7 ms·

I posted this in a previous thread: By centralizing all procurement of a drug for an entire country through a single contract, of course countries are able to

I posted this in a previous thread: By centralizing all procurement of a drug for an entire country through a single contract, of course countries are able to negotiate better prices than what Americans pay in a more free market. This is especially true given the structure of the pharma business, with massive up-front costs and almost-zero marginal costs. You could do the same with countless products. But this is it's own kind of abuse. Instead of being paid the market price, pharma companies are paid the lowest-price they could absolutely tolerate. They also have to worry about the political fallout of walking away from a deal when the government tries to blame them for the lack of a deal. There's definitely ways in which drug pricing can become abusive and needs to be regulated, especially because government intervention via patents is partially responsible for enabling these abuses. But let's not throw out the baby with the bath water. A free market for drugs makes sure that companies can recoup their investments and make a reasonable profit. If pharma companies don't feel that they can do that, they won't invest in new drugs. Also, I don't want to live in a place where the availability of a treatment is determined by some government committee that determines what the value of a month of my life is. A final thought, sticker prices for drugs are thrown around as evidence that drugs are overpriced, but 1) no one ever pays the sticker price, it's almost always negotiated way down and 2) these drugs provide immense value. Antiretroviral drugs, for example, turn HIV from an imminent death sentence into a very manageable disease like diabetes. Thousands of dollars a month is pretty reasonable when you consider that. Insurance makes sure that individuals can afford it.

DanBC 11y ago
> They also have to worry about the political fallout of walking away from a deal when the government tries to blame them for the lack of a deal. This is rare, but when it happens drug companies have no problem blaming the government for killing people. See, for example, abraxane. This is a chemo used for pancreatic cancer. There are two other chemos currently used. Abraxane isn't as good at extending life as the main med, and it has more side effects than the second. So it's not available under the cancer drugs fund. Celgene (partially) fund a pancreaticcanceraction.org group to campaign to get abraxane re-instated as a treatment. This involves them running misleading petitions ("abraxae extends life by two years" - celgene's own data show a median extension of two months; "the only pancreatic cancer drug" - it's the newest drug, but there are teo others, one of which extends life more, another has fewer side effects). It's pretty cynical to use dying people, and the relatives of dead and dying people, to campaign for your meds.
yason 11y ago
Instead of being paid the market price, pharma companies are paid the lowest-price they could absolutely tolerate. Isn't that the market price, then? Market price is the price at which trading happens——above and below that are prices which at least one of the parties doesn't tolerate. And obviously volume discounts bring down the price in comparison to selling in smaller batches, this generally applies everywhere. I don't think any single company would sell at a lower price than what they can afford to ask. Note that part of the price can certainly be in goodwill, better public relations, or to win a bigger market share instead of cash. But that still is a net win for the seller, or they wouldn't be selling.
- marcoperaza 11y ago
  No, it's not what the market price would be in a system with a plurality of buyers. The demand side of the equation is heavily skewed when a single entity has the authority to make purchasing decisions for effectively the entire population. And since marginal costs are so low, the company is in a position where even a price that doesn't recoup their total unit costs is better than no sale at all to a population of tens of millions.
  - yason 11y ago
    The fact that trade does take place proves that a market exists. Obviously it's a different market, selling to larger establishments or even countries versus selling to small retailers. Similarly goods markets and prices are slightly different in big cities versus remote country villages. But a market is a market, and when a trade closes that's the market price. If the merchandise and the price paid for it didn't benefit both the company and the buyer, there would be no trade.
    - marcoperaza 11y ago
      Any system with buyers and sellers is a "market", that's a meaningless standard. If all of the insurance companies in the US decided to merge and use their leverage to lower drug prices, it would be an illegal cartel. The resulting price would be the "market price" but not the price that would exist in a free market, which in most definitions includes prohibitions on such cartels. Governments can get away with it because they write the rules and there's no higher authority to stop them.
Numberwang 11y ago
You have no idea how weird and empty this kind of thinking sounds to a european. Capitalism makes for such a cold world.
- marcoperaza 11y ago
  > Capitalism makes for such a cold world. This "cold world" is the most prosperous, least impoverished, and most peaceful of all time. I'll take it. The moral argument for socialism is easy, but it ignores the dynamics that create innovation and wealth in the first place, ultimately hurting everyone. Insurance is the free market solution to making sure that drugs are widely available. A little bit of insurance regulation goes a long way to ensuring that a whole population has access to care.
  - Numberwang 11y ago
    I'm a Swede and I'd talk our social democracy over the american system any day of the week. I'm glad though that all of your population have access to care, I did not know that. We do too though. Capitalism is a great idea. But if you let it be the only idea of your system it will hollow out it's citizens.
    - marcoperaza 11y ago
      Don't believe all of the sordid descriptions of what life in the US is like. That narrative is currently en vogue, and some news outlets with an agenda (or a demographic to please) are pushing it rather aggressively, but it's not really accurate. Americans give 10% of GDP to private social charities. That dwarfs all Europeans countries. We have a preference for voluntary and private charity. Europeans prefer compulsory and centralized.
nrao123 11y ago
Yes- agree with you. Most discussions around healthcare/pharma/hospitals have a moral element(look they are price gouging us). There are possibly some cases that fit the description but I am not sure if it applies across the industry. If in fact, pharma companies where making super normal profits- it would show up in their financial statements. Operating profits for any given year may not be appropriate because a lot of the R&D costs are in the balance sheet. A more appropriate (but still not perfect) metric would be Return on Assets (Profits/Assets) i.e. how much return are you getting on the capital you put in. Here are some metrics for some pharma companies. None of them are making super normal profits. 9.68% - Merck- https://ycharts.com/companies/MRK/return_on_assets https://ycharts.com/companies/MRK/return_on_assets 5.38%- Bristol Myers- https://ycharts.com/companies/BMY/return_on_assets https://ycharts.com/companies/BMY/return_on_assets 5.77%: Eli Lilly: https://ycharts.com/companies/LLY/return_on_assets https://ycharts.com/companies/LLY/return_on_assets 5.33% - Pfizer: https://ycharts.com/companies/PFE/return_on_assets https://ycharts.com/companies/PFE/return_on_assets
venomsnake 11y ago
> Thousands of dollars a month is pretty reasonable when you consider that. Lets make venn diagram of population earning thousands of dollars a month and population that has HIV and see how reasonable the overlap it.
- marcoperaza 11y ago
  Insurance is the market solution to this problem.
venomsnake 11y ago
> Thousands of dollars a month is pretty reasonable when you consider that. Lets make venn diagram of population earning thousands of dollars a month and population that has HIV and see how reasonable the overlap it.
adrianmacneil 11y ago
> A free market for drugs makes sure that companies can recoup their investments and make a reasonable profit. You know that patents make this pretty much the opposite of a free market to begin with right? You're starting with a government-granted monopoly for a period of time, so any argument which claims this is a free market is really just the drug companies trying to get your sympathy. > Also, I don't want to live in a place where the availability of a treatment is determined by some government committee that determines what the value of a month of my life is. In countries which have universal health care, there is no decision on the availability of a drug. Just which ones are free or heavily subsidized. Generally you can choose to have the generic at an very cheap price, or you are free to pay (or hold private insurance) for the brand name drugs. In very rare circumstances there is no subsidized option for a particular drug, in which case, again, you are free to purchase it with your own money, or hold supplemental private insurance. And absolutely you want the people in charge to determine the value of a year of quality life, when trying to maximize health outcomes for a certain budget. The only other option would be subsidizing drugs based on lobbying from the companies, which would be absurd.
richmarr 11y ago
> Also, I don't want to live in a place where the availability of a treatment is determined by some government committee that determines what the value of a month of my life is. This is Sarah Palin's "Death Panel" argument, and it's a weak one. If you have a fixed healthcare budget you need to decide how to spend it. The most sensible way to do that is to determine which treatments provide how many years additional quality of life, and pay for the treatments that provide the greatest benefit. You could debate the nitty gritty of how those calculations are made, and sure, there are ehtical quandries in there. It's a tough problem and sometimes mistakes are made. But that's not what you're doing. What you're doing is spreading FUD. You could suggest that health insurance is the proper way to run a healthcare system. I'd disagree with you, based on the fact that Britain's NHS covers its entire populace, supporting a higher life expectancy than the US, and costs less PER CAPITA (not per patient) than the US Medicare system that only pays for a small percentage. What's more, if you want to skip the waiting list for a replacement hip (the elderly score less well under the QUALY system) then you always have the option of paying for health insurance, or paying for the treatment directly. What's more UK health insurance is cheaper than US health insurance, because the health system isn't filled to the brim with moral hazards inflating prices.
- throwaway2048 11y ago
  The real irony of the death panel arguement is that denying coverage for a potentially terminal condition is standard fare for american insurance providers. They are far more of a "death panel" system than any government funded healthcare system.
mikeash 11y ago
How is it abusive for a country to band together and negotiate a single, good price? The selling side already bands together to present a unified front. For many drugs there is a single supplier. This naturally gives them enormous power. Yet when you do the exact same thing on the other side, suddenly this is somehow anti-market, anti-capitalism, anti-freedom, or what have you. It's the exact same thing with labor unions. When employers band together to present a unified front on employment terms, we call that a "business" and it's so ingrained in how the world works that we have trouble conceiving of doing things any other way. But when employees do the exact same thing it's looked upon with scorn by many.
- marcoperaza 11y ago
  > It's the exact same thing with labor unions. When employers band together to present a unified front on employment terms, we call that a "business" and it's so ingrained in how the world works that we have trouble conceiving of doing things any other way. But when employees do the exact same thing it's looked upon with scorn by many. If employers band together to set wages, benefits, etc. it's highly illegal. The US government at least takes this seriously and companies are punished for it.
  - mikeash 11y ago
    Between companies, yes. But within a single company it's expected. If a company sets a pay rate and doesn't allow its hiring managers to compete with each other, that's standard and not at all illegal.
justthistime_ 11y ago
Wow, more of this "free market" non-sense. a) It's not a free market. Especially in cases with life-threatening diseases a person can't just "walk away from a deal", that would be suicide for that person. b) Entities banding together to negotiate a better price? Boohoohoo how unfair. Welcome to capitalism. Oh wait, if the entity were for-profit companies all would be fine, right? It's only bad when citizens band together. Is it so hard to accept that in all other civilized countries health care works better and at a more reasonable cost? Get your shit together, Americans.
- marcoperaza 11y ago
  If the entity were a single for-profit company it would be a monopoly or cartel and would be illegal.
  - justthistime_ 11y ago
    The US is not known for applying laws to rich people.

DanBC 11y ago

> They also have to worry about the political fallout of walking away from a deal when the government tries to blame them for the lack of a deal. This is rare, but when it happens drug companies have no problem blaming the government for killing people. See, for example, abraxane. This is a chemo used for pancreatic cancer. There are two other chemos currently used. Abraxane isn't as good at extending life as the main med, and it has more side effects than the second. So it's not available under the cancer drugs fund. Celgene (partially) fund a pancreaticcanceraction.org group to campaign to get abraxane re-instated as a treatment. This involves them running misleading petitions ("abraxae extends life by two years" - celgene's own data show a median extension of two months; "the only pancreatic cancer drug" - it's the newest drug, but there are teo others, one of which extends life more, another has fewer side effects). It's pretty cynical to use dying people, and the relatives of dead and dying people, to campaign for your meds.

yason 11y ago

Instead of being paid the market price, pharma companies are paid the lowest-price they could absolutely tolerate. Isn't that the market price, then? Market price is the price at which trading happens——above and below that are prices which at least one of the parties doesn't tolerate. And obviously volume discounts bring down the price in comparison to selling in smaller batches, this generally applies everywhere. I don't think any single company would sell at a lower price than what they can afford to ask. Note that part of the price can certainly be in goodwill, better public relations, or to win a bigger market share instead of cash. But that still is a net win for the seller, or they wouldn't be selling.

marcoperaza 11y ago
No, it's not what the market price would be in a system with a plurality of buyers. The demand side of the equation is heavily skewed when a single entity has the authority to make purchasing decisions for effectively the entire population. And since marginal costs are so low, the company is in a position where even a price that doesn't recoup their total unit costs is better than no sale at all to a population of tens of millions.
- yason 11y ago
  The fact that trade does take place proves that a market exists. Obviously it's a different market, selling to larger establishments or even countries versus selling to small retailers. Similarly goods markets and prices are slightly different in big cities versus remote country villages. But a market is a market, and when a trade closes that's the market price. If the merchandise and the price paid for it didn't benefit both the company and the buyer, there would be no trade.
  - marcoperaza 11y ago
    Any system with buyers and sellers is a "market", that's a meaningless standard. If all of the insurance companies in the US decided to merge and use their leverage to lower drug prices, it would be an illegal cartel. The resulting price would be the "market price" but not the price that would exist in a free market, which in most definitions includes prohibitions on such cartels. Governments can get away with it because they write the rules and there's no higher authority to stop them.

Numberwang 11y ago

You have no idea how weird and empty this kind of thinking sounds to a european. Capitalism makes for such a cold world.

marcoperaza 11y ago
> Capitalism makes for such a cold world. This "cold world" is the most prosperous, least impoverished, and most peaceful of all time. I'll take it. The moral argument for socialism is easy, but it ignores the dynamics that create innovation and wealth in the first place, ultimately hurting everyone. Insurance is the free market solution to making sure that drugs are widely available. A little bit of insurance regulation goes a long way to ensuring that a whole population has access to care.
- Numberwang 11y ago
  I'm a Swede and I'd talk our social democracy over the american system any day of the week. I'm glad though that all of your population have access to care, I did not know that. We do too though. Capitalism is a great idea. But if you let it be the only idea of your system it will hollow out it's citizens.
  - marcoperaza 11y ago
    Don't believe all of the sordid descriptions of what life in the US is like. That narrative is currently en vogue, and some news outlets with an agenda (or a demographic to please) are pushing it rather aggressively, but it's not really accurate. Americans give 10% of GDP to private social charities. That dwarfs all Europeans countries. We have a preference for voluntary and private charity. Europeans prefer compulsory and centralized.

nrao123 11y ago

Yes- agree with you. Most discussions around healthcare/pharma/hospitals have a moral element(look they are price gouging us). There are possibly some cases that fit the description but I am not sure if it applies across the industry. If in fact, pharma companies where making super normal profits- it would show up in their financial statements. Operating profits for any given year may not be appropriate because a lot of the R&D costs are in the balance sheet. A more appropriate (but still not perfect) metric would be Return on Assets (Profits/Assets) i.e. how much return are you getting on the capital you put in. Here are some metrics for some pharma companies. None of them are making super normal profits. 9.68% - Merck- https://ycharts.com/companies/MRK/return_on_assets https://ycharts.com/companies/MRK/return_on_assets 5.38%- Bristol Myers- https://ycharts.com/companies/BMY/return_on_assets https://ycharts.com/companies/BMY/return_on_assets 5.77%: Eli Lilly: https://ycharts.com/companies/LLY/return_on_assets https://ycharts.com/companies/LLY/return_on_assets 5.33% - Pfizer: https://ycharts.com/companies/PFE/return_on_assets https://ycharts.com/companies/PFE/return_on_assets

venomsnake 11y ago

> Thousands of dollars a month is pretty reasonable when you consider that. Lets make venn diagram of population earning thousands of dollars a month and population that has HIV and see how reasonable the overlap it.

marcoperaza 11y ago
Insurance is the market solution to this problem.

venomsnake 11y ago

adrianmacneil 11y ago

> A free market for drugs makes sure that companies can recoup their investments and make a reasonable profit. You know that patents make this pretty much the opposite of a free market to begin with right? You're starting with a government-granted monopoly for a period of time, so any argument which claims this is a free market is really just the drug companies trying to get your sympathy. > Also, I don't want to live in a place where the availability of a treatment is determined by some government committee that determines what the value of a month of my life is. In countries which have universal health care, there is no decision on the availability of a drug. Just which ones are free or heavily subsidized. Generally you can choose to have the generic at an very cheap price, or you are free to pay (or hold private insurance) for the brand name drugs. In very rare circumstances there is no subsidized option for a particular drug, in which case, again, you are free to purchase it with your own money, or hold supplemental private insurance. And absolutely you want the people in charge to determine the value of a year of quality life, when trying to maximize health outcomes for a certain budget. The only other option would be subsidizing drugs based on lobbying from the companies, which would be absurd.

richmarr 11y ago

> Also, I don't want to live in a place where the availability of a treatment is determined by some government committee that determines what the value of a month of my life is. This is Sarah Palin's "Death Panel" argument, and it's a weak one. If you have a fixed healthcare budget you need to decide how to spend it. The most sensible way to do that is to determine which treatments provide how many years additional quality of life, and pay for the treatments that provide the greatest benefit. You could debate the nitty gritty of how those calculations are made, and sure, there are ehtical quandries in there. It's a tough problem and sometimes mistakes are made. But that's not what you're doing. What you're doing is spreading FUD. You could suggest that health insurance is the proper way to run a healthcare system. I'd disagree with you, based on the fact that Britain's NHS covers its entire populace, supporting a higher life expectancy than the US, and costs less PER CAPITA (not per patient) than the US Medicare system that only pays for a small percentage. What's more, if you want to skip the waiting list for a replacement hip (the elderly score less well under the QUALY system) then you always have the option of paying for health insurance, or paying for the treatment directly. What's more UK health insurance is cheaper than US health insurance, because the health system isn't filled to the brim with moral hazards inflating prices.

throwaway2048 11y ago
The real irony of the death panel arguement is that denying coverage for a potentially terminal condition is standard fare for american insurance providers. They are far more of a "death panel" system than any government funded healthcare system.

mikeash 11y ago

How is it abusive for a country to band together and negotiate a single, good price? The selling side already bands together to present a unified front. For many drugs there is a single supplier. This naturally gives them enormous power. Yet when you do the exact same thing on the other side, suddenly this is somehow anti-market, anti-capitalism, anti-freedom, or what have you. It's the exact same thing with labor unions. When employers band together to present a unified front on employment terms, we call that a "business" and it's so ingrained in how the world works that we have trouble conceiving of doing things any other way. But when employees do the exact same thing it's looked upon with scorn by many.

marcoperaza 11y ago
> It's the exact same thing with labor unions. When employers band together to present a unified front on employment terms, we call that a "business" and it's so ingrained in how the world works that we have trouble conceiving of doing things any other way. But when employees do the exact same thing it's looked upon with scorn by many. If employers band together to set wages, benefits, etc. it's highly illegal. The US government at least takes this seriously and companies are punished for it.
- mikeash 11y ago
  Between companies, yes. But within a single company it's expected. If a company sets a pay rate and doesn't allow its hiring managers to compete with each other, that's standard and not at all illegal.

justthistime_ 11y ago

Wow, more of this "free market" non-sense. a) It's not a free market. Especially in cases with life-threatening diseases a person can't just "walk away from a deal", that would be suicide for that person. b) Entities banding together to negotiate a better price? Boohoohoo how unfair. Welcome to capitalism. Oh wait, if the entity were for-profit companies all would be fine, right? It's only bad when citizens band together. Is it so hard to accept that in all other civilized countries health care works better and at a more reasonable cost? Get your shit together, Americans.

marcoperaza 11y ago
If the entity were a single for-profit company it would be a monopoly or cartel and would be illegal.
- justthistime_ 11y ago
  The US is not known for applying laws to rich people.