4 ms·

How a Cabal Keeps Generics Scarce

43 points by dopkew 13y ago

zhemao 13y ago
It took me a few seconds to realize that this was about the pharmaceutical industry and not the Haskell programming language.
- JonnieCache 13y ago
  I thought it was a rant against golang until I saw the domain.
  - RBerenguel 13y ago
    Thought the same. I should stop reading the go-nuts email digest for a few days
- Guvante 13y ago
  I had opened the tab in the background and later wondered where my Haskell tab went :)
  - esmael 13y ago
    TL;DR The article was not about the Haskell Cabal.
Symmetry 13y ago
How could this happen in a free-market economy? I don't think you can reasonably call our system of medical drug production "free-market". Heck, I'm not even convinced that our drug production system is freer than the Soviet Union's was, though it's clearly still quite capitalist.
- jerf 13y ago
  Look at a fuller quote: "Policy makers apparently failed to ask the important question: How could this happen in a free-market economy? That would have steered them to the giant purchasing organizations that control the procurement of up to $300 billion in drugs, devices and supplies annually for some 5,000 health care facilities. These cartels have undermined the laws of supply and demand." I'm pretty sure the question is meant to be a question you ask to lead you to where the free market is indeed being broken, not a claim that we have a free market. This is solid logic; if the free market can do anything, it's match supply and demand via price signals. (If you're having a political reaction to that statement, I mean this in a simple microeconomics sense; it is indeed what free markets do.) In the absence of raw material problems, pervasive shortages are effectively proof that somewhere in the system, someone's fixing prices to below production costs. Sounds like they might be combining that with some good ol' fashioned corruption. (This is why I'm a "libertarian" and not an "anarchist"; the free market needs defenders, because as beautiful as the theory is, in the real world, stuff like this happens, and it needs to be stopped by somebody with the power to stop it.)
  - skyraider 13y ago
    Of course, in the theory, there aren't price controls (because one of the fundamental lessons of economics is that price controls cause shortages). And in reality, there are lots of price controls on generics. That's not a bug with the theory; drug production is only a partially free market at best.
  - Symmetry 13y ago
    Yes, you're right that I was being unfair there. But I'd argue that the biggest ways the drug production system fails are related to the legal controls that prohibit companies from legally ramping up production to meet shortfalls in production from other producers without lengthy negotiations with regulators first.
    - mcguire 13y ago
      As mentioned in the article, the New England Compounding Center and Ameridose did just that.
refurb 13y ago
No offense, but this is a very weird article. A little background on group purchasing organizations: GPOs represent their member hospitals. They "buy in bulk" and extract discounts from manufacturers and take "administration fees" to cover theirs costs. Who owns the GPOs? The hospitals do! The largest GPO, Novation, is owned by VHA and UHC, two of the largest healthcare alliances that is comprised of US hospitals. Margaret Clapp, the first author of this article used to work for Mass General who is a member of VHA, who thus owns the GPO Novation. These GPOs exist because the hospitals themselves created them. And it's ridiculous to say that GPO discounts are responsibly for drug shortages. GPOs don't want drug shortages because (1) their member hospitals don't get the drugs they want (2) because the GPO loses money every time a hospital can't order a drug. The current drug shortages are actually due to a number of different factors: (1) Margins on generic drugs are razor thin, they are basically commodities. The purchasers of these drugs don't care who makes them, since they are all deemed equivalent by the FDA; the result is that whoever has the lowest price gets to sell their drug (2) The generic drug market looks like a commodity marketplace, but in fact it isn't. There are a number of costs associated with manufacturing a drug to FDA standards. If the FDA comes in and says "you can't ship that drug", you've probably just lost all of your profits for an entire year. (3) Drug prices are "sticky" due to the way that Medicare and Medicaid pays for drugs. If you suddenly have a manufacturing problem and need to raise the price of your drug to cover costs, you're out of luck since it means the purchasers of your drug will lose money. (4) Because of the low profit margins, companies are simply getting out of the business. There are other products they could sell that are lower-risk and higher margin.
- logfromblammo 13y ago
  This is the sort of corporate shell game that is only profitable due to the practices of Medicare, Medicaid, and health insurers. The exact workings are beyond my investigative ability, but I think it very likely that kickbacks, payola, and other off-book activities are involved. The cash flows are massaged until it appears that the hospital itself is operating on thinner margins, and the satellite business entities are making fatter profits. Since only the hospital deals directly with the insurers, this tricks them into paying for procedures at a rate much higher than the actual bottom-line cost to the hospital. I think the reason hospital systems are so secretive about their billing and procurement systems is that the public would find their practices to be scandalously avaricious, if not outright fraud. Unfortunately, I can't support even a tiny bit of my hypothesis with actual evidence.
mschuster91 13y ago
Well, for all those who say "a free market does exist": I don't consider a market as strictly regulated in terms of manufacturing (FDA) as well as in pricing (at least in Germany, and IIRC in the US anywhere Medicare/Medicaid is involved) as a truly free market. That being said, the medical sector needs extreme regulation for obvious purposes (eg. to give all people access to adequate health care, not only the rich, and to make sure that the products do what advertised and do not kill the patients). What has been missing in the US is a compulsory insurance scheme...
- chongli 13y ago
  Well, for all those who say "a free market does exist": I don't consider a market as strictly regulated in terms of manufacturing (FDA) as well as in pricing (at least in Germany, and IIRC in the US anywhere Medicare/Medicaid is involved) as a truly free market. Not only that, but sick people are making choices that, while technically free choices, are typically dilemmas, Catch-22s, Hobson's choices or worse: Sophie's choice.
jotm 13y ago
Opening a drug manufacturing business nowadays is ridiculously hard - the regulations are insane, the costs for getting everything right are insane, and the clients are also insane (you think a hospital with shortages will gladly buy your stuff? Ha, dream on, they've already got their arrangements). And so there are shortages. Or you get stuff from China, where manufacturers can ship you 1 or 1000 KGs of stuff with a month's notice.
- toomuchtodo 13y ago
  So why doesn't the VA, Medicare, and Medicaid fund two GSEs (similar to Fannie Mae and Freddie Mac on the housing/lending side) who are non-profits, and their only role is to provide generics and other non-patented medical/surgical devices at cost? Non-profit to remove the profit motive, two for redundancy, and sponsored by the government because sometimes healthcare shouldn't have a profit motive when the free market has failed.
  - jotm 13y ago
    Non-profit in health care by the largest insurance companies in America? You gotta be crazy, son...
    - toomuchtodo 13y ago
      I'm optimistic. I also want to deploy Plan B vending machines, and eventually 3D printers for pharmaceuticals. I have first hand experience with the brutal realities of the disgustingly low standard of healthcare in the US.
efnx 13y ago
I actually thought this article would be about Haskell, lol.
codygman 13y ago
Did anyone else think this was about Haskell and get disappointed? When I saw nytimes.com I thought of the Haskell project they did with the supermodels.

43 points by dopkew 13y ago

It took me a few seconds to realize that this was about the pharmaceutical industry and not the Haskell programming language.

JonnieCache 13y ago
I thought it was a rant against golang until I saw the domain.
- RBerenguel 13y ago
  Thought the same. I should stop reading the go-nuts email digest for a few days
Guvante 13y ago
I had opened the tab in the background and later wondered where my Haskell tab went :)
- esmael 13y ago
  TL;DR The article was not about the Haskell Cabal.

Symmetry 13y ago

How could this happen in a free-market economy? I don't think you can reasonably call our system of medical drug production "free-market". Heck, I'm not even convinced that our drug production system is freer than the Soviet Union's was, though it's clearly still quite capitalist.

jerf 13y ago
Look at a fuller quote: "Policy makers apparently failed to ask the important question: How could this happen in a free-market economy? That would have steered them to the giant purchasing organizations that control the procurement of up to $300 billion in drugs, devices and supplies annually for some 5,000 health care facilities. These cartels have undermined the laws of supply and demand." I'm pretty sure the question is meant to be a question you ask to lead you to where the free market is indeed being broken, not a claim that we have a free market. This is solid logic; if the free market can do anything, it's match supply and demand via price signals. (If you're having a political reaction to that statement, I mean this in a simple microeconomics sense; it is indeed what free markets do.) In the absence of raw material problems, pervasive shortages are effectively proof that somewhere in the system, someone's fixing prices to below production costs. Sounds like they might be combining that with some good ol' fashioned corruption. (This is why I'm a "libertarian" and not an "anarchist"; the free market needs defenders, because as beautiful as the theory is, in the real world, stuff like this happens, and it needs to be stopped by somebody with the power to stop it.)
- skyraider 13y ago
  Of course, in the theory, there aren't price controls (because one of the fundamental lessons of economics is that price controls cause shortages). And in reality, there are lots of price controls on generics. That's not a bug with the theory; drug production is only a partially free market at best.
- Symmetry 13y ago
  Yes, you're right that I was being unfair there. But I'd argue that the biggest ways the drug production system fails are related to the legal controls that prohibit companies from legally ramping up production to meet shortfalls in production from other producers without lengthy negotiations with regulators first.
  - mcguire 13y ago
    As mentioned in the article, the New England Compounding Center and Ameridose did just that.

refurb 13y ago

No offense, but this is a very weird article. A little background on group purchasing organizations: GPOs represent their member hospitals. They "buy in bulk" and extract discounts from manufacturers and take "administration fees" to cover theirs costs. Who owns the GPOs? The hospitals do! The largest GPO, Novation, is owned by VHA and UHC, two of the largest healthcare alliances that is comprised of US hospitals. Margaret Clapp, the first author of this article used to work for Mass General who is a member of VHA, who thus owns the GPO Novation. These GPOs exist because the hospitals themselves created them. And it's ridiculous to say that GPO discounts are responsibly for drug shortages. GPOs don't want drug shortages because (1) their member hospitals don't get the drugs they want (2) because the GPO loses money every time a hospital can't order a drug. The current drug shortages are actually due to a number of different factors: (1) Margins on generic drugs are razor thin, they are basically commodities. The purchasers of these drugs don't care who makes them, since they are all deemed equivalent by the FDA; the result is that whoever has the lowest price gets to sell their drug (2) The generic drug market looks like a commodity marketplace, but in fact it isn't. There are a number of costs associated with manufacturing a drug to FDA standards. If the FDA comes in and says "you can't ship that drug", you've probably just lost all of your profits for an entire year. (3) Drug prices are "sticky" due to the way that Medicare and Medicaid pays for drugs. If you suddenly have a manufacturing problem and need to raise the price of your drug to cover costs, you're out of luck since it means the purchasers of your drug will lose money. (4) Because of the low profit margins, companies are simply getting out of the business. There are other products they could sell that are lower-risk and higher margin.

logfromblammo 13y ago
This is the sort of corporate shell game that is only profitable due to the practices of Medicare, Medicaid, and health insurers. The exact workings are beyond my investigative ability, but I think it very likely that kickbacks, payola, and other off-book activities are involved. The cash flows are massaged until it appears that the hospital itself is operating on thinner margins, and the satellite business entities are making fatter profits. Since only the hospital deals directly with the insurers, this tricks them into paying for procedures at a rate much higher than the actual bottom-line cost to the hospital. I think the reason hospital systems are so secretive about their billing and procurement systems is that the public would find their practices to be scandalously avaricious, if not outright fraud. Unfortunately, I can't support even a tiny bit of my hypothesis with actual evidence.

mschuster91 13y ago

Well, for all those who say "a free market does exist": I don't consider a market as strictly regulated in terms of manufacturing (FDA) as well as in pricing (at least in Germany, and IIRC in the US anywhere Medicare/Medicaid is involved) as a truly free market. That being said, the medical sector needs extreme regulation for obvious purposes (eg. to give all people access to adequate health care, not only the rich, and to make sure that the products do what advertised and do not kill the patients). What has been missing in the US is a compulsory insurance scheme...

chongli 13y ago
Well, for all those who say "a free market does exist": I don't consider a market as strictly regulated in terms of manufacturing (FDA) as well as in pricing (at least in Germany, and IIRC in the US anywhere Medicare/Medicaid is involved) as a truly free market. Not only that, but sick people are making choices that, while technically free choices, are typically dilemmas, Catch-22s, Hobson's choices or worse: Sophie's choice.

jotm 13y ago

Opening a drug manufacturing business nowadays is ridiculously hard - the regulations are insane, the costs for getting everything right are insane, and the clients are also insane (you think a hospital with shortages will gladly buy your stuff? Ha, dream on, they've already got their arrangements). And so there are shortages. Or you get stuff from China, where manufacturers can ship you 1 or 1000 KGs of stuff with a month's notice.

toomuchtodo 13y ago
So why doesn't the VA, Medicare, and Medicaid fund two GSEs (similar to Fannie Mae and Freddie Mac on the housing/lending side) who are non-profits, and their only role is to provide generics and other non-patented medical/surgical devices at cost? Non-profit to remove the profit motive, two for redundancy, and sponsored by the government because sometimes healthcare shouldn't have a profit motive when the free market has failed.
- jotm 13y ago
  Non-profit in health care by the largest insurance companies in America? You gotta be crazy, son...
  - toomuchtodo 13y ago
    I'm optimistic. I also want to deploy Plan B vending machines, and eventually 3D printers for pharmaceuticals. I have first hand experience with the brutal realities of the disgustingly low standard of healthcare in the US.

efnx 13y ago

I actually thought this article would be about Haskell, lol.

codygman 13y ago

Did anyone else think this was about Haskell and get disappointed? When I saw nytimes.com I thought of the Haskell project they did with the supermodels.