Drugmakers are abandoning cheap generics(kffhealthnews.org)
kffhealthnews.org
Drugmakers are abandoning cheap generics
https://kffhealthnews.org/news/article/drugmakers-are-abandoning-cheap-generics-and-now-us-cancer-patients-cant-get-meds/
103 comments
This is probably a good example why naive market economics thinking is problematic.
Any "ideal market" assumes some kind of demand elasticity, i.e. people will buy more when it's cheap and less when it's expensive. But for cancer drugs, that really shouldn't be the case. The amount of drugs a patient takes should be determined by the best science, not some market mechanism.
Any "ideal market" assumes some kind of demand elasticity, i.e. people will buy more when it's cheap and less when it's expensive. But for cancer drugs, that really shouldn't be the case. The amount of drugs a patient takes should be determined by the best science, not some market mechanism.
Well obviously the enlightened consumer would simply choose not to have cancer when the price of treatment is too high or the supply too low, thus keeping everything in balance and the theory working perfectly. Ceteris paribus of course.
"Ooo, the drugs for this cancer are cheap and plentiful. I'll choose this cancer for my terminal disease."
Indeed! ”Now let’s assume a perfectly spherical cancer patient…”
to be fair, it should be possible to study rates of cancer incidence for a given population and predict which drugs would be needed based on typical progression rates, with a national reserve of the ones that are less common to supply shortfalls as needed
That's kind of the point of regular health check ups
> But for cancer drugs, that really shouldn't be the case.
The elasticity isn't in the amount, but in whether the patient obtains the drug.
If there are few patients, the demand would be low.
The elasticity isn't in the amount, but in whether the patient obtains the drug.
If there are few patients, the demand would be low.
Medicine is the textbook example of perfectly inelastic demand.
Its not at all, customers can still use substitute products (which is what generics are in the first place).
If demand was perfectly inelastic we would not be having the problem of generics manufacturers having to close down because their margins are too thin.
It's interesting how FED and central banks use naive market economics thinking to "fight" current inflation.
Inflation up? Rates up.
Zero consideration for what is actually causing it. That's grossly negligent and yet the execs get paid handsome money for this rubbish and won't face any consequences of ruining people's lives.
Inflation up? Rates up.
Zero consideration for what is actually causing it. That's grossly negligent and yet the execs get paid handsome money for this rubbish and won't face any consequences of ruining people's lives.
> Zero consideration for what is actually causing it.
You probably never listened to a Jerome Powell press conference. He spends so much time explaining what the causes of inflation are, and what the Fed can do about some of them.
> yet the execs get paid handsome money for this rubbish
What execs get paid handsome money? The Fed employees are government employees, their salary is public. Jerome Powell makes $200k/year [1]. The other Fed board members make less. Is that handsome money?
[1] https://markets.businessinsider.com/news/stocks/jerome-powel...
You probably never listened to a Jerome Powell press conference. He spends so much time explaining what the causes of inflation are, and what the Fed can do about some of them.
> yet the execs get paid handsome money for this rubbish
What execs get paid handsome money? The Fed employees are government employees, their salary is public. Jerome Powell makes $200k/year [1]. The other Fed board members make less. Is that handsome money?
[1] https://markets.businessinsider.com/news/stocks/jerome-powel...
The actual scarcity of real materials, machinery, and labour in the world is not merely "some market mechanism".
It's indirect and inexact, but it's not random.
It's indirect and inexact, but it's not random.
I don’t understand how you can ignite market forces in health care. How else can you balance priorities for all the different uses that people’s financial resources can be used for? What does it even mean to let science decide? No cap on spending?
> What does it even mean to let science decide?
In the case of cancer, it means a patient should be given the appropriate dose for their diagnosis, as determined by what science has shown to be effective.
In the case of cancer, it means a patient should be given the appropriate dose for their diagnosis, as determined by what science has shown to be effective.
Like imagine a few decades ago when it could have cost more than 1 billion dollars to sequence the dna of a cancer tumor. If science could show that it is effective in treating cancer to have the dna sequenced should the tax payers have paid 1 billion dollars to save one persons life? That would plainly be absurd.
This principle would just be summed up as an inelastic good in economic terms. Market forces apply wether or not we want them too. To me it seems, this would result in us being willing to pay any price for it, which may even be the correct principle. It should however, then not be surprising when cancer treatments cost 100s of thousands.
> What does it even mean to let science decide? No cap on spending?
Typically, QALYs, Quality Adjusted Life Years. We decide how much (in dollar terms if you're just that fundamentalist about it, but person hours or other metrics are fine too) a QALY is worth, and we will spend no more than that on healthcare interventions.
The set of situations where there's a viable intervention but it's too expensive isn't empty, but it's not large either, so, you just build a bureaucracy to handle those cases.
Typically, QALYs, Quality Adjusted Life Years. We decide how much (in dollar terms if you're just that fundamentalist about it, but person hours or other metrics are fine too) a QALY is worth, and we will spend no more than that on healthcare interventions.
The set of situations where there's a viable intervention but it's too expensive isn't empty, but it's not large either, so, you just build a bureaucracy to handle those cases.
For the love of God, don't do this. This will mean MBA's do 2 things:
1) on the medical provider end, find every possible excuse to charge 1% more and pay it out to themselves, not using it for patient care
2) on the insurance/government end, find every possible way to charge 1% less, no matter the cost
So yes "let science decide" means to let doctors decide what care to provide (meaning you'd need a difficult admissions test for this class of people). Yes, they will cheat, which will benefit themselves, but also patients. And there's a limit, because doctors are fundamentally limited. And then you just eat the cost, and have a board (IMPORTANT: of doctors) weed out the worst abusers on a regular basis. And yes, if a doctor says "spend X on this patient", then we spend X on that patient. End of discussion.
And yes, this is probably "mercantilist" instead of capitalist, and provides a fundamentally unfair advantage in the economy to people who manage to get the degree of medical doctor. In trade, you get good health care.
1) on the medical provider end, find every possible excuse to charge 1% more and pay it out to themselves, not using it for patient care
2) on the insurance/government end, find every possible way to charge 1% less, no matter the cost
So yes "let science decide" means to let doctors decide what care to provide (meaning you'd need a difficult admissions test for this class of people). Yes, they will cheat, which will benefit themselves, but also patients. And there's a limit, because doctors are fundamentally limited. And then you just eat the cost, and have a board (IMPORTANT: of doctors) weed out the worst abusers on a regular basis. And yes, if a doctor says "spend X on this patient", then we spend X on that patient. End of discussion.
And yes, this is probably "mercantilist" instead of capitalist, and provides a fundamentally unfair advantage in the economy to people who manage to get the degree of medical doctor. In trade, you get good health care.
Healthcare is very, very far from "an example of perfect competition". For example, there are apparently plentiful supplies of both drugs discussed in the article in China, but they can't be legally used because they don't have the appropriate FDA paperwork, purchasing agreements with the middlemen who distribute drugs, etc etc.
I have to wonder if this results in some kind of blackmarket trade for cancer drugs or other treatments that don't fall into the street drugs category. If it does, I am ignorant to it, likely because I am just beginning to understand (in my 40's, mind you) that the US health care system is so remarkably broken, my asthma treatments are governed not by my doctor, but whatever insurance my employer decides to carry. Lots of excellent replies here shedding some light on micro/macro ecenomics of the whole thing, but in a scary "how did it get like this" way.
Not just the US.
New Zealand has free health care, but there are a variety of drugs you can’t get prescribed easily (often because the system is trying to prevent drug-seeking). However it regularly ends up that necessary medicines are legally unobtainable (two situations recently in my own family). I have seen friends turn to illegal sources, or seek substitutes (especially “alternative” medicines and/or internet bullshit).
New Zealand has free health care, but there are a variety of drugs you can’t get prescribed easily (often because the system is trying to prevent drug-seeking). However it regularly ends up that necessary medicines are legally unobtainable (two situations recently in my own family). I have seen friends turn to illegal sources, or seek substitutes (especially “alternative” medicines and/or internet bullshit).
I live in former USSR, and here we have the opposite problem: everything (except for psychoactive drugs; for those you need to use black market) is on sale, open market essentualy. At any neighborhood pharmacy you can buy any drug, antibiotics, anticancer you name it, no prescription required. Which is also a very bad practice.
It wouldn't be surprising. Back on the first Silk Road site, you could get more than just "fun drugs" / street drugs. Medical tourism has also been a thing for a long time. There was also some drama around insulin not that long ago, plenty of Americans went to Canada or Mexico for it.
I illegally smuggled medication that I needed in from Canada when I didn't have health insurance in college. I had a prescription but couldn't afford US prices.
There are plenty of online prescription (no proof required) drug markets shipping generics from India, and yes, this does include cancer drugs.
> There might be external forces...
Seems reasonable to upgrade "might" to "must". The article is quoting drugs with a sticker price of $6. It isn't reasonable to say that drug manufacturers would rather let the market enter a state of shortage rather than price their drug at $12 and see what happens. On a bad day I can buy bottled water at insane markups at these sort of prices, and water is much easier to compete with. Drug companies could easily be charging $10 for something that usually costs $6 and that would push the market towards a profitable equilibrium price. People aren't that picky about their purchases if there are no alternatives.
My money is on it being illegal to charge the real market rate if it involves raising prices.
Seems reasonable to upgrade "might" to "must". The article is quoting drugs with a sticker price of $6. It isn't reasonable to say that drug manufacturers would rather let the market enter a state of shortage rather than price their drug at $12 and see what happens. On a bad day I can buy bottled water at insane markups at these sort of prices, and water is much easier to compete with. Drug companies could easily be charging $10 for something that usually costs $6 and that would push the market towards a profitable equilibrium price. People aren't that picky about their purchases if there are no alternatives.
My money is on it being illegal to charge the real market rate if it involves raising prices.
You didn't read the article at all. That's not what is happening.
Plants in India undercut everyone in price and drove them out of the market by making a substandard and dangerous version of the drug violating basic safety standards. The FDA failed miserably to detect this until everyone was driven out of the market by these low prices.
Had the FDA done it's job from day 1 this would not have happened. And had we built a strategic reserve in case something went wrong we would have enough of a buffer to weather this storm.
Plants in India undercut everyone in price and drove them out of the market by making a substandard and dangerous version of the drug violating basic safety standards. The FDA failed miserably to detect this until everyone was driven out of the market by these low prices.
Had the FDA done it's job from day 1 this would not have happened. And had we built a strategic reserve in case something went wrong we would have enough of a buffer to weather this storm.
What the article says is that the shortage of vital generic drugs, such as cisplatin and carboplatin used in cancer treatment, primarily stems from the financial struggles of the generic drug industry. A host of issues, including constant pressure to reduce prices, thin profit margins, and shifting focus towards more profitable high-priced drugs, have led manufacturers to cease production of many essential generics. Further complicating matters, oversight of production quality is challenging for overseas manufacturers, and a lack of contingency plans for sudden disruptions, as seen with the closure of the Intas Pharmaceuticals plant in India, exacerbates shortages. So, the complex problem spans across supply chain challenges, market dynamics, and regulatory shortfalls.
I focused on the thin profit margins and the consequences.
I focused on the thin profit margins and the consequences.
> What the article says is that the shortage of vital generic drugs, such as cisplatin and carboplatin used in cancer treatment, primarily stems from the financial struggles of the generic drug industry.
Then perhaps the government should be building plants to produce these domestically as clearly they need to be a common good rather than subject to the free market, no?
Or, perhaps, we shouldn't allow medical equipment and supplies to be manufactured overseas and imported as that results in cheap overseas manufacturers dumping product at prices sufficiently low that they will cut corners hoping the FDA doesn't catch them all the while driving out domestic suppliers?
Or, perhaps, any company found to have imported drugs from a plant that won't pass FDA inspection needs to have its executives sitting in fucking jail so that US companies have a vested interest in directly inspecting their overseas plants?
See, there are solutions ...
Then perhaps the government should be building plants to produce these domestically as clearly they need to be a common good rather than subject to the free market, no?
Or, perhaps, we shouldn't allow medical equipment and supplies to be manufactured overseas and imported as that results in cheap overseas manufacturers dumping product at prices sufficiently low that they will cut corners hoping the FDA doesn't catch them all the while driving out domestic suppliers?
Or, perhaps, any company found to have imported drugs from a plant that won't pass FDA inspection needs to have its executives sitting in fucking jail so that US companies have a vested interest in directly inspecting their overseas plants?
See, there are solutions ...
The first one is a great idea. Nationalizing pharma is much simpler and better roi than trying to nationalize all of medicine. As pharma makes up half of medical spending, it is by far the lowest hanging fruit.
Options 2 and 3 are wretched ideas. It’s the reason we have $100 insulin instead of $3. It’s also why the US has inferior treatments in certain areas.
Logically the FDA kills X amount of people per year by hindering rapid and accessible adoptable of medicine. They save Y by hindering the adoption of bad medicine.
In theory Y is higher than X, but I am skeptical if that is still true.
I’d recommend you watch Dallas Buyers Club.
Options 2 and 3 are wretched ideas. It’s the reason we have $100 insulin instead of $3. It’s also why the US has inferior treatments in certain areas.
Logically the FDA kills X amount of people per year by hindering rapid and accessible adoptable of medicine. They save Y by hindering the adoption of bad medicine.
In theory Y is higher than X, but I am skeptical if that is still true.
I’d recommend you watch Dallas Buyers Club.
Nationalizing all pharma would be a bad idea. It'd never pass congress either.
However, medicare having say the ability to produce generic drugs if they're not being produced sufficiently might fly.
Another would be Medicare a greeting to buy X amount of some drugs from non-profit manufacturer setup specifically just to produce generics. Though even Medicare being able to negotiate prices would be huge wins.
However, medicare having say the ability to produce generic drugs if they're not being produced sufficiently might fly.
Another would be Medicare a greeting to buy X amount of some drugs from non-profit manufacturer setup specifically just to produce generics. Though even Medicare being able to negotiate prices would be huge wins.
I see. Well, if the government is going to fund treatment I think it should prioritize treatment for me. We can deal with the cancer patients later.
I've got a bit of a cold right now. Once we've solved that we can spend on the cancer patients.
Alternatively, less inflammatorily, the marginal dollar will provide more social utility if spent on buying tirzepatide and mass producing it. So let's do that first.
I've got a bit of a cold right now. Once we've solved that we can spend on the cancer patients.
Alternatively, less inflammatorily, the marginal dollar will provide more social utility if spent on buying tirzepatide and mass producing it. So let's do that first.
> Plants in India undercut everyone in price and drove them out of the market by making a substandard and dangerous version of the drug violating basic safety standards
Someone is buying those "substandard" products or it wouldn't be driving competitors out of business. Did the FDA suddenly realized something the rest of the Regulatory bodies didn't?
Someone is buying those "substandard" products or it wouldn't be driving competitors out of business. Did the FDA suddenly realized something the rest of the Regulatory bodies didn't?
Yeah, we are buying these substandard and dangerous products and putting them in our bodies.
They ship generic drugs to the US. The FDA is the regulator. And their regulatory system is terrible. They run extremely infrequent checks, they give months of notice before they do so, and they still manage to find horrific safety violations.
Instead of constant checks that would find small things, they discover a mess every time. This time they found everything you could possibly imagine: incorrect drugs, impure drugs, falsified tests, engineers overriding safety software when it reported impurities, incorrect amounts with falsified reports, etc.
They ship generic drugs to the US. The FDA is the regulator. And their regulatory system is terrible. They run extremely infrequent checks, they give months of notice before they do so, and they still manage to find horrific safety violations.
Instead of constant checks that would find small things, they discover a mess every time. This time they found everything you could possibly imagine: incorrect drugs, impure drugs, falsified tests, engineers overriding safety software when it reported impurities, incorrect amounts with falsified reports, etc.
> Here, multiple generic drug manufacturers are competing to win sales contracts by offering the lowest possible price. This can be seen as an example of perfect competition, where firms are price takers and compete mainly on price, driving prices down to the point where they equal the marginal cost of production.
In Switzerland there are laws covering biddings, where the state has to accept the second to lowest offering, not the lowest, thereby circumventing this race.
In Switzerland there are laws covering biddings, where the state has to accept the second to lowest offering, not the lowest, thereby circumventing this race.
I am interested why governments are not setting up national drug production companies.
Cheap healthcare products ensures more productive society, that needs less spend on healthcare and pays more taxes.
National businesses do not care for being profitable and will keep prices in check for monopoly profiteers, but probably not be lean enough to kill private generics businesses.
Cheap healthcare products ensures more productive society, that needs less spend on healthcare and pays more taxes.
National businesses do not care for being profitable and will keep prices in check for monopoly profiteers, but probably not be lean enough to kill private generics businesses.
The correct answer, indeed. Healthcare, education, trains, etc. don’t need to make a profit. Central planning can choose to produce for need, instead.
Where is the consumer - the sick cancer patient - represented in your analysis?
I am not saying that this is the way it should be.
Understood, I was actually wondering where they fit in your analysis. It seems they are locked out of direct participation in a transaction that is ultimately harmful to them, with no regulatory protections for /them/.
The suffering patient is not the customer.
The customer is the health insurance. This is why most of the health systems have issues now, because the patient is not the customer, the patient is only a vehicle to extract money out of the health insurance.
The customer is the health insurance. This is why most of the health systems have issues now, because the patient is not the customer, the patient is only a vehicle to extract money out of the health insurance.
The person consuming the medicine is not the consumer? I catch your point, and maybe you’re right if the insurance company is paying 100%, but if there is a co-pay of any sort the sick cancer patient is also the consumer.
[deleted]
In going to be brutally cynical.
Cisplatin may cost $6 a dose to buy, I bet it sells for much more at the US hospital to the Insurance company or god forbid the patient.
Cisplatin may cost $6 a dose to buy, I bet it sells for much more at the US hospital to the Insurance company or god forbid the patient.
At the hospital, the cost of cisplatin also includes the salary of the chemo pharmacist, the chemo nurse, and the medical oncologist (plus probably layers of unnecessary bureaucratic administrators)
Notably, it's a multi-day fraction of those salaries, regardless of the multi-minute effort they put in to "analyze" a purely statistical inference which is applied to the individual patient.
http://janaushadhi.gov.in/ProductList.aspx
at least in india we have this generic medicine system that is run by the government. Not a fan of a lot of things but generic medicine at very very low prices.
check this link out and search for medicine.
remember the prices are in indian rupees where $ 1 USD = 90 INR ~.
they have cancer medicine, surgical supplies, basically almost all generic medicine under the sun.
I wonder why cant this model be replicated in other countries.
at least in india we have this generic medicine system that is run by the government. Not a fan of a lot of things but generic medicine at very very low prices.
check this link out and search for medicine.
remember the prices are in indian rupees where $ 1 USD = 90 INR ~.
they have cancer medicine, surgical supplies, basically almost all generic medicine under the sun.
I wonder why cant this model be replicated in other countries.
This is where they should be applying fuzzy logic principles. Go with the second lowest bidder always or something like that. Some markets already do this.
> This is where they should be applying fuzzy logic principles. Go with the second lowest bidder always or something like that. Some markets already do this.
In a market with only two bidders, the more expensive one is guaranteed to get whatever they ask for.
In a market with only two bidders, the more expensive one is guaranteed to get whatever they ask for.
Something's still missing though. If there really were a shortage, absent any irregularities, prices go up, someone else steps in to make it to earn more money, albeit maybe after sometime.
Seems to me just something wrong / slowing down the price adjustment mechanism? e.g. layers of regulation / bureaucracy or whatever it is the US runs on these days?
Seems to me just something wrong / slowing down the price adjustment mechanism? e.g. layers of regulation / bureaucracy or whatever it is the US runs on these days?
That markets and companies don't respond as fast as machine traders do seems to confuse and anger people and then make them denounce the whole thing.
Bureaucracy is certainly part of the problem, but absent that it still takes quite a while to set up mass production. Time from CEO saying "start producing drug X" to the first doses coming off the line is going to be months at minimum. This works great for ibuprofen, but cancer drugs are kind of time sensitive.
Months are preferable to years approachong a decade, which is the current case due to regulatory and IP controls.
The article isn't really just about cancer drugs, but people care more about cancer than ADHD or diet drugs so it's useful to headline the cancer drugs towards a search for reform.
The actual story is about a long list of drug shortages across a wide variety of categories, driven by a wide variety of proximal causes. That list is here: https://www.accessdata.fda.gov/scripts/drugshortages/default...
I count about 15 drugs which are in shortage or recently were in shortage that are also proprietary and don't have generics available on the market. On one hand you can say "well 15 out of 220 clearly shows generics are more likely to have shortages!" but the vast majority of drugs (counted either by licensed drugs or prescriptions written) are generics. There's not a clear correlation between whether a drug has generics available vs. whether it is or recently was subject to a shortage.
Bacteriostatic water / Water for injection absolutely fits the model you posited -- American Regent discontinued production and no one else wants to fill the gap because as soon as demand is satisfied, prices will plummet and drive negative ROI. Game theory shows the stable equilibrium is continued shortage for these generics, as you've stated. But your model does not fit Wegovy, Semaglutide, Ozempic, Avycaz, Trulicity, Ultravist, etc.
Commodities like medicine and food do have terrible price elasticity which cause great problems in unregulated markets. Unsupported, these commodity prices can crash to floor, and in one year farmers might switch to other crops or shut their doors forever, and then in the next year there would be huge shortages and high prices which take too many years to fix. The original commodity swing could be caused by anything - consumers decide for whatever reason that milk/cheese just isn't that cool this year, last year prices went up 10% and then too many farmers jumped in on that commodity so this year there's a massive oversupply, etc. The natural free-market state of things is: wild price swings and capacity chasing last year's profits/losses. Ideally the futures markets would help stabilize these prices by creating incentive for smart people to predict capacity-demand equilibria for upcoming years and allocate capital appropriately but it doesn't seem to do that effectively for really any inelastic commodity, at least from what I see -- all minerals/oil/gas/food/etc seem to experience incredible price swings on a regular basis. The nature of reality is that demand for inelastic commodities does not seem to be able to be predicted to the precision needed to maintain stable prices and maintain the necessary revenue flows to keep enough producers online in a free market.
That's a major reason why many (most? all?) developed nations create various "Farm Safety Nets" to help create an annual floor for the production of basic food staples. The USDA knows about how much of each basic food staple the nation needs in an average year and works to ensure that something like 110% of this amount is produced each year. They do this by paying for excess production -- in years when consumer demand is low, they pay the excess and leave it up to the farmers to figure out what to do with the product that no one wants. Maybe it's sold at a nominal loss to someone who can use it for something else, maybe it's buried in the ground, whatever. (During parts of the COVID swings, new Farm Safety Nets were authorized because the farmers literally didn't have enough cash to even dispose of some excess food). These basic crops include milk, wheat, oats, barley, corn, grain sorghum, rice, soybeans, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, dry peas, lentils, chickpeas, etc etc.
There's still the possibility that too many players jump into a market, prices crash, and some producers fail. But the USDA does their damnedest to ensure that 110% (or whatever, I don't know what their target safety margin is) of the necessary production is well supported and can go on to produce again with more guaranteed margins next year.
We probably need more systems like this for some other industries -- medicine being a pretty good contender for the first industry we should put more attention into. It's been working well for our farms and food supplies for 100 years. It has the potential to be used disastrously in a failed communist style USSR/Mao planned-economy debacle or an equally disastrous kleptocractic / regulatory capture / campaign finance corruption / conflict-of-interest debacle, but we've been doing it already for a century and we seem to be doing it reasonably well, all things considered. Though the shortages and price spikes of the past few years since COVID do give me a bit of pause.
The actual story is about a long list of drug shortages across a wide variety of categories, driven by a wide variety of proximal causes. That list is here: https://www.accessdata.fda.gov/scripts/drugshortages/default...
I count about 15 drugs which are in shortage or recently were in shortage that are also proprietary and don't have generics available on the market. On one hand you can say "well 15 out of 220 clearly shows generics are more likely to have shortages!" but the vast majority of drugs (counted either by licensed drugs or prescriptions written) are generics. There's not a clear correlation between whether a drug has generics available vs. whether it is or recently was subject to a shortage.
Bacteriostatic water / Water for injection absolutely fits the model you posited -- American Regent discontinued production and no one else wants to fill the gap because as soon as demand is satisfied, prices will plummet and drive negative ROI. Game theory shows the stable equilibrium is continued shortage for these generics, as you've stated. But your model does not fit Wegovy, Semaglutide, Ozempic, Avycaz, Trulicity, Ultravist, etc.
Commodities like medicine and food do have terrible price elasticity which cause great problems in unregulated markets. Unsupported, these commodity prices can crash to floor, and in one year farmers might switch to other crops or shut their doors forever, and then in the next year there would be huge shortages and high prices which take too many years to fix. The original commodity swing could be caused by anything - consumers decide for whatever reason that milk/cheese just isn't that cool this year, last year prices went up 10% and then too many farmers jumped in on that commodity so this year there's a massive oversupply, etc. The natural free-market state of things is: wild price swings and capacity chasing last year's profits/losses. Ideally the futures markets would help stabilize these prices by creating incentive for smart people to predict capacity-demand equilibria for upcoming years and allocate capital appropriately but it doesn't seem to do that effectively for really any inelastic commodity, at least from what I see -- all minerals/oil/gas/food/etc seem to experience incredible price swings on a regular basis. The nature of reality is that demand for inelastic commodities does not seem to be able to be predicted to the precision needed to maintain stable prices and maintain the necessary revenue flows to keep enough producers online in a free market.
That's a major reason why many (most? all?) developed nations create various "Farm Safety Nets" to help create an annual floor for the production of basic food staples. The USDA knows about how much of each basic food staple the nation needs in an average year and works to ensure that something like 110% of this amount is produced each year. They do this by paying for excess production -- in years when consumer demand is low, they pay the excess and leave it up to the farmers to figure out what to do with the product that no one wants. Maybe it's sold at a nominal loss to someone who can use it for something else, maybe it's buried in the ground, whatever. (During parts of the COVID swings, new Farm Safety Nets were authorized because the farmers literally didn't have enough cash to even dispose of some excess food). These basic crops include milk, wheat, oats, barley, corn, grain sorghum, rice, soybeans, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, dry peas, lentils, chickpeas, etc etc.
There's still the possibility that too many players jump into a market, prices crash, and some producers fail. But the USDA does their damnedest to ensure that 110% (or whatever, I don't know what their target safety margin is) of the necessary production is well supported and can go on to produce again with more guaranteed margins next year.
We probably need more systems like this for some other industries -- medicine being a pretty good contender for the first industry we should put more attention into. It's been working well for our farms and food supplies for 100 years. It has the potential to be used disastrously in a failed communist style USSR/Mao planned-economy debacle or an equally disastrous kleptocractic / regulatory capture / campaign finance corruption / conflict-of-interest debacle, but we've been doing it already for a century and we seem to be doing it reasonably well, all things considered. Though the shortages and price spikes of the past few years since COVID do give me a bit of pause.
Why this comment reads too much like a well-fine-tuned-to-sound-real GPT?
I went back and read the comment again and I'd guess it's that first sentence. IME the ChatGPT models tend to output something similar to that when you ask them to answer questions as an expert in a field.
Probably because you've been reading a lot of GPT output in other venues?
> Cisplatin and carboplatin are made in special production lines under sterile conditions, and expanding or changing the lines requires FDA approval.
Is this reflected in your microeconomical model? It should break the assumptions of most theorems.
Is this reflected in your microeconomical model? It should break the assumptions of most theorems.
"MEDICINE SHORTAGE REPORTS DATABASE
The medicine shortage reports database includes information about shortages of reportable medicines in Australia
https://apps.tga.gov.au/Prod/msi/search?shortagetype=All"
Here in Australia, 414 medications are in short supply. I regularly get pharmacists ringing me to inform me that the medication I prescribed for a patient is unavailable.
That is the result of American middleman companies like Premier and Vizient squeezing every last paisa out of Indian generic manufacturers. Some of them decide to close their production lines and switch to manufacturing more profitable medications.
The medicine shortage reports database includes information about shortages of reportable medicines in Australia
https://apps.tga.gov.au/Prod/msi/search?shortagetype=All"
Here in Australia, 414 medications are in short supply. I regularly get pharmacists ringing me to inform me that the medication I prescribed for a patient is unavailable.
That is the result of American middleman companies like Premier and Vizient squeezing every last paisa out of Indian generic manufacturers. Some of them decide to close their production lines and switch to manufacturing more profitable medications.
> The causes of shortages are well established. Everyone wants to pay less, and the middlemen who procure and distribute generics keep driving down wholesale prices. The average net price of generic drugs fell by more than half between 2016 and 2022, according to research by Anthony Sardella, a business professor at Washington University in St. Louis.
> As generics manufacturers compete to win sales contracts with the big negotiators of such purchases, such as Vizient and Premier, their profits sink. Some are going out of business.
I'm confused, how is it that the prices are being driven so low that the supply dries up despite continued demand?
> As generics manufacturers compete to win sales contracts with the big negotiators of such purchases, such as Vizient and Premier, their profits sink. Some are going out of business.
I'm confused, how is it that the prices are being driven so low that the supply dries up despite continued demand?
Premier and Vizient are group purchasing organizations which handle all the supply for a ton of hospitals - 800k or so hospital beds between the two out of about a million total in the US. They started out as hospital purchasing groups which were created by hospitals who banded together to get better deals so they usually monopolize purchasing for an entire hospital. Now they’ve grown so big they’ve got monopolistic pricing power as consumers (I don’t know the right economic term) since there are so few organizations buying for all the hospitals.
When buying syringes, bandages, and most of the things hospitals need, that’s not a big deal but the way many oncology drugs are administered these organizations end up handling all of the negotiations instead of pharmacies and insurance companies. Patients and even their healthcare providers have basically zero say in the purchasing because it’s all rolled in.
Since the US is the most profitable market in an already low margin business, the generic manufacturers can’t justify the production lines for cancer drugs without at least one of these clients so they‘re driven to extreme price wars. In good times, they eek out a profit, but in bad times when variable costs go up, they’re no longer viable.
When buying syringes, bandages, and most of the things hospitals need, that’s not a big deal but the way many oncology drugs are administered these organizations end up handling all of the negotiations instead of pharmacies and insurance companies. Patients and even their healthcare providers have basically zero say in the purchasing because it’s all rolled in.
Since the US is the most profitable market in an already low margin business, the generic manufacturers can’t justify the production lines for cancer drugs without at least one of these clients so they‘re driven to extreme price wars. In good times, they eek out a profit, but in bad times when variable costs go up, they’re no longer viable.
I think the word you might be looking for is "Monopsony"
https://en.wikipedia.org/wiki/Monopsony
https://en.wikipedia.org/wiki/Monopsony
I wonder if premier and vizient have a vested interest in some of the suppliers going out of business, like if they have indirect ownership in competing suppliers.
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- Patients can only buy cancer medication from their healthcare providers, and expect it to be covered by health insurance.
- Healthcare providers will only buy cancer medication whose prices are low enough to be covered by insurance.
- Insurance scours the market for the lowest cost providers and states it will only cover that cost, no higher.
- If the cost of drugs goes up, insurance does not immediately renegotiate prices. Healthcare providers stop buying the drugs while waiting for low cost capacity to re-appear so they don't take a loss on the care.
- Drug companies go out of business because they can't sell their inventory, driving up prices further while reducing supply.
We really ought to have a government funded drug manufacturer...
- Healthcare providers will only buy cancer medication whose prices are low enough to be covered by insurance.
- Insurance scours the market for the lowest cost providers and states it will only cover that cost, no higher.
- If the cost of drugs goes up, insurance does not immediately renegotiate prices. Healthcare providers stop buying the drugs while waiting for low cost capacity to re-appear so they don't take a loss on the care.
- Drug companies go out of business because they can't sell their inventory, driving up prices further while reducing supply.
We really ought to have a government funded drug manufacturer...
Cancer drugs in particular have this exceedingly weird market where oncologists buy drugs from distributers and resell them to their patients. Everybody agrees it's a bad way to do it, and nobody would have deliberately designed it that way, but it's a system that's hard to disassemble now that it's in action.
Relative profits are "drying up" because they can't charge $10k per dose and throw away half and quarter doses.
> I'm confused, how is it that the prices are being driven so low that the supply dries up despite continued demand?
The incremental cost of an additional dose is low, so as long as the production line is operating all is well.
But then the line shuts down for whatever reason - and reopening it (or a new company starting one) costs way way too much. i.e. it's not worth it for them to do that at current prices. They would have to charge far more than the existing companies charge, and no one would buy the drug.
It's basically a timing issue, long term contracts mean that prices can not rapidly adjust for market disruption, combined with very very long lead time for additional production, means that the market can stay disrupted for extended periods of time. Years even.
It will eventually adjust, but it will take so long that current patients are in trouble.
The solution is a buffer, keep production in a strategic reserve.
The incremental cost of an additional dose is low, so as long as the production line is operating all is well.
But then the line shuts down for whatever reason - and reopening it (or a new company starting one) costs way way too much. i.e. it's not worth it for them to do that at current prices. They would have to charge far more than the existing companies charge, and no one would buy the drug.
It's basically a timing issue, long term contracts mean that prices can not rapidly adjust for market disruption, combined with very very long lead time for additional production, means that the market can stay disrupted for extended periods of time. Years even.
It will eventually adjust, but it will take so long that current patients are in trouble.
The solution is a buffer, keep production in a strategic reserve.
It's unclear whether the demand would support a higher price I guess.
Alternatively, another way of looking at this is perhaps that the distributors are seeking a profit, and so are demanding low prices from the manufacturer, meaning that high cost manufacturers go out of business, reducing supply. However, this may be inefficient, in that demand may exist at higher prices, that could support more manufacturers if not for the distributor.
Alternatively, another way of looking at this is perhaps that the distributors are seeking a profit, and so are demanding low prices from the manufacturer, meaning that high cost manufacturers go out of business, reducing supply. However, this may be inefficient, in that demand may exist at higher prices, that could support more manufacturers if not for the distributor.
Sounds like it's a lot of things, but one thing mentioned in the article is pricing pressure from plan administrators. Large plans have outsized influence on pricing. Mix that with unscrupulous manufactures that cut corners to lower costs and you have a mess. Those bad manufactures can agree to go lower than legit manufactures and they then let the plan administrators force pricing lower for everyone. At some point the legit manufacturers are priced out, leaving only the bad ones. Then when a bad one implodes, the market isn't there anymore. By this point plan administrators have anchored pricing too low and are likely going to be slow to adjust (if they adjust at all).
NB: I'm not involved in the medical field or in economics, so take my statements as what they are, conjecture.
NB: I'm not involved in the medical field or in economics, so take my statements as what they are, conjecture.
Hm, so in other words perhaps there's a distributor/middleman layer without enough competition, one whose most-profitable situation comes from focusing on high-margin drugs.
I think this is one of those "race to the bottom" things where businesses endlessly undercut each other until everyone loses
"Race to the bottom" is bullshit because there is a floor equilibrium of difficulty of manufacturing and regulatory administration, and there is relatively constant demand. People never stop getting sick.
Generics need more social ventures to keep critical medications supplied on the market. One recent example is the shortage of amphetamine stimulant medications.
Generics need more social ventures to keep critical medications supplied on the market. One recent example is the shortage of amphetamine stimulant medications.
It’s mind boggling that with close to 20% of GDP poured into the medical industrial complex, the government can’t subsidize or straight up take over the production of some life saving drugs.
I'm strongly against subsidies. It sounds like the worst of both sides.
Either the government owns the plants or not. Plants can be privatized later if deemed necessary, or kept on government hands to allow the government to have the know-how about the industries it needs to supervise.
That being said, I'm just a peasant.
Either the government owns the plants or not. Plants can be privatized later if deemed necessary, or kept on government hands to allow the government to have the know-how about the industries it needs to supervise.
That being said, I'm just a peasant.
The problem of fraud in the generic drug industry is the topic of the book "Bottle of Lies" by Katherine Eban[0]. She joined Peter Attia for a fantastic episode of his podcast[1]. It isn't often I burst out laughing while listening to a healthcare podcast, but I did several times with that episode. Attia and Eban are imagining the situation as the naive new employee from the U.S. drug manufacturing industry is presenting a report to the board of his new Indian generic drug company how their fraud has been working, and how to fix it.
All those patients who can't get their generic drugs: How many of them were getting fraudulent drugs before that had little or no effect on their disease?
One U.S. startup tried to make a business model out of analyzing every batch of drugs they sold. [I'm sorry, did you think every batch of the drugs you take was verified as the real thing between you and the (foreign) manufacturer?] Valisure is a startup that bought drugs in bulk and actually tested samples, using mass spectroscopy, to verify they were the real thing, then sold them on to U.S. patients. Alas, their business model does not seem to be working out so far. But they did detect massive contamination in Zantac which lead to its recall five months later by the FDA.[2]
[0] https://www.amazon.com/Bottle-Lies-Inside-Story-Generic/dp/0...
[1] https://peterattiamd.com/katherineeban/
[2] https://peterattiamd.com/davidlight/
All those patients who can't get their generic drugs: How many of them were getting fraudulent drugs before that had little or no effect on their disease?
One U.S. startup tried to make a business model out of analyzing every batch of drugs they sold. [I'm sorry, did you think every batch of the drugs you take was verified as the real thing between you and the (foreign) manufacturer?] Valisure is a startup that bought drugs in bulk and actually tested samples, using mass spectroscopy, to verify they were the real thing, then sold them on to U.S. patients. Alas, their business model does not seem to be working out so far. But they did detect massive contamination in Zantac which lead to its recall five months later by the FDA.[2]
[0] https://www.amazon.com/Bottle-Lies-Inside-Story-Generic/dp/0...
[1] https://peterattiamd.com/katherineeban/
[2] https://peterattiamd.com/davidlight/
If you note, most of these drugs are parenteral (injected IV). It’s a bitch to manufacturer because standards are so high.
So what happens is profits get squeezed, someone runs a bad batch and throws it out, while another company is like “nah, we don’t want to make this any more” and poof, shortage.
Of course someone will step in eventually, charge 10x the price, and get bad press for “cost of lifesaving cancer drug increases by 1000% percent”.
So what happens is profits get squeezed, someone runs a bad batch and throws it out, while another company is like “nah, we don’t want to make this any more” and poof, shortage.
Of course someone will step in eventually, charge 10x the price, and get bad press for “cost of lifesaving cancer drug increases by 1000% percent”.
Few days ago, 'US doctors are rationing lifesaving cancer drugs amid dire shortage': https://news.ycombinator.com/item?id=36447371
About 18 years ago, a P.A. took me into her office and gravely informed me that I had a thyroid condition and that I would need to take pills. "It is tiny pill" she said in her Slavic accent as I mad-dog stared her down.
Now, once upon a time, thyroid hormone was provided from slaughtered swine, and the natural substance was processed into a medication. This was too inconvenient and messy, and unprofitable, so the chemical manufacturers found a way to synthesize it.
Now another thing about the thyroid is that it adjusts to the amount of hormone in the body and will gradually shut down, permanently, as more synthetic hormone is consumed. Therefore, the more your dose is increased, the less your own body produces, and the more dependent you become.
So one blood test made me a Good Customer For Life(TM). I've been purchasing the generic synthetic from Wal*Mart for $4 per month. I am under no illusions that it is efficacious, pure, or contains anything but filler.
Now, once upon a time, thyroid hormone was provided from slaughtered swine, and the natural substance was processed into a medication. This was too inconvenient and messy, and unprofitable, so the chemical manufacturers found a way to synthesize it.
Now another thing about the thyroid is that it adjusts to the amount of hormone in the body and will gradually shut down, permanently, as more synthetic hormone is consumed. Therefore, the more your dose is increased, the less your own body produces, and the more dependent you become.
So one blood test made me a Good Customer For Life(TM). I've been purchasing the generic synthetic from Wal*Mart for $4 per month. I am under no illusions that it is efficacious, pure, or contains anything but filler.
The Indian health care system is very interesting. Just imagine a big country with lots of poor people but not enough doctors and hospitals (or toilets for that matter). How do you stop everyone from dying of say a simple bacterial infection and give them access to medicine? The answer is the pharmacy. Every little village has one. It is fully stocked with most generic medicine and available over the counter at a very cheap price. The pharmacist decides what you need and you buy it. If you can afford it you find a doctor for further treatment. This system built itself through simple practicalities. No price gouging at any point. No vultures to regulate and feed. Capitalism in the USA is out of control..
From the article:
> “It’s just insane,” said Mark Ratain, a cancer doctor and pharmacologist at the University of Chicago. “Your roof is caving in, but you want to build a basketball court in the backyard because your wife is pregnant with twin boys and you want them to be NBA stars when they grow up?”
At that point the article "seamlessly" transitions into a statement from another person, at first making it seem as if the previous person had said it. A poor report, imo.
> “It’s just insane,” said Mark Ratain, a cancer doctor and pharmacologist at the University of Chicago. “Your roof is caving in, but you want to build a basketball court in the backyard because your wife is pregnant with twin boys and you want them to be NBA stars when they grow up?”
At that point the article "seamlessly" transitions into a statement from another person, at first making it seem as if the previous person had said it. A poor report, imo.
There's basically a shortage of every conceivable type of drug. While not in the US, my partner works in a pharmacy, and it happens on an almost daily basis that they are unable to fulfill prescriptions do to a shortage.
It's everything, certain types of pain kills, ADHD medication, vaccines, insulin (because the resources goes to weight lose medication), weight lose medication (because more people are getting it, compared to expectations), drugs for hearth problems, blood pressure, you name it and there is or have been a shortage.
Everything seemed to breakdown during COVID and just never fully recovered.
It's everything, certain types of pain kills, ADHD medication, vaccines, insulin (because the resources goes to weight lose medication), weight lose medication (because more people are getting it, compared to expectations), drugs for hearth problems, blood pressure, you name it and there is or have been a shortage.
Everything seemed to breakdown during COVID and just never fully recovered.
Seems like similar story is playing out around the world: https://amp.dw.com/en/health-ministry-confronts-germanys-dir...
here's an idea that will never be implemented because of the paranoia of communism but that i think would be the most beneficial for society. why not create a government controlled non profit for producing out-of-patent drugs? it wouldn't hurt big pharma, it will substantially improve the life of the poor and chronically ill, reduce overall cost of healthcare, create strategic production in case of emergencies, can be a stepping stone to the healthcare as a human right.
Googling i found this proposal
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3134734/
Wait, 4 days ago we were on the cusp of a golden age of medicine: https://news.ycombinator.com/item?id=36458515
I must have blinked and missed it!
I must have blinked and missed it!
It's the New York Times. They're like the Cramer or Krugman of newspapers.
It seems like an opportunity for a single group to just offer these at a cost plus 20% basis and lock in some long term supply contracts...
This is ridiculous. Shouldn't it be the government's job to step in in these situations and mass produce these basic compounds.
Does anyone measure the cost of not saving lives, and who pays that cost?
Does anyone measure the cost of not saving lives, and who pays that cost?
Nah in the US we only save businesses. The bigger they are the better.
monsecchris(1)
Problem: the government (FDA) did a bad job at regulating drug production plants in India.
HN Solution: the government should take over all drug production.
HN Solution: the government should take over all drug production.
I mean, the FDA has been captured for a long time now, by design (see, e.g., the it’s reliance on funding by the entities it purportedly regulates in order to function at all). That’s not evidence that government in principle is the problem. It’s evidence that government in bed with the regulated parties is. Asking for stronger government intervention is asking not for more of the same—-just the opposite.
Seems like a new opportunity to me. Companies that could produce generics cheaply.
Nobody who gets high off of libertarian laissez-faire idealism and the aphrodisiac of "move fast and break things" should feel they deserve to complain. There is no profit, and there is no one willing or able to take up their mantle. Obvious result is obvious.
Who needs drugs, when AI develop cancer treatment in just 30 days (according to https://nypost.com/2023/03/20/ai-develops-cancer-treatment-i...).
However, the problem arises when these prices are driven so low that they no longer cover the firms' average total costs (including both variable and fixed costs), making it unprofitable for them to continue production. Some firms may choose to exit the market, leading to a reduction in supply. This is where the theory of "shutdown point" comes in: firms will choose to shut down production (at least temporarily) when price falls below the minimum point of the average variable cost curve.
The complication in this case is that the reduction in supply is occurring for a product (cancer drugs) that is still in demand. However, as one commenter suggested, it's unclear whether the demand would support a higher price.
There might be external forces (like regulatory environments, health insurance dynamics, and negotiations by large scale buyers) that are keeping the prices artificially low, preventing the price from rising to a level where it would be profitable for more firms to produce the drugs.