Why Is Medicine So Expensive?

Government Granted Monopolies (patents)

Don't let anyone make it too much more complicated than that, or trick you into thinking you can't understand it.

Someone once said that modern pharma is akin to modern banking, in that there are only a small number of groups that can pass all the hurdles, regulatory requirements, necessary conditions, etc to start.. then when they do, they go for the financial jugular.. Oligopoly is a word for this?

The pendulum has swung, from the bad medicines and shortages of just three or four generations ago, to the new new of high tech, plentiful, and goosed for money to the maximum...

Most r&d is done by pharma companies, not academia. $200B spent by Pharma in r&d each year, probably half of that is early stage. NIH spends $30B or so, and most of that is basic research that will never lead to a new drug. Without patents there would be zero new drugs developed

r&d productivity is approaching 0% by some estimates (deloitte, McKinsey and a Novartis analysis). Pharma cannot generate enough new drugs to sustain growth. So they increase prices. Over 60% of revenue growth of major drugs came from price hikes the last few years (per 2018 year in rev presentation by atlas venture)

This is bad. There are many instances of egregious price hikes for drugs that are quite old. But payers have been fighting this quite effectively of late and have restricted pricing growth to the rate of inflation the last couple years

There are 3 PBMs that control most of the market. They extract rebates and don't pass them along to consumers. Copays for drugs are often more restrictive than for medical procedures. There's an argument that access, i.e. High copays, is a bigger challenge than price in some cases (but not all)

There are also just greedy people like Martin shkrei and epipen / Mylan. But they are outliers exploiting a few FDA loopholes

Over 60% of drugs today are developed by small companies (as opposed to big pharma). These companies are an order of magnitude more efficient than Pharma at r&d. The medicines they develop will be expensive but in many cases are designed to be cost effective at ~$100k / QALY.

There is a certain point where it will no longer be cost effective to develop new drugs. We are probably approaching that point barring either technological breakthroughs or a reduction in cost of developing drugs (i.e. Looser FDA)

Drugs are expensive. They are also only 10% of national health expenditure and like 80% of prescriptions are generic. They are a pretty great tool to fight disease

It's a really complex issue

Because people want to make money.

I understand the impulse, I like money too. But these drug company executives have got to give ground, just like Amazon had to today.

Also fun fact, Senator Joe Manchin from West Virginia has a daughter who is CEO of the company that makes the Epipen. Her father is senator from one of the poorest states and for her to do what she did with the epipen pricing is so unconscionable I wonder if polite society will be willing to eat in the same restaurant with her in the years to come. Morals and standards are changing.