
Removal of Safe Harbor Protection for Rebates - victor106
https://www.federalregister.gov/documents/2019/02/06/2019-01026/fraud-and-abuse-removal-of-safe-harbor-protection-for-rebates-involving-prescription-pharmaceuticals
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rossjudson
The linked ruling is quite interesting. It outlines how drug plans dupe
consumers into paying significantly higher percentages of drug costs than they
are supposed to. An example provided shows how a consumer with a 25% copay
ends up paying 35% of the cost of the drug, because the 25% copay is
calculated on the "list price" rather than the price their insurance plan
actually pays (which may be considerably later).

Good read, and a good example of why regulation is just necessary.

It all depends on what the definition of the word "copay" is, doesn't it?

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NoblePublius
“Regulation” is what permits the price discrepancy in the first place.

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ggm
Under drug IPR rules no market price can exist for many drugs because they are
single source. If you want to admit a market permit Indian generics into the
USA and watch prices tumble.

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AnthonyMouse
> Under drug IPR rules no market price can exist for many drugs because they
> are single source. If you want to admit a market permit Indian generics into
> the USA and watch prices tumble.

There is still a market price because the customer has an alternative. There
is a second best drug. In the worst case (e.g. the only alternative is death),
there is _still_ a price because the drug company can't demand a billion
dollars if the customer doesn't have a billion dollars.

The fact that we get into this position of no alternative but death is
problematic, but it's also how the patent system is designed to work. If the
drug didn't exist, you would die. If it does exist, you have the choice
between death or bankruptcy. This is still not ideal, but it's better than the
original situation, and eventually the drug patent expires.

There are a number of implementation failures with this, like public funding
going to drug research that is subsequently patented, and a regulatory system
that gives no one an incentive to do clinical trials for promising treatments
they don't hold a patent on, and so on.

But the basic idea is not without merit. It costs a mint to do research and
trials. If there isn't money in it then companies wouldn't do it. So if there
is a patented drug which is the only thing that can save your life, would you
rather have to file for bankruptcy paying for it, or have it not exist because
we said they're not allowed to make enough money to get them to do the R&D to
begin with? In some cases there isn't really a third option.

In principle you can have the government fund the research instead of
depending on the market, and then not patent it so patients don't have to pay
a lot. Which works fine when that finds the cure. But if it doesn't, do you
still want the system that allows the market to find it as a backup, or not?

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simonh
Quite. Fortunately we can have our cake and eat it. We can, and do, have for-
profit companies invest capital in expensive drug development. We can and do
protect their investments for them with patents, and by shielding them from
competition from generics for a period. In return we regulate the prices they
can charge.

That all seems fair and reasonable to me. The companies both benefit from and
are constrained by regulation. They wouldn't exist without regulatory
protection, so it's fair that it comes with a cost. In reality the question is
what constitutes fair regulation, and that's something reasonable people can
disagree on.

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AnthonyMouse
> In return we regulate the prices they can charge.

And then you don't get the expensive drugs.

Suppose there are 50,000 people with a fatal condition. Researching a cure and
getting it approved would cost $5B. Therefore each person needs to pay at
least $100,000, or there isn't enough money to fund the research. If you say
they can only charge $10,000/patient, no cure.

Whatever price you set as the max they can charge, that's the value you're
assigning to a human life.

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Pharmakon
_> In return we regulate the prices they can charge. And then you don't get
the expensive drugs. Suppose there are 50,000 people with a fatal condition.
Researching a cure and getting it approved would cost $5B. Therefore each
person needs to pay at least $100,000, or there isn't enough money to fund the
research. If you say they can only charge $10,000/patient, no cure. Whatever
price you set as the max they can charge, that's the value you're assigning to
a human life._

With just a few minor word substitutions, what you just said could as easily
be the speech a bank robber, trapped in the bank with a dozen hostages. If
that $10,000 reflects the profit motive taken to an extreme rather than
anything related to the cost of the drug, then it’s the company placing a
number on human life. Specifically they’re saying, “It’s only worth our time
if you pay us enough for us to 100x+ our margins.”

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AnthonyMouse
Can you point to _any_ major pharmaceutical research company with 99% net
margins?

In order for that to happen, you would need something that affects a
nontrivial number of people for which it's possible to inexpensively find a
treatment and yet only one company and no government has bothered to do so.

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Pharmakon
Remember our friend Shkreli? How about insulin formulation, and Truvada (PREP)
that’s $200 a year generic, and $1300 a month in the US. There are many more,
and to their credit pharma companies have accountants thst would make
Hollywood blush, so it takes some digging past the claims of R&D (dwarfed by
marketing budgets in many cases) being the cost driver, and not record
profits.

Unless... you put “research” in there as a confounding factor to be cute?

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AnthonyMouse
> Remember our friend Shkreli? How about insulin formulation, and Truvada
> (PREP) that’s $200 a year generic, and $1300 a month in the US.

Those are prices, not net margins. How much did the research cost, including
the failed attempts before they found one that worked?

This is why "research" is a necessary qualifier. If you just find the
occasional schmuck who got a good deal on a patent that was worth more than
the seller anticipated, that isn't telling you much. The likes of Pfizer and
Merck are public companies, you can go find their net margins from their
financial statements. They're not 99%.

> There are many more, their credit pharma companies have accountants thst
> would make Hollywood blush, so it takes some digging past the claims of R&D
> (dwarfed by marketing budgets in many cases) being the cost driver, and not
> record profits.

The marketing budgets are a byproduct of insurance. Typically to make $100 in
revenue you have to convince a customer to pay $100 for something that
provides $110 in value to them. Throw in insurance and you make $1000 in
revenue because the patient pays $100 for $110 in value while the insurance
pays $900 more, which makes it much more valuable to advertise, so they
advertise much more.

Insurance and patents are basically incompatible. The idea of patents is that
you give someone a temporary monopoly and the market (i.e. the customer)
decides how much the product is worth before they refuse to buy. The idea of
insurance is that there is a low probability high cost event that the
insurance pays whatever is necessary for if it comes to pass. But if the
insurance pays whatever is necessary, and the seller has a monopoly, the
seller can charge arbitrarily high prices. Or the price is limited by the
patient's copay percentage, i.e. the insurance does nothing but raise the
price by the exact amount the insurance covers, because the patient discounts
the price by that amount when choosing whether to purchase.

People would pay a lot less in total, i.e. about the same amount for drugs and
far less in premiums, if insurance companies would stop covering patented
drugs whatsoever.

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throwitaway6512
The problem this solves is to shine a light on the inverse price wars going on
in drug pricing. List prices increase dramatically while rebates are offers to
lower the net price. Pharmacy benefits managers who do the negotiation like
this because they earn money on the rebates(which are also shared with
insurance companies) and insurance likes this because copay is a fixed rate on
list price and not net price. And both of these actors who cooperate to
increase list prices get to blame the increases on drug producers who year
after year earn less per sold product because of the rebates.

This will however not solve anything only make it visible. Copay should be
changed to work on net price after rebates, and some serius investigation of
the middlemen needs to be instigated.

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seibelj
You have an extraordinarily complex web of payers and providers that takes
PhD’s in regulation science to unwrap, and the solution proposed is “more
regulations”.

Some better, free-market oriented solutions would be to remove patent
protection from drugs discovered from tax payer funded research, or auction
the right to be the exclusive distributor.

It’s very sad that a large contingent of intelligent tech people, who have
made small to large fortunes operating in one of the few unregulated
industries in America (software), begging for yet more regulation in biotech
and pharmaceuticals. The system is extremely distorted as it stands.

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rayiner
> remove patent protection from drugs discovered from tax payer funded
> research

That would make government funded research a poison pill nobody would rely on.
If you come up with the idea for an app, then someone else spends a bunch of
money hiring coders to actually build, test, and commercialize it, does that
give you the right to force release of the app as open source?

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seibelj
If the government spends millions to do the fundamental research required to
find a molecule with potential, then society should benefit from its
investment. It’s a different beast from a mobile app.

~~~
Reelin
I'm not a fan of the current state of affairs, but the cost of clinical trials
is very real and absolutely enormous. Any workable solution will have to fully
account for that.

