Drugs & Politics by Dr. Sowell

[theinvisibleheart]

Eghad and SecDef, here is one example of drug companies' obscene profit

below is the link to easy to read company's financials for Merck via Morningstar:

http://quicktake.morningstar.com/stocknet/Income10.aspx?Country=USA&Symbol=MRK&stocktab=finance

below is another link but for Microsoft:
http://quicktake.morningstar.com/st...SA&Symbol=MSFT&stocktab=finance&t1=1178213816


for Merck,

.........................1997...............2000................2006
Revenue..............23,636.9..........40,363.2..........22,636.0
Net Income..........4,614.1............6,821.7............4,433.8
_______________________________________________________
Profit Margin.........19.52%............16.90%............19.59%


for Microsoft,

........................1997..............2000..................2006
Revenue.............11,358.0.........22,956.0.............44,282.0
Net Income.........3,439.0...........9,421.0..............12,599.0
_____________________________________________________
Profit Margin........30.28%...........41.04%..............28.45%

in case, you didn't know, Profit Margin = Net Income / Revenue (technically, it's Net Sales or Net Revenue but for purpose of simplification, we'll assume that they are same).

Public research in universities and the NIH and grants. freebies for them. Thanks to the Bayh-Dole Act. This allows universities and others to use public funds to develop drugs. The university can then patent the drug and then sell the patent to the drug companies. All the drug company has put out is the cost to buy the patent? Even the NIH can make deals with drug companies. Before then the discoveries remained in the public domain. Transferring discoveries made with public funds to private companies. What a sweet deal ! So basically the only R&D cost the drug company incurs is the purchase price or royalties paid. We usually call politicians and bureaucrats who use public money for enrichment crooks and send them to prison

if what you are saying is true, why is Microsoft and other companies more profitable than pharmaceutical companies?

 

[theinvisibleheart]

Eghad, response to your "don't buy the drug...die"

Quote by John/theinvisibleheart:
Consumers always have the choice of not buying the product.
LOL...yeh right due to exclusive use.

dont buy the drug...die

thats some choice.

Eghad,

the 5 most common Rx drugs purchased under Medicare by the elderly are:
___________________________________________________________________________
1. blood clot reduction medication in order to reduce the chance of a stroke
2. diabetes -- mostly Type 2 (non-life threatening & can be treated by diet and exercise)
3. cholesterol lowering medication (can be treated by diet)
4. osteoporosis
5. high blood pressure
___________________________________________________________________________


Most of the diabetes that people on Medicare suffer is Type 2..which is treatable by diet and exercise (actually this applies to cholesterol, osteoporosis(via weight bearing exercise), and high blood pressure to some extent(prevent or control it)).

Diabetes, osteoporosis, and high BP can be life threatening if not treated, but the people on Medicare do have a choice of changing their diet and sedentary lifestyle instead of relying on Rx drugs funded by Medicare.

Majority of the medical problem for which Medicare pays are quality of life and lifestyle issues...the result of sedentary, high calorie, high sugar, and high fat diet.

With the possible exception of blood thinning Rx, majority of Medicare Rx drugs does not fall into the category of "I don't take it, I die NOW," nor does it fall into category of treatment for something as serious as anthrax.

It's possible that you, Mr. Eghad or Mr. SecDef actually know someone or personally take Rx which treats anthrax or other immediate life threatening condition, but that would not be representative of those who are under Medicare.

Second, one of my distant relatives actually has a life threatening disease which can only be treated by Rx medicine. He is in low income bracket due to relatively low human capital(very little education and work skill). I contacted the pharmaceutical company which made the drug he needed. Different pharmaceutical companies does have an option of providing Rx drugs for little or no payment provided that you REALLY don't have the means to pay for it. For example, if you owned a house, car, bank accounts, etc. with substantial assets which can be realized to pay for the Rx drugs, pharma companies rightly so will not give you drugs for free.

I would also NOT put into same class usage of drugs such as Viagara in the same class(quality of life issue, not life threatening).

--John

 

[theinvisibleheart]

SecDef, Medicare Rx drug co-payment and free market/capitalism

It is not a free market when the govt pays whatever the asking price is. (i.e. not negotiating). Well, not pays, but forces end users to pay that price under a govt plan like medicare.

What would you call it?

Free market is when buyers and sellers are relatively free with minimal restriction on buying and selling goods and services at agreed upon prices.

In the case of Medicare prescription drug co-payment coverage, it represents a health insurance benefit. Who are the buyers and sellers?

1. Medicare benefits are funded by a payroll tax of 2.9% and through premiums from SMI(Supplementary Medical Insurance). So basically, today's workers pay for benefits of people on Medicare, including drug co-payment. So the buyers are today's workers.
BUYERS=WORKING PEOPLE

2. People who are eligible and use Medicare are beneficiaries.
BENEFICIARIES=people on Medicare

3. The government is the seller and the provider.
SELLER=US Government

When you buy a health insurance, the cost of the insurance is the monthly premium. The benefit are the extent of coverage, deductible, and co-payment(including Rx drugs). For example, greater the extent of coverage or lower the co-payment, higher the month premium the buyer would have to pay.

In one instance I'm aware of, one corporation spent approximately $500/worker per month for health insurance premium. This resulted in a plan with very low co-pay for Rx drugs and very low deductible.

However, a similar individual plan from a private carrier with higher deductible and higher co-pay resulted in a monthly premium that was between $70-$100. The individual worker when given the choice between group plan with low deductible and low co-pay vs. getting a cash benefit of $500 and paying the monthly premium himself via an individual plan opted for latter.

Having a health insurance with high Rx drug co-pay doesn't mean lack of free market or capitalism. If the U.S. government prevented people from Medicare from buying other health insurance program, it would be a different story.

But people on Medicare are free to buy other health insurance program, but they are not willing to do so because they are getting the benefits free while today's workers are paying the cost of Medicare.

Quote by John/theinvisibleheart:
Consumers always have the choice of not buying the product.
Unless they have anthrax.
Unless they are unable to obtain a prescription because they can't access a doctor (how many ER's give scripts for viagra?)

Going to ER to get Rx for Viagra would be an abuse of medical resources....ER is for life threatening condition. I don't think taking Viagra qualifies for life threatening condition but if your doctor thinks so, I'm surprised.

Most common Rx drugs issued under Medicare are for Type 2 diabetes, blood thinning, osteoporosis, high BP, and high cholesterol...most of which can be treated by lifestyle change(diet and exercise). These problems are caused by sedentary lifestyle and high calorie+sugar+fat diet. About the only exception is blood thinning since it would decrease the chance of a stroke.

 

[theinvisibleheart]

SecDef, your assertion of lack of fairness due to not getting best possible price

Don't get me wrong. I have no problem with companies charging what the market will bear. My gripe is that I pay a different amount than my neighbor simply because one of our providers refuses to try and get the best possible price.

1. current Medicare benefits, including Rx drug co-payment, are paid by current workers, not people on Medicare.

2. if the beneficiaries of the Medicare don't like the services, they can always switch. This holds for everything in free market and capitalism.

If I'm not happy with the services that Post Office provides, I use other services such as Fedex or UPS. I don't petition or lobby the government to institute new price control or regulation to change the behavior of Post Office.

Not being happy with the benefit of a health insurance paid by somebody else due to its coverage or benefits does not mean free market or capitalism is not operating.

3.

My gripe is that I pay a different amount than my neighbor simply because one of our providers refuses to try and get the best possible price.

Do you know how much your neighbor's employer or he himself pays(if an individual plan) in monthly premium?

premium==>cost of health insurance. Cost of a health insurance is a function of benefits(deductible, co-pay, coverage) and risk factors(age, sex, lifestyle(smoke,drink,overweight,exercise,etc.)).

--John

 

[theinvisibleheart]

Eghad, questions+answers for you #1

Almost a 2-1 ratio of Marketing expenses to R&D. I feel a draft up my underwear.

Read post#40 and #41.

When I am in the Doctor's office I see the pharmaceutical guys with loot galore for the docs not to mention the lunches and stuff for the Doc's.

I don't understand what's wrong with a business advertising and utilizing sales forces. If that is unethical, then every business in United States that has an advertising budget > 0 or relies on sales people is corrupt.

Lets take Mevcor, Lipitor and Crestor..they are being advertised as wonder drugs for cholesterol on the television. These are all variants of the same medicine. So by changing the recipe you now have a drug that is not innovative but simply a moneymaker.

There is 2 part to this. It's up to consumer to buy or not buy any product. If you take it and don't perceive it as being effective, why would you keep on paying for it? A buyer who behaves like that is either ignorant or stupid or both. But the 2nd reason why this happens is due to cost and time involved in FDA approval process. Because the FDA approval process is so costly and long, it's in the incentive of pharma to develop similar drugs or to patent ones with small variation.

America is simply a profit center for the drug companies. About half the drug companies are not even American companies any more. Wonder why those International companies have research centers here?

In other countries which went the route of national health insurance or universal coverage and instituted price control, development of new pharmaceutical products dropped because it was no longer profitable. A private corporation unlike a government cannot exist on loss indefinitely.

Did you even read Dr. Sowell's original article?

three reasons:

Public research in universities and the NIH and grants. freebies for them. Thanks to the Bayh-Dole Act. This allows universities and others to use public funds to develop drugs. The university can then patent the drug and then sell the patent to the drug companies. All the drug company has put out is the cost to buy the patent? Even the NIH can make deals with drug companies. Before then the discoveries remained in the public domain. Transferring discoveries made with public funds to private companies. What a sweet deal ! So basically the only R&D cost the drug company incurs is the purchase price or royalties paid. We usually call politicians and bureaucrats who use public money for enrichment crooks and send them to prison

So tell me Mr. Heart how many of these new drugs came from the company itself vs. public research?

In 2006, Merk completed over 50 deals which included acquisitions, purchases, and collaborations. Merk's historical profit margin was 45% but if you look at post #41, profit margin in 2006 was under 20% and has decreased from historical profit margin, not increased. Current investor expectations are about 10% of early-stage products to eventually reach the market.

First of all, my past experience has being that even taking a known technology from academia and taking it into a market place is a tremendous amount of work. You can ask anybody who has being involved in a product's complete life cycle from start to finish (R&D, design, prototype, implementation, manufacturing, beta test feedback, etc.) if it is as easy as you claim or if it is lot of work.

Second, the fact that even a company with huge resources like Merck engage in collaboration and expect only 10% of the early-stage products to eventually make it mean it is not as easy as you describe. Collaboration are usually necessary when one company by itself doesn't have enough resources or expertise to go at it alone.


--John

 

[theinvisibleheart]

Eghad, questions+answers for you #2

How many here know about that champion of the people Henry Waxman? He and Orrin Hatch passed something called the Hatch-Waxman Act.

exclusive marketing rights.....administered by the FDA/US patent Office have extended the period of exclusive use for some drugs to fourteen years.

which means that now to milk the most years out of a drug since laws are involved you need lawyers, lots of them! Do lawyers work cheap? Heck No.
so now in addition to marketing costs we have the overhead of lawyers to add to the marketing costs. So I wonder it thats like a 3:1 ration by now?

that could be your answer as to why we don't see more companies in the drug business..that and the fact that there have been mergers and buyouts.

Extending the patent time period will increase the incentives for drug companies to develop drugs but a better solution is to shorten and simplify FDA approval process from an average of 8.5 years and to provide legal protection so that smaller companies can compete in the marketplace.

More competition in the long run mean lower prices and benefits for the consumers.

The FDA is controlled by the executive branch and Congress has oversight. I wonder how much money has been poured into politics by the drug companies?

FDA is controlled by bureaucrats and their incentive is extremely risk-averse(want the release process to be as safe as possible irregardless of how many lives new drugs may save). This is supported by the fact that approval process is taking longer and longer, and the number of new drugs being approved are decreasing. Furthermore, even established pharmaceutical companies such as Merck expect only 10% of the drugs in the pipeline to get approved and be profitable. Furthermore, the profitability of pharmaceutical companies such as Merck is have decreased from historical profit margin of above 40% to around 20%.

It looks like Merck and other drug companies are getting ripped off while giving money away because despite all these allegations, they are getting less and less profitable, not more profitable.

So now not only do we pay for marketing and lawyers but the goodies given to politicians...I wonder what that does to the costs vs. R&D ratio? Kickbacks to doctors also? I wonder if the kickbacks are going to marketing costs?

Read post#40 and #41 again. Taking a ratio of R&D to other cost doesn't make sense.
If it's still not clear and you have a sincere desire to understand, get somebody with finance or economics+accounting background to explain the example I wrote for you.

The sad part is that the greed of the drug companies will be their downfall. who do drug companies depend on to get these dollars. Private insurance plans would be first on the list. lately insurance plans have been putting more cost on the participants for drugs. If people with insurance plans had to pay the full cost they would be up in arms as retired people who live on fixed incomes without prescription plans. The drug companies are making their own noose in the long run.

Sorry, this example violates what is written in 1st year economics textbook at freshman level as well as what is commonly seen in real life in the marketplace. If I equate this to a textbook on physics, you are trying to argue against First Law of Thermodynamics. This is how asinine it is.

A firm prices its products so that total profit is maximized, not so that market is destroyed. Not only that, competition by other firms selling similar or close products moderates its behavior. There is more than one pharmaceutical companies...not only that, firms learn from each other and are constantly trying to take away market share from other companies. When Merck comes up with a profitable drug, what do you think are other companies trying to do?

Make sure not to make drugs which does the same thing because they don't want to take away Merk's market share? They usually end up doing the exact opposte. They produce competing products and drive down the price.

Just exactly how many "new" drugs have been put on the market lately vs. change the ingredients and get a patent drug?

In 2002 out of 78 drugs only 7 were deemed new by the FDA!

In 2006 13 out of 113 drugs were deemed as new molecular entities

As of 2006,

1. FDA clinical testing time has increased to 8.5yrs from 7.2 yrs(1999-2001 data).

2. FDA has being approving fewer and fewer drugs. During 2002-2004, they approved only 58 new
drugs compared to 110 new Rx during 1996-1998(decrease of 47%).

3. in response to 1. and 2., applications for FDA approval has being decreasing

4. fewer than 1 in 3 drugs that are approved ever recoup their development costs

If you increase the cost and the regulatory barrier of new drugs, obviously, fewer and fewer drugs will reach the market. Not only that, it will cost more and more. How hard is this to understand?

were any of the new drugs made by American companies?

www .fda.gov/cder/rdmt/pstable.htm.

See above. Also, lookup MNC and effect of globalization.

Do you know what MNC(multi-national corporations) and globalization means?

Logic of whether something is made by US companies or not is not significant.

Drug development like most other business activities flourishes when it is profitable...in other countries with national health insurance and welfare benefits which instituted price control, drug development has virtually disappeared BECAUSE IT IS NO LONGER PROFITABLE.

HOW HARD IS THIS TO UNDERSTAND?

The new medicare drug plans enacted by Congress are a new windfall for drug companies... so expect more of the "I have one of these drugs too" to be marketed. of course Congress had to pass this legislation to save the drug companies from political wrath. Which means that the politicians are now using more taxpayer money to subzidize the drug companies and divert the political lightning. This is only delaying the inevitable.

So much for the costs of bringing innovative drugs to the market.

Remember a guy named Billy Tauzin and the Medicare Prescription Drug Bill he helped ram through Congress. He left Congress and on the same day became the head of the PhRMA the head of the drug companies propaganda firms who tell us that it costs billions of dollars to make "innovative" and "new" drugs.

So now we know that many of the major costs in these "innovative" and "new" drugs are marketing, lawyers, political contributions, kickbacks and other gimmies to doctors not R&D. Not to mention the cost of Mr. Tauzin's salaries and other at the PhRMA. The R&D expenses incurred are the purchase of patents or royalties paid for drug patents done with a majority of public money or reformulating to make "I have one of those drugs to" prescription medicines.

The average brand name prescription costs a person without health insurance about $1500 dollars a year

So Mr. Heart I respectfully decline to disagree with you and feel a smoky draft up my undershorts from the PhRMA. Watch as the drug companies kill the goose that laid the golden egg in the future due to greed.

The only reason Medicare drug bill was approved was to due to tremendous political lobbying and pressure by the people on Medicare(elderly, retirees---one of the strongest and most powerful SIG(Special Interest Group) ...yes, there are SIG for NRA, convervatives, liberals, elderly, etc.).

You are making an assumption that political contribution is wrong...there are SIG currying political favors for people of all kinds of interests, including pro-gun, anti-gun, conservative, liberal, etc. It's a 1st Amendment right.

Medicare is funded on the same principle that Social Security is funded: PAYGO(pay as you go). When it was initially started, there was ~9 workers paying for Medicare benefits of 1 Medicare benificiary. Today, there are only 3 workers supporting one Medicare beneficiary.

In other developed countries like EU which went the way of nationalized health insurance, there are approximately 2 workers supporting 1 elderly on their equivalent system of Medicare. In about 1 generation, it's projected that in Europe and Japan, this ratio will drop to 1:1 (1 worker supporting 1 Medicare beneficiary).

In some ways, Medicare present an even bigger disaster than Social Security because its projected shortfall is in approximately 2 decades instead of 40 years for Social Security.

--John

 

[theinvisibleheart]

Eghad+SecDef, understanding of taxes on corporation

in case you didn't know,

1. if a corporation paid 10% tax, that 10% tax has to come from revenues generated from consumers who buy that company's goods and services.

2. if a corporation paid 50% tax, that 50% tax still has to come from revenues generations from consumers who buy that company's goods and services.

The point is that no matter how much tax breaks a corporation gets, it has to come from consumers because a corporation will go into bankruptcy if it keeps on losing money.

The effect of tax is actually you get less of whatever that corporation produces because the corporation's products will be priced higher than it would be otherwise.

Let's say you pay $20/pill for pill X patented by Merck. If it can, Merck wants to charge you $100 for that pill, but Merck knows that at $100, it will sell less and furthermore, higher the price, more likely you are to explore alternatives. Furthermore, it will signal to other competitors that Rx in this market is more profitable and increase competition.

10% or 50% tax has to come from whatever price Merck charges you for that pill. Merck cannot operate at a loss because if it did, unlike the government, it will go bankrupt. So there has to be positive profit margin(make money) after paying 10% or 50% tax. This results in a higher price than would be otherwise for patented pill X.

What that means is that by supporting higher taxes or less tax breaks for pharmaceutical companies, then you are raising the market price for pill X.

If a Medicare benificiary promoted higher tax for pharmaceutical companies which produces the very Rx drugs he needs, then he is really screwing himself up royally.

Not only that, part of the reason why there are fewer and fewer workers to support Medicare beneficiaries today is due to one of the most lasting legacies of the people on Medicare today--normalization of abortion and birth control which resulted in fewer workers today. The other factor has to do with increasing longevity and increased quality of life for the elderly.

So basically, we have Medicare beneficiaries clamoring for more benefits and price control on drugs which will harm the quality of life of future generation while the very benefits that they enjoy are being paid for by working people today...the number of which is not enough due partially to the very policies which are their legacies.


--John

 

[SecDef]

John, post #47 is quite possibly the worst post I have ever read. You actually spent time and energy indicating that taxes come from revenues?

then you make the statement that

Not only that, part of the reason why there are fewer and fewer workers to support Medicare beneficiaries today is due to one of the most lasting legacies of the people on Medicare today--normalization of abortion and birth control which resulted in fewer workers today. The other factor has to do with increasing longevity and increased quality of life for the elderly.

wow.

just wow.

I choose not to participate further in this thread for fear of being banned.

 

[theinvisibleheart]

clouding the issues

John, post #47 is quite possibly the worst post I have ever read. You actually spent time and energy indicating that taxes come from revenues?

then you make the statement that
Quote:
Not only that, part of the reason why there are fewer and fewer workers to support Medicare beneficiaries today is due to one of the most lasting legacies of the people on Medicare today--normalization of abortion and birth control which resulted in fewer workers today. The other factor has to do with increasing longevity and increased quality of life for the elderly.
wow.

just wow.

I choose not to participate further in this thread for fear of being banned.

SecDef,

I don't know if you are on Medicare or not. I just know that the points which have being argued in this thread are not true...they are basically misinformation such as:

______________________________________________________________________
1. pharmaceutical companies are charging too much based on ratio of advertising to annual R&D expenditure(rebutted on post #40, #41)

2. claims that pharmaceutical companies are too profitable at taxpayers' expense (rebutted on post #41)

3. cost of FDA regulation has nothing to do with rising prices of Rx drug (rebutted on post #46)

4. that free market and capitalism is not allowed with Medicare Rx drug program (rebutted on post # 43, #44)

5. that people on Medicare use the Rx drugs mainly for life threatening treatment (rebutted on post # 42)
______________________________________________________________________

This thread has not done me any good since the people I know are informed enough about finances, accounting, and economic to know the claims made by pro-price control and pro-Medicare crowd in this posts (SecDef/Eghad/PlayboyPenguin/etc.) are false. As for pointing out the obvious, all your points was against established and known truths regarding finance and economics such as the claim that pharmaceutical companies were too profitable and that free market and capitalism weren't allowed to operate when in fact, profitability of pharmaceutical companies are decreasing due to increasing time and cost associated with FDA approval process.

Furthermore, in every country where price control and lowering of patent protection was allowed, development of new Rx drugs has decreased.

As for the obvious stuff about money for taxes coming from people who buy the drugs, I only mentioned it because people claimed that tax breaks for pharmaceutical companies were not justified. Guess what, if taxes were raised (on pharmaceutical companies) or tax breaks were taken away, people would pay more for drugs.

You have a choice. To be honest with yourself and others and be a light, or to keep on misinforming others and clouding the issues.

Best regards.

--John

 

[M3 Pilot]

I'm a retail pharmacist. I also am Director of Pharmacy Services for our county health department. I also have a Master's Degree in Health Policy & Administration from the Number 1 or Number 2 (depends on who's rating) Schood of Public Health in the nation. I can't prove it but I firmly believe that a major reason your MD prescribed a particular H2 Blocker or anti-Cholesterol drug or blood pressure medicine or anti-inflamator drug or any number of other drugs for you is that Ms. Longleg Bigchest from the drug company just bought lunch for him & his office staff & gave him tickets to a big ball game or paid for a trip to Aspen or Myrtle Beach for "continuing education". Why do the drug manufacturers charge the health department $3 a cycle for the same oral contraceptives that they sell to retail pharmacies for $48 a cycle? Beats me.

 

[theinvisibleheart]

M3 Pilot, question for you at the end

I can't prove it but I firmly believe that a major reason your MD prescribed a particular H2 Blocker or anti-Cholesterol drug or blood pressure medicine or anti-inflamator drug or any number of other drugs for you is that Ms. Longleg Bigchest from the drug company just bought lunch for him & his office staff & gave him tickets to a big ball game or paid for a trip to Aspen or Myrtle Beach for "continuing education". Why do the drug manufacturers charge the health department $3 a cycle for the same oral contraceptives that they sell to retail pharmacies for $48 a cycle? Beats me.

1. you have the phenomenon of price differentiation...for lot of goods apart from Rx drugs, different people and groups pay different prices. It ranges from airline tickets to scopes to guns to all sort of myriad goods.

2. I've seen sales people have lunch and give various benefits in order to sell more goods...this goes on with consumers (free tickets and free chance to win prize if you BUY IT NOW).

Whether it's individual consumer or provider who is swayed, the behavior is moderated by degree of competition and the number of intermediaries.

For example, if the patient is on insurance plan which pays for most of the Rx cost, he will be less sensitive to the price of whatever drugs that the doctor recommends. However, if the patient is paying most of the cost, he will be more sensitive to the cost of the Rx drugs.

In the case of Medicare, the insurance premiums are not paid by the people on the plan (they are getting a free ride) so the incentive there is to maximize the benefits at the expense of public and pharmaceutical companies.

3. I've seen first hand abuse of Rx drugs under nationalized healthcare system when the doctor recommended drugs because it was covered under insurance with low copay, not based on which drug is the best drug because the desire of the patient was for freebie benefits (lowest co-pay) at the expense of taxpayer.

However, in a private market system with mostly cash based payment (yes, it does exist even in U.S.), this didn't happen because the patient was very sensitive to the actual need for the drug and its effect. Furthermore, the doctor providing the care faced intense competition from other medical clinics within very short distance (w/in 2 mile radius).

4. negotiated price of drugs...there has to be some kind of benefit for both parties.

For example, U.S. pharmaceutical companies sells drugs to countries with nationalized healthcare on the basis of profit at marginal basis, not total cost basis, because the option is either marginal profit or zero profit.

In any kind of negotiation, without both parties benefiting, it won't make economic sense.

5. here's a question for you for which I already know the answer: why does common non-Rx prescription such as aspirin prescribed at a hospital cost several times what it cost at Wal-Mart?

Best regards.


--John

 

[M3 Pilot]

I think that 1 factor driving high drug prices is that most consumers have insurance that pays for most of their drug. Fifteen years or so when the co-pays were $3-$5 no one paid much attention to drug costs & I believe the drug manufactures realised that this was an opportunity to increase prices at will. A large factor in determining co-pays for similar drugs is the rebate system wherein the drug manufacturer kicks-back ("rebates") insurance companies,HMOs, etc. for promoting their drug vs. the competitor via lower co-pays. Although I don't like a lot of what is going on with Pharma, I'm not saying it is wrong or immoral. I've been impressed with the developement & promotion of lifestyle & cosmetic drugs. If someone wants a drug to bleach age spots,prevent wrinkles,grow or remove hair, or get an errection let them pay whatever the market will bear. On the other hand,for example, I wish MDs would at least try $20-$30 a month treatment of hypertension with a cheap ACE inhibitor and/or diuretic instead of starting the patient on a $200 a month regemine. Hospital charges for aspirin & other cheap drugs have traditionally been outrageous because the pharmacy is a profit center for them. That's how the hospital pays it's housekeeping staff etc. By the way,the Tylenol you pay $6 a tablet for in the hospital probably cost the hospital nothing. If Tylenol's maker gives Tylenol to hospitals,it can claim that it's the most used pain reliever in hospitals.

 

[Eghad]

I think that 1 factor driving high drug prices is that most consumers have insurance that pays for most of their drug.

I paid over $3000.00 out of my pocket last year after the insurance company paid their part for just the wife's medicine. I pay about $450.00 a month for the privilege of having health insurance.

That is about $250.00 a month for just the wife. If I had no health insurance it would probably be close to over $1000.00 a month. people do pay attention to drug prices. I ask the doctor about alternates, plus the pharmacy plan sends me information on when a lower priced alternative is available. Watch that stuff like a hawk. I wonder how many people are without health plans that inlude prescription drug coverage. The drug companies have plans to hand out medicine to those who cant afford it. In fact Uncle Sam gives them big tax breaks for it. I wonder if they take the tax breaks and iclude that cost in others purchases...lol.

I have had the same health insurance for over 20 years. The co-pays have risen from $10.00 for a brand name medicine to a 50% copay on some name brand drugs.

The copay is going to get bigger for folks.

We only had 13 new drugs approved by the FDA last year. Are the drug companies going for money or innovation?

I am a 50% service connected veteran who gets my prescriptions which are service related at no cost to me. The VA doesn't have a fancy formulary plan. They usually send me stuff in large quantities or meds that I can cut in half to save money. The VA get to do something no state agency or anybody else gets to do, they can let drug companies compete for business by bidding out contracts.

The fact of the matter is that the drug companies don't want to have to compete on a free market basis.

 

[theinvisibleheart]

M3 Pilot+Eghad

M3 Pilot,

1. check captive market
2. factors of cost--can be found empirically and validated via regression and via relevant value of t-stats at desired CL(Confidence Level).

will explain later.

Eghad,

can you be more specific? Are you on group plan that is private and paid by corporate employer, or on a gov plan like VA or Medicare? I've actually helped retirees in the past and medical cost was one of the primary reason they had to delay retirement or go back to work.

Thanx.

--John

 

[Eghad]

I have private insurance plus I am a 50% service connected veteran at the Veterans Administration. if you have private insurance the VA bills the company for some services to recover some costs. Since I am 50% service connected I don't pay a copay for my medicines. I have seen the EOBs where the VA bill my insurance company for the prescriptions and they pay their part.

I also try to use mail care pharmacy plans to buy in bulk for 90 days to lower the costs for the wife.

I have had some active duty plus qualify for a military retirement by doing 20+ years in the Reserve Forces which I will be eligible for retired pay and Tricare for life at age 60. So I am pretty well set for medical care/prescriptions when I retire. At age 65 everybody goes on medicare. I will have to get part A & B Coverage and will still retain the Tricare coverage which picks up costs that the medicare doesn't cover. If I decided to keep my current private insurance plan at age 60 it would cost me about $800.00 a month since I would have to pick up the whole tab. Tricare for life is currently about $500 a year.

No brainer..at 60 the private insurance is going to get dropped like a rock.

The trend is that insurance companies are passing more of the cost for drugs and health care onto the person to keep premiums down. Insurance plans are basically taking the risk pool and spreading that risk over high risk and low risk payers. Which means that the healthy young guy is subsidising high risk persons.

One practice I find offensive is that if a doctor dispenses certain drugs out of his office vs. a pharmacy the drug company pays them a rebate.

When I see more innovation from drug companies vs. profits at the taxpayers expense I might feel some pity for the big drug companies.

The medicare prescription plan is nothing more than the politicians using taxpayer monies to subsidize the drug companies to keep the lid from blowing off the political pressure cooker. There have even been some allegations that the insurance companies are not reimbusing those on the plans in accordance with the law.

 

[theinvisibleheart]

M3 Pilot

I think that 1 factor driving high drug prices is that most consumers have insurance that pays for most of their drug. Fifteen years or so when the co-pays were $3-$5 no one paid much attention to drug costs & I believe the drug manufactures realised that this was an opportunity to increase prices at will.

This is an oversimplification. There is a difference b/w:

1. insurance in the which beneficiary pays the cost of insurance like home owner's insurance, term life insurance, etc. In these markets, the beneficiary (owner of the home, dependent of the insured) pays the cost of the insurance (monthly premium) and the rates are very competitive. Also, in order to lower the rates, many buyers of the insurance intentionary choose higher deductible and equivalent of higher copayment.

Data pretty much proves that insurance market and other companies which operate in this arena are very competitive. If private companies provide poor services or doesn't honor its commitment, they lose business.

2. insurance or other services in which government acts as an intermediary or as a service provider: post office, veteran's medical care, FEMA disaster assistance, etc.

Data pretty much proves that services and goods provided in this market is subpar compared to private market. If a private hospital provided poor services, Congressional investigation is not needed...if they don't change, they get driven out of business. If Kinko or UPS Store operated like post office, you don't need government regulation to fix it. Either they change or they go bankrupt.

3. insurance system in which beneficiary does not pay for the cost: most employee benefits plan are like that...employer pays the monthly cost of the insurance while the employee gets the benefits.

Empirical data proves that incentives in group benefits are distorted. The premium for average and below average risk people are used to pay for above average risk people. Furthermore, there is no incentive for high risk people (overweight, sedentary, drinkers, smokers, etc.) to change their behavior because other people are paying for the cost of their negative behavior.

4. Medicare is a combination of 2. and 3. Medicare recipients are getting the benefits while the cost is borne by working people.

Data proves people on Medicare are one of the strongest and most persistent voting blocks in the nation despite the fact that in 20 years or less, the whole country will be brought to its knees due to cost of Medicare benefits. People who receive free lunch (benefits paid by other people) are always reluctant to see the freebie benefits cut off.

People who are getting free lunch are usually willing to argue in any way, whether it makes sense or not, as long as someone other than themselves continue to fund their free lunch(Medicare in this case).

A large factor in determining co-pays for similar drugs is the rebate system wherein the drug manufacturer kicks-back ("rebates") insurance companies,HMOs, etc. for promoting their drug vs. the competitor via lower co-pays.

This depends on the insurance. I have had several private individual insurance plan. Lower the copay, higher the monthly premium (cost of insurance). Higher the copay, lower the monthly premium. This is the only way it can work long term on an economic basis.

Rebate is one form of advertisement...you see rebate in everything from household goods such as detergent to cars, but over the long run, it comes down to product value (what the product delivers and how much it costs).

Although I don't like a lot of what is going on with Pharma, I'm not saying it is wrong or immoral. I've been impressed with the developement & promotion of lifestyle & cosmetic drugs. If someone wants a drug to bleach age spots,prevent wrinkles,grow or remove hair, or get an errection let them pay whatever the market will bear.

Yes and no. FDA approval time is increasing (average of 8.5 years now) and approval rate is decreasing while the cost of drug is increasing (only about 10% of the drugs get approved and only about a third of the drugs that get approved prove to be profitable enough to recoup its cost). Profitability of the pharmaceutical companies have being decreasing despite the cost and risk of Rx drugs have being increasing.

Higher cost and lower profitability==> less new drugs.

On the other hand,for example, I wish MDs would at least try $20-$30 a month treatment of hypertension with a cheap ACE inhibitor and/or diuretic instead of starting the patient on a $200 a month regemine.

This will change if the patient is responsible for the cost of health insurance or is directly paying out of the pocket. You see, patient's behavior is different if he is paying for the cost of insurance versus if either the employer or the public is paying for it.

You can see this in countries with nationalized health insurance and in the case of people with employee benefits versus individual plan paid out of their own pocket.

Hospital charges for aspirin & other cheap drugs have traditionally been outrageous because the pharmacy is a profit center for them. That's how the hospital pays it's housekeeping staff etc. By the way,the Tylenol you pay $6 a tablet for in the hospital probably cost the hospital nothing. If Tylenol's maker gives Tylenol to hospitals,it can claim that it's the most used pain reliever in hospitals.

Check captive market. Every large corporation have a housekeeping staff but they usually can't charge $5 for 50 cents item to pay for it because of competitive market unless it's a captive market.

--John

 

[theinvisibleheart]

I have private insurance plus I am a 50% service connected veteran at the Veterans Administration. if you have private insurance the VA bills the company for some services to recover some costs. Since I am 50% service connected I don't pay a copay for my medicines. I have seen the EOBs where the VA bill my insurance company for the prescriptions and they pay their part.

I also try to use mail care pharmacy plans to buy in bulk for 90 days to lower the costs for the wife.

I have had some active duty plus qualify for a military retirement by doing 20+ years in the Reserve Forces which I will be eligible for retired pay and Tricare for life at age 60. So I am pretty well set for medical care/prescriptions when I retire. At age 65 everybody goes on medicare. I will have to get part A & B Coverage and will still retain the Tricare coverage which picks up costs that the medicare doesn't cover. If I decided to keep my current private insurance plan at age 60 it would cost me about $800.00 a month since I would have to pick up the whole tab. Tricare for life is currently about $500 a year.

No brainer..at 60 the private insurance is going to get dropped like a rock.

It's actually worse. Under group insurance, premium for each group member is the same, whether that individual is high risk or not. So the premium is high enough to cover everybody. This means that premium for low risk and average risk individual in the pool is paying for high risk people. Because the cost of high risk people is not borne by them, there is no incentive for them to change their behavior.

Type 2 diabetes is very common among elderly...this can be easily controlled by diet and exercise but because of easy availability of medication and health plan paid by 3rd party, there is very little incentive for people who have type 2 diabetes to change their behavior. Ditto for obese and overweight people, and for people who smoke or drink.

The trend is that insurance companies are passing more of the cost for drugs and health care onto the person to keep premiums down. Insurance plans are basically taking the risk pool and spreading that risk over high risk and low risk payers. Which means that the healthy young guy is subsidising high risk persons.

If you never had a VM benefit or other group benefits, and had to purchase individual health insurance, you will know that the amount of copay and deductible depends on your monthly premium. Lower the copay, higher the monthly premium. Lower the deductible, higher the monthly premium. Monthly premium is the actual cost of the insurance.

One practice I find offensive is that if a doctor dispenses certain drugs out of his office vs. a pharmacy the drug company pays them a rebate.

This is a form of advertising which is prevalent in just about every market from household detergent to cars. Nobody is forcing the patients to buy drugs from the doctor...the patient can always take the Rx to the cheapest pharmacy.

When I see more innovation from drug companies vs. profits at the taxpayers expense I might feel some pity for the big drug companies.

The profit margin of the pharmaceutical companies has being decreasing, not increasing. FDA approval time has being increasing(currently 8.5 years), not decreasing. FDA approval rate for new drugs has being decreasing, not increasing.


Merck's annual profit margin was just under 20%. Only about 10% of the drugs under development gets approved by FDA. It's expected that only about a third of approved drugs recoup its cost.

Based on the above, do you think getting new drugs approved by FDA is risky or not risky?


Do you think 20% profit margin in a risky business is a good or poor return?

If the profit margin dropped to 10% or 15%, do you think more or less drug companies would stay in the risky business of developing new drugs?

The medicare prescription plan is nothing more than the politicians using taxpayer monies to subsidize the drug companies to keep the lid from blowing off the political pressure cooker. There have even been some allegations that the insurance companies are not reimbusing those on the plans in accordance with the law.

Medicare benefits are paid through tax on people who are working. Medicare recipients are getting a free lunch paid by tax on working people. People on Medicaid are one of the strongest voting blocks and are willing to keep on voting themselves to retain their benefits.

If people on Medicaid are really unhappy with it, they could do what people on socialized medicine in Canada does. Come to US and pay for their own medical care. But that is unlikely to happen, as long as the value of free benefits under Medicare is greater than the cost of alternative (paying for medical care themselves).