18 ms·

The article does a good job of starting to explain the forces, but it's actually even more complicated. A number of the PBMs are cross invested in pharmacies a

The article does a good job of starting to explain the forces, but it's actually even more complicated. A number of the PBMs are cross invested in pharmacies and insurance companies, and the incentives of 2-3 large pharmacies that control the majority of the market (and how they get paid) is very different than how small pharmacies get paid. Additionally the way the generic market works vs the branded (patented) meds is completely different. (and the system of how drugs move from patented to generic is _nothing_ like the way patents work in software) Which is all to say, it's a fascinating space. It's very ripe for innovation. If you're interested in this kind of thing at Blink we're building a price transparency and payment platform that both routes over and routes around PBMs and gives a unified fair price for everyone in the US. If you're interested in roughly what the wholesale price is plus a very small markup, you can find it on https://blinkhealth.com https://blinkhealth.com And we're hiring. https://www.blinkhealth.com/careers https://www.blinkhealth.com/careers Also the re-importing from Canada is a total red herring. As is implied in the term "re-importing" these drugs are made here in the US, there is nothing special about sending them to Canada and bringing them back. There just needs to be a payment platform that allows people to pay the wholesale price with a small markup (vs the "Average Wholesale Price" which is often a 2000-3000% markup over the real wholesale) Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it.

DarkKomunalec 10y ago
Proportionately to their revenue, pharma doesn't spend that much on R&D: 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... And that's just compared to advertising - throw in other overhead, and separate R&D into genuinely new drugs vs. generics and flavoured aspirin, and the numbers are even worse. Of course it's hard to get such comprehensive financial data, but that's just one of the advantages of private healthcare - hiding data to hide how much you're being exploited.
- refurb 10y ago
  Drug companies spend the most on R&D out of any industry. The average is almost 20% of revenue. That means if you buy a drug for $1000, $200 of that goes back into R&D. And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products.
  - DarkKomunalec 10y ago
    > And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products. That's advertising. You mentioned 20% of their revenue is R&D - do you have a source, ideally listing what the other 80% goes to? That's a lot of unaccounted revenue, especially given how many drugs were shown to be dirt cheap to manufacture.
    - tclAmockingbird 10y ago
      > > And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products. > That's advertising. It's also keeping physicians up to date on the current science, applicability, and best practices of their products. I think it's a good thing for sales reps and MSLs to inform or remind physicians that there are alternatives to writing a script for Epipens, for example. > You mentioned 20% of their revenue is R&D - do you have a source, ideally listing what the other 80% goes to? That's a lot of unaccounted revenue, especially given how many drugs were shown to be dirt cheap to manufacture. Many drugs are cheap to make, but that neglects the astronomical development and regulatory costs.
      - galdosdi 10y ago
        FWIW the anecdotal experience of people I know in the health field in the US is that pharma sales reps know nothing about medicine, are hired for their sales / "relationship building" ability, and can't answer any question about the drug they are touting that can't be answered by looking at the brochure. Very disappointing. You can't expect to get unbiased, quality advice from someone with such a strong incentive. The right way for doctors to stay up to date is for doctors to stay up to date! They need to read a damn book or journal article once in a while and takes responsibility for their own professional development. If doctors aren't doing that, regulators need to suspend their licenses.
ch4s3 10y ago
> what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop This is really hard to explain to people.
- AnthonyMouse 10y ago
  > This is really hard to explain to people. It's not that it's hard to explain, it's that it causes people to want to switch from the US system even more, because as soon as you understand it you realize that US patients and taxpayers are being unfairly forced to subsidize more than their share of drug R&D for Canada and Europe.
  - ch4s3 10y ago
    To quote your sibling comment: >Probably because saying something is "financed" by demand is counter-intuitive. Since Healthcare is in economic terms a superior good, people spend a larger share of income on it as their income rises. And because the US is such a large, wealthy market, demand is sufficient to to pay down R&D costs that other markets could no bear. It's still a shitty deal, but it makes perfect sense that it turned out this way. That's just hard to articulate to people who are not familiar with the industry or economics.
    - AnthonyMouse 10y ago
      That's not it though. Canada and Europe are not poor. The problem is that drug patents are fundamentally incompatible with single payer. The premise of the patent system is that you get to charge outrageous monopoly rents temporarily in exchange for creating something that didn't exist. If you have a monopsony buyer setting prices then curing cancer isn't as profitable, so companies spend less money on research and long-term more people die. There is another way to fund medical research. Tax dollars. But if you're paying for it with tax dollars then patents are waste; the research happens regardless because the government is paying for it. Then you lose the "market efficiency" -- people have better incentive to succeed without wasting money when they only get paid for succeeding and the money they waste is their own, than when they get paid either way and are spending someone else's money. And then people die because you spent more money curing fewer diseases. But for the patent system to work, you need the patient to pay the monopoly price, not the government or a monopsony insurance company. Otherwise they can use their market power to pay less than what the drug is worth. Or worse, pay more than it's worth over alternative treatments because they're spending someone else's money or are victims of regulatory capture (as in the US). Either of which destroy the efficiency the patent system is supposed to bring and make it so that we might as well not have it.
bradleyjg 10y ago
> If you're interested in roughly what the wholesale price is plus a very small markup What about the rebates mentioned in the article several times? I know in the car industry one trick is to go on and on about "dealer invoice" and how great a deal you are getting while ignoring that rebates make that number fairly meaningless.
- kellanem 10y ago
  Two things going on with the rebates. 1. I think the article is a little one sided in their explanation of the rebate system, though it certainly more opaque than it should be. (some of which is just healthtech is stuck in the dark ages) 2. The rebates really only apply to the branded meds, which are approximately 20% of the market.
  - bradleyjg 10y ago
    With all due respect, saying the article is a little one sided doesn't tell me much. Can you outline what the other side of the story is?
    - kellanem 10y ago
      The story isn't _good_, it's just a bit more complicated. The pharma company's trade association published this recently which talks about it in depth: http://www.phrma.org/report/commercially-insured-patients-pay-undiscounted-list-prices-for-one-in-five-brand-prescriptions-accounting-for-half-of-out-of-pocket-spending-on-brand-medicines http://www.phrma.org/report/commercially-insured-patients-pa...
  - mattieuga 10y ago
    I think that's very dismissive of the importance rebates play. The PBMs' defensibility comes almost entirely from their ability to use their scale to drive up branded/specialty medication costs up by demanding larger and larger rebates from pharma. In terms of revenue, branded and specialty meds already make up more than 75% of the market today. They are the real problem here, not generics.
svskeptic 10y ago
"roughly what the wholesale price is plus a very small markup" .. is not my experience. I just had a pharmacist friend show this to me. Blink charged the customer $10 for generic Lipitor (atorvastatin) 20mg, 30 pills. And reimbursed the pharmacy $4.90. Hence keeping > 50% of what the customer paid. As per the pharmacist, he would be happy to fill the prescription in cash for $7.50, lowering the price for consumer and making him more margin. These are real numbers. Blink is in fact contributing to increasing the price for consumers, while being yet another middleman in the process.
- jjmorrison 10y ago
  Just to provide more info - for a given pharmacy, Atorvastatin 20mg is $.0629 per pill, so $1.887 at cost. For most pharmacies the real cost is going the pharmacist filling the rx. An insurance company would probably reimburse <$5 and may or may not just make that the copay. $10 is way higher than pharmacies would charge for generic lipitor. Also claiming: Avg. retail: $132.52 You save: 96% Is the complete OPPOSITE of transparency. $132.52 might be a realistic price for branded Lipitor, but that's not at all what is being sold here.
spangry 10y ago
"Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it." That would be bad. Based on 5 minutes of googling and 10 minutes of reading, the largest US pharma company is Johnson & Johnson. Their latest earnings report has the following for the 12 months in 2016 (not all expenses are listed here): - Sales (i.e. revenue): $71.8bn - Marketing expense: $19.9bn - R&D expense: $9.1bn - After tax, after expenses profit: $16.5bn So, on behalf of my fellow Australians, I'd just like to thank J&J for selling into my country at a substantial loss (and, in doing so, bravely running the risk of breaching their fiduciary duties to their shareholders). I'd also like to express my gratitude to consumers in the United State, who are apparently so generous that they are willing to subsidise my country's single-purchaser medical system. It's a shame you can't have one as well, but at least you have the world's gratitude for your sacrifice. USA #1! EDIT: Link - http://files.shareholder.com/downloads/JNJ/4178180194x0x924921/BCDFDBBF-7CC2-49FF-8ECF-3EC12FC88406/JNJ_News_2017_1_24_Financial_Releases.pdf http://files.shareholder.com/downloads/JNJ/4178180194x0x9249...
- xadhominemx 10y ago
  Less than half of JNJ's revenues is pharmaceuticals, so not a great example to be honest.
  - spangry 10y ago
    Actually it's a pretty good example. In Australia, medicines and medical devices (i.e. 81% of J&J revenue) are regulated by the same body (the TGA) using the same approach, craftily reasoning that sick people need both. I realise you might see thing differently (i.e. better) in the USA, but I guess that's just part of what makes you exceptional!
    - xadhominemx 10y ago
      Medical devices and pharmaceutical companies have different cost structures, so I maintain my point that J&J is not a good example of a pharmaceutical cost structure. But you did 10 minutes of Googling so I defer to you I guess.
deleted 10y ago
[deleted]
metaphorm 10y ago
> Which is all to say, it's a fascinating space. It's very ripe for innovation. is that a euphemistic way of saying its a train-wreck, where society is hobbled by rent-seeking behavior by monopolist cartels that have used a combination of anti-competitive business strategy and regulatory capture to extract massive amounts of wealth from their captive audience of sick people?

DarkKomunalec 10y ago

Proportionately to their revenue, pharma doesn't spend that much on R&D: 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... And that's just compared to advertising - throw in other overhead, and separate R&D into genuinely new drugs vs. generics and flavoured aspirin, and the numbers are even worse. Of course it's hard to get such comprehensive financial data, but that's just one of the advantages of private healthcare - hiding data to hide how much you're being exploited.

refurb 10y ago
Drug companies spend the most on R&D out of any industry. The average is almost 20% of revenue. That means if you buy a drug for $1000, $200 of that goes back into R&D. And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products.
- DarkKomunalec 10y ago
  > And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products. That's advertising. You mentioned 20% of their revenue is R&D - do you have a source, ideally listing what the other 80% goes to? That's a lot of unaccounted revenue, especially given how many drugs were shown to be dirt cheap to manufacture.
  - tclAmockingbird 10y ago
    > > And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products. > That's advertising. It's also keeping physicians up to date on the current science, applicability, and best practices of their products. I think it's a good thing for sales reps and MSLs to inform or remind physicians that there are alternatives to writing a script for Epipens, for example. > You mentioned 20% of their revenue is R&D - do you have a source, ideally listing what the other 80% goes to? That's a lot of unaccounted revenue, especially given how many drugs were shown to be dirt cheap to manufacture. Many drugs are cheap to make, but that neglects the astronomical development and regulatory costs.
    - galdosdi 10y ago
      FWIW the anecdotal experience of people I know in the health field in the US is that pharma sales reps know nothing about medicine, are hired for their sales / "relationship building" ability, and can't answer any question about the drug they are touting that can't be answered by looking at the brochure. Very disappointing. You can't expect to get unbiased, quality advice from someone with such a strong incentive. The right way for doctors to stay up to date is for doctors to stay up to date! They need to read a damn book or journal article once in a while and takes responsibility for their own professional development. If doctors aren't doing that, regulators need to suspend their licenses.

ch4s3 10y ago

> what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop This is really hard to explain to people.

AnthonyMouse 10y ago
> This is really hard to explain to people. It's not that it's hard to explain, it's that it causes people to want to switch from the US system even more, because as soon as you understand it you realize that US patients and taxpayers are being unfairly forced to subsidize more than their share of drug R&D for Canada and Europe.
- ch4s3 10y ago
  To quote your sibling comment: >Probably because saying something is "financed" by demand is counter-intuitive. Since Healthcare is in economic terms a superior good, people spend a larger share of income on it as their income rises. And because the US is such a large, wealthy market, demand is sufficient to to pay down R&D costs that other markets could no bear. It's still a shitty deal, but it makes perfect sense that it turned out this way. That's just hard to articulate to people who are not familiar with the industry or economics.
  - AnthonyMouse 10y ago
    That's not it though. Canada and Europe are not poor. The problem is that drug patents are fundamentally incompatible with single payer. The premise of the patent system is that you get to charge outrageous monopoly rents temporarily in exchange for creating something that didn't exist. If you have a monopsony buyer setting prices then curing cancer isn't as profitable, so companies spend less money on research and long-term more people die. There is another way to fund medical research. Tax dollars. But if you're paying for it with tax dollars then patents are waste; the research happens regardless because the government is paying for it. Then you lose the "market efficiency" -- people have better incentive to succeed without wasting money when they only get paid for succeeding and the money they waste is their own, than when they get paid either way and are spending someone else's money. And then people die because you spent more money curing fewer diseases. But for the patent system to work, you need the patient to pay the monopoly price, not the government or a monopsony insurance company. Otherwise they can use their market power to pay less than what the drug is worth. Or worse, pay more than it's worth over alternative treatments because they're spending someone else's money or are victims of regulatory capture (as in the US). Either of which destroy the efficiency the patent system is supposed to bring and make it so that we might as well not have it.

bradleyjg 10y ago

> If you're interested in roughly what the wholesale price is plus a very small markup What about the rebates mentioned in the article several times? I know in the car industry one trick is to go on and on about "dealer invoice" and how great a deal you are getting while ignoring that rebates make that number fairly meaningless.

kellanem 10y ago
Two things going on with the rebates. 1. I think the article is a little one sided in their explanation of the rebate system, though it certainly more opaque than it should be. (some of which is just healthtech is stuck in the dark ages) 2. The rebates really only apply to the branded meds, which are approximately 20% of the market.
- bradleyjg 10y ago
  With all due respect, saying the article is a little one sided doesn't tell me much. Can you outline what the other side of the story is?
  - kellanem 10y ago
    The story isn't _good_, it's just a bit more complicated. The pharma company's trade association published this recently which talks about it in depth: http://www.phrma.org/report/commercially-insured-patients-pay-undiscounted-list-prices-for-one-in-five-brand-prescriptions-accounting-for-half-of-out-of-pocket-spending-on-brand-medicines http://www.phrma.org/report/commercially-insured-patients-pa...
- mattieuga 10y ago
  I think that's very dismissive of the importance rebates play. The PBMs' defensibility comes almost entirely from their ability to use their scale to drive up branded/specialty medication costs up by demanding larger and larger rebates from pharma. In terms of revenue, branded and specialty meds already make up more than 75% of the market today. They are the real problem here, not generics.

svskeptic 10y ago

"roughly what the wholesale price is plus a very small markup" .. is not my experience. I just had a pharmacist friend show this to me. Blink charged the customer $10 for generic Lipitor (atorvastatin) 20mg, 30 pills. And reimbursed the pharmacy $4.90. Hence keeping > 50% of what the customer paid. As per the pharmacist, he would be happy to fill the prescription in cash for $7.50, lowering the price for consumer and making him more margin. These are real numbers. Blink is in fact contributing to increasing the price for consumers, while being yet another middleman in the process.

jjmorrison 10y ago
Just to provide more info - for a given pharmacy, Atorvastatin 20mg is $.0629 per pill, so $1.887 at cost. For most pharmacies the real cost is going the pharmacist filling the rx. An insurance company would probably reimburse <$5 and may or may not just make that the copay. $10 is way higher than pharmacies would charge for generic lipitor. Also claiming: Avg. retail: $132.52 You save: 96% Is the complete OPPOSITE of transparency. $132.52 might be a realistic price for branded Lipitor, but that's not at all what is being sold here.

spangry 10y ago

"Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it." That would be bad. Based on 5 minutes of googling and 10 minutes of reading, the largest US pharma company is Johnson & Johnson. Their latest earnings report has the following for the 12 months in 2016 (not all expenses are listed here): - Sales (i.e. revenue): $71.8bn - Marketing expense: $19.9bn - R&D expense: $9.1bn - After tax, after expenses profit: $16.5bn So, on behalf of my fellow Australians, I'd just like to thank J&J for selling into my country at a substantial loss (and, in doing so, bravely running the risk of breaching their fiduciary duties to their shareholders). I'd also like to express my gratitude to consumers in the United State, who are apparently so generous that they are willing to subsidise my country's single-purchaser medical system. It's a shame you can't have one as well, but at least you have the world's gratitude for your sacrifice. USA #1! EDIT: Link - http://files.shareholder.com/downloads/JNJ/4178180194x0x924921/BCDFDBBF-7CC2-49FF-8ECF-3EC12FC88406/JNJ_News_2017_1_24_Financial_Releases.pdf http://files.shareholder.com/downloads/JNJ/4178180194x0x9249...

xadhominemx 10y ago
Less than half of JNJ's revenues is pharmaceuticals, so not a great example to be honest.
- spangry 10y ago
  Actually it's a pretty good example. In Australia, medicines and medical devices (i.e. 81% of J&J revenue) are regulated by the same body (the TGA) using the same approach, craftily reasoning that sick people need both. I realise you might see thing differently (i.e. better) in the USA, but I guess that's just part of what makes you exceptional!
  - xadhominemx 10y ago
    Medical devices and pharmaceutical companies have different cost structures, so I maintain my point that J&J is not a good example of a pharmaceutical cost structure. But you did 10 minutes of Googling so I defer to you I guess.

deleted 10y ago

[deleted]

metaphorm 10y ago

> Which is all to say, it's a fascinating space. It's very ripe for innovation. is that a euphemistic way of saying its a train-wreck, where society is hobbled by rent-seeking behavior by monopolist cartels that have used a combination of anti-competitive business strategy and regulatory capture to extract massive amounts of wealth from their captive audience of sick people?