Why We Pay So Much for Medical Drugs

[nitsuj]

My realtor works for Berkshire Hathaway.

I'm anxious to know the per person cost once it's "matured" some. Might be a future model.

 

[russ_watters]

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.My point: The US is doing something wrong with drug prices (and healthcare costs in general).

I was looking at the same link, but holding it back until someone made a relevant point...

So, are you saying you consider that a doubling of drug prices in 15 years [in Europe] not to be an indication of "doing something wrong"?

Look: I recognize that the US is doing something in addition to the wrongs that other countries are doing. But I think it is important to recognize that:
1. Prior to 1995 the trajectory was similar.
2. All the other developed/European countries are experiencing very high growth rates.

As a result, it can't be said that switching to a European model will fix the problem, which is what people really want to say. At best, it would just align us with Europe's problem.

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?

Clearly, that's not it, since aligning the US with the rest of the developed nations wouldn't fix the problem. And I already said what's wrong: The main problem resulting in the high growth rate is the disconnect between demand and cost, driven by technology and our philosophical need to always demand the state of the art. Manifested here, it means more and more limited use and absurdly expensive drugs for rare diseases. See:

• Spending has become increasingly skewed toward high-cost "specialty medicines." They now account for 30 to 50% of pharmaceutical spending in OECD countries and will be the main contributor to spending growth in the future
• Launch prices of new medicines have been soaring in some therapeutic categories.

http://www.oecd.org/els/health-systems/pharmaceuticals.htm

Now, while every country experienced an inflection point in your [our] graph in about 1995, the US alone experienced a pretty spectacular one at the end of 2013. I don't think I need to remind everyone what happened in 2014...

 

[nitsuj]

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.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?

From the random stats I pulled that imo would help drive pharma spending the US seems to live a lifestyle that supports high per person pharma expense.

Im sure many other health related stats would trend the same way, pollution, work safety standards & prevalence of work related injuries, youth sports related injuries, food quality/handling standards.

 

[Evo]

Could it also be that the majority of the companies in the study are US based?

 

[mfb]

So, are you saying you consider that a doubling of drug prices in 15 years [in Europe] not to be an indication of "doing something wrong"?

It can also be related to more new drugs and similar. It is also not adjusted for inflation as far as I can see. Rising amounts of money spent on drugs doesn't directly imply something is wrong. The comparison between countries is more interesting.

As a result, it can't be said that switching to a European model will fix the problem, which is what people really want to say. At best, it would just align us with Europe's problem.

That would be a big step forward already (a factor 2).

Now, while every country experienced an inflection point in your [our] graph in about 1995, the US alone experienced a pretty spectacular one at the end of 2013. I don't think I need to remind everyone what happened in 2014...

More people got access to somewhat affordable healthcare. The US increased the quality of the healthcare to get closer to the other countries. If they would have had that before, the US cost would have been higher before 2014 already.
Still 12% uninsured left in the US (0.2% in Germany).

 

[russ_watters]

It is also not adjusted for inflation as far as I can see.

The data would be pretty much useless if not inflation adjusted. I'll leave it to you to figure out if it is or isn't, since you posted it. If it's not inflation adjusted, please provide data that is actually useful.

Rising amounts of money spent on drugs doesn't directly imply something is wrong.

Perhaps, but then we're left to choose a growth threshold upon which to base "wrong". How do you pick? Personally, I would consider a doubling of a price of anything over a 15 year period to be a problem. At the very least, you must recognize it is unsustainable.

The comparison between countries is more interesting.

It is if you want one country to "win" and another to "lose" in a comparison. But it is less helpful if the end goal is to prevent drug (and beyond that, healthcare) costs to crush our respective economies.

That would be a big step forward already (a factor 2).

I said "at best" -- this assumes that the rises over the past 20 years are due to the basic model difference, and since the US didn't have a European style system in place in 1995 that we suddenly got rid of, that would seem unlikely.

More people got access to somewhat affordable healthcare. The US increased the quality of the healthcare to get closer to the other countries. If they would have had that before, the US cost would have been higher before 2014 already.

So, moving closer to a European model increased costs, yet at the same time you are claiming moving toward a European model will decrease costs? Since your data obviously contradicts your thesis, please explain what reason you have for believing your thesis could be true. Or, looking at it the other way: you are claiming prices "should" have been higher before 2014 already, so there must be another cause for them being higher at that time, unrelated to the basic model difference. What is it? Since I quoted some key factors and you didn't respond to them, it is tough for me to come to any other conclusion but that you are guessing or wanting to focus on the US regardless of if the factors are US-specific.

Look, I do see the logic for the rise in 2014: With fewer people insured before 2014, the base of insurance payers is smaller, so the cost per person is higher, but if fewer people are receiving care then the cost overall could be lower (note: no data was provided to substantiate any of this). So increasing the base of the insured should reduce the per insured cost even if it increases the total cost. That's all nice, but it doesn't explain why the US's drug costs were already so much higher than Europe's before 2014: Something else must have caused that discrepancy.

Either way, this shows the basic EU/European model difference isn't the cause of the "problem" of the US having higher prices.

Please note: this contradiction isn't a trivial thing and it isn't unique to you: the big change made in 2014 was sold largely on the basis that moving toward a more European model would decrease costs. Clearly this claim was false and your thesis(the common thesis for this issue) is false. And I don't really know where to go from here because of this contradiction. You'll need to resolve it for me if you want to keep forwarding the thesis.

 

[russ_watters]

Here's the thing regarding the recent steep cost increase in the US: the [data free] argument that drug costs rose in the US after Obamacare due to people buying more drugs is undercut by the data provided that shows drug prices themselves are increasing. And logically, the drug price increase being the larger factor makes sense: if some people are making choices about purchasing drugs based on cost and then the cost factor is removed (by providing them or forcing them to get health insurance), then the link between cost and demand is cut, giving companies no disincentive to raise prices. So as we can see, the problem of the disconnect between cost and demand is worse with a forced insurance or single-payer system than with an open system.

Note: the number of uninsured dropped by only 6 percentage points (from 14 to 8%) from 2008-2016 (not including an uptick to 18% at the depth of the recession), meaning the number of insured only rose 7% from 2008-2016 while the drug cost rose by 25% from 2014-2016 alone. So even if the uninsured bought no drugs at all, insuring them would still only account for a third of the cost increase.

The reason drugs cost more in the US than in other countries is that US laws "protect" the drug companies:
http://time.com/money/4462919/prescription-drug-prices-too-high/
https://www.cnn.com/2015/09/28/health/us-pays-more-for-drugs/index.html
http://www.nytimes.com/1991/05/24/business/why-drugs-cost-more-in-us.html?pagewanted=all

It has nothing to do with the private vs single-payer nature of the payment.

 

[mfb]

The data would be pretty much useless if not inflation adjusted. I'll leave it to you to figure out if it is or isn't, since you posted it. If it's not inflation adjusted, please provide data that is actually useful.

I don't see any mention of inflation adjustment. I tried to locate the source, the closest I found is this one, but that has different numbers. It has a slower increase but generally different numbers (although the trends are very similar). It is not inflation adjusted.

See above: Comparing different countries is more useful than looking at a trend for a single country.

So, moving closer to a European model increased costs, yet at the same time you are claiming moving toward a European model will decrease costs?

Giving more basic healthcare increased cost while increasing the health standards a lot.
ACA is not European-style healthcare. I see it as good step, but it is not a European-style healthcare. It is more US-style healthcare, but for more people (which means it increased the overall costs).

The reason drugs cost more in the US than in other countries is that US laws "protect" the drug companies:

There we have one of the system differences. In Germany the country (effectively) negotiates the price, and as country it has a much more powerful position.

 

[BWV]

Pharma companies are businesses that will not develop new drugs unless they can earn a return doing so. R&D, including the cost of failed drugs is the largest cost and the manufacturing cost of most drugs is small. The US, as the largest market, subsidizes drug costs for the rest of the world as pharma companies earn a return in the US that covers R&D expenditures then sell drugs outside the US at a much cheaper markup over marginal, manufacturing cost. As businesses they will engage in rent-seeking when it is easier than the hard work of developing new drugs with real medical benefits. So at the same time, real innovations like the recent cures for Hep C, which despite the high cost actually reduces the medical costs of a chronic condition to the healthcare system, coexist with rent seeking such as attempts to capture pharma benefit management companies or exploit long lead times in approval for manufacturing generics by dramatically hiking prices (I.e. Valeant Pharmaceuticals). So to some extent both the red and blue narratives reflect real situations.

 

[mfb]

The US, as the largest market, subsidizes drug costs for the rest of the world as pharma companies earn a return in the US that covers R&D expenditures then sell drugs outside the US at a much cheaper markup over marginal, manufacturing cost.

[Citation needed]

All the countries discussed here have new and relatively expensive drugs. That these countries subsidize drugs in countries like India: Yeah, I don't have a problem with that claim. But we didn't discuss drug prices in India here.

 

[cosmik debris]

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.

How much do these medications that you take cost you? In New Zealand we have a government organisation called Pharmac that negotiate with drug companies for a bulk price. We pay very little, basically a service charge, to the pharmacy for our drugs. Being a small country (4 million) with little buying power we don't get some of the more experimental or new to market drugs unless it can be shown that there is significant advantage to a reasonable number of people. Pharmac have a limited budget so they have to get what they can to benefit the most people. This does mean that people with rare conditions are sometimes not catered for but on the whole I think we are well served by our system. If there is enough public pressure Pharmac can be persuaded in some cases to provide a drug. Herceptin is a case in point, women's groups lobbied and despite the researchers being unconvinced at the time (rightly or wrongly) that there was significant benefit they provided the drug. Of course this probably meant that some other group missed out.

Cheers