The Danger of Managing Drug Prices
bloombergview.com
bloombergview.com
Ultimately, the only way to get new research is to be willing to pay for it. And the only way to get low prices is to be willing to walk away. It might be helpful for people to take a big-picture approach here, and I suspect that if they did, many would decide that maybe having all these expensive drugs and even more expensive medical plans isn't really worth it. You can probably get a lot more enjoyment out of a 60-year life than a 70-year life if every year comes with an extra 10 grand to spend, especially if your last five years would have been spent suffering side effects in a hospital bed. I suppose I'm questioning the author's assertion that (rational) people are willing to pay any price for drugs.
Why do you think it's in the wrong direction?
Many countries have socialized medicine, some of which have single payer, and I've never met a person who experienced a single payer system who didn't think it was the right way to go.
Econ101 is good for teaching concepts about how to think about economic interactions, but when the data doesn't match the theory, you can't stick with the theory.
US public healthcare spending alone, excluding private payments and insurance, places the US in the top 20, possibly top 10, in government spending on healthcare.
In other words, Americans pay more than citizens of most developed countries over their taxes, and then pay about the same again to private insurers...
Another country, no, because that would be irrational and stupid (just as it would be for the US, if the argument atht the US is actually doing that is correct.)
On the other hand, if the US is subsidizing the rest of the world, that means the US is substantially reducing the marginal benefit of expenditures in the subsidized domain by other countries, disincentivizing their own expenditures (direct or through policy which promotes drug development.) It would be irrational to expect the removal of that subsidy and the associate disincetives not to result in increased expenditures.
To put it in concrete terms, of OECD countries (comparable non-OECD data is harder to get), the #2 country in per capita healthcare spending (Switzerland) spends about 72% of what the US does per capita.
> US public healthcare spending alone, excluding private payments and insurance, places the US in the top 20, possibly top 10, in government spending on healthcare.
Again, to provide some concrete numbers, in the OECD, the US is #3 (behind Norway and Netherlands) in per capita public healthcare spending.
It also has the second highest proportion (52%, just barely behind Chile) of total healthcare expenses that are private, rather than public.
In my experiences with the US hospital system I've been shocked by the way every single town seems to have all the fanciest, newest equipment. A scan that you'd wait days for in Australia you can get on the spot in the US.
That money is going somewhere.
A lot of it is going on over diagnosing and over treating, both of which cause harm.
> That money is going somewhere.
Mostly to the pockets of the health insurance companies, which rake in ridiculous profits for providing services which are essentially non-existent and not needed almost anywhere else in the world.
You can get most stuff done immediately in the UK too, by paying for private insurance (incidentally you'd still pay less in taxes + private insurance than Americans pay in taxes towards healthcare alone) or just going to a private clinic. Most people don't, though, because as much as people might complain about waiting, they also tend to accept that the NHS prioritises by clinical need and will provide treatment when necessary. Including through buying capacity from private providers or sending patients abroad if serious enough.
The result is that when you need it, you generally get treatment rapidly, regardless of your financials. When you don't need it instantly, then yes, you get to wait (or pay).
If anything, this situation in the US reflects how distorted the market is by having a system where healthcare providers are have an incentive to find every means of charging sky high rates as most of them are not paid directly by patients, and insurers have little reason to push back (because the occasional experience of high medical expenses provides a massive reason for people to well covered by insurance, and they're competing with other insurers that will use unwillingness to cover certain types of expenses against them).
But ultimately this is also part of why so many Americans have been poorly covered by insurance: The system has been geared towards people who can pay higher premiums. Had the US system focused on affordability, and left luxuries to top-up insurance like in the UK, the US could have paid for universal care out of current taxes and still have (lots) money left over.
Let's put it another way: it seems that you must disagree with at least one of the following statements:
(a) Higher demand, ceteris paribus, means higher prices.
(b) A single-payer system implemented in the US would likely cover more treatments than the system that exists in the US today.
(c) Covering more treatments means more demand for treatments.
(d) A single-payer system would not shift the supply curve for treatments.
With which do you disagree? It seems like most of the interesting arguments here are around (d), but there doesn't seem to be any evidence against it. Of course, again, there is some seriously massive distortion going on here, so it's hard to be sure.
Well, everything. Including but limited to your random assumptions, weird logic, and counterfactual conclusions.
Single payer enables the capitation model for healthcare. Lowering costs by incentivizing prevention.
> So it's pretty hard to look at what people are spending in two different places for two different things, with a probably large subsidy involved, and conclude that a theory about supply and demand for identical goods in a free market is wrong.
It's actually quite easy, just like you do with e.g. a McDonald's meal or a bottle of coke (e.g. the US subsidies these indirectly through corn subsidies, no other country does). It's not the same everywhere, not by a long shot, but it's functionally quite close.
Same drugs and similar are cost much more in the US.
The market is not free - it is illegal for you to have your medicine shipped from Canada or India or anywhere else.
Can you elaborate on this? Do you have any examples of death panels in countries with socialized medicine? Or at least of the government refusing to pay for medicine?
http://www.economist.com/news/britain/21640343-well-meaning-...
http://www.dailymail.co.uk/health/article-3106130/Ovarian-ca...
Your interpretation of Econ 101 apparently is a rabid flight of fancy, - because if you look at the data, single payer systems pay less (often an order of magnitude less) for the same drugs.
First of all, the number of payers doesn't actually figure into Econ 101 arguments, because the demand is driven by the number of customers, who are generally speaking independent of whether the payment flows through one or 20 payers. If anything, it lets producer strongarm any one payer - as the customers shift to paying through other payers. There isn't much incentive for affordable prices.
In a single payer system, if the producer will charge too much, they have no one to sell to - which gives them an incentive to price it affordably.
Furthermore, the market is not free, neither in the US nor in single payer markets. The US market is regulatorily tilted towards producers (e.g., it is illegal for you to buy your medicine abroad, even if it is the same one produced in the US by the same factory and company, and maybe even same batch). Single payer markets are tilted towards the buyers.
Death panels already exist in the US, except they are privatized. Do you really believe that private-for-profit insurance companies just give everyone everything that could help them? If you do believe that, then - yes, I think it's some rabid flight of fancy. I've known quite a few cases in which they don't. And if you don't, then you agree that death panels already exist.
Really? You haven't met many people.
However, I'm pleased to meet you, because I've lived in the US and Australia and I think that the US system is vastly superior (assuming you have decent insurance).
My objection to the Australian system is both practical (the standard of care is lower because hospitals are just government departments, they don't have a profit motive, it suits them to give you less care rather than more) and philosophical ("single-payer" health care just functions as yet another government-enforced transfer of wealth from the rich who earn it to the poor who vote for it).
Philosophically, you say "earn", whereas the labor denied their fair share of productivity gains would more likely say "horde" or "theft".
As for the "wealth transfer" stuff, well, yes, that's what society is. The idea that we're all somehow making money in isolation and in a vacuum (some more, some less), and the government can only interfere with that activity, was in vogue for a while but seems to be falling out of favor, I think, because it doesn't actually describe reality.
Reality is, we all live in a society we all share, and when someone comes out on top, the answer isn't "ok, you're rich, you won the game, and screw everyone else," the answer is, "ok, you're rich, now you have a greater responsibility to everyone else." Behold, society!
Go ask your australian friends who lived in the US what they think. I've lived in the US and Israel, and spent considerable time in the UK (the latter two single payer systems), and I had great insurance living in the US.
The "standard of care" is a vague measure that could mean anything at all. Yes, being hospitalized in the US is more like a hotel room, one person per room.
But the doctors are considerably less experienced (structurally so), which means you get the wrong care for things that aren't common (from experience). The "out-of-pocket" on my great insurance in the US is significantly higher than my premium-to-make-include-hotel-room-stays in the other places. And I generally have much shorter waits for both routine visits and specialty doctors outside the US.
The US costs a lot more. In return, you get care that is lesser but is shinier. Every statistic of care effectiveness that I've seen ranks the US quite low -- mostly comparing life expectancy but also quality-of-life post treatment.
What's this "standard of care" you speak of?
Note, I'm unfamiliar with the australian system - it might be worse than the US on every front. But the Japanese, Swiss, British, most EU, and Israeli systems are not lesser and much, much cheaper, in my opinion and limited experience.
p.s. re "great insurance" - it's great until you really need it, but then it fails to be great way too often. Leading cause of bankruptcy in the US is medical expenses[0] - more than 50% of medical bankruptcies are by people who have insurance. How great is that?
The competition for health is illness, infirmity, and death, and I don't see it as anything but cruel for the free market to force people to choose between these options. Yes, people will (attempt to) pay any price for drugs, because it's their life. This seems uncontroversial.
The reasons third-party payer persists has nothing to do with any fashionability of opposing it. The fact is that nearly every country with universal healthcare (not sure if this is included in what you deride as "fashionable" single-payer) has a higher standard of living than the US.
Because politics and economics are human sciences? I already know what I want/value for myself, and there's nothing dystopian about it. One person doesn't make a market and certainly doesn't make policy.
> The competition for health is illness, infirmity, and death, and I don't see it as anything but cruel for the free market to force people to choose between these options. Yes, people will (attempt to) pay any price for drugs, because it's their life. This seems uncontroversial.
It's controversial. Take a step back and let your SJW anger fade a bit, then think about it. Just how much would you pay for 5 years of extra life, and of what kind? Not how much would you force someone else to pay at gunpoint. Not how much would you imagine being willing to pay in the moment for 5 years of ideal life. How much, every year from birth to death, would you really be willing to pay for 5 years of probably-degraded life? Everything you pay means giving up something else. For most people, that figure is not in fact "infinity" nor is it "every dime I'll ever earn". It's less than that, and how much less depends on individual values.
Quality of life matters. Drugs have side effects, and those side effects reduce quality. Drugs aren't perfectly effective, and whatever they're intended to treat is very likely causing symptoms that also reduce quality. Very often that combination reduces quality to a great extreme. And paying for drugs, whether a vast sum or a relative pittance, means not having something else, which, you guessed it, reduces quality.
Economics is the study of scarcity and how humans adapt themselves to it. Both quality and quantity of life are scarce resources, and there are tradeoffs to be made with other scarce resources. While your gut reaction might be that the tradeoff here is obvious, universal, and uncontroversial, a more careful examination is warranted. It's most definitely not as simple as you make it out to be.
Take it back to Reddit, kid.
> When disagreeing, please reply to the argument instead of calling names. E.g. "That is idiotic; 1 + 1 is 2, not 3" can be shortened to "1 + 1 is 2, not 3."
Was there some substance to your response that was cut off, or could it have been shortened to ""?
Good. I'm pleased that evidence-based rationality is coming back into fashion.
...the only way to get low prices is to be willing to walk away.
Don't confuse individual choices with collective action.
Prices can decrease through economies of scale. Which requires investment.
Libertarians wax poetic about Freedom Markets (tm), conflating profit motive and incentive, ignoring externalized costs, ignoring the need for law and order to form open markets. It's exhausting.
OP wrote:
People who are dying are price insensitive; they would pay any amount to get a few more months of life.
Your misinterpretation:
I suppose I'm questioning the author's assertion that (rational) people are willing to pay any price for drugs.
OP makes no such assertion. The fear of death is the definition of irrationality.
Economics is by now the only science clinging to the notion of balance. Everyone has moved on to thinking in terms of inherent instabilities, and either attempt to predict (weather) or manage (engineering) them as best one can.
Couple that with market forces in the US that prevent a text-book "fair"/"functioning" free market, and we (American consumers) get stuck with prices that are not just mind-bogglingly high, but also much higher than consumers in other 1st world nations pay.
(And this question is aimed only at alistairSH)
Search for the words "Much of the development cost of a new drug is paid by the US market"
http://www.forbes.com/sites/timworstall/2012/03/15/drug-deal...
Because I'm interested to know if alistairSH knows what they're talking about or are merely parroting the same bullshit everyone else does.
The op-ed you link to again parrots this, but does nothing to source it. Alternative explanations (US insurance companies keep the money) aren't explored.
Personally, I'd like to see countries like India and China, with a combined 2.5 billion people, invest in more drug research. A lot more competition can only help with prices, and more drug research.
A quote from your man:
"I'm one of those classical liberal types with the libertarian mindset that sees the carbon-cutters as, in general, authoritarian, super-statist, quasi-socialist conspirators intent on bossing people around and interfering with their lives and liberties. Having confessed, I'm now going to prove that it's true, that it's not just my belief but a true reflection of the world"
What are the libertarians supposed to do now?
For example, here's an article by the Chief Medical Officer of Merck in the Harvard Business Review. It took me all of 10 seconds to find on Google: https://hbr.org/2014/11/the-real-cost-of-high-priced-drugs
Again, this link merely repeats the claim but does not spurce it.
Yes, it's very easy to find people saying the US pays more for meds; and that this extra money is used by drug companies on R&D. But none of these people source their information.
I'm tired of subsidizing drug development for the rest of the world. Let's manufacture and sell drugs in the United States at a rate that maximizes social welfare. Industry profits and R&D costs can rest on someone else's back.
If no new pharmaceutical was ever funded by private research money ever again, but we could control pharmaceutical costs, that would be just fine with me.
We can solve problems beyond pharmaceuticals with a command economy style approach if we can come up with a good methodology for resource allocation.
EDIT: In the case of drugs we also have a somewhat exceptional situation, we have a pretty good idea of what the demand is and what the benefits of satisfying a specific demand will be.
$30,000 vs $800
That's what we get to decide for our next pregnancy. Someone bought a drug, reformulated it a bit and replaced a generic.
Do we use the generic that's regarded as safe and effective? Do we use the new drug?
I don't want to hold another stillborn child. How can I make an informed decision? There aren't great stats for me to make an easy choice and the marketing makes makena seem like it's a much better choice.
I would first see if your insurance will pay for Makena. The company that makes it has reduced the price substantially due to public lashback.