
Valeant’s Drug Price Strategy Enriches It, but Infuriates Patients and Lawmakers - pbhowmic
http://www.nytimes.com/2015/10/05/business/valeants-drug-price-strategy-enriches-it-but-infuriates-patients-and-lawmakers.html?hp&action=click&pgtype=Homepage&module=first-column-region&region=top-news&WT.nav=top-news
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jbapple
FTA: "It says patients are largely shielded from price increases by insurance
and financial assistance programs the company offers, so that virtually no one
is denied a drug they need. But Mr. Pearson, a former McKinsey & Company
consultant, has said he has a duty to shareholders to wring the maximum profit
out of each drug."

This is the classic coupon strategy to maximize revenue - if you set the price
very high but offer discounts to those who can't afford it, you can get more
revenue than if you pick a single price that would be less than what some
buyers were willing to pay and more than others were willing to pay.

In the first example of the article, an older woman (Susan Mannes) had to take
on a second job to afford a drug that Valeant increased the price on in order
to keep her husband from dying. I don't know what the upper limit is on how
much Susan and Bruce Mannes will pay for this drug, but I suspect it is
limited only by their current assets. In other words, Valeant could feasibly
take everything they own.

I don't see a way out of this without regulation, and I don't see that
happening when the pharmaceutical industry has been so effective at
influencing federal laws.

~~~
ef4
> I don't see a way out of this without regulation, and I don't see that
> happening when the pharmaceutical industry has been so effective at
> influencing federal laws.

For many of these generic drugs, this is a case where markets have literally
already solved the problem. They're available from European and Indian
manufacturers at extremely low cost.

All we need to do is lower the trade barriers.

Remember, these are drugs that are already FDA approved. But the manufacturers
can't sell in the US because the ANDA approval process is too onerous.

~~~
jbapple
> For many of these generic drugs, this is a case where markets have literally
> already solved the problem. They're available from European and Indian
> manufacturers at extremely low cost.

This fixes part of the problem, perhaps. But the article explains that it can
take other manufacturers years to ramp up production if they aren't already
making the drug. This also doesn't fix the problem for non-generics.

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cryoshon
Relevant is the soon-to-be-debated-in-public trade agreements regarding
"intellectual property" (a regressive and fiercely harmful concept spawned by
greed, but that's a rant for another day) as it relates to the pharmas. The
pharma companies lobbied very, very heavily for certain clauses in that trade
agreement. The TTP is going to send their profits through the roof, likely by
forcing formerly exempt countries on board with their pricing scheme.

The money that the pharmas have allows them to corrupt the political process,
enabling them to abuse patients/insurers with insane prices... this isn't new.
The incentives are completely fucked at every level of organization: drug
development, clinical trials, patient care.

As far as the claim that patients are largely shielded from price increases, I
think that claim was made in bad faith, and is laughably disconnected from
reality. Medical-debt induced bankruptcy is very alive and well in the US, and
is not in other places.

~~~
curiouscats
Very true. The medical-debt induced bankruptcy is the most visible sign but
don't ignore the absolutely huge sums diverted from paying employees to paying
for health care

The USA pays more than twice what the rest of the rich world does for health
care for no better outcomes. This isn't only due to drug pricing but drug
pricing obviously cost USA consumers tens of billions a year in increased
health care costs just because it means they pay much more in insurance costs
(or even less noticeable have part of their paycheck diverted to pay inflated
drug prices impact on health care costs) doesn't mean they avoid the high
costs of this corruption based pricing.

It is very unlikely this system is going to be changed. It has been going on
for decades at huge costs to the USA. Maybe (I just maybe) it will be slowed
some if the public forces politicians to reduce the amount of the paybacks
given by the Democrats and Republicans to drug companies at the expense of
everyone else. Meaningful change is very unlikely. The parties are far too
corrupt at this point to make any significant change in policy likely.

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steve19
I can't help but think these drug companies are playing a very dangerous game.
The last thing they want is regulation, but of they keep this up that's what
they will get...

~~~
stingraycharles
What I'm wondering about, however, as a European who never actually sees his
own medical bills, how this will affect me or the country I live in. Will the
powers that are in charge of buying medicine just suck it up and pay the bill?
Will they use the power of the collective to get a better deal? How does this
work?

~~~
visarga
I think countries could first try to legalize cheap generics of that drug, as
it already happens in India. But then an economic war would ensue. Each
country would counter sanctions with other sanctions. Then negotiations would
come, where a middle point would be sought between the trade blocks, similar
to WTO, or patent portfolios and non-aggression pacts.

~~~
curiouscats
Yes and the factors are the costs of accepting the government granted monopoly
pricing (free markets don't have government saying you can't sell this thing
because some other people have gotten the government to say only they can sell
it) and the costs of saying we don't accept the current patent system.

The costs of fighting the existing copyright/patent cartel led by the USA is
very high. Countries want to avoid this and if the cost is diverting a few
percent of their GDP to the USA's drug companies they likely will do so. If
however that diversion because too great they will have huge incentive to
decide the cost is too high and we have to fight the USA's governments
policies put in place at the behest of their drug companies.

The costs will be enormous to the countries that fight, especially at first.
The USA is enormously rich and can accept losses internally and use economic
power to punish those defying it's dictates.

If several rich countries decide to align with India (which seems to be by far
the leading advocate for fighting the copyright/patent cartel) costs to the
USA will also get step. At some point step enough that others force the
government to stop using the rest of the USA's economic clout to benefit the
drug companies.

But I think it is very unlikely the other countries could sustain the losses
long enough for the USA to cave. It is a big if, but if China grows well
economically for the next 20 years it is much more likely India and China
together could work together on this to bring together a large coalition.

I don't think China and India would work together as strong allies but they
could come together in this area if the USA continues to demand large
percentage of countries GDP be diverted to the USA drug companies.

All these types of things get complicated. It isn't as if the Drug companies
don't understand this same path. They will obviously seek to use corruption in
other countries as successfully as they have in the USA to get those
governments to act in their interest for cash payments that are peanuts
compared to the costs those governments will place on their citizens to
benefit the drug companies.

The payments to corrupt political parties doesn't only work in the USA, it
works most everywhere. So don't count out the insane movement of wealth into
drug companies coffers changing anytime soon.

If you want to be practical buying stock in these companies will likely reward
you well. That is what I have done. I can understand if you think it is
repugnant to profit from corruption in the political system on such a massive
scale (very little corruption ever impacts multiple percentage points of GDP
but, as this does). That is likely a higher ethical decision, weighing my
options I accept that "hit" to my karma. If I were given the authority to
decide the policy I would make a decision that would harm my stocks but I am
not given that option. And based on my estimates of likely future outcomes
betting on the USA political parties staying very corrupt in relation to
providing benefits to drug companies seems a very likely bet.

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pweissbrod
Personally I see this as a result of the incentives for the drug makers to be
completely disconnected from the people that depend on their product.

Imagine other markets were similar: one company purchases the rights to
manufacturing all laptops and now you must pay $10K for the same thing you
used to buy for normal prices last week.

Its interesting to consider how many people's lives would be greatly improved
(or even saved) if vendor exclusivity rights were reduced in this market.

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pweissbrod
"For now, with Congress in the hands of Republicans and election season in
full swing, quick government action on drug prices is considered unlikely."
(Quote from the article) Not that I associate with any political party, but it
confounds me why a political party would like to have a reputation for
upholding such extreme corrupt corporate opportunism.

~~~
protomyth
Both major parties have their favorite cronies. Although you could shorten
that statement to "election season" and expect the same outcome.

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prodmerc
Huh, I just realized that the Silk Road or a similar online black market could
literally save lives in this case.

People could sell generics and alternatives that are not yet approved by the
FDA or whatever local authority at a much lower price, everyone wins (except
the government and Big Pharma).

Though there would be a lot of fraud I presume, sellers with fake pills and
the like...

~~~
mdpopescu
If fraud wasn't a problem for hard drugs, I doubt it will be significant for
these.

~~~
prodmerc
There were cases of fraud, of course, but the review system apparently worked
ok (never used it myself).

However, dealing drugs that literally save one's life is kind of a big deal -
one month's supply of a fake or impure medication could be deadly, unlike with
shitty MDMA and meth...

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dangerlibrary
Just give Medicare and Medicaid the ability to negotiate and publish what they
pay for drugs. Right now they are forced to accept a (self reported) average
market price for every drug they buy.

They buy over half the prescription drugs in this country. They can be a bully
and negotiate great prices for themselves. And once the prices are public, see
if any insurance companies are willing to accept a 5000% premium over the
Medicaid price.

~~~
refurb
Medicaid and Medicare are very different beasts. Medicaid takes 23.1% off the
top of most drugs and typically pays the _least_ out of any insurer (including
the private ones). There is even a "best price" provision that says Medicaid
either gets a hefty discount or best price, whichever is lower. I wouldn't
worry about Medicaid.

Medicare (for physician administered drugs) pays the average of all the
private payers, which isn't a bad way to do it. For prescription drugs, it
pays list price, except for the Part-D private plans which already negotiate.

To be honest, allowing Medicare to negotiate is a little bit like any company
"negotiating" with the gov't. It's a take it or leave it proposition and is a
more like "price by fiat" than a negotiation.

Having the federal gov't negotiate drug prices is not necessarily a panacea.
The largest US insurance companies cover 30-40M lives, that larger than the
population of Canada. Yet, they pay more for drugs than Canada does. You know
why? Because the Canadian gov't makes them (back to the "price by fiat").

~~~
dangerlibrary
You're right about Medicaid paying the least and having very favorable pricing
in general. Also repayment rates vary wildly by state, etc. But the baseline
rates are still based off the reported average price. Drug manufacturers know
that the government will always pay some fraction of sticker price, regardless
of the volume the average price is based on. CMS can't negotiate in the face
of these dramatic price hikes.

And yeah, it's price by fiat, through the market. Welcome to government
contracts - plenty of people have become very rich in this space, and I have
no sympathy to those that complain about their slim profit margins on
incredibly high volume transactions. It's a big job. Get rich doing it, or get
out of the way for someone who will, because it's got to get done.

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smoorman1024
This strategy only works because its so expensive and time consuming to bring
a competitor drug to market. If it was a lot easier to get a competitor drug
approved and to market then this strategy wouldn't work. Alex Tabarrok has
some enlightening opinions on the FDA:

[http://marginalrevolution.com/?s=FDA](http://marginalrevolution.com/?s=FDA)

~~~
jobu
Most of these went off patent years ago though. Why is it so hard to bring a
generic drug to market? The drugs already have studies proving their efficacy,
so the only issue should be a clean manufacturing process.

~~~
wiredfool
In some cases, the generics have to prove that they have the same
effectiveness/bioavailabilty as the brand name. The brand names have been
restricting the distribution of the drugs to prevent this from happening
easily.

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rdancer
The cost of living in India being much lower than the US, what prevents people
from engaging in medical tourism for prescription drugs combined with a nice
trip abroad?

I think ultimately this is what will keep caps on the price that can be
charged -- if your treatment plan costs you $1,800/month, and a return airfare
from the U.S. East Cost to Delhi is $600 return on a budget, I'm surprised
people are not booking trips _right now_.

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jbandela1
Looking into it, according to
[http://www.drugpatentwatch.com/ultimate/tradename/CUPRIMINE](http://www.drugpatentwatch.com/ultimate/tradename/CUPRIMINE),
Cuprimine is not covered by patents, so all the talk about intellectual
property and evil patents is moot point.

We have 2 main competing interests. 1\. Creation of new treatments 2\.
Affordability of treatments

At the same time, we should have a minimum burden on the free market in terms
of regulation.

I believe we can do this with the following.

1\. For all non-patent drugs, Medicare signs a 5 year contract to supply the
drug at a given cost. This will allow off-patent drugs to be available for low
expense.

2\. For drugs covered by patent, Medicare should negotiate a price based on
differential Quality adjusted life year, with the price per quality adjusted
life year set by law. For example, if we set the price for quality adjusted
life year to $100,000, then Medicare should pay up to $100,000 for a treatment
that gives a person 1 quality adjusted life year.

Drug companies are allowed to sell to others and negotiate a private sales
without other regulation on what price they charge.

I want the pharmaceutical industry to be one with outlandish rewards because I
want very smart people to be thinking outside the box and taking risks with
they try in pursuit of cures for disease. Even the rewards to life-saving
medication should have outlandish rewards. If we continue to see outrage at
pharma about the price of life-saving treatments (see Solvida), we will see
companies shift resources away from such treatments to more elective drugs
such as sexual enhancements, requiring less sleep, etc where they can still
have great rewards without the moralizing by critics.

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elipsey
I think one of the big dreams of the "biotech revolution" that has yet to
materialize is to reduce barriers to entry in drug manufacturing so that drug
companies have less market power, at least for drugs/jurisdicitons that are
not encumbered by IP. Fingers crossed...

Isn't it weird that we can custom order synthetic cathinones from China for
$100, but apparently no one has tried this with theruputic drugs?

