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Comment by nostromo | Hacker News Reader

Market-oriented people have long noted that the US medical consumer is funding cheaper drugs for the entire world.

If we wanted a system that's more equitable, we could create a law that sets the maximum price for medicine in the US at some multiple of what's charged abroad.

For example: we could say that it's illegal to charge a US person more than 2x what you charge for the drug anywhere else in the world.

This would do two things: it would bring down the cost for US consumers, and it would increase the cost for consumers abroad -- effectively reducing the free-rider effect we currently see in Europe.

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I have heard it a lot but I'm not sure how true that is. Given all the specifics of essentially abuse/corruption (whatever you might call it) by US medical industry it's hard to believe their claim of subsidizing the world. There's probably some of that going on but I find it unlikely to be as big as claimed.

Ignore US companies completely then -- look at European pharmaceutical companies. They make far more money selling drugs to Americans than Europeans, and they use that money to develop new drugs back in Europe. I'm not sure how you could blame European actions on your US abuse/corruption theory.

Yes but is per unit profitability (measured at the pharma co) higher in the US?

That's what you need to be true for your claim to hold water, not that the overall revenue pool is larger.

Yes, US consumers pay more for almost every drug per unit, regardless of the nationality of the drug company:

https://i.imgur.com/6QOta9X.png

Full source:

https://aspe.hhs.gov/system/files/pdf/259996/ComparisonUSInt...

I thought this was capitalism? Isn't the idea of a company under a capitalist system to generate the maximum amount of profit possible for each product they sell?

Drugs aren't priced relative to what they cost to make or develop any more than airlines price flights based on how much it costs to fly someone between any given city. They're priced at the highest level the market will bear. Is it any surprise that the largest, most powerful economy in the world will bear higher prices? The drugs by definition have higher value because treating someone in a strong economy delivers more marginal value than in other markets. That's math.

Now we can talk about different systems but this is the one being held up today.

Indeed charging the max possible is the idea. The idea is also that the market is free so a competitor could also extract profit by making the same drug for slightly less. Of course another competitor could come in and make it for even less. All these price cutters force the higher priced competitor to lower their price to still produce profit. The lower bound here is the cost of production below which all companies would stop production. So in a capitalist system in a free market profit should always be trending towards zero.

The issue is government allowing companies to be anti competitive. For example, the government is currently entertaining a lawsuit by one insulin company against another company trying to sell insulin for a lower price. While that lawsuit is ongoing Americans must pay the higher price. Thus really government willing to enforce continued monopoly is one of the problems

Is the market for drugs really free though? I believe that in a free market there is supposed to be no coercion between the parties to a transaction. In the case of drug purchases there may be a kind of coercion involved -- a health issue (diabetes, cancer, etc.) that makes one party to the transaction unable to negotiate effectively.

Indeed, it's extortionate. "Boy, it'd be a shame if you didn't take your insulin and died, wouldn't it. That'll be $700." Thanks, free market!

Like food, right? If people stopped selling you food you would die, so surely they can charge extortionate rates for it.

Of course, there are competitive markets for both food and insulin in the US. Quoting from a letter to the WSJ yesterday,

> Eli Lilly makes three types of insulin, which in most states you can buy over-the-counter at Wal-Mart for $24 per 1000 unit bottle. One hundred syringes cost $12. I have serious diabetes mellitus and have managed it with Lilly insulin for a decade for under $100 a month.

For some drugs there aren't competitive markets, and in some cases the government prevents competition, but both are typically temporary situations (patents, first-mover advantages) that help to get the drug on the market in the first place. An extortionate price for a drug is better than no access at all, and doubly so when it is going to give way to genuine price competition.

The difference is (1) food isn't a specialty good, you can make it yourself and (2) food is provided by the government free of charge if you can't pay and (3) subsidized by the government to a massive degree even if you can pay. If this is the kind of system you're advocating for prescription drugs, I'm all in!

(1) Food producers unilaterally refusing to sell food could be just as disruptive as drug producers refusing to sell drugs. "You can just grow it yourself" isn't a reasonable distinction -- from a practical standpoint most people can't. The reason we don't need to prohibit that behaviour is that the market works.

(2) The government doesn't grow food. Sometimes it pays for it, and sometimes it gives people money so they can pay for it, but there isn't a public option in case farmers decide not to sell us beef, because the market works. (But yeah, the government does -- and should -- help people pay for drugs they can't afford when the prices are reasonable.)

(3) Food production is subsidised, but it shouldn't be. And these subsidies have little bearing on the possibility of extortion in the market.

If you feel like being specific, free markets have to exist without government regulation, without monopolies, without economic privilege, and without artificial scarcity, which doesn't really work in the real world under capitalism. Almost no markets are truly free markets, even the ones that look free, because there are general regulations you still have to follow (you can't legally sell poisonous handmade goods at a craft fair, for example -- laws about that act as a regulation).

Non scarcity is not a requirement for a free market. No artificial scarcity.

Free markets mean that other sellers are free to compete. This is why food, an essential good, is generally cheap. Any seller of food can charge an arbitrarily high price but cannot exclude competing sellers.

In the US, food is generally cheap because significant portions of what we eat are heavily subsidized by the government.[1]

[1] https://en.wikipedia.org/wiki/Agricultural_subsidy#United_St...

In a free market no outside agent interferes with buyer and seller. Nature has no will and thus no agency and thus is not an agent. Indeed the free market is key to solving the disparity between what someone has versus what someone needs. It is one of the few systems we know that solves this issue efficiently

If I understand you correctly, then it does seem true to me that nature has no agency. However, when the choice a consumer has is to either pay the asking price for a <em>needed</em> drug or to die then I think the consumer has no meaningful choice at all. Given how unequal the bargaining power is between the buyer and seller in this situation, it's hard to see a free market solutions applies: it might be efficient, but it's also brutaly inhumane.

I know I've set up kind of a straw-man. It might be that the consumer could choose to forgo an expensive drug or medical procedure without fatal consequences, but that's not the interesting case.

The choice shouldnt be between whether they need the drug or not but rather who to buy it from. The fact that there exists someone who needs a product is what drives the profit to zero in a free market because newer manufacturers are incentivized to provide the product. The choice is among from whom to buy not whether to buy at all.

Right now insulin is expensive because the government is preventing companies that can produce it for cheaper from selling in the united states because of a lawsuit by the current market holder. That the government even has this power is a textbook example of the danger of governmental interference in the free market. People are literally dying because the government has made the market less free intentionally

If that's the case, why does a flight from SFO-JFK cost way less than a flight from JFK-LHR in business class? Approximately the same distance, approximately the same cost basis. Dramatically more competition between JFK and LHR. It's not always about competition or cost basis.

Why do you think there is more competition to LHR than domestically? The airport has been maxed out for almost 30 years, it is incedibly hard to get landing slots there. Also the weather over the atlantic makes flights longer and use more fuel.

Because I said profit is driven zero not revenue. JFK to lhr requires all sorts of international permitting that is a fixed and varying cost that domestic routes do not have.

Airlines are a great example of the race to zero profit. Airline margins are slim and thus the cost of travel often reflects exactly the cost of doing the flight itself. JFK to Heathrow requires participation in multiple markets, currency instability, multiple regulators etc which make the cost more excessive. Also london and new York airports are busier than sfo increasing airport fees. Thus in a market with low basically zero margins, the cost from ny to London is more as competitors that cant make the unit economics work leave the market entirely. New competitora cant enter the market at a lower price point because their profit would be zero.

No competitor can produce a drug which is still under patent.

I' am sure pharma board meeting go like this

CFO: ABC pharma just got FDA approval to sell a generic version of Viagra, our revenue is projected to take a $1.5 billion hit.

CEO: Fuck. Start raising the price of insulin, I gotta hit these wall street estimates.

Is that US price with or without any insurance? Most countries negotiate a lower price with the drug companies the same way insurance companies do. I don’t see how Canadians negotiating a lower group price is worse then Americans paying someone to do that.

It's the average sale price of the drug in the US. So, mostly with insurance (~90% of Americans are covered).

(The study was done by HHS and was focused on Medicare, which sets prices based on a weighted average of market sales price, including negotiated discounts by insurers.)

US consumers pay more, but US marketing expenses are much higher too, eating up more revenue than R&D does.

If marketing was not yielding a return why would they do it? Presumably spending $1.00 to market a drug returns at least $1.01 in profits. If that is true then a lower marketing budget would result in a lower R and D budget provided you keep all the percentages the same.

The point being made was that, while US prices are higher, they may not outweigh profits from EU sales.

Selling your product for 50% more in the US may not be more profitable than selling in EU where your marketing costs are a lot lower.

Of course you’d sell in all markets where you can, but the claim was that US profits > EU profits because US prices > EU prices.

Also, there’s R&D/education that’s really marketing. E.g. advisory panels, grants to the “right” organizations, agencies or researchers

A lot of marketing is a prisoners’ dilemma. There is little if any gain from the steady state where everyone does it, but you have to do it because if you don’t then your competitors will and they’ll eat you alive.

In which case you could kill this stupid marketing budget without much effect on R&D by outlawing drug advertising.

That’s why they get together and make a bunch of rules about what is “ethical” marketing.

In reality, the established players halve their marketing expense and make it difficult for any upstarts.

Why are prescription drugs marketed at all?

I ask myself the same thing and usually think: "Because they're not good enough to sell themselves".

Why wouldn’t a European pharma company take advantage of the abuse and corruption in the American system?

It boils down to this: drugs are a pretty anti-competitive market, and the US doesn’t have much in the way of opposing rules that would bring prices down. No surprise that companies make more money compared to European countries.

The real question is: if the US stopped allowing this and brought prices under control, would it wreck pharma R&D? People seem to assume the answer is “yes” when they bring up this disparity but I don’t see it being that obvious.

If we’re worried about funding innovation, we could do a lot by only funding the innovator.

When every manufacturer has their own statin or their own ARB inhibitor, etc., the revenue is split between a true innovator and a bunch of copycats.

Fixing that could allow much more reward for true innovators, at lower prices but profits protected by volume.

We went through a phase of this in the 1930s-1950s where the government decided that competition was harmful and duplicative. It was a disaster. By your reasoning, we shouldn’t have both iOS and Android—the government should make a single OS where all R&D can be invested without duplication.

It’s a lot easier to see which of two blood pressure drugs that work through the same mechanism works better at... reducing blood pressure.

The usual problem is that we don’t compare drugs in the same class against each other (for fear of negative results).

You only think this because in the case of iOS and Android you can get your hands dirty and form opinions for one versus the other.

In the case of the blood pressure medicine, that process is not possible for the consumer, and as you say, not practiced by the labs. But that doesn’t mean there aren’t a hundred possible pros and cons for one type of molecule versus another to treat XYZ condition in ABC population, with potentially huge variation between patients both explained and unexplained.

> But that doesn’t mean there aren’t a hundred possible pros and cons for one type of molecule versus another to treat XYZ condition in ABC population, with potentially huge variation between patients both explained and unexplained.

There really aren't when comparing different molecules with the same mechanism of action. Individual hospitals and health systems will usually tender out their contracts to the cheapest molecule in each class, or sign up with a buying group that does.

It simplifies prescribing, inventory, distribution and administration too.

> we could create a law that sets the maximum price for medicine in the US at some multiple of what's charged abroad.

Why create more laws and complexity? Why not simply repeal the laws that prohibit importation of drugs and possibly also refuse to enforce private contracts prohibiting reimportation? The reason drugs are cheaper in Canada and Europe than in America is because of American laws that prevent importation.

quality standards is the reason, same for any protections around import/export.

Read about the raids on generics in India meant for the USA.

Because we not only want to pay less for drugs in America, we would like other countries to pay a bit more too and help shoulder the cost of R&D for new drugs and treatments.

An analogy: you live in an apartment building in which every other apartment has rent control. Because of this you're going to pay every extra expense for the entire building.

You could decide to become a rent controlled unit as well -- but the building owners would have less money to improve the building, and it would fall into disrepair.

Or, instead, you could try and find a way to get everyone to equitably share the improvements to the building.

R&D costs are more than covered by the price paid in Canada and indeed most nations; the US is merely funding massive pharma profit margins and fat executive bonuses.

> R&D costs are more than covered by the price paid in Canada and indeed most nations

And you would know... how?

big pharma spends more on marketing than R&D:

https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p...

> big pharma spends more on marketing than R&D:

So what? They clearly believe the marketing helps them make more revenue with the drug; that has nothing to do with covering the cost of R&D.

Your argument would make sense if marketing reduced their ROI, but they clearly believe it does the opposite.

I'm sure developers in San Francisco spend more on housing than on professional/personal development, but that doesn't mean one is precluding the other.

I think it demonstrates pharma has excess cash. Also in countries where there’s a public system pharma usually has 0 advertising because people have no choice anyway.

> I think it demonstrates pharma has excess cash.

It's only "excess cash" if you assume the ROI on marketing is negative, which is a bold and unsubstantiated claim.

> Also in countries where there’s a public system pharma usually has 0 advertising because people have no choice anyway.

Direct-to-consumer advertising is only one tiny portion of marketing. European pharmaceutical companies spend massive amounts of money on marketing within Europe.

Why does RÓI have to be negative? Do you think that if marketing has good ROI then whatever money they put in they get back, meaning it creates a positive circle? Am I getting this right?

I can't read your link as it's behind a paywall.

But here's one with unrestricted access [1]: big pharma spends in average 17% of their revenue on R&D, while Apple spends 3%.

[1] https://www.investopedia.com/ask/answers/060115/how-much-dru...

Edit Here's another link that states the average for Big Pharma for 2018 was 20%

[2] https://www.fiercebiotech.com/special-report/top-10-pharma-r...

If you allow drugs to be imported it will make it impossible for a company to sell the same drug cheaper elsewhere. It will have the same effect, wouldn't it?

>we would like other countries to pay a bit more too and help shoulder the cost of R&D for new drugs and treatments.

Allowing reimportation would do exactly that by increasing (from zero) US demand for drugs from foreign markets.

EDIT: for explaining why.

The only sane way I can map the problem in question onto your analogy is by subletting rent controlled units, thereby increasing their value and decreasing the value of the uncontrolled unit. I don’t think it’s a good analogy because people have all sorts of subjective bias based on experience. Also real estate is inherently sparse and illiquid. The drug market isn’t sparse and has more liquidity.

I think explaining the economic dynamics directly leads to a self evident conclusion: internationally drug prices would increase as US consumers add to demand on foreign markets. Domestic prices would fall for the same reason

What makes you think all that money goes to R&D? Last I checked pharma was making insane profits

> The reason drugs are cheaper in Canada and Europe than in America is because of American laws that prevent importation.

The reason drugs are cheaper in Canada and Europe is because of the massive negotiating power of a single buyer

I'm sure it's not exclusive

> The reason drugs are cheaper in Canada and Europe is because of the massive negotiating power of a single buyer

Very few countries have single purchasers for pharmaceuticals.

No, but the pharmacies hold only a little bit of power over that stuff. If the single payer health plan won't cover x medicine because y is cheaper and just as effective, x is rarely going to be ordered. X being an equal price to y means x might be some doctor's first line treatment.

> No, but the pharmacies hold only a little bit of power over that stuff.

We're not talking about pharmacies; they don't enter the picture here at all.

> If the single payer health plan

Again, almost no country uses a single-payer health plan for pharmaceuticals, so this is isn't relevant.

The government mostly doesn't pay for drugs in Canada. Each province has its own insurer, and the biggest ones don't cover pharmaceuticals in the general case.

OHIP (the government-run insurer in Ontario, to which taxpayers pay the Ontario Health Premium directly) will sometimes pay some or all the cost of some pharmaceuticals in some cases (i.e, antibiotic-corticosteroid ear drops if you are under 25 or over 65, and have been experiencing an ear infection for longer than 30 days) for some classes of people (mostly youth and seniors); but by no means is there a single buyer in Canada, and there isn't one per province either.

I have bought more pharmaceuticals out of pocket in Canada than I have ever been provided during a covered clinic or emergency department visit, and I technically qualify for the youth drug coverage.

The listings for which drugs are covered under what circumstances can be found here: https://www.ontario.ca/page/check-medication-coverage/

“Market-oriented people have long noted that the US medical consumer is funding cheaper drugs for the entire world.”

They have claimed that but I have my doubts it’s true. It seems more likely that they make good profits outside US and obscene profits in the US. And why should the US subsidize other counties? Maybe we should also pay 200k for a Honda Civic so other countries have cheaper cars?

What is an “obscene profit?” Drug company return on investment is similar to other high-tech, capital and skilled-labor intensive industries: https://www.forbes.com/sites/johnlamattina/2018/01/23/about-.... Their net margins are somewhere between software and semiconductors: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/.... Does Intel (not to mention Google or Facebook) make “obscene profits?”

(Note the first source is data collected together by someone at Pfizer; the second source is a study by an NYU Business School professor. These are public financials, you can run the numbers yourself on Yahoo Finance.)

The point is that if drug prices in the US go lower maybe profit will go down but drug development won’t stop because they still will be making profit.

It's not enough to make a non-zero profit. You have to be as profitable as similarly risky industries, or else capital will flow to those industries instead. Drug development is similar to tech in many respects--a lot of the work is done by startups (which are later acquired by the big companies). If profits go down, the money for acquisitions goes down, and the incentives to form and invest in the startups goes down. Instead, the capital goes elsewhere.

If the government decided that Internet tech companies were "obscenely profitable" and started regulated prices so profits went down to 10% (instead of 30%+ for some companies like Facebook), do you think Silicon Valley would still produce the same output?

> Does Intel (not to mention Google or Facebook) make “obscene profits?”

Nope but no-one dies in the US because they didn't get access to a 7th generation Intel CPU because they got replaced by a 9th generation that's 2% better and twice as expensive.

That’s an argument for having the government pay for drugs, not for changing the process by which the drugs are developed. From the supply side, either private sector innovation works or it doesn’t.

According to IDC, North America spends $750 billion a year on IT, twice as much as it does on pharmaceuticals. People would save a lot of money if those costs came down. Can we do that by having the government come in and regulate the price of computers and IT contracts? Profits may go down, but that would be okay, because we’d get the same IT products and services for cheaper, right? Why don’t we do that?

We don’t do it because when it comes to less emotionally charged issues, we think clearly. We know that if we did that, talent and capital would leave for greener pastures, and that would compromise innovation.

> This would do two things: it would bring down the cost for US consumers, and it would increase the cost for consumers abroad -- effectively reducing the free-rider effect we currently see in Europe.

In most European countries, a government regulator fixes the prices with industry. It's not freeloading in that case, they have the choice between negotiating a fair price or not having access to the market at all. And because they're not idiots, they choose to have access to the market.

Most of that money doesn't go to fund R&D and go back to their shareholders anyway :-)

Charging exploitative prices for necessities of life slowly will be merged into a larger body of unfair and deceptive practices. Charging someone 50% or 90% more for a lifesaving treatment because they're not on the right 'club'-- some enterprising lawyer somewhere will eventually pick up the right collection of cases to demonstrate this isn't a proper way to make a buck, under the law of most U.S. states.

This is wrong. The companies are making profits abroad (example, insulin costs $6 to produce and in Canada they sell for $36). If you are claiming American consumers are paying for research via high drug prices, this is wrong too, since most of the research is funded by the government via universities and other orgs. In other words, US citizens AND the rest of the world can have low drug costs.

Er, no? Drug companies spend on average about $1-2 billion in R&D per new drug[0].

[0] https://www.sciencedirect.com/science/article/pii/S016762961...

And they spend even more or marketing which is allowed only in the US and few other nations.

> And they spend even more or marketing which is allowed only in the US and few other nations.

No, most marketing is not direct-to-consumer marketing. Marketing absolutely is allowed in Europe, as evidenced by the massive amounts of money that drug companies spend on marketing within Europe.

How is this a good thing ? Corporate research is more susceptible to bias and their focus is on what's profitable. What incentive do they have on making drugs that cure vs those thay address symptoms?

"what's charged abroad" includes poor countries that will never be able to afford prices comparable to the US. Companies are able to make money in those markets too, as long as the marginal cost of production is lower than the price they can ask there. Prohibiting this doesn't look very market-oriented to me.

That sounds positively awful. They'll just chop off the lower end and let people in developing nations die. They're not a huge revenue source anyway.

I don't think that implementing something that would raise the price for non-US citizens would do anything positive, mainly if I'm understanding you it will disproportionately affect low-income individuals in Canada

Sounds like they are doing something similar:

Separately, the Trump administration is pursuing a regulation that would tie what Medicare pays for drugs administered in doctors’ offices to lower international prices.

>If we wanted a system that's more equitable, we could create a law that sets the maximum price for medicine in the US at some multiple of what's charged abroad.

Should people in third world countries being excluded from the chance of receiving lifesaving drugs just because they happen to live in a place that isn't as economically successful as the US? Maybe I could be convinced if you pegged the prices to some measure of local purchasing power, but almost any proposal that amounts to poor people not being able to afford medical care in the name of capitalism is verging on immoral in my opinion.

EDIT: It is disappointing that I get downvoted on HN for basically stating the controversial opinion that "people shouldn't die from being poor".

I completely agree with your point. But as someone that lives in the US and is married to a person that requires prescriptions that can cost $30,000+/month each (cystic fibrosis), I'm in a first world country and am being excluded from the chance to receive lifesaving drugs.

That is our problem to fix and we are a rich enough country to do that ourselves without offloading that problem onto poor people abroad.

Or maybe that's just an excuse pharma companies use because they'd like to have their cake and eat it, too. If they didn't actually want to sell their drugs for pennies on the dollar in some countries, they wouldn't.

If they are "forced" to sell there, it's only because of two reasons:

1) the US companies started selling there of their own free will, and after their patents expired in those countries, other companies were free to use the formula

2) Other companies would have created the same drugs with or without their patents, and the American companies would've lost all of that market share/brand image in that country. And I bet the competitors would do it for a tiny fraction of the faux R&D costs Big Pharma likes to claim for inventing a new drug.

Besides, the idea that if a company patents something that means it's the only one that could have ever invented that thing needs to die already. The "first to file" patent system that has been adopted in most major countries because of big companies' lobbying is another dead-giveaway that this whole idea is bogus. Why would you have a "first to file" if you didn't have multiple people inventing the same thing at the same time.

Many people or groups of people can come up with the same invention around the world roughly at the same time. Often, those alternatives don't become popular because their papers are in their native tongue and they lack investment, but the "invention" was already made.

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