As a Canadian, I believe that the Patented Medicine Prices Review Board [1] does quite a good job, judging from the cost of medication up here (broadly speaking).
Australia has a similar mechanism in the Pharmaceutical Benefits Scheme. Drugs are selected based on cost-effectiveness analysis and subsidised price is negotiated with pharmaceutical companies.
If anything, Australia is quite generous to pharmaceutical companies. New Zealand's Pharmaceutical Management Agency has much less negotiating power but still manages to obtain substantially lower prices.
For myself I can't help but wonder if lump-sum licensing might not be more effective. Pharmaceuticals are a bit like software: very high R&D cost, but the marginal cost to manufacture is very small. A one-time payment to sink a large chunk of R&D for a drug might be quicker and easier than guessing at a price. On the other hand, I have no experience in health economics, so it's possible this is a terrible idea.
> For myself I can't help but wonder if lump-sum licensing might not be more effective. Pharmaceuticals are a bit like software: very high R&D cost, but the marginal cost to manufacture is very small. A one-time payment to sink a large chunk of R&D for a drug might be quicker and easier than guessing at a price.
I think they're similar but not quite the same. A prize is offered in advance of a solution, a lump-sum license is after the solution is developed.
On reflection I like prizes better, especially if there are multiple tiers (first to reach the target gets the most prize money, second gets less, etc). You want to ensure that multiple pharmaceuticals are developed independently, in case one of them needs to be pulled from the market.
Prizes seem like they'd be even less efficient. Basically trying to guess the cost to R&D a new drug, with the added risk of not receiving the prize if you're to late or not quite effective enough to meet the threshold.
I see the benefit for things like a covid vaccine where the economic benefit is so large we can afford to drop exorbinant sums. But what's the right prize for a newer better lipitor or xanax, or a treatment for malaria or Huntington's?
You have to guess at the return on being first to market anyhow. If anything, if there are multiple tiers of prizes on offer, then the risk is lower overall.
A healthcare system will typically have a good idea what it needs, whereas a pharmaceutical company will rightly enough focus on what will make the most profit.
Put another way: you don't need to set prizes for every drug. A better treatment for malaria is not going to make much money, because most of the patients will be in less-developed countries. But if you produce a side-effect free drug to reverse baldness, you will absolutely mint it by first selling into wealthier countries at very high prices to "skim the market", then lowering it over time.
Prizes would work better for low-profit/high-impact, for the rest you can mostly rely on pharmaceutical companies to rationally pursue their best interests.
Don't they do a better job in lots of other countries? I'm not an expert, but my understanding is that a lot of the countries with socialized medicine such that their government is the one negotiating with drug manufacturers pay substantially less for drugs than customers in the US.
In other countries, government “negotiation” is just a euphemism for price controls. An example of this is Canada’s Patented Medicine Prices Review Board, which regulates drug prices. This isn’t “negotiation”, this is just centralized policy-driven price control.
The US could very well institute their own price controls on drugs, but it wouldn’t invalidate the value in services like Amazon’s, especially if the price controls in question do not create a lower bound on prices, but instead focus on setting upper bounds.
I support price controls in the US, and the government manufacturing generics if necessary (stepping in if the private sector won't due to it not being profitable enough).
EDIT: I removed an unrelated paragraph about Planned Parenthood and drug supply chain I thought was out of scope.
> stepping in if the private sector won’t due to it not being profitable enough
That’s effectively what government-enforced drug patents are for. I think it’s debatable whether that’s the best implementation of what you’re describing. Government sponsored “Prizes” are another approach that sounds promising -> https://marginalrevolution.com/marginalrevolution/2020/03/pr...
I donate to Planned Parenthood as well, and decoupling drug purchasing from insurance is a reliable way to make sure that everyone can get access to birth control or contraceptive, even if their employer feels strongly opposed to it (eg Hobby Lobby).
The US Pharma market is full of "found $20 bills" that just shouldn't exist if markets were as efficient as people wishcast they would be. I'd love for someone to rationalize PBMs in the same manner they rationalize every other horrible inefficiency in US health care.
> The US Pharma market is full of "found $20 bills" that just shouldn't exist if markets were as efficient as people wishcast they would be
This presupposes that the US pharma market (and healthcare writ large) constitute an actual market. It's really not, by just about any measure. The only thing remotely resembling a "market" is the fact that insurance is predominately provided by the private sector for profit. Outside of that, the industry is ridden with the worst combination of distortionary incentives and regulations. The fact that healthcare is tied to employment didn't happen by accident, it's the net result of WW2-era wage ceilings, followed by 1970's tax deductibility for employer group plans, followed by the ACA employer mandate. I'd describe the US as combining the worst of public healthcare systems with the worst of privatized systems. PBMs and every other horrible inefficiency of US healthcare aren't some accident of a functioning market.
No offense to you in particular - but every time something changes in US Healthcare to make it more "free", costs continue to rise apace and people exclaim, "If it were just a bit freer market, everything would be cheaper and things would be better."
It really strikes me as a no-true-scotsman's analysis of our health system. Why not just adopt one of the competing alternatives wholesale and admit defeat?
These companies are international so they can choose to not do business with a country. It is a negotiation, just one that governments tend to do better at. If Blue Cross North Dakota sits down at the negotiating table and then Aetna New York sits down at the negotiating table and then Canada sits down and then the European Union sits down, who is going to win a good deal and who is going to get screwed?
You can say it's cheating when governments win lower prices for their citizens like this but I'm not much inclined to care. I don't want to subsidize the continuation of our more-market-based-than-usual health care experiment when the results have been clear for decades. Compared to our peers, we're in a hole. Let's stop digging.
I've been reading some books on the medical industry and one of the things pointed out is that the price controls will often not provide enough profit to R&D new drugs. That the US ends up subsidizing a lot of R&D cost that everyone benefits from.
If this is the case, I wonder what would happen to drug development if that goes away.
Note, I'm not saying there's not too much profit from drugs. These statements don't have anything to do with that.
Initial discovery research is pretty much entirely tax payer funded. There's then a second phase, moving from that discovery to POC, that is extremely underfunded, and which a lot of charity and such funding goes toward. It's only the last phase, taking POCs -> product, that companies really invest in. https://www.ncbi.nlm.nih.gov/books/NBK50972/
Note, too, that private companies tend to fund research toward common first world diseases, since they're profit driven, and far less to niche and/or common third world diseases. So not only do they not fund early discovery (government does that), nor generally moving those discoveries to POCs ('valley of death', and charitable foundations and the like do that), they also leave plenty of potential meds untouched, since the likely profitability is low.
I've heard that argument, not sure how much I buy it. Seems the drugs that get developed tend towards niche applications, while common diseases that affect mostly uninsured people are addressed by places like the Gates foundation.
The rich ones can benefit from it, and then it gets added to the claims that the US has the world's best healthcare system that helps convince the rest that the system should be kept.
That’s why we should tie our drug prices to the prices other countries pay. I believe Trump did that (or talked about doing it?) for Medicare, but it’s absolutely insane we haven’t done it across the board.
Republicans would be hesitant due to “regulations bad,” and Democrats don’t want to improve our current system because they’d rather throw it out. And of course both sides get donations from pharma.
Better than the farce that is "competitive market forces." I have more faith in government than corporate structures delivering optimal cost pricing to consumers as opposed to optimizing their profit margins.
Competive forces only work while there's competition, the second competition declines, rest assured consumer pricing is the first to take a hit.
Competitive forces in the health care market in the US don't function (pretty much at all) because of government induced market distortions and regulatory capture. FDA certification enormously drives up the cost of medicines and medical devices; government bureaucrats have no incentive to balance safety with time to market, price, availability, supply, or diversity of sources; most of these represent risk to the people making the decisions. Most US consumers don't pay for their own medical care, they pay for insurance that pays for their medical care. Often their employer pays some of the costs of insurance. Insurance usually fixes the cost that the consumer has to pay, e.g. a $10 copay. So there's little incentive for consumers to shop around for medical care, meaning that consumers can't drive prices down with normal market decisions. States and the federal government put enormous restrictions on insurance, driving up the cost of insurance. Health insurance doesn't function as in other sectors, where payouts are rare- most insurance is a bet - I'll bet you $3000 a year my house burns down - I'll bet you $400000 it doesn't. Health insurance is more like a discount plan, kind of like a CostCo membership. AMA and insurance companies lobby for limiting supply of doctors and hospitals, respectively, which drives costs up. They do this under state licensure laws purporting to improve quality or safety. Bottom line is that almost every single aspect of the US health care market has had government intervention effectively disable any market based control. The situation would fix itself quickly if we deregulated EVERYTHING regarding healthcare, and restricted insurance to catastrophic event coverage. Businesses would quickly come up with ways to serve the market in a market-friendly fashion. Worried about pre-existing conditions? We'd see businesses like "diabetes maintenance organzations" where you pay a monthly fee and you get all the treatment you need related to that condition. Accidents would still be covered by insurance. You'd pay privately for things like doctor visits for the flu, etc., but supply and consumer choice would drive those costs down, e.g. if I have a sprained ankle I could just use an app on my phone to summon a military vet who was a battlefield medic to treat it, rather than pay for 15-30min of time of someone with 24 years and half a million dollars worth of education. What about quacks/frauds? We know how to deal with them - reputation (AngiesList, Consumer Reports, Google Reviews) on the front-end, courts on the back-end.
The pentagon wastes more money than any other government agency. And I don't mean waste as in spending money on something I don't like, I mean waste as in buying one thousand nails and then throwing 999 of them into the lake because they only needed one and they have a quarterly budget they need to burn. Billions and billions of dollars go unaccounted for every year, their books are a mess, and congress just lets them essentially steal from the taxpayer, year over year.
Lack of choice; the government has captured the "market", and "consumers" can't choose to go anywhere else. Compare to the service (and especially customer service) offered by your cable/internet provider where you have not choice. The cable companies vie for literally worst customer service of all businesses year in and year out.
And we know that the government is doing an awful job in regulation of healthcare. I've got kind of a front-row seat to this and see things that most might not, since my wife's whole career has been in healthcare finance, and in particular around how Medicare reimburses hospitals for services.
She's currently working with one client hospital for whom their Medicare cost report still hasn't been resolved for some years back even before 2010. How can a business operate efficiently when they don't know what their expenses are going to be - not just in the future, but even historically, more than 10 years into the past?
Worse, the way the government forces hospitals to report this stuff is extremely specific, and optimized for how Medicare wants to run things - which is why Medicare can claim to spend less on administration: they just force hospitals to do all the administration for them. And hospitals can't say "no", with Medicare (together with Medicaid, which generally rides on Medicare's regulatory coattails) comprising a plurality of the market, if not an outright majority. The result of this is that hospitals have a choice of either running two separate accounting systems (one for what Medicare demands, and another to do rational cost accounting), or more likely, to just do the one for Medicare and muddle along as best they can. And that's a major reason why hospitals can't operate more efficiently.
And my wife's currently involved in a battle with them over some detailed rules they posted early in the summer. She's been working all summer for her client hospitals based on what the government posted on their website. Last week they changed the rules posted (you can even see the "last changed" date). But the change was in a way that contradicts their previous statements, and invalidates much of what she did all summer - and worse, they're lying about it, not admitting to what the previous version of the page said. Unfortunately the wayback machine didn't track that site, and while she's got her own records quoting the page, the gov't won't acknowledge it.
So there's a clear explanation for why it can get bad, and tons of evidence that it really is bad.
> which is why Medicare can claim to spend less on administration
In addition to this, it's worth pointing out that the idea that Medicare is the solution to all of our problems because of the cost savings of administration is way over-stated.
Administrative costs make up a tiny percentage of the overall cost differential. You could basically zero it out, and it would still hardly make a dent on the overall cost difference.
You really think that? The US spends more on its military per capita than just about any other country, save for Israel. The F-35 has been one of the US military's more noteworthy embarrassments, chronically behind schedule and over budget.
Outside of raw warfare, the military runs almost entirely on cost-plus, which results in over-spending of contract money for boondoggles that just entrench the military industrial complex.
Outside of the US military, you have systematic inefficiencies like this across most major agencies.
NASA's planned SLS moon mission is a bit of a disaster — way over budget and way behind schedule. Because the boosters aren't reusable, each launch is expected to cost $1B (with a B) dollars — EACH launch! Meanwhile SpaceX's target cost-per-launch is $50M.
In healthcare, Medicare has actually been running a fairly interesting A/B test. When you turn 65, you have the option to enroll either in "Original Medicare", which is what we usually think of when we talk about "single payer healthcare in America", or you can enroll in Medicare Advantage (aka Medicare "Part C"), where the premiums that would go to the CMS instead go to private insurers like Humana, United, Oscar Health, Clover, etc. These plans replace Original Medicare, also cover Part D prescription drug benefits, and often include supplemental benefits that Original Medicare doesn't already cover. The outcomes are fairly interesting:
- 36% of Medicare beneficiaries are on private Medicare Advantage plans instead of the public "Original Medicare". Because everyone is entitled to "Original Medicare", this is purely voluntary. This number has been growing so rapidly, that we expect by 2025, more seniors to be on a private plan than the public one. There's also great variance by State. In Florida, Pennsylvania, Wisconsin, Michigan, Minnesota, Oregon, Alabama, Hawaii, and Connecticut — over 40% of beneficiaries are on Medicare Advantage. By 2022, we expect more seniors in those States to be on a private plan than a public one. https://www.kff.org/medicare/issue-brief/a-dozen-facts-about...
- In Urban areas, Medicare Advantage costs less per capita to administer than Medicare — and that's not including the extra Medicare Part D insurance that you would have to buy if you're on the Original Medicare plan. https://www.commonwealthfund.org/publications/issue-briefs/2... From this same research, public "Original Medicare" is still cheaper in rural areas, but not by a whole lot.
So yeah, while the governments of a lot of countries are fairly robust and efficient, I think that suspicion is warranted, especially in the US.
Yes. Governments do a better job everywhere from Cuba to Britain. Americans do not have the highest life expectancy but do have the highest healthcare costs. Private firms might have a part to play, in the same way contractors can fix roads, but free markets are not efficient when people’s lives are on the line.
Governments certainly can do, although the US government seems to be permanently hobbled by about half of its leaders having built their identity on the idea that government is incompetent and a bad idea; I'm not surprised it's dysfunctional when the people inside it have their sense of self wrapped up in being shit at their own jobs.
[1]https://www.canada.ca/en/patented-medicine-prices-review.htm...