4 ms·

> Drug prices in US go up because of collusion between Insurance Companies and Drug manufacturers. It's great that you're interested in healthcare policy, but

by allenz 10y ago

> Drug prices in US go up because of collusion between Insurance Companies and Drug manufacturers. It's great that you're interested in healthcare policy, but you should be careful about making blanket statements without the evidence. Drugs are 9% of healthcare costs[1] and 14% of insurance costs[2]--hardly the decisive factor in your choice of health insurance. And expensive drugs are expensive primarily because it really does cost $1B+ to develop a new drug.[3] Even if you wipe out drug company profits (which we really don't want to do), you'll save at most 3% on your insurance.[4] Like other types of insurance, cheap health insurance is cheap primarily because it limits your coverage. The biggest impact is that you pay more to see fewer specialists and undergo fewer procedures. It also results in situations in which you're denied a cure for liver disease until you have severe liver damage.[5] Your solution doesn't solve collusion so much as make a major tradeoff: we can have a world in which drugs cost $1000/year, if we stop researching drugs that cure liver disease. We can have cheap health insurance, if we give up most of the coverage. You probably didn't know you were making that tradeoff, and that's probably not a tradeoff you want to make. [1] http://www.huffingtonpost.com/2014/12/03/health-care-spending_n_6256166.html http://www.huffingtonpost.com/2014/12/03/health-care-spendin... [2] PwC report, page 12 http://www.amcp.org/WorkArea/DownloadAsset.aspx?id=12727 http://www.amcp.org/WorkArea/DownloadAsset.aspx?id=12727 [3] https://www.washingtonpost.com/news/wonk/wp/2014/11/18/does-it-really-cost-2-6-billion-to-develop-a-new-drug/ https://www.washingtonpost.com/news/wonk/wp/2014/11/18/does-... [4] Profit margins are less than 20% http://www.bbc.com/news/business-28212223 http://www.bbc.com/news/business-28212223 [5] http://america.aljazeera.com/articles/2015/10/16/insurance-providers-deny-hepatitis-drugs.html http://america.aljazeera.com/articles/2015/10/16/insurance-p...

rlpb 10y ago
> And expensive drugs are expensive primarily because it really does cost $1B+ to develop a new drug. Nope. More of the cost of a drug goes to marketing than development: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/ https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p...
- allenz 10y ago
  Nope. Development costs $1B+ by itself, as you can see from my source or your link. Marketing spend is on top of the R&D cost. I agree that we should limit drug advertising, but that Global Data report is off by an order of magnitude. Total advertising for Rx drugs is $15B to physicians and $5.2B to consumers.[1,2] The discrepancy is due to several factors. First, the Global Data report lists combined sales and marketing. Sales includes essential logistics needed for us to get our drugs, so you can't really say that marketing alone costs more than R&D. Second, most marketing is for over-the-counter drugs, for obvious reasons. Tylenol, sold by Johnson & Johnson, has an enormous marketing budget, but it's not exactly the kind of drug that forces people to buy insurance. Third, drugs only account for 40% of J&J sales--their scary marketing budget includes lots of advertising for non-pharmaceutical products. [1] http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2013/11/11/persuading-the-prescribers-pharmaceutical-industry-marketing-and-its-influence-on-physicians-and-patients http://www.pewtrusts.org/en/research-and-analysis/fact-sheet... [2] https://www.statnews.com/2016/03/09/drug-industry-advertising/ https://www.statnews.com/2016/03/09/drug-industry-advertisin...
  - rlpb 10y ago
    > Nope. Development costs $1B+ by itself, as you can see from my source or your link. Marketing spend is on top of the R&D cost. Irrelevant. You said: "And expensive drugs are expensive primarily because it really does cost $1B+ to develop a new drug" [emphasis mine] and I demonstrated this to be untrue. The data shows that the primary cost is not in R&D. It doesn't matter what you say about the necessity of that sales and marketing. I didn't comment on that. The primary cost is still not in R&D. > Third, drugs only account for 40% of J&J sales--their scary marketing budget includes lots of advertising for non-pharmaceutical products. This may be true and perhaps more data is needed, but I haven't seen any evidence that demonstrates unequivocally that the primary cost of drugs in the US is due to R&D.
calvinbhai 10y ago
I agree its not a major %age of the costs for Insurance company. But here's what I think is happening: Manufacturer MFG could sell a drug X at $1 and sell directly to 10,000 people at $1, make $10,000 revenue But because of perverse insurance incentives, MFG decides to sell the same drug at $100, and there are 100 out of those 10,000 who can afford an insurance plan that covers the cost for that $100 drug X. So, by jacking up the price the drug company's revenue at the very least, remains intact, or in most cases can get more revenue if the number of rich people with expensive insurance plans is greater than 100. While Insurance companies wont mind paying the $100 since that fear of expensive drug gives them more customers affected by FUD, willing to pay obscene premiums, copays and deductibles. And since many health insurance premiums are subsidized by the employer, the employee doesn't realize the true cost of health insurance, and thinks its a great deal to get a $100 drug for $20. The solution I proposed, will solve this pricing obfuscation to a great extent. Insurance companies cannot justify paying for an expensive drug, if a cheaper one is available. MFG can still price drug X at $100, but if there's a generic variant made in India / Africa / China available for $5, there wont be a market for MFG to sustain. So, there's an incentive for MFG to sell X at < $5, while targeting more coverage instead of just the 100 people covered by expensive insurance plans. I dont see people on either side of the political spectrum in US, asking to fix this problem. Nor has there been much discussion about the same. Hope this concept is evaluated and becomes popular in solving the Healthcare Mess of America.
- allenz 10y ago
  I still disagree, I don't think costs are high because of collusion. I've seen no evidence of collusion between insurance companies or drug companies, which would be very illegal. There is no reason for collusion. You say that people fear expensive drugs, but there is no need to manufacture fear. People already fear complicated hospital procedures, which can cost $1 million. Hospital procedures are more expensive than expensive drugs. I think that you're ignoring the fact that it takes $1+ billion to develop a drug. You want to buy drugs for the price of a movie ticket, even though a drug costs 1000x more than a movie, involves much more risk to develop, and is used by fewer people.

by allenz 10y ago

rlpb 10y ago

> And expensive drugs are expensive primarily because it really does cost $1B+ to develop a new drug. Nope. More of the cost of a drug goes to marketing than development: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/ https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p...

allenz 10y ago
Nope. Development costs $1B+ by itself, as you can see from my source or your link. Marketing spend is on top of the R&D cost. I agree that we should limit drug advertising, but that Global Data report is off by an order of magnitude. Total advertising for Rx drugs is $15B to physicians and $5.2B to consumers.[1,2] The discrepancy is due to several factors. First, the Global Data report lists combined sales and marketing. Sales includes essential logistics needed for us to get our drugs, so you can't really say that marketing alone costs more than R&D. Second, most marketing is for over-the-counter drugs, for obvious reasons. Tylenol, sold by Johnson & Johnson, has an enormous marketing budget, but it's not exactly the kind of drug that forces people to buy insurance. Third, drugs only account for 40% of J&J sales--their scary marketing budget includes lots of advertising for non-pharmaceutical products. [1] http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2013/11/11/persuading-the-prescribers-pharmaceutical-industry-marketing-and-its-influence-on-physicians-and-patients http://www.pewtrusts.org/en/research-and-analysis/fact-sheet... [2] https://www.statnews.com/2016/03/09/drug-industry-advertising/ https://www.statnews.com/2016/03/09/drug-industry-advertisin...
- rlpb 10y ago
  > Nope. Development costs $1B+ by itself, as you can see from my source or your link. Marketing spend is on top of the R&D cost. Irrelevant. You said: "And expensive drugs are expensive primarily because it really does cost $1B+ to develop a new drug" [emphasis mine] and I demonstrated this to be untrue. The data shows that the primary cost is not in R&D. It doesn't matter what you say about the necessity of that sales and marketing. I didn't comment on that. The primary cost is still not in R&D. > Third, drugs only account for 40% of J&J sales--their scary marketing budget includes lots of advertising for non-pharmaceutical products. This may be true and perhaps more data is needed, but I haven't seen any evidence that demonstrates unequivocally that the primary cost of drugs in the US is due to R&D.

calvinbhai 10y ago

I agree its not a major %age of the costs for Insurance company. But here's what I think is happening: Manufacturer MFG could sell a drug X at $1 and sell directly to 10,000 people at $1, make $10,000 revenue But because of perverse insurance incentives, MFG decides to sell the same drug at $100, and there are 100 out of those 10,000 who can afford an insurance plan that covers the cost for that $100 drug X. So, by jacking up the price the drug company's revenue at the very least, remains intact, or in most cases can get more revenue if the number of rich people with expensive insurance plans is greater than 100. While Insurance companies wont mind paying the $100 since that fear of expensive drug gives them more customers affected by FUD, willing to pay obscene premiums, copays and deductibles. And since many health insurance premiums are subsidized by the employer, the employee doesn't realize the true cost of health insurance, and thinks its a great deal to get a $100 drug for $20. The solution I proposed, will solve this pricing obfuscation to a great extent. Insurance companies cannot justify paying for an expensive drug, if a cheaper one is available. MFG can still price drug X at $100, but if there's a generic variant made in India / Africa / China available for $5, there wont be a market for MFG to sustain. So, there's an incentive for MFG to sell X at < $5, while targeting more coverage instead of just the 100 people covered by expensive insurance plans. I dont see people on either side of the political spectrum in US, asking to fix this problem. Nor has there been much discussion about the same. Hope this concept is evaluated and becomes popular in solving the Healthcare Mess of America.

allenz 10y ago
I still disagree, I don't think costs are high because of collusion. I've seen no evidence of collusion between insurance companies or drug companies, which would be very illegal. There is no reason for collusion. You say that people fear expensive drugs, but there is no need to manufacture fear. People already fear complicated hospital procedures, which can cost $1 million. Hospital procedures are more expensive than expensive drugs. I think that you're ignoring the fact that it takes $1+ billion to develop a drug. You want to buy drugs for the price of a movie ticket, even though a drug costs 1000x more than a movie, involves much more risk to develop, and is used by fewer people.