Can a Doctor's Office Charge Much More Than Another?

[kyphysics]

I'm glad I'm in NZ, with our public health system...

I wish the U.S. had single-payer and the ability to negotiate and/or import cheaper drugs. Big Pharma's lobbyists essentially buy out Congress so we never get bills passed that allow us to negotiate prices or just import from a place like Canada. Americans would be saving hundreds or thousands of dollars a year otherwise. That's what happens we you live in an oligarchy, as Princeton political scientist, Martin Gilens' famous 2014 study showed.

I think that'll change soon, though. 2020 baby!

 

[Vanadium 50]

ig Pharma's lobbyists essentially buy out Congress so we never get bills passed that allow us to negotiate prices or just import from a place like Canada. Americans would be saving hundreds or thousands of dollars a year otherwise.

This is what happens when one gets one's economics from Dave Ramsey rather than learning how to do research on your own.

Can we agree that the absolute cheapest drugs can get is no cheaper than when the company that makes them makes zero profit? It turns out that all US publicly traded companies have to file a form with the SEC called a 10-K which says, among other things, what their revenues were and what their profits were for the preceding years. This is public, and can easily be found on each company's web site. You will find that most of these companies have profits in the 20% ballpark - with some annual variation, of course.

So that's the maximum possible savings: 20%. In real life, it's much smaller.

I think that'll change soon, though. 2020 baby!

Sorry, comrade. It's been tried and it does not work.

 

[StoneTemplePython]

This is what happens when one gets one's economics from Dave Ramsey rather than learning how to do research on your own.

I was going to give a like for this alone, and I generally think you have a voice of reason for these sorts of threads. But in this case, I think the rest of your post falls short, unfortunately.

Can we agree that the absolute cheapest drugs can get is no cheaper than when the company that makes them makes zero profit? It turns out that all US publicly traded companies have to file a form with the SEC called a 10-K which says, among other things, what their revenues were and what their profits were for the preceding years. This is public, and can easily be found on each company's web site. You will find that most of these companies have profits in the 20% ballpark - with some annual variation, of course.

So that's the maximum possible savings: 20%. In real life, it's much smaller.

kryphysics point was about pricing in the US. You're right to focus on the entire pie size. The fallacy is you somehow have US and other rich world members on the same footing. They are not.
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Let me give a simple finance typical look at this. First, I presume you're talking about 20% Operation Profit Margin or EBIT (or some similar metric).

Limit the scope of the world to the rich world: Japan, Western Europe, Canada and US, plus perhaps Australia and a few more. This is a common rich world grouping. The US has about $\frac{1}{3}$ of this population, yet is responsible for a majority of pharma profits. Note that these products have very low marginal Cost of Goods Sold i.e. production and shipping costs. The real expenses are in R&D and marketing.
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reference: https://www.wsj.com/articles/why-the-u-s-pays-more-than-other-countries-for-drugs-1448939481

or better, simply look at the chart here:

https://www.economist.com/news/scie...more-america-elsewhere-may-be-just-priced-out

and note the mix of consumption may not be the same but the comparisons between, US, UK and Oz should jump off the page.

I no longer have my subscription to Health Affairs, which would have much more detailed info, but the chart in The Economist link really should suffice. When effect sizes are this big, problems really do get a lot easier.

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You can easily make the case of prices falling by $25\text{%}$ or more in the US if other members of the rich world were to pay more (about $25\text{%}$ more in this case) while not affecting pharma profits much at all.

(How to price drugs in low to middle income countries is a much more difficult problem, and way outside the scope.)

With more granular numbers I could interpolate the amount they'd fall in the US while keeping total sales to big pharma constant -- though the pricing changes would be so high that there would probably be substitution effects which would further complicate things-- if we homogenized the pricing amongst the rich world.

But the point is that $25\text{%}$ is an easy estimate, which leaves room for a lot more equalization, does not touch pharma profitability, and it exceeds than the strict upper bound you gave on percentage price drops in the US. Put differently, I'm suggesting a $25\text{%}$ drop as a loose lower bound for US pricing.

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It should be obvious that there's a negotiating problem here, but who really understands negotiating? Some more reading here:
https://www.economist.com/blogs/economist-explains/2016/09/economist-explains-2
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Mathematical note:

If you want something fancier, I can come up with a doubly stochastic matrix $\mathbf A$ that maps from the current highly unequal pricing mix between rich world countries to a mildly more equitable one. Some basic ideas about majorization are very useful when contemplating issues like this.

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Above and beyond this, its widely viewed that direct to consumer advertising on Rx drugs -- basically a US phenomenon-- are highly manipulative with little to no information value -- a lot of other marketing expenses fit in this bucket too, especially a lot of 'education' expenses with physicians -- formerly including family vacations to the Caribbean, though I think that got reined in a decade or two ago. Put differently direct to consumer and some other marketing expenditures are a dead-weight loss. The issue of dead-weight losses to society is a bit more subtle, so I'll mention that but not develop it.

 

[Vanadium 50]

I was going to give a like for this alone

Go ahead. You know you want to.

You can easily make the case of prices falling by 25%25\text{%} or more in the US if other members of the rich world were to pay more

No argument here. But they don't. (I could also make the case that drugs would be "free" if Daddy Warbucks were to pay for them. That doesn't happen either) Should the other members of the First World (I'm looking at you, Canada) pay more? Sure. Are they going to'? Doesn't look that way.

 

[StoneTemplePython]

Go ahead. You know you want to.

Done!

No argument here. But they don't. (I could also make the case that drugs would be "free" if Daddy Warbucks were to pay for them. That doesn't happen either) Should the other members of the First World (I'm looking at you, Canada) pay more? Sure. Are they going to'? Doesn't look that way.

I'm going to ignore the Daddy Warbucks comment -- to the extent I understood it, the money is still coming out of the US Taxpayer's pocket.

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I don't predict it happening near term, but the basic idea is to apply pressure -- a lot of it in fact, for a pro-longed period of time, on other rich world countries-- who just so happen to be US allies. A primary channel would be via State Department -- an indirect channel would be via corporates (see next paragraph). The current system does not apply any pressure, which is a pre-req for change, in my view.

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One lever to effect pricing change would be for the US to mimic EU tactics via indexing on prices paid by peer countries. The near-term results would be disastrous for industry and cause a lot of internal pressure in places like UK, Switzerland, and France via their own giants like GSK, Roche, Sanofi, etc. that make a disproportionate amount of their money off the US.

I am not saying it's an easy road -- but sustained, increased pressure is the road.
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It's worth remarking that all the other rich countries mentioned are US allies. I think there are similar grievances that can be made in other areas (NATO spending comes to mind). To date discussions about "America First" have been intellectually unsavory, though there are valid free-riding concerns to be had. With respect to having these sorts of conversations, amongst the numerate population, at least, I think we can do better.

One issue I constantly run into in the real world, though, is insurmountable innumeracy. People don't want to put in the work required to have an informed viewpoint , but they still want to have their own opinion... very frustrating.

edit:
The idea of a Free Rider Problem is a simple, basic one from econ 101. Maybe it is too close to some nasty politics right now?

 

[kyphysics]

This is what happens when one gets one's economics from Dave Ramsey rather than learning how to do research on your own.

Can we agree that the absolute cheapest drugs can get is no cheaper than when the company that makes them makes zero profit? It turns out that all US publicly traded companies have to file a form with the SEC called a 10-K which says, among other things, what their revenues were and what their profits were for the preceding years. This is public, and can easily be found on each company's web site. You will find that most of these companies have profits in the 20% ballpark - with some annual variation, of course.
So that's the maximum possible savings: 20%. In real life, it's much smaller.
Sorry, comrade. It's been tried and it does not work.

What was the purpose of your first sentence, as it's entirely false and I think you've read enough of what I've had to say in the financial advice thread to know this. What it to pot shot/cheap shot Dave Ramsey? What is to inflame a conversation here and pot shot/cheap shot me? Do you have something personal against me? Even if I disagreed with another person's views, I'd never go after that person on a personal level or want to make them feel bad.

Do you like making people feel bad? Is that your thing? Do you have feelings as a human being? I'm trying to understand why you feel the need to do this type of stuff - especially, in a thread not even devoted to personal finance and Dave Ramsey. I'm honestly trying to understand what you get out of comments like the bolded one above.

Not once have I cited Dave Ramsey on economics, but have in fact said he was deeply ignorant of many topics in the field. Even in topics of personal finance and business (which are what he's trained in), I have said I feel he's right on many things, while being wrong on others. By no means have I ever just blindly accepted his views. So, I think you can stop with these misrepresentations and cheap shots.

As for Ramsey's confused ramblings on macroeconomic theory, of the four major schools of thought (Marxian, Austrian, Keynesian, and Modern Monetary Theory) he's probably closest to the Austrian School (e.g., Hayek) in his views and would be opposed to things like medicare for all/single-payer and probably thinks supply and demand sets prices for drugs. He's pretty much as laissez faire, let the free-market dictate prices and wages as you can get. I don't want to derail this thread too much, but suffice it to say that I could list a litany of things that I disagree with you about in economics.

In terms of U.S. drug prices being inflated, due to Big Pharma lobbying against importation and negotiation, this is indisputable and easily proven. Just look at drugs manufactured in the U.S. and sold in Canada for much cheaper prices. These are our own drugs! We ship them to Canada and they pay much less in free trade borders.

It's costing us billions of dollars a year in the U.S. and why Bernie Sanders tried to pass the "Affordable Drug Act" last year (to allow importation), but had it squashed by uncooperative Congressmen/women bought by their Big Pharma donors. There are many articles online, but here is just one from The Nation:

Because Canada, like virtually every other wealthy industrialized nation, offers comprehensive universal health-care coverage, Canadians generally pay much lower prices for medicines overall than their southern neighbors. US consumers, who are locked in Big Pharma’s captive market, pay brutally inflated costs through insurance or out of pocket—for drugs that Canadians can buy at a fraction of the price.

http://www.citizen.org/pressroom/pressroomredirect.cfm?ID=10228 (with a companion bill in the House) would give Americans access to Canada’s cheaper drugs by allowing cross-border retail purchase and imports of medicines. The measure could save consumers as much as 35 to 55 percent of the usual US list price. For example, the popular cholesterol drug Lipitor can cost Canadian patients under $50, compared to more than $150 for the same dose sold on the US market.

Though the measure would only curb one source of health-care inflation, and though Canadian market access would still be restricted under the law, granting more consumers access to a rationally priced market (with the possibility of adding more countries’ markets later on), could start to chip away at Big Pharma’s market stranglehold and spur campaigns for more broad-based health-care restructuring. Predictably, the pharmaceutical industry lobby is smearing the measure by painting it as “government interference in prescription drug pricing.”

But the public is frustrated enough with “free market” drug pricing to finally seek government intervention. Runaway drug prices will cost Americans about $328 billion this year, about $50 billion straight from consumers’ pockets, while drug makers enjoy record profits. As individual patients struggle with medical bankruptcy or get forced to choose between rent and their next insulin shot, the drug cost crisis also feeds into wider societal ills, including the epidemic of medical bankruptcy and even opioid abuse.

Under pressure from pharmaceutical industry lobbyists, both Democrats and Republicans have repeatedly squelched efforts to regulate drug prices.

https://www.thenation.com/article/why-are-canadas-prescription-drugs-so-much-cheaper-than-ours/

We could easily have cheaper drugs via importation (of our OWN drugs oftentimes...to circumvent Big Pharma's price gouging with U.S. laws) and these companies would still make a profit.

 

[Vanadium 50]

We could easily have cheaper drugs via importation (of our OWN drugs oftentimes...to circumvent Big Pharma's price gouging with U.S. laws) and these companies would still make a profit.

Proof by repeated assertion?

Seriously - if you make lousy arguments, expect to be called on that. If it makes you feel bad when someone points out that your argument is lousy, the solution is to stop making lousy arguments.

As discussed earlier, it takes a lot of money to bring drugs to market. It is true that there are countries out there that are "free riders" with respect to paying these costs, but not every country can do this. Take a look at the 10-K. That shows where the money comes from and where it's going. Come back with a logical and reasoned argument, and not "my feelings are hurt when he said I was wrong".

As far as the claim that Sanders and socialism will fix this, it's been tried. I don't think you'd much care for life under the Khmer Rouge.

 

[Jamie Slaton]

Yes, the doctors charges may vary, if you are in US. Also the insurance cost, deductibles also vary from state to state in the US. If you think that your doctor is charging more than actual cost, then you have to contact the hospital and discuss with them about the medical charges. My uncle is also facing the same problem regarding Medical bill. He contacted the hospital and also his insurance agent from this site also helped him regarding bill cost.

 

[wirenut]

I believe that the provider (Dr,hospital,spec) negotiates with the insurance carrier for reimbursement rates for each plan the carrier has, and uses that and the co-pay to determine if it is financially logical to accept that ins. Recently an ins. carrier wanted a cancer care center to start a value based payment system (which other cancer providers agreed to), and they refused. After a lawsuit, later dropped, the cancer care center ended filing bankruptcy and closing because they lost 38% of their patients just by losing only one insurance carrier.
I spent a week in the hospital due to an infection, and almost lost it when I saw the bill. Insurance paid over $19,000.00 and my co-pay was $500.00 . I'm glad my ins is a benefit fully paid for by my employer.