Pharma and price gouging

If you want to know who to blame for drug price gouging, the CEO's of companies is an odd place to look. Not only is it their job to maximize shareholder value, they are almost always punished severely for not doing so. Especially considering how liquid capital is in today's electronic trading markets, the idea that it is the responsibility of the CEO to be the conscience of the market is more than bit unfair.

The problem in health care and pharma is that we have a system without price controls or bulk purchasing power (thank George W Bush for the latter on that one. More on that later). Health care is not an optional or commodity market precisely because everyone needs it and the cost of entry to the market encourages monopolies as specialized medications cost a huge amount in R&D and clearing regulatory hurdles while enjoying small, but captured markets.

If we are going to use the market mechanism to encourage innovation, we need to protect intellectual property. But doing so also prevents downward price pressure that comes from low priced competitors. So we handle it one of two ways or both. We either set price caps (like most European nations do) or we negotiate lower bulk purchase pricing for insurance companies (like they do in Switzerland) and some insurance companies in the US actually DO purchase EpiPens for less than the retail market rate.

The problem arises when we prevent traditionally large entities like the VA, Tricare, and Medicare Part B from negotiating those lower prices. And yes, that is precisely what George W Bush did. The government had a unique ability to negotiate a lower market rate for drugs like insulin and EpiPens and voluntarily pissed it away. Not only that, it PROHIBITED further administrations from doing so in the future.

It is only a market when both buyers and sellers participate.

If you want to know who to blame for drug price gouging, the CEO's of companies is an odd place to look.

No, it's not. The CEOs of the large pharma companies know exactly what they are doing - looting the public via the government. The relationship between the pharma companies and the price negotiating restrictions should be obvious.

Health care is not an optional or commodity market precisely because everyone needs it and the cost of entry to the market encourages monopolies as specialized medications cost a huge amount in R&D and clearing regulatory hurdles while enjoying small, but captured markets.

This belief, right here, is the one of the core problems with the healthcare industry in the United States - the belief that healthcare is not a market. It *is* a market - a big one - and people's belief that it's not has allowed the pharma and healthcare companies free rein in designing a money-making regulatory system to benefit themselves and protect their market position. Until people are able to shake off that poisonous mentality, the American healthcare system is going to continue in its death spiral of higher costs, lower quality, and killing people off.

The problem in health care and pharma is that we have a system without price controls or bulk purchasing power

Price. Controls. Do. Not. Work. This is one of the few ironclad economic rules, and it has been punctuated yet again by the healthcare and drug situation in Venezuela. Price controls do not control price, they make production uneconomical and introduce shortages. This should no longer be an arguable point.

If we are going to use the market mechanism to encourage innovation, we need to protect intellectual property.

The only thing intellectual property is protecting here is pharma company profits ... and in this market, that comes directly at the expense of the sick and dying. We know from other markets that don't have this IP protection that there is a common and functional market model: research firms that discover new products, and companies that make a decent but not obscene profit on production and distribution. Patents on drugs need to just go away, as does the vast majority of the FDA regulatory labyrinth.

Is it just patents on drugs that you are philosophically opposed to or does the idea of protecting intellectual property on all things offend your libertarian sensibility? What is unique about drugs (and presumably medical devices since we started this conversation with EpiPens) that make it ineligible for intellectual property protection?

The idea of abolishing industry oversight because "it is too hard" is precisely what will bring us back to crap like mercury cures for syphilis or tapeworm diet pills. It is bad enough that libertarians champion the "Alternative medicine" market replete with its quackery like homeotherapy, but obliterating the line between sh1t and shinola will almost certainly not have the public health outcome you folks want.... Unless that outcome includes mass casualties of "suckers".

Price. Controls. Do. Not. Work. This is one of the few ironclad economic rules, and it has been punctuated yet again by the healthcare and drug situation in Venezuela. Price controls do not control price, they make production uneconomical and introduce shortages. This should no longer be an arguable point.

Er..then how does Canada do it? (In regards to Pharma)

karmajay wrote:
Price. Controls. Do. Not. Work. This is one of the few ironclad economic rules, and it has been punctuated yet again by the healthcare and drug situation in Venezuela. Price controls do not control price, they make production uneconomical and introduce shortages. This should no longer be an arguable point.

Er..then how does Canada do it? (In regards to Pharma)

Not just Canada. According to the US Department of Commerce, pretty much every OECD country on the planet. So if any conclusion can be drawn from this, at least in regards to pharma, the LACK of price controls clearly doesn't work.

f*ck them, we did our own thing to save lives..

http://kuow.org/post/king-countys-in...

I'm broadly in agreement with Aetius here. The problem is the patent, not the pricing. On the other hand, a responsive form of price control could work - like price matching schemes and the like. It would simulate competition pressure in arenas that do not have competitive pressures. For instance, you could stipulate a maximum of 100% profit-taking on a product, or price-matching to within 100% compared to pricing in similar markets in international markets. It'll cut down on black market smuggling, too.

Aetius wrote:

Price. Controls. Do. Not. Work. This is one of the few ironclad economic rules, and it has been punctuated yet again by the healthcare and drug situation in Venezuela. Price controls do not control price, they make production uneconomical and introduce shortages. This should no longer be an arguable point.

This is a completely arguable point, and for very simple reasons. We can know the cost of research and manufacture and distribution and marketing and all that. Companies do *very* detailed analyses of this information, after all, to help determine expected profit. And we also have many ways of defining acceptable (as opposed to abusive) profits. A good price control system will allow a predictable profit on a price that is not abusive to the people who need it. This will neither break the producer nor introduce shortages.

However... The type of products which need to be price-controlled at times (or systematically) should, as Adam Smith noted, be limited to those where the abuse of pricing leads to death, homelessness, debility and other large social effects that businesses have no market obligation to consider. Consumers play a role in the markets, too, and price controls from a libertarian perspective can serve the role of reigning in abusive power in a market.

Price controls can go well beyond "You can't sell gas for more than a dollar". We have far more analytic power these days to examine markets and producers and produce algorithms that will adapt to market conditions, creating a dynamic pricing scheme that is far more flexible than even in the past few decades.

What's the alternative, Aetius? Tell us how a regime of no price controls on medicines does *not* lead to only the wealthy getting full health care benefits? How would a person making $35K a year afford the $20K a dose, four times a year rheumatoid arthritis medicine that allows him to keep supporting his family? After all, that current $20K was much higher until it was negotiated down by insurers, thus putting in place an agreement that is functionally indistinguishable from price controls.

In a sense, you're arguing against companies negotiating prices between themselves (and you're also encouraging monopoly pricing). You're literally saying it's impossible for two groups to agree on fixed pricing schemes in any way that is beneficial to both, which to me is just ridiculous. (This falls out from the idea that negotiated pricing cannot, in any way, work, ever.)

I notice you don't explain why government services should not be freely priced at market value. That would seem to be tied to this as well. Why can't government use it's pricing monopoly on licensing and fees to adjust them as it sees fit at any time? After all, if government is abusive, people can just vote with their feet, right? Isn't that the libertarian free market orthodoxy?

There is an answer, and that is, those prices are controlled by legislation.

Why does it work for government services, but not for the private market? And we all benefit from those fixed prices and the process by which they (rarely) change, which we have direct input on.

Edwin wrote:

f*ck them, we did our own thing to save lives..

http://kuow.org/post/king-countys-in...

Look, sure you can sell generic epipens at cost for $20, but if how can a company survive if they aren't pricing them at $600? If people don't want to pay $600, they can either make their own or go buy cheaper ones.

The Market works in mysterious ways, mere mortals should not look directly upon the face of The Market nor question it!

Why are people arguing that a person's life isn't worth $600? If you really need it, doesn't $600 sound like a bargain? Would you pay $1000 to not die? Be glad they are keeping the price low.

Atras wrote:

Why are people arguing that a person's life isn't worth $600? If you really need it, doesn't $600 sound like a bargain? Would you pay $1000 to not die? Be glad they are keeping the price low.

A bargain until the price increases and you can no longer afford it. Especially if it sells in Canada for 12 bucks.

Hey y'all should feel lucky! /s

Atras wrote:

Why are people arguing that a person's life isn't worth $600? If you really need it, doesn't $600 sound like a bargain? Would you pay $1000 to not die? Be glad they are keeping the price low.

Not sure whether you're making this point in earnest, since I've seen it made earnestly elsewhere, but I think this illustrates the reason I think normal market controls don't work in healthcare - the demand is essentially infinite for most folks, which leads to price distortions regardless of supply.

Spoiler:

If you wouldn't imagine ponying up arbitrarily-large amounts for yourself personally, imagine it's for partner. Or a parent. Or (God forbid) a child.

Atras wrote:

Why are people arguing that a person's life isn't worth $600? If you really need it, doesn't $600 sound like a bargain? Would you pay $1000 to not die? Be glad they are keeping the price low.

This is either impressive sarcasm, or one of the best examples of privilege in action I have seen in our community.

Farscry wrote:
Atras wrote:

Why are people arguing that a person's life isn't worth $600? If you really need it, doesn't $600 sound like a bargain? Would you pay $1000 to not die? Be glad they are keeping the price low.

This is either impressive sarcasm, or one of the best examples of privilege in action I have seen in our community.

Artful parody is indistinguishable from sincere extremism.

It was intended as sarcasm, but with a point. How much is reasonable to save a life? Why shouldn't a company charge whatever they can to keep someone alive (aside from human decency and compassion)?

Lives cannot operate as a commodity in a regular market because the demand is essentially infinite, so the cost can be anything.

Dimmerswitch wrote:
Atras wrote:

Why are people arguing that a person's life isn't worth $600? If you really need it, doesn't $600 sound like a bargain? Would you pay $1000 to not die? Be glad they are keeping the price low.

Not sure whether you're making this point in earnest, since I've seen it made earnestly elsewhere, but I think this illustrates the reason I think normal market controls don't work in healthcare - the demand is essentially infinite for most folks, which leads to price distortions regardless of supply.

Spoiler:

If you wouldn't imagine ponying up arbitrarily-large amounts for yourself personally, imagine it's for partner. Or a parent. Or (God forbid) a child.

I have had to inject my son with an Epi, so this isn't academic at all for me.
We have been able to itemize medical expenses for two different years on taxes...that really sucks.
When son was admitted to hospital overnight for anaphylaxis, we then got charged for a private room...even though we were put in the room after midnight and we just went where they out us. And they sent up one of his allergens on the breakfast tray in the morning, so we couldn't let him eat while there.

We are incredibly lucky and are able to afford good insurance. The recent epi puchase only cost us $39 out of pocket. Obamacare means boy will be able to get health insurance as an adult. This is something I have worried about. We have told him we will help with his medications as an adult as well.

I would adore a government health plan. Medical care (essential medical care) should not be for profit.

A topic I actually know something about, having done some work for a pharma on the philanthropic side. Lots of thoughts on this issue, may chime in later time permitting.

It's not a solution to the underlying problem, but if you're comfortable with needles you can create a $10 Epi Kit. These can also be given to school nurses to hold for your kid.

I think some medical care should be for profit. That keeps the government outfit efficient and honest by applying an efficiency check. Concurrent free global health care keeps private companies honest by providing good quality, universal care that they have to differentiate from or compete with directly. So the government outfit makes sure the private companies keep their profits reasonable, the private outfits ensure that there's a minimum of bureaucratic excesses and nonsense.

Atras wrote:

It was intended as sarcasm, but with a point. How much is reasonable to save a life? Why shouldn't a company charge whatever they can to keep someone alive (aside from human decency and compassion)?

But the converse of this is people die for the lack of what a company considers a "reasonable" cost. What's a "reasonable" cut off at which people should be okay with their family members dying so that companies can make a profit in the thousands of percent?

MrDeVil909 wrote:
Atras wrote:

It was intended as sarcasm, but with a point. How much is reasonable to save a life? Why shouldn't a company charge whatever they can to keep someone alive (aside from human decency and compassion)?

But the converse of this is people die for the lack of what a company considers a "reasonable" cost. What's a "reasonable" cut off at which people should be okay with their family members dying so that companies can make a profit in the thousands of percent?

In America, it seems like the number is 300 dollars per EpiPen (the two pack hitting $600 is what caused this to gain national attention). It's pretty gross that a company that bought the rights to the drug when it cost $100 for a two-pack can get away with ransoming a life for 6 times what it apparently costs to make the drug; but that's our system - supposedly it's the best one in the world (yeah, right). In a better world, maybe the NIH would have bought the rights to the EpiPen when it was that cheap, treating potentially life-ending allergies as a health concern, then just selling the drugs for cost. Instead, we have a (for-profit) company raising the price every year by an obscene amount, just to see how high it can drive up the profit margin (hey, it's good business!), with the justification that people have insurance that covers most of the cost. So when one drug costs more than 5x what it used to, what do insurance companies do? They raise premiums - costing everyone who has insurance more money. But hey, it's all in the name of good business, right, so who cares?

Ok so sarcasm. Thanks for the clarification

See the article I linked on home made Epi kits. A bottle of Epinephrine is like $5, which is more than a pen's worth. Nearly all of the price of the EpiPen is pure profit (or at least has nothing to do with the cost of the thing itself), even if you assume $10 or so goes to the easy to use packaging.

If the Pharma industry legitimately reinvested that profit in R&D for other products, that would be one thing. But it really doesn't. There's also a lot to be said for crucial medication being affordable to everyone, particularly if the actual cost of making that drug is minimal.

complexmath wrote:

See the article I linked on home made Epi kits. A bottle of Epinephrine is like $5, which is more than a pen's worth. Nearly all of the price of the EpiPen is pure profit (or at least has nothing to do with the cost of the thing itself), even if you assume $10 or so goes to the easy to use packaging.

If the Pharma industry legitimately reinvested that profit in R&D for other products, that would be one thing. But it really doesn't. There's also a lot to be said for crucial medication being affordable to everyone, particularly if the actual cost of making that drug is minimal.

I hate to keep coming back to this, but you don't maximize shareholder value by pumping all your profits into R&D. R&D is an expense. You want to minimize expenses and/or get the gubmint to pay for those and maximize profits. Anything else is fiscal malpractice.

Paleocon wrote:

I hate to keep coming back to this, but you don't maximize shareholder value by pumping all your profits into R&D. R&D is an expense. You want to minimize expenses and/or get the gubmint to pay for those and maximize profits. Anything else is fiscal malpractice.

While true to an extent, the corollary is that you don't maximize shareholder value by *not* putting any money into R&D, either. As a pharma company, you want a mixed portfolio of developed drugs to get money rolling in now, and drugs coming to market later to keep that money rolling in.

Jonman wrote:
Paleocon wrote:

I hate to keep coming back to this, but you don't maximize shareholder value by pumping all your profits into R&D. R&D is an expense. You want to minimize expenses and/or get the gubmint to pay for those and maximize profits. Anything else is fiscal malpractice.

While true to an extent, the corollary is that you don't maximize shareholder value by *not* putting any money into R&D, either. As a pharma company, you want a mixed portfolio of developed drugs to get money rolling in now, and drugs coming to market later to keep that money rolling in.

None of which applies to the EpiPen because epinephrine was developed in the early 1900s and the delivery mechanism is a modified version of something the US government paid to have developed back in the 70s so the military could quickly inject soldiers with anti-nerve gas drugs.

complexmath wrote:

It's not a solution to the underlying problem, but if you're comfortable with needles you can create a $10 Epi Kit. These can also be given to school nurses to hold for your kid.

It's worth noting that such a home-brew epinephrine kit is really not a substitute for an epipen:

Why you shouldn’t use this method to save money on the Epipen
(SciBabe, 2016-08-27)

Article wrote:

...

People self-administer other injectable medications that come from a bottle with a syringe in a controlled and planned setting. Insulin. Heparin. Other random medications that you rarely hear about and, I guarantee you, are used when you aren’t having trouble breathing.

What’s the manner in which people self-administer Epipens?

*taps fingers and waits*

It happens when you’re having severe allergic reactions. These are not “someone get the benadryl, Aiden is a little itchy and I don’t think his chakras are aligned anymore.” These are for “holy mother of f*ck, Madison Rainbow’s lips are turning blue, this is no time for superfoods, get the real sh*t.”

Want to get the vial of epinephrine and the syringes for $10?

First and foremost, good luck trying to keep your hands steady.

Those three words that your doctor said when he first instructed you on if you ever needed to use this trigger a backfire in your brain:

“Now, don’t panic…”

f*ck.

...

I'm with SciBabe on this. Science says it's still epinephrine and it's just a delivery method. The same empirical body says most people are just worthless when it comes to delivering that medicine effectively when it's their loved one spasming on the ground, let alone if it's themselves.

I work in the OR. It's a controlled setting. I have options. I can revive someone who's not breathing and without a pulse with some degree of reliability. So someone not breathing and turning blue in front of me is not the end. I know what I'm doing. I have backup. And I still prepare that needle with the meds beforehand in case things get dicey. I don't leave it in the glass vial. My patient is strapped down. I have decades of experience. I have all the advantages, and it'll still take me something like 20-30 to give that dose if it's still in the vial, so I prepare it beforehand and that cuts my reaction time to something like 5 seconds.

If that glass vial is in case, a lay person has to prep that needle, they're in a state of panic, and so on, then all bets are off.

Don't do that. Get the epipen.

The situation sucks and it absolutely has to be fixed. In the meantime, suck it up.

LarryC wrote:

Don't do that. Get the epipen.

The situation sucks and it absolutely has to be fixed. In the meantime, suck it up.

I am not exactly sure what you mean by this but $600 is quite literally impossible for a large percent of the USA.

If it is, get the bottle and the needle, because that is then, literally better than nothing.

Some people I know of have kept expired Epis. The issue with the Auvi-Q being pulled earlier his year has made auto inhpjectors quite a hassle. The Auvi-Q was much smaller to carry. ..about the size of a pack of cards.

Our allergist says the latest recommendations are to use the Epi now in cases where we wouldn't have before, meaning that a year ago we likely should have injected the boy instead of just using Benadryl.

Some people have discussed ordering the Epis via Canada.

It's a crappy situation for all the people who need to have the meds. And for us, if we inject with the epi, we need to head to the ER. That's automatically $200 that doesn't count towards our co-pay. My husband grew up with uncontrolled asthma. Getting him to see a doctor regularly was a huge struggle when we married. His family would wait until they couldn't wait any longer to go to the hospital. I believe the cancer recurrence that killed his mother might not have if it had been caught earlier if she had kept up with doctor appointments.

The US system is all kinds of messed up.