The problem is not that one company attempts to raise its prices, the problem is that it is very difficult for competitors to undercut them. The FDA has made it very expensive to introduce and support products in the US pharmaceutical market; it has imposed huge compliance costs, and helped drug companies sustain those costs through exclusivity arrangements.
Moralizing about health issues feels good, but these issues are created by simple economics (market and regulatory issues), not ethical deficiencies.
On the scale of a market in the many many billions, the costs imposed by FDA aren’t even a rounding error. That’s not why drugs are expensive.
Generally, Pharma companies charge a lot for medications in the US _because they can_ - because no one stops them.
Lots of other countries have systems which limit price, or set drug prices according to value, or similar.
Why doesn’t the US? Fundamentally, it’s got to come back to allowing money and thus big business to influence the US political system so directly. Until this is fixed, sadly little is likely to change.
Health insurance company profits are capped at 20% of the premiums they take in[1]. So not only because they _can_, but they actively want healthcare costs to go up, because that's the only way they get to increase their profits.
Are lot of tiny non profit insurance companies exist generally created by companies or religious groups to run their insurance. However, in terms of the overall market share it’s under 1/3 and significantly less when you look at companies that accept anyone.
Lot's of Hospital Systems in the US are ostensibly non-profit, but the number of Administrators & executives (and their salaries and bonuses) have been going way up
This doesn't appear to be true. There are other ways for health insurance companies to increase profits.
The US Health insurance industry spends on average, 86% of premiums on healthcare costs[0], which means they can increase their profits by reducing those costs, since 80% is the floor.
12% of the left over premium gets spent on operating expenses, which leaves the industry with a 2-3% profit margin[0]. So another way of increasing profits is for the companies to become more efficient.
These figures are for the industry as a whole. Any individual company will have other avenues of increasing profit, such as growing their market share.
> Generally, Pharma companies charge a lot for medications in the US _because they can_ - because no one stops them.
Walmart charges what they do because they can as well. Pretty much everyone charges what they can and nobody stops them. There aren't many business out there pricing stuff lower than what they can get away with.
There is a billion dollar opportunity here for whoever sells insulin at half price to the US market. Looking at the enormous price differences, it seems very likely that the opportunity exists. These are manufacturing prices; presumably before subsidy [0]. Unless I've really misunderstood what they are saying there is a huge opportunity for someone to get rich here. The most likely reason the prices are high is because the US government has somehow made it illegal to sell cheap insulin.
[0] "First, the manufacturer prices available in the MIDAS data do not reflect rebates or
other discounts that might have been applied after drugs left the factory; we expect that, in
many countries (and particularly in the United States), the net price paid for drugs was
lower than the reported manufacturer prices shown in our results tables." - In the linked report
Why doesn't competition step in and increase the supply of insulin, thereby decreasing its cost? If insulin is 1/8th the cost elsewhere why can't I import it from overseas and sell it locally, making arbitrage profits?
Is there something other than regulatory capture going on here? If not it's less a case of "because they can" and more a case of "because others can't".
And this is the REAL issue. If I was allowed to start a pharma company as easily as I could start a software company then you bet I would be doing that instead of SAAS. I can guarantee that prices would be lower than the rest of the world, and that American pharma companies would be top-of-market in international markets as well.
But, the mafioso in-bed-with-the-gov-and-politicians absolutely corrupt elitist-owned system that we have in America is ruining this country.
And to all the people downvoting the "regulation" comments: You are being COMPLETELY intellectually dishonest, and you know it. Game theory validates that regulatory capture is 100% the issue. The Universe and nature work by a set of laws that has been investigated since the 50s with Von Neumann, Nash, etc. It is time that we stop telling ourselves that some politicians in government are going to magically create legal algorithms that outperform the laws of the nature. It is dangerous, immoral, and stupid and it ends up only protecting and embedding the existing corrupt elite for life.
I generally agree with the sentiment but you definitely go too far.
> Game theory validates that regulatory capture is 100% the issue.
Regulatory capture cannot be the issue because it exists pretty much everywhere (in the Western world, I guess), yet US prices/insurance/medical spending is higher than in e.g. Europe.
Maybe it's the US flavour of regulatory capture - that's an option - but then you should be railing against that, not pulling a fake reductio ad game theory argument out of your sleeve - I mean, what do you propose as the alternative, an unregulated drug market? I mean, I'm very much in that direction - I believe all drugs should be legal and accessible, the only restriction I'd put on the "freely" part of "freely accessible" (e.g. new/experimental drugs only if you're dying, hard drugs like heroin only if you go through 6 months of classes & psychiatric evaluation, etc.) - but even that's clearly still a "regulated market" (e.g. disallows misleading advertising).
I'm curious about the details of this for insulin. Is it a problem with one political party or with both? Does the pharma oligopoly control the politicians through donations/funding? Or is there a legitimate IP protection reason that the pharma companies have that justifies the lack of competition for insulin provision?
Just to give you an example how ridiculous the US health care is. I used to live in California and I had an inflamed wisdom tooth. It cost me so much to get it out (fully insured, premium+, high income insurance) that the amount I had to pay __after__ insurance (out of pocket) would have been enough to buy a ticket to go to Europe, visit a random country get the operation done, fully pay for (without insurance coverage) it and fly home to Cali.
The state of Utah flies employees to Mexico to fill prescriptions there because: "The cost difference is big enough that the state's program can pay for each patient's flight, provide them with a $500-per-trip bonus, and still save tens of thousands of dollars"
FWIW health insurance and dental insurance are very different - dental insurance is always separate from health insurance and often covers very little, often nothing beyond checkups. The last time I had a plan offerred it covered up to $1200... but cost $100 a month. The cost was actually equivalent to the price of checkups. I'm not sure why this played out the way it did -- probably because it is procedure focused.
FYI the dental insurance company forced me to submit the claim against the general insurance company and only wanted to deal with the case when it bounced back. I had a premium dental insurance at the time. This is what insurance companies can do in the USA and most people who are moving that are not aware of it, because it is so unimaginable that one of the richest countries of the west has an insurance system like that.
>would have been enough to buy a ticket to go to Europe, visit a random country get the operation done, fully pay for (without insurance coverage) it and fly home to Cali.
This isn't even uncommon among people in Europe. A lot of people from Western Europe get on a 50 bucks Ryanair flight to Hungary or Romania, get their dental work done and fly back home.
The difference is the price of ticket to fly over a continent + the Atlantic Ocean vs fly over few countries. On the top of that, the other reason why people in some Western Countries (for example Ireland) do this is very surprising: quality of service. Ireland used to not have emergency dental service and even the general dentistry was not that great while being much more expensive (not US level though) than in Hungary, Romania or Poland. There is an entire industry specialised in Hungary and Poland to server Western clients.
It's not that other countries didn't have the same rules. Before you can market a generic in Germany you must convince the Institute for Pharmaceuticals and Medical Devices that your product is comparable to the brand-name medication. People like to blame the FDA but tend to disregard that Europe and Japan have similar safety requirements.
When you read some of the inspection reports from White Oak you wonder: what would pharma manufacturing in <insert faraway country here> look like if they knew the FDA didn't exist!
Even if your product is comparable to the brand-name medication, the cost, time, and uncertainty of getting a permit is so prohibitive that many smaller medications are left with well protected monopolists.
That's at least what I hear. I don't work in the industry.
The monopoly or the public authorities aren't even the problem, natural monopolies are well understood and brought under control by regulation. There are three manufacturers of insulin in the US, about six worldwide. Everywhere else the natural monopoly is dealt with by price controls, except in the US. They could, but they don't want to.
Why would insulin be a natural monopoly? It seems like a commodity, which is kinda the opposite.
Aside from modern insulin variations under patent, but that's different.
I suspect the barrier to entry that creates these monopolies is again the access to FDA approval. You can only really make money in the US market, due to the price controls elsewhere.
The high US drug prices subsidizes the world to a big extent, and I wonder how much of a drug industry would survive if the US also went for price controls.
It's the confluence of the low profit margin, high barrier to entry (FDA) and inelastic demand. The market does not support more than five or six players worldwide. It's like that for any generic.
That's common to all commodity medical supplies. Remember the IV saline shortage after Hurricane Maria took out the manufacturers on Puerto Rico? That doesn't need FDA approval (the facility does need inspection though), but you don't spin up a sterile bulk manufacturing facility in 6 months because of upfront costs that will take an eternity to recover.
You can only really make money in the US market
{{citation needed}}
You can fleece the US citizen only so much. Elizabeth Warren showed in 2004 how stretched he is, and it has only gotten worse since. The rest of the world may pay less but it's bigger. Also, when you can justify the cost to the public authorities it will be paid - note that a course of glecaprevir/pibrentasvir Hep C protease inhibitor is 26 kUSD in the US and a comparable 27 kGBP in Britain. A heap of money, but beats the liver transplant, both in cost and quality of life.
The bigger threat to pharma is the poor return on investment. Information technology pays off faster and with lower risk. Goldman Sachs suggested the government step in, they are the only ones with big enough pockets. The suggestion is sound.
> It's the confluence of the low profit margin, high barrier to entry (FDA) and inelastic demand. The market does not support more than five or six players worldwide. It's like that for any generic.
That's precisely what I'm saying!
If we agree on the facts, our difference seems to be that I don't consider FDA regulations "natural". They can be reformed, and then we'd see many suppliers cranking out cheap plentiful insulin.
They can be reformed, and then we'd see many suppliers cranking out cheap plentiful insulin.
That's just nonsense. The other highly inelastic market is oil, there are massive price excursions when supply and demand are not matched. Have you seen what happened when oil demand dropped this spring? Prices completely fell off a cliff! Demand will not increase just because new capacity enters the market, instead prices will drop to make everyone unprofitable, including the new entrant, who will never be able to recover the initial investment.
Since the problem we're talking about is the very high prizes for insulin etc in the US, does that mean we agree this would be a solution for that problem?
No. You'd see volatility and a price drop until someone goes bankrupt, and then the system is back where it was before. Good luck finding an investor for that.
Why the market fetishism? The state of affairs needs price controls.
Prices do drop with innovation. Consider the praziquantel story. The compound was discovered in the early 1970s by a Bayer-Merck joint venture as part of a discovery effort for tranquilizers. It wasn't psychoactive but very efficaceous against flatworms (schistosoma and tapeworm) and then promptly shelved because of its high price, the synthetic route was complicated.
South Korea had a schistosoma problem at that time and couldn't pay Bayer for the compound or patent license, in the early 1970s Korea was still a threshold country, so at first they pirated it and then, because the original isoquinoline route required expensive starting materials the Koreans developed their own route. The glycine route made it possible to produce it cheaply for their own people and also opened up the worldwide veterinary market. This was actually the foundation for the Korean chemical industry.
The market works. It's well understood, just it works not in the way you think.
Your comment seems to suppose that basic economics do not apply to healthcare; do you believe that it's a 'special case'? I see healthcare as being similar to every other market, and think that the cost issues are driven by regulations and incentives.
Healthcare is an inelastic market. If the new iPhone is too expensive, keep an old one, of buy a used one. If your insulin dose is too expensive, you die. Normal market rules of supply and demand do not entirely apply to Health care markets.
While that is true, you are not including the option of switching to a cheaper insulin. The older insulins (R/N/L) were, the last time I checked, something like $25 per bottle, over the counter.
Cheaper insulin is worse insulin, harder to manage, and ultimately will shorten your lifespan. If you've never used it before/are underresourced about its useage it can 100% still mean a death sentence. Still inelastic imo.
Haha, no. If your insulin dose is too expensive, you die. If my insulin dose is too expensive in America, I ship it from generics factories in India¹.
The problem for you is that you can't do what I do. And maybe the problem for you is also that I can't sell you what I get this way.
So in America you have 'shortages'. I do not. And if you wanted, you could also choose not to have 'shortages'.
I remember the same thing happening when Chloroquine was 'in short supply'. I could always get some. You never could. This is by choice. You live by rules that the universe does not require of you. These are probably for other reasons like perhaps you believe in living by the categorical imperative. But there are predators in this forest who do not believe in that.
¹ Even insulin can come here stably and safe. But drugs for other conditions are easier. And what I'm saying here is not strictly true if you're familiar with the details: it's not actually a generic, etc. etc. The important thing is that it's cheap and available.
Demand is relatively inelastic in healthcare.
Supply is not. The fact that I need a product does not constrain suppliers from supplying it. So normal supply elasticity of supply rules apply.
There are lots of inelastic markets, and I'd agree they do often suffer from short-term price volatility, but the US healthcare market suffers from longer-term price 'anomalies', which I believe are a product of its unique regulatory landscape.
Other markets with inelastic demand and/or supply also suffer from long-term price anomalies: take housing/rental in SF. There’s certainly some more contributing factors that make an inelastic market turn into a problem, but it’s fairly obvious that it’s not governed by the regular “simple” market explanation of supply and demand converging to a price point if the demand is essentially fixed.
Housing and real estate have a regulatory environment which may be as Byzantine as that in healthcare! Real estate is a little 'better' because you have competing regulatory regimes which serve to (somewhat) moderate the extremes, but it's still quite bad.
If you're looking for a contrasting inelastic market (one with a simpler regulatory landscape), I'd look for other industries with high capital costs, such as semiconductor manufacturing.
FWIW, I was sketching out the situation in the US healthcare market generally, and not specifically referring to the insulin situation.
To expand slightly (all IM opinion/observation):
a) Often, there isn't a 'market', as there might not be multiple competitive options for each disease.
b) Even in situations where there are (say) two roughy similar treatments for a disease, market forces don't always apply - manufacturers differentiate via other routes and try to avoid price erosion.
c) It's uncertain how often price directly influences prescribing decisions (in the US, or indeed in many countries).
There's a huge hidden cost to price controls through - they don't promote innovation as much as markets do. The US develops over half the world's new pharmaceuticals, if we imposed price controls today, we would have fewer life saving medications tomorrow because the companies couldn't afford to do as much R&D.
well considering we already subsidize the early R&D for these companies with our University system, and insulin hasn't changed in 50 years, I see no reason we can't price control certain drugs. Could even use this as a guide https://en.wikipedia.org/wiki/WHO_Model_List_of_Essential_Me...
That is false. The insulins sold today are MUCH better than the ones sold 50 years ago. They're much better than the ones sold 25 years ago. Admittedly, the ones sold 25 years ago are effective, but it is much more convenient using an insulin that kicks in in 15-20 minutes and has a relatively short peak than one that kicks in in 30-60 minutes and has a long peak. It's doable either way, but the quality of life is much different.
Trivially untrue, right? Recombinant DNA technology is younger than 50 years so we used porcine insulin before that. It'll still work, honestly, if you're up for it.
Let's make sure people in their 20s aren't dying because they can't afford insulin before we start worrying about how to promote innovation in the insulin market.
If drugs are too expensive, then at some point more lives/quality of lives are lost because people can't access them than are saved from more drug development.
A balance must be found between ensuring fair access at affordable prices, and ensuring fair returns to the pharma industry. This is precisely the goal of pharmaceutical price regulation in the UK:
You're talking about introducing another layer of complexity on top of an already Byzantine system. Price controls come with many issues, such as incentivizing lobbying & corruption, as well as dis-incentivizing market entry & long-term investment, resulting in a lack of capital expenditures which causes inefficient production.
Healthcare is complicated, and we need to simplify it as much as possible; this is a great example of a situation where we could use 'simple rules for a complex world'.[1]
Your comment and the one higher in this chain makes it sound like a hard problem when it's only a problem for the United States and no other (1st world) country. I don't really understand how that's possible.
>"When disagreeing, please reply to the argument instead of calling names. "That is idiotic; 1 + 1 is 2, not 3" can be shortened to "1 + 1 is 2, not 3." "
>" Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize. Assume good faith. "
> Your comment and the one higher in this chain makes it sound like a hard problem when it's only a problem for the United States and no other (1st world) country. I don't really understand how that's possible.
Yes, healthcare is byzantine in the US, but it's not less complex in any other first world country, yet America is a dramatic outlier -- in a bad way -- in terms of price to performance. Countries that do markedly better on such measures are also countries which tend to have some kind of price controls built into their healthcare system.
While I understand the temptation to bristle at the more needling comment, it's hard not to see debating over whether someone whose username is "Asshat" is being unfairly sarcastic as a bit beside the point. (Also, the good admiral did not, as far as I can tell, attack you, he attacked what he perceived to be your argument.)
I can assume good faith while still believing your comment is driven by the same American Exceptionalism mentality that leads to the mindset echoed by The Onion article. If your concern is that the reply comes across as mocking rather than engaging: the article was more concise and more eloquent than the potential diatribe I had written up, so I used it.
Sure, our healthcare system is crazy. But is healthcare really inherently complicated? This is a solved problem basically everywhere else in the world.
The problem is that everywhere else in the world doesn't have the delusion that unfettered capitalism and healthcare are compatible.
The US manages to pick and choose socialistic policies in some areas, and I'm more or less just waiting for them (us) to come around to the view that basic healthcare is just one of those things that everyone needs in order to have a decent shot at life so you might as well just provide it as a blanket service.
The US system is far from perfect, but blaming its dysfunction on 'unfettered capitalism' is absurd.
The US healthcare system is among the most heavily regulated industries in the US economy. Among those regulations are FDA policies that give Big Pharma monopolies on new drugs. The FDA extends these monopolies for decades, allowing companies to operate as state-created monopolies. Once the state-created monopoly times out, competitors face a years-long approval process before they can market a generic version of an already approved drug.
You're absolutely right, "unfettered" is hyperbole. I just get a bit weary of the "free market will fix it" attitude, because it's only really free market if all involved parties are free to set the terms of the transactions, and most consumers of healthcare do not actually have much power to do that (or even to know the terms before "purchase"). So the "free market," to the extent that it exists, optimizes for those participants who do have that power, to the detriment of the end user. In my opinion, of course.
That’s true. But given the relative success of socialized healthcare in most other countries, I’m not sure why you’re seizing on the “unfettered” part rather than the “capitalism” part.
Perhaps you should be arguing against lobbying instead of arguing “well, if we try to stop big pharma they’ll just fuck us so might as well roll over and die”.
> these issues are created by simple economics (market and regulatory issues), not ethical deficiencies
I don't think that "because economics" is a card that can be played to completely nullify any questions about ethics. We can and do make decisions at many different levels (from individual to nation-state) over how the economy works and how markets are regulated, and ethics are relevant any time decisions are made which affect other people.
The Supreme court ruled that cross marketing agreements were okay. Which allows a drugs companies to buy off generic competitors. Also generic drug companies are colluding on prices and the government just occasionally fines the companies instead of throwing corporate officers in prison.
I agree, get rid of patents to allow anyone to compete. Then shut down the FDA (which has been subject to regulatory capture), and create a new smaller regulatory agency.
Yes, they are indeed created by ethical deficiencies. There is nothing in the way of the legislators to pass a law which says insulin and similar substances created to treat diabetes cannot cost more than 100$ a vial. The only thing in their way is their greed. Their greed for sweet lobbying money.
Those compliance costs are in the best interest of large pharmaceutical companies, they lobby for it. If these regulations did not exist, small companies would be destroying the disproportionate profits to be made from generic drugs.
I wouldn't otherwise argue for price controls, but if you give these companies the gift of keeping competition from the bottom out, you need to account for that, because competition is the only thing keeping a lid on prices in a free market.
I'm not arguing that the pharmaceutical companies are 'good guys', just that the situation was created by the FDA. I think the simplest and safest solution is to reduce compliance costs (which are extremely high in the USA), and allow the new entrants (initially small companies) to rectify the situation. This is not an instantaneous fix, and I will admit that it is a bit unsatisfying, but it's a robust solution.
Fair enough, but with that proposal you have the FDA and pharmaceutical companies positioned against you.
Price controls - at least with a Democratic administration - are more realistic, because the FDA doesn't care about that and the pharmaceutical companies at least get to keep their moat, which they will prefer over some lost profits from generics.
I completely agree that the pharmaceutical companies will lobby to keep the current regulatory barriers. 'Big Pharma' has specialized in regulatory compliance, not drug development and production, so they'll fight to protect the barriers.
I don't think price controls will work quite as well as you do, and I disfavor solutions which require a benevolent bureaucracy (and executive branch).
Moralizing about health issues feels good, but these issues are created by simple economics (market and regulatory issues), not ethical deficiencies.