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The Hidden Monopolies That Raise Drug Prices

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Re: The Hidden Monopolies That Raise Drug Prices

#31

Post by rayiner »

torpfactory wrote: post #20

I'm going to make the statement that perscription drugs aren't like other products and shouldn't be viewed as such. People literally need them to survive. This whole system of having something you need to survive being subject to market forces like some other widget is ridculous. Price fixing is absolutely a reasonable tactic to employ when the market for prescription drugs in the US is as completely useless at deliv…

The system is always subject to market forces. The government can budge the market around, but it's like pushing on one part of a balloon--it'll just have an effect somewhere else. When you set prices, you drive investment and talent out of the industry. Why spend years getting a PhD in biochemistry when you can go make $400k/year with just a BS at Google? It's precisely because people need drugs to survive that it's counterproductive to take measures that make pharmaceuticals a less attractive market to invest in, which fixing prices would do.

Re: The Hidden Monopolies That Raise Drug Prices

#32

Post by kbenson »

chimeracoder wrote: post #19
rayiner wrote: post #11

Earlier quoted context omitted.

We "disallow trade" for lots of legitimate reasons. One such reason is when government intervention in another country drives prices below market levels ( e.g. we put high tariffs on Chinese steel to counter heavy Chinese government subsidization of that industry). That's exactly what happens in Canada. Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive…

> we put high tariffs on Chinese steel to counter heavy Chinese government subsidization of that industry That's not a good comparison, because we're talking about reimportation - ie, drugs that are produced in the US and exported to another country before being reimported. In general, nobody's interested in reimporting steel produced in the US and exported to China. > Because the healthcare system is publicly funded…

> With free trade, another country is still free to subsidize the goods that it imports from the US, but with the knowledge that they'll be subsidizing whatever portion of Americans choose to reimport those drugs at the subsidized prices.

But that's the whole problem. Canada presumably doesn't want to subsidize U.S. citizens. The whole point is to provide a benefit for their own citizens. If Canada subsidizes a popular but expensive drug so that it costs $1 for Canadians, with that drug being freely exportable, that could be billions of dollars lost, depending on how much of the savings compared to the country that imports it is in a better negotiated price and how much is subsidized by the government of Canada.

> In reality, that reimportation won't need to happen, because it'll just apply backpressure on the initial sale prices in both markets from the manufacturer.

It will happen for as long as the manufacturer resists. If the price difference is mostly because of subsidies and not a better negotiated price, that cost difference would be paid by Canada, and the manufacturer has no incentive to change the price. In fact, they may have the opposite, since they are still getting paid well, and the drug is effectively marketable as being much cheaper than what they are charging.

Re: The Hidden Monopolies That Raise Drug Prices

#33

Post by rayiner »

clueless123 wrote: post #10
encoderer wrote: post #4

I think blaming drug companies and wholesalers just misses the point. Drugs are really good today. Not even the life saving types, but also things like migraine medication or acid reflux relief. If you suffer and have the means, you'll pay what the market demands for relief. And we live in a wealthy country.

If your drug is so good, you should let the market decide what the fair price. The problem is that drug companies and wholesalers don't let that happen by lobbying against open markets and government paid healthcare.

I'm in favor of government-paid healthcare, but you can't have a functioning free market when one buyer dominates. It's the mirror situation of a monopoly.

Re: The Hidden Monopolies That Raise Drug Prices

#34

Post by chimeracoder »

jcfrei wrote: post #30
chimeracoder wrote: post #25

Earlier quoted context omitted.

> Or: we could just emulate what those other countries are doing to control prices Because centrally setting prices is very difficult, and that difficulty scales super-linearly with size. Every other country that controls pharmaceutical prices is significantly smaller than the US is, and they also fund much less pharmaceutical R&D than the US does[0], even though they essentially import the benefits of that R&D at re…

In your comment you suggest that most of the profits of pharma companies go into R&D but that's not the case. There's a lot of rent seeking behavior by these companies due to poor legislation. This kind of behavior (incentives/"conferences" for physicians, lobbying, etc.) shows up under sales in their annual reports and it's clear they spend a lot more on it than on R&D: https://www.washingtonpost.com/news/wonk/wp/20…

> In your comment you suggest that most of the profits of pharma companies go into R&D but that's not the case.

No, I didn't say that most of the profits of pharmaceutical companies go to R&D. I said that most R&D funding comes from the US (and that a large deal of that funding comes from profits, mostly profits on sales within the US).

Re: The Hidden Monopolies That Raise Drug Prices

#35

Post by refurb »

chimeracoder wrote: post #28
refurb wrote: post #9

Earlier quoted context omitted.

The challenge with that is that simply allowing drugs to be imported doesn't prevent drug companies from allocating volume on a country-by-country level and maintaining price discrimination. This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesal…

> doesn't prevent drug companies from allocating volume on a country-by-country level and maintaining price discrimination. It does; for price discrimination, there are three criteria that all need to be satisfied, and one of them is the ability to restrict resale between market segments. If market segments are free to trade with each other, the supplier cannot price-discriminate. > This happened back 6-7 years ago w…

The only reason that they can set these quotas in the first place is that US wholesalers can't (freely) export to Canada, and vice versa. If the ban on that had been lifted, AstraZeneca wouldn't be able to set quotas per-country in the first place.

Manufacturer control over whole gets the buy drugs and what they can do with it after that is a cornerstone of drug distribution strategy. It also maintains drug pedigree and product integrity. I can't see it going away.

Re: The Hidden Monopolies That Raise Drug Prices

#36

Post by DarkKomunalec »

kellanem wrote: post #27

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…

Proportionately to their revenue, pharma doesn't spend that much on R&D: 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.

Re: The Hidden Monopolies That Raise Drug Prices

#37

Post by ch4s3 »

kellanem wrote: post #27

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…

> 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.

Re: The Hidden Monopolies That Raise Drug Prices

#38

Post by refurb »

jcfrei wrote: post #30
chimeracoder wrote: post #25

Earlier quoted context omitted.

> Or: we could just emulate what those other countries are doing to control prices Because centrally setting prices is very difficult, and that difficulty scales super-linearly with size. Every other country that controls pharmaceutical prices is significantly smaller than the US is, and they also fund much less pharmaceutical R&D than the US does[0], even though they essentially import the benefits of that R&D at re…

In your comment you suggest that most of the profits of pharma companies go into R&D but that's not the case. There's a lot of rent seeking behavior by these companies due to poor legislation. This kind of behavior (incentives/"conferences" for physicians, lobbying, etc.) shows up under sales in their annual reports and it's clear they spend a lot more on it than on R&D: https://www.washingtonpost.com/news/wonk/wp/20…

What a poorly written article. It looks like just lumped all the business expenses under "sales and marketing". I think it's absurd to assume that all of that spending is completely discretionary.

Contrary to what people think, you need to do a certain level of sales support in the pharmaceutical market. The drugs don't sell themselves.

Re: The Hidden Monopolies That Raise Drug Prices

#39

Post by maxxxxx »

This is just another example of how messed up the US medical "market" is. Almost everywhere you look there are hidden prices, hidden middlemen and so on. I am not aware of any other market where things are so opaque and convoluted.

If the current administration was serious about markets they should mandate that all pricing becomes transparent so a real functioning market can actually develop.

Re: The Hidden Monopolies That Raise Drug Prices

#40

Post by refurb »

torpfactory wrote: post #29
joshuaheard wrote: post #24

Earlier quoted context omitted.

We need food to survive, and market forces work fine. In fact, I would say that the U.S. supermarket is a model of market efficiency.

When I can buy drugs from the Pharamacy for $1.69 a pound I'll be happy to see it driven by market forces. The market simply isn't doing a good enough job getting medications to consumers at a reasonable price.

When it costs $1.69 to create a new drug, then you'd have a point.
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