Not the correct fix

[beth_leonard]

The issues are always more complex than they seem, and what I know comes largely from WSJ articles, and newspaper articles are always simplifications and frequently flat-out wrong, but somebody in government fails to understand how humans are motivated.

There's a problem right now about a lack of drugs for life-threatening diseases like leukemia, and many, many others.

Why do we have this problem?

One possible answer is corporate greed.

Another possible answer is that corporations are not motivated or able to stay in businesses that are unprofitable.

My understanding of the situation is that medicare has a "negotiated rate" with drug companies for drugs. "Negotiated" in quotes, because the government also controls the FDA and the flow of new drugs onto the market. Companies are strong-armed into accepting just barely the manufacturing cost for a drug, and little or nothing for the cost of R&D. If they choose not to accept that price, their future R&D efforts are held up by the FDA. Large insurance companies piggy-back on that price with most-favored-nation clauses. Now there is an escape clause -- if there is a "shortage" of a drug then drug companies are allowed to charge more than the negotiated rate.

Is that a recipe for causing a shortage or what? I can seem them thinking, "Hmmmm, if I stop making this product, then the price goes way up for the amount I have left on my shelves, and I can continue to pay my R&D workers and improve my position in the market? Yes, it may hurt some poor little kids with ADD and leukemia if the supply chain isn't just right, but if I go out of business then there will be no more new drugs, and I'd be out of a job along with all my employees."

So, because of the current regulations, we have shortages in lots of major medications, so that companies can charge what they really wanted to charge in the first place, plus some to make up for the lower-than-reasonable price they had to charge originally.

Now, what is the fix for this situation? I know! Let's villify the price-gouging drug companies! We'll get the public turned against them, and add yet another new regulation on them, so that when they choose to discontinue making an unprofitable product, they have to notify the FDA in advance, so we can lean on them even more! We can even go after them with criminal charges if they don't make cheap drugs all the time! They'll surely want to start making more drugs more cheaply then, because poor little kids have cancer! Cancer! Yes, kids with cancer are hurt! That's the solution to this shortage!

....

I'm sorry, but if you want to go to a completely socialized drug delivery system, just do it already. Nationalize the entire industry, but please stop these divisive class-warefare announcements. This is not free-market greed, this is a half-nationalized market trying to survive. The vilification of an industry does not help America.

Personally I'd prefer to get rid of the FDA and leave regulation of all drugs (currently legal and otherwise) to the states. That will never happen, but if we have to have it national, at least get the incentives right and let the price float to market conditions, shortage-or-no. Don't add another new regulation to "fix" an existing bad one, get rid of the bad one.

--Beth

Comments

[corpsefairy.livejournal.com]

Better option: replace the existing bad regulation with a good one.

[feuervogel]

+1

[jon-leonard.livejournal.com]

That's the ideal, of course. Whether you and Beth would agree on what constitutes "good regulation" is less obvious.

Some of the problem is that, to the extent that prices signal how useful something is, the Federal prices imply that a lot of these drugs are just not worth making. Safety requirements have been increased (sometimes questionably), and the profits on generics can be pretty marginal to begin with.

Alternately, there are two fundamental kinds of price ceilings: Those that don't matter, and those that create shortages.

[elissali.livejournal.com]

You make a compelling case for this being a bad combination of some stuff being regulated/socialized (I don't know enough to use the terms correctly and I'm really tired and burnt out right now, so bear with me) and some of it trying to be market-driven.

I'm on the side of socializing it, but what I'm wondering is how that would look. Does the government then fund all the R&D as well as the distribution? Is there any way to have benefits of competition from an actually free market or is that exactly the problem here, trying to have it both ways?

if it were totally socialized, then there would have to be a shift in funding priority to make sure that R&D for drugs really resulted in great drugs being produced. I know there are people out there who want to be doctors and want to cure cancer, etc, etc, but talent and optimism won't drive it enough without funding. (seems to me, anyway)

I actually also agree with you about leaving a lot of things to the states. The only issue I see on this one is that what if a state, say, outlaws a particular drug because it is immoral by some religious standard, and people get hurt because of it? I suppose the standard answer is for those people to move to a different state with laws that aren't like that; but that's often impossible for people to do - it's more complicated than that. I figure there must be a balance between federal stuff and state stuff. But I do get the witchy sense that the country is too damn big for rules to apply across the board very often.

I do tend to be a dirty hippie when it comes to corporations... it seems to me that profit motive tends to lead to short-sighted behavior in a lot of cases where we have the power of industrialization to make lots of money on something before we realize we've, say, depleted an ecosystem or something along those lines. But I don't think all corporations are evil, and I don't necessarily think that capitialism is evil - competition can be good, and I do agree that there can be a lot of waste in government. So, you know, there are lots of sides to these things, I think anyway.

anyhow, I see your point, was my original point. So there you go. and with that, I think I really need to go to sleep now.

*hugs*

[zathrus.livejournal.com]

If a drug is illegal in one state, driving across state lines to get it would be a plausible solution for most people. (Alaska, Hawaii, and perhaps central Texas are probably exceptions to this.). There's already a market for drugs purchased internationally, mostly because of cases in which stupid politics have held up drug approval here or futzed with its approval later; Beth's proposal would just move that market closer to home and make it more accessible. I'd be more concerned about the effects of having drug companies trying to get their drugs approved in 50 different states and having to deal with the resulting maze of regulations and enforcing personalities; I don't know if thAt system would be better or worse than the current one.

Newt

[feuervogel]

Let me just point out that in our current system, government funds a lot of drug r&d. It's called the NIH and grants to researchers at universities and hospitals. The chemotherapy drug camptothecin was discovered using funding from a grant from the NCI.

There's an entire division of the ebil gubmint communist blah blah dedicated to drug discovery. (I spent three summers and my senior year of high school working at it.)

[elissali.livejournal.com]

For the record, I am a graduate student at UC Berkeley. I understand that the government has funding for science and health. I don't know very much about the NIH and the medical/health side of things, because I'm an ecologist. But I do know how painfully impossible it is to get funding from NSF. I think if people on the right-leaning side of things say that competitive markets get you better results, and if that's actually true, then we might need more funding to the NIH to replace said benefits of competitive markets.

I am not one of those people who thinks the "gubmit" is evil and shouldn't take our money. But I know I tend to lean towards government handling things and Beth leans away from it, so I'm trying to better understand her reasoning because I think discourse in this country has gotten horrible. We're not talking about how to solve problems between people with very different ideas, we're just bashing the other's idea and defending our own. So I'm making an effort to try to come to the center a bit and see her reasoning and see a suite of possible responses to issues of drug regulations. Where better to do it than with friends who are intelligent and thoughtful and happen to think differently than you?

to be honest, when I wrote that comment last night, I'd had a shitty day and was really tired. I actually had forgotten about the NIH, so I appreciate the reminder that the structure is already in place. So I guess I modify my point to be, then does the NIH need a shitload more funding if one removes the market part of the system? I also don't know much about economics, so this is just me wondering and curious if other people who know more about economics have ideas.

[feuervogel]

As a society, we straight up don't fund science nearly enough. Probably in part because of the "drown it in the bathtub" types who believe the free market can do no wrong (in large part, imo), but also because as a society, we just don't value science anymore. The general discourse in the 2000/04 elections was "the GOP candidate is Just Folks. Do you want some egghead elitist to be president, or Just Folks?" Personally? I'll take the egghead! I voted against Mr Just Folks twice, not that it did an ounce of good. (And we see where Just Folks got us!)

I am pro-regulation, pro-government. I do not believe all regulations are inherently good; they can be poorly written, or based on the best data we have--except the data isn't perfect, or incomplete. People still have to file ADA complaints, because businesses can't be arsed to make their facilities compliant! If we're going to regulate safety or accessibility, we need to fund enforcement.

I am also a pharmacist, and I've seen the ridiculous prices drug companies charge first-hand. (See the second link in my comment below to zathrus.)

The whole "BUT...BUT...R&D!!!" argument is a red herring. 1 2 3 4 5 6 (journal pdf) 7 (2006 CBO pdf)

[beth_leonard]

According to the first several of those articles you linked to, R&D is somewhere from $50M to $450M for a new drug, not some larger number the drug companies like to quote. Isn't that large enough? And is $50M just for the ones that make it? How many variants fail, but still need to have their costs of development added to the retail price of the drugs that do make it?

--Beth

[feuervogel]

How many me-too drugs and patent-extenders do Pfizer, Merck, and co come out with every year?

[beth_leonard]

I actually also agree with you about leaving a lot of things to the states. The only issue I see on this one is that what if a state, say, outlaws a particular drug because it is immoral by some religious standard, and people get hurt because of it?

Right now the FDA outlaws quite a few things because they're immoral by some political standard. (Breast cancer drugs that cost $80K/year for example, yet are extremely effective in certain sub-segments of the population. Other promising life-saving drugs are significantly slowed in their time to market due to process concerns and people die waiting.) State-wide decision making is a significantly lesser evil in my book.

I might buy arguments that state-level decision making would cause duplication of effort, but I think there's the potential for private companies such as Underwriter's Labortories to issue statements about new products and treatments, and states to make choices. "A new drug has to have a UL rating of at least 3 stars to be legal in CA. A new drug has to have UL rating 5 stars and a Pro-human Gold Star to be legal in Mississippi." We don't have to do away with Roe Vs. Wade, but we can stop forcing our national politicians to take a stand on those issues.

--Beth

[zathrus.livejournal.com]

Yes. Seems to me that a lot of what the saner Occupiers are complaining about really boils down to cases in which we've moved away from true capitalism in broken ways. Palin's speeches over Labor Day weekend, before OWS began, referred to "crony capitalism," and I thought she was on to something there. Somehow, the system needs to recognize that drug R&D takes money - at a bare minimum, scientists need to earn their living and pay back their school loans and be provided with lab space and supplies, even before any corporate profit enters the picture - and they only have a certain time period in which to make that R&D money back before their competitors are allowed to start making generics. If we want to stay an R&D center for the world and not get new drugs from China (scary thought!), they need to be compensated thoroughly enough that they get that money back. And yes, new treatments will always be expensive, as will treatments for rare diseases. That's the nature of the beast; we need to accept that.

Newt

[feuervogel]

A pharmacist-blogger takes a look at whether treatments for rare diseases must always be expensive. (Spoiler: they don't have to. Also, a word of warning: he swears a lot.)

ETA: Drug companies NEVER overcharge!

[beth_leonard]

Capitalism is breaking down, and it breaks my heart to see it. My current call in to politicians is "end the tax expenditures." While I'm not in favor of generic raising taxes, all the various tax cuts for participating in this or that pet social program of various elected officials makes the entire economy less efficient. It would put a lot of accountants out of business, but my accountant says that probably not as many as I'd think. She'd much rather be helping our business find ways of being more profitable while participating in our core business, than helping us find sneaky ways to legally pay lower taxes.

--Beth

[dmorr.livejournal.com]

I think near-pure capitalism in the drug market is a local maximum, and so is socialism. One of those is probably better than the other, but either is much better than some solution stuck in the valley between them.

[beth_leonard]

Right now we are stuck in the valley between, and I am pretty unhappy with the results. I'd prefer full-free-market, but we're no where close to that politically, so in the reality I'd rather two-tier full-socialism, with a public-priavate system. You can opt into the private system with enough money. The public system provides basic health care for all as in many European states, but the state decides what's cost effective, and rations care equitably, for some definition of equitably.

I'd prefer the private system to be largely unregulated and opt-in, or regulated by the states. If I want a free federally-funded colonoscopy every 10 years that I schedule 2 years in advance, I can have one. But if I have reason to suspect I need one before that, I can pay $$$$ and get one scheduled in the private system tomorrow if that's how I want to spend my money. The camera my doctor uses doesn't have to be on the Fed's approved list. I'd like it if some private company such as UL places a seal of approval on such a device, and more cheaply than the FDA, but fundamentally I trust my doctor's judgement.

--Beth

[singerji.livejournal.com]

A similar two-tier system is used by many European states, and something similar has been proposed several times in the U.S. but has always been blocked or shouted down. Medicare has it with many competing "Medicare Advantage" buy-up plans.

[singerji.livejournal.com]

Yes, pharmaceutical R&D is expensive, drug companies deserve a return on investment, and the FDA has flaws. BUT...

Medicare purchases something like 50% of all drugs in the U.S. You wouldn't give your biggest consumer a bulk discount? Especially when another competing firm might very well produce a similar drug that Medicare will happily buy? Drug companies want to be paid a fair price for their medications, but it's quality control problems and limited manufacturing facilities that seem to be causing the problem. The free market is working fine, actually; Medicare and insurance companies will adjust their prices where necessary, and more production facilities will be built, because there is a market for those drugs. The problem is that adjustment isn't instantaneous. From what I've read, it seems to be some intermediate brokers are hoarding medications and spiking the price 20-100 times "normal," not the producers themselves.

And getting rid of the FDA is a HORRIBLE idea. Individual states don't have the resources to measure and regulate tens of thousands of drugs, supplements, and chemicals. Sure, some breadth of discretion could be returned to the states, but I'd rather not have the option of purchasing baby food with lead in it.

[jon-leonard.livejournal.com]

The FDA has a number of functions, some more useful than others. In their role of certifying some processes as producing safe foods and/or drugs, they're fulfilling a necessary function. However, in that context they'd do just as effective a job if their label were advisory rather than backed by law. That's what Beth's talking about with the reference to the UL (Underwriter's Laboratories) mark.

But the FDA has other roles that mesh poorly than that. They also determine which drugs the federal health programs will pay for, and somehow a finding that the government doesn't want to pay for a particular drug can make it illegal for other customers. Their role in delaying treatments and punishing the politically out-of-favor is troubling as well...

Ideally I'd like to see staged releases of new drugs and treatments: We have that now for early research, but there's a missing step after "research looks promising" and before "widely used". We're never done learning about the effects of drugs (see Aspirin vs. heart attacks, for example), and collecting more data as the scale of usage ramps up both provides earlier access to promising drugs, and limits the scale of failures (as in Thalidomide). Something similar is needed for the off-label uses too, actually.