Transatlantic divide: how U.S. pays three times more for drugs | Hacker News Reader

Transatlantic divide: how U.S. pays three times more for drugs

reuters.com

22 pointsbrianclements61 comments

This is what "Globalization" looks like: use laws and captured regulatory agencies to segment the world into markets by ability to pay. Charge more where you can. At the same time, use cheap communications to hire the lowest-cost labor to develop and create the product.

Humbug. This kind of information puts a huge damper on the arguments about "Intellectual Property" and "piracy" and stuff, at least to me. Why not segment the labor market, too, and enforce that. High priced pharmaceuticals? They have to be developed and made by high-priced labor, thank you very much.

No, this is what the world was before globalization, which has dampened such regulatory capture effects - people just don't remember the bad old times.

Price levels of e.g. medicines have always varied between countries and continents. Some people (often in a privileged position, possibly resulting from corruption) made lots and lots of money from things like monopoly selling rights of a particular brand in a country.

Think of telecommunications infrastructure, for instance. With POTS (plain old telephone system), each and every country had their own voltage and current level specifications, ringing cadences and whatever. Companies were able to extort ridiculous amounts of money for a simple telephone connection, and you maybe had to wait years before you could even get a phone. Then came a globalized system where mobile phones bypassed this regulatory capture.

This is what "Globalization" looks like: use laws and captured regulatory agencies to segment the world into markets by ability to pay. Charge more where you can.

No, charge less where you can. Why would you assume the companies would choose a low price if forced to have only one globally? Do you think they'd rather lose the tremendous margins when selling to richer countries, just so that they could get some more sales in poorer ones?

The laws that keep prices high are the ones that prevent competition, not the ones that enable price segmentation.

Why would you assume the companies would choose a low price if forced to have only one globally?

Why would I assume that workers would choose a low wage if force to have only one globally?

I can assure you that the "worker" part is true, because I've had to train my Indian successors at least once. This is indeed a fine example of "Globalization", where large corporations rig the laws so that markets can be artificially segmented, and prices kept high in North America and to some extent Europe, with lower prices elsewhere. It's Globalization for the 1%.

Not to worry, they'll cost the same everywhere in a few years, when tpp and ttip are ratified and enforced - everyone's prices will go up to match the US's.

I live in New Zealand, which has a centralised purchasing agency for pharmaceuticals (called Pharmac). The TPP doesn't require New Zealand to disband Pharmac. It can still negotiate reduced prices on behalf of the Kiwi public. The only change is that there is a more rigorous feedback and appeal process, which seems perfectly reasonable to me.

Most of that money is wasted on marketing, like over 50%. As a part of the TPP or future agreements there should be a requirement to stop all drug marketing expenditure and instead reinvest that into research.

Also I wonder if arguments like similar drugs cost 55x as much so this should too would fly.

> "Manufacturers say decent returns are needed to reward high-risk research and prices reflect the economic value provided by medicines."

Contrast this market or model with mining, where small junior companies raise investment capital from people who want to take the risk of the junior actually finding a profitable deposit to mine.

It seems this is more what markets were made for; people who want to take the risk and get the reward foot the bill for that risk. Removing that cost from the cost of the product makes the product more accessible, and the financing comes from those who want to finance.

I posted this in a previous thread:

By centralizing all procurement of a drug for an entire country through a single contract, of course countries are able to negotiate better prices than what Americans pay in a more free market. This is especially true given the structure of the pharma business, with massive up-front costs and almost-zero marginal costs. You could do the same with countless products. But this is it's own kind of abuse. Instead of being paid the market price, pharma companies are paid the lowest-price they could absolutely tolerate. They also have to worry about the political fallout of walking away from a deal when the government tries to blame them for the lack of a deal.

There's definitely ways in which drug pricing can become abusive and needs to be regulated, especially because government intervention via patents is partially responsible for enabling these abuses. But let's not throw out the baby with the bath water. A free market for drugs makes sure that companies can recoup their investments and make a reasonable profit. If pharma companies don't feel that they can do that, they won't invest in new drugs. Also, I don't want to live in a place where the availability of a treatment is determined by some government committee that determines what the value of a month of my life is.

A final thought, sticker prices for drugs are thrown around as evidence that drugs are overpriced, but 1) no one ever pays the sticker price, it's almost always negotiated way down and 2) these drugs provide immense value. Antiretroviral drugs, for example, turn HIV from an imminent death sentence into a very manageable disease like diabetes. Thousands of dollars a month is pretty reasonable when you consider that. Insurance makes sure that individuals can afford it.

> They also have to worry about the political fallout of walking away from a deal when the government tries to blame them for the lack of a deal.

This is rare, but when it happens drug companies have no problem blaming the government for killing people.

See, for example, abraxane. This is a chemo used for pancreatic cancer. There are two other chemos currently used. Abraxane isn't as good at extending life as the main med, and it has more side effects than the second.

So it's not available under the cancer drugs fund.

Celgene (partially) fund a pancreaticcanceraction.org group to campaign to get abraxane re-instated as a treatment. This involves them running misleading petitions ("abraxae extends life by two years" - celgene's own data show a median extension of two months; "the only pancreatic cancer drug" - it's the newest drug, but there are teo others, one of which extends life more, another has fewer side effects).

It's pretty cynical to use dying people, and the relatives of dead and dying people, to campaign for your meds.

Instead of being paid the market price, pharma companies are paid the lowest-price they could absolutely tolerate.

Isn't that the market price, then? Market price is the price at which trading happens——above and below that are prices which at least one of the parties doesn't tolerate. And obviously volume discounts bring down the price in comparison to selling in smaller batches, this generally applies everywhere.

I don't think any single company would sell at a lower price than what they can afford to ask. Note that part of the price can certainly be in goodwill, better public relations, or to win a bigger market share instead of cash. But that still is a net win for the seller, or they wouldn't be selling.

No, it's not what the market price would be in a system with a plurality of buyers. The demand side of the equation is heavily skewed when a single entity has the authority to make purchasing decisions for effectively the entire population. And since marginal costs are so low, the company is in a position where even a price that doesn't recoup their total unit costs is better than no sale at all to a population of tens of millions.

The fact that trade does take place proves that a market exists. Obviously it's a different market, selling to larger establishments or even countries versus selling to small retailers. Similarly goods markets and prices are slightly different in big cities versus remote country villages. But a market is a market, and when a trade closes that's the market price. If the merchandise and the price paid for it didn't benefit both the company and the buyer, there would be no trade.

Any system with buyers and sellers is a "market", that's a meaningless standard. If all of the insurance companies in the US decided to merge and use their leverage to lower drug prices, it would be an illegal cartel. The resulting price would be the "market price" but not the price that would exist in a free market, which in most definitions includes prohibitions on such cartels. Governments can get away with it because they write the rules and there's no higher authority to stop them.

You have no idea how weird and empty this kind of thinking sounds to a european.

Capitalism makes for such a cold world.

> Capitalism makes for such a cold world.

This "cold world" is the most prosperous, least impoverished, and most peaceful of all time. I'll take it.

The moral argument for socialism is easy, but it ignores the dynamics that create innovation and wealth in the first place, ultimately hurting everyone. Insurance is the free market solution to making sure that drugs are widely available. A little bit of insurance regulation goes a long way to ensuring that a whole population has access to care.

I'm a Swede and I'd talk our social democracy over the american system any day of the week.

I'm glad though that all of your population have access to care, I did not know that. We do too though.

Capitalism is a great idea. But if you let it be the only idea of your system it will hollow out it's citizens.

Don't believe all of the sordid descriptions of what life in the US is like. That narrative is currently en vogue, and some news outlets with an agenda (or a demographic to please) are pushing it rather aggressively, but it's not really accurate. Americans give 10% of GDP to private social charities. That dwarfs all Europeans countries. We have a preference for voluntary and private charity. Europeans prefer compulsory and centralized.

Yes- agree with you. Most discussions around healthcare/pharma/hospitals have a moral element(look they are price gouging us). There are possibly some cases that fit the description but I am not sure if it applies across the industry.

If in fact, pharma companies where making super normal profits- it would show up in their financial statements. Operating profits for any given year may not be appropriate because a lot of the R&D costs are in the balance sheet.

A more appropriate (but still not perfect) metric would be Return on Assets (Profits/Assets) i.e. how much return are you getting on the capital you put in. Here are some metrics for some pharma companies. None of them are making super normal profits.

9.68% - Merck- https://ycharts.com/companies/MRK/return_on_assets

5.38%- Bristol Myers- https://ycharts.com/companies/BMY/return_on_assets

5.77%: Eli Lilly: https://ycharts.com/companies/LLY/return_on_assets

5.33% - Pfizer: https://ycharts.com/companies/PFE/return_on_assets

> Thousands of dollars a month is pretty reasonable when you consider that.

Lets make venn diagram of population earning thousands of dollars a month and population that has HIV and see how reasonable the overlap it.

Insurance is the market solution to this problem.

> A free market for drugs makes sure that companies can recoup their investments and make a reasonable profit.

You know that patents make this pretty much the opposite of a free market to begin with right? You're starting with a government-granted monopoly for a period of time, so any argument which claims this is a free market is really just the drug companies trying to get your sympathy.

> Also, I don't want to live in a place where the availability of a treatment is determined by some government committee that determines what the value of a month of my life is.

In countries which have universal health care, there is no decision on the availability of a drug. Just which ones are free or heavily subsidized. Generally you can choose to have the generic at an very cheap price, or you are free to pay (or hold private insurance) for the brand name drugs. In very rare circumstances there is no subsidized option for a particular drug, in which case, again, you are free to purchase it with your own money, or hold supplemental private insurance.

And absolutely you want the people in charge to determine the value of a year of quality life, when trying to maximize health outcomes for a certain budget. The only other option would be subsidizing drugs based on lobbying from the companies, which would be absurd.

> Also, I don't want to live in a place where the availability of a treatment is determined by some government committee that determines what the value of a month of my life is.

This is Sarah Palin's "Death Panel" argument, and it's a weak one.

If you have a fixed healthcare budget you need to decide how to spend it. The most sensible way to do that is to determine which treatments provide how many years additional quality of life, and pay for the treatments that provide the greatest benefit.

You could debate the nitty gritty of how those calculations are made, and sure, there are ehtical quandries in there. It's a tough problem and sometimes mistakes are made. But that's not what you're doing. What you're doing is spreading FUD.

You could suggest that health insurance is the proper way to run a healthcare system. I'd disagree with you, based on the fact that Britain's NHS covers its entire populace, supporting a higher life expectancy than the US, and costs less PER CAPITA (not per patient) than the US Medicare system that only pays for a small percentage.

What's more, if you want to skip the waiting list for a replacement hip (the elderly score less well under the QUALY system) then you always have the option of paying for health insurance, or paying for the treatment directly.

What's more UK health insurance is cheaper than US health insurance, because the health system isn't filled to the brim with moral hazards inflating prices.

The real irony of the death panel arguement is that denying coverage for a potentially terminal condition is standard fare for american insurance providers.

They are far more of a "death panel" system than any government funded healthcare system.

How is it abusive for a country to band together and negotiate a single, good price?

The selling side already bands together to present a unified front. For many drugs there is a single supplier. This naturally gives them enormous power.

Yet when you do the exact same thing on the other side, suddenly this is somehow anti-market, anti-capitalism, anti-freedom, or what have you.

It's the exact same thing with labor unions. When employers band together to present a unified front on employment terms, we call that a "business" and it's so ingrained in how the world works that we have trouble conceiving of doing things any other way. But when employees do the exact same thing it's looked upon with scorn by many.

> It's the exact same thing with labor unions. When employers band together to present a unified front on employment terms, we call that a "business" and it's so ingrained in how the world works that we have trouble conceiving of doing things any other way. But when employees do the exact same thing it's looked upon with scorn by many.

If employers band together to set wages, benefits, etc. it's highly illegal. The US government at least takes this seriously and companies are punished for it.

Between companies, yes. But within a single company it's expected. If a company sets a pay rate and doesn't allow its hiring managers to compete with each other, that's standard and not at all illegal.

Wow, more of this "free market" non-sense.

a) It's not a free market. Especially in cases with life-threatening diseases a person can't just "walk away from a deal", that would be suicide for that person.

b) Entities banding together to negotiate a better price? Boohoohoo how unfair. Welcome to capitalism. Oh wait, if the entity were for-profit companies all would be fine, right? It's only bad when citizens band together.

Is it so hard to accept that in all other civilized countries health care works better and at a more reasonable cost?

Get your shit together, Americans.

If the entity were a single for-profit company it would be a monopoly or cartel and would be illegal.

The US is not known for applying laws to rich people.

The price difference can be a lot more than three times. For example, the cheapest U.S. price of Ventolin is $36.99. It costs us $4.45 in Australia.

I was asked to repost this as part of the new HN reposting experiments. Original located here[1], thought it was a good original comment and wanted to carry it over.

[1]https://news.ycombinator.com/item?id=10375093

Ok, we merged the threads.

Meta: I didn't know if that was an option technically on your end, but my two cents is that should be default behavior for this repost experiment.

Usually the earlier post doesn't have any comments, since we only invite reposts when a story hasn't had significant attention yet.

The rest of the world is so damn proud of their cheap universal health care. Little do they realize how much of it is subsidized by Americans. You're welcome world. You're welcome.

Yeah, because the price people are paying is related to the actual costs of researching and producing it.

Hint: No, it's not.

Biotech is a goldmine.

Hint: It's not. R&D isn't guaranteed to pay off. Why even do it or invest in it if the chance of success is so low?

This would be easier to swallow if pharma companies weren't some of the most highly and consistently profitable companies on the planet. Or if they spent magnitudes more on research than they do on marketing, PR, and lobbying.

>Why even do it or invest in it if the chance of success is so low?

Because the payoff is high?

Medical research is heavily government funded. I would be surprised, if the majority of the investment actually comes from pharma companies. Any R&D pharma companies invest in is also going to be heavily focused on areas that have a high likelyhood of paying off reasonably soon, much like R&D in any other company.

They own more of your government than any other industry, which is incidentally how they managed to create their hyper-inflated prices in the first place.

Their chance of success doesn't depend on R&D.

God, some Americans are really cringe-worthy. Is it really necessary to get defensive just because other governments are more interested in representing the interests of their people?

It is a common misconception that the US subsidizes others. Expenditures by US companies account for no more than 50% of pharmaceutical research among the top ten drug companies [0], so the rest of the world contributes as much as does the US. I don't think any other US spending could be considered a subsidy to others.

[0] http://www.fool.com/investing/general/2013/09/23/the-pharmac...

How does that refute his point?

Take Roche -- based in Switzerland. Their largest market by revenue is... the US. Their US revenues are 63% higher than all of their European sales combined.

http://webcache.googleusercontent.com/search?q=cache:uNS_cQR...

Ding ding ding, winner!!

You might want to explain the USA's addiction to prescription drugs, and how your conclusion is hence, well, misguided https://www.gov.uk/government/uploads/system/uploads/attachm...

Yes. The USA is addicted to prescription drugs. That addiction puts significant money in the pocket of pharmaceutical companies. Those companies may or may not be American. Either way their pockets are lined with American dollars.

This only shows that Roche can either sell much more on the US market or that their margins can be much higher there.

That's certainly interesting but doesn't explain anything at all.

First, it is rather ludicrous to suggest the main difference in health care expenditures is linked to the US subsidising medicines. For example, while the US spend 17.1% of GDP in health, the UK spend 9.4 % (http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS). The 8 points of GDP difference represents close to 300 billions $, which would be a significant proportion of the revenue of all the pharmaceutical combined (I did not look much for reliable statistics of combined revenue, but saw that: http://www.statista.com/topics/1764/global-pharmaceutical-in..., which suggests ~1 trillions USD).

It is also well documented that sales are significantly more expensive in the US than in Europe (marketing expenses are higher than R&D for most big pharmaceutical, and that proportion is significantly more so in the US). So without more analysis, you can't say from higher sales whether the US are subsidising European healthcare or marketing departments.

Now consider that in most of Europe (all?) Roche is expressly legally prevented from advertising their prescription drugs, and it's clear that pure revenue numbers does not give sufficient information as the cost of sale are likely to be vastly different.

Refute? Easy. The US has an unhealthy addiction to prescription drugs: https://www.gov.uk/government/uploads/system/uploads/attachm...

That's sort of irrelevant, though, if drug companies in other countries are supporting their research through high prices in the American market.

Clearly a major proportion of the profits for any pharmaceutical currently comes from the US, regardless of where those drugs were developed. If the global profits for pharmaceuticals are curtailed because the US stops paying a premium it seems foolish to say that the profit motive wouldn't be impacted in regards to spending on pharmaceutical R&D.

Don't confuse the pharmaceutical industry with any healthcare system. The quality and cost of hospitals, doctors, nurses, etc, in the RoW has nothing to do with how much Americans pay for drugs.

It has absolutely nothing to do with subsidization by Americans. It's simply that universal health care allows patients to be fairly represented as consumers via insurance agencies.

The American health care system is a perfect example of what happens, if you confuse lack of government regulation with free markets. The resulting oligopoly and in some areas monopolys cause prices to increase massively, especially given the unique traits demand acquires when demand is literally wanting to survive. That's just basic economics and trivially easy to explain.

FWIW, you have the exact same system with college textbooks: the International Edition we get in Europe is often 30-50% cheaper than the US Edition, and has big letters saying "Not for sale in the US or Canada". Then you also have a further Low Price Edition, saying "Not for sale outside India, Pakistan, ..." which I've seen at 1/10th of the US price, though usually printed on lower quality paper and lagging an edition behind.

This suggests that pharma is not a special case. And you can't point to any huge R&D costs for textbooks that are subsidized by the US.

That's easily explained though. Students don't have a lot of money and textbooks are next to rent and in some cases tuition the most expensive thing you're going to buy as a student.

Students in the US are already comfortable paying enormous amount of money for the education, students in Europe much less so and students in India and Pakistan simply can't afford to pay what US students can.

Still even if your profit margin is much smaller, that's still a large market, so you sell these books in India with a smaller profit margin and increase them in Europe and the US.

Additionally universities in the US forcing students to buy certain textbook creating monopolies also certainly doesn't help prices to stay down.

> Students in the US are already comfortable paying enormous amount of money for the education, students in Europe much less so and students in India and Pakistan simply can't afford to pay what US students can.

Yes, exactly. Substitute "people" for "students" and "health care" for "education" and you have also explained the price differences in the cost of drugs.

This is certainly one reason for higher drug prices but I don't think it's the only one.

No, certainly not.

I've seen this argument before, from someone arguing against universal health care in the US in general, and Obamacare in particular. I said that one advantage of socialized medicine is cost, and they came back with this: it's only cheap because we pay for all their R&D.

Except then I ran the numbers, and it turns out that medical R&D in the US amounts to only about $500 per person per year, while the gap in costs is many thousands of dollars.

Perhaps it is you who does not realize how much of it (i.e. not that much) is subsidized by Americans.

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