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Why We Pay So Much for Medical Drugs

  1. Jan 30, 2018 #1

    jedishrfu

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    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.

     
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  3. Jan 30, 2018 #2

    fresh_42

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    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
     
  4. Jan 30, 2018 #3

    phyzguy

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    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.
     
    Last edited: Jan 30, 2018
  5. Jan 30, 2018 #4

    jedishrfu

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    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..
     
  6. Jan 30, 2018 #5

    jim mcnamara

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    @phyzguy - your link does not resolve correctly.
     
  7. Jan 30, 2018 #6

    jim mcnamara

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    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.
     
  8. Jan 30, 2018 #7

    fresh_42

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    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 :smile:
     
  9. Jan 30, 2018 #8

    phyzguy

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    Thanks. It's fixed now.
     
  10. Jan 30, 2018 #9

    jedishrfu

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    I moved it to general discussion.
     
  11. Jan 30, 2018 #10

    russ_watters

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    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 dont 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.
     
  12. Jan 30, 2018 #11

    russ_watters

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    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.
     
  13. Jan 30, 2018 #12

    Borg

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  14. Jan 30, 2018 #13

    russ_watters

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    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.
     
  15. Jan 30, 2018 #14

    OmCheeto

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    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". :rolleyes:
    <zip!>
     
  16. Jan 30, 2018 #15

    fresh_42

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    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.
     
  17. Jan 30, 2018 #16

    StoneTemplePython

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    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.
     
  18. Jan 30, 2018 #17

    fresh_42

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    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.
     
  19. Jan 30, 2018 #18

    StoneTemplePython

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    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.

    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.
     
    Last edited: Jan 30, 2018
  20. Jan 30, 2018 #19
    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.
     
  21. Jan 30, 2018 #20

    phyzguy

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    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"?

    Drug_Prices.png
     

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