every new drug.
> Because most doctors are happy to spend hours watching recordings of drug presentations.
And yet somehow I am supposed to be overjoyed at spending hours watching conference talks, reading blog posts and documentation, and doing other things to evaluate new tech and learn new languages/libraries that are not my direct job just to keep up to date on my rapidly-changing industry?
Welcome to the 21st century doctors. I would unpack and play the worlds tiniest violin for you, but I have a few more confreaks youtube videos to plough through right now.
And yet somehow I am supposed to be overjoyed at spending hours watching conference talks, reading blog posts and documentation, and doing other things to evaluate new tech and learn new languages/libraries that are not my direct job just to keep up to date on my rapidly-changing industry?
Welcome to the 21st century doctors. I would unpack and play the worlds tiniest violin for you, but I have a few more confreaks youtube videos to plough through right now.
I'm kind of impressed that you managed to turn this into an opportunity to whine about your own continuing education.
Also, just FYI doctors already have to do continuing education to maintain a license, which cuts into the time they can spend researching new drugs.
Also, just FYI doctors already have to do continuing education to maintain a license, which cuts into the time they can spend researching new drugs.
There are only about 20 - 30 "new molecular entities" approved each year. These are the ones that need most focus.
How could that information be delivered to doctors without unduly influencing them or overwhelming them with junk info?
How could that information be delivered to doctors without unduly influencing them or overwhelming them with junk info?
I don't know, honestly, but hand waving and saying doctors should all take the initiative to self educate won't do it. Maybe they should, but many likely won't.
The only thing I can think is to make it mandatory continued education. But even that is iffy. Part of the problem is that there's just not that much additional data on new drugs. By definition the FDA thinks the drug is safe (relatively) and effective so what's the education going to look like and who's going to put it together?
The only thing I can think is to make it mandatory continued education. But even that is iffy. Part of the problem is that there's just not that much additional data on new drugs. By definition the FDA thinks the drug is safe (relatively) and effective so what's the education going to look like and who's going to put it together?
> There are many very cheap ways of keeping physicians up-to date, such as a conference presentation of the drug, followed by a Q&A session, with a recording freely available online.
5 minutes of face time with a busy physician and supplying them with a useful article targeted to their specific needs can be far more effective.
> Which are covered in the already mentioned 20% that goes to R&D (source pending). Are you purposefully ignoring information you dislike?
The dev part was an honest error while I was editing, and I don't think the accusation is called for. Regulatory costs, and I think of quality also being in that group, is not an R&D cost and is substantial.
5 minutes of face time with a busy physician and supplying them with a useful article targeted to their specific needs can be far more effective.
> Which are covered in the already mentioned 20% that goes to R&D (source pending). Are you purposefully ignoring information you dislike?
The dev part was an honest error while I was editing, and I don't think the accusation is called for. Regulatory costs, and I think of quality also being in that group, is not an R&D cost and is substantial.
[deleted]
AWS keeps me up to date with their products and best practices too... It's still advertising.
[deleted]
you're speaking very authoritatively for someone who apparently does not know the difference between sales, marketing, and advertising and also does not know how to pull basic financial information of publicly-traded companies
What a great opportunity for you to pull this so easily available and understandable information, and destroy my entire argument by showing how efficiently pharma allocates revenue to important drug research, and how little is wasted on marketing, sales, generics, and other stuff!
Someone had just posted a really useful post that was deleted about 15 minutes later. Here is the post copy/pasted in its entirety:
EDIT: Wall of Text warning.
>The average is almost 20% of revenue.
This isn't exactly true. In fact the pharma industry lies so prodigously about it's own costs that it's almost impossible to know what they actually are spending on R&D. We can trace back the source of these numbers to various PhRMA reports like this one:
http://www.phrma.org/sites/default/files/pdf/2015_phrma_prof....
Which gives us this:
PERCENTAGE OF SALES THAT WENT TO R&D IN 2013
Domestic R&D as a percentage of domestic sales = 23.4%
Total R&D as a percentage of total sales = 17.9%
which basically supports your point. Their methodology though is quite interesting.
>In 1991, Joseph DiMasi and colleagues from the Tufts Center for the Study of Drug Development published a widely quoted, comprehensive study of drug development costs. Using project data from confidential surveys, the study estimated cash outlays of around $169M to successfully bring a drug to market during a period beginning in the 1970s. PhRMA relies on this research as the foundation for their statements about the cost of drug development. However, PhRMA uses different assumptions about a "hidden" expense called "opportunity cost" that boosts this estimate to the $500 million mark.
>PhRMA's assumptions begin with DiMasi's original estimate of R&D outlays with opportunity cost set at 9% and a 12-year development period. A review of the Tufts study performed by the US Office of Technology Assessment (OTA) subsequently calculated opportunity cost at a higher rate, which pushed the estimate towards $360 million. According to Public Citizen, this figure, when adjusted for inflation and rounded up, became PhRMA's $500 million.
>But Public Citizen says the OTA report also offers an alternative analysis of development costs. R&D expenses are tax deductible, but DiMasi's 1991 figures didn't consider the discount this offers. If the original Tufts estimate is reduced by 34% in tax savings and opportunity cost is subtracted, Public Citizen says the actual cash outlay for bringing a new drug to market during the seventies and eighties was actually closer to $65 million.
http://www.thebody.com/content/art13514.html
Furthermore:
>Notably, as in the Center's previous estimates, nearly half the cost of drug development was accounted for not by research expenditures but by the cost of capital. The analysts justified that assumption by noting that during the years a company spends developing a new product, it incurs opportunity costs by not using those dollars for other purposes. That argument is plausible, and such calculations can be an appropriate component of such analyses. However, nearly half the total cost of developing a new drug ($1.2 billion) was ascribed to this cost of capital, with only $1.4 billion attributed to funds actually spent on research. These capital costs were assessed at 10.6% per year, compounded — despite the fact that bonds issued by drug companies often pay only 1 to 5%.
>The Tufts calculations also explicitly do not take into account the large public subsidies provided to pharmaceutical companies in the form of research-and-development tax credits or substantial payments received from the federal government for other research activities, such as testing their products in children. Perhaps most important, because the calculations are based only on products that the companies described as “self-originated,” the $2.6 billion figure does not consider drug-development costs borne by the public for the large number of medications that are based on external research that elucidated the disease mechanisms they address. One recent analysis showed that more than half of the most transformative drugs developed in recent decades had their origins in publicly funded research at nonprofit, university-affiliated centers.4
http://www.nejm.org/doi/full/10.1056/NEJMp1500848#t=article
Now this is obviously just absurd. These R&D numbers are totally meaningless! They've been biased at literally every step of the process to be shown as larger than they really are.
EDIT: Wall of Text warning.
>The average is almost 20% of revenue.
This isn't exactly true. In fact the pharma industry lies so prodigously about it's own costs that it's almost impossible to know what they actually are spending on R&D. We can trace back the source of these numbers to various PhRMA reports like this one:
http://www.phrma.org/sites/default/files/pdf/2015_phrma_prof....
Which gives us this:
PERCENTAGE OF SALES THAT WENT TO R&D IN 2013
Domestic R&D as a percentage of domestic sales = 23.4%
Total R&D as a percentage of total sales = 17.9%
which basically supports your point. Their methodology though is quite interesting.
>In 1991, Joseph DiMasi and colleagues from the Tufts Center for the Study of Drug Development published a widely quoted, comprehensive study of drug development costs. Using project data from confidential surveys, the study estimated cash outlays of around $169M to successfully bring a drug to market during a period beginning in the 1970s. PhRMA relies on this research as the foundation for their statements about the cost of drug development. However, PhRMA uses different assumptions about a "hidden" expense called "opportunity cost" that boosts this estimate to the $500 million mark.
>PhRMA's assumptions begin with DiMasi's original estimate of R&D outlays with opportunity cost set at 9% and a 12-year development period. A review of the Tufts study performed by the US Office of Technology Assessment (OTA) subsequently calculated opportunity cost at a higher rate, which pushed the estimate towards $360 million. According to Public Citizen, this figure, when adjusted for inflation and rounded up, became PhRMA's $500 million.
>But Public Citizen says the OTA report also offers an alternative analysis of development costs. R&D expenses are tax deductible, but DiMasi's 1991 figures didn't consider the discount this offers. If the original Tufts estimate is reduced by 34% in tax savings and opportunity cost is subtracted, Public Citizen says the actual cash outlay for bringing a new drug to market during the seventies and eighties was actually closer to $65 million.
http://www.thebody.com/content/art13514.html
Furthermore:
>Notably, as in the Center's previous estimates, nearly half the cost of drug development was accounted for not by research expenditures but by the cost of capital. The analysts justified that assumption by noting that during the years a company spends developing a new product, it incurs opportunity costs by not using those dollars for other purposes. That argument is plausible, and such calculations can be an appropriate component of such analyses. However, nearly half the total cost of developing a new drug ($1.2 billion) was ascribed to this cost of capital, with only $1.4 billion attributed to funds actually spent on research. These capital costs were assessed at 10.6% per year, compounded — despite the fact that bonds issued by drug companies often pay only 1 to 5%.
>The Tufts calculations also explicitly do not take into account the large public subsidies provided to pharmaceutical companies in the form of research-and-development tax credits or substantial payments received from the federal government for other research activities, such as testing their products in children. Perhaps most important, because the calculations are based only on products that the companies described as “self-originated,” the $2.6 billion figure does not consider drug-development costs borne by the public for the large number of medications that are based on external research that elucidated the disease mechanisms they address. One recent analysis showed that more than half of the most transformative drugs developed in recent decades had their origins in publicly funded research at nonprofit, university-affiliated centers.4
http://www.nejm.org/doi/full/10.1056/NEJMp1500848#t=article
Now this is obviously just absurd. These R&D numbers are totally meaningless! They've been biased at literally every step of the process to be shown as larger than they really are.
Ummm... the numbers reported by pharma companies has nothing to do with the estimate DiMasi's group did. The pharma numbers are SEC approved financial statements. That real cash going to R&D, not some pie in the sky estimate.
But no idea how much of that is going into new or more effective versions of the drugs, how much to manufacturing process research, how much on sales research etc.
Sales research wouldn't fall under R&D. That's sales.
And why do you need to know how much goes into manufacturing process research? That's as valid as any other R&D process.
And why do you need to know how much goes into manufacturing process research? That's as valid as any other R&D process.
[deleted]
Let's take the middle two from each row: Pfizer and AstraZeneca. In 2013, Pfizer spent 13% of revenue on R&D, while AstraZeneca spent 17%. Google spent 12.9%, Intel spent 20.1%, and Microsoft spent 13.5%. Apple typically spends only 3-4% of revenues on R&D, but it's an outlier in the tech industry.
"Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it."
That would be bad. Based on 5 minutes of googling and 10 minutes of reading, the largest US pharma company is Johnson & Johnson. Their latest earnings report has the following for the 12 months in 2016 (not all expenses are listed here):
- Sales (i.e. revenue): $71.8bn
- Marketing expense: $19.9bn
- R&D expense: $9.1bn
- After tax, after expenses profit: $16.5bn
So, on behalf of my fellow Australians, I'd just like to thank J&J for selling into my country at a substantial loss (and, in doing so, bravely running the risk of breaching their fiduciary duties to their shareholders).
I'd also like to express my gratitude to consumers in the United State, who are apparently so generous that they are willing to subsidise my country's single-purchaser medical system. It's a shame you can't have one as well, but at least you have the world's gratitude for your sacrifice. USA #1!
EDIT: Link - http://files.shareholder.com/downloads/JNJ/4178180194x0x9249...
That would be bad. Based on 5 minutes of googling and 10 minutes of reading, the largest US pharma company is Johnson & Johnson. Their latest earnings report has the following for the 12 months in 2016 (not all expenses are listed here):
- Sales (i.e. revenue): $71.8bn
- Marketing expense: $19.9bn
- R&D expense: $9.1bn
- After tax, after expenses profit: $16.5bn
So, on behalf of my fellow Australians, I'd just like to thank J&J for selling into my country at a substantial loss (and, in doing so, bravely running the risk of breaching their fiduciary duties to their shareholders).
I'd also like to express my gratitude to consumers in the United State, who are apparently so generous that they are willing to subsidise my country's single-purchaser medical system. It's a shame you can't have one as well, but at least you have the world's gratitude for your sacrifice. USA #1!
EDIT: Link - http://files.shareholder.com/downloads/JNJ/4178180194x0x9249...
With all the sarcasm, it's hard to tell how broad of a point you're trying to make. Do dispute the fact that Australia free-rides to a non-trivial extent on US medical R&D?
Yes I do dispute that notion. Actually I dispute the entire idiot notion that the US is somehow subsidising the rest of the worlds' healthcare.
In actual fact, pharmaceutical / medical device companies will simply charge whatever the market will bear, and it just so happens the US market will bear almost any price. If some market won't bear a profit making price, pharma companies simply won't sell into it.
It makes utterly no sense to sell at a loss and then cross subsidise using the massive rents extracted from US markets, yet that is exactly what most people here seem to think is happening. Although maybe Trump really has managed to 'make America great again'. Speaking of great...
The US spends 17.1% of of its GDP on healthcare. The 5 countries that are richer than the USA (GDP per capita) pay an average of 7.77%. Excluding Qatar, it's 9.03%. The top 10 richest countries (excluding the USA) spend an average of 8.03% of their GDP on healthcare, and I'm pretty sure at least a few of these have universal public health insurance.
You're paying more than DOUBLE compared to the 9 other richest countries in the world. You're simply getting gouged. If you can't even admit that maybe there's a problem here, and instead want to persist with all these insane American exceptionalist fantasies, it's unlikely anything is going to change in American healthcare.
Data from here: http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS?end=2014&...
And here: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi... (using IMF GDP figures)
In actual fact, pharmaceutical / medical device companies will simply charge whatever the market will bear, and it just so happens the US market will bear almost any price. If some market won't bear a profit making price, pharma companies simply won't sell into it.
It makes utterly no sense to sell at a loss and then cross subsidise using the massive rents extracted from US markets, yet that is exactly what most people here seem to think is happening. Although maybe Trump really has managed to 'make America great again'. Speaking of great...
The US spends 17.1% of of its GDP on healthcare. The 5 countries that are richer than the USA (GDP per capita) pay an average of 7.77%. Excluding Qatar, it's 9.03%. The top 10 richest countries (excluding the USA) spend an average of 8.03% of their GDP on healthcare, and I'm pretty sure at least a few of these have universal public health insurance.
You're paying more than DOUBLE compared to the 9 other richest countries in the world. You're simply getting gouged. If you can't even admit that maybe there's a problem here, and instead want to persist with all these insane American exceptionalist fantasies, it's unlikely anything is going to change in American healthcare.
Data from here: http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS?end=2014&...
And here: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi... (using IMF GDP figures)
That's a long rant that doesn't even address the standard econ 101 argument. It's especially weird to quote spending data since that's what one would expect if the US was subsidizing the world.
It's also what one would expect if US consumers are getting horribly gouged on prices. But then I guess you'd also expect to see pharmaceutical companies enjoying super high profit levels... Oh wait...
EDIT: Given I am unable to address the 'econ101 argument', would you care to take a shot?
EDIT: Given I am unable to address the 'econ101 argument', would you care to take a shot?
No, I think your tone is completely inappropriate for HN and is not compatible with a constructive discussion.
Fair enough.
FWIW I do apologise for the sarcastic tone of my posts above. You're right; it's probably not the right way to spark a constructive discussion. To be honest, my tone was a fairly deliberate departure from how I usually post. It's just that I've been in a number of these 'US Healthcare' discussions on HN now and have seen the same points and counterpoints made many times, yet no progress seems to have been made.
I suppose that's a good indication that I should just stay out of these threads until I can maintain a civil tone.
FWIW I do apologise for the sarcastic tone of my posts above. You're right; it's probably not the right way to spark a constructive discussion. To be honest, my tone was a fairly deliberate departure from how I usually post. It's just that I've been in a number of these 'US Healthcare' discussions on HN now and have seen the same points and counterpoints made many times, yet no progress seems to have been made.
I suppose that's a good indication that I should just stay out of these threads until I can maintain a civil tone.
> Marketing expense: $19.9bn
Here I go tilting at this windmill again...
"Selling, marketing, and administrative expenses" (SMA) is not just marketing or advertising. It is all the costs of operating the company that are not either R&D or direct costs of producing products sold.
Here I go tilting at this windmill again...
"Selling, marketing, and administrative expenses" (SMA) is not just marketing or advertising. It is all the costs of operating the company that are not either R&D or direct costs of producing products sold.
Less than half of JNJ's revenues is pharmaceuticals, so not a great example to be honest.
Actually it's a pretty good example. In Australia, medicines and medical devices (i.e. 81% of J&J revenue) are regulated by the same body (the TGA) using the same approach, craftily reasoning that sick people need both. I realise you might see thing differently (i.e. better) in the USA, but I guess that's just part of what makes you exceptional!
Medical devices and pharmaceutical companies have different cost structures, so I maintain my point that J&J is not a good example of a pharmaceutical cost structure.
But you did 10 minutes of Googling so I defer to you I guess.
But you did 10 minutes of Googling so I defer to you I guess.
"Johnson & Johnson's brands include numerous household names of medications and first aid supplies. Among its well-known consumer products are the Band-Aid Brand line of bandages, Tylenol medications, Johnson's baby products, Neutrogena skin and beauty products, Clean & Clear facial wash and Acuvue contact lenses."
-- https://en.wikipedia.org/wiki/Johnson_%26_JohnsonLiterally every single one of those products listed fall under their 'Consumer Segment' (see pages 7 & 8 of financial statements in original post). The entire consumer segment accounts for 18.5 per cent of their total revenue.
The remaining 81.5 per cent of their revenue comes from the sale of pharmaceuticals and medical devices.
The remaining 81.5 per cent of their revenue comes from the sale of pharmaceuticals and medical devices.
The original post was listing the "consolidated" figures. Marketing of consumer products was not broken out separately from the consolidated figures.
The information in the pdf does not support the narrative of the original article, because of the use of consolidated figures.
The information in the pdf does not support the narrative of the original article, because of the use of consolidated figures.
Your link says that $19.9 is marked as "selling, marketing, and administrative expenses".
It looks like a dumpster category for all kinds of expenses, not just "marketing".
It looks like a dumpster category for all kinds of expenses, not just "marketing".
>> So, on behalf of my fellow Australians, I'd just like to thank J&J for selling into my country at a substantial loss
Are they really making a loss in Australia? Your source doesn't say that.
Are they really making a loss in Australia? Your source doesn't say that.
"roughly what the wholesale price is plus a very small markup" .. is not my experience. I just had a pharmacist friend show this to me.
Blink charged the customer $10 for generic Lipitor (atorvastatin) 20mg, 30 pills. And reimbursed the pharmacy $4.90. Hence keeping > 50% of what the customer paid. As per the pharmacist, he would be happy to fill the prescription in cash for $7.50, lowering the price for consumer and making him more margin.
These are real numbers. Blink is in fact contributing to increasing the price for consumers, while being yet another middleman in the process.
Blink charged the customer $10 for generic Lipitor (atorvastatin) 20mg, 30 pills. And reimbursed the pharmacy $4.90. Hence keeping > 50% of what the customer paid. As per the pharmacist, he would be happy to fill the prescription in cash for $7.50, lowering the price for consumer and making him more margin.
These are real numbers. Blink is in fact contributing to increasing the price for consumers, while being yet another middleman in the process.
Just to provide more info - for a given pharmacy, Atorvastatin 20mg is $.0629 per pill, so $1.887 at cost. For most pharmacies the real cost is going the pharmacist filling the rx. An insurance company would probably reimburse <$5 and may or may not just make that the copay. $10 is way higher than pharmacies would charge for generic lipitor.
Also claiming: Avg. retail: $132.52 You save: 96%
Is the complete OPPOSITE of transparency. $132.52 might be a realistic price for branded Lipitor, but that's not at all what is being sold here.
Also claiming: Avg. retail: $132.52 You save: 96%
Is the complete OPPOSITE of transparency. $132.52 might be a realistic price for branded Lipitor, but that's not at all what is being sold here.
[deleted]
> what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop
This is really hard to explain to people.
This is really hard to explain to people.
> This is really hard to explain to people.
It's not that it's hard to explain, it's that it causes people to want to switch from the US system even more, because as soon as you understand it you realize that US patients and taxpayers are being unfairly forced to subsidize more than their share of drug R&D for Canada and Europe.
It's not that it's hard to explain, it's that it causes people to want to switch from the US system even more, because as soon as you understand it you realize that US patients and taxpayers are being unfairly forced to subsidize more than their share of drug R&D for Canada and Europe.
To quote your sibling comment:
>Probably because saying something is "financed" by demand is counter-intuitive.
Since Healthcare is in economic terms a superior good, people spend a larger share of income on it as their income rises. And because the US is such a large, wealthy market, demand is sufficient to to pay down R&D costs that other markets could no bear. It's still a shitty deal, but it makes perfect sense that it turned out this way. That's just hard to articulate to people who are not familiar with the industry or economics.
>Probably because saying something is "financed" by demand is counter-intuitive.
Since Healthcare is in economic terms a superior good, people spend a larger share of income on it as their income rises. And because the US is such a large, wealthy market, demand is sufficient to to pay down R&D costs that other markets could no bear. It's still a shitty deal, but it makes perfect sense that it turned out this way. That's just hard to articulate to people who are not familiar with the industry or economics.
That's not it though. Canada and Europe are not poor.
The problem is that drug patents are fundamentally incompatible with single payer. The premise of the patent system is that you get to charge outrageous monopoly rents temporarily in exchange for creating something that didn't exist. If you have a monopsony buyer setting prices then curing cancer isn't as profitable, so companies spend less money on research and long-term more people die.
There is another way to fund medical research. Tax dollars. But if you're paying for it with tax dollars then patents are waste; the research happens regardless because the government is paying for it. Then you lose the "market efficiency" -- people have better incentive to succeed without wasting money when they only get paid for succeeding and the money they waste is their own, than when they get paid either way and are spending someone else's money. And then people die because you spent more money curing fewer diseases.
But for the patent system to work, you need the patient to pay the monopoly price, not the government or a monopsony insurance company. Otherwise they can use their market power to pay less than what the drug is worth. Or worse, pay more than it's worth over alternative treatments because they're spending someone else's money or are victims of regulatory capture (as in the US). Either of which destroy the efficiency the patent system is supposed to bring and make it so that we might as well not have it.
The problem is that drug patents are fundamentally incompatible with single payer. The premise of the patent system is that you get to charge outrageous monopoly rents temporarily in exchange for creating something that didn't exist. If you have a monopsony buyer setting prices then curing cancer isn't as profitable, so companies spend less money on research and long-term more people die.
There is another way to fund medical research. Tax dollars. But if you're paying for it with tax dollars then patents are waste; the research happens regardless because the government is paying for it. Then you lose the "market efficiency" -- people have better incentive to succeed without wasting money when they only get paid for succeeding and the money they waste is their own, than when they get paid either way and are spending someone else's money. And then people die because you spent more money curing fewer diseases.
But for the patent system to work, you need the patient to pay the monopoly price, not the government or a monopsony insurance company. Otherwise they can use their market power to pay less than what the drug is worth. Or worse, pay more than it's worth over alternative treatments because they're spending someone else's money or are victims of regulatory capture (as in the US). Either of which destroy the efficiency the patent system is supposed to bring and make it so that we might as well not have it.
Probably because saying something is "financed" by demand is counter-intuitive.
> Which is all to say, it's a fascinating space. It's very ripe for innovation.
is that a euphemistic way of saying its a train-wreck, where society is hobbled by rent-seeking behavior by monopolist cartels that have used a combination of anti-competitive business strategy and regulatory capture to extract massive amounts of wealth from their captive audience of sick people?
is that a euphemistic way of saying its a train-wreck, where society is hobbled by rent-seeking behavior by monopolist cartels that have used a combination of anti-competitive business strategy and regulatory capture to extract massive amounts of wealth from their captive audience of sick people?
> If you're interested in roughly what the wholesale price is plus a very small markup
What about the rebates mentioned in the article several times? I know in the car industry one trick is to go on and on about "dealer invoice" and how great a deal you are getting while ignoring that rebates make that number fairly meaningless.
What about the rebates mentioned in the article several times? I know in the car industry one trick is to go on and on about "dealer invoice" and how great a deal you are getting while ignoring that rebates make that number fairly meaningless.
Two things going on with the rebates.
1. I think the article is a little one sided in their explanation of the rebate system, though it certainly more opaque than it should be. (some of which is just healthtech is stuck in the dark ages)
2. The rebates really only apply to the branded meds, which are approximately 20% of the market.
1. I think the article is a little one sided in their explanation of the rebate system, though it certainly more opaque than it should be. (some of which is just healthtech is stuck in the dark ages)
2. The rebates really only apply to the branded meds, which are approximately 20% of the market.
I think that's very dismissive of the importance rebates play. The PBMs' defensibility comes almost entirely from their ability to use their scale to drive up branded/specialty medication costs up by demanding larger and larger rebates from pharma. In terms of revenue, branded and specialty meds already make up more than 75% of the market today. They are the real problem here, not generics.
With all due respect, saying the article is a little one sided doesn't tell me much. Can you outline what the other side of the story is?
The story isn't _good_, it's just a bit more complicated.
The pharma company's trade association published this recently which talks about it in depth: http://www.phrma.org/report/commercially-insured-patients-pa...
The pharma company's trade association published this recently which talks about it in depth: http://www.phrma.org/report/commercially-insured-patients-pa...
I deal with Express Scripts and CVS Caremark. I have Hemophilia, a bleeding disorder condition I've been born with.
By far, these are the most corrupt organizations in the medical/drug industry. At least the phrama companies actually make something at the end of the day and do research, and employ more than just business people. I am forced by whatever insurance plan I have, to deal with these companies directly because they have whats called a "carve out" -- an exclusive agreement with the major insurance carriers that requires I deal with them directly. I literally have no choice or alternative from which to get my medication.
The reason is clear: my medication costs between $60,000 - $150,000 per month. I'm not kidding, either. It's been this way forever, despite the patents expiring on the medication. Its so lucrative and it makes me ill that so many people are benefiting and using me as some kind of financial conduit due to my medical condition. A significant amount of the money goes to one of these companies. They literally have a markup on the medication on a per-unit basis. So they tack on 20% or 30% to each unit of my medication (think pills, but its actually IU potency units -- its an IV medication I give to myself).
I'm fortunate that, because of these extreme costs, these companies have actually worked out in my favor: they have a dedicated rep assigned to me, and continually renegotiate their position with the insurance carriers to maximize their profit (I'm a high-profit user and thus very important to them).
These companies have no interest in getting costs down, and actually fight for the opposite. A few years ago they bullied the drug companies into offering a co-pay assistance program so they can literally take my insurance for all its worth. Their goal is to max out whatever benefits I have, and at that point usually the patient can be a blocker because they don't have the money for the maximum yearly deductible. However, they basically worked with/forced the drug companies into creating a co-pay program, then raised up the prices for the first order of the year. What happens is the first order I place is always more expensive, and then it gets discounted by some amount (usually my yearly co-pay). I don't have to pay this money however, it comes directly from the manufacture's co-pay assistance program.
So I guess its a triumph in the fact I don't really have to pay much -- if anything for my medication, but that's only because its extreme high price. I'm sure its not like this for other people on the middle and lower ends of the system.
By far, these are the most corrupt organizations in the medical/drug industry. At least the phrama companies actually make something at the end of the day and do research, and employ more than just business people. I am forced by whatever insurance plan I have, to deal with these companies directly because they have whats called a "carve out" -- an exclusive agreement with the major insurance carriers that requires I deal with them directly. I literally have no choice or alternative from which to get my medication.
The reason is clear: my medication costs between $60,000 - $150,000 per month. I'm not kidding, either. It's been this way forever, despite the patents expiring on the medication. Its so lucrative and it makes me ill that so many people are benefiting and using me as some kind of financial conduit due to my medical condition. A significant amount of the money goes to one of these companies. They literally have a markup on the medication on a per-unit basis. So they tack on 20% or 30% to each unit of my medication (think pills, but its actually IU potency units -- its an IV medication I give to myself).
I'm fortunate that, because of these extreme costs, these companies have actually worked out in my favor: they have a dedicated rep assigned to me, and continually renegotiate their position with the insurance carriers to maximize their profit (I'm a high-profit user and thus very important to them).
These companies have no interest in getting costs down, and actually fight for the opposite. A few years ago they bullied the drug companies into offering a co-pay assistance program so they can literally take my insurance for all its worth. Their goal is to max out whatever benefits I have, and at that point usually the patient can be a blocker because they don't have the money for the maximum yearly deductible. However, they basically worked with/forced the drug companies into creating a co-pay program, then raised up the prices for the first order of the year. What happens is the first order I place is always more expensive, and then it gets discounted by some amount (usually my yearly co-pay). I don't have to pay this money however, it comes directly from the manufacture's co-pay assistance program.
So I guess its a triumph in the fact I don't really have to pay much -- if anything for my medication, but that's only because its extreme high price. I'm sure its not like this for other people on the middle and lower ends of the system.
Wouldn't it be cheaper to fly to the UK once a year and pay privately for the treatment and meds?
Someone here can probably find the private cost of the meds if you didn't mind listing them.
Someone here can probably find the private cost of the meds if you didn't mind listing them.
So I read this and I'm horrified. And I know that no one in the coming years will make this or anything like it a priority in Congress. They give no shits about us. The media spends all day talking about tweets and Russian influence in our election and on our newly minted government officials. Yeah, the latter is important, but health care is really, really important. It's the reason our new POTUS was elected, according to the post-mortums I've seen. NOTHING WILL BE DONE (that is good for the people, things might be done that will be great for businesses).
The new FDA head is actually very anti PBM, so he might be a force for good here.
http://www.drugchannels.net/2017/03/scott-gottliebs-radical-...
http://www.drugchannels.net/2017/03/scott-gottliebs-radical-...
Remember, Donald Trump was elected because people want change. Most people are aware at this point that the system is rigged, and are looking to change it. It's unclear currently whether populism or socialism will win in the long run, but don't lose hope yet.
Socialism and populism are not necessarily mutually exclusive. Quite often socialism takes the form of populist socialism (think Bernie Sanders or Chavez).
Also, I think anyone who voted Trump to generate populist change, are likely getting a raw deal. The administration is loaded with Billionaires and business leaders, the opposite of populism. And, they've already set about enacting changes that negatively affect average people, like rolling back privacy protections, and pushing for health reforms that would cause 20 million people to lose insurance coverage, while according to the CBO raising costs.
Also, I think anyone who voted Trump to generate populist change, are likely getting a raw deal. The administration is loaded with Billionaires and business leaders, the opposite of populism. And, they've already set about enacting changes that negatively affect average people, like rolling back privacy protections, and pushing for health reforms that would cause 20 million people to lose insurance coverage, while according to the CBO raising costs.
"Demagoguic populism" vs. "Progressivist populism" might be a more useful axis.
The socialism vs. market capitalism division has been dominant since the 19th century, but isn't the only such division. I found the introductory chapter of A.H.M. Jones, Augustus, to be a particularly telling parallel of the interests and divisions of politics, this being Rome, ~40 BCE, and the optimates vs. the populares, the former being the propertied oligarchs, and hangers-on, the latter the larger (and generally disenfranchised) population.
(I've posted exerpts at G+ and Ello, search under my handles there.)
The Chartist movement and general populist reforms of 19th century Europe (especially in the Year of Revolutions, 1848) are also telling.
Increased electoral franchsie, judicial reform, and a number of other rights were key among issues raised. Unionisation as well.
The socialism vs. market capitalism division has been dominant since the 19th century, but isn't the only such division. I found the introductory chapter of A.H.M. Jones, Augustus, to be a particularly telling parallel of the interests and divisions of politics, this being Rome, ~40 BCE, and the optimates vs. the populares, the former being the propertied oligarchs, and hangers-on, the latter the larger (and generally disenfranchised) population.
(I've posted exerpts at G+ and Ello, search under my handles there.)
The Chartist movement and general populist reforms of 19th century Europe (especially in the Year of Revolutions, 1848) are also telling.
Increased electoral franchsie, judicial reform, and a number of other rights were key among issues raised. Unionisation as well.
Thank you, I wasn't aware of that. I thought they were completely different. How would Trump's direction be described, then? Nationalism?
Also, I agree that electing Trump was a raw deal. But between the two presidential candidates, Trump was the Change candidate and Clinton was the Status Quo candidate. From what I understand, a lot of studies show that Sanders would have won the election if he wasn't suppressed on the Democratic side. Most people don't feel like the country is going in the right direction, and they want change.
Also, I agree that electing Trump was a raw deal. But between the two presidential candidates, Trump was the Change candidate and Clinton was the Status Quo candidate. From what I understand, a lot of studies show that Sanders would have won the election if he wasn't suppressed on the Democratic side. Most people don't feel like the country is going in the right direction, and they want change.
Trump is more or less a (far-ish)right populist and economic nationalist.
Not to rehash the election unnecessarily, but I seriously doubt Sanders had any chance nationally. The US has a political center that is center right to right wing on an absolute scale, meaning the average American Democrat would fit comfortable in most moderate/centrist conservative parties in the rest of the developed world. No judgement there, it's just a historical fact and likely the result of some political realignments in the 20th century due to the Cold War. That is to say that someone as far left of center as Sanders would have no chance in most swing states where the election is decided.
Not to rehash the election unnecessarily, but I seriously doubt Sanders had any chance nationally. The US has a political center that is center right to right wing on an absolute scale, meaning the average American Democrat would fit comfortable in most moderate/centrist conservative parties in the rest of the developed world. No judgement there, it's just a historical fact and likely the result of some political realignments in the 20th century due to the Cold War. That is to say that someone as far left of center as Sanders would have no chance in most swing states where the election is decided.
I would say Trump is a traditional pro-big-business conservative, all about deregulation and cutting taxes, tough on crime, etc. mixed with an extra dose of xenophobia.
> Americans pay the highest health-care prices in the world, including the highest for drugs, medical devices, and other health-care services and products. Our fragmented system produces many opportunities for excessive charges. But one lesser-known reason for those high prices is the stranglehold that a few giant intermediaries have secured over distribution. The antitrust laws are supposed to provide protection against just this kind of concentrated economic power. But in one area after another in today’s economy, federal antitrust authorities and the courts have failed to intervene. In this case, PBMs are sucking money out of the health-care system—and our wallets—with hardly any public awareness of what they are doing.
As I and other have mentioned before, the easiest way to fix this would be to permit re-importing drugs that were manufactured within the US.
For example, permitting trade across the US-Canadian border provides an equalizing force on the prices across the border, even though, at steady-state, no drugs actually need to make the return trip. In other words, allowing the trade puts an upper bound on the difference between the prices charged in the US and the prices charged in Canada: that difference can be no greater than the costs of reimporting those drugs, or else it becomes cheaper for people to source their drugs from Canada.
By disallowing the trade, we allow the difference to grow unbounded.
A few days before Obama left office, there was a bill that would have fixed that, but nine Democrats joined the Republicans in voting it down: https://www.senate.gov/legislative/LIS/roll_call_lists/roll_...
As I and other have mentioned before, the easiest way to fix this would be to permit re-importing drugs that were manufactured within the US.
For example, permitting trade across the US-Canadian border provides an equalizing force on the prices across the border, even though, at steady-state, no drugs actually need to make the return trip. In other words, allowing the trade puts an upper bound on the difference between the prices charged in the US and the prices charged in Canada: that difference can be no greater than the costs of reimporting those drugs, or else it becomes cheaper for people to source their drugs from Canada.
By disallowing the trade, we allow the difference to grow unbounded.
A few days before Obama left office, there was a bill that would have fixed that, but nine Democrats joined the Republicans in voting it down: https://www.senate.gov/legislative/LIS/roll_call_lists/roll_...
Or: we could just emulate what those other countries are doing to control prices, which apparently has been empirically proven to be effective. Why set up this rube goldberg export / import system when we could, apparently, just import some good legislation?
> Or: we could just emulate what those other countries are doing to control prices
Because centrally setting prices is very difficult, and that difficulty scales super-linearly with size.
Every other country that controls pharmaceutical prices is significantly smaller than the US is, and they also fund much less pharmaceutical R&D than the US does[0], even though they essentially import the benefits of that R&D at reduced prices[1].
If the US tried to do that, pharmaceutical research would completely evaporate in the US, which would impact every other country that either produces or imports drugs produced in the US as well[2].
Instead, cross-border trade ensures that research funding is proportional to drug consumption.
[0] Until a few years ago, US funded more than half the R&D of the entire world. It's now around 44%, mostly because China and India have been growing rapidly.
[1] Even pharmaceutical companies based in Europe receive most of their R&D funding either directly or indirectly from the US.
[2] Which is literally every other country in the world, even countries like India which do not recognize US pharmaceutical patents.
Because centrally setting prices is very difficult, and that difficulty scales super-linearly with size.
Every other country that controls pharmaceutical prices is significantly smaller than the US is, and they also fund much less pharmaceutical R&D than the US does[0], even though they essentially import the benefits of that R&D at reduced prices[1].
If the US tried to do that, pharmaceutical research would completely evaporate in the US, which would impact every other country that either produces or imports drugs produced in the US as well[2].
Instead, cross-border trade ensures that research funding is proportional to drug consumption.
[0] Until a few years ago, US funded more than half the R&D of the entire world. It's now around 44%, mostly because China and India have been growing rapidly.
[1] Even pharmaceutical companies based in Europe receive most of their R&D funding either directly or indirectly from the US.
[2] Which is literally every other country in the world, even countries like India which do not recognize US pharmaceutical patents.
In your comment you suggest that most of the profits of pharma companies go into R&D but that's not the case. There's a lot of rent seeking behavior by these companies due to poor legislation. This kind of behavior (incentives/"conferences" for physicians, lobbying, etc.) shows up under sales in their annual reports and it's clear they spend a lot more on it than on R&D: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p... Clearly the current legal framework is not optimal for consumers.
> In your comment you suggest that most of the profits of pharma companies go into R&D but that's not the case.
No, I didn't say that most of the profits of pharmaceutical companies go to R&D. I said that most R&D funding comes from the US (and that a large deal of that funding comes from profits, mostly profits on sales within the US).
No, I didn't say that most of the profits of pharmaceutical companies go to R&D. I said that most R&D funding comes from the US (and that a large deal of that funding comes from profits, mostly profits on sales within the US).
What a poorly written article. It looks like just lumped all the business expenses under "sales and marketing". I think it's absurd to assume that all of that spending is completely discretionary.
Contrary to what people think, you need to do a certain level of sales support in the pharmaceutical market. The drugs don't sell themselves.
Contrary to what people think, you need to do a certain level of sales support in the pharmaceutical market. The drugs don't sell themselves.
We don't want them to be "sold". We want them to be prescribed as needed by medical professionals.
Yes, but medical professionals can't prescribe if they don't know enough about the drug.
Here is an interesting example: People complain about direct to consumer advertising of drugs in the US. What an outrage!! Well, the FDA did some analysis and found out that when patients asked for the drug: (1) 87 percent actually had the condition the drug treats, (2) 6 percent of those DTC-generated visits, a previously undiagnosed condition was discovered, (3) Only 7 percent of doctors said they felt "very pressured to prescribe" a particular advertised drug - the real pressure was time pressure. More patients are coming in armed with more questions.[1]
Sounds like DTC is pretty good huh?
[1]http://drugwonks.com/blog/fake-dtc-news-mustn-t-drive-the-he...
Here is an interesting example: People complain about direct to consumer advertising of drugs in the US. What an outrage!! Well, the FDA did some analysis and found out that when patients asked for the drug: (1) 87 percent actually had the condition the drug treats, (2) 6 percent of those DTC-generated visits, a previously undiagnosed condition was discovered, (3) Only 7 percent of doctors said they felt "very pressured to prescribe" a particular advertised drug - the real pressure was time pressure. More patients are coming in armed with more questions.[1]
Sounds like DTC is pretty good huh?
[1]http://drugwonks.com/blog/fake-dtc-news-mustn-t-drive-the-he...
So that's an article on how pharma companies spend more on sales and marketing than research. But many companies we'd consider "innovative" spend about twice as much on SG&A (sales, general, and administrative) as on R&D. For 2014-2015, the ratio between R&D spending and SG&A spending is 0.59 at Pfizer, 0.75 at Google, 0.56 at AstraZeneca, 0.43 at Apple, and 0.58 at Microsoft.
I'm skeptical that pharma companies should require equally high levels of marketing spending as other industries. After all most expensive pharmaceutical products are bought through an expert (ie. your physician). There's not a huge discoverability problem to be solved for those companies - or at least there shouldn't be - after all there's a national drug directory run by the FDA. Furthermore the US is one of only two countries where companies can advertise for drugs which require prescriptions.
Is discovability a problem for Apple, Microsoft, or Google? And note that Microsoft and Google sell primarily to experts too (advertising and IT professionals).
As to advertising. As for as I know, what other nations ban is direct to consumer advertising, which is a minority of advertising spend. And as to DTC advertising, you can level the very legitimate criticism that it's directed to convincing people to ask for drugs they don't really need. But that's true of most advertising. Does anyone really need a new iPhone or to upgrade to Windows 10? Also, getting rid of DTC advertising wouldn't really address drug prices. It would just force manufacturers to recover their R&D + ROI from a smaller pool of buyers (the ones who really need the drug). On a cost per pill basis, whatever would be saved through lower DTC advertising expenditures clould be outweighed by the reduced sales.
As to advertising. As for as I know, what other nations ban is direct to consumer advertising, which is a minority of advertising spend. And as to DTC advertising, you can level the very legitimate criticism that it's directed to convincing people to ask for drugs they don't really need. But that's true of most advertising. Does anyone really need a new iPhone or to upgrade to Windows 10? Also, getting rid of DTC advertising wouldn't really address drug prices. It would just force manufacturers to recover their R&D + ROI from a smaller pool of buyers (the ones who really need the drug). On a cost per pill basis, whatever would be saved through lower DTC advertising expenditures clould be outweighed by the reduced sales.
If doctors were hyperdiligent about researching treatment options rather than "meh, it's a job, we don't have anything for you, next!" then I would agree completely. But sometimes they have to be reminded of what is out there, which may have changed since they were in med school.
Doctors vary a lot by how up to date they are on new drugs. Some are focused on research, read all the latest journal articles and could teach pharma companies a thing or two.
Then there are the physicians who prefer to spend time treating patients. Maybe they are a generalist and don't have time to learn about every new drug. A brief conversation with a sales rep might point them in a right direction to learn more.
Then there are the physicians who prefer to spend time treating patients. Maybe they are a generalist and don't have time to learn about every new drug. A brief conversation with a sales rep might point them in a right direction to learn more.
The challenge with that is that simply allowing drugs to be imported doesn't prevent drug companies from allocating volume on a country-by-country level and maintaining price discrimination.
This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesaler tries to buy more, the drug company tells them no. Then all of a sudden Canadian wholesalers are in a bind. Do they sell to Americans and tell the Canadians no?[1]
In an April 8 letter to Canadian pharmacies and wholesalers, AstraZeneca wrote that some prescription drug orders would be reduced because of a new allotment program designed to address "unexpected sales increases"
[1]http://khn.org/morning-breakout/dr00017294/
This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesaler tries to buy more, the drug company tells them no. Then all of a sudden Canadian wholesalers are in a bind. Do they sell to Americans and tell the Canadians no?[1]
In an April 8 letter to Canadian pharmacies and wholesalers, AstraZeneca wrote that some prescription drug orders would be reduced because of a new allotment program designed to address "unexpected sales increases"
[1]http://khn.org/morning-breakout/dr00017294/
> doesn't prevent drug companies from allocating volume on a country-by-country level and maintaining price discrimination.
It does; for price discrimination, there are three criteria that all need to be satisfied, and one of them is the ability to restrict resale between market segments. If market segments are free to trade with each other, the supplier cannot price-discriminate.
> This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesaler tries to buy more, the drug company tells them no. Then all of a sudden Canadian wholesalers are in a bind. Do they sell to Americans and tell the Canadians no?
It's important to understand the difference between the short-term impact and the long-term (steady-state) impact. The case you're referencing is an amusing one, because it's actually AstraZeneca's proactive campaign against what was then a touchstone of the healthcare reform bills[0]. At the time, unrestricted trade in pharmaceuticals was not possible between the US and Canada, and AstraZeneca was making a threat to try and kill the provisions that would have permitted it[1].
The only reason that they can set these quotas in the first place is that US wholesalers can't (freely) export to Canada, and vice versa. If the ban on that had been lifted, AstraZeneca wouldn't be able to set quotas per-country in the first place. They could try, and succeed in the short-term, but in the long term, the prices in both markets would be forced to converge (with the difference bounded by the costs of import/export).
[0] Remember the date: April 2009, just a few months into Obama's inauguration. The public option was still theoretically on the table, and the Baucus plan hadn't happened yet.
[1] It worked - that was one of the parts of the ACA that was killed before it got a vote.
It does; for price discrimination, there are three criteria that all need to be satisfied, and one of them is the ability to restrict resale between market segments. If market segments are free to trade with each other, the supplier cannot price-discriminate.
> This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesaler tries to buy more, the drug company tells them no. Then all of a sudden Canadian wholesalers are in a bind. Do they sell to Americans and tell the Canadians no?
It's important to understand the difference between the short-term impact and the long-term (steady-state) impact. The case you're referencing is an amusing one, because it's actually AstraZeneca's proactive campaign against what was then a touchstone of the healthcare reform bills[0]. At the time, unrestricted trade in pharmaceuticals was not possible between the US and Canada, and AstraZeneca was making a threat to try and kill the provisions that would have permitted it[1].
The only reason that they can set these quotas in the first place is that US wholesalers can't (freely) export to Canada, and vice versa. If the ban on that had been lifted, AstraZeneca wouldn't be able to set quotas per-country in the first place. They could try, and succeed in the short-term, but in the long term, the prices in both markets would be forced to converge (with the difference bounded by the costs of import/export).
[0] Remember the date: April 2009, just a few months into Obama's inauguration. The public option was still theoretically on the table, and the Baucus plan hadn't happened yet.
[1] It worked - that was one of the parts of the ACA that was killed before it got a vote.
The only reason that they can set these quotas in the first place is that US wholesalers can't (freely) export to Canada, and vice versa. If the ban on that had been lifted, AstraZeneca wouldn't be able to set quotas per-country in the first place.
Manufacturer control over whole gets the buy drugs and what they can do with it after that is a cornerstone of drug distribution strategy. It also maintains drug pedigree and product integrity. I can't see it going away.
Manufacturer control over whole gets the buy drugs and what they can do with it after that is a cornerstone of drug distribution strategy. It also maintains drug pedigree and product integrity. I can't see it going away.
> Manufacturer control over whole gets the buy drugs and what they can do with it after that is a cornerstone of drug distribution strategy. It also maintains drug pedigree and product integrity. I can't see it going away.
Not really. Manufacturers already have essentially zero control over wholesale resale within the US. (They can track it, to assist in things like recalls, but they can't prevent it). And there are other countries which already permit free trade of US-produced pharmaceuticals between their own international borders. The only difference is that it can't cross the US border again, which is why the easiest way for manufacturers to make money is to price-gouge US customers.
Not really. Manufacturers already have essentially zero control over wholesale resale within the US. (They can track it, to assist in things like recalls, but they can't prevent it). And there are other countries which already permit free trade of US-produced pharmaceuticals between their own international borders. The only difference is that it can't cross the US border again, which is why the easiest way for manufacturers to make money is to price-gouge US customers.
I worked in the industry and every branded manufacturer I worked with had clear restrictions on who wholesalers can sell to.
We "disallow trade" for lots of legitimate reasons. One such reason is when government intervention in another country drives prices below market levels (e.g. we put high tariffs on Chinese steel to counter heavy Chinese government subsidization of that industry).
That's exactly what happens in Canada. Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive drug prices below efficient levels: http://www.becker-posner-blog.com/2009/12/should-the-governm.... Allowing re-importation of those drugs into the U.S. would create a price ceiling at whatever level the Canadian government had negotiated, and would effectively allow the Canadian government to set drug prices in the U.S.
That would be good for consumers in the short term, but not necessarily in the long term. It's no coincidence that the U.S. is the epicenter of pharmaceutical advancements. When I was a kid (early 1990s), HIV/AIDS was something we regarded as a death sentence. I vividly remember people talking in hushed tones when Magic Johnson was diagnosed in 1991. 26 years later, Magic Johnson is still kicking, HIV is no longer a death sentence, and we have Big Pharma to thank for it (and not Canada).
That's exactly what happens in Canada. Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive drug prices below efficient levels: http://www.becker-posner-blog.com/2009/12/should-the-governm.... Allowing re-importation of those drugs into the U.S. would create a price ceiling at whatever level the Canadian government had negotiated, and would effectively allow the Canadian government to set drug prices in the U.S.
That would be good for consumers in the short term, but not necessarily in the long term. It's no coincidence that the U.S. is the epicenter of pharmaceutical advancements. When I was a kid (early 1990s), HIV/AIDS was something we regarded as a death sentence. I vividly remember people talking in hushed tones when Magic Johnson was diagnosed in 1991. 26 years later, Magic Johnson is still kicking, HIV is no longer a death sentence, and we have Big Pharma to thank for it (and not Canada).
You talk as if the negotiated prices were permanent. The profit extraction flows like water - if most customers negotiate lower prices, then the one market that doesn't (the US), ends up carrying the bulk of the profits.
If the US closes down the allowed margin, the drug maker isn't just going to blink out of existence. I would expect a set of renegotiation between all it's existing customers to rebalance what is a reasonable profit to allow - which admittedly would likely be lower than what is extracted from the US market currently. But that is likely healthier for society in the long term as it would remove all the costs of inefficiency spent on this crazy drug pricing dance that occurs in the US.
If the US closes down the allowed margin, the drug maker isn't just going to blink out of existence. I would expect a set of renegotiation between all it's existing customers to rebalance what is a reasonable profit to allow - which admittedly would likely be lower than what is extracted from the US market currently. But that is likely healthier for society in the long term as it would remove all the costs of inefficiency spent on this crazy drug pricing dance that occurs in the US.
> we put high tariffs on Chinese steel to counter heavy Chinese government subsidization of that industry
That's not a good comparison, because we're talking about reimportation - ie, drugs that are produced in the US and exported to another country before being reimported. In general, nobody's interested in reimporting steel produced in the US and exported to China.
> Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive drug prices below efficient levels
First, Canadian healthcare is run at the provincial level, not at the federal level. So while each province/territory is a monopsony, they're each fairly small.
Secondly, pharmaceuticals are typically not covered in Canada; patients pay for most drugs out of pocket, and their generic prices are actually not much lower than they are in the US[0]
> Allowing re-importation of those drugs into the U.S. in effect allows the Canadian government to set drug prices in the U.S.
With free trade, another country is still free to subsidize the goods that it imports from the US, but with the knowledge that they'll be subsidizing whatever portion of Americans choose to reimport those drugs at the subsidized prices.
In reality, that reimportation won't need to happen, because it'll just apply backpressure on the initial sale prices in both markets from the manufacturer.
[0] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3107113/
That's not a good comparison, because we're talking about reimportation - ie, drugs that are produced in the US and exported to another country before being reimported. In general, nobody's interested in reimporting steel produced in the US and exported to China.
> Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive drug prices below efficient levels
First, Canadian healthcare is run at the provincial level, not at the federal level. So while each province/territory is a monopsony, they're each fairly small.
Secondly, pharmaceuticals are typically not covered in Canada; patients pay for most drugs out of pocket, and their generic prices are actually not much lower than they are in the US[0]
> Allowing re-importation of those drugs into the U.S. in effect allows the Canadian government to set drug prices in the U.S.
With free trade, another country is still free to subsidize the goods that it imports from the US, but with the knowledge that they'll be subsidizing whatever portion of Americans choose to reimport those drugs at the subsidized prices.
In reality, that reimportation won't need to happen, because it'll just apply backpressure on the initial sale prices in both markets from the manufacturer.
[0] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3107113/
> patients pay for most drugs out of pocket, and their generic prices are actually not much lower than they are in the US[0]
But rayiner's entire point is about incentivizing R&D by allowing the collection of monopoly rents on patented drugs; he's not talking about generics. How the market for generics is structure has essentially no impact on R&D. And as you say, since Canada's generics are nearly as expensive as in the US, or are more expensive (see below), re-importing generics does not usefully push down prices.
http://news.nationalpost.com/news/canada/this-is-why-canada-...
But rayiner's entire point is about incentivizing R&D by allowing the collection of monopoly rents on patented drugs; he's not talking about generics. How the market for generics is structure has essentially no impact on R&D. And as you say, since Canada's generics are nearly as expensive as in the US, or are more expensive (see below), re-importing generics does not usefully push down prices.
http://news.nationalpost.com/news/canada/this-is-why-canada-...
> But rayiner's entire point is about incentivizing R&D by allowing the collection of monopoly rents on patented drugs.
I'm pointing to the generics as an illustration of Canada's pharmaceutical prices not being as controlled as people often think. (In fact, in Canada they're not controlled directly at all - they're simply pegged by law to other countries which set their own prices).
I actually agree with rayiner's point about incentivizing R&D by allowing (temporary) collection of monopoly rents on patented drugs. I'm just saying that they should be collecting those monopoly rents from all countries that consume the drugs. Right now, they basically collect them only in the US, and allowing reimporting from other countries which respect US patent laws would ensure that all countries are contributing towards that in proportion to the amount that they actually consume the results of the R&D.
I'm pointing to the generics as an illustration of Canada's pharmaceutical prices not being as controlled as people often think. (In fact, in Canada they're not controlled directly at all - they're simply pegged by law to other countries which set their own prices).
I actually agree with rayiner's point about incentivizing R&D by allowing (temporary) collection of monopoly rents on patented drugs. I'm just saying that they should be collecting those monopoly rents from all countries that consume the drugs. Right now, they basically collect them only in the US, and allowing reimporting from other countries which respect US patent laws would ensure that all countries are contributing towards that in proportion to the amount that they actually consume the results of the R&D.
Ahh, I see. Thank you for clarifying.
> With free trade, another country is still free to subsidize the goods that it imports from the US, but with the knowledge that they'll be subsidizing whatever portion of Americans choose to reimport those drugs at the subsidized prices.
But that's the whole problem. Canada presumably doesn't want to subsidize U.S. citizens. The whole point is to provide a benefit for their own citizens. If Canada subsidizes a popular but expensive drug so that it costs $1 for Canadians, with that drug being freely exportable, that could be billions of dollars lost, depending on how much of the savings compared to the country that imports it is in a better negotiated price and how much is subsidized by the government of Canada.
> In reality, that reimportation won't need to happen, because it'll just apply backpressure on the initial sale prices in both markets from the manufacturer.
It will happen for as long as the manufacturer resists. If the price difference is mostly because of subsidies and not a better negotiated price, that cost difference would be paid by Canada, and the manufacturer has no incentive to change the price. In fact, they may have the opposite, since they are still getting paid well, and the drug is effectively marketable as being much cheaper than what they are charging.
But that's the whole problem. Canada presumably doesn't want to subsidize U.S. citizens. The whole point is to provide a benefit for their own citizens. If Canada subsidizes a popular but expensive drug so that it costs $1 for Canadians, with that drug being freely exportable, that could be billions of dollars lost, depending on how much of the savings compared to the country that imports it is in a better negotiated price and how much is subsidized by the government of Canada.
> In reality, that reimportation won't need to happen, because it'll just apply backpressure on the initial sale prices in both markets from the manufacturer.
It will happen for as long as the manufacturer resists. If the price difference is mostly because of subsidies and not a better negotiated price, that cost difference would be paid by Canada, and the manufacturer has no incentive to change the price. In fact, they may have the opposite, since they are still getting paid well, and the drug is effectively marketable as being much cheaper than what they are charging.
> But that's the whole problem. Canada presumably doesn't want to subsidize U.S. citizens.
Well, right now the US is effectively subsidizing Canadians, because the US is funding the majority of the pharmaceutical research that produces the drugs they consume. Half of the entire world's funding for pharmaceutical research comes from the US. A large chunk of that is funded by earnings on pharmaceutical sales[0][1].
> If Canada subsidizes a popular but expensive drug so that it costs $1 for Canadians
This is kind of a moot point, because Canada doesn't do that.
> It will happen for as long as the manufacturer resists.
I don't understand what you mean by "resist". If reimportation were permitted, the manufacturer literally has no power to prevent cross-border trade. In your hypothetical scenario, yes, Canada would probably adjust the degree to which they subsidize their drugs, but that's a moot point because they're not actually doing that.
[0] and again, most of that come from the US, because earnings will be higher where the sale prices are highest
[1] http://www.slate.com/articles/news_and_politics/explainer/20...
Well, right now the US is effectively subsidizing Canadians, because the US is funding the majority of the pharmaceutical research that produces the drugs they consume. Half of the entire world's funding for pharmaceutical research comes from the US. A large chunk of that is funded by earnings on pharmaceutical sales[0][1].
> If Canada subsidizes a popular but expensive drug so that it costs $1 for Canadians
This is kind of a moot point, because Canada doesn't do that.
> It will happen for as long as the manufacturer resists.
I don't understand what you mean by "resist". If reimportation were permitted, the manufacturer literally has no power to prevent cross-border trade. In your hypothetical scenario, yes, Canada would probably adjust the degree to which they subsidize their drugs, but that's a moot point because they're not actually doing that.
[0] and again, most of that come from the US, because earnings will be higher where the sale prices are highest
[1] http://www.slate.com/articles/news_and_politics/explainer/20...
> I don't understand what you mean by "resist".
Resists changing the price in the country that is imported into.
Let's consider this hypothetical scenario. A popular drug is sold for $100 in the U.S., but the Canadian government subsidizes it to the degree that Canadians pay $50 for it (and Canada has negotiated a price of $80). The drug can by and is imported into the U.S. and sold for $60.
There is no incentive for the manufacturer to lower the price. Even if they lower it to $80, they are losing out on some purchases who choose to buy at the higher price. They either make $80 or $100 depending on where they sold, but for ever unit that is imported, Canada is losing $30, which is partially going to subsidize the price for U.S. citizens, and partially to import/export costs.
With open export regulations on drugs, there is effectively no way to subsidize a drug for your own citizens without subsidizing it for others where it is lower than another country that allows importation as long as the combined import fees and subsidized cost are not more than the cost in the importing country.
Resists changing the price in the country that is imported into.
Let's consider this hypothetical scenario. A popular drug is sold for $100 in the U.S., but the Canadian government subsidizes it to the degree that Canadians pay $50 for it (and Canada has negotiated a price of $80). The drug can by and is imported into the U.S. and sold for $60.
There is no incentive for the manufacturer to lower the price. Even if they lower it to $80, they are losing out on some purchases who choose to buy at the higher price. They either make $80 or $100 depending on where they sold, but for ever unit that is imported, Canada is losing $30, which is partially going to subsidize the price for U.S. citizens, and partially to import/export costs.
With open export regulations on drugs, there is effectively no way to subsidize a drug for your own citizens without subsidizing it for others where it is lower than another country that allows importation as long as the combined import fees and subsidized cost are not more than the cost in the importing country.
> Resists changing the price in the country that is imported into.
If they don't, then people will just import drugs from the cheaper source, as long as it remains cheaper. Which amounts to the same thing.
> With open export regulations on drugs, there is effectively no way to subsidize a drug for your own citizens without subsidizing it for others where it is lower than another country that allows importation as long as the combined import fees and subsidized cost are not more than the cost in the importing country.
Correct. And on the flip side, there is no way for one country to force the other to subsidize its share of medical research, by purchasing the drugs at a price that doesn't cover R&D. Currently, that's what is happening. Pharmaceutical companies don't complain too much, though, because they can still make up the difference off of their largest customer: the US. If they couldn't, then things would be very different.
The US is the largest consumer of patent-protected drugs, by a huge margin. It also funds half of all medical research worldwide, the benefits of which are then available to all countries, even though most pay rates that wouldn't sustain that level of research. There's a reason that even most European pharmaceutical companies get the bulk of their research funding from the US.
Any solution which reduces drug prices in the US will inevitably result in either other countries that recognize US parents having to pay more, or total medical research funding dropping, which affects all countries worldwide. Realistically, it'll probably be some combination of both.
If they don't, then people will just import drugs from the cheaper source, as long as it remains cheaper. Which amounts to the same thing.
> With open export regulations on drugs, there is effectively no way to subsidize a drug for your own citizens without subsidizing it for others where it is lower than another country that allows importation as long as the combined import fees and subsidized cost are not more than the cost in the importing country.
Correct. And on the flip side, there is no way for one country to force the other to subsidize its share of medical research, by purchasing the drugs at a price that doesn't cover R&D. Currently, that's what is happening. Pharmaceutical companies don't complain too much, though, because they can still make up the difference off of their largest customer: the US. If they couldn't, then things would be very different.
The US is the largest consumer of patent-protected drugs, by a huge margin. It also funds half of all medical research worldwide, the benefits of which are then available to all countries, even though most pay rates that wouldn't sustain that level of research. There's a reason that even most European pharmaceutical companies get the bulk of their research funding from the US.
Any solution which reduces drug prices in the US will inevitably result in either other countries that recognize US parents having to pay more, or total medical research funding dropping, which affects all countries worldwide. Realistically, it'll probably be some combination of both.
I think fundamentally what we have here is the collision of socialism and capitalism, and I'm not sure how to make those work at the margins where they meet. Government funding of research is socialism, but selling the developed drugs is capitalism, and selling them outside the funding country without an increase in price costs the funding country.
I'm not sure what the research on this topic says, but I suspect the solution is moving the demarcation of socialism and capitalism to a more acceptable point, as much as that makes sense. For example, instead of freely funding development, if the government got some ownership stake in the drugs developed with some of their funding, as profits as well, then any gain from their own citizens or the citizens of other countries would go towards teh budget, and thus the good of the citizens of the funding government.
I guess the real question is how do you mix capitalism and socialism in a way that eliminates, or at least reduces the friction caused where they push up against each other?
I'm not sure what the research on this topic says, but I suspect the solution is moving the demarcation of socialism and capitalism to a more acceptable point, as much as that makes sense. For example, instead of freely funding development, if the government got some ownership stake in the drugs developed with some of their funding, as profits as well, then any gain from their own citizens or the citizens of other countries would go towards teh budget, and thus the good of the citizens of the funding government.
I guess the real question is how do you mix capitalism and socialism in a way that eliminates, or at least reduces the friction caused where they push up against each other?
> I think fundamentally what we have here is the collision of socialism and capitalism, and I'm not sure how to make those work at the margins where they meet. Government funding of research is socialism, but selling the developed drugs is capitalism, and selling them outside the funding country without an increase in price costs the funding country.
I don't think you really want to call what happens in Europe and Canada "socialism" in this context, because it's quite literally "Europe and Canada receive the benefits while the US pays for it". That's a definition of socialism I've heard, but only ever in a pejorative context. And government funding of research is not "socialism". It can happen in a socialist society, or it can happen in a capitalist one, and it's not inherently inconsistent (or synonymous) with either philosophy).
I'm also not really thrilled with this framing of "socialism vs. capitalism", because Canada and most European countries do not officially claim to be socialist[0], and most of them aren't particularly socialist in practice. As a result, discussing the topic on those terms runs the very real risk of veering off into abstract philosophy without much grounding in the practical matter at hand, which is a very far way off from the original article.
[0] Of all Western, Central, or Scandanavian European countries, only one (Portugal) even claims to be socialist officially, and that claim is made rather nominally.
I don't think you really want to call what happens in Europe and Canada "socialism" in this context, because it's quite literally "Europe and Canada receive the benefits while the US pays for it". That's a definition of socialism I've heard, but only ever in a pejorative context. And government funding of research is not "socialism". It can happen in a socialist society, or it can happen in a capitalist one, and it's not inherently inconsistent (or synonymous) with either philosophy).
I'm also not really thrilled with this framing of "socialism vs. capitalism", because Canada and most European countries do not officially claim to be socialist[0], and most of them aren't particularly socialist in practice. As a result, discussing the topic on those terms runs the very real risk of veering off into abstract philosophy without much grounding in the practical matter at hand, which is a very far way off from the original article.
[0] Of all Western, Central, or Scandanavian European countries, only one (Portugal) even claims to be socialist officially, and that claim is made rather nominally.
I'm not labeling countries socialist and capitalist, I'm labeling practices such. I was talking about socialism and capitalism purely within the context of the U.S.
Government funding of medical research for the good of its citizens is socialistic. Selling developed drugs on the market is capitalistic. When you use government funds for something which is eventually sold, but the government doesn't receive any direct compensation, there's a friction between the socialistic and capitalistic forces at play, and that's what we've been discussing.
To be clear, I've made zero claims as to what is better, just that dthey engender different incentives that don't always play well with each other. My personal view is that there are definitely things we want the state to handle (some degree of welfare including health, some level of regulation of various parts of the economy), but the details as to how much government control are the important bits. Purely socialist and purely capitalist environments don't seem to function nearly as well as a mix, from what I've gleaned from history.
Government funding of medical research for the good of its citizens is socialistic. Selling developed drugs on the market is capitalistic. When you use government funds for something which is eventually sold, but the government doesn't receive any direct compensation, there's a friction between the socialistic and capitalistic forces at play, and that's what we've been discussing.
To be clear, I've made zero claims as to what is better, just that dthey engender different incentives that don't always play well with each other. My personal view is that there are definitely things we want the state to handle (some degree of welfare including health, some level of regulation of various parts of the economy), but the details as to how much government control are the important bits. Purely socialist and purely capitalist environments don't seem to function nearly as well as a mix, from what I've gleaned from history.
Couldn't Canada in this case change the way they handle the subsidy, such that they only subsidize drugs consumed by Canadian citizens, or some such? In other words, you can not export a subsidized drug without refunding the subsidy first. That way, imports would be at the negotiated cost plus markup, rather than the subsidized negotiated price.
You could make it a capped tax write off, and that may prevent a large single actor from exporting, but it won't stop many individual people from reselling to a local exporter for some quick case. In other words, it adds a small per-limit cost to the exporter to deal with individual people and aggregate, but doesn't address exporting overall very well.
That is so interesting. I had no idea Canada didn't cover drugs.
That's a pretty shitty way of saying that somebody has to pay and it has to be us (the USA).
Shafting the American consumer because the rest of the world can't or won't pay the "true" cost (including research / marketing / profits) isn't a solution.
Shafting the American consumer because the rest of the world can't or won't pay the "true" cost (including research / marketing / profits) isn't a solution.
It's insane. I need a drug that costs about $8k every two months in the US. However, I'm living in Canada right now, where it costs $4k. My US insurance company just decided they will no longer cover the drug in Canada, so instead of paying the $4k CAD, they're now going to pay $8k USD and I'll go pick up the drug across the border. Seems like a lose-lose.
You are misunderstanding the incentives of the insurance company. They get to keep 20% of money that passes through them. The only way they can make more money is by increasing the money flow.
You lose though. Insurance is part of your total compensation, you are paying for all this. It's averaged out across a bunch of people, but you are still paying for it.
In summary, drug company wins, insurance company wins, your employer doesn't care and you lose. But you don't even know you lost, and can do nothing about it even if you wanted to.
You lose though. Insurance is part of your total compensation, you are paying for all this. It's averaged out across a bunch of people, but you are still paying for it.
In summary, drug company wins, insurance company wins, your employer doesn't care and you lose. But you don't even know you lost, and can do nothing about it even if you wanted to.
As I and other have mentioned before, the easiest way to fix this would be to permit re-importing drugs that were manufactured within the US.
The easiest way to fix this is to have cost controls like every other 1st-world country in the world on drugs and medical procedures. Unfortunately, this is treasonous to Republicans and Democrats are spineless. The current system will be upheld until people get fed up enough to vote for real change.
The easiest way to fix this is to have cost controls like every other 1st-world country in the world on drugs and medical procedures. Unfortunately, this is treasonous to Republicans and Democrats are spineless. The current system will be upheld until people get fed up enough to vote for real change.
> The easiest way to fix this is to have cost controls like every other 1st-world country in the world on drugs
Ignoring the incredibly loaded term "first world country", that's not true. Not all other "first-world" countries implement price controls on drugs.
Secondly, as explained below, the only reason that works for them is that the single largest consumer of patent-protected drugs (the US) does not, and thereby ends up subsidizing medical research for the rest of the world. (Half of all medical research in the world is funded by the US, and even many European pharmaceutical companies fund their research from the US).
Ignoring the incredibly loaded term "first world country", that's not true. Not all other "first-world" countries implement price controls on drugs.
Secondly, as explained below, the only reason that works for them is that the single largest consumer of patent-protected drugs (the US) does not, and thereby ends up subsidizing medical research for the rest of the world. (Half of all medical research in the world is funded by the US, and even many European pharmaceutical companies fund their research from the US).
I took that statement directly from this Frontline episode:
http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/
It was clearly stated, over and over again.
"First world country" was the phrase they used, as well.
http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/
It was clearly stated, over and over again.
"First world country" was the phrase they used, as well.
Wait, so following suit would then lower prices in the US and pass on the costs to the rest of the world?
..Sold!
..Sold!
> Wait, so following suit would then lower prices in the US and pass on the costs to the rest of the world? ..Sold!
Yes, which is why basically any American should support drug reimporting[0]. But pharmaceutical companies lobbied heavily against it, so it was taken out of the ACA, and it's been defeated in Congress (albeit by a narrow margin) each time it's come up since then.
[0] Conversely, countries which import drugs from the US (which includes all developed nations) have a very vested interest in not letting pharmaceutical prices in the US drop.
Yes, which is why basically any American should support drug reimporting[0]. But pharmaceutical companies lobbied heavily against it, so it was taken out of the ACA, and it's been defeated in Congress (albeit by a narrow margin) each time it's come up since then.
[0] Conversely, countries which import drugs from the US (which includes all developed nations) have a very vested interest in not letting pharmaceutical prices in the US drop.
I've been buying albuterol inhalers from Mexico for a several years now. Most of my life these inhalers cost a few bucks, but a few years back (2010?) they started costing me $50 for just the copay.
It turns out the pharma lobby was able to get congress to ban CFCs from inhalers (even though the amount of CFCs in these is trivial). Because of that they were able to re-patent them and start charging more. Now I go to Mexico every couple years and buy a bunch of them for less than $1 each. It's the same medication I've always used, now with spanish on the package.
EDIT
Here's a link that talks about the pharma lobby shenanigans for albuterol inhalers: http://www.motherjones.com/kevin-drum/2013/10/heres-why-your...
And here's another that talks more about medical patent evergreening: http://www.nytimes.com/2013/10/13/us/the-soaring-cost-of-a-s...
It turns out the pharma lobby was able to get congress to ban CFCs from inhalers (even though the amount of CFCs in these is trivial). Because of that they were able to re-patent them and start charging more. Now I go to Mexico every couple years and buy a bunch of them for less than $1 each. It's the same medication I've always used, now with spanish on the package.
EDIT
Here's a link that talks about the pharma lobby shenanigans for albuterol inhalers: http://www.motherjones.com/kevin-drum/2013/10/heres-why-your...
And here's another that talks more about medical patent evergreening: http://www.nytimes.com/2013/10/13/us/the-soaring-cost-of-a-s...
[deleted]
It's interesting how the villains of drug pricing have gone from the drug companies to the PBMs.
At any rate, I don't agree that PBMs cause drug costs to increase. PBMs are simply purchasing groups for insurance companies. They take advantage of bulk purchasing and offer that service to insurers. They also handle the all the complexities in setting a formulary which includes evaluating new drugs, negotiating with drug companies and adjudicating claims. That has real value.
The best example of how PBMs have controlled drug pricing is in HCV. Express Script directly attacked the pricing of Harvoni and Sovaldi. However there was nothing they could do since they were the only HCV drugs available. However, when Viekira Pak became available, Express Script did an exclusive deal with Abbvie which caused Gilead to scramble to price match. The cost of HCV drugs came down by almost 40% overnight. It saved the health care system a lot of money.
Now, I do agree that PBMs pull a fast one on some insurance companies. They are intentionally opaque when it comes to how much you pay for their services. The smart insurance companies ask for "pass through" pricing and then pay the PBM a fee for their services. The not-so-smart insurance companies don't ask for those numbers and get put over a barrel.
At any rate, I don't agree that PBMs cause drug costs to increase. PBMs are simply purchasing groups for insurance companies. They take advantage of bulk purchasing and offer that service to insurers. They also handle the all the complexities in setting a formulary which includes evaluating new drugs, negotiating with drug companies and adjudicating claims. That has real value.
The best example of how PBMs have controlled drug pricing is in HCV. Express Script directly attacked the pricing of Harvoni and Sovaldi. However there was nothing they could do since they were the only HCV drugs available. However, when Viekira Pak became available, Express Script did an exclusive deal with Abbvie which caused Gilead to scramble to price match. The cost of HCV drugs came down by almost 40% overnight. It saved the health care system a lot of money.
Now, I do agree that PBMs pull a fast one on some insurance companies. They are intentionally opaque when it comes to how much you pay for their services. The smart insurance companies ask for "pass through" pricing and then pay the PBM a fee for their services. The not-so-smart insurance companies don't ask for those numbers and get put over a barrel.
Interesting and rather specific and niche perspective. Would you agree that the biggest problems in our healthcare system are transparency, i.e., no way of telling how much something is going to cost in spite of all the data existing to provide just that, and the crushing administrative costs of a system that seems to incentivize massive administrative burdens?
Actually the PBMs are a big villain here. They pocket the difference between the retail price of a drug and the discounts they negotiate with the drug makers. They choose the drugs on their formulary based on this spread.
This one of the reasons why you will see prices for drugs like Insulin going up with each manufacturer raising price in lock-step. The drug makers are not competing to sell the consumer insulin, they are competing to get on the formulary of the PBM.
This one of the reasons why you will see prices for drugs like Insulin going up with each manufacturer raising price in lock-step. The drug makers are not competing to sell the consumer insulin, they are competing to get on the formulary of the PBM.
But that's their job! They are supposed to negotiate lower prices. They, in turn, can market their formulary to insurance companies by saying "If you use us, we can offer a lower cost pharmacy benefit."
And if you're a smart insurance company, you do your due diligence and don't negotiate a contract where you have no transparency into the PBMs costs.
And if you're a smart insurance company, you do your due diligence and don't negotiate a contract where you have no transparency into the PBMs costs.
What "job" is that? There is no reason for these companies to exist. Incentivizing drug companies to raise prices in lockstep... to keep the middlemen happy? That is a very perverse incentive
>There is no reason for these companies to exist.
It is clear you don't know much about PBMs. Maybe try to rephrase your comment as a question.
It is clear you don't know much about PBMs. Maybe try to rephrase your comment as a question.
Well yeah that's the problem. They dont pass the discount on to me. I pay full retail price, and they keep the discount. This is why Express Scripts is a $100 BILLION company. And that's for managing Formularies you say?
Express Scripts Holding Company is the largest pharmacy benefit management (PBM) organization in the United States,[20] with 2013 revenues of $104.62 billion.[21] In 2012 Express Scripts' $29.1 billion acquisition of rival Medco Health Solutions (once the nation's largest PBM) created "a powerhouse in managing prescription drug benefits."
Express Scripts Holding Company is the largest pharmacy benefit management (PBM) organization in the United States,[20] with 2013 revenues of $104.62 billion.[21] In 2012 Express Scripts' $29.1 billion acquisition of rival Medco Health Solutions (once the nation's largest PBM) created "a powerhouse in managing prescription drug benefits."
Well yeah that's the problem. They dont pass the discount on to me. I pay full retail price, and they keep the discount. This is why Express Scripts is a $100 BILLION company. And that's for managing Formularies you say?
The discounts are passed through via lower insurance premiums. You don't really see that since your employer pays the premiums.
And yes, ESI is a $100B per year company with $3.4B in net income.[1] A stunning 3.4%. Not that different than a grocery store.
[1]http://financials.morningstar.com/ratios/r.html?t=ESRX
The discounts are passed through via lower insurance premiums. You don't really see that since your employer pays the premiums.
And yes, ESI is a $100B per year company with $3.4B in net income.[1] A stunning 3.4%. Not that different than a grocery store.
[1]http://financials.morningstar.com/ratios/r.html?t=ESRX
Well no. I pay for it all out of pocket. My deductible is high enough that I pay for all that medication. It's about $6000/year. My insurance premiums are $1400 per month by the way. So no, there's no magical cost saving being passed back to me.
In this case I think there are several tiers of villains.
There is hardly a single villain in the existing system. Everyone is making a profit that is ultimately at the expense of the citizens.
And even despots do some good. It doesn't mean they are any less a villain.
And even despots do some good. It doesn't mean they are any less a villain.
This is just another example of how messed up the US medical "market" is. Almost everywhere you look there are hidden prices, hidden middlemen and so on. I am not aware of any other market where things are so opaque and convoluted.
If the current administration was serious about markets they should mandate that all pricing becomes transparent so a real functioning market can actually develop.
If the current administration was serious about markets they should mandate that all pricing becomes transparent so a real functioning market can actually develop.
What good would that do when the customers of the service do not pay for it nor can they even evaluate differences in quality?
Consider eg, the cost of higher education in the US. Tuition is listed up front and students may trivially price compare... yet prices continually go up all the same.
Consider eg, the cost of higher education in the US. Tuition is listed up front and students may trivially price compare... yet prices continually go up all the same.
I like the 'allow drugs to be bought from Canada' idea. I've been buying mine from India for years at about 1/4th the cost.
Absolutely agree. Something long the lines of what pricepain.com had in mind. This "market" is so ripe for disruption like no other. Sadly, its guarded by a lot of lobbying power and artificial regulations. I think they get away with it "because health".
Americans are now so used to this insane system they can't even conceive that it actually doesn't have to be that way.
I see you're getting downvoted, but you're right. This whole thread is filled with utter lunacy. Just look at the top post. It's some middle-man explaining how his company is innovative because they've figured out how to take a cut of the massive economic rents, and everyone seems to just be nodding along sagely.
What really gets me is this idiot notion that the US is somehow subsidising everyone else's healthcare. In actual fact, pharmaceutical / medical device companies will simply charge whatever the market will bear, and it just so happens the US market will bear almost any price. If some market won't bear a profit making price, pharma companies simply won't sell into it.
It makes utterly no sense to sell at a loss and then cross subsidise using the massive rents extracted from US markets, yet that is exactly what most people here seem to believe is happening. Then again, maybe basic economics somehow doesn't apply to these super exceptional markets in the super exceptional USA.
What really gets me is this idiot notion that the US is somehow subsidising everyone else's healthcare. In actual fact, pharmaceutical / medical device companies will simply charge whatever the market will bear, and it just so happens the US market will bear almost any price. If some market won't bear a profit making price, pharma companies simply won't sell into it.
It makes utterly no sense to sell at a loss and then cross subsidise using the massive rents extracted from US markets, yet that is exactly what most people here seem to believe is happening. Then again, maybe basic economics somehow doesn't apply to these super exceptional markets in the super exceptional USA.
Interesting takeaway: going forward I'll always ask the pharmacy if paying out of pocket would actually be cheaper than using my insurance and paying a copay.
I have insurance with a high deductible. That means, I'm most likely paying a price similar to a cash patient.
Often, it makes more sense to use a free 3rd party "coupon/membership" prescription company to get a better price.
Here are two that have saved me money.
https://www.goodrx.com https://www.blinkhealth.com/
Often, it makes more sense to use a free 3rd party "coupon/membership" prescription company to get a better price.
Here are two that have saved me money.
https://www.goodrx.com https://www.blinkhealth.com/
The price they quote you may be their cash price, which will often be higher than your copay. You can also check which free PBMs they accept and see what those prices are.
It is almost always the case when it is a generic drug. Also, try to check the price at the small non-chain pharmacy, cash price might be better.
Some pharmacies already compare the prices, actually, and when the drug is cheaper than your copay, you just pay the lower amount. At least the pharmacies I've been to in Indiana were like that (CVS mostly, but sometimes Walgreen's).
> The Pharmaceutical Care Management Association, the industry’s lobbying group, claims that PBMs will save health plans $654 billion over the next decade.
That's about $16 per person per month. Not a very compelling argument for keeping your drug monopolies: eliminating them costs little more than a Netflix subscription.
That's about $16 per person per month. Not a very compelling argument for keeping your drug monopolies: eliminating them costs little more than a Netflix subscription.
Keep in mind that insurance companies make decisions based on a change in cost of only $0.05 per member. $16 per person is HUGE when you're talking about an insurer who covers 30M+ people.
I can say this article rings very true. I am generally very impressed by the accuracy of the points raised.
But make sure not to associate all PBMs with this practice. We too don't like it.
I am pretty high up at a PBM (not one of the big three), and can say our model does not play the same games (crimes!).
The point about MAC pricing is not exactly fair however. Some customers prefer to engage this way since it reflects revenue based solely on the usage of medications prescribed. It might sound odd, but this way we reduce (or near zero) other fees that we charge the customer. In general, we DONT recommend this model, but in some cases, it makes sense.
I have to stay anon, since I don't speak officially for the company; all opinions are my own.
I'm going to make the statement that perscription drugs aren't like other products and shouldn't be viewed as such. People literally need them to survive. This whole system of having something you need to survive being subject to market forces like some other widget is ridculous. Price fixing is absolutely a reasonable tactic to employ when the market for prescription drugs in the US is as completely useless at delivering reasonable costs to patients as it is.
You need food to survive as well, but any price fixing inevitably reduces supply. Reducing supplies of food is counterproductive.
[deleted]
We need food to survive, and market forces work fine. In fact, I would say that the U.S. supermarket is a model of market efficiency.
A great deal of agricultural regulation and subsidy goes into ensuring the food supply is consistent and in excess of demand. Also, food is almost entirely substitutable - you don't NEED any particular food item. (And for items where there aren't good substitutes, like milk for babies, we have extra subsidies to ensure supply.) Also, no one has a government-granted monopoly on "bread" or "fish". Therefore, the market for food doesn't degenerate under the conditions that prevail currently.
If you needed to eat a whole wheat bagel (only) in the next 24 hours or you would die, and whole wheat bagels were under a government-granted monopoly, the bagel manufacturer could charge you any amount they'd like, couldn't they?
If you needed to eat a whole wheat bagel (only) in the next 24 hours or you would die, and whole wheat bagels were under a government-granted monopoly, the bagel manufacturer could charge you any amount they'd like, couldn't they?
Are you claiming that hunger, malnutrition, and diet-imposed diseases (diabetes, obesity, vitamin deficiencies) don't exist?
If that's the case, then perhaps the market is working find.
If it isn't, then ... perhaps your assertion fails.
If that's the case, then perhaps the market is working find.
If it isn't, then ... perhaps your assertion fails.
When I can buy drugs from the Pharamacy for $1.69 a pound I'll be happy to see it driven by market forces. The market simply isn't doing a good enough job getting medications to consumers at a reasonable price.
Look at OTC medication costs, every store makes their own generic and they are very cheap.
Not to be pedantic, but a handful of pharma companies, like Teva and Perrigo make them on behalf of the stores. It's a small, but important distinction. The pharma market is more of a market than most people appreciate. One pharma co's margin is another's opporunity.
When it costs $1.69 to create a new drug, then you'd have a point.
The system is always subject to market forces. The government can budge the market around, but it's like pushing on one part of a balloon--it'll just have an effect somewhere else. When you set prices, you drive investment and talent out of the industry. Why spend years getting a PhD in biochemistry when you can go make $400k/year with just a BS at Google? It's precisely because people need drugs to survive that it's counterproductive to take measures that make pharmaceuticals a less attractive market to invest in, which fixing prices would do.
Almost all other developed economies use this approach and it works for them. Many Of these very companies are based on those very countries. We need a reasonable price for these medications. The market isn't delivering them. The scandal here isn't the pay these companies researchers receive. I'm happy to have them paid more for their work. To me the scandal is how much profit is being taken while many people go without due to the price. What do you say to those people who might die for lack of funds?
How much are you willing to pay the nine teams of scientists whose experimentation fails to yield any useful medications for every one that works?
The problem is that most people only want to pay for the ones that work.
Thankfully there are companies that manage that market risk taking on our behalf and take a fee for the service.
The problem is that most people only want to pay for the ones that work.
Thankfully there are companies that manage that market risk taking on our behalf and take a fee for the service.
"How much are you willing to pay the nine teams of scientists whose experimentation fails to yield any useful medications for every one that works?"
The same yearly salary that the folks on the "success" team make. I don't see why success is the issue here. I'd just make sure the failure is public information so that others can learn from it. After all, the things that don't work aren't valueless and the drug may be effective for something else.
The same yearly salary that the folks on the "success" team make. I don't see why success is the issue here. I'd just make sure the failure is public information so that others can learn from it. After all, the things that don't work aren't valueless and the drug may be effective for something else.
Should we have two teams or twenty researching drugs? How should we prioritize them? Focus on a couple diseases that are extraordinarily hard technically, but impact a small number of highly sympathetic, photogenic victims as with rare childhood diseases? Or problems that treat low intensity pains that could also be treated with behavior change like heartburn drugs and Type II diabetes meds?
What should we do if we find out that a heart disease is ineffective at reducing heart attacks, but seems to help treat erectile dysfunction as was the case with Viagra? Do we divert funds to commercialize that "breakthrough" or redeploy those research dollars back to primary research on heart health?
"Big Pharma" might not be optimal, and I have eaten in their mahogany-paneled executive dining rooms so I know there are healthy profits. But at the end of the day, they have turned death sentences like Leukemia into highly curable conditions. Are there examples of similarly impactful breakthroughs coming out of centrally-planned economies? Until then, I'm happy to pay high insurance premiums and deductibles for methotrexate, vincristine, dexamethasone, and the dozen other drugs I give my daughter to keep her alive.
What should we do if we find out that a heart disease is ineffective at reducing heart attacks, but seems to help treat erectile dysfunction as was the case with Viagra? Do we divert funds to commercialize that "breakthrough" or redeploy those research dollars back to primary research on heart health?
"Big Pharma" might not be optimal, and I have eaten in their mahogany-paneled executive dining rooms so I know there are healthy profits. But at the end of the day, they have turned death sentences like Leukemia into highly curable conditions. Are there examples of similarly impactful breakthroughs coming out of centrally-planned economies? Until then, I'm happy to pay high insurance premiums and deductibles for methotrexate, vincristine, dexamethasone, and the dozen other drugs I give my daughter to keep her alive.
As many as possible, with international cooperation so that there is diversity. I'm not the best to know how to prioritize them because all have their benefits. I'm guessing there are different folks working on different aspects, and I hope this stuff continues.
I think the proper thing to do with things such as viagra would be to move them over to the proper research team once they become specialized: Viagra would be moved either to a men's health specialist or a sexual health specialist. Viagra can be commercialized, sure, but it can also make a huge difference in mental health - possibly for more than one person. And I do think we should sell them for recreational use as well, if there is that sort of use and use the profits to reinvest or let those be big pharma profits. Possibly in heart health, since lots of folks need that sort of thing.
Contrary to what my post says, I don't mind big pharma in itself. Sure, there are issues, but I don't mind them making profit. I just wish we'd do more - including making sure you don't have unaffordable premiums and deductibles just to live (as in my view, life is a human right if we can prevent the death).
I think the proper thing to do with things such as viagra would be to move them over to the proper research team once they become specialized: Viagra would be moved either to a men's health specialist or a sexual health specialist. Viagra can be commercialized, sure, but it can also make a huge difference in mental health - possibly for more than one person. And I do think we should sell them for recreational use as well, if there is that sort of use and use the profits to reinvest or let those be big pharma profits. Possibly in heart health, since lots of folks need that sort of thing.
Contrary to what my post says, I don't mind big pharma in itself. Sure, there are issues, but I don't mind them making profit. I just wish we'd do more - including making sure you don't have unaffordable premiums and deductibles just to live (as in my view, life is a human right if we can prevent the death).
In any labour market, the minimum you pay is what it takes to keep the worker, and the workforce capability, viable. That's straight out of Adam Smith, Wealth of Nations (Book 1, Chapter 8, "Wages of Labour").
You'll want to consider additional premia for the expenses of education and risk. Again, as a minimum.
The question of whether or not to reward successful teams on top of that really comes down to whether or not success is based on characteristics of the workers or is some random chance attribute. Giving high rewards for what are effectively spins of the roulette wheel doesn't strike me as particularly valid. Rewarding effective methodology and procedure, however, does.
You'll want to consider additional premia for the expenses of education and risk. Again, as a minimum.
The question of whether or not to reward successful teams on top of that really comes down to whether or not success is based on characteristics of the workers or is some random chance attribute. Giving high rewards for what are effectively spins of the roulette wheel doesn't strike me as particularly valid. Rewarding effective methodology and procedure, however, does.
WHAAAAAAT?!
You don't hang around scientists much, do you? The people researching and making these drugs do not make a very good living. Not caring about your salary is seen as a mark of a good scientist, I've heard it from many, many people I work under. Most scientists make absolutely crap, even the ones in the pharma sector.
The majority of the pharma profits go straight to the business people that make all sorts of weird deals, jack up prices after cornering the market, get certain chemicals/processes banned so they can re-patent the same drug under a new mechanism, etc.
>Why spend years getting a PhD in biochemistry when you can go make $400k/year with just a BS at Google?
Because they like the work and find it interesting, go ask literally any scientist today. Reducing the profitability of pharma companies will hardly move the salaries for scientists because they are not at all tied to profits.
You don't hang around scientists much, do you? The people researching and making these drugs do not make a very good living. Not caring about your salary is seen as a mark of a good scientist, I've heard it from many, many people I work under. Most scientists make absolutely crap, even the ones in the pharma sector.
The majority of the pharma profits go straight to the business people that make all sorts of weird deals, jack up prices after cornering the market, get certain chemicals/processes banned so they can re-patent the same drug under a new mechanism, etc.
>Why spend years getting a PhD in biochemistry when you can go make $400k/year with just a BS at Google?
Because they like the work and find it interesting, go ask literally any scientist today. Reducing the profitability of pharma companies will hardly move the salaries for scientists because they are not at all tied to profits.
You're over privileging people using the drug today and undervaluing the hundreds of millions who will use it for decades to come. For the most part, the expensive drugs like Sovaldi are under patent protection. That protection lasts for 20 years at max, and practically, a much smaller window since R&D cycles eat much of that time up leaving a small commercial window. Once the patent expires, companies like Teva and Perrigo line up to make generic versions of the drugs and flood the market at ridiculously low prices. A small group pays a surcharge for the long term benefit of society.
Sort of. Once the patent expires, the R&D machine will try hard to create new drugs that are just slightly different or potentially "better" in some vague small way for some small number of people, and then the sales/marketing machine will try hard to market to doctors and consumers the idea that this new, still patented version is the right thing and the best and the old stuff is crap.
The new stuff will actually benefit a tiny number of people, but mostly, you'll end up with a lot of those future generation which you think were going to save money, not saving any because they're wrongly prescribed a newer fancier drug that doesn't actually have any benefits for them over the old generic one. This is how pharma has their cake and eats it too.
The new stuff will actually benefit a tiny number of people, but mostly, you'll end up with a lot of those future generation which you think were going to save money, not saving any because they're wrongly prescribed a newer fancier drug that doesn't actually have any benefits for them over the old generic one. This is how pharma has their cake and eats it too.
Besides the freedom of speech issue, what arguments are there for not banning prescription drug ads?
Side note:It's also important to remember it takes an extraordinary amount of investment to get a new drug to market. Often our 'staple' drugs are being used to fund future cures.
Ah, the tried and true method of making a market non-free. Increase number of middlemen and make processes complicated so that no transparency remains.
I think blaming drug companies and wholesalers just misses the point.
Drugs are really good today. Not even the life saving types, but also things like migraine medication or acid reflux relief. If you suffer and have the means, you'll pay what the market demands for relief. And we live in a wealthy country.
Drugs are really good today. Not even the life saving types, but also things like migraine medication or acid reflux relief. If you suffer and have the means, you'll pay what the market demands for relief. And we live in a wealthy country.
That's true, but there are also many drugs on the market which are barely better than a placebo, or even more harmful than no medication. However, they are still prescribed and billed for as if they are effective.
Have any examples? The FDA won't approve a drug unless safety and efficacy have been proven.
Over the counter cough syrup is a weird category. It is an old drug, and some of the studies are mixed. The FDA regulations weren't the same back then, and so it still has the approval. It has some issues when kids take a whole bottle, which means some places restrict its sale - but overall, it hasn't proved harmful to folks either.
Cough drops are another one. There isn't much evidence they make you breathe better, yet people report that they do. They think this is likely due to the reaction menthol has on mucus membranes - it feels cool on the air one is breathing so they feel their breath. Yet, menthol is considered a drug and as such, it must have an FDA approval.
Edit: I know these aren't prescription, but they were the first ones I thought of.
Cough drops are another one. There isn't much evidence they make you breathe better, yet people report that they do. They think this is likely due to the reaction menthol has on mucus membranes - it feels cool on the air one is breathing so they feel their breath. Yet, menthol is considered a drug and as such, it must have an FDA approval.
Edit: I know these aren't prescription, but they were the first ones I thought of.
Unfortunately that process is a lot more complex than one might think, like everything else involving medicine, government, or even worse, a combination of the two. Safety and efficacy are not a binary condition, either.
Questions you might ask are, how effective does a drug have to be to be approved? Is it better to have false positives or false negatives? Who pays for and conducts the studies, and who reviews them? How many FDA officials used to work for or lobby for the companies they are regulating?
There are many drugs withdrawn for the reasons I mentioned - ineffectiveness or harm. While I don't personally maintain a handy list of links to articles about this topic, this list contains many drugs that were withdrawn from the market for the reasons mentioned: https://en.m.wikipedia.org/wiki/List_of_withdrawn_drugs
First thing I clicked on: https://en.m.wikipedia.org/wiki/Indoprofen Withdrawn for causing severe gastrointestinal bleeding
Questions you might ask are, how effective does a drug have to be to be approved? Is it better to have false positives or false negatives? Who pays for and conducts the studies, and who reviews them? How many FDA officials used to work for or lobby for the companies they are regulating?
There are many drugs withdrawn for the reasons I mentioned - ineffectiveness or harm. While I don't personally maintain a handy list of links to articles about this topic, this list contains many drugs that were withdrawn from the market for the reasons mentioned: https://en.m.wikipedia.org/wiki/List_of_withdrawn_drugs
First thing I clicked on: https://en.m.wikipedia.org/wiki/Indoprofen Withdrawn for causing severe gastrointestinal bleeding
Every drug is approved based on a risk vs. benefit analysis. The FDA can't know exactly what will happen when the drug is approved since you can't test a drug on every patient prior to approval (that would be unethical).
No one should be surprised when a few drugs are pulled off the market post-launch. I would argue the FDA didn't make a mistake here and the system works.
No one should be surprised when a few drugs are pulled off the market post-launch. I would argue the FDA didn't make a mistake here and the system works.
All I was asserting was my original statement. Many drugs are on the market which are ineffective or harmful. As far as your conclusion there, like your other question it's dramatically over simplified. Whether it 'works' or not seems like a judgement so binary as to be useless. How well it works depends on many factors that we haven't discussed at all.
If your drug is so good, you should let the market decide what the fair price.
The problem is that drug companies and wholesalers don't let that happen by lobbying against open markets and government paid healthcare.
The problem is that drug companies and wholesalers don't let that happen by lobbying against open markets and government paid healthcare.
I'm in favor of government-paid healthcare, but you can't have a functioning free market when one buyer dominates. It's the mirror situation of a monopoly.
If your drug is so good, you should let the market decide what the fair price.
Contrary to what people think, drug companies can't just charge whatever they want. Take a look at the HCV drugs. They priced too high and their sales are eroding very quickly. If they had priced lower, they probably would have seen even greater profits.
Contrary to what people think, drug companies can't just charge whatever they want. Take a look at the HCV drugs. They priced too high and their sales are eroding very quickly. If they had priced lower, they probably would have seen even greater profits.
How so? There are only so many patients to treat. Sales are eroding mostly because competition has brought prices down and improved drugs allow for shorter treatments.
The price was too high. There are millions of untreated HCV patients out there that can't get treated because insurance companies won't pay for the drugs.
Now the prices are lower... and the profits as well.
Yes, but insurance companies haven't loosened the reins on these drugs. Even with the lower prices, patients are being denied.
Not completely true (the restrictions have been eased a bit) but how does this fact support your claim? ("If they had priced lower, they probably would have seen even greater profits.") Profits were higher when prices were higher.
Yes, access has gotten better, somewhat driven by discounts, but also driven by lawsuits against Medicaid.
Where I'm coming from is that there are 3.5M people in the US with HCV. Let's say 10% are in California (350,000). Many of them are on Medicaid. Medicaid estimates it will be spend $1B on these drugs in 2017[1]. Based on that article, it comes out to 14,300 patients. A small fraction of those with HCV.
I would imagine if Gilead had priced lower (maybe starting at $40K and discounting from there) they would have had much less payer pushback and likely a huge increase in numbers treated. Payers are still telling people "yes you have HCV, but no you're not sick enough".
[1]http://californiahealthline.org/news/medi-cal-to-spend-nearl...
Where I'm coming from is that there are 3.5M people in the US with HCV. Let's say 10% are in California (350,000). Many of them are on Medicaid. Medicaid estimates it will be spend $1B on these drugs in 2017[1]. Based on that article, it comes out to 14,300 patients. A small fraction of those with HCV.
I would imagine if Gilead had priced lower (maybe starting at $40K and discounting from there) they would have had much less payer pushback and likely a huge increase in numbers treated. Payers are still telling people "yes you have HCV, but no you're not sick enough".
[1]http://californiahealthline.org/news/medi-cal-to-spend-nearl...
I see is no reason to think the increase in numbers treated would have been so large that payers would have spent more dollars than they did, so its not clear that Gilead's revenue (let alone profit) would have been higher.
We agree to disagree!
I think Gilead's pricing scheme left a bad taste in the payer's mouths and probably caused them to be much more restrictive than they otherwise would have.
Yes, payers still would have worried about total budget impact, but a lower price means more value. If a payer can spend another $1M and treat another 50 patients (at $20K) vs. 10 patients (at $100K) I get the sense they would have felt it more worthwhile.
I think Gilead's pricing scheme left a bad taste in the payer's mouths and probably caused them to be much more restrictive than they otherwise would have.
Yes, payers still would have worried about total budget impact, but a lower price means more value. If a payer can spend another $1M and treat another 50 patients (at $20K) vs. 10 patients (at $100K) I get the sense they would have felt it more worthwhile.
But the price is lower now! They could be spending a bit more (or even the same) to treat many more patients than they did in 2015, but instead they choose to spend much less to treat a few more patients. Of course you are free to imagine that it could have happened differently.
While this country may be wealthy, there's rampant disparity in who holds that wealth. This is an issue because real people are making the decision to either pay for food or pay for life-saving medications they depend on. The number of people in the cross-section of "suffering" and "have the means" is much lower than the number of people in the cross-section of "suffering" and "don't have the means", and rational society is based on the simple premise of making decisions that optimize society for the majority.
> If you suffer and have the means, you'll pay what the market demands for relief.
Actually you'll [be forced to] pay above that price, because the market is distorted by non-free-market forces. The moment drug companies arrange to intervene by having the law altered to their favor, blaming them for inflated prices becomes entirely reasonable.
Actually you'll [be forced to] pay above that price, because the market is distorted by non-free-market forces. The moment drug companies arrange to intervene by having the law altered to their favor, blaming them for inflated prices becomes entirely reasonable.
A number of the PBMs are cross invested in pharmacies and insurance companies, and the incentives of 2-3 large pharmacies that control the majority of the market (and how they get paid) is very different than how small pharmacies get paid.
Additionally the way the generic market works vs the branded (patented) meds is completely different. (and the system of how drugs move from patented to generic is _nothing_ like the way patents work in software)
Which is all to say, it's a fascinating space. It's very ripe for innovation.
If you're interested in this kind of thing at Blink we're building a price transparency and payment platform that both routes over and routes around PBMs and gives a unified fair price for everyone in the US.
If you're interested in roughly what the wholesale price is plus a very small markup, you can find it on https://blinkhealth.com
And we're hiring. https://www.blinkhealth.com/careers
Also the re-importing from Canada is a total red herring. As is implied in the term "re-importing" these drugs are made here in the US, there is nothing special about sending them to Canada and bringing them back. There just needs to be a payment platform that allows people to pay the wholesale price with a small markup (vs the "Average Wholesale Price" which is often a 2000-3000% markup over the real wholesale)
Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it.