Medicare Debate Turns to Pricing of Drug Benefits

[Forthe]

Medicare Debate Turns to Pricing of Drug Benefits
By ROBERT PEAR

Published: November 24, 2003

ASHINGTON, Nov. 23 — With Congress poised for final action on a major Medicare bill this week, some of the fiercest debate is focused on a section of the bill that prohibits the government from negotiating lower drug prices for the 40 million people on Medicare.

Does this seem retarded to anyone other than me? Especially so coming from conservatives that like to bitch about the cost of social welfare.

[Kylere]

The problem is no just conservatives here Forthe, the problem is that Democrat or Republican, Liberal or Conservative, campaign donations win elections, and the pharmacetical companies have deep pockets.

The US needs a reform ( a TRUE reform) of laws relating to the donation of cash or gifts to candidates or to elected officials.

[Aslanna]

The problem is no just conservatives here Forthe, the problem is that Democrat or Republican, Liberal or Conservative, campaign donations win elections, and the pharmacetical companies have deep pockets.

The US needs a reform ( a TRUE reform) of laws relating to the donation of cash or gifts to candidates or to elected officials.

They also have valid arguments. How many other nations (with price controls) are developing and manufacturing drugs? You may think it's all a bunch of BS but the US pharmaceutical companies are the ones driving the innovation, research, development and manufacturing.

Then again, being emplyed by one of those companies, I may be biased. But at least I've looked into the issues beyond glancing at headlines. It's almost disturbing to see some of the misinfored comments that politicians are throwing out simply in an effort to win votes.

[Pahreyia]

Much of the issue here is that the pharmaceutical companies are usually private or publically traded companies who have to show a bottom line profit. When they throw millions or even billions of dollars into a new drug, they've got to be able to show a profit from that drug in the first few years before generic versions are introduced and their market share is drastically cut. (i.e. Viagra). The lobbying power of these companies are huge, coupled with our non-socialized medical coverage system in the US makes for competitive pricing practices by these companies.

In the end, the people suffer for it.

[Marbus]

I agree but I think some drugs could be priced a little lower and still show a good profit. Some medicine is just outrageous... at least it seems that way to me.

Whether or not I want the Gov. to regulate that or not is another question though.

Marb

[Forthe]

These are tax dollars buying those drugs Aslanna. IMO fiscal responsibily > ALL when dealing with tax dollars, the government should be making every effort to get the greatest bang for the buck. Besides, it isn't like the drug companies are suddenly going to start selling drugs at a loss. If it causes them to shrink their marketting budget good. Fuck marketing.

If the governement is just going to waste money they should scrap it outright and save your great grandchildren the burden.

[Kylere]

Aslanna I have studied it myself, and there is not reason on the entire planet that is valid to prevent to government from leveraging its purchasing power to save the American tax payer some duckies.

[Aslanna]

Aslanna I have studied it myself, and there is not reason on the entire planet that is valid to prevent to government from leveraging its purchasing power to save the American tax payer some duckies.

Yes.. I have real faith in that.

http://money.cnn.com/2003/11/24/news/ec ... tm?cnn=yes

Although that doesn't directly address the issue of price controls. The fact is, getting the government involved isn't the answer because there's too much politics involved. Everyone wants to be reelected.

So keep reading those headlines and thinking all those taxpayers will be raking in those duckies.

[Chidoro]

They also have valid arguments. How many other nations (with price controls) are developing and manufacturing drugs? You may think it's all a bunch of BS but the US pharmaceutical companies are the ones driving the innovation, research, development and manufacturing.

Then again, being emplyed by one of those companies, I may be biased. But at least I've looked into the issues beyond glancing at headlines. It's almost disturbing to see some of the misinfored comments that politicians are throwing out simply in an effort to win votes.

I disagree. While we may be first and foremost, I'd say that other countries are advancing just as quickly given their resources. Of course, not every country is trying to invent the best seratonin regulator, but other medications are innovating quite fine in other countries.

I would say that the fact that our system allows for profit generation in the healthcare business, in this case the pharmaceuticals, that allows other countries to keep their governments policies, socialist in nature. If they are not making profit somewhere specifically, namely the american populace, the world will take a hit. This can be shown just by the number of foreign pharm companies that have offices and conduct business in the US. They're not even importing as there are US offices already here.

I don't feel it's a bottomless pit though. I know a number of pharm companies w/in 10 miles of me that have laid off a significant portion of the labor force very recently. But this Medicare bill is something that gives pharm companies a first class ticket to price gouging.

[Chmee]

Bargaining when one side has just by fiat assumed a large section of the marketplace and also has the ability to regulate the other party seems fairly dubious. Ultimately I think there is a pretty substantial danger of the bargaining turning into de-facto price caps.

[Forthe]

Bargaining when one side has just by fiat assumed a large section of the marketplace and also has the ability to regulate the other party seems fairly dubious. Ultimately I think there is a pretty substantial danger of the bargaining turning into de-facto price caps.

The Canadian government negotiates with many of these same companies. Drug companies are free to try to negotiate higher prices or not sell their product at all. The fact that they do sell their product in Canada means they are profitable at these discounted prices (relative to US prices).

At 40 million people medicare's purchasing power is larger than Canada's. They should be able to lower drug prices to the level Canadians pay at the very least. If not then they are wasting tax dollars.

It is curious to me how a "free market" is sustaining the inflated drug prices in the US.

[Pahreyia]

Bargaining when one side has just by fiat assumed a large section of the marketplace and also has the ability to regulate the other party seems fairly dubious. Ultimately I think there is a pretty substantial danger of the bargaining turning into de-facto price caps.

The Canadian government negotiates with many of these same companies. Drug companies are free to try to negotiate higher prices or not sell their product at all. The fact that they do sell their product in Canada means they are profitable at these discounted prices (relative to US prices).

At 40 million people medicare's purchasing power is larger than Canada's. They should be able to lower drug prices to the level Canadians pay at the very least. If not then they are wasting tax dollars.

It is curious to me how a "free market" is sustaining the inflated drug prices in the US.

I would ask if Canada subsidizes the cost of their perscription drugs, or truly negociates a discounted rate. As an afterthought, does Canada buy the "name brand" drugs, or wait until after the generic versions are available before purchasing them for Canadian citizens. As I recall, Canada has a buch more conservative stance on new drugs, and will often wait to see any potential effects of the drug that may not have come out in FDA testing. (i.e. the fat reducing pill from a few years back that was pulled from the shelf within weeks of being released due to specific unforseen side effects.)

I wish my memory was working better this morning so that I could be more specific. My apologies for grasping at air a little bit, cold medicine always screws with my head.

[Chmee]

Marginal cost for drugs is typically very small, which is why drug companies go ahead and sell to Canada (and Europe) at the lower prices is they still make some profit on them. That may change with drug reimportation being allowed, the drug companies may not be as willing to sell at the lower prices if it impacts the prices in the U.S. The U.S. is where the drug companies have been recouping their development costs (and making some of their profit). Although the marginal cost of creating a drug is stypically small, development costs are not (estimates ranging from 500 to a billion for a high profile drug being common). If the government acts to effectively cut the prices drug companies will charge with negotiations for the medicare drug benefit then we may in fact see lower prices for drugs currently. But we will also create disincentives for the drug companies to continue research at the current pace and therefore miss out on new drugs down the line.

[Forthe]

Marginal cost for drugs is typically very small, which is why drug companies go ahead and sell to Canada (and Europe) at the lower prices is they still make some profit on them. That may change with drug reimportation being allowed, the drug companies may not be as willing to sell at the lower prices if it impacts the prices in the U.S. The U.S. is where the drug companies have been recouping their development costs (and making some of their profit). Although the marginal cost of creating a drug is stypically small, development costs are not (estimates ranging from 500 to a billion for a high profile drug being common). If the government acts to effectively cut the prices drug companies will charge with negotiations for the medicare drug benefit then we may in fact see lower prices for drugs currently. But we will also create disincentives for the drug companies to continue research at the current pace and therefore miss out on new drugs down the line.

Or you will see an increase in Canadian(\World) drug prices and a lowering of US prices.

This R&D logic has always seemed funny to me. There must be a few (at least) other industries where the majority of R&D takes place in the US. Do these industries also gouge US consumers and sell on the cheap to the rest of the world?

[Aslanna]

Marginal cost for drugs is typically very small, which is why drug companies go ahead and sell to Canada (and Europe) at the lower prices is they still make some profit on them. That may change with drug reimportation being allowed, the drug companies may not be as willing to sell at the lower prices if it impacts the prices in the U.S. The U.S. is where the drug companies have been recouping their development costs (and making some of their profit). Although the marginal cost of creating a drug is stypically small, development costs are not (estimates ranging from 500 to a billion for a high profile drug being common). If the government acts to effectively cut the prices drug companies will charge with negotiations for the medicare drug benefit then we may in fact see lower prices for drugs currently. But we will also create disincentives for the drug companies to continue research at the current pace and therefore miss out on new drugs down the line.

Or you will see an increase in Canadian(\World) drug prices and a lowering of US prices.

Or Canada, and other foreign countries that import drugs back into the US, will see their supplies running out more quickly. Most drug companies are starting to limit what they sell to other countries based on previous sales. If Canada pharmacies want to hurt their own residents by selling all their drugs to U.S. consumers more power to them. I guess Canadians don't care.

This R&D logic has always seemed funny to me. There must be a few (at least) other industries where the majority of R&D takes place in the US. Do these industries also gouge US consumers and sell on the cheap to the rest of the world?

One of the more interesting quotes I've read lately was "Lots of products are more expensive in the US but no one is asking for price controls on bread and burgers."

By imposing price controls, governments outside the US delay access to new and better medicines and fail to shoulder their share of the costs of innovation. When price controls were imposed, France dropped from the #2 to the #9 drug producer in the world.

As far as marketing goes, I've read claims out there that the pharma industry spent more on advertising than they did on R&D. I don't know where they got their data from, but doing actuial research anyone can find out what the various compaines spend on advertising.

In 2000, $2 billion was spent on consumer advertising by pharma companies, which is less than 1/10 their investment in R&D of new medicines. Consumer advertising does not significantly impact medicine prices. For example, the company I work for spends more on R&D in one week than it spends on consumer advertising in a whole year. If they stopped advertising altogether and gave those duckies directly to consumers, they would receive about 2 cents per pill.

Not to mention studies that have shown that advertising encourages people to seek medical advice, which can lead to the prevention of possible serious health issues.

[Forthe]

Marginal cost for drugs is typically very small, which is why drug companies go ahead and sell to Canada (and Europe) at the lower prices is they still make some profit on them. That may change with drug reimportation being allowed, the drug companies may not be as willing to sell at the lower prices if it impacts the prices in the U.S. The U.S. is where the drug companies have been recouping their development costs (and making some of their profit). Although the marginal cost of creating a drug is stypically small, development costs are not (estimates ranging from 500 to a billion for a high profile drug being common). If the government acts to effectively cut the prices drug companies will charge with negotiations for the medicare drug benefit then we may in fact see lower prices for drugs currently. But we will also create disincentives for the drug companies to continue research at the current pace and therefore miss out on new drugs down the line.

Or you will see an increase in Canadian(\World) drug prices and a lowering of US prices.

Or Canada, and other foreign countries that import drugs back into the US, will see their supplies running out more quickly. Most drug companies are starting to limit what they sell to other countries based on previous sales. If Canada pharmacies want to hurt their own residents by selling all their drugs to U.S. consumers more power to them. I guess Canadians don't care.

I guess you are missing the point. My whole argument is that if US profit margins are needed to support innovation, yet they sell the *EXACT SAME* drugs to Canada for *MUCH LESS*, why are they not selling the *EXACT SAME* drugs for roughly the same price to both the US and Canada et al, somewhere in between the two price range extremes.

Why does a US free market allow it to be the solely responsible for the burden? Why would a free market care? This is business not a charity.