While cruising through the engine room at CR today I noticed a post by Mawm that ended up in the trash bin.Don’t know how it ended up there,but reading it got me thinking again about a complex subject-prescription drug prices.
With Mawm’s permission I would like to re-post the comment here-
“I know several people who should be carrying an epipen (it is literally a life saver) but don’t because of the short expiry date and the replacement cost. It is another example of big pharma using their copyright period to make big money. Our own Jonkey is complicit in this rort by signing the TPP which will give them even more time to make even larger profits. It’s hypocrisy of De Caprionesque proportions – but then aren’t all the monied Democrat elites just like this.”
Mawm you are absolutely right,but that fact is only one facet of the problem.What we have here is a government established monopoly.By having an extensive regulatory and standards process in place,the FDA has essentially established a defacto monopoly.Don’t get me wrong,there is definately a need for oversight and quality standards,but the situation exists that it kills compitition.The same practice exists in the FCC,they control licensing of commercial communications companies and if you or I wanted to compete with the existing services we would be bankrupted before the first cable was laid.Billions get spent just bringing a simple over the counter drug to market and the prescription stuff is even worse.Government has it’s place,but private industry generally does things much better.Internet access as an example,today I enjoy 50mps cable internet for $50/month not because the FCC mandated it or the government built the infrastructure,but because oddly enough Bill Gates paid for and installed the fiber optic cable to my town.Like Henry Ford,he knew the best way to get people to buy cars was to build roads and encourage them to drive.
But that is still not the whole picture.Until recently when a new drug was introduced the initial price was often times very high,but that is true of nearly any new product,R&D and production costs must be recouped.As patents expire and market share increases,costs to the consumer generally go down assuming all things remain equal.A good example was the Antibiotic Cypro.When it first hit the market here it cost IIRC $320 for a five day course,now 10 odd years later it’s $4.25 at the local Walmart and free at most charity clinics.
The current shock and outrage to the system was brought to us by the drug maker Mylan who recently raised the cost of the previously mentioned Epipen something on the order of %650.This is a price increase AFTER the drug has been on the market for years.The official reason from the company was that part of the fallout of Obamacare is that the insurance drug deductible was increased on most of the policies issued since.While that is partly true,I believe the underlying factor is one few recognize or want to believe and it’s more than simple greed.
Break the system-The true purpose of Obamacare was not to provide insurance to the uninsured at low cost,it wasn’t even to bend the cost curve down.It’s sole purpose is to collapse the system.Remember “never let a good crisis go to waste” and how much better is it if you can create that crisis and profit from it in the meantime? I do not think it is a coincidence that several of the CEO’s of these companies with the highest post launch prices are also liberal democrats.They are helping stress the system to continue the collapse all the while raking the cash.Would they really be so mean?Yes they would and yes they are.They are all about adding more layers of government involvement in our lives and changing laws to allow price controls and market manipulations is a leftist’s wet dream.
Now we get to cost shifting,this has been SOP in the medical community since at least 1965.Any loses to folks that can’t pay are shifted to those who can.This happens at every level and actually across multiple industries not related to medicine.One source in the pharma industry are government price controls that exist in some countries with social systems.As an example of how this works,say Company A comes up with a new life saving drug,but the drug must be sold for $100/pill to recoup the R&D and production costs.Company A also determines that it needs to sell the new drug,not only in the US market,but also the Canadian market.Canada however has price controls and tells them,we will buy the drug,but we will only pay $75/pill for it.A needs the sales however to make the balance sheets resolve,so they agree to the $75 price and shift the shortfall over to it’s American market that will then pay $125/pill.This also turns up in the car business,but that’s a different story.
Finally,enter Tort attorneys,In America you can sue anybody for anything and drug side effects are no different. Every time a new drug is introduced trial lawyers start drooling.”Well the drug I was taking cured my cancer,but it turned my toenails green,I’m suing!”While green toenails are something we would likely consider a small price to pay for beating Cancer,somewhere there is a person who thinks it unreasonable and a lawyer that will agree for a fee.Combine those two in front of a cherry picked jury and we’re off to the races.At that point a simple calculation is made-cost of defending against the suit-vs- potential payout,even if the case is on shaky legal ground,it will still cost to defend against it and there is little chance of recovery if the plaintiff has no means-one cannot get blood from a Turnip so they offer $100,000 to settle,the lawyer gets 33% as payment and so encourages his client to settle.It’s important not to look at the floor while sausage is being made.
Value-vs-perception-Healthcare as we know it in the States will always be expensive,there is just no avoiding that.As the population gets older and fewer young people are coming along costs will continue to go up,especially with all of the stupidity and political skullduggery.The only hope for change is grass roots political action,but currently the odds of that are slim.If we look at value,we must consider the cost in terns of life IMO.What is another year or two or in some case decades of life worth to you?That’s a good question and examining value is a principle point.In the case of Hepatitis drugs this article is a good read,bit long,but it offers some insight in to setting value.
http://www.bloomberg.com/news/articles/2015-06-03/specialty-drug-costs-gilead-s-hepatitis-c-cures-spur-backlash
As mentioned in the article,the $84,000 price tag was not reached arbitrarily.It was decided that the drug would be priced at the same price as it’s nearest competitor,with the added value that it was safer,produced a better result with a higher success rate.With that in mind which would you choose?This reminds me of a conversation I had with a customer at work years ago.He was a regular customer that came in usually once a week,he went missing for awhile and when he came in again months later I asked how he was doing.He told me he had a mild heart attack and the doctors had discovered that he had two pretty serious blockages that required a triple bypass to correct.His insurance picked up 90% of the cost which he told me was $55,000 at the time which he thought was high.I asked how he felt after the surgery and he said great as he was pretty sick feeling for a couple years before,but now felt 20 years younger.As he was leaving I noticed he was driving a new truck,nice,3/4ton Ford 4X4 with all the goodies on it.Asked what that set him back and he said $45,000 considering all the custom options.That whole conversation struck me as and example of misplaced perspectives.On the one hand he thought a needed surgery,they he only paid a portion of, which not only most likely saved his life,but improved and extended it was expensive.But the truck that he paid the full price for,that today is melted down into Chinese razor blades was a good deal.That was nearly 20 years ago and he is still a customer and still doing fine enjoying his wife and grandkids.I would like to say his perspective is unique,but amazingly it is not.
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