Drugmakers are abandoning cheap generics
kffhealthnews.org
kffhealthnews.org
However, the problem arises when these prices are driven so low that they no longer cover the firms' average total costs (including both variable and fixed costs), making it unprofitable for them to continue production. Some firms may choose to exit the market, leading to a reduction in supply. This is where the theory of "shutdown point" comes in: firms will choose to shut down production (at least temporarily) when price falls below the minimum point of the average variable cost curve.
The complication in this case is that the reduction in supply is occurring for a product (cancer drugs) that is still in demand. However, as one commenter suggested, it's unclear whether the demand would support a higher price.
There might be external forces (like regulatory environments, health insurance dynamics, and negotiations by large scale buyers) that are keeping the prices artificially low, preventing the price from rising to a level where it would be profitable for more firms to produce the drugs.
The customer is the health insurance. This is why most of the health systems have issues now, because the patient is not the customer, the patient is only a vehicle to extract money out of the health insurance.
Plants in India undercut everyone in price and drove them out of the market by making a substandard and dangerous version of the drug violating basic safety standards. The FDA failed miserably to detect this until everyone was driven out of the market by these low prices.
Had the FDA done it's job from day 1 this would not have happened. And had we built a strategic reserve in case something went wrong we would have enough of a buffer to weather this storm.
I focused on the thin profit margins and the consequences.
Then perhaps the government should be building plants to produce these domestically as clearly they need to be a common good rather than subject to the free market, no?
Or, perhaps, we shouldn't allow medical equipment and supplies to be manufactured overseas and imported as that results in cheap overseas manufacturers dumping product at prices sufficiently low that they will cut corners hoping the FDA doesn't catch them all the while driving out domestic suppliers?
Or, perhaps, any company found to have imported drugs from a plant that won't pass FDA inspection needs to have its executives sitting in fucking jail so that US companies have a vested interest in directly inspecting their overseas plants?
See, there are solutions ...
Options 2 and 3 are wretched ideas. It’s the reason we have $100 insulin instead of $3. It’s also why the US has inferior treatments in certain areas.
Logically the FDA kills X amount of people per year by hindering rapid and accessible adoptable of medicine. They save Y by hindering the adoption of bad medicine.
In theory Y is higher than X, but I am skeptical if that is still true.
I’d recommend you watch Dallas Buyers Club.
However, medicare having say the ability to produce generic drugs if they're not being produced sufficiently might fly.
Another would be Medicare a greeting to buy X amount of some drugs from non-profit manufacturer setup specifically just to produce generics. Though even Medicare being able to negotiate prices would be huge wins.
I've got a bit of a cold right now. Once we've solved that we can spend on the cancer patients.
Alternatively, less inflammatorily, the marginal dollar will provide more social utility if spent on buying tirzepatide and mass producing it. So let's do that first.
Someone is buying those "substandard" products or it wouldn't be driving competitors out of business. Did the FDA suddenly realized something the rest of the Regulatory bodies didn't?
They ship generic drugs to the US. The FDA is the regulator. And their regulatory system is terrible. They run extremely infrequent checks, they give months of notice before they do so, and they still manage to find horrific safety violations.
Instead of constant checks that would find small things, they discover a mess every time. This time they found everything you could possibly imagine: incorrect drugs, impure drugs, falsified tests, engineers overriding safety software when it reported impurities, incorrect amounts with falsified reports, etc.
The actual story is about a long list of drug shortages across a wide variety of categories, driven by a wide variety of proximal causes. That list is here: https://www.accessdata.fda.gov/scripts/drugshortages/default...
I count about 15 drugs which are in shortage or recently were in shortage that are also proprietary and don't have generics available on the market. On one hand you can say "well 15 out of 220 clearly shows generics are more likely to have shortages!" but the vast majority of drugs (counted either by licensed drugs or prescriptions written) are generics. There's not a clear correlation between whether a drug has generics available vs. whether it is or recently was subject to a shortage.
Bacteriostatic water / Water for injection absolutely fits the model you posited -- American Regent discontinued production and no one else wants to fill the gap because as soon as demand is satisfied, prices will plummet and drive negative ROI. Game theory shows the stable equilibrium is continued shortage for these generics, as you've stated. But your model does not fit Wegovy, Semaglutide, Ozempic, Avycaz, Trulicity, Ultravist, etc.
Commodities like medicine and food do have terrible price elasticity which cause great problems in unregulated markets. Unsupported, these commodity prices can crash to floor, and in one year farmers might switch to other crops or shut their doors forever, and then in the next year there would be huge shortages and high prices which take too many years to fix. The original commodity swing could be caused by anything - consumers decide for whatever reason that milk/cheese just isn't that cool this year, last year prices went up 10% and then too many farmers jumped in on that commodity so this year there's a massive oversupply, etc. The natural free-market state of things is: wild price swings and capacity chasing last year's profits/losses. Ideally the futures markets would help stabilize these prices by creating incentive for smart people to predict capacity-demand equilibria for upcoming years and allocate capital appropriately but it doesn't seem to do that effectively for really any inelastic commodity, at least from what I see -- all minerals/oil/gas/food/etc seem to experience incredible price swings on a regular basis. The nature of reality is that demand for inelastic commodities does not seem to be able to be predicted to the precision needed to maintain stable prices and maintain the necessary revenue flows to keep enough producers online in a free market.
That's a major reason why many (most? all?) developed nations create various "Farm Safety Nets" to help create an annual floor for the production of basic food staples. The USDA knows about how much of each basic food staple the nation needs in an average year and works to ensure that something like 110% of this amount is produced each year. They do this by paying for excess production -- in years when consumer demand is low, they pay the excess and leave it up to the farmers to figure out what to do with the product that no one wants. Maybe it's sold at a nominal loss to someone who can use it for something else, maybe it's buried in the ground, whatever. (During parts of the COVID swings, new Farm Safety Nets were authorized because the farmers literally didn't have enough cash to even dispose of some excess food). These basic crops include milk, wheat, oats, barley, corn, grain sorghum, rice, soybeans, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, dry peas, lentils, chickpeas, etc etc.
There's still the possibility that too many players jump into a market, prices crash, and some producers fail. But the USDA does their damnedest to ensure that 110% (or whatever, I don't know what their target safety margin is) of the necessary production is well supported and can go on to produce again with more guaranteed margins next year.
We probably need more systems like this for some other industries -- medicine being a pretty good contender for the first industry we should put more attention into. It's been working well for our farms and food supplies for 100 years. It has the potential to be used disastrously in a failed communist style USSR/Mao planned-economy debacle or an equally disastrous kleptocractic / regulatory capture / campaign finance corruption / conflict-of-interest debacle, but we've been doing it already for a century and we seem to be doing it reasonably well, all things considered. Though the shortages and price spikes of the past few years since COVID do give me a bit of pause.
New Zealand has free health care, but there are a variety of drugs you can’t get prescribed easily (often because the system is trying to prevent drug-seeking). However it regularly ends up that necessary medicines are legally unobtainable (two situations recently in my own family). I have seen friends turn to illegal sources, or seek substitutes (especially “alternative” medicines and/or internet bullshit).
Any "ideal market" assumes some kind of demand elasticity, i.e. people will buy more when it's cheap and less when it's expensive. But for cancer drugs, that really shouldn't be the case. The amount of drugs a patient takes should be determined by the best science, not some market mechanism.
In the case of cancer, it means a patient should be given the appropriate dose for their diagnosis, as determined by what science has shown to be effective.
Typically, QALYs, Quality Adjusted Life Years. We decide how much (in dollar terms if you're just that fundamentalist about it, but person hours or other metrics are fine too) a QALY is worth, and we will spend no more than that on healthcare interventions.
The set of situations where there's a viable intervention but it's too expensive isn't empty, but it's not large either, so, you just build a bureaucracy to handle those cases.
1) on the medical provider end, find every possible excuse to charge 1% more and pay it out to themselves, not using it for patient care
2) on the insurance/government end, find every possible way to charge 1% less, no matter the cost
So yes "let science decide" means to let doctors decide what care to provide (meaning you'd need a difficult admissions test for this class of people). Yes, they will cheat, which will benefit themselves, but also patients. And there's a limit, because doctors are fundamentally limited. And then you just eat the cost, and have a board (IMPORTANT: of doctors) weed out the worst abusers on a regular basis. And yes, if a doctor says "spend X on this patient", then we spend X on that patient. End of discussion.
And yes, this is probably "mercantilist" instead of capitalist, and provides a fundamentally unfair advantage in the economy to people who manage to get the degree of medical doctor. In trade, you get good health care.
The elasticity isn't in the amount, but in whether the patient obtains the drug.
If there are few patients, the demand would be low.
Inflation up? Rates up.
Zero consideration for what is actually causing it. That's grossly negligent and yet the execs get paid handsome money for this rubbish and won't face any consequences of ruining people's lives.
You probably never listened to a Jerome Powell press conference. He spends so much time explaining what the causes of inflation are, and what the Fed can do about some of them.
> yet the execs get paid handsome money for this rubbish
What execs get paid handsome money? The Fed employees are government employees, their salary is public. Jerome Powell makes $200k/year [1]. The other Fed board members make less. Is that handsome money?
[1] https://markets.businessinsider.com/news/stocks/jerome-powel...
It's indirect and inexact, but it's not random.
at least in india we have this generic medicine system that is run by the government. Not a fan of a lot of things but generic medicine at very very low prices.
check this link out and search for medicine.
remember the prices are in indian rupees where $ 1 USD = 90 INR ~.
they have cancer medicine, surgical supplies, basically almost all generic medicine under the sun.
I wonder why cant this model be replicated in other countries.
Cisplatin may cost $6 a dose to buy, I bet it sells for much more at the US hospital to the Insurance company or god forbid the patient.
Is this reflected in your microeconomical model? It should break the assumptions of most theorems.
In a market with only two bidders, the more expensive one is guaranteed to get whatever they ask for.
Seems to me just something wrong / slowing down the price adjustment mechanism? e.g. layers of regulation / bureaucracy or whatever it is the US runs on these days?
In Switzerland there are laws covering biddings, where the state has to accept the second to lowest offering, not the lowest, thereby circumventing this race.
Seems reasonable to upgrade "might" to "must". The article is quoting drugs with a sticker price of $6. It isn't reasonable to say that drug manufacturers would rather let the market enter a state of shortage rather than price their drug at $12 and see what happens. On a bad day I can buy bottled water at insane markups at these sort of prices, and water is much easier to compete with. Drug companies could easily be charging $10 for something that usually costs $6 and that would push the market towards a profitable equilibrium price. People aren't that picky about their purchases if there are no alternatives.
My money is on it being illegal to charge the real market rate if it involves raising prices.
Cheap healthcare products ensures more productive society, that needs less spend on healthcare and pays more taxes.
National businesses do not care for being profitable and will keep prices in check for monopoly profiteers, but probably not be lean enough to kill private generics businesses.
The medicine shortage reports database includes information about shortages of reportable medicines in Australia
https://apps.tga.gov.au/Prod/msi/search?shortagetype=All"
Here in Australia, 414 medications are in short supply. I regularly get pharmacists ringing me to inform me that the medication I prescribed for a patient is unavailable.
That is the result of American middleman companies like Premier and Vizient squeezing every last paisa out of Indian generic manufacturers. Some of them decide to close their production lines and switch to manufacturing more profitable medications.
> As generics manufacturers compete to win sales contracts with the big negotiators of such purchases, such as Vizient and Premier, their profits sink. Some are going out of business.
I'm confused, how is it that the prices are being driven so low that the supply dries up despite continued demand?
Generics need more social ventures to keep critical medications supplied on the market. One recent example is the shortage of amphetamine stimulant medications.
Alternatively, another way of looking at this is perhaps that the distributors are seeking a profit, and so are demanding low prices from the manufacturer, meaning that high cost manufacturers go out of business, reducing supply. However, this may be inefficient, in that demand may exist at higher prices, that could support more manufacturers if not for the distributor.
NB: I'm not involved in the medical field or in economics, so take my statements as what they are, conjecture.
The incremental cost of an additional dose is low, so as long as the production line is operating all is well.
But then the line shuts down for whatever reason - and reopening it (or a new company starting one) costs way way too much. i.e. it's not worth it for them to do that at current prices. They would have to charge far more than the existing companies charge, and no one would buy the drug.
It's basically a timing issue, long term contracts mean that prices can not rapidly adjust for market disruption, combined with very very long lead time for additional production, means that the market can stay disrupted for extended periods of time. Years even.
It will eventually adjust, but it will take so long that current patients are in trouble.
The solution is a buffer, keep production in a strategic reserve.
- Healthcare providers will only buy cancer medication whose prices are low enough to be covered by insurance.
- Insurance scours the market for the lowest cost providers and states it will only cover that cost, no higher.
- If the cost of drugs goes up, insurance does not immediately renegotiate prices. Healthcare providers stop buying the drugs while waiting for low cost capacity to re-appear so they don't take a loss on the care.
- Drug companies go out of business because they can't sell their inventory, driving up prices further while reducing supply.
We really ought to have a government funded drug manufacturer...
When buying syringes, bandages, and most of the things hospitals need, that’s not a big deal but the way many oncology drugs are administered these organizations end up handling all of the negotiations instead of pharmacies and insurance companies. Patients and even their healthcare providers have basically zero say in the purchasing because it’s all rolled in.
Since the US is the most profitable market in an already low margin business, the generic manufacturers can’t justify the production lines for cancer drugs without at least one of these clients so they‘re driven to extreme price wars. In good times, they eek out a profit, but in bad times when variable costs go up, they’re no longer viable.
Either the government owns the plants or not. Plants can be privatized later if deemed necessary, or kept on government hands to allow the government to have the know-how about the industries it needs to supervise.
That being said, I'm just a peasant.
All those patients who can't get their generic drugs: How many of them were getting fraudulent drugs before that had little or no effect on their disease?
One U.S. startup tried to make a business model out of analyzing every batch of drugs they sold. [I'm sorry, did you think every batch of the drugs you take was verified as the real thing between you and the (foreign) manufacturer?] Valisure is a startup that bought drugs in bulk and actually tested samples, using mass spectroscopy, to verify they were the real thing, then sold them on to U.S. patients. Alas, their business model does not seem to be working out so far. But they did detect massive contamination in Zantac which lead to its recall five months later by the FDA.[2]
[0] https://www.amazon.com/Bottle-Lies-Inside-Story-Generic/dp/0...
So what happens is profits get squeezed, someone runs a bad batch and throws it out, while another company is like “nah, we don’t want to make this any more” and poof, shortage.
Of course someone will step in eventually, charge 10x the price, and get bad press for “cost of lifesaving cancer drug increases by 1000% percent”.
Now, once upon a time, thyroid hormone was provided from slaughtered swine, and the natural substance was processed into a medication. This was too inconvenient and messy, and unprofitable, so the chemical manufacturers found a way to synthesize it.
Now another thing about the thyroid is that it adjusts to the amount of hormone in the body and will gradually shut down, permanently, as more synthetic hormone is consumed. Therefore, the more your dose is increased, the less your own body produces, and the more dependent you become.
So one blood test made me a Good Customer For Life(TM). I've been purchasing the generic synthetic from Wal*Mart for $4 per month. I am under no illusions that it is efficacious, pure, or contains anything but filler.
> “It’s just insane,” said Mark Ratain, a cancer doctor and pharmacologist at the University of Chicago. “Your roof is caving in, but you want to build a basketball court in the backyard because your wife is pregnant with twin boys and you want them to be NBA stars when they grow up?”
At that point the article "seamlessly" transitions into a statement from another person, at first making it seem as if the previous person had said it. A poor report, imo.
It's everything, certain types of pain kills, ADHD medication, vaccines, insulin (because the resources goes to weight lose medication), weight lose medication (because more people are getting it, compared to expectations), drugs for hearth problems, blood pressure, you name it and there is or have been a shortage.
Everything seemed to breakdown during COVID and just never fully recovered.
I must have blinked and missed it!
Does anyone measure the cost of not saving lives, and who pays that cost?
HN Solution: the government should take over all drug production.