Although there are solid points made in this article there is something that should be considered.
The area bound by the market price and quantity, and the MC curve describes Producer Surplus, not Profit. This figure does not take into account Fixed Costs. Healthcare involves very high “fixed & sunk” costs and very low “marginal” or variable costs (Rx drugs). Pharmaceutical companies invest in R&D in order to gain a return on these drugs in the long run. An analysis of the effect of price controls on incentives to innovate must include much more than a Econ 101 graph.
Generally speaking, the profit maximization of a firm is at the top of their TR (in this case you used profit) curve. The point will (in theory) always be flat at the top of the curve, as the maximum is a tangent, meaning that the rate at which profit is changing is zero. In order to argue for or against price control's affect on Profits, you must consider the relative elasticities of supply and demand in order to analyze the effect of the price control. I am not saying that what is said here is right or wrong, I'm just saying there needs to be better evidence.
Overall great article - may want to build upon your evidence!
Louis XVI was given an especially close shave for crimes that pale in comparison to Big Pharma's.
1
This is great.
But need to explore the dynamic effect, not just the static snapshot. A lot of that profit on the monopoly drug is recycled back into R&D expenditures -- to try to develop more successful drugs that can achieve similar monopoly profits. (Same effect in biotech startups where profit-seeking investors fund R&D)
Once you reduce the profit margin, you reduce R&D investment.
Once you reduce R&D, you reduce not only the discovery of successful drugs, but probably 10X as more economically unsuccessful drugs (which isn't to say drugs that don't cure diseases or lead to follow-on breakthroughs, just drugs that don't sell well enough to recoup their costs of R&D and FDA approval).
In a dynamic world, a case could be made for subsidizing pharma R&D. Which is what we actually do via the patent system.
So the big picture question is how much do we want to subsidize pharma development -- through patent monopolies or medicare procurement or price controls.
Most R and D in this country is done by medical schools, college chemistry departments and the NIH, usually with taxpayer and other donor dollars. Somehow all the profits go to big pharma. My husbands drug that he takes to slow down the occurrence of his squamous cell skin cancer has gone from a co-pay of about $100 to $700 in less than a year! That is the other problem. Drug companies actually raise prices as demand increases.
1
Folks, Never forget that it will always be cheaper to assuage a skin cell disease than curing it entirely in one shot. I could take the example of dermatis. I tried several creams, enriching pharma companies and small companies specialized in dermatology. I discovered that what was needed was simply mar salt and avoiding passive and active smoking. My situation is now really better. What I would respond to Mr Krugman is that his analysis is good but we should also analyse drug by drug. If one company is curing entirely a disease, why not letting them putting « ripped-off » prices as someone famous said ! At least, we’ll not be ripped off more times ...
Dr Krugman cursorily discusses the potential impact of price regulation on drug innovation.
I'd like to hear from him more about the details of patent law which permits permits the effects extension of patents rights with "MeToo" drugs.
If patent protection were limited to drugs that were clinically shown to be much better than existing drugs development dollars would be allocated to real improvements in drug therapy and the prices of existing classes of drugs would reliably fall after their patent expiration. Right now, insurers are often required to pay for marginally better MeeToo drugs because drug company marketing has manipulated the medical literature to declare them a standard of care that physicians ignore at legal risk.
1
Now this is a great issue to go after Trump because he promised to but hasn't done anything here. Will put his negotiating skills to test.
If the left can find such meaningful ways to fight him, it will lead to betterment of the society and possibly win them the trust of the electorate.
Also, why was no previous president asked about this?
"So it wouldn’t be politically easy. But it would be good economics."
You were "realistic enough" to call it "the political economy"!
So this modelling doesn't factor in "political costs"--the other side of the coin.
The "political" side sets the rules of the game. The "economy" side ("oikos-nomos"--i.e laws/principles of household--estate--corporation management) develops strategies for playing the game. The "polity" assumes many estates competing and/or cooperating.
Even competitive sports assumes underlying cooperation--often needing a quasi polity--like a league.
And many sports-leagues compete/cooperate at the next level--like cities in a state, states in the united states.
The hope was/is for a UN (Trump can't fathom it.)
Anyway--separating "good economics" from politics is a graphic/math meta game of sorts.
Factor in property, tax and labor law--as well as public welfare--locally and globally and we get Rawls--Allow private inequalities of wealth/welfare (as incentives) provided they make the public (commoners) better off.
The "polity" side is really meta-economy--perhaps political economy. These are in symbiosis--more precisely mutualism--like people and their gastrointestinal microbiota.
Good meta leagues benefit the leagues, the games and the spectators. That makes the meta league more stable and enduring.
Drug price regulation is not unlike salary caps in sports leagues. Caps and regulation are good political economics.
Professor Krugman assumes that any new drug worth anything is developed in the US. That is not always true.
As regards effective drugs developed in Europe, I think that European pharmaceutical companies are charging exorbitant prices on the US market just because they can. I use a drug developed by Schering (now Bayer Healthcare Pharmaceuticals and either way, decidedly EU-based) which works superbly for a rare condition I live with. Here in Ireland, it costs about €300 ($360) per dose, of which I pay €134, every fourteen weeks. I was horrified to learn recently that the same product retails at $880 per dose in the US, which means that Americans affected by the same condition struggle to afford it and need to use inferior medication. And clearly, the development costs for the drug were not borne by Americans. Yet that does not stop the manufacturer from price-gouging them.
1
"Wonkish" is Professor Krugman's "Dog Whistle" telling FOX viewers to stay away, but we know better, because FOX told us so; if it's good for "Big Pharma," it's Great for the American Consumer.
Krugman is right, but he understated the case. Drug companies not only have a monopoly on new drugs, but the monopoly extends for the ridiculously long period of time of 20 years. Furthermore, insurers and, as he indicated, Medicare have no incentive to negotiate prices since the premiums are reimbursed. That means there is collusion over the demand side of the equation which allows uncontrolled pricing. This collusion would be illegal in any other environment and is not tolerated by any other country in the world. Our government is not only tolerating this crime, they are partners.
2
Other countries are not forcing the U.S. to pay more for drugs by having lower drug prices, nor extorting lower prices from Big Pharma.
First, European citizens and companies pay higher taxes for their single payer healthcare, enough to cover the poor.
They strictly control and analyize new drugs for efficacy, necessity, human testing results, and what insurers are willing to pay.
In France, after analysis by 3 Ministries, government healthcare and the insurance industry, France offers a "take it or leave it" price for a new medication.
Big Pharma takes it because Europe follows the French model. As the European Union is the richest trade bloc in the world, it would be ridiculous for Big Pharma to turn away from it, and they haven't.
My Big Pharma clients, who travel to the U.S., love selling drugs there because Americans will pay any price they ask.
Trump wants to give our tax dollars to Big Pharma to reduce prices. He has suggested eliminating mysterious, unnamed middlemen--doctors? pharmacists?--from Medicare.
Americans lose twice in this deal--subsidize Big Pharma so they'll charge us less (isn't this "bait and switch?) and reduce Medicare.
Poor and average Americans are being shortchanged, while champagne corks are popping as Big Pharma stock prices rise.
It's another Trump give away to the wealthy, like the tax plan. He doesn't think the poor and middle class are deserving of social services--he thinks they're lazy--and he protects wealthy donors.
The biggest buyer drug buyer in the world, Medicare, financed by taxpayers, will continue to keep drug prices high for taxpayer, by NOT negotiating with suppliers?
Where else in the world does THAT
happen?
Follow the money from Trump’s latest drug deal announcement at the podium to Cohen’s deposit account in Delaware. Cohen needs to explain where the money went,
Novartis needs to explain where they think it went.
4
One reason that drugs are so expensive in the US is because there are too many layers between the manufacturer and the consumer, each tagging on.
Foreign countries that Trump complains about don’t have multiple layers of individual negotiators, insurance companies, pharmaceutical benefit managers, and pharmacies, all living off sick people.
Trump says foreigners should pay more so US citizens can pay less.
By that logic, how does he plan to reduce the high cost of an office visit to a doctor in the US?
From experience, a newborn visit to the doctor in Australia in 1996 was $50, the government paid $30. Five years earlier, a newborn visit in San Francisco was $300.
The insurance company paid about the same rate.
Foreign countries don’t have doctors’ offices staffed with non-medical personnel whose only function is to process insurance claims. In Australia, you see any doctor, they’re ALL in the network, each charging whatever they want, hand your government insurance number over, pay, say the $80 charge, and the government
deposits their fixed share into your bank account overnight, about $25.
The whole system of health care delivery in the US needs an overhaul. If Americans like their insurance company, they can keep it!
Otherwise, single payer by a country that negotiates directly with the pharmaceutical companies, and a published rebate list for services is the only system that can deliver best practice medical care at the lowest cost.
4
Is there any industry more sensitive? - A triangle between [pricing - profit - vital supply] might only be one (static) aspect of the phenomenon. Let's have two questions and a matrix of four boxes...i) Can centralized information on personal health be harmful in some cases? - Yes or No. ii) Are human experiments a moral issue? - Yes or No. We would need a clear mind on such matrix first in order to discuss a further policy step. How can a consultation mechanism efficiency between the health network - doctor and patient be maximized so that such has an optimal contribution for patients' disease prognosis and for cumulative knowledge which would stimulate the pharma industry. If we had the first matrix in mind, we could have been able to determine whether such problem can be solved in terms of the individual interest driven market or for instance in terms of a collective consciousness in form of a public duty. Risks are obvious as some of them can be identified in the above described matrix. On the other hand, only few steps within the scope of minimum risk towards consultation could mean life maybe for hundreds of millions?!
A few years ago, when drug prices, including generics, shot up - some by 500%, my generic Ambien prescription, covered by my Medicare RX supplement, which I pay for, went from a co-pay of $7.00 for a three months supply, to $90.00 for a threes month supply. After paying the larger amount for one three month supply of the generic Ambien, my friend found I could get three months of the same generic Ambien for $20.00 from Costco Pharmacy in the State of Washington. I get it through the mail. I pay out of pocket and don't even bother using my RX coverage that I still pay for. Not everything went sky high.
3
And this, boys and girls, is why "market forces" don't work to drive DOWN health care costs. Never gonna happen organically. In fact, when the price of a drug gets low enough, PHARMA just stops making it, regardless of need.
4
The real problem Paul, is PROFIT Our for profit healthcare system continues to think more about profit that health. hence we have phanrmacies refusing to tell patients about generic options while urging the patients to buy the over inflated "branded" drug. This has happened to me twice recently.
4
There is a bigger issue. A significant majority of major news drugs are based on massive taxpayer funded government research This is true in numerous other areas but drugs are an especially egregious case. Without taxpayer investment there would be no cancer drugs, nor HIV, nor many others. Yet taxpayers get no direct return on that investment. It is criminal that US taxpayers fund the research to create most major bew drugs, fund the regulatory system to guarantee their safety, and then have to pay above world prices for those drugs. American taxpayers should not only pay the lowest costs for drugs worldwide, we should also get a big piece of the profits. Can you imagine the Stupity of guving Pharma a huge tax break. Rape! We are complete idiots!
9
Professor,
It has been over 40 years since I took Economics and the majority of times I read your “wonkish” articles I skip over the graphs since I simply do not understand what are you are trying to show your readers.
After reading your article today I decided to look up line graphs with the hope of partially understanding what it is you are showing your readers and after 20 minutes of studying line graphs my comprehension “increased” from 0 to 0 minus one.
Since I have conducted in-depth research into understanding line graphs, which has earned me an honorary degree in Economics from the “Great and Powerful Wizard of Oz,” I have concluded two of your graphs are several negative slopes, and will take a few minutes to impart my new found wisdom and indisputable conclusions with your loyal and devoted audience:
1) Your 2nd negative slope graph includes the welfare cost for negotiated prices and has a net zero affect on pharmaceutical profits;
2) You write that the pharmaceutical industry is global and the monopoly pricing does not benefit the American consumer.
Given my indisputable conclusions above, I realize you are missing the big picture; the American consumer is truly magnanimous, and since we have demonstrated through our election results, we do not believe in government intrusion into our healthcare system, we are willing to pay higher drug prices here in American so as to provide, not welfare, but Charity for those “unexceptional’ non-American citizens.
3
Excellent statement of case. So, why don't corporatists, folks like Trump, or big pharma Associations promote the benefits you ascribe to bargaining, even when it actually benefits them as well as the "welfare" of consumers? Why indeed. Stupidity? Stubbornness? Prejudice? Fear? What? Who got to Trump and why? Is it simply reasons of pettiness like, it was supported by Bernie or was something Obama would have done? I am just asking.
Paul, the fact that a reasonable reduction in drug prices will not necessarily result in substantive reductions in profit will not sway pharma one iota. The attitude of any corporation towards profit is monomaniacal, especially in consideration of their ability to game the system through their system of bribery and lobbying. Some corporations might discover that they can actually increase profits by lowering the cost of drugs. As much as they might pursue that path, the zeroth order simplicity of raising prices will eventually win over higher order thinking in times of reduced profit. The people who run corporations are ultimately idiots by virtue of their slavish devotion to short term profit and the demands of shareholders.
2
America First on everything except for life and death!
4
In addition to pushing up costs to the firm, advertising is intended to increase demand, which also raises prices. Ads can also make demand curves more inelastic (when the quantity demanded is less responsive to price change), enabling firms to raise price more without loss of revenue. I don’t think there is a solution to this problem that doesn’t involve consideration of our demand for drugs. I understand the use of limited monopolistic control of a new drug - it incentivizes R&D by helping to ensure that the firm can cover those costs and turn a profit in the short run. But drugs past that protection, in addition to generic competition, should also face overseas competition - the presence of substitutes makes demand curves more elastic and pushes prices lower. Finally, investments in health and preventative care (cheaper) will reduce demand for drugs, lowering prices. It would also be helpful to find a way to make fresh fruits and vegetables cheaper than a Big Mac and fries - but that’s another topic for another time.
1
Good article. I actually understood Mr. K’s graphs and reasoning. After reading some comments here which were generally interesting I would add that the US (our Congress) should and have a duty to keep necessary drugs like Insulin affordable and accessible. I’m talking about people with Type 1 diabetes (many who were diagnosed as children) who cannot live without insulin. It would be a good start!
5
It is time to apply Medicare for all.
Allow drugs to come in from other countries. That will break the monopoly of drug companies in the US, and their ability to fix and increase pricing as they will.
6
The model should take into account the multiple layers of US middlemen that repeatedly bump the price up to cover their costs: distributors, aggregators, pharmacy managers, insurance companies, pharmacy chains. Advertising and marketing costs may exceed the cost to develop or manufacture a drug.
5
Preventing Medicare from negotiating drug prices in the same manner as commercial insurers has always been a bargain for the drug manufacturers. In effect, the government is subsidizing pharmaceuticals for the remainder of our society. That makes no sense.
Medicare could save billions if it were allowed to negotiate drug prices. Republicans claim to support smaller government. Such negotiation would allow the government to fund other social programs without harming seniors.
The pharmaceutical lobby is powerful and Republicans appear to be really out for themselves instead of the country.
4
Also, since many Americans simply cannot afford the inflated prices, just don't purchase the drug. This is creating, as well as American's awful diet, the most unhealthy population in the industrial world. How many billions or trillions does that cost the country? Well, the GOP says "just let them eat trans fat cake".
4
If you want to solve the free rider problem, you have the US accepted the lowest or second lowest drug price negotiated by another country in the G-7.
1
I don't understand the charts but I do know that drugs such as opioids are prescribed all over the place, (I was given some after a minor procedure on my foot when I didn't have any pain)even though they are addictive. I know that there are continual ads on tv for drugs. Some of those ads are for non life threatening conditions, and when you hear the dangers of taking those drugs, they are life threatening. Odd isn't it? Also I know that as soon as insurance was involved, a medicine that my daughter was taking, that had been around for decades, suddenly the price doubled then tripled. It went from 20 dollars a month, to 60 dollars a month and then even more. It wasn't a new medicine. I hate that the water you may be giving your newborn child may contain drugs that many of us don't even need, that are not biodegradable, just out there forever. How much do we have to suffer to make the few people at the top rich?
6
Wonkish is right. One thing Krugman completely left out is marketing costs. My wife Patty, a retired pharmacist, noticed the strong correlation between drug price increases and drug advertisement. In fact, I have seen articles that say drug companies spend far more money on advertisement than they do on drug research.
Recently, I had a minor surgery and was prescribed Gentamicin Sulfate Ointment. Turns out the cash price on this ointment was $75----- with insurance, my co-pay was $39. Patty says it is an old drug that used to cost around $5 a tube.
All you need to do is to compare drug prices in Canada to those in the U.S. to see that comparable drugs are AT LEAST half the cost of the exact same drug in the U.S. and often far cheaper.
Truly, we need Medicare-For-All, and we need to allow Medicare to negotiate drug prices, before the unconscionable costs of health care bankrupt our country
13
This comment on Krugman's article by Len Charlap is worth repeating:
"The only other country that allows prescription drug ads is New Zealand. (In the U.S.) A simple act of Congress or a regulation by the FDA could eliminate them." Elsewhere he points out that a ban on drug ads could conservatively result in savings of $100 billion per year.
9
It is easy to sell entitlement and victomhood to people. A lot of people seem to think the pharma companies are really bad because they develop life saving drugs. Many seem to think these come out of thin air and they are entitled to them at a low price. Drug discovery is a high risk complicated business. It takes a lot of money to bring a new drug to market, they go thru many trials and many drugs never make it to market in effect they are dry holes that end up costing a lot with no return. When abuses in pricing for say an old drug occur of course they should corrected. But in general the pharma companies are an easy target for pandering politicians.
1
No one is saying they don't do hard work. What we are saying is that in every other industrialized nation drug prices are reasonable, in the US it's insane. They can triple the price of drugs for no reason, some older drugs even. This is obscene and causes the deaths of untold amounts of Americas, but never happens in France for example. Or even in Canada.The Epipen example is one of many.
3
Insulin was discovered in 1921 by 2 Canadians. The drug patent was sold to a university for $1.00 (that's right, $1) to ensure the medicine remained in public domain and affordable to patients with a terminal illness, Type 1 diabetes which affects mostly children when their immune system attacks the cells that make insulin in their own bodies. Then American drug manufacturers bought the rights to sell it. Of course, modern insulin is synthetic and was developed long after cow and pig insulin. BUT, it was developed in 1978, over 40 years ago. And the patents are still in place. And the price of modern synthetic insulin has risen from $30 per bottle to over $300 per bottle (about a 1.5-2 week supply) since 2000. According to inflation calculators, the price should be $45 now. That's highway robbery for a drug that is life giving and NOT a lifestyle issue for millions of people in the US. Big Pharma executives are complicit in causing the death of people who can't afford their necessary medications.
1
We certainly don't want people feeling entitled to stay alive. Whatever will they want next?
A widely prescribed asthma medication that I take to breathe recently shot up in price to almost $1200 dollars per month, which means my insurance company will pay for none of it. I can put it toward my deductible though. This drug has been the treatment of choice for over twenty years.
1
It seems clear to me that there is far too much profit right now in the drug business, which is one reason so many drugs flood the market, with attendant marketing efforts by the drug companies and a reason that Americans are taking far too many drugs.
Please, when you need a drive-up window for drug dispensing, aside from situations where people can't walk into a pharmacy, it is a clear indication that too many drugs are being swallowed. Furthermore, tests of water systems show that trace amounts of this massive flow of pharmaceuticals are found in city water supplies. We are drugging everyone by proxy, even if just in small amounts.
If a drug demonstrates the promise of a little bit of improvement and not too much damage from side effects, it hits the market. When people go to the doctor, they want to feel that the visit accomplished something, so they plead for pills. We are over drugging, persistently taking drugs that make almost no difference in health.
No wonder we have an opioid crisis. There are many billions of dollars to be made, mountains of money, in pushing both legitimate and excessive use of drugs. With that much money in play, people will drive over their grandmother's to try to get some of it.
The free enterprise system in the drug business is doing us a general disservice and there is no one at present who can even try to rein them in. Trump, as usual, put up a good show but left the important work undone.
5
I would ask for evidence of your claims that Americans are "...persistently taking drugs that make almost no difference in health." Show me.
To make this simple. Imagine if your car insurance operated like health insurance. You see a slick ad - “ask your mechanic if this car is right for you?” so next time you are in for service you ask. Your mechanic could write you a prescription for a new car. You take the prescription to a car dealer (who has wined and dined the mechanic, perhaps even paid him to speak about what cars he likes). You are given your new car. The dealer sends the bill to your insurance company which is obligated to pay for whatever car is prescribed and whatever is charged for it.
Ask yourself – what would cars cost? What would your car insurance cost? Would you have a really nice car? Lots, lots and yes.
In healthcare we have one other feature that is absent and compounds the imperfection but is essential for a free market – the ill patient cannot walk away from the deal with little harm..
We will never see affordable healthcare until we, like other countries, have an imposed uniform fee schedule for all patients and all providers of devices, drugs and services (as we do for much of what Medicare pays for.) A heavy political lift here. We need to stop pretending that healthcare is a free market enterprise in any way.
6
Your interesting corollary of drugs-to-cars begs the question: why are people who drive $55,000 cars resistant to paying $55 for a prescription drug?
Are they resistant to paying $55? I doubt it. Resistance would make more sense if a more expensive drug were involved. Try Harvoni. The price for a 30-day supply is $87,800.
https://www.cnbc.com/2017/05/10/americas-10-most-expensive-prescription-...
Economic inequality makes drugs more expensive because the rich can afford to buy their drugs at very high prices.
Also, the research is mostly done at universities and at small start-up drug companies that are bought out by Big Pharma.
3
Michael Owen S, yes instead of and I should have used the connective while before DT +MC.You don't seem that naive not to know what DT and MC Stand for.Speaking of for not to exceed the 1500 limit I use 4,etc.,economy of words.
The National Institute of Health, yes, the federal government using our tax money, contributed to the development of 210 new drugs in the past 5 years. We pay for development, then we pay Big Pharma, after they nail the patent, through the nose if we may actually need one of these drugs. https://www.statnews.com/2018/02/12/nih-funding-drug-development/
At some point we need to realize that currently we're just targets to be fleeced by corporate capitalism. And the Trump administration is the classic wolf-in-the-hen-house cherry on the cake for our oligarch masters.
5
"So overall, society gains from the drug’s existence."
This is not an assumption to be taken for granted. Some drugs, like Vioxx or thalidomide, and I'd submit, also statin drugs do more harm than good...if indeed they do any good at all.
Statins seem to have benefit when used for secondary prevention, but if one hasn't already had a cardiovascular event, any benefit at all is still being argued. The majority of the 2013 AHA/ACC expert guidelines panel was made up of people with financial ties to Big Pharma. Can't trust that kind of panel, can we?
And no one is charge of reporting adverse effects--not your doctors, for sure. Generic drug companies aren't required to stay current on warning labels, and you can't even sue them for faulty drug design.
If you're one of the millions of Americas who's been damaged by a prescription drug, you're supposed to self-report to the F.D.A. No other system. Obviously, this creates huge under-reporting.
The bottom line is that the most costly aspect of prescription drugs may be all the people who take drugs with no proven benefit, and then on top of that, the cost of treating all the illnesses triggered by the drugs. StatinVictims. com isn't the only group. Read Overdo$ed America by John Abramson.
60% of Americans are on at least one prescription drugs. We're bombarded by TV ads for drugs, and our doctors's offices are packed with drug salespeople/pushers. 1/4 of Americans over 40 are on a statin drug. Costly, and deadly.
1
If selling their drugs at a low cost to other countries were not profitable, big pharma would NOT be selling their drugs there. No country is forcing them to sell there.
Is big pharma being humanitarian towards those countries? If they are, why are they being anti-humanitarian here in America where they reap so much?
5
Wrong. The U.S. government requires U.S. pharmaceutical companies to sell to foreign governments at reduced prices. Read HCFA regs.
Your wonkish opinion piece is a bit over my head. Even our founding fathers would have shaken their heads and looked away. However, those original Americans would have understood the venality of a monopoly. After all, there was the British East Indian Tea Company. Now there is Big Pharma.
4
George W Bush threatened to veto Part D drug coverage for Medicare if it included negotiated prices for Medicare users.
The Republicans have been rolling over for Big Pharma long before Two-Faced Trump lied about lowering drug costs for Americans. Throw them all out!!
8
I don't understand why the president complains about gang activity by illegal immigrants and then looks the other way when Big Pharma does the same thing here - to actual Americans.
5
Boycott doctors and prescription drugs. It's easier than it sounds. When you reach 75, consider that you are "old enough to die"; consider also that if you go to the doctor, he may think he has an obligation to find something, and treat it. (Of course, that also means eating vegetables instead of fried food, and taking a walk instead of watching TV -- but you knew that already, didn't you.)
P.S. Avoid doctors with teenage children; they have to accumulate money to pay for college; you will provide the money.
Review your medications every year and ask your doctor why you specifically need to keep taking each one. And before any major surgery, always get a second opinion.
1
Not an economist, but... is your "Profit" label in the second graph pointing to the right place? Why isn't the profit now the lower and wider rectangle, which is part green and part blue?
1
I'm not sure how certain real life factors fit into this argument.
1) Big Pharma develop drugs they hope will be block-busters--that's why there are so many ED drugs, but anti-biotics are falling behind.
2) They want drugs you have to take forever, like ED, diabetes, or cardio-vascular drugs--and they want them to be costly. A daily Dexilant GERD pill is between $8 and $10. Other daily meds are far more expensive--and it's a GIANT revenue stream that goes on for the life of the patient.
3) For short term drugs, they have no interest in developing unless the per-dose cost (like for oncological drugs) can range several to many thousands of dollars.
4) And...when there's a de facto monopoly for so-called "orphan drugs", we see little monsters like Martin Shkreli take a drug and raise the price overnight SO high that many patients who need it will pay his price...or DIE!
5) The bottom line is that Pharma companies' incentives for developing and selling new drugs is not in the interest of public health, but solely out of balance in pursuit of profit. For this, we give them patents.
Finally, Trump's effort to raise prices overseas is a direct attack on other nations' DESPERATE attempt to get necessary life-saving drugs to impoverished patients suffering awful, killing diseases, like AIDS. Naturally, Trump doesn't give a flip if these people die any more than Shkreli did, only many more orders of magnitude will die as a result.
7
"What this means in turn is that the negative effect on innovation is small if prices aren’t pushed down a lot..."
Oh, yeah, that's EXACTLY what would happen if Bernie & Co. were ever in charge. Demand "small" discounts from the drug companies.
Like the rest of the Professor's thinking, this one is WAY out there.
Americans are but consumer targets with a bullseye on their backs. America is, at this late stage, simply a business not a country, and it is every person for themselves. This is Trumpism.
2
Why would Trump lower drug prices? That would have unnecessarily helped the poor. And he is not for poor! Dont you see? Tax "Reforms"? For the 1% by the 1% and OF the !%.
2
"...and announced a plan that sent drug stocks soaring."
Well, now we know The Professor's real gripe: Krugman's short the drug stocks! Or is it a Mencken-like fear that someone, somewhere is making money?
1
No, this is more like Trump keeping his real base, the one-percenters and big business Republican donors, happy.
1
from retired medically-trained attorney:
One caution to all always: online "pharmacies" that include many with the "Canadian" label on them peddle garbage to idiots. Most are in Asia; some in Mexico. When a family member discovered that prednisone helps with LOTS of her aches and pains, in addition to her MD's medically-indicated CV disease use, she asked for more and bigger doses and and and. She is now known to all docs and all ERs as the woman with advanced Cushing's Syndrome (we call her "no-neck" Mom) using online drugs. Cushing's Syndrome is a slow painful death by drowning.
I took two of her "Canadian" suppliers tablets to a local FDA analytical lab for analysis of everything in them: one had no prednisone (active ingredient), but did have poisonous dye in the coating and the second was supposed to be 20mg prednisone per label and it was 40mg -- what we call "super-potent."
Bottom line rule always all ways: IF a deal sounds too good to be true, it is. Especially if Maine's wild-man gov LePage is the decision-maker . . .?
To Paul Krugman: you didn't mention that a great deal of drug research and development goes on in academic institutions under NIH funding, costing Pharma nothing. Once efficacy and application are demonstrated, the drug company steps in, usually at little cost, and commercializes the drug. What a deal!
8
Thank you for this article. Making me laugh out loud a few times made it easy and fun to read. Fun? About big pharmacy. Yep. Good writing.
2
I wonder if the Big Pharma people have any idea how they look to the rest of us, what messages they’re really putting out.
For example, all those drug ads on TV: as soon as I see an ad for a drug, I know it’s a drug I can never take, because it would be so expensive that I couldn’t afford the co-pay, even if the insurance would cover it—which I doubt.
And the ads themselves—ridiculous. The drugs in the commercials are only taken by upper-middle-class people with great makeup and terrific haircuts; and, regardless of what symptoms the drugs are supposed to cure, they almost invariably lead to one outcome: picnics. There’s Mom spreading a tablecloth on the grass, handing a sandwich to junior; or they’re having a block party, with refreshments; or they’re sitting around a firepit eating something with toasted marshmallows in it. Only occasionally, they’re sitting in a restaurant, eating wonderful food that most of us couldn’t afford even before paying for the medication.
Hey, guys, how about spending the money on research, not for ads on TV? I imagine there are a few diseases that haven’t been cured yet.
13
The pharma industry has produced some wonderful products, but at the expense of the American public. Other countries have set price controls on drugs and, in some cases, have refused to pay for expensive “copy-cats. This leaves the U.S. as the international ATM machine for drug company profits. This rising cost is now paid by the American consumer in the form of deductibles and co-pays. Our federal government has the power to end this, as other countries have done. But on this issue, as with many others, the administration in Washington is all talk and no action.
14
First-world countries are probably the only countries that unnecessarily rely on pharmaceutical drugs to compensate for first-world lifestyles-- workload/financial stress, unhealthy lifestyle/diet, social isolation/division, environmental pollution.
I'd imagine a lot of this could be alleviated through "welfare" and "regulations." Regulations on financial and environmental protection. Universal healthcare coverage to undercut excessive healthcare costs wasted on per capita. ...
Basic idea is that if a social-economic foundation is provided for all individuals-- shelter, food, and healthcare-- at baseline level, then the economy might be cut of all the wasteful inefficient spending among Wall Street corporations, consumers, and government.
People might balk at the idea of "socialism" and human nature of "idleness." But say, if someone just had an apartment, a bed, provided food, and that being it. Anything else he might want-- perhaps a TV or car, or a bigger house-- he would have to get a job to buy it. --Or the case might be, that a person can be idle for only so long that he does get really bored that he indeed goes out to get a job and start building his own life.
In any case, he wouldn't have to worry about being homeless and hungry because he can't afford other basic necessities in life.
4
What Prof. K. says here is fine as far as it goes, but overlooks many key factors in how Big Pharma deliberately stretches monopoly pricing patent windows by developing 'new, improved' (NI) versions of the same drug. I take Nuvigil, a NI version of generic modafinil. Most drugs are what we chemists call racemic mixtures of a pure compound, more and less active forms of the same drug. Separating the mixture to remove the less effective form is expensive, but not compared to monopoly pricing. So my Nuvigil is about 40% lower in dose for the same effect (with 40% less side effects), and costs about $ 20X.
Similarly, delivery tricks like LASER-drilling to give slow release or inhalers for fentanyl can give 10+ years of patent monopoly pricing for the same form of an old drug in return for a minor benefit.
There are no free market forces at work in Pharma's highly controlled business, and that is why free-market models fail to predict actual market behavior. The better model is the Highwayman's: "Your money or your life!"
9
Actually we can get the Europeans to pay more for their drugs while we pay less. We could simply require drug companies to sell a drug in the United States at the average of what the European countries pay. The drug company would have to raise the prices for Europeans so that they could get a fair price from us. Such a system would save us money even if we paid, let's say, 10% more than the average European. What is happening currently is that we are effectively subsidizing Europeans in terms of drug costs. drug companies can meet the demands of European agencies for lower prices because they make most of their profit on US citizens.
3
That’s not how it works in Europe. You have to negotiate pricing with the governments. Then, there is a list of pricing as each watches the other, certain countries mandate price reductions over time. I’ve spent years working on this in launching drugs around the world.
3
Please note that the Veterans Administration has bargained for its drug prices for years.
My mom, a WWII vet, was a great example. My dad used the VA for years, but had never signed my mom up. When he died a sister signed her up. My mom's monthly drug bill dropped from $600 a month to $50. This was 13 years ago.
9
Whatever the marginal utility of Trump's current proposal, it is tiny compared to what would happen had the President kept his word and permitted Medicare and the VA to negotiate drug prices and let Americans buy prescription drugs from Canada.
Which leads to a question, is it true, as Novartis has indicated, that it got no benefit from its huge payout to Michael Cohen?
Is it is possible the elimination from the Trump agenda of his two most important campaign proposals for lowering drug prices was the quo for Novartis' expenditure?
Follow the money. We know where it came from: where did it go after it reached Cohen?
21
It doesn't take much of an extension of your argument to conclude that the GOP committed treason. Is that your point?
If not treason, at least fraud, and maybe even racketeering.
Actually, the taxpayers pay for much if not most of the cost of drug development. What do you think those university research labs are doing? Through the Bayh-Dole Act, potential drugs developed in university laboratories funded by grants from the National Institutes of Health can be transferred to businesses for the final steps including clinical trials. It has been reported that right now, pharmaceutical companies spend far more on marketing than on R&D. Thus, lowering prices should not reduce real innovation. We taxpayers are funding Big Pharma's greed.
22
Gvt only funds basic research, which is vital, of course. But each large pharma spends a typical 5 billion dollars annually on R&D. This is much more and beyond gvt investment.
How do you know if that's true? Are there comprehensive figures for government and university spending on basic research? Do the universities and government charge the private drug companies for the basic research that our taxpayer dollars paid for, or do the drug companies get the benefit of the basic research for free? Is this another instance of corporate welfare, socializing the costs and privatizing the profits?
Two Points:
The US should nationalize generics, with march-in rights on the patents. Sub out manufacturing just like we do Defense contracts on Firm Fixed Price competitive bids. Generics cost pennies to make. You'll find supplies of them all for less than $5/month.
Worse is when generics are bought up by a single company and then instead of 5 suppliers there are one or maybe two, then you again have monopolistic pricing.
6
Yes, like EpiPen, Mucinex, etc.
1
I don't expect anything good to come out of Washington on health care. The GOP thoroughly poisoned the well. The Trump Administration doesn't have the chops for the heavy lifting required to lower drug prices in some reasonable, fair manner. They have proven beyond all doubt that they are much more supportive of moneyed interests than the health of the citizenry.
Having said that, most Rx analysts point to Brazil as having one of the most effective mechanisms in the world for assessing the usefulness of a new drug. The Trump proposal doesn't even make a passing nod toward that key consideration, but we must as a nation if we ever expect Pharma's drivers to align with the public good.
6
Because my $1,000-a-month health-insurance policy won’t pay for it, I purchase a medication in Canada for about $6,000 a year that would have cost about $15,000 a year in the U.S. (The insurance company’s language was truly Orwellian, noting that their denial didn’t mean that I wouldn’t benefit from the drug nor that I shouldn’t take the drug but simply that they won’t pay for it.)
The pharmacy-benefit managers (PBMs) who supposedly negotiate on our behalf have nowhere near the bargaining power of Canada. (Whose socialized healthcare system, I understand, also doesn’t want to pay for this medication, but at least they make it more affordable to the public.) From what I’ve learned, the PBMs are nothing more than middlemen who skim much of the savings they wring out of the pharmaceutical industry.
Consequently, we pay the highest drug prices in the world and pretty much subsidize the rest of the planet willingly. This is part and parcel of how our politicians (guess who), corrupted by lobbyists, perpetuate the most expensive and unfair healthcare system there is.
11
Many of us wear 3 or 4 different hats when it comes to drug company pricing issues. As investors (via 401K plans or otherwise) many of us have enjoyed the profits that drug companies generate through their business practices. As taxpayers, we bear substantial costs related to the cost of drugs needed by Medicaid patients. As employers, many of us struggle with seemingly unlimited cost increases in our employee medical plans. And as patients, most of us are grateful to receive the drugs we need but are frustrated by deductibles, "doughnut holes" in Medicare Part D plans, etc.
Big Pharma and their political friends can and do exploit the different interests of the various groups and I am not hopeful that anything short of single-payer and mandatory price controls can bring drug costs under control.
10
My question to Dr. Krugman: Drug companies insist that they spend a fortune on R&D, but many of the newer drugs came about because of R&D performed by the US Government.
Any insights on what actual percentage of drug companies spend on R&D?
I'm guessing it's not that much.
6
Large pharma companies spend 15-20% of revenues on R&D, typically around 5 billion dollars annually.
1
Why should the drug companies spend money on R & D when it gives the taxpayers so much pleasure to spend that money on their behalf?
Layers and layers of bureaucracy to "process" multiple health insurance coverages.
High drug prices, padded even higher to cover expensive marketing to the public, which does not have prescription-writing privileges.
Health care is not a "choice."
This system is extortion, pure and simple.
14
It sounds more like racketeering, and I don't know why the RICO statutes would not apply. Lock'em up.
Or since this is an election year, let's start by voting'em out.
The TPP included provisions that required other countries, i.e., not the US, to raise drug prices if their government subsidized them as through a public health system. What they - the US and the authors of that provision, the pharmaceutical companies - were saying is that public health services should not have the right to cover drug prices. Essentially taking the decision out of the hands of the citizens of that nation. The implication of this is that the US and its special interests were dictating public health policy to other countries to cripple their public health systems. This issue caused a lot of public push-back throughout New Zealand. I'll be nobody in America gave it a second's thought as to the destructiveness and arrogance of US policy with it imposing its political economy on other countries that are doing just fine without them, thank you. And the US wonders why the rest of the world doesn't trust them.
20
The solution is incredibly simple, to my mind, extend the period of monopoly but modify that monopoly so that others can produce the drug and pay a set fee to the developer for doing so.
The drugmaker makes as much as under the old system so drug development is not hurt but the initial period is one of reasonable and not outlandish prices-win win.
Allow drugmakers to make as much money but over a longer period of time and change monopoly to a period where companies producing the drug have to pay the developer a fee-not set by the market-perhaps no more than a certain percentage f the drugs cost to produce-the drugmaker makes extra money if it is a blockbuster because everyone is making the drug-
Simple-at least if you have a working brain
2
The absurdity (and high cost) of having doctors negotiate with insurance reps to get drugs approved came clear to me a bit over a decade ago when I had a rare lung condition that was being treated with an orphan drug that cost the insurance company something upwards of $5,000 per month. My doctor decided my condition was improving and could be treated more effectively and at a lower cost with a high dose of Viagra (apparently it increases blood flow to the lungs as well as to other organs). He called my insurance company and proceeded to argue for nearly half an hour with the insurance company rep why I should be allowed to have an unusually high dose of Viagra, explaining the cost savings as well as the medical benefits. The rep wouldn't budge. Finally, in exasperation he said "I'm the such and such professor of such and such at Harvard Medical School and Chief of such and such surgery at Massachusetts General Hospital. Where did you get your M.D.?" The prescription was then approved immediately.
9
finally, a comment that sees inside what happens across the cost vs quality vs access debates !
from my days inside both pharma and health insurance systems worldwide, I've learned (and taught) one bottom line message: any nation can only buy two-of-three of these health policy "goods." With the ACA passing, "access" to care was no longer sacrificed. Now we are waiting to see whether "cost" or "quality" will be the surviving policy objective.
In the interim, it helps to get your doc to pull all of his or her credentials into this insurer fight: 86% of first-level computer-generated denials of coverage never get appealed. But, for those that do appeal to a live human/rep tying the criteria set out in a benefit plan's language to your personal history/need, 97% get coverage.
3
He spent 30 minutes talking to a high grad with no power and no responsibility. What is this system we have in place?
2
I didn't pay close attention to the details of Trump's announcement. The telling truth came the next day when stock prices for Big Pharma skyrocketed! As they say...follow the money.
17
Contemporary economics, whether in Capitalist America or Communist China, was best described by Edward Abbey when he wrote: "Growth for the sake of growth is the ideology of a cancer cell."
17
I notice the last thing on anyone's minds is actual public health. Big Pharma is a parasite, pure and simple. Why do the sector any favors, when accessibility is literally at gunpoint. This isn't an industry, it's a type of legal mugging - Your money or your life, quite literally. It's proof positive that capitalism is its own worst enemy, aiding and abetting the useless at the expense of the vulnerable.
It's not like nobody knows the score. Pharma prices are just gouging by any means. In lieu of jail terms for sheer criminal behavior, regulation, as though anyone's going to do it, and a requirement for meds to be marketed at accessible prices would help.
Meanwhile, back on the jail side of the equation, to add some incentive - A few manslaughter cases for faulty meds, etc. wouldn't hurt, and some nice case law for "side effects" including suicide, et al.
America is setting a hideous example for regulatory skankdom and irresponsibility in this sector which needs drastic rectification. For example - If legally allowed in emergencies, pharmacies should be able to synthesize any medication required to save a life, and/or manage a medical condition. Pharma can get a few cents in royalties, because it's not otherwise involved in the process. Peanuts for apes, in effect, and monopolies be damned.
10
I'll say one thing for the insane drug ads on TV: they have enormously increased my motivation to exercise and eat healthfully in order to avoid or minimize these drugs if at all possible!!! -- both for my own well-being and to deny them any profits from me as long as possible. My chemist brother long ago told me the "side effects" of drugs are not really SIDE effects, they are the undesirable effects that the makers hope we'll ignore.
Most people in our country don't know what they don't know. They have had limited travel experience or knowledge of the support systems available in other developed countries. Perhaps Dems and the media could help educate folks by describing more details of services other countries enjoy that we are being denied so that the very very few here can have golden toilets for their many castles.
17
http://deanbaker.net/images/stories/documents/Rigged.pdf
October, 2016
Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer
By Dean Baker
The Old Technology and Inequality Scam: The Story of Patents and Copyrights
[ Again, an excellent addition to the thinking of Paul Krugman. This essay will answer many question readers are here asking. ]
5
http://cepr.net/blogs/beat-the-press/krugman-on-drugs?utm_source=feedbur...
May 13, 2018
Paul Krugman on Drugs
By Dean Baker
I was glad to see Paul’s short post explaining some of the economics of the U.S. government negotiating drug prices with the drug companies; the route Donald Trump rejected. I thought I would add a few more points.
First, the monopoly profits earned by the drug companies provide a powerful incentive for rent-seeking. This is the standard story that economists always complain about with trade protection, except instead of talking about a tariff that raises the price of the protected item by 10 or 25 percent above the free market price, we’re talking about a government granted monopoly that typically raises the price of a factor of ten or even a hundred compared with the free market price. These markups are equivalent to tariffs of 1000 percent or 10,000 percent....
[ Excellent addition... ]
11
Quesion: What percentage of the costs of developing new drugs are paid for, in whole or in part, by government funding? Any data on this?
13
With some exceptions gvt generally pays for more basic research and the industry pays for R&D of drugs, two complementary and necessary pieces in the process.
There are areas in which pure greed can run amok in a field where lives are at stake.
The convicted felon Shkreli was a case in point where he raised the price on an old drug thru his company Turing Pharmaceuticals 35 times. Though it was a generic drug his company was the only one producing it and could get away with it.
I experienced similar gouging with my brother-in law who requires some lithium based drug for schizophrenia.
Trumps approach might help with these instances by having the gvt. support competitive companies to come to market with other generics where profiteering runs amok.
When it comes to the huge profits made on some life saving drugs which are under patent - capitalism automatically tries to reach the point of maximum profit where that is definitely not necessarily the highest price chargeable. (supply and demand).
It would be good to have the government put in place a plan for future life altering drugs with large scale applicability. That is a situation in which the gvt. might buy out the rights to the drug to allow for industrial scaled production with a guarantee for everyone.
I am thinking of a cure for Alzheimer perhaps. This would clearly be something that is in the interest of the gvt. to have everyone have access to.
What exactly the price might be is hard to say - but at the end of the day normal executives are human beings and despite what might be alleged scientists are very much doing their work for the betterment of all.
9
What right do they have to the name Turing?
1
I spent many years naively assuming that the work I was doing at various big pharma companies was actually valuable. Then one day my boss asked me to make up a slide presentation showing all of the diseases we were working on to present to the board of directors. Alzheimer's, Parkinson's, stroke, head trauma. How many researchers working on each of these terrible conditions? 1 = me. And then I realized that I was simply being used as a tool to convince shareholders that my company was doing a tremendous amount of work on a huge pipeline of potential life-improving drugs.
23
You left out of your equation the cost of marketing. Why it is legal to use mass media to sell prescription drugs to sucker customers rather than have informed doctors make recommendations is beyond me. The typical ad shows happy, smiling, active people - thanks to our drug and tells the gullible customer to tell their doctor to give it to them or you will get a new doctor.
Perhaps more importantly, Pharma's cost of advertising is greater than its cost of research and development. This scandalous, immoral behavior should be stopped.
16
The United States is one of only two countries where television advertising of drugs is legal. The other is New Zealand. Sometimes it seems as if every other commercial is for a drug, and many of these drugs seem to duplicate other drugs being advertised, often in back-to-back commercials. Plaque psoriasis drugs seem to be enjoying some vogue. Anyone remember Restless Leg Syndrome?
1
It's not just drug price or health care. Trump admin is destroying American society from its very root and education sector is one of its main targets. Trump type politicians heavily rely on brain-dead, poorly educated voters who are obsessed with fanatic Christianity, crony capitalism, love for gun and such very regressive issues that can eventually destroy any society.
Corruption and consequential deterioration of quality in many, if not most, American colleges and universities steadily increased since Reagan era of early 1980s. It also correlates with growing influence of religion (Christianity) in public education, including higher education.
Ultimately it's affecting America's ability to develop its own talent pool and create wealth, which is affecting not just science and technology but almost every aspect of American society, including public policy. Import of many mediocre people from abroad for even mundane routine jobs is one of its consequences.
Trump Administration is making the situation worse reversing few positive steps that Obama admin took to reform it. Now Trump admin is basically converting US higher education into something similar to combining Islamic Madrasa education (replace Islam to fanatic Christianity) and an high profit generating corrupt institution in the name of education, as we see in many 3rd world countries like India these days.
https://goo.gl/gWHp29
7
Drugs are one thing. Drug advertising is another. That is the real evil. Americans are advertising illiterate. I would love to see the drug purchases in relation to advertising and health. Once the government opened the doors to advertising (just like alcohol), Americans began believing in the acceptable nature of these drugs. If it's on TV, it must be ok because TV is regulated....right? But there is no way these should be regulated. We need to educated the public that 90% of these drugs are simply not necessary.
7
Advertising of prescription-only drugs to the general public used to be prohibited by law, because it was considered unethical. Ethics went out the window with the rise of the right-wing Republicans in the 1980's, and we now see the results.
Why not allow imports of drug generics from Europe and Canada? They have their pharma standards and work there. The local pharma companies make a profit. Generic drugs are off patent. Why not save money by allowing production approval there for generics be valid here? Why the FDA is so flaky puritan shady and inscrutable?
10
Not inscrutable at all--just one word covers it: profit.
4
First, you need to define all the terms in the diagram--what is consumer surplus? Then plug some numbers in to demonstrate how this works--some examples including a recent one. Then some special cases in pricing such as a rise in the prices of generics, or pricing more than the market will bare for old drugs with small markets.
Then show us the graphs factoring in advertising expense and payment to doctors for new drugs sold in America. Medicare doesn't pay for hospital advertising. Why should insurance companies or government subsidies pay for advertising drugs beyond free samples and informing doctors, the latter being descriptive materials referencing the research and clinical trials. The answer, the obvious answer, is that the drug companies bribe the legislators, who could easily do something about this, 'this' being that all these drugs are double priced in the U.S.
The payment to Cohen was a direct payment to Trump; Cohen was on retainer as his attorney. It wasn't for "consulting", and since that Novartis and the guy acting for Putin are foreign, they should have both been registered as foreign agents for taking the money. The way it was done, they all assumed it would be kept secret to avoid prosecution under the law. The intent was to bribe. The TV people are in on this.
Double priced. People who go without die.
10
Yes. Exactly my thoughts and thank you for your incisive comments. Personally I am a fan of Professor Krugman, but as he admitted it sounded like had a long day.
4
Dear NY Times Editorial Board,
Wouldn't it be wonderful if even a little more of your paper had this level of intellectual content? I'd like to see David Brooks ever write a column as based on fact and logic as this. Please, more Krugman-type content, less David Brooks disingenuous fact-freestyle.
Love
A long-time reader in an age of shallow thinking
39
" Drugs are poisons, but when used judiciously, they may help us to help patients."
These were the introductory words spoken by my Professor of Clinical Pharmacology, at Medical School, himself an eminent physician. He elaborated, explaining that in the course of our careers, we would be approached by numerous drug company salesmen making extravagant claims as they peddled their products.
As long as we never forgot his opening statement, we would and should approach each claim with a healthy dose of skepticism - of which we could never take an overdose.
Krugman is right in light of this. Trump's reversal is, as usual about business and money, but if he truly wanted to make America great again, then the bargaining he won't allow would also be a step in that direction. For it would force Big Pharma to make a proper, fully-substantiated case to justify their products on both scientific and utilitarian grounds - that they are clearly better than what is on offer and likely to result in the maximum benefit. It would not be just about business , but efficacy, which is surely what healthcare should be about.
But how likely is that when you consider that the EPA secretary cares about everything but the protection of the environment.
9
from a retired medical attorney:
"maximum benefit" is the key phrase here. Krugman argues that "society" would benefit greatly from drug price controls in the U.S. - as there are in other countries (most with universal coverage systems and many fewer layers of PBMs and insurers and and and). Long-standing givens have shown that usual "economic" analysis doesn't work in "health economics." Why? Because the interests+goals of individual patients rarely match those of society.
Until Krugman extends his thinking to fundamentals of "health economics" even his "wonkish" words are too simplistic.
1
I respect this column was written in some haste; however:
First, the issue of what the demand for medications is very complicated and needs to take into account a number of factors that make a discussion hard to squeeze in to a short space. Does the medication treat symptoms, prevent disability or extend survival? Is it used for weeks, months or years? Are there other medications, not necessarily "me too" drugs that are part of the "treatment universe?" (Four medications were approved for treatment of the cancer myeloma last year. They are not "me too" drugs, but commit physicians to making choices.) Each new medication has a different story; all have risks of undergoing development and seeing limited use, also for a lot of reasons.
But for drugs that are essential (if you don't take them, the consequences are dire), the monopolies are devastating and effectively amount to ransoming of the medications. The tragedy is that these costs affect the cost of insurance, requiring higher taxes for government insurance and higher premiums for all other types of insurance. This hurts employers that pay for insurance, raising the cost of goods, and hurts all Americans, but disproportionately poorer ones, by directing their meager paychecks to support drug company profits through higher insurance premiums.
The higher premiums are a de facto tax, except the money goes to pharmaceutical company investors instead of the government, which is bad for Americans.
6
I don’t understand granting, by law, a monopoly on an item that can be a necessity without concurrently ensuring by law that either regulation or effective bargaining over price will operate to keep the price within reason.
The fact that we do that with pharmaceuticals indicates to me that there’s also insufficient competition in our politics.
Regulating or bargaining about the price of a useful but expensive-to-develop drug may be more complicated than regulating the price charged by utilities or common carriers with monopoly power, but I can’t see a reason why it can’t be done.
A little over a hundred years ago both parties became interested in regulating monopolies and fair trade. I don’t see where American history during the century after the Civil War shows the virtues of unregulated capitalism or the evils of ensuring trade is fair and monopoly power is regulated.
Didn’t Teddy Roosevelt break the ice on this back then? Is the old Bourbon influence in the Democratic Party (or the power of modern campaign finance) really so strong that we have to wait for the Rs to break the ice on this? Be useful, Democrats or Republicans.
4
The drug industry is supported massively by publicly funded scientific research which they benefit from at pennies on the dollar. Drug companies do indeed spend a lot of money on clinical trials and clearly financial incentives are essential for them to take these financial risks. However the prices charged for drugs are linked totally shareholder benefit and thus to whatever the uncontrolled market will bear. The collusion between the insurance industry and drug companies is also a great source of exaggerated consumer expense.
We need to find a way to control drug costs so that innovative, life-saving, and quality-of-life improving drugs will continue to be developed. The best models can be fund in Europe where a system called "reference pricing" is used to maintain incentives and protect consumers.
https://www.nytimes.com/2015/10/20/upshot/to-reduce-the-cost-of-drugs-lo...
In the US where big pharma lobbyists work hard to avoid regulated prices, we can continue to expect to pay the most for the least. Trump is now engaged in "promises to industry" for cash. There will be no improvements in consumer drug costs until Trump and his Republican pals are forced from office.
7
Our healthcare costs 30-40% more than Europe with comparable results, so discussing a way to cut costs is the type of debate we should be having.
A point often lost on conservatives is that consumers are better off when government regulates monopoly and oligopoly industries, pushing them towards perfect competition. This expands output (and jobs) while lowering prices. Yes, rich stockholders don't like it but it's the 99% that matters here.
The Economist ("A lack of competition explains the flaws in American aviation") explained this well for American aviation, which is concentrated among a few big carriers. We face higher prices and worse service than Europe as a consequence.
9
There is no direct-to-consumer advertising almost everywhere in the world (exceptions are USA and New Zealand) - which is pointed at by many here as a wasteful spend by the Pharma - but arguably it is not needed elsewhere. The flip side of the coin where the government negotiates drug prices is that there is no other "controller" that prevents the patient's access to the medication - that is it is no more trouble for the doctor to prescribe a novel medication than an old generic, both will be filled by the pharmacy and paid for by the payer (government or regulated insurance). Here in the States the doctor frequently has to fight with the insurance company to get a new (and more expensive for them) medication to be approved for the patient, spending frequently hours of his/her time on the phone. Unfortunately, most doctors don't have this time - so by having the patients pester the doctors about the medicine Pharma essentially signs them up to serve as proxies in a fight against the insurers and PBMs. It had been shown in multiple cases that when the pharmco for ethical reasons refuses to advertise for a new drug, its use is much, much lower than in most European countries - doctors just can't be bothered...
6
The absurdity (and high cost) of having doctors negotiate with insurance reps to get drugs approved came clear to me a bit over a decade ago when I had a rare lung condition that was being treated with an orphan drug that cost the insurance company something upwards of $5,000 per month. My doctor decided my condition was improving and could be treated more effectively and at a lower cost with a high dose of Viagra (apparently it increases blood flow to the lungs as well as other organs). He called my insurance company and proceeded to argue for nearly half an hour with the insurance company rep why I should be allowed to have an unusually high dose of Viagra, explaining the cost savings as well as the medical benefits. The rep wouldn't budge. Finally, in exasperation he said "I'm the such and such professor of such and such at Harvard Medical School and Chief of such and such at Massachusetts General Hospital. Where did you get your M.D.?" The prescription was the approved immediately.
3
What I don’t get is why I see so many TV commercials for prescription drugs, considering that I can’t go out and buy them myself. There’s something wrong when poison is marketed like candy. Big pharma has become nothing more than repackaged tobacco companies, only wearing now a white lab coat and stethoscope instead. Cigarettes we were once told were good for us too. Being made to feel I owe life to drugs is no help either. Three years later and after two years of chemotherapy for blood cancer I still have it but have completely changed the way I live in order to accommodate it. I’m sure Big Pharma would like me to believe as well that too is thanks to them.
3
I worked in research at a US pharmaceutical firm in the 1970's. I was surprised to learn how much research was of the 'me too' variety. Much effort was undertaken to find a way to replicate a competitor's successful drug while avoiding their patent protection. Additionally, considerable effort was made to make our own patent submissions as broad as possible even if there was no intention to follow through on all the protected variants. Yet, despite this seeming inefficiency it did not seem as though innovation was coming from socialist countries with little emphasis on protection of intellectual property or prophet incentives. That is not to say that we shouldn't look at the way our capitalist system directs incentives. Many pharmaceutical companies today restrict their R&D efforts to 'block buster' drugs that would be taken by large numbers of people over a long period of time. Perhaps extending the period of patent protection would create more incentive to develop less profitable meds.
3
In short, please watch the documentary film
Big Pharma - Market Failure available on YouTube.
4
The USA is the last holdout with market-priced medical care not only because of any inherent conservative or free market ideology. Rather, as the wealthiest nation that ever existed we are the last ones who can afford it. Switzerland was one of the last advanced economies to abandon market-priced medical care. It is arguably a greater bastion of conservatism than the USA. Switzerland's women were not granted the right to vote until 1971.
During the debate as to whether Switzerland would abandon market-priced medical care there was considerable concern about how it would affect the major Swiss pharmaceutical giants. However, it was then realized that the Swiss pharmaceutical giants made much of their profits in the American market.
The reason that no nation, including the wealthiest can allow markets to set the prices of medical care indefinitely is that demand for medical care is inelastic. Demand for a good or service is inelastic if a percentage increase in price results in a smaller percentage decrease in the quantity demanded.
Basic economics tells us that sellers facing inelastic demand will continuously raise prices until prices reach the elastic portion of the demand curve. Consequently in every developed country in the world, all goods or services with inelastic demand have their prices regulated by government. Medical care in the USA being the only exception.
Health care is one of the very few things for which the sell. .."
http://seekingalpha.com/article/1647632
11
A vial of epinephrine costs $15. A syringe costs $1. But an Epipen costs $3000. Go figure.
10
Really! A Epipen costs NZD$124 (USD$86) here in New Zealand. But then, we have a government agency called Pharmac who negotiate drug prices with the drug companies on behalf of the NZ people.
It's not rocket science, people.
9
Trump ripped high drug prices and it only took a 30 minute meeting in January 2018 and he backed off.....money is more important.......
The FEDS cover a ton of drug research already, big pharmacy is only worried about profits....period.
Thank you Republicans
7
End direct to consumer drug advertising.
8
I'm sure the president* did the same economic analysis before announcing his great drug corporation welfare program. LOL
5
Really? you need my voice?
1
Obama also promised to force bargaining on big pharma, but within a year he made a deal with them to support ACA, and in his second term, he put patent extensions for pharmaceuticals in his TPP.
Both parties are in the back pocket of big pharma. Nobel Prize winning economists surely know that to be true.
4
right on the big pharma. i think the extension was because it takes longer to get approval. A change in the law might be 1. 15 years patent rights from time of approval and closing any loopholes at the end of this. 2. Buying the patents of drugs with great medical cure potential, at a fair price and limited to two/year, plus giving the original holder of the patent a 5% royalty fee on the wholesale price for 15 years.
Mr. Watters - My impression (and I'm sharing it for discussion, not out of overconfidence) is that the ACA represented not so much a devil's deal with big pharma as an acquiescence to the impossibility of taking big insurance out of the health care equation in the short or medium term. In fact, the ACA has provisions to ensure lower drug costs: https://www.usnews.com/news/articles/2011/01/03/new-healthcare-reform-pr... (not a perfect reference but the point is covered).
3
Correction : In line 14 of my posting ... in other developed not other developing.Blame hasty posting.TMD.
Our government should look at drug pricing as a national security issue. If an epidemic of some debilitating disease was running rampant through the ranks of our military forces, our military would be weakened and unable to defend us from attack. The government would either pay any inflated price to get the drugs to treat the epidemic, or it would order pharmaceutical companies to provide those drugs at a price the government sets. It would not leave it up to each soldier, technician and general to pay the retail price out of their own pockets, shop around for cheaper alternative drugs or better "deals," or go without. Sick soldiers can't fight. The productivity of our civilian workforce is just as critical to our national security as our military because our economic strength underpins our world superpower status. In short, the role of our government should be to make the most effective proprietary drugs and all the life-saving drugs affordable to all citizens -- one price for all, no profit-taking by middlemen. Let President Trump pay whatever the market demands for his hair-growing drugs.
4
No other country allows drug companies to overcharge its populace except the U.S. which means that we Americans are paying for the financial losses that big pharma experiences over the rest of the world. The Bush administration started this when it sold out to the drug companies' demands and stopped Medicare from negotiating drug prices, and now Trump is continuing that. I wonder if I will live to see a U.S. government strong enough to nationalize our healthcare system and stop ripoff healthcare providers from price gouging our population...probably not.
3
Medical prices are controlled in various ways in the rest of the developed world. An MRI that costs $1,200 in the USA costs $88 in Japan. Japanese insurance companies are private as are most doctors. Japan spends less than a third per capita on medical care than America. However, the Japanese are greater consumers of medical care than Americans. They visit doctors and hospitals more often, have much more diagnostic tests such as MRIs. They also have better health outcomes as measured by all metrics such as life expectancy. They also wait less for treatment than Americans do as Japanese doctors work much longer hours for their much lower incomes.
Japan's explicit price controls are roughly emulated in other countries via the use monopsonistic systems. Monopsony, meaning "single buyer" is the flip side of monopoly. A monopolist sets prices above free market equilibrium. A monopsonist sets prices below free market equilibrium. It does not matter if there is an actual single payer or many buyers (or payers) whose prices are set by the government or by insurance companies in collusion with each other. More competition among sellers generally leads to lower prices. However, more competition among buyers leads to higher prices. In the health insurance industry the beneficial effects of more insurance companies competing for patients are far outweighed by the adverse effects of insurance companies competing for doctors and hospitals in t..."
http://seekingalpha.com/article/1647632
3
I try to lead a very disciplined life but occasionally I find myself accepting to b under some Med Regimen.But, illness doesn't come by appointment and after you set aside a budget 4 it and even in a developing countries it causes a budgetary havoc on the person.The Meds that carry the same name in US r not necessarily the exact 1s as the 1s we use.A friend is Diabetic and when she run out of what friends and family send from US and Germany and use those produced in 3rd World she experiences a burning feeling in the head.The Pharma Labs in US,Germany etc they r of state of the art,Meds' effectiveness and possible side effects r rigorously checked via a Mathematical Scientific method ( like Test of Significance from Probability )In short, folks in US and other developing countries pay higher mainly for higher quality service.Besides,rents,Labor and other costs r higher there and cheaper in countries like here.Ebola resurfaced in DRC and yes The WHO,Medicine Sans Frontier have swiftly responded and r struggling to contain it.A disease in remote part of the World could any time pop up any where.So,Research investment for vaccines, whose immediate Eco return is not obvious, have to be made and this partly justifies a high Med price in the Wealthy Nations.Had the the imaginary Numbers were not already invented by Eueler in the 1700s the invention of Electricity in late 19th Cent would have been delayed.Clint Found negotiated low AIDS price 4 poor Nations and DT +MC?.TMD.
"A friend is Diabetic and when she run out of what friends and family send from US and Germany and use those produced in 3rd World she experiences a burning feeling in the head."
Please provide enough specificity for a knowledgeable person to evaluate your quoted statement. Organic synthesis is an expensive undertaking. 20 years or so ago there were multiple brands of aspirin, and only three actual manufacturers.
In addition, please spell out "4 poor Nations and DT +MC?.TMD." It is unreadable for me.
1
Interesting. One question: what is "consumer surplus"?
2
Drugs, promoted by the pharmaceutical industry, kill a lot of people. How about a war on drugs that the pharmaceutical industry produces?
2
Let's see more companies, foreign & domestic, introducing "me too" drugs, complete with fats & fillers, to deny infringement accusations from the monopolists. With all the variables influencing drug cost including distribution, wholesaling & bump up from the pharmacist, let's see more generics & if we can someday go to bulk purchasing of those same generics with governmental intervention as in Sweden & Denmark, who offer the lowest costs to the consumer in Europe, so much the better. Then a rotating purchase plan can be made to deny monopoly or business failure within the generic community.
Trump, of course, thinks that more suffering worldwide will make ripped American consumers feel better. Weird & perverse.
3
* "Bargaining"
Don't be fooled. When Krugman says "bargaining," he means "price controls". There's not much room for bargaining with a monopsonist. And no adult seriously believes that a monopsonistic government is going to get the price right.
* The "me too" drug fallacy.
"Me too" drugs introduce competition that puts price pressure on the existing drugs (so long as we let the market work). What's the problem with that?
* "The value to the patient..."
This is only real question. Show me the cost-benefit estimate where patients are paying more for drugs than they gaining.
* "Maybe there should be more drug development from the point of view of global welfare".
This is Krugman v. Krugman. The world needs more drug development, but Krugman proposes price controls, which will reduce drug development. Which is it, Paul?
* The US pays for a larger share of the costs of drug development than the rest of the world.
True, but it's pure chutzpah for Krugman to raise this point. He is the problem. Krugman opposes trade agreements that would require other rich countries to pay a fair share of those costs instead of free riding on US consumers!
2
What's wrong with price controls, as long as the price negotiated lets the drug company recoup its investment and make a profit? That's what every other Western country does. You also seem to assume that if Trump succeeded in forcing other countries to pay more for drugs, the drug companies would pass those savings on to U.S. consumers. I doubt it. I think they'd pass them on to shareholders.
1
Didn't Novartis pay Cohen $1.2 million for "access" to Donald? And didn't Donald soft-pedal his campaign promise to negotiate drug prices?
Seems to me, that money paid off very well.
6
The only true answer to all this health care stuff is pre-paid national health insurance. For proof, just ask anyone who lives in any other civilized Western country.
4
Is anyone surprised that President Trump is on the side of business, not the consumer?
Another lie by Trump. He said he would do something to help lower drug prices. He did not.
Does Trump ever not lie?
4
https://www.google.com/search?q=drug+lawsuits&sa=X&ved=0ahUKEwic...
What is good for Pharma is good for Pharma shareholders and employees. What is good for Phama users are accessible affordable Pharma cures and treatments. Because their interests are inherently in conflict, capitalism always triumphs.
1) Share of the overall health spending going to drugs in the U.S. (anywhere from 12 to 17%, depending on who does the counting and on the methodology) is in the same range as for the rest of developed economies, and is not growing significantly - so by targeting it for e.g. 10% relative drop we are doing very little to control the overall health costs. For that matter, improving the way paperwork is done to reduce the number of the doctors' and hospital office personnel from something like 2 per MD to a more reasonable number will do more. Controlling doctors' and nurses pay (here it is the highest in the world relative to the average salary in the country) will do much more.
2) Most drugs these days start like this: 15 years ago, venture capitalists invested $10 million in a start-up with an idea that may yield a viable pre-clinical drug candidate(s) (chance of success: generously, 1 in 10). 12 years ago, another venture capitalist invested $50 mln to get the candidate molecule into the clinical trials (chance of success: generously, 1 in 10). 10 years ago the company went public mid-way through the clinicals and got another $300 mln. 7 years ago a Big Pharma company bought the small biotech for $2 billion with clinicals still incomplete (chance of success 1 in 2). Finally, 5 years ago the FDA cleared the drug and it's now marketed (chance for ever making the R&D spend back 1 in 3, and being a blockbuster 1 in 20). Why do this at all when you can invest in cryptocurrency?
2
"Share of the overall health spending going to drugs in the U.S. (anywhere from 12 to 17%, depending on who does the counting and on the methodology) is in the same range as for the rest of developed economies..."
Totally false. US and Switzerland are off the charts - the rest of the world is far below. I suspect you wrote your post from a big pharma boiler room.
http://www.commonwealthfund.org/publications/issue-briefs/2017/oct/presc...
https://www.statista.com/statistics/266141/pharmaceutical-spending-per-c...
4
Ed,
You didn't understand what I'd meant to say. U.S. has an anomalously high overall health spending per capita, and as a share of GDP. Proportionately to this number our drug spending is in line with other countries - so concentrating on drug prices will not make a meaningful difference in overall healthcare expenditure.
Cobbler, no, you're not understanding. As per the provided commonwealth fund report link above, our drug utilization (usage) is inline with nine other countries, our drug pricing/cost and hence spend as a percentage of healthcare spend per capita is a complete outlier.
Instead of this unworkable solution, why not just copy the system that allows many countries such as France, Canada, Spain, England and others to provide drugs at a lower cost and a Medical system that gets better results, by any metric than in the US at a far lower cost. Blame Big Pharma might be the mantra, but the fault dear Brutus, lies with us. We simply refuse to restrict our health care benefits because most patients are shielded from the cost, maybe with a small deductible. Couple that with compliant, incentivized MDs. and the costs sky rocket. Here are some of the things we could do if there was the will: a restricted formulary, more OTC, more generics, a rigorous look at the cost-benefit of new drugs and elimination of older ones that are much less effective. Certainly, the NHS should have the power to bargain with Pharma to lower costs. The hammer being to remove a certain drug from the formulary and/or to increase the deductible. When a certain drug is the only drug for a particular condition, the NHS should set the price. Of course, to do this, we first need an NHS
3
Trump doesn’t get it or perhaps he does, which is why Novartis made U.S $1.2 million in payments to his personal lawyer Mr Cohen’s firm during the time that the FDA was deciding whether to grant approval to Novartis for its cancer drug, Kymriah. Drugmakers generally charge as much as the market will bear. In the U.S the Government doesn't regulate medicine prices, unlike most other countries. It is not the case that the US is subsidising the rest of the world’s access to cheaper medicines, rather drug makers ramp up prices in the U.S to as much as the can get away with.
3
Thanks for the personal note. Exhaustion, frustration and loneliness helps to properly put into context most Op Eds I read in the Times. My apologies, I before just thought much of the negativity was willful.
One of the biggest scams of Pharma is in the Oncology field. New drugs are studied and are shown to increase survival of cancer patients by 5 weeks. The cost of treatment with the new drug is hundreds of thousands of dollars. We should tell the company "Check back when your price is below $5000" , we might be willing to pay for it then.
4
Just like large health insurance corporations, BigPharma has the inherent tendency to invent new needs, disregard all boundaries and turn everything into an object for sale and big profit. To fix this problem, we might nationalize the pharmaceutical industry and mandate that drug companies be converted to non-profit public service corporations that serve the public interest rather than being used by a very small number of 1%'ers & oligarchs for unlimited profit.
Another option is to establish a single-payer system of health insurance that allows a single purchaser — the government — to directly haggle with drug manufacturers over drug prices. This would bring U.S. drug prices in line with those of other high-income countries, which pay substantially less than we do for medications.
Additionally, we need comprehensive reform in the way we produce new drugs — inclusive of a public path for drug development and clinical trials that would produce new medications that remain forever in the public domain-- drugs that would function as real social goods, not profit-producing commodities.
4
1. Health care is the same as national defense. The enemy we fight is disease and injury and is a far more dangerous enemy than foreign nations. We happily pay for military defense, why not medical defense? 2. Doesn't the government fund most pharmaceutical research? Why shouldn't the government bargain for lower prices on the fruits of its funding?
5
Another good Trump idea and broken Trump promise was to allow US citizens to import drugs from reputable pharmacies abroad. Currently that is allowed for a few special cases for drugs that have been around for decades and proven to be safe but have not yet been approved by the FDA. Once the FDA approves sale in the US, however, the pharmacies abroad are no longer permitted to sell to individuals, even with a prescription. In a recent case, an essential drug costing approximately $2/pill when imported from abroad now costs more than $100/pill from the sole approved US supplier! These pills must be taken daily. At least one insurance company is balking at covering this because there are possible substitutes. The substitutes, however, are thought to have more severe side effects. Other insurance companies may be going along because the condition treated by this drug is relatively rare and many of the patients are children, and no company wants to be seen as denying cute kids the drugs they need. The idea that the problem of the cost of drugs in the US will be solved by getting other countries to increase their price so that US companies can drop theirs is laughable!
7
It seems that too many Americans loathe Socialism even more than they do the prospect of becoming gravely ill and dying prematurely. I'm not one of them. The "health care industry" (including the "pharmaceutical industry") should be regarded as an oxymoron. Without good health none of the rest matters, and no one should be permitted to profit obscenely off the poor health of their neighbors (let alone their own family members). Our nation is "exceptional" only inasmuch as it stands alone among all nations in the industrialized world in not offering universal health care under the administration of its government. That clearly needs to end. (And, by the way, free tuition should be offered at all medical teaching facilities for all qualifying students.)
11
In a Utopian world, here's how I'd handle drugs. 1) Pharmaceutical manufactures would do just that, they would make the drugs under contract which would allow for many to make the drug and thus compete on manufacturing cost price to wholesalers/retailers, etc. 2) Development would be by universities, development organizations, the government, etc. These would not be associated with the manufacturers other than they would license the right to manufacture. 3) Drug approval trials would be done by the government and overseen by groups of medical industry.
Costs of the approval would be a governmental cost only partly repaid through license fees. Costs of development would likely be paid by general taxation and only partly repaid through license fees.
The intent is to better align development with real need and minimize "same as" drug development. Allow manufacturers to compete on manufacturing expense and expertise. Development is a societal need and the costs can be better managed centrally instead of as we have it now. And in fact a great part of development is currently funded by the government.
3
The prices for these drugs are just the tip of the iceberg. For the most part the need for them could be avoided to begin with, that is if there was an education system in place that would teach us a more healthy lifestyle from the start, so where is it? The overall health of the nation would even return to what it should be, and allow a universal health care to be implemented for its people. Heaven forbid any of that from ever happening though, there's just too much money involved with things remaining as they are. Nothing personal you see, just another dose of administered economics, a plan that in the end we have been projected to make our contribution to.
2
Paul Krugman, I love you!
Not only do you address issues as I would do, but you have a way of educating me on economics.
Thank you for presenting the case against monopoly and for appropriate pressure on Big Pharma to lower drug prices.
It is clear that it is the consumer who suffers in order for the marketer to maintain exorbitant profits. Insurers seem to get their share as well, without some regulation.
Now if you could take on the clear effects of lobbyists on congressional action, which is seldom, if ever, helpful to consumers.
6
Although as a consumer I would certainly celebrate lower drug costs, as a pharmaceutical share owner, I find your presentation lacking. The cost of developing new drugs is tremendous, and the risks are significant. Your analysis considers only the lifecycle of a single drug, however for each successful new drug from research to market, there are a significant number of other drugs that do not make it past the research stage. The cost of that research with unrealized development must be offset by the 'blockbuster' successes that make significant changes to lives. Also, how about the mega-million dollar legal actions taken against drug manufacturers when something down the road goes wrong with a drug which has seemingly been on the market successfully? Again, the significant cost of R&D along with the litigious potential risks are the cost of doing business, and that business must be funded through retail sales. The straight line cost of one drug through the pipeline is not an accurate nor fair analysis of drug costs.
5
You make some good points, but drug companies spend more on advertising and lobbying than R&D. They can cut their prices without affecting R&D.
1
All 210 new drugs drug developed since 2010 have been paid for by taxpayer monies. The universities develop them and the drug companies swoop in and gather the monopoly rights for the new drugs. So don't give me the R&D cost argument.
15
While the absence of fact-checking for the reader feedback allows to make any kind of fake claims (assuming they are not personally offensive), this one is in the lead for its fakeness; sad to see many recommending it. NIH sponsors basic research that helps understand the biology of disease and is hugely important; nevertheless, there was not a single drug candidate in the period you are citing that had actually been first produced in the university lab - the aim of science is to expand knowledge.
4
The taxpayers paid for the basic research. The drug companies got to use the basic research for free. What's wrong with this picture?
This is just more corporate welfare; socializing the costs and privatizing the profits, brought to you by right-wing Republicans and their one-percenter donors.
* "Bargaining" Translation: When Krugman says "bargaining," he means "price controls". There's not much room for bargaining with a monopsonist. And no one seriously believes that a monopsonistic government is going to get the price right.
* The "me too" drug fallacy. "Me too" drugs introduce competition that puts price pressure on the existing drugs (so long as we let the market work). What's the problem with that?
* "The value to the patient..." This is only real question. Show me the cost-benefit estimate where patients are paying more for drugs than they gaining.
* "Maybe there should be more drug development from the point of view of global welfare". Translation: The world needs more drug development, but Krugman proposes price controls, which will result in LESS drug development.
* The US pays for a larger share of the costs of drug development than the rest of the world. True, but it's pure chutzpah for Krugman to raise this point. He is part of the problem. He has consistently opposed provisions in trade agreements that would require other rich countries to pay a fair share of those costs instead of free riding on US consumers!
7
The value to the patient...
When the price is exorbitant, and the patient needs the drug, the situation becomes "Your money or your life." The patient drains his savings, sells the house, finally runs out of money, and dies. That's the case with that company that acquired a small drug company that had one drug that was needed by only a few patients, but needed by them absolutely. It was out of patent, but because the market was small, no company went to the trouble of getting approval for a generic. The new owner raised the price about 700% overnight: Your money and then your life.
6
Thomas:
It is a sign of the times. You flaunt your humanitarianism in the same breath that you would condemn millions to unnecessary deaths.
Developing drugs is a very chancy business (look at how the industry is retrenching). If we don't pay for the drugs we won't have them. What is the point in your patient having his savings and his house if he's not around to enjoy them?
No matter how we finance people's access to drugs, it is an inexorable fact that we will have to pay for what we get. It does no one any good to fantasize about how nice it would be to get something for nothing.
Thomas: due mostly to the way the drug regulatory system operates, it costs - besides the actual manufacturing outlay - at least a couple of million $$ a year to produce a generic drug in the U.S. If this cost is spread over tens of millions of pill of generic antibiotic or blood pressure medication, extra 2 cents per pill don't matter. If there are 100 people in the country that need the drug the full cost per person is outrageous. While Martin Shkreli is a miserable person, he only tried to achieve the same profit margin on low-use generics as is common for the high-use products. Other countries have much lower prices for these low-volume products because the extent of regulation their drug agencies put is frequently negligible (the whole supply chain of Indian generic companies blows up every time U.S. FDA does a real audit there...).
A reader discussion in the Financial Times recently pointed out that the price for Zovirax, an antiviral medication, is about 100 times as high in the U.S. as in Europe. However, that drug was actually invented by Wellcome Trust, a British company. So much for the idea that America's excess prices are driven by innovation. This is a market where competition just doesn't work very well.
36
Do pharma companies make too much money? Merck has a return on assets of 5.6%, and return on equity of 6.5%. For Bristol-Myers, 9.9 and 6.9. In contrast, Facebook returns 16.9 and 23.9, and Google returns 9.6 and 10.9.
The price of a drug versus marginal cost leaves a breathtaking profit margin. But the marginal cost is not the main or relevant cost. What matters is the cost of research and development, and also, the cost of research and development for all the drugs that failed, and bring in no revenue. Arguments based on marginal cost miss the essence of pharmaceutical company economics.
A safe, effective new drug for a deadly disease can have a shocking profit margin vs marginal cost. To scientists, investors, and small and large pharma companies, this is a pot of gold. It is a pot of gold worth chasing, so scientists, investors, and companies are buzzing with ideas and research for new drugs. The vast majority will fail; a few will be golden. If the return on these few were to be reduced to something comparable to what an investor might have made on a bond, the result on the pace of research and development is predictable.
The current system—patents, trials, approval, pricing, payment—contains many unfair, unkind, inefficient and market distorting problems. But over time these have offset, so that the final, Frankenstein’s monster system is overall, not a disaster. Changes that fix one problem might not improve the system as a whole.
7
Merck's biggest expense isn't R&D--it's advertising and lobbying. Sorry, but I think the pharmaceutical industry is trying to scare us with the threat of reducing research on new drugs. Without research they go out of business. They're not going to do that, and they're not going to stop racing their competitors for better drugs.
1
I am curious if this analysis accounted for the fact that the population appropriate for the drug is limited and possibly already saturated, ie, most patients who should take a given drug already do. How would this impact the analysis? More patients won’t take a cheaper drug if they don’t need the drug.
3
Sometimes, people who need the drug don't take it because they can't afford it.......We hear that a lot
3
My daughter is in family practice. She encounters patients all the time who don't take their medicines because they can't afford them. The market isn't saturated.
1
I'd like to see an article on where drug research is actually done. The National Institutes of Health does a lot of research, for example, as do departments at universities. Doctors also do research at hospitals. How much research does Big Pharma actually do? And how much of their research capitalizes on discoveries at NIH, universities or hospitals? Does Big Pharma really deserve the huge profits?
14
And, how much of the initial R and D is funded by NIH vs. corporate funding even when it is carried out in a company setting?
2
I am a researcher funded by the NIH, and a couple of things I have worked on have later been picked up by Pharma companies. So, to answer your questions:
1. Big Pharma does a tremendous amount of research. In dollar terms, it is far, far more than the dollars spent by the National Institutes of Health.
2. The NIH-funded research at Universities is different from the research at Pharma companies. Research at Universities is very general, and gives an idea, for instance, how a disease might work, or what genes might be involved. Research at Pharma companies is very specifically and narrowly targeted at making drugs. Almost none of this kind of research is done at Universities.
3. Quite a lot--probably a large majority--of Pharma research does capitalize on basic research originally funded by the NIH. But for every dollar the NIH spent on the basic research, probably the Pharma companies spend 10 or 100 dollars turning that basic research into a drug.
1
It would also be worth while to study the economics of research choices to search for new drugs. The ideal drug from a profitability point of view is one that alleviates symptoms from a chronic disease. Curing a disease is a failure, unless sufficient numbers of new cases are infected during the quarter to offset the loss of cured patients.
I would like to see some analysis of the economic window for new drug development.
3
Dr. Krugman did not mention why, the Democrats, who voted for the ACA without a single Republican vote did not put drug negotiations in the ACA bill.
The answer is probably that Democrats were accepting funding from Pharma lobbyists.
Moreover, developed nations with universal care such as Canada, The UK, and France, not only have negotiated drug prices that are lower than ours, they also have tobacco taxes of at least $5 per pack while our Federal tax is only about $1. The Democrats undoubtedly were bending to the will of the tobacco lobby.
Moreover, the Democrats, while ensuring that those youths with parents who had health insurance would be covered until age 26, did nothing for youths whose parents were not covered by health insurance except ensure that the young at any age would have to pay higher insurance premiums than before the ACA.
The Democrats (again without a single Republican vote) wanted youth, who already a suffering from higher housing costs, from higher education costs even at public universities and are taking out ever increasing education loans, now must subsidize the lifestyle habits of smoking, overeating/bad diets with the ensuing higher healthcare costs. Before the ACA youth paid 1/5 of rates of the elderly, reflecting their lower use of healthcare. After, it amount was 1/3.
High drug prices, low tobacco taxes, youth subsidy of elderly smoking and overeating/poor diet. All votes of the Democrats, not the Republicans.
8
It sounds like you'd prefer that the ACA be abolished under the theory that it's bad for young people. Everyone gets sick, some sooner, some later. Without the assurance that private insurers cannot turn down those with preexisting conditions, those young people would live in a perilous world. Politics is the art of the possible. Without a single Republican vote, Democrats made the reforms that were possible. They did include reforms to drug pricing in the ACA (generic drugs, closing the donut hole, etc.) but they didn't have the votes to reform how drug prices were negotiated.
I wish that the NYT would fix their software so that we could include paragraphs in our comments.
1
Dr. Krugman criticized the Republicans for not doing something that the Democrats had themselves not accomplished.
By refusing to accept lobbying funds from Big Pharma and Tobacco firms both Democrats and Republicans can pass laws for negotiated drug pricing and for raising tobacco taxes the levels for those of Canada, The UK, and France.
Over 50 years ago, in 1965 warnings were put on cigarette packs yet people choose to ignore the warning and incur additional healthcare costs as a result.
People have been overeating and eating unhealthy food so that our rate of obesity has risen dramatically in the 21st century.
Yet, Congress in its wisdom, instead of doing the fair thing and have those that have chosen unhealthy lifestyles pay additional for their healthcare costs caused by those unhealthy lifestyles decided to burden the young who do not smoke and who watch their diet.
We owe it to the next generation *to do what is fair*. Politicians should not be accepting lobbying funds from Big Pharma and Big Tobacco and they should not be burdening the young with additional healthcare costs incurred from lifestyle choices of the elderly.
As a resident of California, you know that California has had laws that made it difficult to build enough housing with the result that young people can no longer afford to live there.
Mr. Krugman, I wish you would look into the situation of kratom, a pulverized leaf from the kratom tree in Southeast Asia. Thousands of people, including myself, are using it as a pain reliever, a help for anxiety disorders, a help for PTSD, and an incredibly effective medication for severe Restless Leg Syndrome.
I'm a 74-year-old woman who has controlled her chronic pain and severe RLS with only kratom for the last five years. But Scott Gottlieb is trying his best to get it declared a Schedule 1 drug, which would make it illegal to use.
Kratom does not suppress breathing, has no significant side effects, and does not make one high. Withdrawal from it is like giving up coffee. But five states have already outlawed it. The FDA publishes papers on it that are, quite simply, untrue.
I know that Mr. Gopttleib has ties to big Pharma. Do you know why he is trying so hard to get this safe, affordable, beneficial herb off the market?
7
Krugman leaves out two important facts.
1. We simply don't know how much the pharmaceuticals spend on research. What evidence we have suggests it's far less than they claim. Much "research" is actually acquisition of small companies with promising drugs.
2. The profit incentive does not align precisely with public health needs. Cures are better than treatments, but have (by definition) a limited revenue stream.
For these reasons, drug prices should be strongly regulated. The public savings should be plowed into publicly funded, publicly directed research, the product of which is not patented, but in the public domain.
13
"But despite this effect, the United States would almost certainly be better off with a moderate level of bargaining/price control than it is under the current hands-off regime."
But the current regime is NOT hands off. First, it grants enormous pricing power to drug companies in the form of patents and other so-called intellectual property. Second, a huge fraction of the cost of drug discovery is paid for by government funded research.
13
Advertising is very expensive and in the US drug companies advertise like they are selling a life style. Happy attractive bourgeoisie people leading happy productive lives. These ads cost lots of money. The mendacity of the ads is equaled only by the creating a market for unnecessary prescriptions. Drug companies are looking for drugs like antacids and erectile dysfunction drugs that get big sales. Anti malarial drugs, anti TB drugs, anti Ebola drugs and the like don't have the market sizzle needed to get corporate attention.
But Trump has taken his trade war message even further, Medicare like price control by Europe is considered unfair to US Drug companies. So instead of lowering prices, as Krugman suggests, Trump sees this as unfair infringement on the free market. Trump states more competition is the only way to bring prices down.
6
Pharma has been a double edged sword. Without Pharma's R&D and global distribution of live saving drugs longevity of our species would never have kept rising. So Pharma has been a giant contributor to Human health for moist part of the past 200 years. My father will be approaching 100 in a few months and I have observed the multiple different medications produced by big pharma for a variety of conditions that has kept him alive. When I talked over the phone to him yesterday he said just 3 words that were heart warming to me. He said "I am alive" and I am thankful that his blood pressure, blood glucose, mineral and vitamin level are normal, thanks to the pharmaceutical companies who made the medication available. The pharma on the other edge of the sword is a "drug cartel" with strong lobbying, false advertising and high pressure sales promotion of drugs with adverse or addicting effects. In addition to regulation of Pharma, as I indicated in my post yesterday we the people need to do our part to reduce the demand for drugs that are needed for preventable diseases with the exception of demand for drugs that are absolutely essential for persons with genetic diseases such as type 1 diabetes and cancers. The main reason why Canada's health care system is considered successful and they are able to lower the drug prices is Canadians take better care of themselves (lesser self inflicted health damage) than we do and are able to negotiate lower drug prices.
3
The conventional monopoly model for use in explaining prices of pharmaceuticals in the U.S, market has a number of problems.
Since most prescriptions are not for cutting edge innovations in new drugs where there are no close substitutes but instead are for common chronic medical conditions that have many possible substitutes. This violates one of the primary characteristics of the monopoly model, no close substitutes. However, unlike the typical market where the consumer can shift demand to the substitute product, in this market their are barriers to the patient making this choice since it requires in most cases the physician not the patient making the product choice.
Another problem with the typical monopoly model used in this context is that there is only a single supplier with many buyers in the market. On, the face of it this seems true but with a limited number of third party payers( partial payers in most cases) in the form private or government insurance organizations, the market is further distorted.
Together will the opaque pricing within the distribution system for drugs, it becomes next to impossible to make sense of prices in these markets.
5
Drugs are not an option. They're a necessity. The cost of production is minimal -- less than the drug companies spend on marketing and kickbacks to drug "benefit" managers. Patents create a monopoly -- to promote research. But drug companies aren't required to spend monopoly profits on research. They can use that money to reward executives and shareholders. Outside the US, drug prices are controlled. But the profits in foreign markets will be huge because monopoly profits from the US market cover all the costs so foreign sales are almost pure profit. The US system could work if drug benefit managers were required to negotiate prices and rebate kickbacks to consumers instead of being incentivized to agree to the highest prices resulting in kickbacks to the managers.
6
Mr. Krugman, I wish you would look into the situation of kratom, a pulverized leaf from the kratom tree in Southeast Asia. Thousands of people, including myself, are using it as a pain reliever, a help for anxiety disorders, a help for PTSD, and an incredibly effective medication for severe Restless Leg Syndrome.
I'm a 74-year-old woman who has controlled her chronic pain and severe RLS with only kratom for the last five years. But Scott Gottlieb is trying his best to get it declared a Schedule 1 drug, which would make it illegal to use.
Kratom does not suppress breathing, has no significant side effects, and does not make one high. Withdrawal from it is like giving up coffee. But five states have already outlawed it. The FDA publishes papers on it that are, quite simply, untrue.
I know that Mr. Gopttleib has ties to big Pharma. Do you know why he is trying so hard to get this safe, affordable, beneficial herb off the market?
3
First of all, excellent article on economics, consumer behavior and drug costs. However, one element is missing-the gaming of the FDA by big pharma. For example, there are too many drugs which are brought to market which may have a statistically significant proof of benefit, but there is no meaningful benefit for the population measure. In other words, the new treatment compared to existing ones is not enough improved to merit the cost. Dr. Norman Hadler has written extensively about this. Secondly, drug companies are constantly able to extend their patents, thus restricting our access to generic drugs at a much lower price. Thirdly, the government has allowed consolidation in the generic drug industry, thus causing the immoral price gouging. All of these things can be changed through effective policy making. If Trump wants to look at cost benefit analysis for EPA regulations, then let's also look at the cost and the population benefits for approved drugs. The FDA should not be an advocate for the drug industry, but a genuine protective shield for public safety. Finally, any suggestion that the American public doesn't pay for price gouging is wrong, the astronomical cost of medical insurance, especially for a family, which is typically not paid by an employer, plus the thousands of dollars of cost-sharing are evidence of this. And the fact we have young people dying because they are $50 shy of their insulin budget is shameful.
3
There will not be more drug development as long as the incentive, big profits, have been replaced by advertising and monopoly power.
Bush's Medicare giveaway years ago, blocked market forces from working to curb pharmaceutical companies march to ever higher profits. Medicare and other big insurers were on the cusp of making "them" compete. Either through purchases made internationally, or using the Walmart, buying power approach.
My husband works in pharma R&D. The amount of $ for it have plummeted. (Along with our standard of living.) Their profits have soared along with monopoly power from well spent political contributions.
Why should big pharma throw their dice in the risky game of drug development when they can advertise, bribe and monopolize?
8
Bottom line: Since consumers have the attitude "insurance or Medicare" is going to pay, it doesn't matter how much it costs. If Medicare doesn't negotiate prices, no one does. Patients don't reject a medication because it costs too much, because they don't physically see the cost.
Oh! in the background, we all do pay the cost in the phenomenal cost of health care, but, in fact, that doesn't weigh in consumer choices because MOST people don't see the connection.
4
You must have very good insurance. Most people take the cost of medication into account. Many people don't take their medications for diabetes and blood pressure because they can't afford them. If you live in a world where patients don't see the cost, you're very lucky indeed, but you're living in a bubble.
One thing that adds substantially to the price of a drug is the marketing spent on it.
The US is one of the few countries that allows direct-to-consumer advertising of prescription drugs. This should simply be outlawed, and a lot of money would be saved right there.
But advertising is only one aspect of the billions and billions spent on getting doctors to prescribe a particular drug. The drug companies consider the huge fines for off-label marketing to be a cost of doing business.
The whole area of drug marketing needs to be regulated much more tightly, and the regulations rigorously enforced both to ensure patients are prescribed drugs that are genuinely helpful, and to bring down costs.
8
I read in the India Times today about the proposal to make poor countries pay more for pharmaceuticals. This is the kind of cold-hearted, mean spirited, pettiness that one has come to expect from this administration. Consider this, India marked a milestone a few weeks ago that is truly worth celebrating. For the first time in its history, electricity (namely electricity generated by solar power) is accessible in every town and village in India. For the first time in its history, India can say electricity is available to every village everywhere. Granted, now they need to build the infrastructure to get electricity from the solar batteries to every household, but point taken.
In a world where a billion plus people celebrate electricity accessibility, the United States has been that champion of progress, innovator in the name of global betterment. Our country has stood out in its commitment to better the lives of billions. Now we have this guy and his cronies and their deceptions with their mean spirited assaults upon not only the most vulnerable of Americans, but the most vulnerable of peoples the world over. This does not make America great again. This makes America the land of the petty, the land of inconsequence. This alone should be grounds for impeachment.
7
In 2016 over 25% of people weren't filling their prescriptions because they couldn't afford them. How many more have not been able to afford them since then?
6
"Oddly, I never got around to doing my homework on the economics of drug-price bargaining – partly because I was realistic enough about the political economy to realize that it wasn’t going to happen in America any time soon."
The reason "it wasn’t going to happen in America any time soon" is that politicians and their progressive/liberal advisors waste their time and energy trying to figure out what isn't going to happen instead of fighting for what should happen.
2
Thank you for your analysis, which I think is spot-on. But there is an alliance between Big Pharma and societies and charities fighting various diseases . Big Pharma generally wants to produce many, many drugs and the charities want as many drugs as possible in the hope that one can eliminate the disease about which they passionately care. This increases prices as well as choices, particularly for less common diseases.
However, we don't have the money to do and have everything. We might be better off with some type of price regulation - and even keeping less effective and me-too drugs off formularies as they often do in Europe- in exchange for appreciably more affordable drug prices for the society as a whole.
2
We should also mention price elasticity. Assume for a second the consumer is paying out of pocket. The consumer is perfectly inelastic for a life saving drug. If you need an epipen, you need an epipen or you die. The price doesn't matter. Technically speaking, the producer can charge much more than a monopoly price for essential pharmaceuticals. This was the market vulnerability Martin Shkreli was trying to exploit.
10
Dr. Krugman erroneously states "consumers don't pay for their drugs, insurers do." A subconsciously slip? Either way, this kind of general thinking in regards to healthcare costs is a big part of why fundamental rules of supply/demand/pricing etc... don't always apply to healthcare as they should. Neither providers nor patients see the patients as consumers. The healthcare marketplace doesn't operate as such. Instead, it operates as Xmas would if Santa left toys under the tree (many of which aren't wanted); and then a bill is received months later with all toys billed at a significant mark-up. But don't worry; "somebody else" has already paid the bill.
1
Consumers don't "directly" pay for their drugs. Consumers don't usually see the big bill, they see the co-pay.
If consumers saw what was being charged, there would be far more reaction than there has been. That was Krugman's point.
Factville, I think your point and analogy are excellent.
2
Ali Velshi was interviewing Rep. Buddy Carter on Friday and Carter was praising Trump for calling for the ability of Medicare to bargain with drug companies. He was gushing over how Trump "understands the problems of the common man like no other president", etc.
BUT: President Obama tried to get Congress to pass a bill allowing for the same thing. Like many other bills, the Republicans blocked it.
The problem here is with the GOP and the sooner that is realized by everyone, the more voters will be able to react.
46
It is puzzling that the military and Veterans Affairs are able to negotiate prescription drug pricing on a national level and Medicaid at the state level, yet, Medicare is prohibited.
Perhaps Medicare has a larger pool which means more profit as long as there is no negotiating strategy with Medicare.
5
we wish Trump was calling for Medicare negotiating drug price as 1 entity. he did NOT. besides, all these "middlemen": prescription managers, insurance companies, have artificially inflated drug price further for patients : all these "managers" have special deals with different drug manufacturers, so patients are forced to use particular drugs from certain manufacturers. if you veer off to other products, due to intolerable side effects or less effectiveness, most of the time, patients would have to bear the FULL cost of medicines. then, there are "preferrable" and "non-preferrable" generic, following same idea. As a retired office manager in a medical office, we had seen patients, when doctor prescribed a commonly-used generic drug, but patient had to pay full cost because it was not covered by his/ her insurance company. if patient was forced to use a "preferred brand name " (no generic version available), he/she would "fall into the donut hole" faster on top of higher copay. i had read a report--brand name med prices were raised 20% in the study period of time, while generic drugs were raised 70+%.
healthcare system in US is capitalism of the worst kind !
4
Instead of this unworkable solution, why not just copy the system that allows many countries such as France, Canada, Spain, England and others to provide drugs at a lower cost and a Medical system that gets better results, by any metric than in the US at a far lower cost. Blame Big Pharma might be the mantra, but the fault dear Brutus, lies with us. We simply refuse to restrict our health care benefits because most patients are shielded from the cost, maybe with a small deductible. Couple that with compliant, incentivized MDs. and the costs sky rocket. Here are some of the things we could do if there was the will: a restricted formulary, more OTC, more generics, a rigorous look at the cost-benefit of new drugs and elimination of older ones that are much less effective. Certainly, the NHS should have the power to bargain with Pharma to lower costs. The hammer being to remove a certain drug from the formulary and/or to increase the deductible. When a certain drug is the only drug for a particular condition, the NHS should set the price. Of course, to do this, we first need an NHS.
3
Early last year I went to a cardiologist for a second opinion. I was taking a generic beta blocker that cost me less than two dollars for 90 tablets based on my insurance. My blood pressure was good but the doctor told me there is a new drug but he was not sure that my insurance would pay for it.
When I was waiting to see this new doctor I saw a man and a woman with what appeared to be a carry on bag where they probably had samples of 'new' drugs for blood pressure.
The cost of the so called new drug ended up costing me $80.00 for 90 tablets based on my insurance.
About three days after I started taking this 'new' drug, I ended up in the hospital with pulmonary hypertension.
3
What's missing from this analysis are the other factors that work to keep drug prices high. One is the pressure to maximize shareholder value - keeping the hedge funds and other big investors happy. Another is the consolidation of the pharmaceutical industry: fewer players, bigger players.
Where smaller companies have an incentive to develop new and better drugs, giants are focused on protecting what they have - and minimizing costs. What might look like a promising drug for a small company might have too small a market for a big one to be interested.
And (elephant in the room) Big Drug companies can afford to spend more on buying politicians to protect their profits.
Lets face it. Until someone develops a vaccine for Greed, the quest to squeeze as much money as possible out of consumers will remain rampant.
16
Much of PK's column is too wonkish for me to understand. He is a Nobel economist who writes. I am a writer trying to understand economic theories. I am lousy with numbers but have taken a shine to the psychology of economic — or, "behavioral economics," if you will.
What we have is an American love for a market-driven economy. The Wall Street PR machines. With social Darwinism as their mantra, it is everyone for themselves. Ayn Rand's bloody hand is all over this. Most of the rest of the world — Canada, Europe, Scandinavia, Australia and New Zealand — understands, better than most, how helping to keep one's fellow citizens healthy, is better for the nation as a whole.
But in America, the shareholder is king. Their court of sychophantic bankers, and corporate executives keep the trough flush with cash at the expense of the workers who slaved away to create that corporate wealth. Lower or stagnant wages and benefits drive stock prices which plump up profits like a life raft which drives executive salaries and bonuses.
While the drug industry agreed to negotiated drug prices for the VA, it refused to negotiate with Medicare. And, back in 2001, it was Louisiana Congressman Billy Tauzin who killed the bill allowing Medicare the power to negotiate those drug prices. Afterall, seniors are serious driving force in drug sales.
After he killed the bill, Tauzin was rewarded with the job of CEO at PhRMA, the industry's lobbying group.
Any questions?
20
One must be careful when reading this analysis because , as everybody understands, Krugman is a radical Socialist and will say or write anything that supports government run healthcare. Having sampled two different types of socialized medicine, my opinion is "no thanks", I much prefer our system.
1
a patients was diagnosed with arthritis. by February, she was in Medicare " donut hole". i wish you health ALL your life. i was born and raised in NHS system, and have relatives living under such system. my mother paid equivalent of US$ 1.25/day when she was hospitalized, for covering her meals.
2
I loved this system 30 years ago when I had great health coverage through my employer. However, even those great employers of old are having to cut benefits and raise deductibles.
I'd rather have some socialism that keeps "radical capitalism....ie monopoly power" in check.
2
What two types of socialized medicine have you experienced? Why aren't the citizens of Britain eager to adopt our healthcare system? Seems they disagree with you.
Either he had something to gain, not necessarily direct wealth, or, and I think more likely, Trump is simply a big-mouthed coward who talks but is afraid to back up his talk.
He is afraid to negotiate.
Evidence is his use of "fixers" and others to do his dirty work and his passive aggressive indirect method of firing people not on the Apprentice,
3
Trump has long understood that when he talks, his base does NOT do any fact-checking. I have talked with some who will say that Trump did so-and-so, when he has not. All he has done is claim he will do something and they give him credit for acting.
Remember when he said he raised 6 million for veterans' organizations and then reporters found out months later that he pocketed the money instead? It was their reporting that forced him to grudgingly give the money to the charities.
8
I suspect that Novartis got a very good return on their $1.2 million.
GOP so-called moderate, Mass Governor Charlie Baker, justified $300,000/year for Vertex drug after a donation. So pay-to-play overrides the health of the voter. He did run an insurance provider which gives more insight into how insurance operates as a denial of service profit based corporation. Single payer with negotiated drug prices is the only option to escape the current dysfunctional system.
https://www.bostonglobe.com/metro/2018/04/12/charlie-baker-defended-vert...
7
Not allowed to shop around for the best price !
Very, Very UN American. Who would do this to you?
Easy;
The "Your Money or Your Life" thugs,.. enabled by the bought and paid for representatives that do their bidding.
This won't change until you ....Vote Them Out !
You can start this November.
9
While your analysis is spot-on, Dr. K, I expect Mr. Trump would lapse into a coma within ten seconds of seeing your first graph. Troublesome and wonkish facts do not hold much weight in an "alternative facts" universe.
9
Canada has much better drug prices and Canada is only one of a bunch. What we need to do is set up a single cooperative to receive copies of all Dr.'s prescriptions, then, with an advance- developed list of participating Canadian pharmacies willing to handle an additional 100 scripts daily, forward the prescriptions for filling to the pharmacies.
With a $0.50 handling fee beyond the postage to Canada and back, the cooperative will be profitable and all of the American people needing a drug prescription will save money.
That is what we should want: a non-government solution.
5
Were the grayish suited people you met with on Saturday night pharma lobbyists?
Maybe you should get more sleep so you could explain more clearly Fig.1 and 2.. One extra paragraph to explain the dimensions would be very helpful.
Is pharma in Europe really hurting for lack of profit??
1
I have a prescription, $375 in US made by Bayer. I ordered from Canada, shipped from UK, and make by Bayer in Germany for $40. Same cream. somehow it is not 10 times better in the US
11
A vial of epinephrine costs $12. A syringe costs $1. An Epipen costs $2000. Enough said.
5
Who Knows, maybe snake oil is good for something?
1
I'm surprised Dr. Krugman brings this up.
It's been widely reported that the large pharmaceutical companies dropped their opposition to Obamacare in early 2009 once the bill's proponents agreed that drug prices could not be negotiated with Obamacare insurers. In another NYT column, Dr. Krugman insists that just the opposite is true for Medicare: the Republicans oppose negotiated drug prices, while the Democrats like the idea.
As Oliver Wendell Holmes famously said, foolish consistency is the hobgoblin of little minds. Maybe so, but there's certainly inconsistency here -- lots of it.
2
"Medicare NOT allowed to negotiate drug price" was set by congress at the get-go under George W. Bush administration.
2
The ACA overcame a united GOP filibuster by a single vote. Had the bill included Medicare negotiating drug prices, the filibuster would have defeated the bill. Obama, and most Democrats, did want to have Medicare negotiate drug prices, but you don't always get what you want. Sometimes compromise isn't the result of dark forces but a pragmatic acknowledgement of what's possible.
It is so easy to imagine Trump meeting with Pharma executives who make their case for why they need to continue to do what they have been doing, and Trump goes silent is the presence of all these real business leaders, because he did not want to be perceived as stupid.
The ultimate negotiating point: for the government to take (under eminent domain) the patents of pharmaceutical companies who charge excessive prices, pay the development cost and a fair profit, and then licence multiple generic manufacturers to produce the drug.
5
Wonkish yes indeed. Well I for one enjoyed the graphs this wonkish meditation was very much on point. Isn't it curious that 2020 Democratic presidential wannabes haven't jumped on this topic? Or all they all just feeding at the Big Pharma trough too? Says a lot about politicians wasting time on emotional nonsense rather than actually dealing with real issues that directly affect the lives of Americans. This sort of goes hand in hand with your article today on the number of female candidates this year. This article cares about what these candidates are rather than what positions they espouse. Let's have more wonkish talk please about real issues and how to deal with them. Keep wonking away at 4:45 am there, Professor Krugman; graphs, like chicken soup, are good for the soul.
1
Krugeman is right: the Big Pharma must be prevented from praying on us - the average sick Americans. That way, its profits will fall, it will scale its R$D dramatically, and we will receive our long fought for (by Krugeman and the Democrat Party) right to die from lack of effective treatment but with plenty of (saved) money in our pockets. I have lived in a country where no Western meds were available at the hospital when you brought your die-ing relative in (true story - my hubby's mom passed 7 yrs ago in Belarus, when she was brought to the hospital they were told no drugs were available to treat her, they needed to go (on the street?) and buy them themselves. by the time they did, it was too late - she passed). Is that what you are after, Krugeman?
Clearly the money clawed out of the USA economy by the boondoggle which was the Republican tax plan could have funded a public medical plan plus some prescription coverage. Canada pays the second highest in the world for pharmaceuticals. Your drug ads leak over the border and we have no-name ask your doctor and bar washroom ads. To clear things up, BC prescription coverage from the govt.is very sparse...the drugs it covers are just the most basic generics and seniors have to be destitute to get coverage. Many have employer based coverage. So when I read that trump is going to meddle in my country I felt like I had angina. Canada has suffered under NAFTA...I will not reiterate how...it was rammed through by drump's buddy, Brian Mulrony...his Florida neighbour...sits on American boards.I hope the world unites against this wicked bullying plan of drumpf's.
How outrageous that the richest country in the world....yes all the money may be in the hands of the very few....wants the rest of the world to pay for it's prescriptions.
4
The solution: allow consumers to buy drugs from other countries. Breo, asthma drug, Mexico--$28.55, USA--$358 (consumer co-pay--$35).
Advantage: free market.
Problem solved.
5
".....Trump says he wants to force other countries to raise drug prices."
Yes indeed. Another promise, another boastful comment from the tweeter toddler that rings empty just as Mexico will pay for the wall of Trump shame, a better and less expensive health plan that Trump promised, and draining the swamp.
It appears that Trump is tossing out a few shiny objects to keep his supporters at bay while coddling pharma.
Just another day in Trumplandia.
7
What has me on a rant is trump's pronouncment on other sovereign countries' health care systems. You know he will threaten and bully. Example...new US Ambassador to Germany announcing that Germany had 3 months to quit trade with Iran or else. Trump thinks he is the dictator of the whole planet. I pointed in a post to another article that Canada...and other countries...produce drugs and vaccines and usually sell the rights to production. The USA is not the only researching country. One can only hope for karma.
4
It used to be that the defense industry was the most corrupt in America. Nowadays it's healthcare, by far. Healthcare fraud in the US costs us about $300 billion/year, or about 10% of our total healthcare spending. (Nobody knows the exact figure of course; this is just an estimate from Medicare and the RAND Corp.) $300 billion/year is real money, even for the US. And this figure does not include the type of Big Pharma ripoffs that Trump is now effectively condoning.
Nobody should be surprised by Trump's pivot here. Want more corruption? Trump's your man.
3
Every other industrial country in the world sees drugs as they should. Drugs are not a commodity that is fungible like oil. They are life saving tools of morality and civilization. This is why we have government. Stop this insanity. It will bankrupt us if left unchecked. Not to mention kill many of us.
5
Maybe the worst aspect of patents in the drug business is that many of them are merely marginal changes to existing products that allow the company to extend out the patent. No new good or service has been created/provided. But the monopoly profit continues to roll. I would shorten down the patent time period. I would set higher standards for copycat patents. Lastly when companies pay small amounts to bagman lawyers(when the dumb butt could have extracted 100x more) for access to politicians for said monopoly preservation "lock'm up". (I think that is in the law but never used.)
2
Take a step back and realize that ALL industries are built to gouge the consumer in every way possible. This hard edge of capitalism has now saturated every aspect of American life. The ends justify the means. Poke a finger or lift a carpet anywhere in the American house. All we'll find is termites, mold, dry rot, and cockroaches. All we need now is a puff of wind and the whole thing blows over.
Meanwhile, 9 out of 10 doctors recommend Camel cigarettes.
1
One other thing - understand that patents are a fundamentally national construct...
The EUropization or globalization occurs via nuanced treaties and reciprocities...
There're some far bigger hammers that some countries have - that make the threat of empowering Medicare negotiation seem like the threat of no ice cream before bed tonight, by comparison...
What irks beyond all other irks, though, is that - once through the obfuscating redistributionism of the opaque multilayer pricing and markup/discount baseline metascheme - these folks have the effrontery to ask customers to fill out what's effectively a FAFSA form...
Once again, Krugman-The-Progressive Economist comes before us with another government solution to our problems--essentially arguing for government regulation of drug prices. Of course other Progressives will harangue me...insisting that the professor is not one of them--but is indeed some weird form of capitalist. He's not. He's a Progressive...or more accurately, a Socialist. He surveys the horizon for problems afflicting we humans--then imagines government solutions for all of them.
So true to form...here he is again, attempting to convince us that government control over an industry is preferable to market forces. His main argument seems to be that Big Pharma doesn't understand math. He asserts that if prices were lowered (by government force, of course), companies would sell more product, with the benefit accruing to the both them and society at large.
Does Krugman really belief drug manufacturers are that obtuse--that they don't understand the economic realities of the marketplace they occupy? If it were indeed the case that lowering prices would lead to higher profitability, wouldn't drug companies already understand this?
I encourage Krugman to take his thinking one step further. It probably hasn't occurred to him quite yet. Let's nationalize the drug industry--do a complete government takeover. Progressives would wet their collective pants! Then, we could have drugs that take 50 years to come to market, costing 10 times more than they do now.
2
Jesse, it helps to read the article:
"Consumer surplus would rise; the drug company would earn less profit per unit sold, but this would be partially offset by the profits earned on increased sales."
There would be zero new drugs developed
While this is all elucidating Mr Krugman, it ignores the political facts behind Trump's failure to put pressure on drug companies to lower prices and fulfill his campaign promise. As illustrated by the Cohen affair, Trump has profited financially and politically by pandering to the drug companies. In his next campaign rally he will simply lie and say that he succeeded in pressuring the companies to lower prices. His supporters will celebrate his courage and when the press disputes his lies they will be branded as "fake news." That's just the way things are now....
2
"to tell a drug company that an overpriced drug will be excluded from the formulary."
Wrong approach. The drug company should be told that it will be nationalized o something along those lines.
2
Unrestrained capitalism will eventually self-destruct. It doesn’t make sense in a world of limited resources and millions of people who are desperate to survive. Excessive consumerism by privileged Ameericans, advertised as “America – Great Again” won’t be tolerated. Capitalism with regulation could be another story. Citizens United must go- politics paid for by big money- or we can forget any hope of a legitimate government.
5
We need to attack billing fraud. Until people are able to see what they are going to be charged and how the AECOM codes work this problem will only get worse.
You might wish to add riskiest leg of therpuatic innovation is often borne by the taxpayer funded NIH.
3
The United States would certainly be better off if it could tax Big Pharma's big profits hiding in plain sight in tax havens. US citizens pay the highest prices for drugs but reap the lowest return due to US tax avoidance on drug profits.
3
OK, PK, another impressive “wonkish” column. But it’s not what we need in this dire time. How about 1 of the main causes of high drug prices?
Vox: “The American Medical Association wants the FDA to ban prescription drug commercials---ubiquitous on US television since the late 1990s…..TV ads for prescription drugs are illegal in most countries.” (Illegal!)
Abroad there's an exotic idea that medicine is actually a doctor/patient matter, not just another way to market a profitable product. This striking contrast and the ripple effects are avoided by the Times op ed page and our TV news shows.
Per statnews.com/2016/03/09/drug-industry-advertising/
“Even as politicians and physicians press for strict limits on prescription drug ads, the pharma industry is pouring billions into new TV and print campaigns. Ad spending soared more than 60 % in the last 4 years, hitting $5.2 billion last year.”
Question is, why doesn’t Krugman trace cause/effect on costs we have to pay? The Dems got plenty $$ from the drug industry for 2016. Now they'll compete with GOP for $$ for 2018/2020.
Easy to write columns bashing Trump/GOP, who always deserve it, yet avoid real cause/effect. Thus columnists look good, seeming to defy the powers that be. But they avoid big money domination of our insurance/drug policy and our politics---all legalized/amplified by the Supreme Court in Citizens United.
Drug ads are banned in EU. Why?
Someday, PK might deal with this.
As soon as anyone says "Big Pharma" , I stop listening.
Two points I would offer...1) Krugman makes no mention of PBMs and how they take money from both sides - pharma & insurers. According to the HHS Secretary the effort will be to stop that practice, as PBMs might be more harmful to current drug prices because this creates its own vicious cycle. 2) The view that pharma creates more similar drugs (implying they are not needed) fails to recognize that the various iterations offer positive movement in both efficacy and safety of drugs.
Perhaps, Paul, you should not wait until the last moment to meet you financial obligation to the NYTimes. And, try not to impress us with how busy you are and with whom. We already know that Nobel laureates get nice stipends from organizations. Yes, an obvious egalitarian man of the people...Princeton, Nobel et al...
Why no mention of the federal government's role in researching and bringing new drugs to market--in essence, we taxpayers are helping big pharm rip us off.
Look into the history of Taxol, just to name one.
What is mind boggling is that in general Americans are over medicated unnecessarily, paying astronomical prices for drugs , some of which, they don’t need .
This is my professional analysis and personal experience.
A democratic government , having in mind a healthy society, must negotiate prescription drug prices on a federal level .
Each prescription drug must have the same price nationwide, must be prepackaged from manufacturing plants , correlated with instruction and price , Braille inscription like in Europe .
This will never happen here , the land of predatory medicine and greed and unfortunately crass ignorance.
2
On Friday, the latest episode of "Reality TV Presidency' was aired.
Its ratings depend upon the venue of the audience. If you are a Fox Propaganda viewer, episode 475+(days Trump has been in office as of Friday; the"+" indicates 475 is the minimum number of episodes since new episodes are frequently aired hourly) was the best thing since sliced bread.
If you are sane (regardless of political party affiliation), you get your news from respected media outlets and you know that episode 475+ was based on the same theme as all preceding episodes: the art of the con game. So, episode 475+ was just a distraction to the real news that broke about a Trump Sadministration aid joking about the death of the ill Senator McCain, and how the Sadministration is living up to its name.
Episode 475+, as all episodes, was aired with lots of fanfare. It was simply fancy gift wrap on an empty package. In the con game, deception is paramount and Trump is The Con Artiste Supreme. His dupes (oops! I mean supporters) love the shiny wrapping and they will not be disappointed with its airy contents.
3
Professor Krugman; you have only just "scratched the surface"
on the Gordian Knot called USA Big Pharma.....; so it is
very worthwhile to ....expose the conundrum of this anomaly...
which you have valiantly tried to do....but...yes ...but...
You ..Professor need to explain your theories over and over
again ...on Public TV...(which is the ONLY medium which reaches most of those who are dependent on pharmaceuticals)
so....a Q & A forum is absolutely necessary...to explain...the
way that our government and Big Pharma...presently exist..
and why there needs to be a change in Big Pharma and our
Government's control of necessary RX...
I suggest Q & A...with a responsible moderator..
4
My pet peeve is not letting Medicare dicker down the price of drugs. That, by itself, tells me that Trump isn't draining the swamp, rather he has become part of the swamp. Of course, from his track record so far, I expected no less.
2
Paul, you ever done one of your little linear diagrams for the last half-century of Moore's law...
Apart from that, any production shortage of a pharma these days is as about as genuine as a shortage of (copies of) smartphone apps...
Go read up on how these folks - for decades - actively opposed continuous glucose monitoring and ingestible cameras to displace colonoscopies...
Used to be that economist was the least politically naive scientist in the room - times have changed...
PS
The open mike-moments, whether a smirking CEO in a US courtroom - or a poker-faced one talking about how they could eradicate specific diseases in specific countries, so long as they didn't have to then sell the med in the US for the same unit price...
Interesting how we offer sanctuary for people crossing our borders, and those who offer them sanctuary - but...
A pill from Canada - off with their meds!!!
2
Let's be clear regarding on simple fact: When Medicare is not required to negotiate the price of prescription drugs, Americans suffer and die needlessly. The behavior of our politicians is inhumane and criminal.
This is the result of decades of unadulterated corruption at the highest levels of politics and within the pharmaceutical industry.
Are we surprised Trump lied? Not at all. What is truly disheartening is the lack of human decency exhibited by Congressional leadership and the healthcare industry.
Do you know what happens when geriatrics on fixed incomes have to choose between medicine and keeping their lights on? They cut back on their meds or skip them entirely.
Death panels are alive and unwell in our government and in the pharmaceutical industry.
4
" people used to call this a 'me too' drug, although we’re going to need a new name"
How about the other old name 'copy-cat drug' .
1
First-order: Big Pharma bribes the Party of Trump (and, perhaps, a few Democrat politicians also) not to bargain down drug prices. About Tenth-order: Bargaining down drug prices would be good economics for America.
3
drug stocks soaring??...really....some major drug stocks, Celgene and Gilead come to mind, are stuck at horrible levels going back years...new 52 week lows come to mind, not highs...bserious !!
Dear Paul, I suggest you read: Deadly medicines and organised crime: how big pharma has corrupted healthcare, by internationally known author Peter Gotzsche, director of the well respected Nordic Cochrane Center in Denmark. He has published more than 400 scientific articles (peer reviewed).
2
Precondition for Professor Krugman's evaluation: The Pharma market is a free market i.e. demand is determined by price. This is however not the case! Remember "Pharma Bro" Martin Shkreli? He said it bluntly, and with smug face: People will pay any price if it means their lives - or their health/wellbeing (Telling people: "You either pay me what I want, or otherwise I make sure you will die" is by the way called extortionate robbery, I think). The often heard argument, drug companies would not develop new drugs, if the prices are negotiated down is also not valid. They do not develop new drugs anyway, if they can avoid it! Unregulated Pharma markets lead to the drugs that are most profitable, not to the ones that are most advanced. Development costs of a billion Dollar are bad for profit! A one hundred million Dollar marketing campaign is cheaper, and has a better predictable outcome. Free drug prices lead to drugs like Oxycodone: Marketed as newly found by the drug company, and addiction free. In reality however: Dicovered 1916 a the University Frankfurt, entered the German market under the brand name "Eukodal" in 1919, taken of the market in 1990 for addiction, and misuse issues. Drugs we (=mankind) would need desperately are e.g. new antibiotics to cope with the resistance problem. These drugs would be held in reserve. Production i.e. profit would be low by definition, development costs would be considerable. Hence, the Pharma giants won't touch it.
2
Had I known that all that hard work for 45 years to retire with enough money to live on and have some fun in the sun was going to end up with me spending so much money on doctor bills and prescription drugs, I might have just eaten more, drank more, and kept smoking cigarettes and said the hell with it. Now I ruminate about whether a doctor is telling me that I need a drug because of its health benefits or he or she is prescribing it just to keep the lawyers off their back. At least some doctors admit it's the lawyers.
3
This and similar treachery by Trump toward his base (as a subset of voters) begs a question: Why do these people still cheer for him?
I'm beginning to think that many Real Americans secretly believed that Democrats would deliver on Medicare For All, that the Rube Goldberg contraption with its gold, silver, and (possibly) base lead plans proved to be a disappointment even to those who fly both the American and Confederate flags. After all, health care was a right during the Third Reich.
Perhaps Real Americans are more savvy than we are. Perhaps they sense that they will be taken to the cleaners by whichever lobbying firm controls their Representative, their Senator, and their President. Perhaps they know that they will never have the benefits that they are promised during campaign speeches.
So, in the absence of any improvement in their living conditions, they crave what they get watching Humiliation TV, game shows on which people eat bugs in order to win cruddy prizes, soap operas in which multiple amnesiacs vie to see who remembers least, campaign rallies where a future President flails his limbs to make fun of one of those people who Real Americans are sick of coddling.
Trump promised to negotiate drug prices, and that would have been good. However, Trump also told America that his vodka was the best when a blind taste test would probably determine that all vodkas taste the same and that his University would markedly improve people's lives.
Fool me twice, shame on ...
2
1. ban drug ads from tv (i know it is a small % of their spending), but it does nothing to help people who are sick.
2. when steve munchkin is smiling in the audience, you know you will be ripped off.
1
The main reason ethat Trump spoke about coming down on the pharmaceutical industry was to ensure that he would get his fair share of the money extorted from our countries hard working citizens.
Remember, honest work only sets you up to be the prey of the successful industries that pay of the politicians so that they can extort their obscene profits from the helpless people who work for a living.
4
The author does not take into account in this article several important things.
One, no pharma company, once having gotten a patent on a drug , can just go out and sell it. Human clinical trials involving thousand of people, costing millions of dollars and ten or more years of company effort before it can be given FDA clearance to sell the drug. Quite often, little patent time is left once that happens. Then, the generic versions get rather rapid FDA approval and sell their version. Rapid FDA approval comes from the generic company not having to prove the drug is safe and effective, whereas the innovator did.
Second, new prescription drugs are not available to the consumer, but have to be prescribed by a physician, thus skewing a direct road to the consumer.
Three, two innovator drugs, purportedly treating the same condition, typically have different side effects in different individuals, thus each may have its place on the market.
I worked in the pharma industry on the development side for 30 years. I know how much time, effort and money it takes to get a drug on the market. Are drug prices high? Yes. Are they justified? I think so. You want cheaper drugs? Set aside the regulations in order to sell them. Of course, one may find that the cure, in such case, might be worse than the disease.
3
As also a pharma veteran, I must challenge some of your points. The issue of the attrition of patent life by the need for trials and FDA review has been largely solved since 1984 by the Hatch-Waxman amendments. These allow pharma companies to restore much of their consumed patent life, so that typically they will have market exclusivity for around 14 years or more. The fact is that any half-way competent company has time to recoup their investment many times over, so high prices are not generally justified by some shortage of exclusivity.
Secondly, the US is the only major country that permits direct to consumer (DTC) advertising, which inflates marketing spends that exceed even R&D. The industry maintains that DTC advertising is justified because patients should have "choice" in their treatments, but this is shown to be disingenuous by the fact that other countries obtain equivalent or better medical outcomes without this advertising. DTC is about increasing company profits - that's all.
Thirdly, the patent system is supposed to drive important innovation for the public's benefit. It is true that individuals may react differently to different drugs within the same drug family, but how many drugs within a family should the public pay for? Should they all be treated in the same way, when many are scarcely innovative?
Regulations are not the problem, they keep patients safe. Medicare negotiation would lower prices, which why the industry fights against it.
2
so why is the same drug less expensive in Canada?
Today drug prices are too high in the US and too low in other developed countries. Pharmas recoup their investment from US sales. OUS sales provide then a small marginal increase in profits.
I submit there is a way to lower US prices and raise OUS prices. Medicare is calculated as a US best price. Whatever is the lowest price of the drug in the US market is what Medicare gets.
But what if Medicare was a GLOBAL best price. Maybe use only the OECD countries. Then pharmas would simply refuse to sell in some countries that demand a low price because they have to offer that price to Medicare as well. Those countries would either forego the drug or accept a higher price.
1
If bargaining to lower the price of medications makes sense economically, how do you disengage from politics when Medicare Part D, as it exists today, is not allowed to? I suspect that our brutus ignoramus has no idea of what he is talking about (his usual), or he is demagoging a difficult issue to grasp, and allowing Big Pharma to get away gouging the public. Given that the payments are not directly from the patient...but via Insurance Companies (who raise their premiums to prohibitive levels), everybody seems 'happy' in their blissful ignorance. Of note, as a retired physician, I realize the importance of having life-saving and disease-preventing or disease- controlling drugs available. We are just trying to harness greed, a burden to all. And, hopefully, to make economic sense, so we may spend what's left more efficient and effectively on more urgent needs, such as poverty and inequality.
7
Gov't has traditionally funded one third of biomedical research in the US. Private groups, foundations, single disease advocates kicked in another @ 7% of what used to be a $100 B annual R/D industry. Big Pharma picked up the rest. The 2000's era of pharma mergers saw capital shifted to financing/restructuring, away from R/D. But the industry has always had sufficient funding to support a deep bench of seven and eight figure CEO's. In good times and bad.
4
In addition to all of these facts, the NIH funds a large amount of drug research, and then lets the drug firms take the profits.
7
Maybe there should be an excise tax on consumer advertising for all prescription drugs. I recommend that the companies pay an excise tax equal to 200% of their advertising spending.
6
Which would be more than made up for by the recent "tax reform" which lowered the rate for repatriation of overseas profits, most of which has gone to buying back stock and increasing returns to shareholders (rather than raising wages). How about requiring that Big Pharma pay the same for R & D as they do on marketing/advertising?
1
Based on a study by David Blumenthal and David Squires in To The Point (5.10.2016), they estimated that the Veterans Administration, Department of Defense and Medicaid provide drugs at a discount of about 24% over other purchasers. All three organizations are allowed to negotiate drug prices directly with drug companies. How can Trump and republicans in congress continue to prevent Medicare from negotiating drug prices directly with manufacturers? The answer is because, as a group, they personally benefit. Pay to play.
8
Years ago I discovered a study commissioned by the FDA that reported on drug prices for various classes of purchasers. The study concluded with a chart showing the average sale price of a $50 (retail) drug through various channels. Consumers paying retail might pay a bit more than $50, while HMOs and patients with drug coverage ended up paying $37. I seem to recall Medicare got a slightly better price.
But, there was one purchaser that got a much better deal, $24. It took a bit of investigation to figure out exactly what government service got this much lower price... It was the VA. Because they negotiate price, they get much lower prices which may be a key reason the Koch brothers are working so hard to privatize the system.
6
Many of the arguments made here can be applied not just to drugs but to healthcare in general. Healthcare simply cannot be provided efficiently via a market for multiple reasons:
--Demand is inelastic as the opportunity cost of foregoing needed care is huge—loss of life or continued pain and suffering for you or (maybe more significant) for a child, spouse, or other loved one.
--Consumers typically have no knowledge of what they really need and are completely dependent on medical providers to tell them what they should purchase. Consumer choice is meaningless when consumers are not qualified to choose and the consequence of making the wrong choice is the continued suffering, impairment, or death of oneself or a loved one. On top of that, there's the impossibility of shopping around while sick (sometimes incapacitated) and in urgent need of care.
--Medical providers have many reasons to provide more care than required—desire for profit, fear of malpractice suits, and simple altruism (doing whatever it takes to ensure the patient survives and is restored to health).
Conservatives often call for "market-based" solutions to the healthcare cost problem. But (with apologies to Ronald Reagan) in this present crisis, the market is not the solution to our problem; the market is the problem.
8
I would love to see a graph showing the price of a drug relative to the value of the life of my nephew. My nephew has and will continue taking a drug that keeps him alive now and for the rest of his life. Without this drug he would/will die. So, how much should the drug cost? What is the price of my nephew's life in relation to how much should the brilliant scientists that spent years and risked billions to develop the compound that keeps him alive? Seriously, we spend billions trying to find drugs that save and prolong peoples' lives. In my nephew's case he has a very rare disease, and so the cost of the drug is enormously expensive due to the low customer base and enormous cost to develop the drug for such a small number of afflicted. Should we even be encouraging Pharma to develop such life saving drugs?
2
Don Don's drug plan seems to be written by and for the pharmaceutical companies. He who pays the piper calls the tune.
5
Hi Prof K, here's another idea:
The REAL problem here, is the ecosystem of corrupt practices that has attached itself to the barrier reef of unfair patent protection made to order by our empathy free corporate interests.
SO;
How about having drug companies get paid a mandatory royalty (perhaps 5-10%) of any drug sales, but open up the market to generic drug production from DAY 1 of FDA approval?
The term of drug royalties could be extended to offset the losses drug companies face through price competition, maybe for example, by extending the protected period to 25 years from 17 years under patent law.
Let's pay drug companies for ACTUAL science and delivering of product and REAL benefits, rather than for marketing scams directed towards scaring the elderly into using their blank check medicare coverage for the new flavor of the month.
Let's not continue to reward drug companies for using deceptive TV advertising, and 'payola' Doctors willing to proscribe anything at their Satanic Majesty's request.
Still left unanswered, is what was ordered for room service?
4
America is paying a high price for all this alternative medicine. I wonder what would happen if there was a mass movement of Americans to the original medicine of a well balanced plant based diet. I offer my personal testimony that this works incredibly well.
2
I’ve long taught my Economics students that drug prices could be regulated in roughly the same way that utilities prices are regulated, since drug production (well, for certain drugs, anyway) often resembles a natural monopoly - large economies of scale and sunk costs with relatively low marginal costs. After pointing out that almost all of us can afford (and have access to) electricity, natural gas, and water precisely because of that regulation, many of the students will catch on to the idea.
5
A perfect example why academics and columnists add no value to society. Pharma research is extremely risky and far from a guaranteed success. And it is funded largely by the private sector, not the government. The author ignores these facts and simply "assumes" success and proceeds from there, rather than acknowledge that the so-called monopoly is achieved through risk, investment, innovation, and smarts. This is a fundamentally flawed analysis, and one that displays a socialist "advocacy bias" at its best.
3
You are correct that private industry now funds the majority of pharma research, but the public sector funds a significant minority share - 40-some percent, by most measures. And that share has been over 50% through much of the post-war era, when many profitable drugs were developed. And don’t forget that the government helps generate the firms’ monopoly power by granting and enforcing patents which last longer than necessary (according to many analysts) to encourage innovation.
Regardless of how drug research is funded, Krugman’s explanation of price regulation is pretty basic, and explains how utilities prices are kept reasonable in the US through a process which has always allowed privately owned utilities to maintain very stable profits.
8
I am not sure your point is all that valid. In fact, it is the pharma industry that is taking advantage of the USA because: a) research has shown that Pharma industry as a whole does not plug it's exorbitant profits back into research and development and b) despite price controls in other countries Pharma still sells their product there. This proves that even with the price controls their international sales are profitable. That is because analysis of Pharma research costs has proved that these expenses are far lower than Pharma has claimed. Their claims are after all just a scare tactic in their negotiations to prevent sensible regulation.
3
Much pharma research is paid for by federal grants and done at universities. Much of the other research is making changes in drugs so a new patent can be added. When pharma spends 4 times as much on real research as they do on advertising and marketing, get back to us about this.
3
If you watch the evening news on the oldest TV networks, you will surely observe that almost all the ads during the 30-minute broadcast are for drugs aimed at treating a narrow sample of ailments, such as psoriasis (which, by the ad count, must be some kind of pandemic). Never mentioned is the cost of the prescription, but always mentioned -- because it is required -- are the possible side effects of taking the drug: hair loss, swelling, trouble breathing, death.
As the most consumer-focused economy on earth, Americans have become inured to these pitches, but the subtle effect is to equate drugs and prescriptions as the path to smiling families and pleasant faces. In that, drugs are ubiquitous, always available, always a cure for what ails you and always, always very expensive. The result is an assumption that if/when we become seriously ill with a devastating cancer or a serious brain aneurism, we have the right to whatever drug is on the market, even if it costs are absurdly high, out of the reach of most families and health insurance plans.
Conclusion: market forces drive prescription costs, not R&D, a fact that most other western nations have avoided. But not the U.S.
10
No shock that Trump's bravado against prices charged by big pharma on prescription drugs had a nano second of shelf life before leaping into the abyss. Similarly, his disingenuous spiel about the NRA and a ban on assault weapons is about theater. In reality, he caters to those who finance political campaigns or influence voters.
The case against big pharma goes beyond examples described by Krugman. There is economic logic supporting pricing premiums for breakthrough medicines protected by patents. Abuse begins the moment the company patenting the medicine is acquired by another, and sales prices sky rocket by multiples. Why spend money on medical research when it is more cost effective to acquire smaller companies that own a few patent-protected gems and launch drug prices into the stratosphere?
Affording negotiating power to consumers and their insurers will level the playing field. An example comes to mind. My wife uses Tazorac, which had fluctuated for years between $20-30 co-pay for a small tube. The last time we checked, the cost had multiplied by about 30x. Want to guess what the price for the identical cream is in Canada?
Why did Novartis pay a tidy stipend to Michael Cohen? Money spent for access and lobbying enhances return on investment, with more certain outcomes than medical research. Consumers need political advocates with conviction rather then flimflam tweets.
11
What the federal government pays for the drug sets the price. In fact what the federal government pays for anything sets the price. Hence if we are not doing that already, it's been a political choice, not one of good economics.
President Trump cannot take direct action on prescriptions drug price negotiations because the Medicare Prescription Drug Act of 2003 expressly prohibits Medicare from negotiating bulk prescription drug prices. If Trump ordered the Department of Health and Human Services to ignore the law and start bartering with pharmaceutical companies, the New York Times would accuse him of acting like a dictator. However, the Trump plan includes 'reforming Medicare Part D to give plan sponsors significantly more power when negotiating with manufacturers" and the creation of "a report to the President on whether lower prices on some Medicare Part B drugs could be negotiated for by Part D plans. Armed with the report, Trump might urged Congress to revive the Medicare Prescription Drug Price Negotiation Act of 2007, which passed in the House but failed in the Senate. This bill would have required Medicate to negotiate prices directly with drug manufacturers. Opponents of the 2007 bill argued it wasn’t necessary because insurance companies negotiate prices with drug manufacturers.
4
Patents are granted by the society to encourage innovation and ultimately benefit all. The drug companies are using the patent protection to rip us off. We must go to the drug price control what is done by almost every country of the world. I don't see why no one is raising this issue.
Paul- I would request you to look at the drug price control. Is there any reason why we shouldn't do it? We can use the Canadian model.
2
Hey, those charts look exactly like the ones I remember from Economics 101. A couple of points come to mind.
First, isn't the demand for drugs "inelastic", which means that consumers consumers don't quibble much over price when their health is at stake. So in this case, the pharma companies wouldn't sell much more stuff at lower prices. Their profits would decline if medicare could bargain prices down without much compensation to the companies for more sales. Maybe that's why the pharma companies fight so hard to keep their prices high.
Second, in my economics classes we were also told that companies with monopoly power discourage innovation in order to prevent losing their monopoly profits to cheaper substitutes. Don't the pharma companies do this by blocking FDA approval of drugs that compete with the ones they already produce? Last I heard, the approval process took about 10 years. Maybe we could get newer and better medications onto the market faster if we reduced the influence of big pharma.
2
One issue to discuss with a more detailed analysis is the effect of incentivizing the investment in research. The US is the major global drug market, the ability to sell a drug in this relatively unregulated market often drives the decision on investing in research in this market.
Much of the most innovative research often starts at the earliest stage where the drug is no more than an idea in the mind of a researcher. What drives the funding needed is often nothing more that curiosity. This is where accessibly to government research funding will play a major role.
Once there is some fundamental proof of concept that the idea has a chance of success, then the industry or, increasingly, venture capital funding enters the picture. The funding decision at this point is driven by the probability of technical success and the ultimate profitability.
Once a drug moves through the preclinical discovery stage and enters human clinical trials the game is to look for a dose where the drug can be given which will have the desired pharmacological effect but be tolerated by the patient. This is a major ‘pain point’ where drugs often die and where the high attrition rate often has the most impact on investment decisions.
Notice that this is far remove from the initial decision to risk money on a particular research program. As a rule of thumb a 10% success rate is cited as the probability of reaching the market for a drug that is being dosed for the first time in humans.
1
I've long ago stopped believing anything Trump says or promises, just as I don't believe big pharma spends as much as it says it does on R&D. The profit statements of these drug companies indicate they are in no way hurting while gaming the patent system to delay competition from generics. If and when we actually get a government with the courage to enact a single-payer universal health care system like the rest of the developed world, it will be quite within its rights to dictate -- not negotiate -- drug prices. Keeping "The Market" out of health care is the only way to reduce its costs, which are rising to the point of insanity. My husband just had not very complicated back surgery which necessitated a 4-day hospital stay. Total cost: nearly $400,000. Madness.
4
In essence, this how prices for newly patented drugs are determined in Germany. And it is what the large pharma companies worked towards for years. They knew price controls on „innovative“ would be introduced sooner or later. This approach is the one that is most in line with „free market“ conditions; and given the more dirigiste alternatives.
I'm sure it's very often frustrating when good economics is politically infeasible. Seems that's the case too often anymore, in too many instances. Says a lot about our current political situation.
One rational approach to high-risk pharma R&D might be for nations to contribute pro rata to an international research fund to develop new medicines. Let the private sector then bid on licenses to manufacture and distribute those new drugs, with their profits coming from efficiency. In my mind, there is something fundamentally obscene about profiting from saving lives, with ability to pay the determining factor. But, I realize this rational approach is likewise politically infeasible. And so we muddle, while many die.
The medical field is filled with honest, caring individuals who believe in the Hippocratic Oath and studied and sacrificed in order to help their fellow men and make a difference with their lives.
The practice of pharmaceutical science is no different.
If we funded the development and education of the best we would still be inventing the best medicines for us all.
Profit margin only rules this industry because of corporate and Congressional greed, of which we are all the victims.
4
Bruce
What you say is no doubt true, but unimportant.
Good-hearted and brilliant, scientists are the bank-tellers of Big Pharma. Basically, nobody cares. "Give us the next big thing, drug boy, then shut up and watch us make some real money".
Pointing out the the willful perversion of the supposedly sacrosanct free market, the outright lies and malfeasance, the funny-dealing with laws meant to actively encourage generic 'me too's, the harsh and intense game of pay-offs and threats to politicians, there is very little of nobility or even simple human caring to Big Pharma.
It deserves to be rigorously managed and tightly controlled, given its recent massive criminal conduct.
But saying the obvious does not demean or devalue the hapless scientists who opt to be involved, any more than pointing out the ineptitude and corruption, the shear incompetence of our armed forces demeans the soldiers who do the real work.
1
There are a couple of additional benefits that the pharmaceutical companies take that are not mentioned.
During reporting on the Epi-pen price increases it was noted that increasing the price of drugs as they near the end of their patent is standard practice, more so if they have been purchased by a third party as in the case of the Epi-pen and to excess with Martin Shkreli. This is an increase after the drug have gained its marketshare, possibly having driven out older, cheaper drugs and competing drugs thus solidifying a monopoly position until generics hit the market.
A second benefit is the re-patenting of medicines when they are identified for treatment of an unrelated illness. This allows for an extension of of the patent period, providing a longer monopoly period.
4
A quick peek at salaries reveals that the average specialty pharma rep earns more than $138,000 annually.
How many reps are there in the U.S.? Why do we need people to push the drugs? Why, for that matter, is it necessary to spend on drug advertising? Why are people who have nothing to do with drug development raking in so much?
Why isn't the pharmaceutical industry required by law to freely make available all salient information about all drugs to all interested parties? Let it be up the medical professionals to decide, not the pitchmen.
7
We created a healthcare system which is increasingly less affordable for more in the US. This is true even for those with health insurance as co-clays increase and deter the sick from seeking proper treatment. Unfortunately, corporate America now views healthcare as another opportunity for wealth extraction here and abroad. And no matter what profits are realized, the benefits are not be widely shared. Just another example that most people do not necessarily do better when corporate America does.
5
Another benefit of fairer pricing for consumers would be that pharmaceutical companies would not be viewed as price gougers and pariah's. Along with the financial industry the pharmaceutical companies are perceived to be among the most vile businesses in the U.S in my opinion.
12
Paul Krugman is absolutely right about the need for the U.S. government, primarily Medicare, to have the right to negotiate prices with pharmaceutical companies, even putting aside the broken campaign promise of Donald Trump.
The clincher is the fact that Canadians and Europeans and, essentially, the rest of the world can buy American drugs overseas more cheaply that Americans can at home.
38
Reading the various comments, it is apparent that everyone (or nearly everyone) agrees that prescription drug prices are too high. Some of the solutions proposed, however, are probably unworkable.
For example, although government funding of research often plays a big part in financing research, it cannot be a basis for granting the research team an exclusive patent for the drug in the form of a revenue-generating license.
Repayment to the government for financing plays a role, but the typical pattern is for a sale of the patent to a pharmaceutical company. The ultimate price to buyers of the drug reflects an amortization of that cost, plus a mark-up which adds the cost of manufacturing, marketing and future research costs of the company.
One reason for what ends up as price-gouging by Big Pharma results from the typical approach taken by any manufacturer/seller of any product in any industry.
If the standard or acceptable product mark-up is 30%, there is always an incentive for the company to focus on making more of its expensive products.
Again, when there is a mover and shaker among buyers – like Medicare is for drugs and devices, having a right to negotiate is crucial.
2
With respect to the costs of new cancer drug development, industry often quotes a figure of $2.7 billion. This is, by most reasonable standards, tremendously inflated, with the actual cost being closer to $650 million: https://www.npr.org/sections/health-shots/2017/09/11/550135932/r-d-costs... .
These costs can vary depending on FDA regulations and the type of drug being developed. There are administrative costs that could be reduced with more thoughtful regulation: https://www.ncbi.nlm.nih.gov/books/NBK195047/ .
Once initial drug development and testing is done, once the drug has cleared (and even before) the approval process, company marketers take over. They will most often (perhaps understandably based on purely economic considerations?) price the drug for what they think the market will bear.
Medicare and Medicaid are the largest purchasers of medications, and with an aging population this is not likely to change soon, it is hard to see how the country can defend itself without better collective bargaining power.
The big pharmaceutical firms are multinationals. They are not going to change their habits out of the goodness of their hearts. They have enormous advertising budgets and the USA is one of two nations that lets them market directly to consumers. That problem could also be addressed.
21
Would this only be true in an unlimited demand situation? For instance if everyone had insurance, and were not paying for the drugs themselves, the drugs would be "free", presumably in that case the potential demand would not be unlimited, and would also be completely fulfilled? Demand would also be limited by the incidence of an illness.
Does having health insurance distort the demand curve?
1
There is no such thing as unlimited demand. In cancer therapy, for instance, the guiding ethos for drug discovery is to target only the patients that will have clinical benefit from the drug. This is ‘baked in’ to the drugs mechanism of action and often determined by analysis of the genetics of the tumor. This will drastically limit the size of the patient population that are available to eligible to use the drug.
4
In September 2012 the Maine Attorney General ruled that the State, various municipalities, and private companies must stop getting generic drugs from Canada. The city of Portland had been saving about $200,000 per year using Canadian drugs.
In June 2013 Maine passed a law allowing Canadian online pharmacies to operate filling prescriptions. It is a Federal crime that seems to get little enforcement. Gov. LePage refused to either sign or veto the bill so it became law. Like Trump, LePage had promised to do something about the high prices but ultimately did nothing.
The FDA and Big Pharma constantly warned about the dangers of using drugs from such sources yet I can find no evidence of the health dangers so loudly warned about.
So, many Mainers have chosen to personally negotiate lower drug prices by buying online from reputable Canadian pharmacies.
Finally, this interesting bit of data:
"Most active pharmaceutical ingredients found in local U.S. pharmacy prescription drugs were manufactured overseas. According to FDA Commissioner Margaret Hamburg, 80% of the active pharmaceutical ingredients used in prescription drugs sold in U.S. pharmacies are imported, as are 40% of the finished pharmaceutical products."
53
Finance isn't my field, but I've worked in pharmacy. If I had my way with drug companies, they'd have to produce enough 'necessary' drugs (insulin, BP medications, anaesthetics, etc.) to fill our needs at a reasonable price before they could snatch up profits on 'recreational' or 'lifestyle' drugs.
Face it. Aside from a minority with real medical issues that require these medications, most people can do without expensive, mostly useless supplements, hair-growing drugs, and the ED treatments we hear about endlessly every time we turn on the TV.
The need for research would become a different issue.
11
There is an assumption that pharma develops new drugs, while much of what they do is repackage existing drugs and simply extend the patent with minor variations without improving the quality of the drug. On the other hand, there are many good drugs that are simply unavailable, either because pharm has made them inaccessible to generic production, or marketed new, less-good ones, at the expense of cheaper and better ones. I do not know the degree to which it happens, but I see it happening often enough that I would not take the innovative pharma rhetoric at face value.
There are innovations occurring in cancer treatment, but it is often variations in treatment, e.g., using two different drugs simultaneously or in using existing drugs to target the immune system in different cancers. Even then, one-third of pharma's expenses are simply there to market their worst drugs, the ones that don't work as well for which doctors and the population ignore.
7
Please give an example of where a less effective drug has been chosen? I have been in the industry for 35 years and I can’t think of an example.
“It is difficult to get a man to understand something when his salary depends on his not understanding it.” - Upton Sinclair
I would like to highlight a few things:
First, the price elasticity for a patient in need of a drug is near zero, they will use the product almost at any cost. This drives the monopolist to lean on the price upwards to a point of profit maximization.
Second, and I know this as a fact from first-hand experience, the price of drugs outside the US is not a little lower but lower in an obscene way. A drug I have been using for over 20 years costs here about $225 of which my insurance company makes me pay $109. During a trip, I bought the exact same medicine for the equivalent of $10! It is about 5% of the cost and 10% of my copay. This is the obscene part.
Third, the drug prices are not necessarily negotiated one drug at a time but collectively. That gives the strong buyer a huge leverage for controlling the price and still allowing the maker earn its profits.
Fourth, many of these drug companies probably, most likely, benefited from US government grants from various institutions. Why then, they turn around and charge the highest prices in this country.
Greed on the part of big pharma and the politicians?
88
Greed is a huge part of medical costs. Recently, a company called Sparks Therapeutics began offering a gene therapy for certain serious eye problems. The therapy comes with a long list of caveats, including the possibility of its causing blindness. This therapy was the outcome of years of R&D, and its developers received $10 million in support from the Foundation Fighting Blindness, an organization that solicits donations from the general public. "Good news" you might say. Except that Sparks has decided to charge $425,000.00 per eye for this one-time injection. Apparently, blind people are loaded.
11
Taxpayer funded bio-medical research is where Big Pharma gets most of its new products — ever since Bayh-Dole Act of 1980 allowed researchers to patent discoveries funded by the govt. Many, many, many of the really expensive drugs we hear about were not discovered/invented by private enterprise but on the public dime. Were we, the taxpayers, allowed a % of the resulting profits, or to control prices, or to ensure US public access — actions the Act explicitly allows for under a concept of “march-in,” meaning you have commercialized this cool drug and are pricing it extravagantly, so the People have rights — I would consider that fair. This is not how the NIH understands the law, deciding in 2003, for example, “"...the extraordinary remedy of march-in is not an appropriate means of controlling prices of drugs broadly available..." In other words, JQ Public, you may have paid for the research but monopolistic pricing isn’t a good enough reason for JQ Public to want access at a fair price.
3
There is one layer here you leave out. Where does the R&D start and who is actually doing the research? The NIH and universities do all this. Then the pharmaceutical companies get a hold of the work done and take it from there. All the initial research is funded by....The taxpayers. Here's what really needs to happen: the government should get into the pharmaceutical business and compete with the private sector. Make Pharma pay big time for any of the government research if they want to use it. I mean this is like the government building a highway, doing all the excavation and laying the concrete and then selling the road to a private sector company for nothing who puts up the signs and trees on the side of the road, paints the lines, and then charges high tolls to use the road. Then they use their profit to make sure the non toll, tax payer funded alternative roads are never repaired and they pay little if any taxes on their profits. What happened, Don, to making everyone else in the world pay for taking advantage of the U.S.? And then giving a pass to American corporations who do the same thing. Oh that's right, they line your and your friends pockets. And suddenly big Pharma are American patriots. And you are on the side of the little guy.
8
You would also need to do something about generic drugs, but the general thrust of your argument is sound.
The economics of generics is similar to farming - multiple manufacturers create, and then lose money or make almost nothing off a bottle of generic product. Simvastatin 20mg is a common blood pressure medication, as the purchasing agent of a pharmacy I can buy a bottle of 1000 tablets from a wholesaler for $17.22. These products end up being loss leaders or difficult to maintain for many vendors.
Conversely, they'll make money off of other products - oddball generics being a big one. Chlorpromazine (generic Thorazine, created in 1951) sells for upwards of $300 per bottle depending on strength. Colchicine (generic Colcrys) was derived from plants in 100 BC, yet it's ~$450 for a bottle. And Epi-Pens are still $300 for 2. A price floor, similar to milk, is necessary for a number of products while negotiating - including saying "no" - is absolutely necessary for others.
4
Isn't the second (lower) green welfare box on Figure 2 actually profit? Or are you assuming that all incremental revenues from the increased demand are going somewhere else?
1
You had it right in the first place. Some of those monopolistic profits go into lobbying so that they can charge monopolistic prices. Hence, inaction. Besides you didn't mention how 'cool' it is to be in charge of a 'Pharma' that's on top.
3
If we the people cannot negotiate drug prices, then we the people are not in power. Who leaves the question: Who is?
8
They the rich?
3
A technical comment.
Even though this article is labeled "Wonkish" the terms in the Figures should be defined so that readers who have analytical skills, but are not economists, could understand. For example, Figure 1 would be easier to understand if the definition of Consumer surplus were made clear. (I think it is the amount consumers who could afford, and would be willing to pay, the higher prices save by only having to pay the price the drug company actually charges.)
11
I agree. A definition of consumer surplus would be very helpful.
2
Many of the most expensive new drugs are targeted at relatively rare diseases. If the insurance is doing its job, which maybe it isn't, then everyone who needs the drug is getting the drug. If this is the case then a decrease in the cost of the drug won't lead to an increase in the sales of the drug. In this case the consumer has a net gain and the seller has a net loss. This is obvious not always true. For example the cure for Hepatitis C is so expensive that many people who would like to take the drug arn't able to get it, but is true for many of the drugs.
Not so fast, Scott. Drugs like Bydureon (Type II Diabetes), Advair (Asthma) and EpiPens (extreme allergic reactions) are not designed to treat esoteric illnesses. Quite the contrary. That they are outrageously priced is troublesome, and in all likelihood, the prices charged are manifestations of rapacious greed by the pharma companies.
11
Can you support your claim that the most expensive new drugs are targeted at relatively rare diseases? Pharmaceutical companies have a financial incentive to avoid spending on development of drugs for rare diseases (which is a problem in itself), and the drugs that I read about in financial news about the pharmaceutical industry all address diseases that are generally not rare. Also, I don't see any good reason why drugs for possibly desperate people in limited markets should be overpriced. I don't see much evidence that we can get a fair price without regulation or negotiation.
1
Stan,
The industry has chosen in many cases to develop drugs for small populations for two reasons, targeted therapies allow the companies to increases the odds of approval and because the populations are small the impact on overall healthcare spending is less. This is why you see many companies concentrating on developing monoclonal targeted therapies in oncology which satisfies both criteria.
...a willingness to say no – to tell a drug company that an overpriced drug will be excluded from the formulary. So it wouldn’t be politically easy. But it would be good economics.
That would require courage.
Maybe the one in 2020 will have enough.
3
Insurance companies and pharmacy benefit managers largely perform the tasks that you are asking of the president. They control which drugs are on "formulary," and have negotiated prices with the drug companies. The newer medications are very difficult to obtain, and are never available unless they are used for the specifically approved indication. I suspect that if the government took over this function, the situation would be even more difficult (try getting through to the DMV) and patient care would suffer.
1
Insurance companies are in the business of selling help in managing the huge price risks which are embedded in the (failed) American system of health care delivery. When health care costs and price risks rise, the market for those services grows. (Considering drug rebates, I'm unsure exactly what business pharmacy benefit managers are in.)
1
I have Blue Cross/Blue Shield as my primary and Medicare as my secondary insurer. The prices that BC/BS pays is often double the Medicare schedule. Medicare is far more accessible.
Meanwhile, I paid my mother's and my uncle's bills for years and thy were forever being nickeled and died by the secondary insurers, Humana and United, respectively.
2
I would suggest that there are some features of the market for pharmaceuticals that are unlike those for other goods. In particular, the demand for a drug should (hopefully) not rise in response to a reduction in cost. The number of patients with disorder "X" which is optimally treated with drug "Y" has nothing to do with the cost of "Y." If "Y" is one of several available and more or less equivalent treatments for "X," then a lower cost might drive more sales of "Y" and most likely would if consumers were making the choice. But they are not. A prescriber makes the choice and he or she may be unduly influenced by pharma sales reps, stock holdings, or the suggestions of peers and in any event doesn't know what drugs cost. Not to mention the role of PBMs and the incentives they are subject to.
1
The utility of patents has always been a matter of balance between the need to spur invention and innovation for the public good and the desire of the inventor to maintain a monopoly.
Without the benefit of a patent, James Watt and his financial backer would have had no incentive to develop the first commercially successful steam engine, which was a huge boon to the industrial revolution.
However, once the machines began to sell and make a profit, some of the profit was used to lobby British government for protection from competitors who were coming up with genuine innovations to improve Watts design.
Our own government is especially susceptible to this kind of bribery as elections become increasingly expensive and financing them is done largely by corporate campaign contributions. The entire incentive is to spur legislation that favors the profits of individual corporations over the long term good of our economy and the public as a whole.
7
On the one hand US drug profits fund the R&D that the entire world benefits from. There is no arguing against that. But what this article is about is monopoly pricing which is exactly what drug companies practice. Sell as much as you can at premium and then as much as you can a little less and so on until you have filled in that entire triangle in the chart. That is what for example Gilead Sciences does. Sell high and then have "compassionate use" programs for those who can't afford the full price. Thus harvoni is $1000 a pill here for patients with great insurance, less for people with dicier insurance, other prices for European health services all the way down to a dollar a pill in Egypt. It does extend "compssionate use" as far as it can go and it does extract every drop of profit there is to be had.
Not so, Bill H. Almost half of all funding for pharmaceutical research and development comes from the U.S. Government, aka the U.S. taxpayer. And to take that thought one step further, research is almost fully funded by the government, and the pharmaceutical companies invest in the development. Of course, only the pharmaceutical companies get to enjoy the profits.
Seems to me the pharmaceutical companies ought to sharing the profits with the government.
1
I worked for many years with doctors, pharmacists, financial, and marketing people in major pharmaceutical companies (Swiss, American, French, British) here in France, keeping their English skills up to scratch for international conferences. The discussions I had with these people about their working relationship with the French health regulatory authorities on drug prices and marketing and promotional materials were extremely interesting and were in stark contrast to the situation in the US.
They were always tense before what they knew would be tough negotiations on pricing, but they seemed to accept that it was normal that they find an acceptable compromise between affordability for the patient and the “Sécurité Sociale,” and profitability for the pharmaceutical company. I never heard any of them say they thought it would be normal to unilaterally set their own prices with no negotiating with the government as in the US.
Trump’s idea that the Europeans should raise their drug prices as a solution to the price gouging and predatory drug practices in the US is patently ridiculous.
235
We in the US are essentially subsidizing the civilized nations of the world when it comes to pharmaceuticals.
7
As a beneficiary of the French system, I fully agree with Susan. Freedom-fry eating US politicians would do well to study how France manages to cover almost all its people while spending almost 60% less per capita than the Americans.
US patients are being fleeced by pharmaceutical companies, know it, and just ask for more.
The benefits of capitalism are profit based not sharing based. A capitalist wants the whole loaf, not just a reduced segment of it.
9
In this, as in other matters, Mr Trump is only pretending to carry the ball. Can his administration regulate drug prices or negotiate for Medicare without a mandate from Congress? I don't know. To me, Congress is the one that really flips the burgers, while Trump is the Donald MacRonald dancing around the storefront in heavy make-up. Congress definitely doesn't want to stand up to Pharma ahead of elections this year. It's too hard to raise money for their candidacies.
Negotiating drug prices is one part of the picture, but tightening the Hatch-Waxman act that was enacted back in Ronald Reagan's time so that the work-arounds on drug patents that violate the intention of said act no longer persist, should also be championed by responsible politicians.
3
Tom DeLay , republican of Texas pushed the Part D plan through by hook and crook (he ended up serving time for some other lobbyist related charges). Pharma loves the way things are in the US, they can charge pretty much what they want.
3
It's so easy to blame Big Pharma, particularly in light of recent events... just like it's easy to blame the banks. Yes, industries have executives who are under enormous pressure to do the wrong thing, or rather, to do right by their boards and shareholders, and wrong by almost everyone else. Just a few weeks ago we had Tim Cook telling us that Apples pays their taxes. Legally it's true ... but within the rules of the law, and not within the intent. So don't blame hardworking scientists in Big Pharma for this: by and large, they work in Pharma because they believe, to one extent or another, that they are helping, not hurting. If you want to blame someone, look towards your elected representatives and congressmen. These are also folks under enormous pressure to do the wrong thing, but with a key difference: In Pharma, the CEO reports to the board and shareholders first. In Government, a Politician reports to the people first. We need to remind them of that simple fact.
22
Nobody is blaming the scientists. Why do you mention them?
And, yes, it's easy to blame the companies - drug, bank and others - but that's because they are behaving in a highly anti-social manner.
7
A couple of things not addressed in this article. One is ROI and the other is profit margin.
Drug production is the class action attorneys full employment act.. People clamor for some drug to cure their affliction, but if there are any side effects, they will be suing for lifetime payments. A drug goes through an extensive FDA approval process, if it is finally declared eligible for marketing, sold to the public, but if there is the slightest glitch later the shysters have a field day.
Most of these drug manufacturers develop a drug for a specific need as seen from public demand. It takes research, some times years and the same for testing. Then when the needed drug is available, they are considered villains for recouping their expenses.
Can anyone here tell me what is a fair return for the expenses incurred, and along with that the return on capital that was used,and could have been collecting interest and gains by not being used?
Unless you are willing to finance drug research and production at public expense drug manufacturing will be a for profit, enterprise.Drug companies are not in business just because the public needs them, they are not charitable organizations.
2
What is the evidence of this alleged massive suing and lifetime payments? Dollar numbers matter here. Isolated incidents are not sufficient reason to believe suits are important.
8
Cry me a river. They're not selling refrigerators, they're selling life saving medications to supposedly help people. Strict profit motive does not work here. They are in business precisely because the public needs them, not just for shareholders to demand increased profits eternally.
3
Excuse me but you don’t seem to be aware that the government meaning the taxpayers are paying for the development of these drugs.
1
Not mentioned: Advertising. In most of the world, TV advertising of pharmaceuticals isn't allowed. But we get bombarded with loathsome commercials featuring everything from cancer to leaky bladders, and the pharma industry spends more on them than on their vaunted R&D. (And Trump thinks the solution is to make other countries raise their drug prices because they're benefiting from "our" drugs--as if only the USA is developing new pharmaceuticals.) The whole system is broken, and only common sense and a willingness to fix it will help. Unfortunately, those haven't been available for some time.
66
I have to point out another aspect of private drug development which is there is strong motivation to make expensive drugs. A discovery that say eating curry and yogurt affects the gut microbiome interactions with the immune system that effectively prevent several cancers is not going be monetizable though it would be profoundly useful to society.
This is a fundamental problem in our "system". It is one reason publicly funded research is worth orders of magnitude more investment. It can aim at effective drugs and treatments, not limited to profitable ones. It's also worth pointing out that publicly funded basic research enables private drug development. That investment is repaid...how? Monopoly pricing? Thank you sir! May I have another?
34
In my 30 years experience in the industry, many of the top selling patented drugs were NOT actually of US origin. They were licensed from foreign companies or were me-too copies of those drugs, just enough different to be granted a patent too.
The manufacturers' price to the trade for patent protected brand name Rx products was determined by some guess at what patients might be willing to pay for a daily dose or course of therapy. Cost of goods at the manufacturers' level was not really considered much in fixing sale price.
Patients had no say on what doctors prescribed, and doctors had no idea of the cost to the patient. if the price were too high, however, the patients might not get the Rx filled. The price at the pharmacy counter would be about double what the phamacy paid to stock it.
Of course the typical Rx these days is for a generic substitute, usually imported from India or China in bulk and repackaged here. Pharmacy chains then decide what the traffic will bear and therefore what to charge. Check what you are getting next time you fill an Rs, and you will see -- as I have -- that is now the case.
16
Trump has one goal, to raise profits
For whomever put cash in his mitts,
He'll guarantee savings
Unfulfilled ravings
T'will drive patients out of their wits.
29
As Gusting noted earlier, "The charts aren’t for medications. The charts represent monopoly pricing." ...nor about Big Pharma's unethical tactics, r&d costs, the insurance industry, etc.
I'm not saying don't comment about these things, only realize what PK's piece is actually about.
Thank you.
4
Drug pricing has nothing to do with research and development and even less to do with economic models of supply and demand. It is a perverted corrupt equation determined by drug companies and their contracts with insurance companies and big chain pharmacies. As a general pediatrician, my patients rarely need cutting edge medication--tried and true is safe and effective. Unfortunately generic drugs are sometimes more expensive than brand based on a patient's insurance. Despite my electronic health record, I still cannot tell what is "approved" on an insurance formulary. Even if I call the insurance company to check if it's "approved" the patient price depends on the pharmacy they go to and often the price is cheaper if they buy without their insurance.
150-200 bucks a month to control childhood asthma with a steroid inhaler that has been on the market for over twenty years has NOTHING to do with R&D. The insurance companies are complicit by not covering the cost of the inhaler even as they mail me notifications that my patient has not filled the inhaler that I know his family can't afford.
Big Pharma knows individual patients and families are powerless to negotiate. Insurance companies are supposed to negotiate price on behalf of members but in general just because they approve it doesn't mean they pay for it. Employers are supposed to care but providing insurance doesn't mean you can negotiate any cost of healthcare at all.
238
Right on !! Just Google "Pharma Bro". Got to guess more like the industry norm than some weird outlier, just not as "buttoned down" as industry colleagues in stealth mode, the puppet masters behind the ridiculously high prices for drugs whose patents have long expired.
10
Yes, absolutely! It's so strange to find some random, commonly prescribed drug which has been off patent for decades suddenly shoot up in price. What the heck!
You can be as monkish as you want. We know you want all Americans to receive health care. Today's young people don't know there was a time (40 yrs. ago) when it was expected and assumed a person's benefit package included health insurance. The absolute take over of private business/capitalism and the failure of government to apply any controls (we know the GOP hates regulation) has led to out of control costs and benefits for a few. No one resents paying those whose research and develop products that benefit the well being of humans. It is a gift to be able to have a positive impact on people's lives. Nevertheless, there must - must - be limits on costs to the consumer/patient. The industrialized nations except for America have national health insurance costing far less than our system. Health care should not be viewed as a privilege for the few who can afford or are willing to surrender their life savings. Greed has supplanted the hypocratic oath. It's decades past time for America to rein in the absurd costs allowed throughout the health system.
90
And there was a time 100 years ago when workers received no benefits. if you want to play the time machine game, be careful how far back you go.
2
Vector65: And your point is? Of course one can go back to a time worse than our own. But Rev Wayne’s observation is that as a society we steadily improved the lot of people from that of a century ago, yet since the 1980s we have regressed while the rest of the world has maintained its social safety net.
Yes, we are assuming a time when workers, through their socially enlightened employers, expected to receive health insurance through their benefits package. Today, this is no longer true for most and a rather recent development compared to the 100 years mentioned in the above comment, which are completely irrelevant to the discussion. In 40 years, we've managed to destroy the medical/patient delivery system to such a degree that many workers no longer receive health benefits. We have essentially been trying to re-set the standard to that of 100 years ago, as many employers no longer provide health insurance. So, we've actually regressed to a point that most people would agree is politically unacceptable and untenable. We're returning to "healthcare only for the riches" and "crumbs for the poor". This is the equivalent system of law in the United States no.
I wish just one economist, one time, would spend a year working in a drug company to learn a simple fact:
making new drugs is really really really hard
Disclosure: I'm not in pharma, but have worked in pharma startups; I have a PhD in molecular biology.
Why are drugs so hard to make ?
we don't, actually, have a very good molecular understanding of human physiology, let alone physiology that accounts for genetic and environmental variation
we don't actually, have really good tools to develop new drugs even if we know what the molecular target is
we don't actually, have really good ways of testing new compounds
The truth of my assertions is borne out by a simple fact: many new candidate drugs fail in phase III clinicals.
By the time a drug candidate has gotten to phase III, over 100 million dollars has been spent
yet the failure rate is high
4
Look at figures 2 & 3 - effect of controlling prices vs profit & vs customer & societal benefit. That's what PK's writing about, not drug manufacturing, r&d... but please also note that PR $ blows away R&D $, as per prev comments.
11
I wish one time a research scientist would spend a year looking at the total business costs of drug sales, including marketing, legal coverage, lobbying, sales, and business development. The Research part, including the absurdly inefficient clinical trial sequence, is less than half the cost of the drug. Moreover, scientists are not incentivized to reduce costs. It is a point of honor at most med schools for a faculty member to be running a very expensive clinical trial.
Yes, it is hard to innovate. And that explains why in certain fields the pipeline is nearly empty. That does not explain why the costs are so high.
12
I track developments in science and I completely agree with your assessment. We are, with the biological sciences, where physics was discovering the relationship between electric current and magnetic field.
The molecular understanding of biology still has to go through a massive phase of cataloguing protein interactions. Then an even more massive phase of integrating those individual phenomena to meaning in a larger organism. And then those larger organisms in an ecosystem. That will have to involve the concurrently developing large data set processing technologies in IT math and hardware.
As promising as the new cancer therapies seem, for example, we are still bashing around and making guesses about mechanisms of action. It's possible, even likely, some will hit the jackpot and work. We'll actually know why a decade or two later.
But don't you think it makes sense to massively increase public spending on both basic research and drug development? Increasing basic research will increase the rate of real understanding, making drug development more focused, rational and less expensive. Further, inexpensive drugs or non drug approaches to alleviating disease could be explored. That is not a financial option for "private" drug companies. Publicly funded research yields huge bang for the buck.
Let's do something rational for a change.
12
I believe that you may have overlooked an important factor in pharma economics. Assume two maladies, X and Y.
X is susceptible to a "quick fix" such as a vaccine or a short course of a new type of antibiotic. That is, X is susceptible of a cure.
Y, however, is destined to remain chronic. Phama can develop drugs which control the malady or its symptoms, but these drugs will not cure the underlying condition.
In such a case, the economics of the market (with the monopoly effects of patents) are biased toward investing in a drug directed to Y not X, even if, for instance, the economic cost to society, as a whole, is greater for X than for Y.
10
Good article, but
I have failed to see a good analysis of how much the taxpayers (you and me) contribute to the development of new drugs by grants from the NIH to universities and other institutions.
26
Paul....please leave the Pharmaceutical mafia alone before someone gets hurt.....or before PhRMA profits get hurt.
Don's Three-Card Drug Price Monte is going to work miracles for the extorted masses.
We have the greatest healthcare and Rx rip-offs in the world because that is what the right-wing vulture capitalist Republican vampires have demanded, and Trump will be damned if he gives them anything less than the chocolate cake that he and they deserve seven nights a week, 52 weeks a year.
Stand down reason, decency, humanity and economics.
In Extortive Healthcare Monopolies and Oligopolies We Trust
GOP 2018
194
Socrates, the whole idea is to penalize people who aren't rich. If we can't donate money to the GOP or the Democrats we don't deserve a seat at the table of decent life in America. The GOP is more obvious in their positions about working Americans. The Democrats have a big stake in keeping the wealth care industry happy too.
2
There are several drugs for which the demand is inelastic, and thus will not respond to decreased prices with increased demand. Pharmaceutical companies target the medical needs that will fall into this category.
note that the most expensive drugs are those for these conditions, most typically refractory cancers, but hepatitis c falls into that category.
sometimes patient risk considerations will also drive this, for example markedly better safety profiles.
Where Mr. Krugman's analysis holds truest lies in conditions where there is a large class of medications with essentially the same characteristics (a counter arguement is that the pharma companies will fear cannibalization) or perhaps most impactful, medications that have gone generic, but are still expensive in the generic form.
3
For more on what actually make drugs so expensive in the US - it's certainly not Europe - see http://robertreich.org/
7
Once again, you don't need to consult complex economic theory to know whether bargaining by government reduces prices. It's not just pharmaceuticals, but all aspects. Control of prices, which normally involves some bargaining with industry and professional representatives, is the common element in all the successful systems of other advanced countries, which get healthcare for an average of half what the US pays. The case on empirical grounds is open and shut. The Trump initiative may actually be aimed as much in practice at reducing the bargaining by US government agencies as that by foreign governments.
The question of whether there is any reduction of innovation because of government control or bargaining is more complex - in fact too complex to decide theoretically. One reason it is hard to pin down is that pharmaceutical companies inflate the supposed costs of development and testing so it is difficult to get really accurate numbers. But the European pharmaceutical industry does quite well in the price-controlled environment.
7
I consider Television Drug commercials malpractice by physician led Drug companies and salespeople who are pushing their drugs on everyone irregardless of who the viewer is and whether the drug is indicated in their case, without ever having seen the patient. The phrase; "ask your doctor" follows their implied beneficial claims. The Drug companies are superceding the important physical exam and analysis of each individual patient.
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While we're plagued with drug ads, European TV viewers aren’t. They ban them. They have the exotic idea that medicine is between doctor & patient, not to be marketed with manipulated commercials like any consumer product for the highest profit.
But EU citizens are also not flooded with election campaign ads paid by billionaire donors. The ripple effects of this are huge. They've had health care for all for generations, even supported by conservative parties. A different civilization.
Pharma ad spending on US TV has soared, as our election spending by mega donors also soars.
W. Post---- AMA urges ban on TV drug ads, since marketing costs fuel escalating drug prices.
Is there a media columnist who would dare to discuss campaign finance reform?
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a retired attorney:
EU doesn't have a First Amendment that has been extended by our Courts to commercial entities, albeit speech regulated by the FDA as to content that includes "always talk to your doctor" first.
"campaign finance reform": the only ones who could do it are those who benefit from not doing it.
Gosh, he's really missing a very basic point.
Insurance drives up the price of drugs 5X. Assuming the customer only has to pay 20% of the drug, the profit-maximizing price goes up accordingly.
If customers had to pay 20% of the price for the iPhone X, the profit-maximizing price would rise to $5,000 and the customer would pay $1,000.
3
Do you have any kind of justification for these statements besides multiplication?
6
Like so many other things in America what's best for most of us is exactly what our politicians refuse to do. It would make sense to have universal single payor health care. We have Medicare. All we need to do is extend it to everyone. Stop allowing drug companies, medical device companies, and hospitals to charge whatever they want to charge and regulate the pricing so that patients and their families don't have to hold bake sales or set up a Go Fund Me site. Nope, won't be done. So our access to health care is dependent upon how popular we are in our communities: a ridiculous way to determine who receives health care but for some it beats dying.
What you don't mention is that all that R&D these companies claim to do isn't done where they say they are doing it. Giving the drug a catchy name, researching and developing a good marketing strategy, doing focus groups; there is more of this research than there is solid scientific research done in drug companies.
Not only that, these companies lie about side effects, don't report all the data (only that which makes the "new" drug look safe), and they pay court to our elected officials in order to avoid real scrutiny. Patients pay the price for this as do doctors.
It's time to curb the abuses our health/wealth care industry perpetrates on most of us. How much profit do they need? And how deep in debt should we be going when other countries spend far less and get better results than we do?
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Not only does our public health need universal, single-payer healthcare — "Improved Medicare for All" — our economy does, too. The simplicy of eliminating all the ways for-profit insurers and big pharma protect the health of their bottom-lines over the health of patients means cutting costs by 30%. Big pharma makes money in other countries, just like it does in selling to the VA and to NYS Medicaid, which buy the same drugs for half the price. Why? Because the VA, NYS Medicaid, and other countries negotiate on price. But who wants single-payer healthcare that can better control costs and better eliminate fraud, when lack of transparency can spit out enough profits for there to be 2 healthcare lobbyists for every Member of Congress and health industry campaign donations exceed all other groups?
1
A few years back a drug company came out with an expensive diabetes medication called Glucomet. Glucomet is a patented drug that is simply a combination drug containing two drugs, glyburide and metformin. Both of these drugs have been available as inexpensive generics for decades, but by simply combining these two into one pill, the drug company could market it as a novel expensive brand name drug. What is astonishing is that insurance companies paid for it.
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What is even more astonishing is that a patent was granted. I'm not fully astonished only because I was aware the Patent Office is very lax about refusing patents. Why that is, I don't know. I suspect understaffing is part of the reason, just as deliberate understaffing at the IRS prevents it from auditing many of the high-income cheaters it would like to. But don't tell the Republican Congress; they know exactly what they're doing each time they cut the IRS budget.
20
Best of luck with the 4:45 airport trip - hopefully you are going home. I have done too many of those, and sympathize.
Andrew
6
(Not Wonkish)
This ignores the elephant in the room--marketing costs. Alan Sager of BU has found that the marketing costs of Big Pharma eat up about a third of their budget and are about 3 times what they spend on R &D.
So what are these costs? Well, first of all, there are the irritating ads that saturate the air waves and the print media. The first one was on May 19, 1983. The only other country that allows prescription drug ads is New Zealand. A simple act of Congress or a regulation by the FDA could eliminate them.
Then there are the pushers that infest doctors' offices. These are totally unqualified salesmen whose main purpose seems to be to get doctors to use drugs in unapproved procedures.
Finally, of course, there are the payments to physician, both under and over the table. These range from free lunches, to paid vacations at expensive resorts under the cover of a lecture or two so they can call it a conference, to huge contracts as consultants.
The purpose of the ads is to get us to ask for drugs our doctors do not think we need while the pushers and the payments are to get physicians to prescribe new expensive drugs even when older cheaper drugs do as well if not better.
It has been conservatively estimated that if this marketing is eliminated, it would lower the cost of health care by $100 Billion each and every year.
http://www.theatlantic.com/doc/200604/drug-reps.
http://www.nytimes.com/2007/11/25/magazine/25memoir-t.html
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One additional item missing here is that Medicaid recipients can obtain a named brand drug without having to accept a generic, which is a law that should also be changed.
14
" there are the irritating ads that saturate the air waves and the print media." Forbidden in Europe. Why do we allow it?
"Finally, of course, there are the payments to physician, both under and over the table. These range from free lunches, to paid vacations at expensive resorts under the cover of a lecture or two so they can call it a conference, to huge contracts as consultants." Only because of the huge lobbying (costly) efforts by Big Pharma, can this continue. It's not a fault of physicians, but of our representatives.
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Some other important integers in this economic factoring: advertising agencies and their vendors (audiovisual companies, actors, props, venues, etc.) make a living off these advertisements; TV, radio, magazines, and newspapers, likewise. Thus, not one dollar goes to waste: Someone benefits.
9
This might be a good time to mention that generic drug prices at the wholesale level are actually too low, as generic drug makers are squeezed by the 4 large wholesale buyers' monopsony power. This could result in a shortage of generic drugs such as antibiotics and blood pressure meds.
https://www.bloomberg.com/news/articles/2018-04-11/are-drug-prices-too-low
7
shorter: government qua CMS has bargaining power, even quasi-monopsony power, and refuses to use it.
6
Big Pharma is bankrupting our Citizens, even those with Insurance. Also, they are causing ALL of us to experience cyclical and intermittent shortages of Drugs. Critical, life saving and sustaining medications for chronic conditions and for Emergencies or Urgent diagnoses. The Solution : Either Nationalize SOME manufacturing facilities and / or negotiate prices. This is the First Step in Medicare For ALL. It's the fiscally prudent solution for the long term, and the RIGHT thing for all of us.
Seriously.
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The question is: What does the demand line or curve really look like?
I suppose it begins very flat and then falls off sharply.
(Remember: The status quo is rather about Medicare paying a high price, not so much about rationing (save for people not being able to afford health insurance and meds in the first place, but that's not really about this monopoly issue).
That would almost eliminate the welfare gain area.
I'd like to point out that the pharmaceutical industry does get a huge amount of government funding for research. Why is there an ability to get an exclusive patent (temp monopoly) on the results of publicly funded research at all? Shouldn't the people behind the research-sponsoring government automatically get a free license to that patent?
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Completely agree. The Bayh-Dole Act of 1980, which allowed patents on taxpayer-funded research, explicitly allowed "march in" on commercialized products based on such research. Sadly, the govt doesn't agree that monopolistic pricing is a reason for "march in," arguing that only keeping the drug off the market could trigger march-in, but not extravagant pricing that make access unaffordable. Per a 2003 NIH opinion: “"...the extraordinary remedy of march-in is not an appropriate means of controlling prices of drugs broadly available..."
1
Everyone including you and Trump are failing to recognize the central responsibility of Doctors who prescribe the medicines. After decades of cultivation, from paying doctors to speak about a drug, to salespeople having mostly exclusive rights to visit to sell doctors on their products, big pharma has dominated the prescribing process. Then again is the Television selling that sends regular people to the doctor asking them to prescribe what they saw on TV. Let's not forget the Doctors, that is where policy should be focused. Trump's new policy ignored the role of Doctors.
13
Excellent points! I am a retired medical clinic manager and witnessed exactly what you described. Our Doctors and Nurse Practitioners were bombarded with demands for prescriptions they saw advertised on TV.....no matter how much the Clinician explained the drug was a mismatch for the patient.
Need I mention the need to control the Benefit Pharmacy Managers ?
66
It's interesting to notice how nearly every drug ad features healthy looking people. Too bad these ads don't show who is really taking these drugs because some of them are not meant for healthy people. These ads should be outlawed on the basis of appearance alone because if one is undergoing chemo and losing weight and nauseous the drugs won't restore one's hair, undo the fear of dying, or suddenly reverse the course of the illness.
In other words, do not trust the ads "informative" nature. The sole aim of these ads is to sell you a drug you may not need and might not be able to afford even with insurance.
51
Thanks Len for your 'not wonkish' post.
“…if marketing is eliminated, it would lower the cost of health care by $100 Billion each year.”
That's what we need. Wonkish columns may impress some people, but they don’t influence politics much. Yet Krugman keeps writing wonkish for the general public ---what’s the point?
We see that pharma ads now dominate our TV commercials with every program. The same TV networks who report the political news, run these ads day and night. So how does that affect the range of solutions they discuss?
But European TV viewers aren’t plagued with drug ads. Medicine is supposed to be between doctor & patient, not marketed like any consumer product.
They're also not flooded with election campaign ads paid by billionaire donors. The ripple effects of this are huge.
NYT says TV pharma ad spending more than doubled in the past 4 years, making it the 2nd -fastest-growing category on television.
W. Post---- AMA urges ban on TV drug ads, since marketing costs fuel escalating drug prices.
Too bad even our liberal columnists like Krugman don’t realistically challenge the prevailing basis of our politics—profit before the public good--even with health. They just lament the result.
What Krugman avoids is that big money in the medical industry helps subsidize our elections. Both parties compete for their money. They benefit.
We the People finish last.
15
Dr. K. tells us (obviously correctly - he's got the Nobel) that the economics is good.
But we don't live in a world where actual long-term economic considerations are becoming more and more of a rarity, don't we ? We're in short-term Wall Street World, as well as in a new Gilded Age, where what matters is that the wealthy control more wealth - and concentrate it as quickly as possible, ignoring the long-term effects (as long as possible).
In the specific case of Pharma, there's the very specific instance of a Johnson & Johnson subsidiary and Risperdal:
https://www.wfaa.com/article/news/local/investigates/drugged-and-dying-d...
complete with payments to influential professional leaders, targeted marketing, and sales efforts directed at uses not approved by the FDA.
Until the Wall Street World ethos we're currently seeing in D.C., evinced with gutting of regulations and agencies, the Vultures will have their way with us.
35
Thank you for the video. Very informative.
2
I must be missing something.
The charts show a linear relationship between price and demand. How can this be the case for medications?
6
The charts aren’t for medications. The charts represent monopoly pricing.
7
PK. there may be a simpler way for the USA to start drug price moderation. The USA is the largest drug market. We should start with demanding to be a most favorite customer . We would request that we get pricing that is comparable to the low prices available in other rich countries ( the G-7 for example) . The goal is to get our pricing at the best market price of any rich country. We could come up with ways to " convince" drug makers to go along with this. There are caveats that will require work but this is good first start. We would be starting by getting a price base already negotiated by other countries.
6
Yeah, that’s called “negotiating with pharma.” Which is exactly what potus said wasn’t going to happen.
4
We're an oligarchy now. Nothing that's good for the 1% is good and in the interest of the 99%, just like much that we couldn't get when we were a mere plutocracy wasn't necessarily good for Americans. When we got heathcare, only some among us got coverage, and at unaffordable prices for many among the "fortunate."
Neoliberal triangulation, or the compromises one makes with Republicans, are what set us down this path to oligarchy and the corruption and rabid greed that goes with it.
We should have long ago gone with universal healthcare and the imposition of strict rules regarding rates for Big Pharma, Big Medicine, and we should have done away with big insurance. Healthcare is a human right - not something kind of prize for the greedy.
The Republicans have never made deals in good faith. Not on healthcare. Not on taxes. Not on jobs. Not on banking. Not on anything.
---
https://wp.me/p2KJ3H-2Jr
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Rima... your underlying premise is the correct one. Everything else, no matter how eloquent or nuanced, is just distraction. The extreme power of the very few is the proper filter to see behind EVERY ISSUE reported in the NYT et al.
Stay focused people and we can all help renovate the power structure.
13
Rima--even your outgoing governor Jerry Brown aka Moonbeam rejected universal healthcare because he feared it would bankrupt California. And no one gets higher marks on the progressive issues that are so near and dear to your heart than Jerry Brown. You really should ask the voters if they're willing to pay higher taxes to finance that universal healthcare you think will magically solve all of our medical problems.
Also please stop repeating that "neoliberal triangulation is the cause of all our problems" cliché. It's getting old and stale.
Sharon,
I guess it takes living in California and living through the policy decisions Brown has made to truly understand how far this iteration of Jerry Brown is from the romanticized version you just gave. Today's Brown is no progressive. No progressive starves an education system, the disabled, and the working poor to remain on the good side of the upper classes and seal one's legacy in gold. That's what he's done, though. As far as universal health care, he's only following the lead of the neoliberal right of the party. His successors won't. As for my writings, I don't take requests. Don't like? Don't read.