The story goes that the US subsidizes all the drug prices around the world. Without the insane US margins, drug companies wouldn't ever do the needed R&D... so they say.
The “insane US margins” don’t go to the pharma companies, they go to the PBM middlemen who take home the majority of the list price, and therefore have interest in higher list prices, which also increases copay. That’s why it’s consistent across the USA market, and why they drop products that lower prices.
Medicare + Medicaid has been prohibited from assisting negotiation of drug price between pharmacy + drug company for a few decades. That is set to change in the future id my understanding.
I have private health care insurance so my insurance company would try negotiate the price down.
I agree with other commenters saying basically, drug companies all around the world do R&D, are happy to sell drugs at cost in England or Somalia, but will aim to make money in US selling drugs with a healthy profit margin here.
> Medicare + Medicaid has been prohibited from assisting negotiation of drug price between pharmacy + drug company for a few decades. That is set to change in the future id my understanding
> so my insurance company would try negotiate the price down.
Do they have any incentives to do that though? If their profits are fixed at a specific % wouldn’t they be incentivized to spend as much as possible so that they could increase premiums (as long as all other companies play along)?
You’re talking about something theoretical. I’m telling you what actually happens.
Insurance companies lose business when their premiums are unnecessarily high. In the long run, all their prices go up, but those who manage rising costs better (and provide better service and all that other stuff), grow their businesses.
I think you're being theoretical. Insurers can only increase profits by inflating medical costs.
"Insurers are supposed to spend 80% of every dollar on care and only 20% on administrative costs. However, instead of lowering premiums, the insurance companies have been incentivized to increase costs so that they can make more money."
I am not sure what else to tell you. Companies switch insurance providers for cost all the time. I've benefitted from it several times and seen first-hand how competitive the selection/sales process can be. If an insurer thought they could coast on high prices, losing accounts would change their behavior quickly, like in any company.
As an industry, insurers all benefit from aggregate rising medical costs because of the percentage rule you mentioned, but that's not the same as what an individual insurer will do.
If you're arguing as a proxy for wanting public health to be allowed to enter the industry as a price negotiator, I'm in complete agreement.
Apparently they do not switch often enough to get US medical costs down to the level of other industrialized nations. But that metric it is hardly an efficient market.
Yes, price competition only goes so far when the underlying thing being sold is expensive and buyers don't have enough power to squeeze suppliers. Hence the CMS comment. Also, switching costs aren't zero (new cards, employee education, etc.), and is be re-evaluated only annually.
The question in this subthread is: do insurers have an incentive to negotiate pharma prices down. The answer is they do have an incentive and they do negotiate prices down.
There's nothing theoretical about price competition. Large self-insured employers and other group buyers are very price sensitive. If a company offered Aetna health plans to their employees this year they would happily switch to Humana next year to save a few dollars. There are sophisticated analytics tools available now which let those customers predict future costs under various options.
I've read that big pharma are primarily patent companies: most of the actual research is done by universities, then most of the production is outsourced.
Pharma companies spend 10x what universities and the NIH do.
The only grain of truth in it is if you compare a tiny subset of what pharma companies do, and look only are extremely early drug exploration, and ignore all of the subsequent development like drug screening, testing, formulation, and clinical trials.
