Congressman calls for probe into Valeant’s pricing of lead poisoning drug
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The medical version this is about are 5 ampules of 1g each. And those 5 ampules cost nearly 27,000 USD.
The cost of the EDTA itself is a rounding error in the whole thing. Of course the comparison is not fair, there is quite a bit more to creating a drug out of it. But increasing the price from 950 USD to 26900 USD can't really be justified by any underlying costs.
This is exactly the same thing as happened with Martin Shkreli, as is happening at the moment with nitroglycerin for heart problems and it's all the FDA's fault.
(statement by Valeant)
A pharmaceutical that is being produced in such low volumes, irrespective of how mundane and cheap the raw chemical may be, cannot be produced cheaply.
The precision required for a small batch of custom ASIC chips greatly exceeds that of a completely standard and easily created compound, for example. Yet you can still get them for around less than $100 a chip even with relatively small orders (say single wafer, maybe 200 chips), if the chip itself is relatively simple. Anyone even remotely familiar with the process can come up with a massive laundry list of impressive sounding constraints and similar that could "justify" them costing $10000 a chip. After all, its literally the most precise form of manufacturing human kind is capable of, it took decades of research, and we are working with structures that are only a few dozen atoms wide, the factories ALONE cost billions of dollars to build, and all this is being delivered, 100% custom to you, surely thats worth a kings ransom!
Both industries are pretty much the definition of barrier to entry, with absolutely titanic initial investment required. The difference is one industry is relatively competitive, while the other is full of drug-monopolies that you either pay, or you die.
That's hardly my intention here, and frankly, I find the accusation both insulting and offensive.
As with many (most?) pharmaceuticals, the cost of the active ingredient doesn't play a large role in the ultimate price. This is a prescription injectable with a volume of 200–300 units per year. It will need to be produced under GMP, and since the volume is minuscule, it's going to be produced using an expensive batch process. Setup/teardown, time, testing, packaging and logistics are going to dominate the per unit cost. It's really, really difficult to predict what the cost would be without more research, but somewhere between the original $950 and the current $27k wouldn't surprise me less than either extreme. (Keep in mind these aren't the ASP)
Portraying the entire pharmaceutical industry as one of comfortable monopolies based on the actions of some unlikeable bad actors isn't fair: the majority of the industry defines "cut throat".
Also, this seems like something a compounding pharmacy could make.
Translated, it means "Some payers are idiots and base their payments on whatever list price we choose.". One of the biggest idiots is the US government by way of Medicare and Medicaid.
As far as the production of pharmaceuticals, just the other day I was talking to someone involved on the testing side and they were describing how the latest production techniques let them put everything they need to make a drug in a pretty small room. Basically, you could expect improvements in chemical engineering processes to drive down costs over time.
This is a very contentious topic with a lot of strong opinions, so I weigh in gingerly. The pharmaceutical industry lobbied for Medicare Part D which prevents Medicare/Medicaid from negotiating prices. One argument for this is that it indirectly provides incentives for drug companies to do research. And I'm sure even that's oversimplifying it. Then again, the particular circumstances aren't actually necessary for the point I'm trying to make.
I'm not sure if you think the US government is one of the biggest idiots because they're involved in health care at all or because they're not doing health care right (that's another discussion), but I'd argue they're not idiots: the lawmakers/regulators are responding to their incentives.
Whether or not you (or I) agree their incentives align with our priorities is another thing entirely.
This is not true. Medicare Part D is run by private insurers and they certainly do negotiate for discounts which eventually pass on to the gov't since CMS pays a capitated rate for each person covered and private insurers bid to manage those lives.
Medicare Part B drugs are not negotiated. CMS pays for those drugs directly and has been for 50+ years. However, Part B drugs are reimbursed based on ASP (average selling price). What that means is the gov't never pays more than the average discounted price that manufacturers offer private insurers. If a market is competitive enough that manufacturers have to offer discounts to private insurers, the gov'ts get the average discount out there.
Add in Medicaid's mandatory rebates and the 340B program and I find it hilarious that people say CMS isn't leveraging their volume to lower prices.
As for Medicare Part D, I'm going to reference Wikipedia [0]
> By the design of the program, the federal government is not permitted to negotiate prices of drugs with the drug companies, as federal agencies do in other programs.
Also, from the Hill [1]:
> By way of background, the 2003 Medicare law exempts Part D drugs from "best price" rebates that drugmakers have been required to give to the state Medicaid programs since 1991.
[0]: https://en.wikipedia.org/wiki/Medicare_Part_D#Criticisms
[1]: http://thehill.com/blogs/pundits-blog/healthcare/262077-medi...
Are these misrepresentations? Or am I misreading them? From the details you provide, it appears you know more details about this than I do.
Feel free to provide other references! In any area where there's a lot of controversy, there can be a lot of misinformation as well. And regulations like this are complex and I know I don't know all the details. I'm happy to learn more about it.
One key thing is it depends on how you define "negotiate". Does Medicare Part D sit down with drug companies and argue over the price? No. In fact, Medicare doesn't play a huge role in Part D, private companies do. So they do the negotiating. This is actually a pretty good way to do it, since the private insurers are already negotiating for their commercial book of business, so they know a thing or two about getting better prices (i.e. "Hey drug company! Let's negotiate our Medicare Part D price. It looks like you're giving me a 20% discount on this drug for my commercial patients, so why don't we start the negotiations there?")
How Part D works is Medicare pays out a premium to private insurers. It's usually a set rate per life covered (i.e. here is $8K for this patient, please cover their drug spend, if $8K doesn't cover it, tough). Yes, there are risk-adjustments, but that's at the margin. The private insurers then pool all of the premiums and use that to pay out for the benefits. The private insurers are competing for customers since each plan is different and the premium from the patient are different. They have every incentive to provide the best coverage for a given dollar. So they go out to drug companies and say "If you give me a 20% discount, I'll make sure your drug has a low co-pay". Obviously this only happens in really competitive spaces where there are multiple, mostly undifferentiated drugs. Regardless, the private insurers cut their costs which means the following year, they can offer a better plan for the same amount of money.
So with Part D, Medicare doesn't negotiate, but it benefits from the negotiation that private insurers do. That's why the Part D budget has come in way under what was projected.
For Part B, Medicare doesn't negotiate either, but rather says to drug companies "I'm not paying more for this drug that the average price all of your customers pay." Again, not a negotiation, but rather a pronouncement. Could Medicare negotiate even lower costs? Probably in a few places, but overall it's getting a better deal than a lot of private insurers.
Your source is correct that Medicare doesn't get the "best price" for drugs. That's what Medicaid gets ("I want the lowest price you offer any customer"). However, Medicaid has "negotiated" (again, I use quotes since it was more of a "you will do this" than a negotiation) some pretty insane discounts on drugs. They either get the best price offered or they get 23.1% off the average price, whichever results in the lowest cost.
The other "negotiated" price that Medicare gets (in a roundabout way) is 340B. Again, this was "negotiated" with drug companies where hospitals/clinics who serve a large number of low income people automatically get a 23.1% discount on all out-patient drugs. Now, in this case, Medicare doesn't get that discount, the hospital does. However, that money goes to pay for things that Medicare would have paid for anyways, so in essence it's going back to the insurer, in this case Medicare.
That's how it works with Medicare. It would be correct to say it doesn't negotiate like the Department of Defense (as a part of the Federal Supply Schedule), which basically knocks 24% of the price of the drug as a starting point. However, the DoD is a small book of business, so drug companies pretty much roll over on that negotiation. Plus, many of these discounts are actual law, so it's not like the drug companies have a choice in the matter.
[1] http://www.rbshelp.com/articles/AMCP-Pharmaceutical-Guide-Fi...
* There are a number of plans provided by private companies available under Medicare Part D.
* The government pays certain rates for these plans.
* The private companies negotiate the prices they pay with the drug companies.
I'm purposely omitting details as I want to make sure I'm understanding the overall picture.
If this is the case, I can see how it phrasing such as "the government can't negotiate prices" is true but misleading. True in that the government doesn't work directly with the drug companies so there is no negotiation, and misleading because it implies that there is such direct contact.
Is that fair?
This has been useful. I appreciate the time you've taken.
The idea that "indirect incentives" would seriously be suggested is a great example. Of course indirect incentives will provide a great opportunity to indirectly exploit the system. You want innovation? Pay direct bounties for innovations, contingent on reasonable cost-plus access to the innovation. You want basic research? Pay for it directly.
There's also a lot of anger and frustration which can be reflected in how we talk about it. Unfortunately sometimes that can sometimes get in the way of having the constructive conversations we need to move forward.
As for choice made by the US as a whole, I don't agree that's the case, at least not directly. The lack of transparency into relationships between regulators and the industry makes it difficult for the citizenry to make informed choices. We might get bits and pieces, but lack of trust in both each other and sources can make any discussion devolve into a "he said/she said" argument. Indirectly we've made this choice (as a populace over time), in that we've allowed things to get this far.
And yeah, direct incentives in the case of health care research would be much more transparent and likely less susceptible to abuse. That said, I freely admit I'm not a public policy expert. Like anything else, there are differences in how things operate when the scale changes.
I've found this article useful as providing more ideas on how to think about the health care situation:
http://www.theatlantic.com/magazine/archive/2009/09/how-amer...
I'm glad we're seeing more articles in this area, and more discussions. Thanks for being a part of it!
According to their website (http://www.valeant.com/Portals/25/Pdf/PI/CDV-PI.pdf) CDV is Calcium Disodium Versenate (edetate calcium disodium).
Each dose appears to be 1g.
It looks like Sigma (the people who supply molecular biology labs with really pure chemicals for experiments) sell 1kg for less than $500. http://www.sigmaaldrich.com/catalog/product/sigma/ed2sc?lang...
Thats a huge markup potential, especially considering that Wikipedia says the FDA approved it in 1953, so it's long out of patent ( https://en.wikipedia.org/wiki/Ethylenediaminetetraacetic_aci...).
And, in the UK, the National Health Service used to pay under £8 a dose according to an old copy of the British National Formulary (which is a publication which lists medicines , their uses and prices in the UK).
The cost of a pharmaceutical is not the raw material cost for the API, which is frequently a small fraction of the total cost. The majority of the cost is in meeting regulatory requirements (e.g. GMP production, traceable testing). In the case of this product, a volume of 200–300 units per year is so tiny I would expect the setup/teardown costs for batch manufacture to also play a role.
$27k sounds outrageously high, but the original $950 sounds equally outrageously low in light of the volume.
IMO, whether its $950 or $27k in the US, that is still outrageously high, considering that in the UK the same drug used to be sold to the NHS for under £8 a dose.
In fact, as its out of patent, I'm surprised people don't just point to the price in other countries right away before making excuses for the manufacturer.
Directly comparing the advertised price between the US market and the formulary price for the UK isn't informative. It would be more informative to compare the ASP in the US to the UK price, but part of the problem with costs in the US is that those prices are not transparent.
That the compound is off patent doesn't affect the price if it is single source for this market. It takes something like 4 generic manufacturers to see fairer pricing emerge.
I'm not saying it's as expensive as Valeant claims, but it might be more expensive than you think.
What that doesn't take into account is the money invested in turning it into an FDA approved drug, and the money wasted on all the other drugs they invested in that didn't pan out.
There are plenty of things wrong with the pharmaceutical industry, and medical care in the US generally, but over-simplified populist arguments about high prices relative to marginal cost aren't helping the situation. There is real complexity and nuance here, and it deserves to be treated as such.
The very real truth is that raising the price of this drug so high incentivizes other people to find competing drugs. It incentivizes pharmaceutical research in general, leading to more drugs, and ultimately more lives saved. That may not make you feel better about what they're doing, but it is a fundamental truth of markets. The more you can charge for something, the more of that thing you're going to get. If you artificially limit prices, you just as surely limit supply.
This is not speculation or philosophy. There are literally investors right now running NPV calculations on how much they are willing to invest in their next biotech startup, and the most significant controllable factor in that calculation is the price they expect to be able to charge for the drug, multiplied by its addressable market. And i'll bet you that the addressable market for lead poisoning drugs is pretty small (same with EpiPens, for that matter - you rarely need them, so most people only need the one, just in case).
Some people like to point to Europe and Canada as examples of places where drugs are cheap and plentiful, and they say that this is proof that this can work in the US too! But that view fundamentally misunderstands how the world pharmaceutical market works. Those drug markets are ancillary. They are fringe benefits to getting a drug approved by the US FDA. Pharmaceutical companies don't use those markets to recoup their costs, they recoup their costs in the US, and then just make whatever extra profit they can in those other places.
If the US market ceased to allow exorbitantly high pharmaceutical prices, the entire business model of Big Pharma would collapse. And maybe it's the case that it should, maybe there's some other model that would be more equitable and successful at developing new drugs. But personally I can't think of one, and unless you've got a bold idea in this vein, i'd be very careful about advocating the destruction of the one we have.
IMO the real solution is to stop letting other countries artificially restrict pharmaceutical prices. Right now the US is subsidizing all of this research for everyone else. You and I (assuming you are a US citizen as well) are paying for these drugs to be developed, and everyone on earth is benefiting from that without having to pay the cost. That is the true inequity here, and if that were removed, we'd see much more reasonable prices here too.
Laboratory testing, animal trials, human trials, efficacy studies, FDA approval, liability insurance, etc. etc. etc.
There are substantial fixed costs for manufacturing a drug. The more volume you sell, the lower the total cost per unit since fixed costs get spread across a greater number of units.
As volume drops, profitability eventually goes negative, so the price needs to rise for that drug to stay on the market.
This would be a much more interesting discussion if we had access to the actual costs involved, but alas.
When a plane crashes one person might conduct an investigation and determine that it was due to a faulty weld in the wing and that quality control should be rethought to prevent the problem from happening again. Another might simply say that it was gravity's fault. After all gravity was what caused the plane to plunge to the ground after the wing failed.
Both explanations are true but one is useful and one is not.
Greed, like gravity, isn't going anywhere. It's up to society, and airplane designers, to build systems that work in the face of adversity.
A businessman seeking to acquire obscure companies in order to exploit the sick isn't following some force of nature, he's a disgusting human being. It's no different than swindling refugees or the elderly.
People who do this should be socially shunned, and the government should provide grants or free credit to encourage others to manufacture drugs like this.
I agree that creating monopolies and then fighting them with monopsonies is ridiculous, backwards, silly, and inefficient. But life is a coordination game[1], so too bad[2]!
[0] https://en.wikipedia.org/wiki/2008_Chinese_milk_scandal
[1] https://en.wikipedia.org/wiki/Coordination_game
[2] http://slatestarcodex.com/2014/07/30/meditations-on-moloch/
Calling it "turned over to the private market" is either ignorant or dishonest.
Just like the recent issue of EpiPen pricing, people (including the next likely president) spread the myth it was the result of a lack of regulation even though a single competitor, and there were many who tried to compete, would have made such a large swing towards high pricing a near self-destructive act for any company: http://slatestarcodex.com/2016/08/29/reverse-voxsplaining-dr...
The question is not whether or not the market is too free but whether or not to put the final bullet in one the last remaining freedoms of the pharmaceutical market at the costs of reduced R&D and fewer new drugs: http://www.ibtimes.com/should-government-control-price-presc...
I would disagree entirely. Take a look at Medicare Part D. The gov't collects the premiums and sends the money to private companies to manage payments. It's one of the few gov't programs where the actual costs came in way lower than projected due to the competition among plans for patients. The market at work!
http://www.valeantnow.com/valeant-corrects-inaccurate-statem...
The healthcare and IP systems in this country need an enema.
I understand the need for large numbers to wow the reader, but I find this less clear than "Two years ago, the drug maker multiplied the price of Calcium EDTA by 28".