AMA: Government Should Negotiate on Drugs
Sometimes even the AMA gets it right:
Dr. Andrew F. Calman of San Francisco, an ophthalmologist who pushed for the new policy adopted by the medical association, said: “I don’t think it’s a Democratic or a Republican issue. We have the support of doctors from different points on the political spectrum. We’re very concerned about patients’ access to affordable drugs. I have some glaucoma patients who need to take three or four different types of eye drops to avoid going blind, and each medication may cost $50 to $100 a month.”
The govt “negotiates” with drug companies for flu vaccine. When one buyer is responsible for the purchase of the vast majority of a product, it determines the price of the product. If a supplier can’t produce it for that price, you get folks dying while waiting in line for the product. Now, the AMA wants the govt to do for Lipitor, Levaquin, and propranolol what it has done for flu vaccine.
JB–your argument doesn’t hold for those other drugs–the reason there have been problems with flu vaccine production is because the demand is so hard to calculate. Virtually all other industrialized countries regulate prices for drugs, and shortages don’t exist.
Graham, that’s not even wrong. Demand for vaccines is no harder and no easier to calculate than demand for size 9 shoes, whole grain bread, Honda Civics, or folding chairs. If a free market is allowed, with a fair profit motive, there will never be anything other than very short-lived and limited shortages of any consumer product, as competition and the law of supply and demand take over. It is common knowledge that the only reason that Europeans have access to any new prescription medications is that the R&D is done and paid for in the USA. It costs next to nothing to produce an extra million Lipitor tablets, so if there is a chance to sell them in Europe for a buck apiece, that’s a million to the bottom line of Pfizer or whoever markets them there. If you think that flu vaccine is in short supply now, wait til next year. Chiron spent millions developing the flawed batch that they can’t sell. That’s a total loss to them. Seeing that example, do you think that some other company is going to jump up and say, “We’ll make the vaccine next year!” Not at current prices. Even with a guaranteed purchase price, the potential profit will prove to be too low for the risk involved.
Not to pile on, but see this entry in Galen’s log, esp the last paragraph quoted from the article.
http://galenslog.typepad.com/galens_log/
So either the drug companies don’t know a thing about estimating demand, or demand is harder to predict with flu vaccines. It’s hard to predict how virulent a year’s strain will be, and even harder to predict which strain is going to dominate. But I can pretty easily tell you what proportion of the population has or will have size 9 shoes, and what proportion has (or will have) hypertension.
And no, it’s not common knowledge that Europeans get new meds because of American R&D. If you look at publications per capita, you’ll see that Americans fall right smack dab in the middle of the pack when compared to other countries. And a number of the largest drug makers in the world are British, German, or French.
Selective quoting may win you some admirers, but it will not win the debate. This is the final paragraph of the article you quote. Read the 2nd sentence slowly.
” The waste is particularly hard for vaccine makers to stomach because their profit margin is small. Because much of the vaccine is bought in huge orders by government agencies, the price is low. Over three seasons, Wyeth lost $50 million from unsold flu vaccine.”
Non sequiturs won’t win an argument either. I never said anything about numbers of publications. Perhaps I didn’t spell it out clearly enough. The research that pharma companies do, wherever they do it, is financed from profits that they make in the USA. I didn’t say anything about where the companies’ corporate headquarters are; those decisions are made primarily for tax purposes. The drug companies need profits to develop new drugs, and the vast majority of their profits come from the US market.
I’ll say it again: no matter how short the shelf life of a product, no matter how difficult to predict demand, no matter how difficult to manufacture, if you let the free market determine the price, there will be no shortages until the product physically ceases to exist and can not be manufactured by any means. This actually has nothing whatsoever to do with vaccines or medicines, it’s the economic history of the world over the past two centuries.
Unfortunately, the free market doesn’t apply to the US either; drug companies have government-sponsored monopolies on production which are usually expanded much past the original end of the patent date.
So when you have one person selling, you end up with outrageous prices that people can’t afford. Either way, people aren’t getting their medications.
Nice debating, but I’ve gotta go study!
It’s been awhile since I visited your site. It’s nice. I guess I’ll throw my 2 cents in on the drug issue – since I’m here:
I think this problem, like a lot of other problems boils down to campaign finance reform. The drug lobby is what allows these government sponsored monopolies to exist. When politicians can feel free of the need to support the drug companies, reform can begin. That said, don’t ask me what nature that reform should take. Stricter patent laws? Price fixing? I guess it depends on how much socialism you’re comfortable with.
Tim- I agree, Graham has a very nice site, and thanks for joining our discussion. The last couple of posts leave me scratching my head, though. Graham writes of “outrageous prices that people can’t afford,” leading to “people… not getting their medication.” You disparage “government sponsored monopolies” which were enshrined in the Constitution when the central government was empowered to grant patents, which provide the only motivation for pharma to develop new drugs. I’m old enough to remember when Inderal was an expensive blockbuster drug. Now it’s generic propranolol, available at CVS for $10.39 for 90, if anyone still uses it. It’s rarely prescribed because the potential for profit led other companies to develop and market different and better beta-blocker drugs that at one time also were expensive. Even today, brand Tenormin tabs are $1.93 a piece, but you can buy generic atenolol for twenty cents each (Walgreens website). You can carry this through calcium blockers, ACE inhibitors, antibiotics and just about every other type of drug. The first powerful anti-ulcer drug, Tagamet, was a major blockbuster when it came out; now it’s OTC and pennies per day, and so are its competitors such as ranitidine which was developed to make money (and it did) but turned out to be better because it has much fewer interactions due to less cytochrome activation (I’m a surgeon and don’t pretend to understand all that, but I do understand how much relief you can buy for a quarter per day now).
Yes, I know that there are some people who really struggle to put food on the table because they absolutely must have a pricey drug to survive, but for most people for whom drugs are a hardship, it means that they have to do without cable TV, restaurant meals, or similar nice to have but not esential things. The ulcer drugs put surgeons out of ulcer surgery; bad for us but imagine the money saved and misery avoided (that was a big and frequently morbid operation). Today’s high-dollar blockbuster is tomorrow’s taken for granted OTC Prilosec, ibuprofen, claritin or dirt cheap generic.
If you can think of a way to keep this pipeline flowing while getting everything for everyone and having it paid for by fairy godmothers, I’m willing to listen. I’m going to need a miracle drug or two sooner than I want to admit, and I’m truly concerned that people who think like you are going to be successful. Nobody is going to spend $800 million to develop a new drug if it’s going to be sold at Canadian or French prices.
Graham’s concern about people not beign able to get their meds just doesn’t bear scrutiny. Again, there are isolated tragic cases, but where do you think all that money is going? It’s buying pills, pills by the million, and people are swallowing them. Again, what he decries is that everything isn’t free for everyone.
You may be able to figure out how much socialism I’m comfortable with.
Another approach that I have not seen discussed:
Grant patents on drugs for 50 or 100 years, but cap profits at 15% over production cost. Gives companies a big incentive to get out lots of new drugs, but keeps them from overcharging. Kind of like electric and water utilities.
FN-
Not a good idea. Capping profits at 15% or whatever over production makes development of high value but low volume drugs impossible. A recent example is Gleevac. It’s a tremendous advance for certain fairly unusual tumors, and it costs a fortune. The profit per Rx has to be astronomical in everyday retail terms for it to justify the cost of development. In addition, there would be a disincentive to produce meds efficiently if profit were tied to production costs.
The free market isn’t perfect, but nothing else has ever come close.
Good point jb. Although if only you could sell it for the next 100 years you might be able to make a profit even on Gleevac. Maybe instead there could be a lower % tied to a return-on-investment over a longer period of time. I guess it brings up the topic of what the goal is. A fixed ROI would keep excess profits out of the equation but maybe that would not really help with keeping patient’s prices low. To get patient prices lower we need more competition right? Shorter patent periods, higher initial returns to spur more research, and fewer trials before approval. Seems like tinkering with that formula might not change prices much.
Funny you mention Gleevec–many say that Gleevec was developed primarily by researchers at Oregon State, and barely touched by Novartis.
Bottom line: unless you want the gov’t doing all the research and development of new drugs–you have to let the drug companies make a profit.
The fact that other countries have price controls on drugs we develop–is part of the reason drug prices are high in the States. Somebody has to pay for the research.
I definitely agree, Jeremy. Have to provide a return on investment.
My problem is that the research costs are greatly overestimated by pharma–they return more money to shareholders than they invest in R&D–and a fair amount of the knowledge that helps to develop new drugs comes from the NIH and American taxpayers–so we’re paying twice for our drugs. That’s not right.
The private developers have to return a profit to their investors–or else they won’t get any more investors.
And if you remove NIH/University funding from the picture, then the drug companies would have to fund the entire project themselves–raising costs to cover the difference. I’m guessing the increase cost would be about the same as the reduced funds appropriated to NIH. It would come out in the wash. Citizens would pay once–but still pay the same.
There has to be a cooperative effort between the universities and the private sector. If not–the private sector would steal the professors away.
You can’t eliminate the private industry and force universities and the NIH to do ALL the research and development. That’s socialized development of drugs. I don’t trust the government enough to efficiently and effectively do anything–especially to develop high-tech drugs.
I just don’t see another good way to do it.
I suspect that if I found a cure for cancer that I could sell and become BillGates rich, some who post here would be against my doing so, even if the billions that I earned were a small fraction of the money that we spend on ineffective cancer care today. If you question that, recall the attacks on Bayer for wanting to make a good profit on Cipro back in 2001 when we were all hysterical over anthrax attacks.
Jeremy-
I’m not saying that there shouldn’t be a drug industry, I’m just saying that they distort their R&D costs and that no, it doesn’t take $800M to develop a new drug. And then they *use* R&D as an excuse for such high profit margins. I’m not suggesting that there should be no profit. I just think they’re insanely high right now. They also spend an insane amount of money on advertising and pushing these new drugs, even if they’re no improvement over current treatments.
JB-the attacks were made on Bayer because Cipro is no better to treat anthrax than any number of other antibiotics. They played up people’s fears, and used them to make a big profit. That’s deceptive and unethical.
Graham- I looked it up and you’re right. Cipro is one of several effective drugs for anthrax, and the most expensive one except for IM penicillin, which with administration costs would be quite costly. The others are tetracycline, erythromycin, and chloramphenicol. Given the side effect profile, I’d rather take the Cipro, but I’m a rich doctor. Isn’t this a massive failure of public health authorities who did not say anything that I recall about how there are much cheaper drugs that will work? Or isn’t this a failure of the current public perception that everyone can have Cadillac treatment of whatever ails them at someone else’s expense? So, this wasn’t a situation where a robber baron corporation was holding the public weal hostage. It was a situation where a company had a marginally better product for sale, and wanted top dollar for it. I have no problem with that.
You didn’t reply to my other query- will you buy my cancer cure-all or not?
There are a lot of words that describe the philosophy that person A gets to decide how and where the fruits of person B’s efforts are distributed. Some of these words describe situation that are are OK with me- mom and dad, for example. It most situations, the relationship is less mutually beneficial. Words like socialism, fascism, totalitarianism, slavery come to mind, depending on the degree of coercion. You propose the mildest form, of course (socialism), and one that some people actually prefer to live under, but these people tend not to be the ones who devote their entire lives to developing drugs like Cipro. There are a lot of people who think like you do, and there is nothing wrong with living your life that way, but there is a reason that there are no pharma companies modeled after the Ben and Jerry corporate model. Making new (or old) drugs is risky and a lot harder than it looks, and people who work that hard want to be compensated. One way to improve the world would be for you and some of your colleagues to start a pharma company and sell drugs cheaply. (I believe that the old Wellcome Company started out that way, as some sort of British public trust, but ultimately could not survive independently, and is now a part of Glaxo or another pharma giant). The best cure for “insanely” high profits is competition.
I’d say it’s mostly a failure of the media for the Cipro mess–Tom Brokaw looking into the camera with a Cipro bottle and saying “In Cipro we trust” can easily make non-medical folks to think that Cipro’s the only thing that’ll work. But yes, public health should have tried to get the message across that other antibiotics would work fine.
It’s also a failure of the patent system, as Bayer was allowed to pay the generic competitor for 6 years to keep generic ciproflox off the market.
Of course I’d be supportive of the cancer cure, as long as truly did work, was better than current treatments, and wasn’t pushed as something it’s not. The drug companies, I think, are less than honest with the public about their products, but again, a lot of that is due to FDA regulations (but a lot of the FDA is already controlled by Pharma anyway).
I agree that competition helps, but again, there isn’t competition in these markets. There are 20 year patents, and even in the same class, no drugs compete on the basis of cost. You don’t look at Lipitor vs Crestor vs Pravachol and say “Hmm, which one of these is the cheapest?” There is no price comparison for patients.
I think I’m arguing for volume discounts and purchasing power, not socialism. The purchasing entity buys drugs for everyone in the entire country. Wal-Mart does the exact same thing, and negotiates steep discounts buy using the exact same strategy.
It seems to me that the utilities might be a good example to draw on for this issue. Electricity rates (at least until deregulation) are stable and affordable, power is reliable, and widely available, and electric utilities are a safe investement. A similiar regulated monopoly on drugs could be beneficial (although how we make the transition is problematic). Develop a new drug and you can sell it exclusively. You can get a regulated profit on that drug so the more market penetration you can get the better.
One of the problems with drug consumption is that the users don’t have enough information to make the informed decision that allows a free market to operate. They don’t know if the pill they are taking gives the best effect per dollar. There is a reason there is a drug rep for every 9 doctors. How about a special surcharge on drug company advertising? The tax would go to funding head to head studies of similar drugs to see which is the best value. Drug companies are still free to advertise or not and the consumers and doctors get the benefits of randomized controled trials to measure the value of the drugs they see on TV.
FN- You have picked just about the worst analogy possible. Electric power has not changed at all in the last century. The electrons that come out of your outlet are identical to the ones that came out of your grandma’s outlet. There has been zero innovation in production or delivery of electrons since nuclear power plants were developed in the 1960s, but costs have gone up substantially. Every winter you read about people who beg publicly for assistance in meeting their power bills. Do you really want to depend on this business model for the innovation that will cure the next new disease that pops up? You can scoff at all the me-too drugs and how they are marketed, but I was in med school in the early 80s when AIDS first popped up as a 100% lethal curiosity. It soon became a world-wide epidemic, and now, within 2 decades, it is for most a chronic, manageable disease. Don’t give me any Randy Shilts crap, either- 15 years to convert a 100% lethal disease into a management problem is little short of miraculous. It takes most local power companies that long to redesign their monthly billing statements.
I know it gets tiresome to hear people like me saying this over and over, but it’s too important not to repeat: The free market system has provided more progress and relieved more people of more misery than all other systems combined. It’s not perfect, but in trying to reach that last degree of perfection, there is inevitably more harm done than good. There are only two competing models that I am aware of. One is the communal system, which is fine in theory but breaks down when the first person realizes that he doesn’t necessarily have to get out of bed to have breakfast brought to him. The other is some form of coercion, where your decision to get out of bed is made by someone else with a gun. This is socialism, communism, fascism, slavery.
JB
My point was that there are various economic models that can be tinkered with to get a better distribution of drugs than what we currently have.
In general I like the free market. But the market for drugs is not free at all. To get the drugs I want I have to see a doctor. The drugs have to be approved as safe by the FDA. I have to buy them from a pharmacist. I have to go to enormous effort to compare prices and it is almost impossible to determine the value (value being the price/effectiveness ratio). Third party payers, like my insurance company further distort the market. I don’t think that a truly free market (no FDA approval needed, no prescriptions required for oxycontin) is really in the best interest of the public so the question becomes how do we manipulate the market for the best results. I am not sure that the current system is near optimum and I think we should look at other highly regulated industries for examples of alternate approaches.