Why We Pay So Much for Medical Drugs

[jedishrfu]

In this Vox video, the pharmaceutical industry is investigated in how they package and distribute medical drugs. Eyedrops are too big for the eyes resulting in using too much. Other drugs are distributed in single use containers where 50% of the drug is thrown away but someone still pays for that waste.

 

[fresh_42]

I think the real reason isn't the waste but the principles:

• patents create monopolies
• the demand isn't a choice
• both of the above create a market, which cannot regulate itself by demand and supply anymore
• the costs of possible law cases in the US are beyond all reasonable limits, which has to be priced in
• the costs for advertisements and lobbying are higher than anywhere else, wasted money
• shareholder value and public service are conflicting goals
• all together lead to a market where prices are built by the maximum principle only constraint by the number of losses due to dead or bankrupt customers

 

[phyzguy]

As fresh_42 outlined, the reason we pay so much for drugs in the US is simply that the free market doesn't work for health care, for a number of reasons which have been understood by many for decades, but which we in the United States refuse to accept. This article explains in detail.

 

[jedishrfu]

I think the point is that Drug companies find many creative ways to sell more drugs and this is one way where we waste $765 billion a year throwing away good medicine. I'm sure that if this was fixed they would find other ways to charge for the medicine..

 

[jim mcnamara]

@phyzguy - your link does not resolve correctly.

 

[jim mcnamara]

I'm not sure how much Biology/Medicine is in this thread, it seems to be veering of into public policy. Good topic, but I do not know where it fits the best in PF at the moment.

 

[fresh_42]

I'm not sure how much Biology/Medicine is in this thread, it seems to be veering of into public policy. Good topic, but I do not know where it fits the best in PF at the moment.

I answered it by an economical (market) or mathematical (price building) argument, wasting drugs, esp. hormones is a biological and environmental topic, how long drugs can be used beyond their proposed date is medical and chemical, the fact that US citizens near the Canadian border cross this border when they have to buy drugs, is a political issue. Maybe we should roll a dice

 

[phyzguy]

@phyzguy - your link does not resolve correctly.

Thanks. It's fixed now.

 

[jedishrfu]

I'm not sure how much Biology/Medicine is in this thread, it seems to be veering of into public policy. Good topic, but I do not know where it fits the best in PF at the moment.

I moved it to general discussion.

 

[russ_watters]

• the demand isn't a choice
• both of the above create a market, which cannot regulate itself by demand and supply anymore

I think these are key (and not US specific), for drugs and healthcare on the whole and will expand:

Supply and demand doesn't work for healthcare because the demand elasticity is essentially zero: there is no relationship between cost and demand. We want the best care/drugs and we don't care what it costs. To make matters worse, even in the US where a market actually does exist, there is very little competition because people still want the best and in many cases are never even told the price; everything goes through the insurance company.

The search for cures for smaller and smaller dfiseases and continued expansion of treatment options means the cost will continue to rise until we start viewing healthcare in a different way.

 

[russ_watters]

As fresh_42 outlined, the reason we pay so much for drugs in the US is simply that the free market doesn't work for health care, for a number of reasons which have been understood by many for decades, but which we in the United States refuse to accept. This article explains in detail.

It's worth noting that per my above post, the reason the free market doesn't work also applies to socialized medicine. It shouldn't be much of a consolation in other countries that the economics are unstable at a slightly smaller coefficient; unstable is still bad.

 

[Borg]

In a related news story, today there is a potential new set of players entering the health care industry.

Amazon, JPMorgan, Berkshire Are Creating a Health Care Company That's 'Free From Profit-Making Incentives'

That should be interesting to see what happens.

 

[russ_watters]

In a related news story, today there is a potential new set of players entering the health care industry.

Amazon, JPMorgan, Berkshire Are Creating a Health Care Company That's 'Free From Profit-Making Incentives'

That should be interesting to see what happens.

That's great. While I'm doubtful a company can do anyting for what I think is a market/regulatory issue, even if they only function as a think-tank, I'll be interested to see what they come up with. I feel like no one is looking into this.

 

[OmCheeto]

... the fact that US citizens near the Canadian border cross this border when they have to buy drugs, is a political issue. ...

Is "legal" the same as "political", since the politicians make the laws?

Is it legal for me to personally import drugs? [ref: US Food and Drug Administration, a federal agency.]

In most circumstances, it is illegal for individuals to import drugs into the United States for personal use. This is because drugs from other countries that are available for purchase by individuals often have not been approved by FDA for use and sale in the United States. For example, if a drug is approved by Health Canada (FDA’s counterpart in Canada) but has not been approved by FDA, it is an unapproved drug in the United States and, therefore, illegal to import. FDA cannot ensure the safety and effectiveness of drugs that it has not approved.​

Talk about a "nanny state".
<zip!>

 

[fresh_42]

Is "legal" the same as "political", since the politicians make the laws?

No, I won't comment on the US American attitude to implicitly assume, that insulin from outside its borders is of less quality than the one within its borders. O.k. a short comment: ridiculous. However, the fact that Canadian drug stores accept US American prescriptions is a political issue. I don't know how the details are actually handled, just saw an old man on tv who otherwise wouldn't be able to afford his insulin.

 

[StoneTemplePython]

No, I won't comment on the US American attitude to implicitly assume, that insulin from outside its borders is of less quality than the one within its borders. O.k. a short comment: ridiculous.

I think we can do a bit better here. The quality objection is a smoke screen. There is a very common pattern in IP industries to try to price things differently in different markets-- i.e. price discrimination. You even see this with books tagged "not for sale outside of region X"; enforcement varies.

There's a simple, and pretty good, idea in economics called the law of one price. In short it says that goods (services -- e.g. haircuts-- are a lot more tricky as are perishable items and non-transportable things like real estate) should sell at basically the same price everywhere, with the only appreciable difference being shipping costs + import / export tariffs. Note: shipping costs of drugs from Canada to US are very low for medicine.

Arbitrageurs will see to this, unless you blockade their business via insurmountable import tariffs / other legal restrictions. That in effect is what this 'quality' protection is doing. The lobbyists who helped write this law almost surely know this.

 

[fresh_42]

Arbitrageurs will see to this, unless you blockade their business via insurmountable import tariffs / other legal restrictions. That in effect is what this 'quality' protection is doing. The lobbyists who helped write this law almost surely know this.

It is a bit more complex than this. E.g. at stock markets around the world, we have a sufficient number of arbitrageurs and yet, the prices aren't equal. It's better, but still not perfect. I assume, that in reality the transaction costs are also affected by ordinary taxes, costs for participation in the markets, liquidity and probably some more constraints and even soft conditions like customers' prejudices. Let's take drugs without the need for a prescription, say ASS generics. I don't know the current prices, but a few years ago, they have been cheaper in the US than here. So even this simple example didn't work and I know a few more. The situation hopefully improved in the last years. Beside this, it won't work because of the patent situation. It is simply impossible to produce and offer patent protected drugs. I'm not arguing against patents, because I know about the costs of development, approval, and the need to protect research. And the costs of approval are also higher in the US. Nevertheless, it leads to the fact, that the market isn't a free one.

 

[StoneTemplePython]

It is a bit more complex than this. E.g. at stock markets around the world, we have a sufficient number of arbitrageurs and yet, the prices aren't equal. It's better, but still not perfect. I assume, that in reality the transaction costs are also affected by ordinary taxes, costs for participation in the markets, liquidity and probably some more constraints or even soft conditions like customers' prejudices.

There's an issue here of what most people are using the term arbitrage to mean, and the stricter sense of it's meaning.

Law of one price should be a very close approximation of stock markets, if you are in fact getting the same 'good' in different markets and there are actual arbitrage mechanisms available.

The issue is that I think you are in effect pointing out is that these goods have different properties in different markets. Liquidity is probably the most subtle one of these -- so nice catch there.

However, if you can effect an exchange between markets (i.e. actual arbitrage) then relative liquidity does not matter -- at a high level.. at a lower level there's a lot of nits on how much product can be bought or sold without moving prices considerably which is a liquidity concern.) Customer prejudices don't matter either in this case.

Something the press messes up a lot is substitution is another, weaker, way to get prices down but in any pure sense of the term: substitution ain't arbitrage. (There are generalizations of the term arbitrage like 'statistical arbitrage' but that is a very impure term and not at all what I'm referring to here. Things like Merger Arbitrage are a more pure extension but it is largely about risk pricing and ultimately a distraction.)

For example: the fact that there is an exchange -- i.e. arbitrage-- mechanism is why etfs (in liquid markets) closely track underlying prices and you really do see the law of one price in action. Going long an underpriced instrument and short an overpriced 'copy' of said instrument is not in any pure sense arbitrage. If you can make an exchange and net the positions, then it is.

I of course agree that ordinary taxes and costs for participation, but they really get lumped under 'transaction costs' or 'frictional costs' which is the umbrella that covers shipping costs as well... There's always a question on general of language to use.

To fair, "arbitrageurs" tends to mean substitutors these days, and it's my strict usage that may be out of date. The strict usage is the right way to interpret law of one price though if we want stronger claims. And if we want weaker results, then interpret the 'law' with weaker mechanisms like substitution, as acceptable. Seems reasonable enough to me.

- - - -
I'm not sure what "ASS generics" means and I am a bit concerned to search. (Maybe Over The Counter, OTC, generics?) Generics have branded competition though, which breaks the abstraction typically used in law of one price.

I'm not arguing against patents, because I know about the costs of development, approval, and the need to protect research.

A couple years ago The Economist actually ran a scathing piece that argued for, in essence, getting rid patents. I can post a link. I still am ambivalent on the article and mulling it over.

- - - -
edit:

full disclosure: the term used in econ is "law of one price" so I used it, though I cringe at it a bit.

The "approximation of one price" or "tendency toward one price" would sit better with me, but I guess they don't sound as nice.

 

[Laroxe]

The USA pays considerably more for drugs than almost anywhere else, there may be a few reasons;
Only the US and New Zealand allow direct advertising, this allows drug companies to produce new drugs under patent that have no advantage over older drugs other than being new.
The US simply doesn't use its market power, in many countries drugs are bought under contract and drug companies have to be very careful particularly if there are alternatives. With the buying power of the US you would imagine they would get the very best deals.
The FDA seem to have little interest in the idea of cost effectiveness, there is a current issue about the provision of expensive eye drops for a condition nobody knew they had until it was advertised. The regulatory bodies in other countries simply say there is no evidence it does anything of use.
Drug companies engage in extensive political lobbying and many politicians have financial interests in the drug industries, there is continuous pressure to maintain the status quo.
Then we are in the middle of a revolution in medicine with new drugs described as biologics, these can be difficult and expensive to produce it may be difficult to see any great reductions in these prices with current technology. However as many of these drugs provide only marginal benefits the drug companies have to be careful in their pricing, some countries would simply not supply it.

 

[phyzguy]

It's worth noting that per my above post, the reason the free market doesn't work also applies to socialized medicine. It shouldn't be much of a consolation in other countries that the economics are unstable at a slightly smaller coefficient; unstable is still bad.

Look at the attached table of drug price comparisons, from the attached paper from JAMA. Would you consider a 6X-8X lower price for insulin a "slightly smaller coefficient"?

 

[Evo]

I have a friend in New Zealand that could benefit from some of the medications I take, they have been around so long that they are now generic, but he still cannot get them prescribed. It's a real shame.

 

[Evo]

Look at the attached table of drug price comparisons, from the attached paper from JAMA. Would you consider a 6X-8X lower price for insulin a "slightly smaller coefficient"?

View attachment 219400

Phyzguy, that's cost in the US without medical prescription insurance. Many of those companies also offer discounts to people so that the drugs are $15 a month or less (unless you are on Medicare or Medicade, then you are not eligible for company discount programs, go figure).

 

[russ_watters]

Look at the attached table of drug price comparisons, from the attached paper from JAMA. Would you consider a 6X-8X lower price for insulin a "slightly smaller coefficient"?

No, I would consider it "cherry-picking".

 

[phyzguy]

Phyzguy, that's cost in the US without medical prescription insurance. Many of those companies also offer discounts to people so that the drugs are $15 a month or less (unless you are on Medicare or Medicade, then you are not eligible for company discount programs, go figure).

The fact that an insurance company picks up most of the bill doesn't fix the problem. We as a society are still paying much higher prices than the rest of the world.

No, I would consider it "cherry-picking".

All right, how about this figure, from the same article? Even looking at the total drug expenditure per person, we are still paying twice what most of the rest of the world pays.

 

[Evo]

The fact that an insurance company picks up most of the bill doesn't fix the problem. We as a society are still paying much higher prices than the rest of the world.

Going by what?

Here is "Drugs.com's" website, which supposedly gives you the best drug prices.

Otezla Prices
This Otezla price guide is based on using the https://www.drugs.com/discount-card/ which is accepted at most U.S. pharmacies. The cost for Otezla oral tablet (10 mg-20 mg-30 mg) is around $889 for a supply of 27 tablets, depending on the pharmacy you visit. Prices are for cash paying customers only and are not valid with insurance plans.

https://www.drugs.com/price-guide/otezla

If you go to the manufacturer's website, the cost is ZERO.

https://www.otezla.com/supportplus/otezla-cost-and-copay

$0 CO-PAY OFFER
Did you know you could pay $0 for yourOtezla® (apremilast) each month? With the $0 co-pay offer, eligible people can get Otezla at no out-of-pocket cost.

 

[fresh_42]

I'm not sure what "ASS generics" means

Ooops, I accidentally used the abbreviation in my language. Should have been ASA (Aspirin).

 

[mathwonk]

my copay for a common prescription arthritis medication (in USA), after my insurance picks up the lion's share, is twice as much as the total over the counter cost in Canada, where it is availble with no prescription. so the total cost in usa compared to Canada is some 5 times as much. one reason is that congress apparently made it illegal for medicare to bargain for drug prices. as soon as i retired and switched from my employers negotiated drug plan to my medicare plan, the price of the same drugs went way up. indeed although i subscribed to the plan offered by the "same" company, when i called that company to inquire which plan i should elect to best mimic the one from my employer, the phone rep said it was meaningless since he did not even work for the same company i had dealt with before. i.e. express scripts has two separate companies, the one that dealt with my employer and the one that deals with individuals through medicare. I.e. my employer, a state university, with 13,000 retirees, could negotiate a much better price than can Medicare that serves millions of US retirees.

Another common price scam practiced by drug companies in the US is to change the structure of a drug by altering part of the chemical makeup that does not affect the working of the drug and apply for a new patent as if it were a new drug. I.e. the molecules of some compounds apparently have "right and left hands", but only say the right hand affects the working of a certain drug, so the company will alter the left hand and apply to extend the life of the patent, and the right to charge a much higher price. I learned this from a lecture in Atlanta by Otis Brawley MD, author of an eye opening and disturbing book: How we do harm,
https://www.amazon.com/dp/1250015766/?tag=pfamazon01-20.

 

[StoneTemplePython]

Another common price scam practiced by drug companies in the US is to change the structure of a drug by altering part of the chemical makeup that does not affect the working of the drug and apply for a new patent as if it were a new drug. I.e. the molecules of some compounds apparently have "right and left hands", but only say the right hand affects the working of a certain drug, so the company will alter the left hand and apply to extend the life of the patent, and the right to charge a much higher price. I learned this from a lecture in Atlanta by Otis Brawley MD, author of an eye opening and disturbing book: How we do harm,
https://www.amazon.com/dp/1250015766/?tag=pfamazon01-20.

enantiomers... this caused a big uproar with Nexium a few years back. There is some difference in effect between changing up the handedness, but this whole area is a mess and does not reflect very well on big pharma.

 

[nitsuj]

Interesting!...very very interesting...quality NPO healthcare...with smart, err brilliant money behind it.
Bezo, Berkshire Hathaway and JP morgan form npo healthcare company for 1.2m employees

 

[Evo]

Interesting!...very very interesting...quality NPO healthcare...with smart, err brilliant money behind it.
Bezo, Berkshire Hathaway and JP morgan form npo healthcare company for 1.2m employees

My realtor works for Berkshire Hathaway.

 

[mfb]

No, I would consider it "cherry-picking".

If we would cherry pick, then clearly with Daraprim (Pyrimethamine). $0.02 to $1 per tablet outside the US, $13.5 in the US before Shkreli created a monopoly and raised the price to $750.
Imprimis Pharmaceuticals found a way to legally sell it, and did so for $1 per tablet - but only a few months afterwards.

But we don't have to cherry pick. A factor 3 compared to the UK and "consistently higher than in other European markets", based on the 20 most popular drugs.
More comparisons

 

[russ_watters]

All right, how about this figure, from the same article? Even looking at the total drug expenditure per person, we are still paying twice what most of the rest of the world pays.

View attachment 219403

That's much better, thanks. But this still doesn't address what you quoted from me, since I referenced a "coefficient", which is a point about change over time. All of these countries are experiencing disturbingly fast drug cost growth. And that point remains unaddressed: drug costs are growing for reasons not specific to the USA.

Do you recognize that? Disagree? Have a comment on why? Or, what is your point/reason for ignoring it?

 

[russ_watters]

If we would cherry pick, then clearly with Daraprim (Pyrimethamine). $0.02 to $1 per tablet outside the US, $13.5 in the US before Shkreli created a monopoly and raised the price to $750.
Imprimis Pharmaceuticals found a way to legally sell it, and did so for $1 per tablet - but only a few months afterwards.

But we don't have to cherry pick. A factor 3 compared to the UK and "consistently higher than in other European markets", based on the 20 most popular drugs.
More comparisons

Ok, that's nice. What's your point, or rather, what does it have to do with my point (which you may not have seen, since you didn't quote it)...?

 

[mfb]

All of these countries are experiencing disturbingly fast drug cost growth.

See the second link in my post (made in parallel with your post). The US and Switzerland are the only countries where the expenditures rise so fast - and in Switzerland they are lower overall.

Ok, that's nice. What's your point, or rather, what does it have to do with my point (which you may not have seen, since you didn't quote it)...?

My point: The US is doing something wrong with drug prices (and healthcare costs in general).
What is going wrong? Well, maybe it is the main difference between the healthcare system of the US and the healthcare system of all other developed countries?

 

[nitsuj]

The fact that an insurance company picks up most of the bill doesn't fix the problem. We as a society are still paying much higher prices than the rest of the world.

Life expectancy
US - 79.3
Canada - 82.2
Japan - 83.7

Japan has the longest life expectancy of all countries.
next is "Prevalence of overweight" % according to WHO...

US - 67.3
Canada - 64.4
Japan - 24.2

Next is smoking

Japan - 21.7
US - 17.2
Canada - 14.9

Guns per 100 peeps
US - 101
Canada - 30.8
Japan - 0.6

"road fatalities" I couldn't find just casualties. But figure the two would correlate anyways, all three countries would likely have similarly safe cars, roads, enforced rules yada yada yada. It's per 100k people

US - 10.6
Canada - 6.0
Japan - 4.7

And GDP per capita

US - 57.5k / $875 1.52%
Canada - 44.0k / $650 1.48%
Japan - 41.5k / $640 1.54%

And median equivalised disposable household income
US - 26.7k / $875 3.28%
Canada - 23.1k / $650 2.81%
Japan - 17.5k / $640 3.66%

And new cases of cancer per 100k

US - 318.0
Canada - 295.7
Japan - 217.1


I'd say Japan is getting ripped, US and Canada paying what it costs lol