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> In much of Europe, insulin costs about a sixth of what it does here. That’s because the governments play the role of pharmacy benefit managers. They negotiate

> In much of Europe, insulin costs about a sixth of what it does here. That’s because the governments play the role of pharmacy benefit managers. They negotiate with the manufacturer directly and have been very effective at driving down prices. In the United States, we rely on the private sector and a free market for drug pricing. Cartels are an emergent phenomenon[1] and it is in the interest of a fair market to not be "free market," whenever it leads to rackets. [1] https://news.ycombinator.com/item?id=3494224 https://news.ycombinator.com/item?id=3494224

vlunkr 11y ago
But couldn't you argue that the problem is in the patent system, not in the free market? 3 companies holding on to patents longer than normal doesn't sound like a free market to me. As the article says, if the patents didn't exist, we could have a generic brands.
- tajen 11y ago
  Patents aren't free market, since they require the government to play a role (enforcement) in favour of patent holders. A free market wouldn't be able to protect the IP, it would use DRM and peer-to-peer contracts, and as soon as the receipe gets out, they'd be in for ther investment. A socialist government would define a type a company that is allowed to conduct medical research and fix the bounds within which the company can invest or the sale prices.
  - Nutmog 11y ago
    That's stretching the definition of free market a bit. You could apply it to real estate property rights too and argue that a corner shop isn't in a free market because the owner has paid for a monopoly on access to that building which is most suited to selling things from. His property rights are protected by the police to stop competitors sending their goons in to take over the building. The same goes for any business that owns any sort of valuable property, especially if their ownership gives them exclusive access to it. So I think a useful definition of free market has to include various property rights, including IP. As long as people can trade those rights among each other, whoever holds the patent would probably have spent a fair amount of money to either invent or buy it.
    - jvz 11y ago
      There's a fundamental difference between physical property and intellectual "property": an owner of the former can conceivably hire guards to protect or restrict access to that property, since physical objects are generally localized phenomena. But there is no conceivable way to enforce things like copyright or patents without something at least as powerful as a government, since they are supposed to be binding on every single person, everywhere, all the time. IMO the concept of "intellectual property" is at best orthogonal to that of a "free market".
    - tajen 11y ago
      There is always debate over the extent of "free". At the extreme, the state doesn't enforce land property and the landlord is responsible for hiring an army to protect some land. In a more moderate situation land and property are organized and enforced by the state, because this protection is more efficient for everyone. Intellectual property is incredibly hard to enforce, because anyone can copy an idea, or bits on a hard drive, so you'll have to come up with convoluted solutions to check for the presence of information at every point in a network, and we're expecting citizen to pay taxes to pay the police force who will enforce those rights in favour of the owners. There are other, more efficient means, but they involve the richest to get a smaller cut (e.g. instead of the state enforcing DRMs for free, they have to pay for good DRM themselves), so it's very valuable for them to leverage the state to enforce their self-proclaimed rights.
NoMoreNicksLeft 11y ago
If we just put someone else in charge of the market, things will be better? Maybe I can vote them out if they mismanage the market, eh? Or, rather, I can vote out the people who delegated the appointment of top-level bureaucrats to their senior staff, who suggested industry insiders intent on regulatory capture? I can vote out those people after the fact? Gee, that'll fix it. If you're concerned with insulin prices, tear down the bureaucracy that prevents some Indian manufacturer from undercutting the pricing regime with product that costs 3 cents on the dollar.
ef4 11y ago
This is a clear example of a cartel that's only possible because of bad intellectual property laws. Without these dubiously long patents, there would be plenty of new competitors who would want a piece of that $12 billion.
- rayiner 11y ago
  There's nothing "dubiously long" about the patents here. Drug companies are lucky to get 10 years out of a patent (in a field where things change far more slowly than people in the tech industry are used to). Injectable insulin is long out of patent. What's patented are the iterative improvements to manufactured insulin drug manufacturers have been developing over decades: http://www.medscape.com/viewarticle/841669 http://www.medscape.com/viewarticle/841669.
  - blakeyrat 11y ago
    Serious question: what stops a company in the US from, tomorrow, setting up shop and making the insulin recipe from 14 years ago? Is it FDA regulations?
    - dmix 11y ago
      Well presumably, if current regulations did not turn out to be a lethal roadblock and a pharma company was lucky enough to become successful - and new regulations were not created as a response to new market entrants (via lobbying/agency collusion) nor were illegal marketing practices utilized [1] - then they will likely just get acquired by the big corps. There are plenty of good reasons there are only ever ~6 pharma companies and most have been around for 150yrs. There are few markets where oligopolies have maintained power for as long and as consistently as pharma. A few reasons why: - Plenty of capital to support M&A - Legendary regulatory hurdles for new entrants - An obedient judicial system where the annual major legal cases for illegal marketing by big pharma cos result in a slap on the wrist [1] https://en.wikipedia.org/wiki/List_of_largest_pharmaceutical_settlements https://en.wikipedia.org/wiki/List_of_largest_pharmaceutical...
    - Lazare 11y ago
Shivetya 11y ago
they should just list it under preventive care and make it free to those who need insulin and then cap payments to providers of it.
rayiner 11y ago
The fact that drugs are cheaper in Europe does not mean the market there is fairer or more efficient: https://en.wikipedia.org/wiki/Monopsony https://en.wikipedia.org/wiki/Monopsony. European governments have monopsonist power: through negotiating with manufacturers directly, they drive prices below the efficient level.
- shasta 11y ago
  If the OP allegation that just three companies control the insulin market is correct, then it doesn't seem appropriate to use the term "efficient" to describe the equilibrium condition that exists without the monopsony. Of course, we'd all probably be better off with a well functioning market free from monopolies or monopsonies.
- chishaku 11y ago
  Is that a monopsony though? The market for drug companies is global. If you were talking about doctors or some type of medical provider that was limited to providing goods and services within a single jurisdiction, you might have a point.
  - dalke 11y ago
    Even if it is a monopsony, the questions are 1) do they abuse its monopsony powers, and 2) what factors go ino defining 'efficient' and 'abuse'?
    - chishaku 11y ago
      No, the monopsony designation is key to the comment I was responding to and the point I was trying to make. If there is no monopsony power, it's hard to make any claim of abuse on the part of the government. Single payer governments are leveraging their bargaining power like any rational market participant. Drug companies are not required to sell to them. They do so of their own volition at a price favorable to their bottom line, otherwise they wouldn't do it.
      - 11y ago
Spooky23 11y ago
I was a member of a very large public sector health plan that was extremely aggressive about negotiations, to the point that for awhile any maintenance medication had to be shipped from Canada. They get good prices, but not that good -- iirc my blood pressure medication total cost was 10-15% less than the shitty small business HMO that I had previously. Generally speaking, the US government demands most favored pricing and gets it. No way we would pay more than France. Europe does better because they have the ability to prevent sale of a drug and the drug company can just raise the price in the US. If the US gets in the game, I would expect European prices to spike, especially in smaller countries.
- dalke 11y ago
  > Generally speaking, the US government demands most favored pricing and gets it. No way we would pay more than France. I though the US government, except for the VA, was "not permitted to negotiate prices of drugs with the drug companies" due to Medicare Part D. (Quoting https://en.wikipedia.org/wiki/Medicare_Part_D#Criticisms https://en.wikipedia.org/wiki/Medicare_Part_D#Criticisms .) Was that prohibition removed? If it's still there, then wouldn't that prevent the US government from demanding most favored pricing, as that would be a negotiation.
  - Spooky23 11y ago
    I was referring to the hypothetical cases where the Federal government does negotiate. My guess is they do not because hey would put companies out of business and impact many countries.
- melted 11y ago
  Probably depends on the cost of medication to begin with. My HBP medication is like 25 cents a pill even without insurance. I figure it can't really go much lower than that given that all those folks at the pharmacy need to be paid. Now if something is $25 a pill, there's definitely more room for negotiation.

vlunkr 11y ago

But couldn't you argue that the problem is in the patent system, not in the free market? 3 companies holding on to patents longer than normal doesn't sound like a free market to me. As the article says, if the patents didn't exist, we could have a generic brands.

tajen 11y ago
Patents aren't free market, since they require the government to play a role (enforcement) in favour of patent holders. A free market wouldn't be able to protect the IP, it would use DRM and peer-to-peer contracts, and as soon as the receipe gets out, they'd be in for ther investment. A socialist government would define a type a company that is allowed to conduct medical research and fix the bounds within which the company can invest or the sale prices.
- Nutmog 11y ago
  That's stretching the definition of free market a bit. You could apply it to real estate property rights too and argue that a corner shop isn't in a free market because the owner has paid for a monopoly on access to that building which is most suited to selling things from. His property rights are protected by the police to stop competitors sending their goons in to take over the building. The same goes for any business that owns any sort of valuable property, especially if their ownership gives them exclusive access to it. So I think a useful definition of free market has to include various property rights, including IP. As long as people can trade those rights among each other, whoever holds the patent would probably have spent a fair amount of money to either invent or buy it.
  - jvz 11y ago
    There's a fundamental difference between physical property and intellectual "property": an owner of the former can conceivably hire guards to protect or restrict access to that property, since physical objects are generally localized phenomena. But there is no conceivable way to enforce things like copyright or patents without something at least as powerful as a government, since they are supposed to be binding on every single person, everywhere, all the time. IMO the concept of "intellectual property" is at best orthogonal to that of a "free market".
  - tajen 11y ago
    There is always debate over the extent of "free". At the extreme, the state doesn't enforce land property and the landlord is responsible for hiring an army to protect some land. In a more moderate situation land and property are organized and enforced by the state, because this protection is more efficient for everyone. Intellectual property is incredibly hard to enforce, because anyone can copy an idea, or bits on a hard drive, so you'll have to come up with convoluted solutions to check for the presence of information at every point in a network, and we're expecting citizen to pay taxes to pay the police force who will enforce those rights in favour of the owners. There are other, more efficient means, but they involve the richest to get a smaller cut (e.g. instead of the state enforcing DRMs for free, they have to pay for good DRM themselves), so it's very valuable for them to leverage the state to enforce their self-proclaimed rights.

NoMoreNicksLeft 11y ago

If we just put someone else in charge of the market, things will be better? Maybe I can vote them out if they mismanage the market, eh? Or, rather, I can vote out the people who delegated the appointment of top-level bureaucrats to their senior staff, who suggested industry insiders intent on regulatory capture? I can vote out those people after the fact? Gee, that'll fix it. If you're concerned with insulin prices, tear down the bureaucracy that prevents some Indian manufacturer from undercutting the pricing regime with product that costs 3 cents on the dollar.

ef4 11y ago

This is a clear example of a cartel that's only possible because of bad intellectual property laws. Without these dubiously long patents, there would be plenty of new competitors who would want a piece of that $12 billion.

rayiner 11y ago
There's nothing "dubiously long" about the patents here. Drug companies are lucky to get 10 years out of a patent (in a field where things change far more slowly than people in the tech industry are used to). Injectable insulin is long out of patent. What's patented are the iterative improvements to manufactured insulin drug manufacturers have been developing over decades: http://www.medscape.com/viewarticle/841669 http://www.medscape.com/viewarticle/841669.
- blakeyrat 11y ago
  Serious question: what stops a company in the US from, tomorrow, setting up shop and making the insulin recipe from 14 years ago? Is it FDA regulations?
  - dmix 11y ago
    Well presumably, if current regulations did not turn out to be a lethal roadblock and a pharma company was lucky enough to become successful - and new regulations were not created as a response to new market entrants (via lobbying/agency collusion) nor were illegal marketing practices utilized [1] - then they will likely just get acquired by the big corps. There are plenty of good reasons there are only ever ~6 pharma companies and most have been around for 150yrs. There are few markets where oligopolies have maintained power for as long and as consistently as pharma. A few reasons why: - Plenty of capital to support M&A - Legendary regulatory hurdles for new entrants - An obedient judicial system where the annual major legal cases for illegal marketing by big pharma cos result in a slap on the wrist [1] https://en.wikipedia.org/wiki/List_of_largest_pharmaceutical_settlements https://en.wikipedia.org/wiki/List_of_largest_pharmaceutical...
  - Lazare 11y ago

Shivetya 11y ago

they should just list it under preventive care and make it free to those who need insulin and then cap payments to providers of it.

rayiner 11y ago

The fact that drugs are cheaper in Europe does not mean the market there is fairer or more efficient: https://en.wikipedia.org/wiki/Monopsony https://en.wikipedia.org/wiki/Monopsony. European governments have monopsonist power: through negotiating with manufacturers directly, they drive prices below the efficient level.

shasta 11y ago
If the OP allegation that just three companies control the insulin market is correct, then it doesn't seem appropriate to use the term "efficient" to describe the equilibrium condition that exists without the monopsony. Of course, we'd all probably be better off with a well functioning market free from monopolies or monopsonies.
chishaku 11y ago
Is that a monopsony though? The market for drug companies is global. If you were talking about doctors or some type of medical provider that was limited to providing goods and services within a single jurisdiction, you might have a point.
- dalke 11y ago
  Even if it is a monopsony, the questions are 1) do they abuse its monopsony powers, and 2) what factors go ino defining 'efficient' and 'abuse'?
  - chishaku 11y ago
    No, the monopsony designation is key to the comment I was responding to and the point I was trying to make. If there is no monopsony power, it's hard to make any claim of abuse on the part of the government. Single payer governments are leveraging their bargaining power like any rational market participant. Drug companies are not required to sell to them. They do so of their own volition at a price favorable to their bottom line, otherwise they wouldn't do it.
    - 11y ago

Spooky23 11y ago

I was a member of a very large public sector health plan that was extremely aggressive about negotiations, to the point that for awhile any maintenance medication had to be shipped from Canada. They get good prices, but not that good -- iirc my blood pressure medication total cost was 10-15% less than the shitty small business HMO that I had previously. Generally speaking, the US government demands most favored pricing and gets it. No way we would pay more than France. Europe does better because they have the ability to prevent sale of a drug and the drug company can just raise the price in the US. If the US gets in the game, I would expect European prices to spike, especially in smaller countries.

dalke 11y ago
> Generally speaking, the US government demands most favored pricing and gets it. No way we would pay more than France. I though the US government, except for the VA, was "not permitted to negotiate prices of drugs with the drug companies" due to Medicare Part D. (Quoting https://en.wikipedia.org/wiki/Medicare_Part_D#Criticisms https://en.wikipedia.org/wiki/Medicare_Part_D#Criticisms .) Was that prohibition removed? If it's still there, then wouldn't that prevent the US government from demanding most favored pricing, as that would be a negotiation.
- Spooky23 11y ago
  I was referring to the hypothetical cases where the Federal government does negotiate. My guess is they do not because hey would put companies out of business and impact many countries.
melted 11y ago
Probably depends on the cost of medication to begin with. My HBP medication is like 25 cents a pill even without insurance. I figure it can't really go much lower than that given that all those folks at the pharmacy need to be paid. Now if something is $25 a pill, there's definitely more room for negotiation.