Pharma companies continue to raise drug prices at rates well above inflation | Hacker News Reader

Pharma companies continue to raise drug prices at rates well above inflation

arstechnica.com

282 pointspera273 comments

I truly do not understand the purpose of a free market for pharmaceuticals. The demand for these drugs is almost completely inelastic, as it is driven by the statistical incidence of the underlying medical conditions. This makes central planning remarkably easy compared to typical consumer goods. The government already sponsors the vast majority of exploratory, pre-clinical, and early-phase clinical research; all it would take to expand that program to include later-phase clinical trials would be increased funding. A nationalized pharmaceutical industry that provides drugs at cost seems like it would be a tremendous boon to our society, only requiring the "sacrifice" of the opulent lifestyles of the executives and investors profiting off the extortionate practices of our current system.

The big issue I see here is the proper allocation of this earmarked funding. Would all of it go to aids research? Maybe half to aids, half to schizophrenia treatments? But then what about [insert condition here]?

The 'free' market may have a lot of perverse incentives in this environment, but I'm not sure how else you could prioritize which drug research has the most impact (without it turning into a capital sink that has severely diminishing returns due to limitations of the skilled humans necessary to do the job)

Can’t possibly be any worse than it is now, with Lyme disease still having no vaccine while billions of dollars are plowed into boner pills.

Maybe one is harder to solve?

The initial "boner pill" was also discovered entirely by accident--it was originally meant to be a hypertension/angina drug. While it wasn't very good for that, it did have a...marked side-effect, which Pfizer ran with.

>The big issue I see here is the proper allocation of this earmarked funding.

The overwhleming majority of exploratory, pre-clinical, and early-phase clinical research is already funded by government grants, particularly from the CDC and NIH. To the extent that this is a "problem", it is one the system already faces. Personally, I would prefer that research funding decisions are made by public officials that are at least nominally accountable to the electorate over ruthless capitalists who are accountable only to their shareholders.

>The overwhleming majority of exploratory, pre-clinical, and early-phase clinical research is already funded by government grants, particularly from the CDC and NIH.

The overwhelming number of SAAS prototypes are made by engineers on the weekends - just take a few of those, and $$$, profit.

... Of course not. Exploratory, initial research is not the same as being successful at bringing a drug to market.

Who decides what research to follow? It's successful in animal models, but then later not in humans? Or fails the one of the clinical phase trials. Or isn't safe.

Drug companies fail. Even if something is promising initially, doesn't make it a slam dunk.

Billions can be spent only to have a potential drug sunk by one of the trials.

There are absolute risks. There are tough decisions to be made on which looks most promising and given that money and time and researchers aren't infinite, you have to make the calls on what looks most promising.

The questions and issues you pose are real, but they apply equally regardless of whether the decisions about research funding are made by for-profit pharmaceutical corporations or a panel of government experts. I posit that the latter is preferable because they are accountable to the public, whereas the former are accountable only to their shareholders and profitability metrics.

It is not true that the vast majority of early stage research is funded by the government. The NIH spends $30-35B a year on research, the top ~15 pharma companies spend $70B+, and about half of that is on early stage R&D. VCs invest $10-20B / year and most of that is early stage as well

Not so sure why you landed on the "don't bother curing AIDs" argument but ok. I think that ultimately what you are saying is "if there is no profit motive guiding research we won't know what to spend money on." My answer to that is to allocate money for research based on the impact of the solution. So ultimately how many people are affected or how seriously people are effected, and not how much money you might be able to make. We currently have problems with drug companies not even making life-saving drugs that exist already because there are only a handful of people suffering from those particular diseases.

I wasn't intending to single out a particular condition, just labelled a few large-scale areas of active research and development.

What about the supply? Wouldn't the real culprit here be patents and other protections?

>The demand for these drugs is almost completely inelastic, as it is driven by the statistical incidence of the underlying medical conditions.

There are many drugs for which this condition is weakened. Firstly, there are drugs for illnesses that could go untreated. Secondly, there are drugs which have alternatives. In these cases the demand is elastic. Not every drug is uniquely lifesaving with 100% efficacy, in fact a tiny minority are.

It's something ridiculous like 40% of all pharma spending being advertising, so you'd also have a lot of advertising workers who'd lose their jobs.

We'd also presumably save a lot on duplication and reduced effort of not competing.

Now you just have to get power from the rich people, who stand to lose from such moves, long enough to implement them.

Or co-opt the rich people with big companies that pay for lots of employee health insurance. I've seen Bezos making waves but I don't know if anything has come from it yet.

> It's something ridiculous like 40% of all pharma spending being advertising, so you'd also have a lot of advertising workers who'd lose their jobs.

Not sure where you got that number from. The industry spends about $30B in total on marketing, of which about $13.5B is for free samples and $9.6B is for direct-to-consumer advertising: https://www.biopharmadive.com/news/pharma-dtc-spending-outpa...

How does central planning determine which approaches are most likely to result in a successful cure?

If big pharma charged ridiculous amounts of money for new drugs, made off-patent drugs dirt cheap, and didn't find new & ridiculous ways to re-patent old drugs, I'd feel better about their business model.

I imagine you’re correct, but could you source ‘re-patent old drugs’?

My understanding was that the drug owner had a 7 year exclusive window before the drug was released to public domain. At which point I would’ve expected the drug to be sold near cost.

If it’s possible to re-patent a drug, then obviously that process would break.

FWIW, 7 years of high prices in exchange for having the drug forever afterward feels like a theoretically good solution to me.

Caveat: I know very little about this. ;)

Generally it's patents on drug delivery systems, like fast dissolve gelcaps on the name brand vs pressed pills in the generic

The biggest thing they do is file multiple patents for different parts of a drug. So they can have a 100 or so patents on a single drug and have the patents staggered over time. (Humira is a good example of this)

If that doesn't work they slightly alter stuff like dosage per pill and re-patent that.

That doesn’t work because the original pill is itself prior art to every patent as of the date it’s released. So you either claim priority to the first batch of patents, or your later patent is defeated by your own prior art. Same thing with changing the dosage. Even if you can show a new discovery that wasn’t obvious from the original patent, that doesn’t prevent anyone from making a pill with the original dosage.

The way this works in practice is that there is a stream of patents on incremental improvements. Doctors continue to prescribe the branded, patented drug (because they have no reason not to) even though the original drug was fine.

Insulin is like this. If there was a substantial market for the 1923 bovine insulin produced by Eli Lilly, it would be cheap. Instead, insurance is willing to cover the high prices of newer, incrementally better versions. Leaving a relatively small market for a worse, but patent free version.

You could, if you were dealing with a new chemical entity and were so inclined, file a new application with human pharmacokinetics claims, and then elect the PK patent for your FDA-assisted patent term extension. An excellent choice, since the PK claim patent will likely have the most recent priority date.

Indeed, there is market for it, and it is actually very cheap ($25 for a vial in Walmart, which typically lasts around a month). The problem with it is that it’s much more inconvenient and difficult to use correctly. The modern analogues are much superior, so most people prefer to go for those instead, despite much greater price.

Exhibit A: Vimovo. One pill, consisting of two drugs that have been around for decades, and are available over the counter at any pharmacy. If bought separately, a month’s supply of these drugs would run you maybe $40, at most.

Vimovo, on the other hand, is routinely charged to insurers by pharmacies at prices ranging to over $3,000 for a month’s supply. And somehow insurers are willing to pay for it, to the tune of nearly $500 million a year. More details here from ProPublica: https://www.propublica.org/article/horizon-pharma-vimovo-com...

Doesn't the same argument apply to the elements making any drug? Carbon, oxygen, etc.. are all pretty cheap. But there is significant value in mixing things properly and getting that mixture tested and through the FDA.

If it's trivial to take these cheap drugs and mix them, then why don't people simply do that?

Because people just accept what is prescribed, and neither the customer or doctor is aware of the actual cost?

Check out the propublica piece. Their analogy is more akin to putting pb&j in one jar. As to why it happens? People are likely to do what their doctors say and what their insurance will cover. Pharma has ways to influence both.

That’s a great example of how stupid insurers are. That drug have had zero sales, but they sneaked in the back when no one was looking.

Insurers just pass the costs through to consumers. Health insurance premiums have been going up a stupid amount, too.

Which is why legislation like the affordable care act that limits premiums helps keep stupid behavior from insurance companies in check.

Regarding the ACA, as I understand it, there's the 80/20 rule that states insurers must spend 80% of what they make from premiums on providing & improving healthcare. [1]

The problem with that is there's no cap on what premiums should be. So if you charge 10K in premiums, and keep 2K, there's nothing in the ACA that is preventing you from raising your rates to 15K to keep 3K.

Please correct me if I misunderstand how this works.

[1] https://www.healthcare.gov/health-care-law-protections/rate-...

Exactly right. And if you happen to have some preexisting condition, and who doesn't, individual policy prices are insane.

Except that the ACA also instututes marketplaces and enforces insurance standards, so that consumers can shop and switch between substitute services if one insurer tries to hike premiums.

Except they're ALL hiking premiums... What it comes down to is adding fiduciary responsibility to act on behalf of their clients' interest in negotiating rates, which they don't do and stopped doing.

Where I am, the 2019 marketplace has two providers, but one of them has a very limited network, so I can't do anything in network without driving at least 30 minutes. So, that's really just one provider and I get to pick which metal I like. What I really wanted to know, but couldn't tell is if I hit the out of pocket max, is there any difference in what's covered by plan.

It may be a better marketplace than before, but it's still a pretty shitty marketplace.

Rural US, right? Keep in mind that the providers in your area are also in areas where they compete with others on premium price. Just because you anecdotally don't see it doesn't mean the competition isn't happening.

Semi-rural, west puget sound, lots of Seattle commuters.

A few months ago, when I looked at buying private health insurance via the exchange in California, I had never heard of any of the insurance companies & none of them would let me see my own doctor. I was not impressed.

> A few months ago, when I looked at buying private health insurance via the exchange in California, I had never heard of any of the insurance companies

Blue Shield of CA has plans available in the full region for each of CA’s 19 pricing regions, and is the third largest insurer in the state.

Wrong; insurers' profit is limited to a percentage of expenditure in the ACA. Increasing expenditure is the only way to increase profit.

It’s not that simple.

Insurers compete on the employer market for premiums. If you keep jacking up your premiums, you may find an employer dumps you.

And the pool of money is finite. Getting a better deal on a drug means you have more money to spend on other care that might get you more members.

That said, I agree the 80/20 ACA law is a stupid way to try and control costs.

Which is why ACA also instituted marketplaces and insurance standards, so that competition across substitute services keeps premiums competitive.

E.g. Anthem is more than free to double the premium on their bronze plan to increase net profits, but then customers are free to swap in bronze plans from Cigna, Kaiser, or any number of competitors that didn't.

Not really. Networks complicate all of that severely.

This massive price escalation was called out as a definite outcome by progressives seeking a public option at the time.

The percent cap was touted as the fix.

Insurers bought facilities and raising dollar amounts kept revenue near expectations.

How exactly does networks complicate that?

Insurers had to scale (i.e. increase costs) after ACA was implemented because number of uninsured Americans went from 18 to 11%.

Networks complicate things by reducing demand elasticity.

For example, look at Maricopa County, Arizona. It's like 100km across and includes both a major capital city (Phoenix) and several suburbs with 6-figure populations (Mesa, Chandler, Glendale).

Many of the marketplace health plans* would have networks which focused around central Phoenix. If you wanted to see an in-network doctor or urgent care and lived at the fringes of the county, it was a 30-minute drive or more.

This meant people in the fringes had to pick the few plans that covered nearby facilities, even if there was a significant price difference.

* This was during the first few years of the marketplace. By 2017 or so they were basically down to a single insurer, so even that degree of consumer leverage was gone.

Have you ever tried a policy change?

Yes. I have actually bought my own insurance through one of the state-run exchanges in the past.

For anyone with complications, medical history that is non trivial, networks become very important, and do costs.

Networks take people in and out of the chain of care providers, and costs swing dramatically.

The whole affair adds zero value when compared to simpler Medicare For All type plans.

People in my life got sick, and the financial carnage has gone on for decades.

This pretty much rules out any favorable view on markets and private insurers I may have. And I am by no means a unique, or even uncommon case.

If it were not for family, I would have picked up and left this cruel system a decade ago.

Networks are very important with all kinds of insurance. The thing you notice when you switch from employer-covered insurance to ACA market insurance is all the fiddly choices your employer was making for you. You can say that having to make these choices is a process failure of the ACA, or you can say that having the freedom to make those choices yourself is a benefit of the ACA.

I'm not sure what M4A has to do with this, and, in particular, to relate this story back to the thread, you should be aware that Medicare drug benefit administration is also privatized, and that somewhere between 1/3 to 1/2 of Medicare recipients also get Medicare Advantage, a private insurance rider to Medicare that is largely defined by network restrictions.

M4A has everything to do with this.

Millions of Americans have and are being harmed financially and or physically by this patchwork mess.

The other thing you notice is insurers treat people who they know will cost them much differently.

M4A will centralize most of this and will distribute cost and risk as widely as possible

Could you formulate a response like this that addresses the point I just made, which is that Medicare also includes, for a huge chunk of its recipients, network restrictions, and for all its prescription drug recipients private insurance?

For now it does. That will not always be the case, or should it be, the regulatory picture will appear very different than it does today.

Those things simply do not add value. They do help to make more money.

When health care is about making money, it is not about making people healthy. And it is not about cost either.

Very large numbers of Americans are both impacted in a negative way, and long past the idea of private insurers being good primary care vehicles. They aren't.

Private insurers should be forced out of primary care. If I had my way, doing that would be illegal.

There is a basic conflict of interest between an insurer making money and what is best for sick people.

I will tell you personally, the hell I have gone through, family members dead, others living with pain, financial damage, homes lost, I am very highly motivated to do all I can to see an end to our current, increasingly cruel and ineffective system. Talk about death panels. Yeah, happened to us. Unnecessary that it did too.

So really your argument has nothing to do with Medicare? You're just using the term "Medicare" as a placeholder for whatever health policy you come up with? I'm not trying to be snarky: this is also what several of the Democratic frontrunners are doing.

Your words not mine.

The original intent of Medicare is intact in the proposals a growing number of people are moving to actualize.

I am not coming up with "any policy"

I am contributing to the Medicare For All effort.

Does that clear things up?

BTW: Totally get it. No worries.

I just reread this, and the TL;DR:

For very large numbers of people, the current arrangement simply isn't acceptable. The pain level on that has reached a point where those people are now motivated politically.

Medicare For All is an expansion of Medicare, and an augmentation.

Technically, part of what you said is right: Medicare is being used to reference policy modeled on, but does expand considerably on that which we know as Medicare today.

That's being done because people largely understand and like the part of Medicare being expanded on, and that's the part sans private insurers and the usual mechanics associated with all that.

The Dem front runners are looking to garner those health care votes. They aren't wrong to be doing that as for increasing fractions of those votes, a solid proposal that eliminates the harm potential present in our current system is a litmus test.

Cheers!

Actually the insurers wisened up and largely stopped approving claims for this one.

I suspect that something very fishy is going on between when the money is “paid” by the insurance company to the money that actually makes it to the pharmaceutical company. I suspect most of this money gets rebated back to the insurer in some form or another.

Reading your link it’s actually an interesting story of an absolute fraud designed to thread a perfect path through all the existing regulations and checks & balances.

There have been a lot of fishy dealings with the drugs that came from Valeant.

They would charge outrageous prices for drugs that were just a combination of generics.

They funneled the scripts to a pharmacy they partnered with. Most insurers would not cover the drug, but the pharmacy knew all the tricks. 80% of claims might get rejected, but they made a ton of money off the 20%.

I believe the idea is that they make minor changes to it and apply for a new patent. Possibly also covering the original patent?

Your understanding would be correct, except when there are billions of revenue on the line. Then "the best minds" of the law profession get to work. For example, you cannot make a generic without (legally) having some sample of the drug going off patent. The drug company simply destroys all the expiring patent version of the drug, patents a minor change, and starts the clock all over again. Many other strategies are detailed in this podcast episode.

[0] https://www.econtalk.org/robin-feldman-on-drug-patents-gener...

One small wrinkle: what if there's an old existing compound that seems to work well for an different indication than it was originally approved for? It would be good to run the phase 3 trial (possibly phase 2 as well) but that's gonna cost a ton of money. Maybe the government does it, or maybe we let people extend a patent for a new indication, freeing up government research money for the much trickier problem of understanding fundamental disease mechanisms.

There are of course good arguments against, but there's at least some good arguments to allow limited patent extensions.

Both of your options already happen.

Basically anyone can apply to the NIH for a grant to run clinical trials. It's not easy: the funding rate for NIH grants in general is in the teens and you'll need to convince the reviews that a) the trial itself generally makes sense and b) you, specifically, can pull it off, but it can be done.

If you find a new use for an existing drug—and run a trial to prove it—the FDA will give you a period of "marketing exclusivity", wherein you will be the only one allowed to market that drug for that condition. It's not quite a patent, but it's meant to be a similar recompense/reward for doing the research.

Yes :) I've heard of some of these mechanisms, I think they're a decent balance. All of these issues are fairly complex, it's helpful to have context.

Whats preventing doctors from prescribing off label?

if you're in the US, doctors can do this. https://en.wikipedia.org/wiki/Off-label_use

What's preventing them? Safety, efficacy, and fear of litigation.

big pharma charged ridiculous amounts of money for new drugs, made off-patent drugs dirt cheap

That’s what happens now, for the most part. Drugs that were cutting edge 7-10 years ago are now public domain and damn cheap, like 95-97% discount to the brand name.

Of course there are exceptions, but it’s generally how it pans out.

And insulin should be dirt cheap, but is held hostage by Regulatory Capture.

I don't like the ideological warfare which takes place while many times the problem is of cronyism, cheating.

The insulin of today is not the same insulin from 10 years ago.

The insulin from 30 years ago is available and cheap, but no one wants to use it because the newer insulins make it easier to control your blood sugar.

This situation has nothing to do with "free markets". The problem is the horribly high price of entry enabling the incumbents to have monopoly power over the market. Giving the control of the prices to the government does nothing to solve the problem, it only adds a level of indirection. Pharma companies are still going to rally for the price increases and the prices will continue going up as much as the politicians can get away with it.

The real solution is lowering the barriers of entry, or at least allowing people to import drugs from a select number of countries. Then the markups will start tumbling down to reasonable levels.

Seems like a solution to me.

The real solution is a single major social healthcare program, throughout all the states paid for by federal taxes.

A single major provider of healthcare will have better negotiating powers than the multitude of hospitals and insurance programs as is at the moment.

Of course, with it being federally funded, the health system will be wanting to keep costs down. Congress can help this by forcing bad actors to behave ethically by removing their licenses to operate, and stripping them of their patents. Something other governments have done in the past.

However, in the US, you have a president that sides against the people, and for big pharma. https://www.bbc.co.uk/news/business-44087735

Two things:

1) The largest private insurers in the US cover more people than many single payer countries, like Canada for example. They don’t get better prices.

2) As someone who works in the drug industry, Trump is actually the first President in recent history that is freaking out the pharma companies. His “international price referencing” proposal is being taken very seriously as it would have very negative consequences.

They don't get better prices because they are operating in a system where access to key drugs is a key differentiator. Penny pinching on access drugs (as does NICE in the UK on behalf of the NHS) wouldn't be a good look for an insurance company as they pitch for your business. The only way negotiations with Pharma companies will work is is you actually refuse to pay over-inflated prices, again as-does NICE. And the only way this can be justified is to have a centrally mandated $ per unit 'utility' (aka QALY) beyond which you won't pay.

Private insurers aren't motivated to do any of this because high drug prices don't hurt their bottom line.

I agree with your first point. Having talked to a number of pharmacy directors at private insurers, there is a huge amount of pressure to cover all drugs, regardless of the price.

Insurers who say “no” (Aetna) is a good example, quickly lose customers to insurers who say “yes”.

He’ll, even Medicaid and Medicare at home flack for not having a drug on their formulary.

Very unlike other countries.

”The largest private insurers in the US cover more people than many single payer countries, like Canada for example. They don’t get better prices.”

I don’t think they really care about prices as long as they can pass them on through higher premiums.

Just to add to the other comments to your reply.

Dealing with a nation's major provider is very different to insurance companies. As I said, if you try to price gouge then they governing body will take what they need as a matter of national security/public health safety.

Then the drug companies pony up to the politicians who allow for the huge ever increasing expenditures and because nobody really sees the bills, nobody really cares and the tax rates and national debt only climb higher.

Incumbents have a monopoly because of safety regulatory controls inherent to the market, not "indirection".

Companies that have the capital to invest into 15 years of clinical trials are going to dominate the market.

Rather the lowering safety regulations for pharmaceuticals, a better solution would be to offer funding, grants, loans or to use capital redistribution mechanisms for helping new market entrants in drug research. This lowers the monopolistic barrier to entry while still retaining the necessary level of quality.

You can recognize that at some point safety regulations would cause more harm in their implementation than they would be in their intended effect, right? If so, who is to say that is not already currently the case?

See https://www.forbes.com/sites/timworstall/2017/06/04/milton-f... and the video in it. It lays out how "single payer care" is only a natural conclusion if you start with a hugely distorted market.

My point is not that safety needs to be increased to the maximum. It's assumed the current level of safety takes into consideration existing market signals and the economic trade-off of diminishing returns.

My point is that trading safety simply to solve the barrier to entry problem has a dangerous cost/benefit trade-off, especially when it is not the only way to solve the problem.

>It's assumed the current level of safety takes into consideration existing market signals and the economic trade-off of diminishing returns.

Considering the current pharma market and everyone's assumption it's distorted I think this needs a pretty airtight defense. Everyone is aware of the tradeoff, but countries like India, where drugs are easier to bring to market and more drugs are available OTC, has great healthcare outcomes for its poorest citizens.

Market availability isn't the same as OTC distribution though.

The expensive clinical regulations that creates barriers to entry for the market and leads to monopolistic incumbents is not the same to being able to buy the good with or without an prescription.

The latter is tied more to remuneration from insurance companies - i.e. private insurance companies that are incentivized to not pay for prescriptions are more willing to only pay when care providers specifically order it.

Yes, yes, I know. But so many drugs requiring a prescription in the US is a market distortion similar to the high cost of bringing drugs to market. It reduces the availability of life saving medicines to people while attempting to minimize other dangers that are likely overstated. Frankly it seems like something doctors lobbied for to ensure a steady stream of office visits.

Doubtful. Doctors are incentivized to not have to write prescriptions, because it legally shifts the liability (and malpractice claims) to them.

Whether they prescribe it or not is irrelevant, you still need to pay to ask them. Doctors are risk averse for that reason, among others, and most people I know loathe going to them because they never actually try to treat the problem.

> India has great healthcare outcomes for its poorest citizens.

Does it? Why does the life expectancy at birth (68-69) trail the US (76-81) by so much then? That's an average across the country; presumably the poor in India have even lower than that average.

The country is massive and much of it is in poverty, this is looking at improvements relative to other similarly disadvantaged areas.

At no point would all additional safety regulations, on the margin, uniformly make things worse. So I don't think the binary question of whether this "is not already current the case" makes sense.

The root cause is that developing new drugs is horribly expensive. And we can't really make it cheaper without compromising ethics and safety. And it is always getting worse since every new drug has to be better than everything that came out before it, and provably so.

The early days of modern scientific medicine when we found miracle drug after miracle drug are gone. The low hanging fruits have been picked, what remains now is hard word.

So every solution that just involve paying less is not a good solution. Labs need the money. The real solution? Sorry, I don't have it. If it was so easy that a random guy like me could find it, it wouldn't be a problem.

There are certainly inefficiencies. Maybe something can be done to limit the tendency of the pharmaceutical industry to focus on producing marginally better drugs for the sole purpose of renewing patents. With well thought out reforms, we can make things better, but just like with the drugs themselves, it is hard work.

I’m pretty sure a lot of the “hard work” is figuring out how to pay the ever inflating golden parachutes for the executives. Pharmaceuticals are churning out bigger and bigger profits.

A lot of our health problems are solvable. We just don’t want to because there’s more money to be made when people’s lives are on the line.

When you are poor and have trouble paying for the ever increasing whatever, it is easy to point out the lavish lifestyle of top executives. But while it's true that you are paying for the CEO's yacht, it represents only a small part of the bill. For the most parts, you are paying for the wages of people just like you. Top executives pay is in the millions, but the company revenue is in the billions.

Even though I don't share this point of view, I understand that the idea of making the CEO miserable can be compelling. However, it wont affect the bill that much.

Generally, limiting the abuse by top management has to be part of the plan, but it can't be the whole plan. It is not even a good starting point.

Well, our corporatist system isn't exactly free trade. Most people who talk about Adam Smith haven't actually read him:

"The trade of a joint stock company is always managed by a court of directors. This court, indeed, is frequently subject, in many respects, to the control of a general court of proprietors. But the greater part of those proprietors seldom pretend to understand anything of the business of the company, and when the spirit of faction happens not to prevail among them, give themselves no trouble about it, but receive contentedly such half-yearly or yearly dividend as the directors think proper to make to them. This total exemption from trouble and from risk, beyond a limited sum, encourages many people to become adventurers in joint stock companies, who would, upon no account, hazard their fortunes in any private copartnery." Adam Smith

Fortunes aren't only monetary, but reputation.

I truly do not understand the purpose of a free market for food. The demand for food is almost completely inelastic, as it is driven by the biological need for sustenance. This makes central planning remarkably easy compared to typical consumer goods.

A nationalized food industry that provides food at cost seems like it would be a tremendous boon to our society. It's time we give Washington full control of our nation's food market.

Heh, you really dont understand the US at all and the effects of the commerce clause lawsuits. It is a multibillion dollar industry of government handouts.

The production of food is extremely decentralized whereas pharmaceuticals are quite centralized.

Many countries have nationalized industries similar to pharmaceuticals, such as petroleum production, and it has been successful.

Just for starters, there are many different kinds of food, and the barriers to entry are relatively low. Everyone needs some food, but there's plenty of room for competition when there's filet mignon vs. hamburger vs. beans and multiple providers for each. That's a textbook condition where the free market can serve everyone well.

With a lot of medicines, in the current regulatory environment, there is one product from one manufacturer, and you must pay what they want or suffer.

When you resort to sarcastic mockery, people are going to look a lot harder for holes in your argument. If you must do that, you should start by making sure your argument is solid, or at least not transparently flawed.

any specific food has a at least one if not many near perfect substitutes, whereas any specific drug likely does not.

validity of OP's conclusions aside, this is not apples to apples from an economic perspective.

see also:

https://en.wikipedia.org/wiki/Commodity

https://en.wikipedia.org/wiki/Fungibility

https://en.wikipedia.org/wiki/Substitute_good

https://en.wikipedia.org/wiki/Price_elasticity_of_supply

https://en.wikipedia.org/wiki/Price_elasticity_of_demand

etc.

Man the people that answered your comment didn't really get it.

Maybe you could explain it to us, then, since neither you nor Nostromo have offered anything but snark so far.

Sure. The argument the OP made on healthcare is equally applicable to food, and yet food doesn't have the same issues and the proposed solution would be obviously terrible.

That's just restating what Nostromo already said. Can you address the several arguments that were made as to why it's not equally applicable?

It's fundamentally obvious that the current market for food is working fine, and the current market for many crucial medicines isn't. InvisibleCities may have missed the mark as to why, but "nuh uh, they're the same" is not a convincing counterargument.

Your sarcasm aside, there isn't a free market for food. There's tons of intervention.

There's intervention on the supply side, with direct financial subsidies for particular products. There are indirect subsidies like those Snake River dams, which allow farmers in Idaho to cheaply float their crops down to the coast, and which are helping to destroy the salmon population. There are government advice programs like the USDA old "food pyramid" which is pretty much wrong, but shifted demand for foods for decades.

And, of course, there's intervention on the demand side, with food stamps. Essentially, socialized food but only for people who nominally can't afford it.

Sounds like the government is already shouldering most of the cost, might as well go full monte.

>This makes central planning remarkably easy compared to typical consumer goods.

What if bureaucrats are much more risk averse than investors? We may end up with less drugs. The same things happens when taxpayers get too many stories of paying scientist salaries for things that fail. Letting investors and those more knowledgeable of markets and drugs might end up making drugs that wouldn't happen on taxpayer money only.

>all it would take to expand that program to include later-phase clinical trials would be increased funding.

[1] claims ~60 new drugs approved in 2018. [2] puts the cost of a new drug, plus post analysis, at $3B. This is already ~180B, perhaps not counting the ~80% of drugs that fail to make it to market. For scale, the entire NIH budget is ~12B; the money paid by the govt for drug research is a tiny part of the cost to get the drug to market, (otherwise more universities would start their own drug companies)

Raising another 180B from taxpayers is no small feat, and if that could be done, it's not clear this is the best space to spend it.

It may be much cheaper overall to let investors take the risks (and thus also get rewards).

>A nationalized pharmaceutical industry that provides drugs at cost seems like it would be a tremendous boon to our society

Agreed, assuming that it would truly cost less to do this. The govt is not terribly efficient at many things the market provides, from power to package delivery. The most cost efficient outcomes usually come from govt ensuring markets are competitive, then letting companies fight for sales, causing them to develop and fight over efficiency gains.

A better fight might be to find ways to make the current market more competitive while still delivering results.

[1] https://www.forbes.com/sites/bernardmunos/2019/01/14/2018-ne...

[2] https://www.policymed.com/2014/12/a-tough-road-cost-to-devel...

The NIH budget is much, much larger: $39.2B

https://www.nih.gov/about-nih/what-we-do/budget

Oops. You’re correct. The point still stands, though: the amount needed to bring drugs to market is vastly more, and if taxpayers were going to pay this much more in taxes, it’s not clear this is the best use of those new taxes.

You might be right to a certain extent, but keep in mind just how expensive trials are. Many millions sometimes even into the 10s of millions of dollars for a single trial depending on the indication. That's a ton of money. For reference, an RO1 grant from the NIH (the bread and butter grant for biology research in the US) is about $250-$500K a year for one lab. That means for the price of one phase 3 trial you could fund 20 labs looking into how diseases work.

There are plenty of private sector actors that will fund the phase 3 trial, very few that will fund the basic science. So your choices are:

1.) Cut funding for basic research, move the money to clinical development

2.) Increase funding for research overall, but then where does the money come from?

In the case of 2, you'd probably have to boost funding a lot to match the private sector spending. Pfizer spends $8B/year or so on R&D. The NIH budget is $40B. So to match a single pharma's total R&D budget (granted much of that isn't strictly clinical trials, but the entire drug development process), you'd have to increase NIH's budget by 20-25%.

There are always trade-offs, and these are hard ones to make. Perhaps they should be tilted more toward the government, but the numbers are really large, so it's good to understand them before making a conclusion.

Pfizer also spends $14 billion/year on marketing, which patients have to pay for.

I won’t defend the marketing very much, I think there’s a lot wrong in pharma marketing. The only (very slight) defense I’d make is that marketing when done well brings in more resources than it costs and helps the broader org. That said, it’s hard to know and it’s a difficult area morally.

You’re lumping all drugs into one basket.

The demand for some drugs is very elastic. A good example is what I take for stomach acid. I stick with generic ranitidine and skip the esomeprazole. Is ranitidine inferior? Yeah, probably, but it’s worth the cost savings.

Even in markets like cancer there is competition.

However, a big problem is that the person who pays, the person who understands the data and the person who should make the choice are all different.

> A nationalized pharmaceutical industry that provides drugs at cost

Would the drugs be made available to other countries? If so, wouldn't we be subsidizing drug development for the rest of the world? (maybe that's ok?)

I think it has a lot more to do with the complete inability of the US to import drugs from other countries. I don't know why it's not legal and highly regulated to do so. People are already doing it illegally with fentanyl, imported from China. We could better stop that if we had a system in place to combat it and allow it for certain categories of drugs. US firms have no competition or reason to lower prices. Add that to long FDA processes and it's incredibly expensive to compete.

They are the same multinational firms operating in other countries and selling the same drugs.

I’ll address your second point first because I think it’s important for framing the debate. Worldwide profits for publicly traded pharmaceutical companies adds up to $200 billion. That’s 2.7% of worldwide health spending, and 5.7% of US health spending even if you allocate all worldwide profits to the US alone.

As to your first point: what is the limiting principle to your theory? If the government can efficiently run an industry as complicated as drug development, shouldn’t it be able to efficiently run every other industry as well? If you could squeeze out Facebook’s 30% profit margins by nationalizing the web tech industry, without any adverse consequences, I fail to see why you wouldn’t do so.

The fact that prices are inelastic (and they’re often not) doesn’t get you all the way there. That tells you that the government may need to play a role in regulating prices in the extreme case. But the elasticity of price has nothing to do with the government’s competency to run a nationalized industry.

Nobody dies if Facebook imposes unreasonable impingements in privacy. But is that the dispositive fact for why the government wouldn’t be competent to run the web tech industry?

> If the government can efficiently run an industry as complicated as drug development, shouldn’t it be able to efficiently run every other industry as well? If you could squeeze out Facebook’s 30% profit margins by nationalizing the web tech industry, without any adverse consequences, I fail to see why you wouldn’t do so.

I think the answer lies outside the realm of the economy. Many people seek meaning and purpose in their lives and jobs, and for instance many universities in the world are essentially state-run. You can't really ignore the effectiveness of this arrangement.

I think the same would hold for medical/pharmaceutical institutes, whereas something like Facebook would, in this light, be a totally different thing.

Except the university departments that do produce technology generally are tightly integrated with industry. How many Stanford and MIT professors and graduate students launched startups? And what would happen to that system if there was no exist into the private sector?

This might be true in the US, but in Europe there are far less ties between industry and academia.

I think the more relevant example is how the US manages investment in critical transportation infrastructure, and that doesnt even require innovation.

Simply assuming that the proper allocation of resources is easy in this or any other industry is wishful thinking. If drugs have any substitutes the demand side already goes from easy to hard. When drug treatments can cost tens or hundreds of thousands of dollars we have more demand for medical treatments than we have supply. Even the concept of providing drugs "at cost" is complicated because costs vary not only with the price of inputs but with amount supplied.

On the supply side the inputs for the pharmaceutical industry aren't infinite.

Whether it's chemists, chemicals, warehouse space, machinery, or time all of these things are rivalrous. When you put a chemist on one project you take them away from another. If you put a chemical in one drug you take it away from another. If you make a factory produce one drug it stops producing another.

In order to solve the problem of maximizing the benefit of the resources being used we can use a market that uses prices and profits to coordinate itself, or we can have a group of really smart people trying to reason out what is needed where. Markets are historically good at solving this type of problem, bureaucrats are historically bad at it.

So implementing a publicly funded drug r&d industry would be vastly more complicated than "increased funding"

High drug prices are a major issue (arguably though, they are less of an issue than high hospital / physician costs bc these make up 50% of healthcare spend compared to 10-20% for drugs), but it is disappointing that people are so unaware of the basics of how the industry works

I think either windfall awards for successful, new medications that then become public domain and production and/or public loans with gracious forgiveness conditions for meds that fail to make it out of the trials would significantly help the market clear. It’s inefficient to let a company coalesce all the resources and knowledge needed to develop a medication for a disease and then let or force that company into bankruptcy after a failed trial. Those people and resources can more readily retool, refocus, and so on onto the next medication than always starting from scratch.

Windfall payments should make the government able to produce and deliver he medication at the rate of occurrence in population instead of a pricing mechanism.

Just my .02 though.

The purpose is campaign financing.

I’ve worked in pharma for much of my career, but will never go back. At one point I was working for a company that continues to milk profits off of a drug that was developed in the 1950s - the company doubled the price over the span of a few years in the late 2000s, for no reason besides the P in P&L. And that company is generally considered one of the “good guys” in the industry, spending proportionally more on R&D than almost anyone else.

You could argue that the outrageous profits made off a 70 year old drug are funding that research, but (a) that’s just not the case, and (b) why should one group of patients and their insurers have to shell out for another? Isn’t that what financing is for?

Out of curiosity, why do you feel (a) is not the case? Are the profits going to salaries instead?

I think he reasons that a drug so old would have no debt left over from its research expenses.

Imagine if we applied this rule to Silicon Valley. Once you recouped your R&D expenses, you weren't allowed to make any more money (or only a token profit above cost). Do you think Silicon Valley would be the same? Better? Worse?

(Yes, people don't die if they don't have Facebook. That's not relevant to the R&D process. The mechanics of developing pharmaceuticals is the same as developing software. You take large amounts of capital and throw it at highly skilled and scarce labor.)

EDIT: That does not mean there are no problems. There's lots of real problems, such attempts to keep things from going out of patent, how to handle orphan drugs and drugs for rare diseases, etc. My point is simply that we have proven principles for how to enable innovation, and they apply to pharmaceuticals as much as to web tech. Of course, we can make different trade-offs within that analytical framework--e.g. trade future innovation for lower short-term costs. But we can't apply a wholly different set of principles for thinking about the costs of those trade-offs.

Imagine a piece of software that had fully recouped it's R&D budget, had minimal support costs, and was sold for a modest profit suddenly went up 100x in price.

This happens all the time. You don't notice it because you're not directly billed for it, but basically the central theme of the startup playbook is to subsidize growth, acquire a userbase, and then (and only then) monetize the hell out if it.

What you're describing is the early cycle of a Drug before R&D is recouped. We're talking late stage after all the initial VCs have recovered their investment 10x and divested themselves.

We're not talking about Uber after successfully running Taxis out of business jacking up prices. We're talking about 25-30 years later after Uber has been the de-facto transportation provider suddenly decides to do a 1000x price increase.

I'm responding to (really, refuting) a specific argument you made upthread. You can now make a different argument, if you like, but I won't necessarily have much to say about it.

A lot of startup products go from free to monetized (an infinity x increase in price) at some point.

We're talking about a drug that's going on 50 years on the market, not a startup. The drug has already been monetized and paid for itself 100x times over.

Nothing wrong with going until 200x. Cost != affordability. It's a misdirection of the real issues with the medical industry.

Bell Labs was funded by a monopoly.

I guess another interesting question is "Does the fact that companies are more shareholder-friendly now increase or decrease innovation?" (that is to say friendly, in the sense of returning a larger portion of earning to shareholders via stock buyback or dividends)

I'd argue it seems to have decreased it, but I'm hard pressed to come up with a reason why.

The closest I could offer would be that retained earnings fund capital investments and corporate-managed R&D. Whereas distributed earning fund... investors.

Which is the point, but this far investors don't seem very interested in funding long-term research.

The list of things we've gotten in the last 20 years of shareholder-friendly innovation seems like a strong rebuttal to that argument. 20 years ago it was amazing to think that I could get on the Internet from any room in my own house without plugging an ethernet cable in; today, I can run a 10 person videoconference on my phone, which also holds every song I could possibly care to listen to or have ever really cared to listen to, along with every book, from the bus stop.

In tech, sure. But there's also a huge chunk of innovation driven by open source. If Google had standardized on MS Windows instead of Linux, then MS would still be at the top of the heap.

The barrier for entry to tech is very low for technology, which means that competition is also higher, which then drives more innovation.

With pharma there is a cash outlay required to research and manufacture a drug, even if it's off patent. Software just needs a computer and time.

The problem With this tech vs pharma argument seems to be the comparison of two sectors which aren't apparently the same at all.

The fact that Chrome is monetized by plugging into Google's ad network instead of charging users per copy isn't a difference in how Chrome is developed. For the most prominent open source projects, the basic development model is still throwing corporate money at very expensive engineers. That's true for Linux itself--for a long time, the vast majority of contributions have been from corporate sponsors.

I should have said shareholder-primacy vs -friendly.

I was specifically referring to the change in the 70s and 80s from a diversity of stakeholders being valued to shareholders above all other considerations.

It seems fair to argue that the much-maligned dual stock schemes popularized by tech companies is a reaction to and repudiation of this.

Zuckerberg being able to spend money better than Facebook's shareholders, etc.

And I don't think it's a clear-cut decision on whether shareholder-primacy or balanced-management has produced "better" for-profit companies.

In a competitive market, profit is naturally driven towards zero. Drugs are not a competitive market, every one is a little monopoly of its own.

One difference is that there is often plenty of competition, sometimes from open source software. The big tech companies give lots of stuff away for free.

These markets don't seem much alike.

> The big tech companies give lots of stuff away for free.

I'd like you to think about that for a bit and then tell me if you can say it again with a straight face.

Do you really think "for free" is what people are being sold? People are being sold to advertisers. That's definitely not free in my book.

The advertisers paid for advertising. No money changed hands with consumers. That's the normal definition of "free."

You might not like it when someone records your behavior, and there might eventually be other bad consequences. I'm not saying it's a good thing. Free stuff can be bad for you.

But you didn't pay for it.

> But you didn't pay for it.

You're trying to argue that someone who made a simple trade (for example a chicken for some wool), didn't pay for what they received.

I did pay for it. The payment was in in knowledge about how I would use the service and making my time available for an advertiser to take my attention. The payment was in the ability of Google to read my private correspondence.

I think it's unethically misleadingly wrong to say people don't pay for a free service.

If you walk into a shop and ask how much a newspaper costs, and they tell you it's free, they're not being misleading, even though it's paid for by advertising. It would be confusing if you asked if it was free and they said no.

Pestering people who use the word "free" in the normal way has nothing to do with ethics, it's just being annoying.

When you pick up a newspaper, the advertisement was already sold.

When you look at a website with an online advertiser such as Google, the advertisement is _not_ already sold. Your information is put on a marketplace to set a price for your attention and device's resources.

There's a very significant asymmetry to what is being sold when comparing the two scenarios.

Silicon Valley is always into R&D, tech quickly looses it value as new tech is developed. I don't think it would effect Silicon Valley in a negative way, it would only further push innovation.

isn't that the idea of a free market? Proper competition should eat almost all of your profits

That used to be how it was not too long ago. You sold your software or hardware at a one time price and customers either got the product or a serial key. Now even hardware sometimes falls under subscribe till you die.

So a company can’t invest profits from old products into new products? Is there a cutoff? What is the rationale behind this?

There is a certain management metric called "profit per employee" used for managerial accounting. Many ordinary business' have a fairly low number. Apple Inc at one point made a very public version of their "profit per employee" and perhaps that influenced/emboldened others.. at any rate, the drug discovery and pharma industries have very high "profit per employee" numbers which you can find in some annual reports and some industry analysis papers.

The software industry has high per-employee profit too, that’s the leverage that pays the high salaries in the first place.

None of that has to do with this company or the profits not funding new research.

What's the company's overall margin?

Everything objective you stated sounds like it could describe either a good company or a bad company, all conditional upon whether the margins are huge or fair.

Any pharma company that spends on R&D will have to rake in profits from somewhere to subsidize R&D efforts. R&D is extremely risky (most drug R&D projects fail) and has a very long time period before payback if it succeeds.

Maybe. There are studies which point out some interesting large scale trends. One that private pharma R&D is getting less efficient, creating fewer and fewer drugs per billion dollars. Another is that many current high profit drugs had their early fundamental breakthrough research as government funded R&D, and that todays gov't funding of drug R&D is at a relative low because private industry is theoretically taking care of it all now. Another observation is that private R&D often focuses far more on the development than the research, developing new drug "packaging and delivery", in part to gain IP extensions, instead of fundamentally new drugs.

"...studies which point out some interesting large scale trends. One that private pharma R&D is getting less efficient, creating fewer and fewer drugs per billion dollars"

All the more reason for the State to involve itself here by bringing to an end such an expensive,'inefficient' (or more likely self-serving, profit-driven) system. As I've said above, it's the job of Government to protect its citizens from such abuse and in this matter it's high time it started.

It's important to understand why the efficiency is going down, and it's not because the companies themselves suck more every year. It's because of two main drivers:

1.) The easy targets are mostly gone. All the biology we understand very well either has drugs already, or for some key reason can't be addressed with the drug discovery system we have today (see KRAS, though there are glimmers of home there). This means we have to go after harder diseases that aren't as well understood or have complex etiology. Necessarily that's less efficient.

2.) When you drug something, it eventually becomes incredibly cheap to use that drug, and it becomes the benchmark. (AKA the "better than the Beatles problem") As a pharma company you're competing against the former, better (because you were going after easier biology) versions of yourself all the time. This is also true in software, good software often becomes somewhat commoditized. However, in software we've had exponentially increasing compute capacity for some time, which means the next product can be exponentially better than the previous one simply because new things become actually possible to do when they weren't before. This by and large isn't and can't be true in pharma.

I do think some aspect of this is true, but I think how research is directed is systemically off today. You may want to read this overview report (it has footnotes for all the research it cites). But there are quotes in there like:

"While critical medical needs remain unmet, a majority of new medicines developed have no added therapeutic value."

https://www.ucl.ac.uk/bartlett/public-purpose/sites/public-p...

That's a frustrating article.

Figure 1 shows that recent neuro/psychatric drugs don't have dramatic effects. That's true--but it's not for want of trying. People have been bashing their heads against the brain for decades, but it turns out to be a really hard problem. Biogen lost $18B of market cap on its aducanumab trials early this year. Eli Lilly, AstraZeneca, Roche, Pfizer, Merck, and Johnson & Johnson have all also had big Alzheimer's trials go sideways. I'm not sure that throwing more money at the same amyloid hypothesis will help. Maybe share buybacks—which get taxed and thereby fund the NIH--might not be the worst idea.

The paper also complains about expensive drugs and me-too drugs. The initial HepC drugs were crazy expensive (nearly six figures), but produced quick cures in virtually all of the patients. This was still a massive win over slow, ineffective treatments that still ended with liver cirrhosis/ cancer/transplants for half of the patients. The subsequent "me- too" drugs, which mostly target the same pathway, don't work appreciably better (hard to demonstrate improvement vs a 95%+ cure rate) but have driven the price down by tens of thousands of dollars.

> One that private pharma R&D is getting less efficient, creating fewer and fewer drugs per billion dollars

That is because government backed drugs can typically gain approval without as much bureaucratic overhead. When the government experiments on its citizens (like the syphilis experiments, for example), no one is held to account, whereas private companies have to have liability insurance, etc, and do things the proper way. If the government actually enforced its own standards on itself, it's unlikely they would be more efficient.

Taking one pill instead of six at different times is packaging and delivery. It's also transformed the lives of people with HIV.

Can you really trust the margins? If they were making a killing, I would expect plenty of creative accounting to hide that fact.

If it's a private company (not publicly owned) we have zero ability to know, they would not have to publish any financials.

If it's a public U.S. company we can know with 100% certainty via GAAP accounting.

What if the drug companies are raising prices because of Eroom's Law[1]. They have fewer and fewer blockbuster drugs and are plowing more money into research of diminishing marginal returns. Eventually the returns will be negative if they aren't already. Why aren't there more competitors though? Is there some sort of anti-trust situation going on?

[1]https://en.wikipedia.org/wiki/Eroom's_law

According to another comment chain, a large part of pharma R&D is financed through government grants. Wouldn't this already take care of the risk?

No, because the part the government funds is the exploration and initial testing of compounds. As someone else pointed out, it takes quite a bit of work to get those compounds from "works in a lab" to "available at CVS". Many compounds work in a lab, or work in animals, but fail in humans for various reasons.

Academia also isn't a great home for large-scale trials, especially long ones.

Most academic "things" (grants, hiring/promotion/graduation criteria) expect people to produce first-author papers, so projects are usually set up to involve 1-3 people over 1-3 years.

A trial, on the other hand, needs lots of people, ideally at many different sites, and will hopefully produce a single, well-defined outcome. Somebody's also got to make the drug--and under conditions where the end product can be given to humans (i.g., GMP). None of this is cheap either, and the NIH budget wouldn't stretch to too many large Phase III trials.

No, because this often repeated trope simply isnt true. Government funding usually is very early in r&d, (think lots of small grants for tens of thousands of dollars which have 1 in a million chance of succes). private industry takes the outputs and spends about 2 billion dollars per sucesscul drug screening and further developing it. It is like saying a large part of web development is government funded because tc/ip came from a government lab

Why are there not generics for this drug considering that any patents are certainly expired at this point?

I’d love to know what company you worked for.

I worked in the drug industry for one of the “good guys”. We thought some companies were destroying the reputation of the industry. When we launched drugs, we typical launched at a lower price than the competition. Why? Because even 10-20% lower was a profitable venture. And it keeps the pitchforks away.

It's obvious you're not naming the company out of self preservation. It's also obvious the people running these companies have no shame or fear of legal repercussion. Whatever social norm/political system is allowing both of those things needs to be attacked with full force.

I'm sure a lot of folks will pile in here about evil, etc. But I do appreciate the fact that some market incentives (profits) exist to encourage greedy companies to come out with new drugs. I fear lower innovation in its absence.

THAT SAID...obviously a big problem (like software) with the way we handle intellectual property. Just like IBM/x86, there's no philosophical reason why one shouldn't be able to derive a generic and produce it. That's the real issue. We issue "king's crown" (gov't) monopolies on these products. The ONLY advantage I am okay with is first mover advantage. Similar corollary to toll road and broadband concessions...stop protecting these giants and allow REAL PvP competition!

We issue these monopolies because discovering new drugs and putting them through patient trials is expensive and actually manufacturing the drugs after you discover them is cheap. Not sure how you can solve the pricing problem without reducing innovation in the space.

> But I do appreciate the fact that some market incentives (profits) exist to encourage greedy companies to come out with new drugs. I fear lower innovation in its absence.

There were more new drugs released before Bayh-Dole. If anything, the fact that you can now make a lot of money creating new drugs is probably reducing innovation.

Governmental regulations (safety, etc.) make the cost of developing a new drug extraordinary. Without exclusive patents on the back end companies won't have a reason to foot the bill on the front end.

Even without regulations developing and testing a new drug wouldn't be economical if somebody else could steal your formula the moment you figure out that it works.

This dynamic already exists in diagnostics. There's a huge second mover advantage in diagnostics because it's relatively hard to patent a diagnostic effectively. I know a few people in diagnostic companies that have very much soured on the industry as a result.

Yep. These realities exist in so many other industries too. Entire businesses are setup as fast followers.

It turns out that most of these new drugs have done more harm than good. See Purdue, for example. With very few exceptions, new drugs != better health. Our healthcare industry is a disaster and intellectual monopoly laws are a big reason why. We need to ditch those and focus on good outcomes, which does not mean focusing on giving vast rewards to some novelty regardless of efficacy.

Purdue's new delivery mechanisms were actually a huge benefit to the right patients. The problem is they abused it and actively sold the drug to the wrong patients repeatedly and worked hard to push back oversight.

The problem was you could make unnatural "lottery-winnings" money selling OxyContin, and people respond to incentives. Ditch the incentives for selling novelties and the boring businesses focused on the actual health outcomes of the patient will thrive.

If a new drug isn't useful it doesn't matter if the manufacturer has exclusive rights to it.

If people are buying/being prescribed drugs that don't improve their health that's a different problem that won't be solved by changing intellectual property law.

The problem is it does in practice. Almost all of the profitable drugs turn out to be useless (often harmful actually). I agree there is another problem here: medical science is laughable bad (and that’s a problem of tooling and poor data science tools, which I work on), as the combinatorics are much larger than our tools are currently capable of handling. But in the meantime, while people are still allowed to pitch junk science as fact, and medical decisions are based on junk science, the least we can do is stop rewarding monopoly profits to drugs with scant real evidence of support.

> But I do appreciate the fact that some market incentives (profits) exist to encourage greedy companies to come out with new drugs. I fear lower innovation in its absence.

I think of this as a "prayer to innovation", in the cargo-cultism sense. Like tax relief for the wealthy, the prayer goes that "if we can just give these people more money, they'll improve our lives".

Multiple studies have found links between drug pricing and the development of new drugs, but it doesn't work in the obvious way. Large pharmaceutical companies often rely on purchasing smaller startups who do the actual research into developing new drugs [1] but don't have the expertise in bringing the new drug to market and making it successful. The larger pharma companies need financial capacity for this, but since the patents have expired on a lot of other successful drugs before the companies recovered the profits they wanted, they're relying on captive markets for the monopolies they still have in niche pharmaceuticals [2].

These companies are profit-motivated. They aren't working for the public interest. They have no particular desire to "innovate"; their business model instead relies on identifying innovators, buying them, and then selling the product of their research at high prices for as long as possible.

Price controls for pharmaceuticals would ultimately reduce the funding available for the R&D startups, which would limit the creation of new drugs. But it's not clear that allowing big pharma companies to continue charging extortionate rates for life-saving medicines is a good solution to this, nor is it a guarantee for future innovation.

It seems like single-payer insurance and more federal funding for pharmaceutical R&D would be a far better solution than defending predatory drug pricing.

[1]: https://www.forbes.com/sites/stanfleming/2019/06/20/the-rela...

[2]: https://www.healthaffairs.org/do/10.1377/hblog20190228.63655...

> They have no particular desire to "innovate"; their business model instead relies on identifying innovators, buying them, and then selling the product of their research at high prices for as long as possible.

Isn't that to a great degree how Silicon Valley works too? Google didn't develop Android, for example. It acquired Android, Inc. and then plugged it into the Google ecosystem. Such acquisitions are a fundamental pillar of R&D. They enable startups to do what they do best, and allow big companies to take over when it is time to try and bring a product to market.

I think your point is well taken but Google does a metric crapload of innovation on the Android platform.

Sure, but Google and Pfizer (to pick an example at random) aren't exactly equivalent. Few people will die if Google suddenly decides to jack up their pricing on one or more of their services.

The incentives and market pressures are likewise different. Despite the valid criticisms of Google's anticompetitve practices, they have a far less captive market than any large pharmaceutical company does. If Google behaves too badly, they'll become vulnerable; meanwhile, a pharmaceutical company can increase drug pricing for vulnerable people as much as they care to, as long as the company has a patent-protected monopoly on the drug, and people will either find a way to pay it, or they will die.

This business model deserves far more scrutiny than any Silicon Valley darling simply because people's lives and well-being are at stake.

To ratchet Rayiner's argument forward to its next step: if the difference between Google and Pfizer is that Pfizer's work is more important, why would it make sense to de-incentivize it by capping its profits? Shouldn't we want drug development to be an attractive industry for entrants?

I wonder how important the R&D part actually is. The most benefit for society seems in a steady supply of many pharmaceuticals we already have.

Of course R&D into research for cancer, Alzheimer's, new antibiotics etc would be critically important - but one would need to know if pharma companies actually prioritize that at all.

>why would it make sense to de-incentivize it by capping its profits

Because like most publicly traded companies all they start caring about it profit maximization over everything else.

Well, how is this unlike deregulating any other market that has an acute impact on people's lives? Why, for instance, are unregulated ICOs bad, but unregulated pharmaceutical profits not?

Keeping the pharmaceutical R&D market healthy does not necessarily depend on continued predatory pharmaceutical pricing. Let's take a closer look at one example, adalimumab (Humira). Adalimumab was developed initially by a research partnership between Cambridge Antibody Technology Group -- which was publicly funded -- and BASF Pharma, which at the time was a biotech section of a massive German chemical corporation. BASF commissioned Cambridge Antibody Technology to create a tumor necrosis factor-neutralizing agent using some new phage technology [1]. They succeeded, the long and expensive trial process was started, and eventually that section of BASF got picked up by Abbott Laboratories [2], which eventually became AbbVie, which now owns and markets Humira.

This brings us to the present day: Abbott paid $6.9 billion for Humira and all of BASF Pharma's other assets. Using the typical market value logic that's popular on HN, let's assume that this is approximately all of the costs associated with developing Humira and getting it to market.

AbbVie made approximately $16 billion off of Humira in 2016 alone. [3] AbbVie's pricing for Humira is massively asymmetrical depending on which country it's being sold in, and as the linked article suggests, appears to be "priced in the United States primarily on the basis of what the market will bear."

The most common defense of predatory pharmaceutical pricing in the United States by far is that we can't regulate these prices because it will hurt pharmaceutical development. So, my question to you, or rayiner, or anybody else exploring that position, is: at which point in that process did predatory United States pharmaceutical pricing help develop Humira?

Was it in the public funding of a UK research group? Or was it in the funds of a massive German chemical company? Or is it that doctors in the US wouldn't know to prescribe the drug without the massive marketing campaign AbbVie has waged, especially in the US, to urge patients to "ask your doctor about Humira"? Or, perhaps, is it in the development of patent "thickets" that AbbVie uses to protect its biggest revenue stream, or in the corrupt kickbacks it was paying out to drive sales? [4]

This is the part where this argument loses me. Whenever I look at the details, I don't see any evidence that pricing in the US has anywhere near a 1:1 correlation with drug development. The NY Times article for instance links to a Journal of the American Medical Association study which found:

"Per capita prescription drug spending in the United States exceeds that in all other countries, largely driven by brand-name drug prices that have been increasing in recent years at rates far beyond the consumer price index. ... Although prices are often justified by the high cost of drug development, there is no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear."

To answer your question directly: in this case study, I see no evidence that a reasonable amount of regulation on pharmaceutical pricing in the United States would have had any discouraging effect whatsoever on the development of this drug; it would however have made a huge difference to the health and well-being of many, many people.

[1]: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2958567/

[2]: https://www.wsj.com/articles/SB976832374667325423

[3]: https://www.nytimes.com/2018/01/06/business/humira-drug-pric...

[4]: https://www.huffpost.com/entry/opinion-humira-costs-patents_...

The rationale for regulating ICOs has nothing to do with capping profits or maximizing distribution of benefits from lawful enterprise; it's to stop bogus pump-and-dump investment scams. And pharma is intensively regulated, far more so than the finance industry is.

Bogus pump-and-dump scams suck because they hurt people. Pharma is regulated in some respects, but their profit margins aren't. This also hurts people.

> To answer your question directly: in this case study, I see no evidence that a reasonable amount of regulation on pharmaceutical pricing in the United States would have had any discouraging effect whatsoever on the development of this drug

With the benefit of hindsight? I suspect you are correct. But pharma portfolios operate on the lognormal success model of VCs. Without the blockbusters, you can’t fund “development” of the failures that could lead to another blockbuster. (Of course, much if large pharma R&D is by way of strategic partnership and acquisition.)

As to your pricing of the Humira acquisition: I personally would have included some consideration to the existing market exclusivity of the drug. The transaction price is unlikely to be just the “replacement cost”.

> But pharma portfolios operate on the lognormal success model of VCs. Without the blockbusters, you can’t fund “development” of the failures that could lead to another blockbuster.

That was the point of my whole Humira example though: high pharmaceutical prices did not fund its development.

This assertion that drugs have to be expensive or they can't be developed keeps getting repeated, but there's little evidence to support it and even less evidence that they need to be this expensive. This argument is further troubled by little details like drugs being 600% more expensive in the US than in other countries, indicative of more of a "how much money can we extract from vulnerable people" strategy than a "how much will it cost to develop the next great drug" strategy.

For extra credit, take a look at AbbVie's notable products (https://www.drugwatch.com/manufacturers/abbvie/#abbvie-produ...) and see if you can identify any that they developed, or that they funded the development of.

To put this into perhaps more familiar terms, AbbVie's behavior is far closer to Intellectual Ventures than to Y Combinator, and yet people here keep defending it.

Fine. Where did BASF get their money from? How much, in your esteemed opinion, should it cost to develop a therapeutic Ab from a drugable target? How should my industry pay for pipeline failures?

Federal R&D does not aim at bringing drugs to market. It aims at basic biology.

The Forbes article glosses over the tremendous amount of work needed to move a candidate that works on cells in a dish (or a mouse) through clinical trials and into something that can be picked up at CVS.

These are hard—-and capital-intensive—things in their own right—it’s not like Apple snapping up your an app and adding it to the next iOS release.

> It seems like single-payer insurance and more federal funding for pharmaceutical R&D would be a far better solution than defending predatory drug pricing.

That seems like just another prayer to a different god. As much as I would like to believe that the government is motivated by doing what is best for its people, it seems more interested in self preservation and maintaining its own power. I don't see much evidence of the government being motivated to be wise with the money we give it.

We need to stop using the phrase IP. It’s an illogical euphemistic marketing term invented by the industry. More accurate phrases are intellectual monopoly laws or intellectual slavery laws.

They have done horrible things for the drug industry. The root cause of the opioid crisis is patent law. You made 100x+ more money selling patented drugs, even if the patented drug is worse for the patient. We need to ditch these laws. Perhaps you could switch the system to where you get a bonus check for a novel patent; but we gotta ditch the monopoly rights aspect of these laws as they are horrible for 99% of the population.

All property is a monopoly. Is it slavery that I can't grow some crops on your lawn.

No, because if you were to do that you preclude me from using my lawn.

It is intellectual slavery that you are telling me I can’t copy your book that i bought from you on my lawn, even though you are not affected.

You are allowed to copy other's books. You just can't derive a revenue from them.

> You just can't derive a revenue from them.

I wish this were the case, but you cannot distribute them either. I would love to collaborate with a team on an app that let's you instantly query all books ever published and revenue from that is the least of my concerns and it would be easy to do if we weren't forbidden from doing that by intellectual slavery laws.

You seem to be under the strange assumption that it's morally acceptable to use knowledge others generated to claim an advantage for yourself over other people. If your friend did research, and found a great house for him and his family, at a great price, told you about it, and then you went and bought it, most people would consider that highly unethical. Your friend did all the work to generate the knowledge, and you used it against him. Certainly you could demand that if you pay someone for knowledge, then it ought to be yours, but I think you undervalue knowledge at that point. The idea you could pay a few tens of dollars and be entitled to someone's perhaps decades of research is absolutely ludicrous. Be willing to pay thousands upon thousands for that privilege (which by the way, you can certainly negotiate).

> You seem to be under the strange assumption that it's morally acceptable to use knowledge others generated to claim an advantage for yourself over other people. If your friend did research, and found a great house for him and his family, at a great price, told you about it, and then you went and bought it, most people would consider that highly unethical

This is a bizarre argument. I am not claiming any such thing. What I'm saying is if my friend writes a book, and publishes it to the world, I should be free to copy and benefit of the knowledge in my friend's book. I'm not saying if my friend tells me a secret I should use that secret against him. That's bizarre. I believe in the right to privacy and secrets. I don't however, believe in the right to restrict what people do with knowledge that's been intentionally and willingly made public.

> I think you undervalue knowledge at that point

I think you overvalue the incremental knowledge generated in our time, and greatly undervalue the hard won knowledge of the past thousands of years (which was almost entirely generated without intellectual monopoly laws). The words we are using? Invented and given away freely. Even the letters. Even the concepts of words and letters! These computers? They are running on binary notation (330 years old—the 330 is written in Indian-Arabic numerals from over 1k years ago). The current contributions of all our best scientists, engineers, authors, musicians, etc, are trifles compared to the body of work we are building upon.

> I don't however, believe in the right to restrict what people do with knowledge that's been intentionally and willingly made public.

But it's not been made public. It's only available to the group of people that buy the book. As evidence of the fact it's not intended to be public, I cite the fact that the author has sought out legal mechanisms to potentially prosecute those who share what he or she has published.

> The words we are using? Invented and given away freely. Even the letters. Even the concepts of words and letters! These computers? They are running on binary notation (330 years old—the 330 is written in Indian-Arabic numerals from over 1k years ago). The current contributions of all our best scientists, engineers, authors, musicians, etc, are trifles compared to the body of work we are building upon.

The good news is that intellectual property expires after a while. There is no danger the next binary is going to be patent encumbered. Firstly, because it's likely 'obvious' (although I recognize this has been exploited due to asking patent clerks to go above and beyond the fields they are familiar with) and secondly because it's unlikely to be encumbered for thousands of years.

Buy selling a book or work to the public you are making it public.

“After a while” now means 90 years after the creator is dead, or something atrocious like that. So that new study on Alzheimer’s that the government paid for with your tax dollars? Yeah, you can’t read that unless you shell out a small fortune (or go to scihub, which most true scientists use and support). People are dying. This is a real serious problem and we need to start changing the wording so people realize it’s not just bad economics to have intellectual monopoly laws, it’s bad morally.

The issue of government funded research is separate. I actually agree with you that it should be available to the public given that public has purchased that right. However the same cannot be said of private endeavors.

You are claiming that its okay to take peoples labor to save lives. Taking peoples labor is slavery. Yes it is wrong to do that even to save a life. Pressuring people -- sure. Shaming people -- great. Forcing them at the end of a gun barrel. No.

When the janitor cleans the authors home does the janitor then get to charge a royalty to everyone who enters the home?

Um no. Janitorial service is not intellectual property. It doesn't qualify in any way as a 'secret'. There's no 'secret' or private information being shared. If the Janitor publishes a tell-all story about what went on in the author's home, then yes, he does get to charge everyone who reads it.

I appreciate you engaging in the conversation. Thank you for your thoughts. I’m not sure if we’ll come to a consensus at all, but it’s interesting to read your responses. My take is “intellectual property” is a joke of a concept, that is completely arbitrary and has no grounding in the real world (because if you dissect any piece of work, you would find that it “infringes” on the “rights” of the “labor” of countless individuals before). It’s a lie. Plain and simple. Used to benefit the rich and powerful. Intellectual slavery or intellectual monopoly. Those are the true terms here.

You are just defining harm using your preconceived notions about rights.

How are you any more harmed by me preventing you from growing crops, than I am harmed by you preventing a sale of copy of my book because you sold it to them first.

One system is grounded in physical laws (you can’t “git clone” land), and the other is a manmade restriction on the mind’s natural ability to grow.

Depriving you of a future sale is just saying you are not entitled to some unnatural profit that you feel entitled to, even though your book is worthless in value compared to all of the intellectual products that you so freely use from prior generations.

Anyone who thinks their ideas are so precious and important that they should be able to control how people use those is oblivious to their true negligible contribution.

First mover advantage isn't worth much for generic drug manufacturing. The product is a commodity at that point. It wouldn't be worth much in tech either if you were allowed to clone a product 100%.

Intellectual property even protects things that copyright and patents don't. Like you can't commit industrial espionage and steal the secret codebase of a SAAS company that keeps its software on its own servers. That's just as artificial as a patent.

Even real estate property is artificial. You didn't make the land that your house is on. Why should you have a monopoly on it? Because someone government issued someone else a piece of paper 300 years before either one of us were born?

I've said it before that the pharmaceuticals, hospitals, and insurance companies are signing their own death warrants. They keep (in my opinion) colluding to charge outrageous prices for life-saving things and at some point we're all going to get fed up with it enough to elect someone that will shoe in legislation that turns them all into state-owned or, at the very least, highly regulated. I personally don't feel like that's what we really want but damn these companies are just being abusive now.

didn't we already elect someone like that (Obama vis-a-vis ACA)? and yet the monied interests have undone most of the work.

Yes but I think we're nearing a point where the lobbyists won't be able to overcome millions of pissed off citizens who feel like they're getting screwed by an entire industry.

No? What part of the ACA was intended to upend the pharma industry? The ACA was specifically designed to work within the system as it existed in 2008/9.

If I recall, originally it was supposed to be more drastic in its changes in an attempt to introduce more efficiencies into the system. But then they realized that they could create a lot of jobs in healthcare (remember, we were smack in the middle of the recession) so they opted to do that instead. That’s not any kind of commentary as to whether their decision was good or bad but it does appear to have resulted in making the system less efficient in many ways.

Would the C level executives give back the money they made when pushing the companies into their death? If not, it’s not their problem. The argument against short term incentives is not limited to pharmaceuticals.

There's a huge issue with pricing today. It used to be that drug companies were ethical about the "your money or your life" nature of medicine. Merck once even gave a drug away for free because it was the right thing to do [1].

Nowadays it's about charging what the market can bear. The trouble is that drugs have gotten way more expensive to develop for a variety of mostly scientific reasons. This means a "prize" mentality has developed where each drug is like a lottery ticket, and you best get the most out of that ticket if it wins. There's also a sense across the industry that price controls are going to come, so ramp the prices up now so when the controls arrive they won't gut the industry.

Also sometimes drugs have to cost as much as they do because they're just very hard to make (see gene therapy), but at this point the pharmaceutical industry has squandered all the public trust they had with recent rapacious practices (see insulin, opioids).

Fundamentally there are good reasons drugs cost a fair amount of money, but it's not necessarily clear that costing this much money is justifiable. I believe drug companies can do good while doing well, but that it takes a leadership interested in more than boosting the margins as high as possible. We need a code of ethics for drug and med device companies, maybe something along the lines of the hippocratic oath.

[1] https://www.nytimes.com/1987/10/22/world/merck-offers-free-d...

Everyone wanted to crucify Shkreli for the toxo drug price hike. Where is the outrage for the mentioned 667% hike on generic Prozac? Or did people just target Shkreli because they didn't like his views on other things?

Well, Shkreli was an easy target:

1) he repeatedly took us for saps. "People are angry at me because I'm raising the price of this drug when most of them will still pay the same $20 copay". Except we're paying for the full cost of the drug. The fact that the cost is "invisible" because it comes out of our insurance pool was the issue, and he genuinely acted victimized because people could see past that.

2) On at least one occasion, he/his company opposed FDA approval of a new drug. Not on the basis that there was risk/danger/issues of efficacy, indeed, the new drug was less risky and more efficient. It just didn't belong to his company. i.e. if you thought re-patenting drugs was bad, this guy was literally doing the things the worst "Big Pharma conspiracy theorists" were saying - opposing the introduction of new, better drugs for no reason other than "threat to corporate profit".

Everyone wanted to crucify Shkreli because of the drug price hike stuff, and because he was incredibly visible on social media trolling people.

“667%” is not a great way to describe that price hike. It went from $9 to $69. If some critical drug costs $69, that doesn’t seem all that bad. Using the number “667%” is actually losing accuracy, for the sake of a big scary number.

One of the problems is cost of development. We invested in an incredible company called Brightseed that looks at each of the tens of millions of small molecules in our food supply and uses AI to predict how those interact with metabolic networks associated with health. Because everything they discover is implicitly regarded as safe (GRAS) there’s the potential to develop products much more rapidly and cheaply. While we may not find something that optimizes on efficacy there’s the potential to get very close.

I worked at Genentech when it was purchased by Roche. We frequently had Roche execs visit to understand "what it was you crazy californians are doing that makes Genentech our most profitable investment."

One exec said the right way to think about Swiss pharma like Roche is that they aren't in the pharma business, they are wealthy families who invest in pharma because it's a consistently profitable sector.

If you look, all the pharmas in CH are basically co-owned by each other.

>If you look, all the pharmas in CH are basically co-owned by each other.

Sorry if I'm missing this, but what is CH?

Confederation Helvetique.

Switzerland

I like Slovakian approach. Price of drugs can't be higher than average of 5 cheapest EU countries where the drug is being sold. However we face re-exporting and sometimes unavailability. Also we have a new law where distributor will lose licence if the drug is un-available (recent update). https://www.ncbi.nlm.nih.gov/pubmed/29073987

So the 'whopping' 667% increase is not on Prozac as a whole, but actually only on a liquid version of the drug. Prozac is a generic medication, so there is competition here.

For example, according to GoodRX, 30 capsules of fluoxetine are $4 at walmart: https://www.goodrx.com/fluoxetine

Yes, and in the second arm of the scam, the drug companies will send out their army of salespeople to convince doctors and hospitals to prescribe the more expensive version. Because of small differences between the drugs (maybe the liquid version is easier on the stomach) they will decide that the solid generic is not equivalent to the liquid.

Then the patients will all buy the expensive version, as ordered by their doctors, and charge it to their insurers. The insurers will look at the cost going up and will raise insurance rates.

If you have been paying attention to what has been happening to insurance rates for the past several years you can easily see the result.

I mean, the obvious answer there is to educate doctors on what is actually scientifically proven. If doctors (who ought to be one of the most scientifically minded professionals engaged with on a regular basis) are susceptible to salespeople selling them false science, then we should probably not allow them to be doctors anymore. The lack of critical thinking in that profession then ought to alarm us, and ought to be the first thing that's fixed.

On the other hand, if it is actually a superior product, then I don't see what the issue is in it costing more. Doctors would know about the cheaper version and prescribe it if the patient wanted it? Of course, given that insurance for everyday needs screws up the pricing dynamics, I do think the alienation of pricing from the consumer, thus reducing demand for the lower priced versions, is a valid criticism.

It is not that much about education. Currently there exists a complex system of various incentives to convince doctors to prescribe more pills and to prescribe certain types of pills.

The pharma companies have installed their people in hospital management and various medical boards all over the place, and they are constantly pushing for more drugs and more expensive drugs.

The pharma companies can make it worthwhile for a hospital group to prescribe more drugs. The hospital group management can in turn incentivize their doctors to do it. It is even in the insurance companies benefit, because there really isn't a competitive market for medical insurance. Insurance companies actually welcome higher costs, because they raise their rates accordingly, which actually make their profit dollars go up.

It is only us ordinary users of medical services that are paying the bill.

The underlying problem is that there isn't any mechanism for a cost benefit analysis in the doctor patient relationship. The modern medical insurance system was set up to assure the customer that he would get the best medical care he needs without worrying about cost. It is a perfect system for gouging and everyone has started gouging.

It is a tough problem, patients expect doctors to prescribe the best possible care, and doctors think it is amoral to take financial impact into account. Ideally, the doctor would be able to help the patient understand the trade off and make an informed decision.

This is incorrect and a giant red herring. Pharma is not "raising prices" in the implied sense, and pharma is not the cause of drug prices being high in the US.

Pharma is increasing the "gross price" of a drug in order to increase the rebate going to the PBM (Pharmacy Benefit Manager) so that they maintain their position on the formulary (to be "covered by insurance"). The "net price" of drugs (what pharma makes) is overall growing at the pace of inflation, not above. There's obviously exception cases, and plenty of small biotech firms launch questionable products with high prices that then get covered. But this is a result of this rebate system that prioritizes covering drugs with large rebates (since PBMs monetize rebates), not the most cost effective drug.

I’ll start by stating the companies who are taking these egregious price increases are only shooting themselves in the foot. They’ll end up in front of a Senate committee before long.

That said, profit attracts investment. The rare diseases are a great example. Who wants to spend $50M creating a drug for a disease with so few people you’d only lose money?

Genzyme started the trend of charging a lot, with the caveat than any insurer might have a handful of patients. The cost per member might be $0.10.

Insurers said ok and investment flood the rare disease space. We’re talking hundreds of billions. Now some people with a rare disease have treatment.

Need to do the following:

    * Eliminate extension patents.
    * Add dual sourcing requirements for drugs
    * Add fiduciary responsibility to insurance co reqs
    * Govt backed non-profit insurance corp
      replacing Medicare, Medicaid, VA Ret medical
      covering federal employees
    * Single-account billing
    * Published rates, rates between payees cannot be more 
      than 20% variance in a single calendar year.

Extension patents on medications are generally not great and minimal actual value, in fact, the entire Patent system largely deserves to be broken apart entirely.

Dual sourcing requirements would ensure licensing arrangements and at least some level of competition for drug companies.

Making insurance companies have a fiduciary responsibility in negotiating on client behalf would also help undo the effects of the profit caps from Obamacare without further checks in place.

Gov't non-profit covering those currently covered by federal programs and employees would add a baseline of competition without a profit incentive.

Not seeing a dozen different bills from one visit would help. Localized state billing agencies would help too, but not a fan of this, better than federal level here.

Eliminating the massive difference between insurance and private pay rates is another important step.

Combined would see massive pushback, but all are really needed to bring effective change to the medical care system as a whole, while not significantly effecting federal funding. I've given the above list time and time again, but nobody really seems to listen.

From the article: "The median price increase overall was 25.8%. Generic drugs, specifically, had higher increases, with a median rise of 37.6%"

Given that the US inflation levels are single digits, this obviously looks egregious but I'd be a lot more satisfied with the article if it gave data on/considered the following:

- Typically inflation takes into account goods. What about the R&D costs which are driven by both goods, people's salaries and other factors? Were they well above inflation?

- It might be that conditions were favourable for a big increase and the costs will stay flat for a few more years (I won't bet on this!)

- Finally, any company which prices its goods and services just above inflation is bound to be held in low esteem by its shareholders. After all, if investors wanted returns just above inflation, they'd be buying bonds! The risks associated with equity should be well compensated by the company and this might have prompted the companies to take this course of action.

I believe that as always problems like this one may be solved only through erasing privatized monopolies from the market. The civilized way to achieve this is to raise number of competitors on the market. And there's a plenty of available options. E.g. cut subsidies and raise taxes for big pharmaceutical companies, make additional subsidies and cheap loans to small ones, give students extra grants for pharmacology courses at universities (in order to increase number of specialists), abolish or at least change patent laws for drugs, support public pharmaceutical researches funding by government and involved companies with results available to everyone. I guess in modern world one of the primary economic responsibilities of government is providing an environment in which not only large business may start to do high-tech.

For those who have pricey prescriptions, look into pharmacy coupon databases like GoodRX. Some drugs are 95% cheaper with these private coupons (pharmacies do not advertise them), and sometimes cheaper than buying them through your insurance.

I'm in Bangkok at the moment and there are billboard/bus shelter advertisements from the USPTO encouraging people to 'Only buy from licensed pharmacies'.

I'm not sure exactly what they're targeting. The pharmacies that will sell without a prescription, or the IRL spammers trying to sell viagra by the side of the road.

Regardless, it seems strange for the US patent office to meddle in local food and drug administration.

I shared a pic on twitter: https://twitter.com/vertis/status/1183986568857440256?s=20

Correct me if I am wrong, but the report is talking about wholesale prices.

I would be more interested in the price after the expected discount that the pharmaceutical companies give.

If the price increase is still high then it is newsworthy.

This is hitting the nail right on the head. People are blaming “greedy Pharma companies” but at the same time companies are taking lower and lower net prices while the rebates that the purchasers are taking home are absolutely absurd rebates.

I get it, some people don’t feel phama companies should still be able to profit on a drug invented 50years ago. But I just can’t take any discussion about that serious when we are also in an environment where the purchasers take literally twice the profits on all drug sales without having invested a penny in research or having spent a penny in production distribution or marketing.

They eat up all that money all by abusing their position of “representing the buyers”, but at the same time since their rebates are percentage cuts they are just pushing pharma companies to increase prices over and over again.

The American model is rotten and someone has to stop the madness.

Genuine question: what's the purpose of raising the wholesale prices like this if so few people, if anyone, are paying that pirce? Is it so they can claim a higher tax deduction? Because, honestly, I don't see how that's much better.

The drug companies are trying to price differentiate. They want to charge the insurance company a lot more but not make the end user feel the pinch of the copay that makes them consider alternatives. Its kind of like on business trips, people spend a lot more than they usually do because its not their money.

Being in dialysis, I take a bunch of medicines. One was very expensive buy the drug company put lots of effort to make sure I got the copay reimbursed. Again they were after the insurance money and were willing to reimburse 10% of an inflated cost. After the patent expired and generics were available, my copay went down by 90%.

It is more complicated than that. Pharma companies dont get paid by insurance companies. They must go through federally mandated pharmacy benefit managers. The benefit managers keep the rebate, but charge list prices, so they have an incentive to drive up both

In my own experience I got a drug company to directly reimburse me the copay. They didn't care about the middle man, just proof that it was their medicine.

But you nor your hospital paid the pharma company, they paid the PBM

I don't know how the money is divided but I do know the drug manufacturer (I think mine was Pfizer) seemed all too happy to reimburse my copay up to $6000/year. I get a feeling they make a substantial amount of profit.

Nobody is required to give out rebates to pharmacy benefit managers and the like. That is a problem the pharma companies created by themselves. The pharmas can drop their list prices and stop rebates tomorrow if they really wanted.

No they cant. The pharmacy benefit managers would drop the products and it is illegal for the manufactures to sell direct to hospitals

If you where a pharmacy benefits manager, and you where sitting across two different potential drug makers and one says "I'll let you have it at 30$!" and the others says "I'll let you have it at 120$ with a 50% rebate!" which one do you think you'd take?

The forces at play in the pharma/PBM negotiation leads to price increases instead of price competition because the PBM effectively sits on both sides of the table. They want high rebates and they don't care about list-prices as long as they can take back a bit cut of them. This is why you see rebates reaching levels close to 70%. Imagine if you sent a guy to negotiate a car purchase for you, and that guy was looking at taking 70% of the net you pay through rebates from the car dealership. Do you honestly think he would be looking for the cheapest deal?

When wholesale prices go up, retail prices almost always follow.

Well, with the GDUFA each genetic manufacturer has to pay the same large inspection fee regardless of how much a drug they produce and they have to pay it far ahead of the time they start selling the drug. This has driven a dramatic consolidation that's resulted in things like the recent bospirone shortage in addition to the recent sudden spike in generic prices.

They are raising prices because, uh, wait...what was supposed to stop them from raising prices, again? Oh, that's right. "Nothing".

There's nothing broken here, because there's nothing present to discourage them from raising prices in the first place. No market mechanism, and also no regulatory mechanism. They raise prices because...they can.

That's right. The system is working as intended. As guaranteed by lobbyists and big donors having undue influence on public policy.

The rest of the world has figured this out, people in the US are just willing to pay more (as in, not protesting en masse to lower costs).

Also, drug spending is proportional to the % of elderly, which is growing faster than inflation as a %.

https://www.youtube.com/watch?v=ylLTMYt24lA

Normative: Healthcare should not be subject to the strictures of profit making entities. See insulin prices in the United States vs. elsewhere.

Of course they are! They have a captive, increasingly needy market.

Go big I say.

That will force better policy. Hate that idea, but little else has worked.

What is inflation? Seriously.

Shkreli Did Nothing Wrong

But the President says they are the lowest they've ever been.

They have been declining if you look at the prescription drug CPI[1], which is more closely related to what people are actually paying, rather than this article which references a document that only lists increases of wholesale prices. I'd like to see a comparison of increases and decreases. If 3 drugs increased an average of 300%, but 10 drugs decreased an average of 300%, for example.

https://data.bls.gov/timeseries/CUSR0000SEMF01?output_view=p...

We've now long reached the point where we can give the market a free hand/carte blanche in pharma matters. Now it's time for Government to act and to do so urgently.

If ethics ever played a role in pharma—which I doubt [remember thalidomide]—then it certainly does not do so now. As health and lives of its citizens are at stake then it's the responsibility of Government to rectify this situation.

After all, the first responsibility of government is to protect the security and well-being of its citizens. If it fails to do so here then it's abrogating its responsibility.

I agree. The free-market did not work, time for regulations.

Dead on!

Above, I should have added that in times past, when it comes to pharma, we did have government regulators who had decent, first-class ethics, and it's a damn shame that we do not have more of them now (as they need to be pressuring government to regulate this issue).

Perhaps it's a timely reminder to remember the marvelous woman, Frances Kelsey, who single-handed saved the US from the thalidomide scourge: https://en.wikipedia.org/wiki/Frances_Oldham_Kelsey

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