
Hospitals to launch their own drug company to fight high prices and shortages - stevetodd
https://www.npr.org/sections/health-shots/2018/09/06/644935958/hospitals-prepare-to-launch-their-own-drug-company-to-fight-high-prices-and-shor
======
opportune
If you think about it, the entire US pharma industry paradigm doesn’t really
make sense. A lot of exploratory research into drugs is publicly funded, but
for some reason we then rely on private companies to pass FDA trials and bring
the drug to market, at the cost of profits/subsidies/advertising/executive
compensation/rent seeking IP.

Why not publicly fund R&D all the way up to when a drug passes FDA trials,
then allow any private company to produce a generic version of the drug? That
way you have competition on the price of manufacturing without all the
unnecessary costs involved with private IP

~~~
refurb
The amount of innovation and capital at risk in private biotech companies is
similar to that for the tech industry.

If we got rid of the tech industry and had the govt do all of it, do you
believe we’d be where we are today?

I’d argue we wouldn’t be.

One of the big reasons why small biotech’s outperform big pharmaceutical
companies is the lack of bureaucracy and high level of risk taking. Two things
the govt is bad at.

As well, one reason why we have so many drugs is there are thousands of
companies placing different bets on an idea. If that was all pulled under a
centralized committee that made decisions on what to pursue, we’d be missing
out on a ton of long-shots that every “smart” person said would never work.

~~~
ace_of_spades
Thank you for your opinion! :)

You make it sound like there is a hard barrier between these two options but
like most things in reality it is a continuum. You can have mainstream R&D be
publicly funded all the way and not necessarily restrict private companies
from competing.

I personally believe that there is a good chance that a centralized publicly
funded and nonprofit pharmaceutical organization could outperform most for
profits on various important metrics. At least something that should be
investigated and not dismissed outright.

Regarding long-shots, I think you fall victim to the survivorship bias here.
Even if some good things came out of it, the question is at what cost? If many
tries fail you really need some big wins to cover those costs. Thus, it’s
really something that you should look into on an empirical level before making
strong judgements.

~~~
aaavl2821
Out of curiosity, do you have any specific proposals thoughts about what this
centrally funded / non profit approach would look like, and why it would work?

My contention is that drugs are expensive because developing drugs is
expensive. Developing drugs is expensive because biology is hard. Public vs
private funding would not change that

~~~
ace_of_spades
Hey, sorry for getting back to you so late but I had a full weekend :)

I am not an expert in the pharmaceutical space so take everything I say with a
big grain of salt. I would think it could be possible to have some agency like
NSF or FDA be tasked with financing studies to develop medicines and do
medical trials, etc. I don’t think it would need to look much different what
there is now, maybe higher and more long-term grants for applied R&D.
Manufacturing could then be outsourced, Apple style. I guess the main
challenge would be to have reporting and grants be distributed effectively and
fairly. There should be some level of friendly competition/ cooperation to
ensure that progress is being made. But I think, in principle this already
works pretty well through peer review and on some level metric tracking for
individual researchers (although I would argue we still often track the wrong
metrics). So it’s all about designing the right incentives work work to get
done, profit is but one of the possible metrics to achieve that.

This of course does not change that the work itself is incredibly hard. The
benefit of doing it in a more „structured“ and nonprofit way is that it is
possible to create a more specific/ tailored/ guided set of outcomes given the
ability to align the incentives with societal goals. Everything you see going
on in blockchain is work in that direction. How can we design economic systems
where incentives are aligned to create an overall desireable outcome for
individuals, the community and society at large?

------
2trill2spill
Doesn't stop the hospital from turning around and gouging their patients and
leaving them a ridiculous hospital bill which seems to be the norm in this
country[1].

[1]:
[https://www.forbes.com/sites/robertpearl/2017/09/05/3-ways-h...](https://www.forbes.com/sites/robertpearl/2017/09/05/3-ways-
hospitals-overcharge-you-and-what-can-be-done-about-it/#824bf922f1d3)

~~~
stevetodd
Incidentally, one of the health systems (Intermountain) leading the initiative
is itself also non-profit.

~~~
2trill2spill
Non profit hospitals overcharge just like for profit hospitals [1].

[1]: [https://www.washingtonpost.com/news/to-your-
health/wp/2015/1...](https://www.washingtonpost.com/news/to-your-
health/wp/2015/11/13/how-nonprofit-hospitals-overcharge-the-under-and-
uninsured/?utm_term=.c26748ea0ec0)

~~~
Retric
Hospital funding is a mess in the US. The US government flat out gives money
to for profit hospitals because of how messed up the system is. EX:
[https://www.hrsa.gov/rural-health/index.html](https://www.hrsa.gov/rural-
health/index.html)

Non profit's still need to play the game to stay in business because their
costs are no lower.

------
QuadrupleA
Cry me a river. The more I've learned about it, the more it seems like
hospitals are the ones making the majority of the profit in the US's strange
and byzantine healthcare system. The cost of their services are generally
absurd, and not adequately balanced by customers and competition because
'insurance will pay for it'.

~~~
themodelplumber
Yes, a friend of mine, a doctor at our local hospital, has shared his
pessimism about the hospital's pricing and profit stance with me. In his mind
they capitalize on our rural economy and only an idiot would get treated
locally rather than drive to the bay area where the pricing is much more
reasonable (!).

Even worse (in my mind), the hospital bears the name of a major religion. As
if God needed this kind of PR...

~~~
donarb
It’s estimated that 50% of hospitals in the US are currently owned by Catholic
organizations. For some this is thought to be good because as religious
organizations they can run as non-profits and non-taxable. But this comes with
other problems such as being denied care like abortions or end of life care
that conflicts with church beliefs.

------
seibelj
I can’t recommend the book Overcharged enough if you really want to understand
what is wrong with American healthcare. The answer is basically everything,
but the fee-per-service billing model and third-party billing that obfuscates
prices are the essential causes.

[https://www.amazon.com/Overcharged-Americans-Much-Health-
Car...](https://www.amazon.com/Overcharged-Americans-Much-Health-
Care/dp/1944424768)

~~~
HarryHirsch
_David A. Hyman is an adjunct scholar at the Cato Institute_

Yes, if you are paid to argue against price caps you argue against price caps.

~~~
seibelj
Yes, it’s from Cato, but really it’s a whirlwind tour of what’s wrong with the
system from a group that has no dog in the fight. But the democrats and
republicans are very, very invested. If you are skeptical, read the book, and
then make your decision. It has thousands of citations, it is more academic
than opinion.

~~~
HarryHirsch
It's the Cato Institute, it's supported by the Koch Foundation, and the Koch
Brothers are supporters of economic and individual liberty. Whoever is
supported by someone's money is not going to argue against their dearly held
viewpoints.

An interesting question that a scientist would ask: how does that book argue
against price caps and monopsony buyers, considering that that approach works
extremely well in the civilized world. Health expenditures in all other OECD
countries are about 1/4 of what they are in the US.

~~~
seibelj
One model suggested is we let people take the money they put into health
insurance and instead put it into a health savings account. Given that family
plus employer pays about $20k per year for a family of 4, the value adds up
quite quickly. Then you let the family take as income any amount they don’t
spend. This encourages frugality and price shopping for routine procedures.

Additionally, the government should backstop everything with catastrophic
insurance as is done in Switzerland, so if cancer hits you don’t go destitute.

Also, we should drastically expand retail medical care, with advertised
prices, as it has routinely been shown to reduce costs through competition and
price shopping (LASIK, Botox, vasectomies, etc. all prove this out).

They go in great detail about pharmaceuticals and the suggestion that a prize
based system would be better than the current system of the government paying
for all the research and then letting a private company gouge the consumers
who paid for it with tax dollars.

The book is very detailed, if you are interested in this subject I highly
recommend it. Keep an open mind, clearly neither the American left or right
has solved this issue and this book is very refreshing.

~~~
HarryHirsch
When it comes to health insurance you want to spread the risk over a group of
people. Health savings accounts are very nice, except when you have a chronic
illness and need continuous medication and frequent physician visits. Price
shopping doesn't work - when you need medical care you need it, and it's the
big-ticket items that drive the cost. When you take the kids to the doctor
because they have a fever, that kind of visit is a few hundred dollars at
most.

~~~
adventured
> Health savings accounts are very nice, except when you have a chronic
> illness and need continuous medication and frequent physician visits

That's covered by the parent's catastrophic scenario, which would be
backstopped by the Federal Government. If you have a diagnosed chronic
illness, you are no longer operating under any semblance of normal health
terms, it's catastrophic.

The US could easily segment itself into these two systems (Federal
catastrophic program, eliminating most bankruptcies; and a market system, for
routine and trivial healthcare items), and it would be a drastic improvement
over how the healthcare system works today.

Medicaid is 22% of all health coverage today, expand that to 25-30%. Medicare
is 15% of the population, expand that to 20%. Use that 50% leverage to
aggressively deflate pricing in healthcare (which is a stick the government
largely refuses to use). Create a Federal catastrophic program for the other
50% of people.

Now to implement this obvious, dramatic improvement, all you have to do is
change everything about US politics and remove nearly every politician.

------
airstrike
The fact that hospitals are launching the drug company is irrelevant. The
argument here seems to be that there aren't enough generics companies out
there to compete for existing demand, leading to spotty supply (untapped
demand) and high prices.

Besides, generics aren't the "expensive drugs" most people think of when they
talk pharmaceuticals. Hospitals will do nothing to fight those high prices
because they can't -- pharma companies need to recoup their R&D. The
alternative is having less R&D, which I believe nobody to be in favor of.

~~~
earthtolazlo
Why not publicly funded R&D?

~~~
airstrike
Do you trust the government to spend money wisely (read efficiently) more than
you trust investors?

~~~
moosey
Yes. Very much so.

Profit, while useful in the market, has an upper limit before it can be
considered a lack of efficiency, IMO. In some sense, it is the stripping of
productive economic value, which is then given to shareholders. It is
basically a tax that produces wealth rather than wellbeing.

When shareholders have this money, do they use it wisely in the economy? I
don't think that this is an absolute truth. Can the government do better? Yes,
if we abandon the conceptual thought that government is always the problem, or
by default inefficient, when in fact it can be demonstrated that governments
around the world, and here, do many things very well.

~~~
exolymph
are you familiar with risk

------
walrus01
Another method is to declare at a nation-state level that you're going to
ignore patents on certain pricey medicines, such as in India.

[https://www.google.com/search?q=india+drug+price+patents&oq=...](https://www.google.com/search?q=india+drug+price+patents&oq=india+drug+price+patents&aqs=chrome..69i57j33.6516j1j7&sourceid=chrome-
mobile&ie=UTF-8)

India is big enough that it can push back against big pharma.

~~~
opportune
This only works if you can get private businesses in other parts of the world
to do your R&D for you. Not a viable strategy for _all_ of the world, tragedy
of the commons, etc.

~~~
394549
> This only works if you can get private businesses in other parts of the
> world to do your R&D for you. Not a viable strategy for all of the world,
> tragedy of the commons, etc.

That's assuming the prices set by those drug R&D organizations are fair and
reasonable given the work they're doing. However, if they're engaging in
predatory pricing in pursuit of maximum profit (which is almost certain), the
world could probably get along just fine with all medical R&D being performed
by nonprofits at-cost.

~~~
analognoise
This is why the USSR created the Polio vaccine, Venezuela created the MMR
vaccine, and India leads the world in drug resistant antibiotics.

OH WAIT.

~~~
394549
> This is why the USSR created the Polio vaccine, Venezuela created the MMR
> vaccine, and India leads the world in drug resistant antibiotics.

> OH WAIT.

The USSR actually did a lot of interesting work developing phage therapies
which could become increasingly important as current antibiotics become more
and more ineffective due to antibiotic resistant bacteria.

[https://en.wikipedia.org/wiki/Phage_therapy](https://en.wikipedia.org/wiki/Phage_therapy)

And it's not like any of the vaccines you listed were developed by
corporations following capitalist profit-motives. The ones I checked were
developed by researchers focusing on contributing to the public good, for
instance:

> Salk [developer of the first successful polio vaccine] campaigned for
> mandatory vaccination, claiming that public health should be considered a
> "moral commitment."[7] His sole focus had been to develop a safe and
> effective vaccine as rapidly as possible, with no interest in personal
> profit. When asked who owned the patent to it, Salk said, "Well, the people
> I would say. There is no patent. Could you patent the sun?"
> ([https://en.wikipedia.org/wiki/Jonas_Salk](https://en.wikipedia.org/wiki/Jonas_Salk))

But of course, you probably didn't know that. People who write comments like
yours usually don't know much beyond certain ignorant dogmas.

~~~
analognoise
I knew Salk refused the patent, not about the USSR's pioneering work in barely
feeding their people (sorry, phage therapies).

But if Salk had made 100M dollars, would that have been bad? Lebron is worth
way more than that. He plays basketball.

We as a society should be recognizing and paying for talent, not pretending
workers co-ops and non-profits are effective or that capitalism hasn't
produced all of the good things we enjoy.

~~~
394549
> I knew Salk refused the patent, not about the USSR's pioneering work in
> barely feeding their people (sorry, phage therapies).

That's pretty stupid snark, by the way. More evidence of unthinking dogmatism
and rather limited understanding.

No one sensible seriously claims the Soviet Union had a model worthy of
emulation. However, it's foolish to think it was totally flawed or that its
flaws somehow prove "capitalism is best, the more the better."

> But if Salk had made 100M dollars, would that have been bad? Lebron is worth
> way more than that. He plays basketball.

> We as a society should be recognizing and paying for talent, not pretending
> workers co-ops and non-profits are effective or that capitalism hasn't
> produced all of the good things we enjoy.

Some segments of society need to stop pretending that capitalism is a suitable
replacement for literally every other kind of human motivation. The main
strength of capitalism is that it _sometimes_ incentivizes the already greedy
according to their own logic to behave in ways that are socially beneficial
(at least more than some other systems), but that's about it.

It's a serious error to want to corrupt the noble people who raise above greed
and want to do good for its own sake to the point they need to rely on
capitalism to motivate them. It's also a serious error to think that
capitalist motivations will accomplish all the good those people would have
done for their more noble reasons.

------
modells
Given that the raw materials are incredibly cheap compared to the resulting
medications, charging often $10+ per pill for what costs a fraction of a cent
with all costs included, patients ought to consider banding together and
forming an employee- and customer-owned co-op generics pharmaceuticals co.
that charges cost plus X%.

~~~
airstrike
Except they can't manufacture drugs if someone else owns the patents. Drug
prices drop significantly after generics come into play, at least for those
drugs that are very easy to produce.

~~~
modells
smh. READ. Generics. There are overpriced generics which make absolutely no
sense other than a lack of competition.

~~~
airstrike
Yeah, but Joe Startup can address that as much as these hospitals -- and will
potentially be better at it since manufacturing drugs isn't the core business
of these hospitals.

------
zapita
Funny since US hospitals are just as guilty as the drug companies of gouging
the public with abusive pricing ... I’m not sure consumers will see any of
those cost reductions. More likely the hospitals will pocket the difference.

------
HillaryBriss
> _Civica Rx will require hospitals to commit to long-term contracts to buy
> the medications at fixed prices, even if another generic company drops its
> prices lower. Liljenquist argues that the long-term stability will be more
> attractive than the short-term temptation of getting a deal._

Just a guess: existing high-priced generic pharma companies will react by
offering similar long-term contracts. They'll try to do an end run around
Civica Rx.

I will admit that I'm puzzled that the FDA has not reacted to the high prices
and shortages by allowing more competitors to be licensed to create various
drugs and to enter the market quickly and easily.

~~~
pkaye
Being a renal patient, I take a whole bunch of medications. One of the
medicines I take became generic 1 year ago and now it is only $5/month under
my insurance. Meanwhile another one became generic 4 months ago but it is
still $90/month under my insurance. I just cant wait till next year when
hopefully my insurer renegotiates the second one down. I think when 3-4
generics manufacturers start selling a medicine, the prices go down a lot.

~~~
refurb
The first generic drug approved gets 6 months of exclusivity where no other
generic drug can be approved by the FDA.

As such, the first generic is typically ~10-20% lower than the branded drug.
Once the 6 months expire, other generic manufacturers pile in (assuming it's a
big enough market) and the price drops 80-90%.

~~~
chadash
> _The first generic drug approved gets 6 months of exclusivity where no other
> generic drug can be approved by the FDA._

Not quite. The first patent that files a lawsuit challenging a patent on the
non-generic drug and _wins_ said lawsuit gets 180 days exclusivity.

This rule was established to incentivize generic companies to challenge drug
patents and get their products to market sooner.

In the case where the patents aren't being challenged, there's no exclusivity
for generic drugs.

In practice, this 180 day exclusivity is a very big deal to generic companies,
because typically the first to market among the generics will have a big edge
in capturing the market (once a drug has a generic, pharmacies will typically
automatically fill prescriptions for the brand name drug with the equivalent
generic unless the doctor specifies not to).

~~~
refurb
You can get 180 exclusivity even if you don't challenge the validity of the
patent.

From the FDA guidance[1 - page 6]:

When filing an ANDA, the sponsor can do one of the following 4 things to gain
180 exclusivity: (1) indicate no patent exists in the Orange Book (paragraph I
cert), (2) that the patent has expired (paragraph II cert), (3) that the
patent will expire on said date (paragraph III cert) or (4) that the patent is
invalid, unenforceable or will not be infringed (paragraph IV cert)

But you are correct in that it's the status of the patent and how it relates
to the filing that drives the 180 day exclusivity. My comment was a
simplification, since I can't think of anyone who would file and not do that.

[1][https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegula...](https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM536725.pdf)

------
triangleman
This was announced in January. Previous discussion:

[https://news.ycombinator.com/item?id=16182152](https://news.ycombinator.com/item?id=16182152)

------
RobertSmith
How far they can succeed is a big question mark. It's not easy to compete with
the mafias of the pharma industry

------
deboboy
AFT

------
wpdev_63
Can we just get universal income and be done this?? Capitalism has to become
obsolete at some point.

~~~
zdragnar
In what way would universal income eliminate shortages of generic drugs?

