The Iron Yuppie

So much has been discussed around the controversy of prescription drug costs. I think the industry is hanging on to an outdated model (much like the movie and recording industries), but in the interest of presenting the other side, here you go: Kerry is on drugs

I agree with his math and logic. But I do have a fundamental issue with at least one of his assumptions.

"The problem comes in pricing the pill. Foreign markets are price controlled. This means that they look at the marginal cost of producing the product, and give you a markup on that and that's the price you sell it at. So let's say they give us a 10% markup. That means that the foreign price of our drug is fixed..."

He then goes on to explain how because the price is artificially fixed and below cost, they need to charge more in the US. I have to doubt this. First, it seems EXCEEDINGLY unlikely that foreign countries force selling the drugs below cost. If that was the case, why not just withdraw the drug? There's no way they base it on marginal cost, since the marginal cost of producing a set of pills is far less than the $2.00 he proposes. Second, he neglects the most important part of the foreign countries behavior. What the foreign countries have been able to do is produce a single and consistent way for negotiating enormous deals with the pharmaceutical companies through their state run health care. Because the US doesn't have this single and consistent way to negotiate, certain companies get better deals than others. Obviously this is beneficial to the pharma companies, so they're happy with it. And every time someone tries to add some structure to the American system (either through state run programs, or HMOs, or whatever), everyone is up in arms because their drug or operation or whatever risks exclusion within this system. Americans basically end up paying more for health care because they want Mickey Mantle to have a liver, even though he was too old and too unhealthy for a high likelihood of survival. Life does suck sometimes, and there will be a set of people left out in the cold with any structure, but either we have to decide to pay more to cover everyone or make some tough decisions.

One thing I do agree with him about, however, is that importing from Canada is not the correct answer. It's a stop gap. What we need is consistent negotiation with volume discounts. As an aside, the FDA's quotes about "ensuring the safety of the American consumer" has got to be some of the worst shilling I've ever heard. Except for the vanishingly small number of medications that need to be refrigerated from creation to use, pills are some of the most portable merchandise I've ever seen. You're telling me a $25,000 car can be shipped from Japan with no risk to me as the consumer, but a $0.0001 pill in a cotton filled bottle is too risky? Please.

Generally, the whole health care system just feels like one more example of people refusing to do basic math. If you have 100,000 doctors and each doctor can perform 50 procedures a year then there are 5M procedures per year that can be performed. If there are 8 M procedures that could be performed, then you have a shortage. This shortage leads to higher prices. Someone must pay for it, and that someone is either the end user or the government. If you were to ask the average person, they would say that everyone deserves to get every treatment for low cost. This is provably impossible, and I wish people could be a bit more rational about this stuff. I suppose it's hard to be rational when your grandmother is in the hospital.

posted by Iron Yuppie  # 8/20/2004 09:00:00 AM