U.S. lawmakers ask Gilead to justify hepatitis C drug's $84,000 price
latimes.com
latimes.com
For comparison, in Canada's healthcare system drugs are bought in monolithic purchases by the government health board. While you can sell pills at $1000 a pop to patients who face serious illness without them, I can guarantee you that Gilead is not going to be able to sell their pills for $1000 a pop to a government agency. Canadians are going to be paying a lot less for these. Why would Gilead agree to selling their pills at a cut-rate in other nations? The market there won't support it, and being locked out of an entire nation's market is bad for business.
They're not related to production costs; they're related to the cost of researching drugs in the future. That is, prices determine what pharma companies will be able to do later on.
Not saying I agree with that, but that's how it is.
http://www.ifpma.org/fileadmin/content/Publication/2011/2011... http://www.who.int/trade/glossary/story073/en/
http://www.citizen.org/publications/publicationredirect.cfm?...
However, neither is the above argument a GOOD one. It SHOULD be damning.
The U.S. accounts for about 35% of R&D research worldwide for prescription drugs. Nearly half of the pharmaceutical companies revenues and profits come from the U.S. market. They even get something better than tax subsidies (and they do get quite a few tax breaks)... Medicare's prescription drug program. So, yes, U.S. taxpayers are very much footing the bill, even if the industry doesn't need the outrageous profits they claim.
In a free market with low barriers to entry and low transaction costs, prices are very much related to costs: the price of a thing is the same as the marginal cost of the last unit of a thing produced. This market is also an efficient market.
You may note that the market for treatment of a particular condition has some pretty steep barriers to entry - patents and lots of research and FDA approvals. IT IS NOTHING LIKE AN EFFICIENT FREE MARKET.
In this case, it sounds like they more or less have a monopoly on the treatment, and will charge whatever price maximizes their profit. (This may be multiple prices, if they can do effective price discrimination: charge more to customers able to pay more, less to customers able to pay less.) So yes. "Whatever price the market will bear" indeed.
Postscript. To some extent this is the idea behind a patent on anything: Spend money doing research / design! Receive monopoly pricing power in return! Society gets to use it at will N years later!
For example, a movie industry with the "lowest barrier to entry" would be a legal system where I can take The Hobbit from New Line Cinema, copy it, and sell it to consumers at industrial scale. As far as I can tell, not even the Pirate Party advocates for such a system.
Whenever somebody says "low barriers to entry" inevitably what they mean is "low enough that Big Bad Company is in trouble, but not zero". And while I support the sentiment, and to a significant extent, the policy, I fail to see how arbitrarily adjusting the barriers to entry to a different value because I don't like who is benefiting from it right now is anything other than picking winners and losers, which is a very un-free-market thing to do.
While the insurance agencies could negotiate with drug makers for competitive prices on similar drugs, they are also competing with the Government-backed insurance entities like Medicare which have vastly different incentives. Clearly lawmakers and budget-conscious bureaucrats would like to get the best price from the drug makers but given a near perfect inelastic demand curve and a monopolistic supplier, there is absolutely nothing they can do.
Since Government granted this very monopoly for the sake of encouraging innovation, any attempt to revoke IP rights that threaten the monopolies' entire business, will be met with extreme resistance. Is it better for the consumers to be in a monopoly market where a necessary medicine costs twice the annual per capita income or risk being in a competitive market where no such medicine might exist if the IP right advocates are to be believed?
Aligning the incentives for all entities properly in this market is not straightforward, especially if you consider US and the rest of the world as being indirectly linked. Gilead knows they can charge $84,000 in the US because of their monopoly. This makes it possible for the rest of the world to get the same medicine cheaper. What remains unknown is, without US being such a cash-cow for pharmaceuticals, how would the rate of innovation in drug formulation change? If Merck, BMS, Pzifer, and J&J can't charge what they want, will pharmaceuticals and India and China take over and create new drugs? Manufacturing drugs is a minor variable cost. Question is, will the fixed cost to create new drugs be made by others? If so, why isn't it being done already at the same scale?
Developing these medicines is incredibly risky and incredibly valueable for society. Therefore it is very hard to argue with high prices when society is indeed making a profit (in its utility curve, not neccessarily in linear currency). The drug saves lives, and we would be willing to pay this price.
But healthcare also is a responsibility for society, which means we do have to regulate prices to avoid the extortion character. Otherwise, in a hundred years, health care will "extort" 90% of the profit the rest of the economy makes, because almost every human prefers to live rather than die.
Anyway, a lot of us will pay anything to manage our disease, and so we do. I'm lucky, I avoided any infections before I got clean, but a lot of others weren't. It's great they've managed to come up with something to help them, but what's the point if no one can afford it? They'll literally kill people, for profit and profit alone.
And how many people would they be "killing" if they had decided to not develop the drug at all because there is no chance of making money? Should they have done it out of the kindness of their heart? It may be disgusting to you that that is the truth, and then perhaps you should be petitioning your government to replace the industry with public institutions, but that is the current reality.
Also recent bayer-india case makes things more complicated:
http://www.reuters.com/article/2013/03/04/us-india-bayer-idU...
You can't have it both ways folks, either you charge 'by value' or you charge 'by cost'. If you follow the advice of 'charge as much as the market will bear' for medication you get this situation, if you follow the cost+ model and apply it to backup you get tarsnap (assuming you know enough about medicine to come up with the medication and enough about crypto and assorted bits and pieces of computer programming to be able to create a secure backup service).
Applying charging by value to tarsnap and cost+ to medicine is telling people that they should go and study ethics, and business people are notoriously bad at ethics.
As long as medicine and money are intricately involved (and as a motivator, money seems to be doing a pretty good job) you'll have excesses like these. Life is literally priceless and we're addicted to it, what better product than one that costs little to produce and has a 90% chance of improving the chances of the taker afflicted with some horrible disease to prolong their lives. It's any marketeer/greedy s.o.b'es wet dream.
That's all the justification they'll ever need.
If the answer is Small or most of it came out of public funding, that's ridiculous. If the answer is Big and that mostly came out of some rich guys' pocket... then the justification is "we want rich guys to gamble on developing medicines for profit, so that over time we accumulate more medicines in the world, especially since patents expire."
Clearly somebody has realized that's a fixable situation.
>Previous therapies for hepatitis C helped only about half of patients and had numerous side effects. In comparison, clinical trials of Sovaldi have shown cure rates approaching 90% with far fewer complications.
I think that answers the question
First, you can be sure that medicare, medicaid and private insurers have negotiated that price down.
Second, Gilead itself offers a coupon to reduce co-pays to $5 per refill for health insurance plans that don't cover the entire cost of the prescription[1], up to 20% of the total cost (so it appears if you have a 20% out of pocket copay for prescription drugs, you pay $30 total instead of $16800).
So, who is paying $84k? If it's like most other medical costs, the answer is only people who don't negotiate the price down first. The important aspect is that by charging $1000/pill retail, they probably get tax benefits from offering it for less, and anyone on a healthcare plan (if such plans still exist post-Obamacare) which caps lifetime expenditures who get the prescription get a good chunk ($84k) taken out of their lifetime healthcare coverage, which the insurer would love.
To get to the bottom of it, it would be good to know: What are the typical prices (definitely average, median, and perhaps various other percentiles) that Giliad gets from these prescriptions? What does Gilead's internal accounting for the drug (separating R&D, advertising, and marginal costs) look like, and what are the tax consequences of inflating the sticker price?
The ethics of "I researched this I made this it's mine so you pay what I demand" is one thing. The ethics of collective research, where part or all of the actual labour is conducted by individuals who are working on the public dollar, or while studying (grad students are infamously used for most of the labour in university research), or have no residual income from the results of the research, or a mixture of the above.
If university students did most of the work, is this company then justified for asking this price?
We don't know whether any of this is the case. In our discussion, without additional research, our only metric should be "what are the manufacturing and distribution costs". The public health is the concern, first and foremost.
If, for example, an illness reaches epidemic proportions, it's entirely reasonable for a government to step in and say "it is more important that citizens NOT DIE than that your company makes a profit".
Hepatitis C is not at that stage anywhere in the US to my knowledge. I suspect that this drug just happens to be the straw that broke the lawmakers' back; they're arbitrarily choosing to make this particular drug the battleground for stopping a negative larger.
I'm not libertarian - just to nip that in the bud.
e.g. Bob has created a vaccine which, he has discovered accidentally, will prevent millions of people dying of X every year in Africa. He has also decided not to share how he made it because he hates black people.
In this situation should humanity just accept his decision? Would force (or threat of) be justified on the basis that the end good outweighs the methods.
Tricky, and I do not know the answer, but I do not think it can be a moral absolute.
Actually, I think a lot of political problems are caused by confusing pragmatic issues with moral ones. Patents (IP in general, really) are a great example, with "trade secrets are slowing the economy down, lets provide incentives for publishing them" mutating grossly into "inventors ought to be rewarded for their inventions, at any economic cost".
But I wanted to make it clear, that you shouldn't skip over the fact that the law making body may be trampling on a human right. It sure seems like a human right to be as shitty as you want. Or to be as left-leaning as you want. Or to be as conservative as you want. The problem is if the right Government is in place, all these things will either be controlled or suppressed. We're forced to do a lot of things in our society, but generally everyone takes a second to think about forcing people to think about things that step on rights.
All of this already exists and is commonly accepted to be a net positive thing. So why can't a government force a company to cut the price of a drug that the company wants to sell. It's not like the company doesn't want to share the drug - they're just aware that this is effectively a monopoly since not other comparable treatment exists. People will pay any price they can afford. This is damaging society since it draws resources from the society to private investors. I don't think it's wrong that the government is asking for a justification - the drug might be extraordinarily expensive to produce, the pill is lined in gold and platinum and has hand-carved inscriptions on it, tailored to the patients need, ... You could also argue that it's good when the company gets to squeeze the market dry since that will encourage others to compete, but how would that benefit society if there's a lot of drugs that nobody can afford.
Just as a thought experiment: What if Fleming, Chain and Florey kept the knowledge about penicillin and charged as much money as they could? Millions of people would have died.
I guess you're not considering forcing a drug company to manufacture a drug but where does this application of force end? Many would dispute that the examples you quote are net positive.
You may know that NICE is a UK National Health Service committee that regularly votes out expensive drugs where cost/benefit analysis indicates that they cost too much. If they do then patients can pay privately (but I believe the drug would not be administered by the NHS - you have to pay for a re-diagnosis) or (as in reported cases) die. What is a life worth? Depends but it certainly has a fairly modest price attached to it much though we don't like to admit it.
I'm very careful when people try and argue using market forces since the market in pharmaceuticals is heavily regulated anyways. There's a lot of examples where market forces go against the greater good of the community and the pharma market is a prime example. It's a common occurrence that drugs get modified slightly and then resubmitted to extend the patent period and the modification does not make the drug statistically significantly more effective. This is in line with market forces - it's in the interest of the company and the shareholders, but it's completely opposed to the interest of the community and to the idea of the patent system (your monopoly ran out, your research cost have been paid back). Should the government step in or let the market forces rule?
As for forcing companies to sell life-saving drugs at reasonable cost, I'm all for it, but it seems to me to be a major problem that such vital societal functions as advancing the medical state of the art are left to organisational structures that exist in a landscape where ethics and altruism are highly selected against.
It's easy to focus on the positive examples, but when governments start making value judgements, if your values don't line up with the government's you're going to have a pretty bad time.
And yes -- everyone's bringing up that point, but still, that would have meant they were villains. People have the right to be villainous, if they so choose, whether you agree or disagree.
Note- asking for a justification is one thing, forcing them to lower prices is another, and I'm opposed to the latter.
Also, the same decision making body you're hoping will do the net-positive thing has started many wars and done many thinks that are not very conscionable
So let's try a different example: What if the government took a hard line on monitoring every citizen in the US, and enforcing laws with drones, because it would save "millions of lives"? That's less subtle, but the loss of rights that are naturally yours is there nonetheless
This is not a coherent philosophical position.
Correct me if I'm wrong, butI think you're assuming patent enforcement, the patent system, and patents themselves are a good thing. I don't think that's true.The fact that you think you own an idea you thought of is unreasonable, given you cannot guarantee you are the first one to have it, or the last one to have it. Trade secrets make much more sense, if you don't want your secret recipe to get out, don't let it.