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Comment by InvisibleCities | Hacker News Reader

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.

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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.

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.

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.

>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.

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.

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.

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.

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...

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.

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.

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.

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

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

> 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.

>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.

The purpose is campaign financing.

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

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