It's also a mechanism for some governments to cheat, because medicine is R&D-intensive.
Suppose that to devise some treatment for 10 million people worldwide, it costs a billion dollars once for R&D, i.e. $100 each, and then $10 more per person to actually manufacture it. So the average person will have to pay no less than $110.
Then some countries say "that costs you $10 to manufacture, we won't pay more than $40" and if you don't take the $40 you can't sell there at all. So, if you don't recover $30 of your R&D per person there then you recover $0, even though you need to average $100.
If everybody does that it doesn't work; they go out of business. But suppose that half the patients live in those countries and the rest live somewhere that the company can charge enough to sustain themselves, i.e. in those countries people have to pay an average of $180 instead of $40 so the total average can stay $110. Then they don't go out of business, but the countries not paying their share are cheating the people in the other ones.
And to add insult to injury, you then hear the people in the countries paying $40 saying "why are you paying $180 instead of doing it like we do"?
Yeah that’s the story people tell. On the other hand, I need to take a brand name version of a medicine that was patented in the early 20th century, and in the US the co-pay alone costs me $200/mo or more (not including what insurance pays) while I can buy it from Canada for $30 without insurance. (The generics cost a similar amount, but don’t work as well due to bioavailability issues.) So while I appreciate the idea that high US prices are all about R&D, I also have pretty visible evidence that US pharma will just charge whatever the market will bear, even for drugs that are long out of patent and inexpensive to manufacture.
The trouble is that it's both things at the same time. Countries that fix prices are paying less than their share of the R&D and the US market has bad regulations that unnecessarily limit competition.
The situation you're describing can happen in one of two ways. The first is that the more bioavailable version wasn't patented in the early 20th century, only the less bioavailable version, and then the version you like is still under patent and that's exactly what's supposed to happen. They get to charge a lot until the patent expires as the incentive to invent the more bioavailable version to begin with, and then Canada isn't paying their share and the US will be paying less when the patent expires, and if you don't like what they're charging then you can use the old version until the patent expires.
The second is that nobody is making a generic of the more bioavailable version even though the patent is expired. The US could and ought to fix that by remediating whatever regulation is impeding other companies from entering the market even though they should be able to. But then we're into a different problem because it can't be other countries not paying their share for something still under patent if it isn't still under patent.
>The second is that nobody is making a generic of the more bioavailable version even though the patent is expired.
I've been taking this drug since 1995 and the brand-name version has been in production (in its current format) since 1938. I don't think there have been any substantial improvements in the formulation in decades (as evidenced by my dosage, at least.) It certainly isn't expensive due to patents.
What's happening here is that in the US generic alternatives are supposed to demonstrate bioequivalence (meaning the same bioavailability), but the standards are lax and not well-enforced. Insurance formularies aren't going to spring for a brand-name drug formulation that costs 10x when the government has certified the cheap generic as bioequivalent. Manufacturers of the unpatented (but more bioavailable) brand-name drugs know that in reality some subset of their patients will need their formulation to keep blood levels stable, which means that in the US they can crank their prices way up and soak a bunch of sick people. In Canada they can't do this. Nothing about this is really defensible.
Which brings me back to the larger issue. High US drug prices can be due to both (1) recouping R&D costs and (2) greed, but the greed is enough to render our current system unworkable. You can't just assign manufacturers a monopoly and the right to charge whatever they want, and expect that they won't abuse this to soak desperate sick people with prices far in excess of their costs (as they are clearly doing.) So yes, you can point to the cost of R&D as one reason we should all (globally) pay more for some drugs, but you can't really use the need for R&D to justify the US system, which is inefficient and dangerous.
Here's the part where it seems like we're still missing some information. There is an unpatented formulation of the drug which is better enough that patients are willing to pay a large premium for it, but there is only one company making it. It can't be that the other companies don't like money, so what's the actual reason?
I think you misunderstand how US drug purchases work. There is very little competitive market whatsoever anywhere in the prescription med system; there are simply "brands" and "patented meds" and "generics" plus various underserved niches where pharma companies can extract high prices from desperate patients (see e.g., Martin Shkreli and Daraprim.)
With respect to generics, there's little incentive to make a better formulation. If patients have insurance, they'll get whatever "bioequivalent" generic is available from the pharmacy if it matches the insurance provider's formulary price requirements. That manufacturer can change any time, since by law they're all deemed equivalent. It's like buying generic store-brand ibuprofen: you have no idea which factory is actually making the stuff, and it can change from package to package.
There's also very little benefit to having a "brand name" generic that has better bioavailability since you really can't charge more for it: insurance companies and pharmacies will just switch to another generic brand with lower costs. Trying to argue better bioavailability could also involve admitting that your existing bioequivalence studies are bunk, which would require an expensive new certification process. Plus, even in a functioning and truly competitive market, trying to experiment with different formulations to figure out which "gets better results" is a dangerous game for individuals; it's not like buying different Kleenex and deciding which holds together better. You have to do a lot of risky trial and error and get frequent blood tests.
So basically we have a system that ensures a completely non-functioning non-competitive market, and then we throw in an exclusive term where new medication can be sold at any price and we expect market forces to somehow constrain manufacturers. But the market forces are very weak and limited here. When we clearly end up paying dozens of times more than other countries (even for unpatented medicine) people raise the R&D issue to justify the costs. But that's sort of like saying "hey, the Mafia spends a lot on churches, so their extractive business model is fine." If you really want churches (or R&D) we should find a more rational way to come up with those funds.
I was kind of curious if there was some specific failure with this outside of the general brokenness of US healthcare competition, but it's starting to sound like the classic one:
The biggest problem with US health insurance is that it's not actually insurance. The purpose of insurance is to cover major claims. If a storm does $30,000 in damage to your house, you file an insurance claim. If it does $30 in damage, you go to the hardware store and pay $30. But we expect health "insurance" to cover the little stuff. Health insurance should be for if you get cancer or need major surgery, not for a generic drug that ought to cost $30.
Which in turn is what messes up what could otherwise be a competitive market. Instead of picking who you want to buy the drug from, most people have insurance, and the insurance company picks. And then most people get insurance from their employer so they also don't get to pick their insurance which makes the insurance company unresponsive because the patient can't easily switch.
And then it sounds like what happened is that the manufacturers make nearly all of their sales through insurance, who only care about regulatory compliance, and there aren't enough people paying out of pocket to get them to compete on actual quality.
But the other problems shouldn't be there if we could get people actually buying what ought to be cheap generics themselves instead of through insurance:
> Plus, even in a functioning and truly competitive market, trying to experiment with different formulations to figure out which "gets better results" is a dangerous game for individuals; it's not like buying different Kleenex and deciding which holds together better. You have to do a lot of risky trial and error and get frequent blood tests.
This wouldn't be something most people would have to do themselves. If there are five companies making the same drug then forums for people with the condition it treats would have people already taking each of them, and if some of them are actually not right then aggregate data should show that, and then everybody would find out without each person having to do their own trials.
And somebody needs to be doing that anyway or you're going to have a lot of people whose medication is wrong who don't realize that it's because they're not getting what they paid for while the one that works is available from someone else.
> When we clearly end up paying dozens of times more than other countries (even for unpatented medicine) people raise the R&D issue to justify the costs.
But then we're back to, the trouble is that it's both.
And then people propose to have the government set prices, which is only trading one problem for another. Whereas what we ought to do is address the things causing the markets that are supposed to be competitive to not.
Well, US health insurance is insurance. That’s one function. But it’s also managed healthcare. The management is being performed by a series of large corporations with somewhat broken incentives, with the government backstopping and certifying everything and filling in all the gaps. That’s why other countries achieve such better results with government-managed healthcare, because our system genuinely has very little relationship with the free market and already is a kind of planned system; it’s just an exceedingly inefficient planned system.
But the lesson you should take from this is not “we should just deregulate it a bit and hope the free market takes hold.” This is the planned system we designed in one of the most capitalist countries on earth: it got to the state of being a planned system because the truly competitive market systems kept failing. I’m not sure where you can go to find a truly competitive system that isn’t in some way underpinned and supported by the government (and the US government specifically.) People often point to third world countries where they can pay cash, but I think that’s mostly just rich US people buying luxury healthcare at lower prices, not a real working free-market health system that delivers broadly-shared results.
You have to entertain the hypothesis that when the ideal “free market system” exists nowhere, the reason is because the free market system was tried (here in the US, even) and it worked so poorly that it was replaced with one of the systems that survived. Because that’s the pattern we see everywhere with healthcare (and with roads and fire departments, too, outside of a few exceptions.)
The pharma investment problem is a problem, but just to be clear: it’s a question of financial allocation. There are many ways to solve it that aren’t what we have right now.
> This is the planned system we designed in one of the most capitalist countries on earth: it got to the state of being a planned system because the truly competitive market systems kept failing.
We didn't really "design" it though, it emerged organically out of the various constraints, many of them historical.
For example, why is quality health insurance in US tied to employers? Because during WW2, when federal government froze salaries, companies started to use various benefits to attract employees instead, and one of the most lucrative benefits turned out to be health insurance. And, since companies were large customers negotiating on behalf of all their employees, they could get more out of insurers for the same amount of money. And so gradually it evolved into what things have been before ACA, and ACA is basically a crutch that preserves this historical nonsense.
FWIW I don't think that free market is the answer here, but that doesn't mean that it can't produce significantly better results than what we currently have (it's not hard because our existing system essentially combines the downsides of free market with the downsides of centralized healthcare - you don't get the choice and you get fleeced).
It should also be noted that there are many different ways in which less-than-free market can be implemented. Single payer is a fairly extreme take with no clear evidence that it works better than more market-friendly approaches as seen across Europe. The one model that I'm really curious about and that doesn't seem to exist anywhere, though, is one where the government simply provides healthcare at a certain level as a non-profit public service, thereby setting the baseline, but doesn't try to heavily regulate private healthcare, and doesn't require citizens to participate in the public plan. Germany has some similarities but I don't think it's quite there yet.
