Monday, May 30, 2011

Drug price control 7: Pricing by drug inventors

I posted Part 6 of this discussion series in the Minimal Government yahoogroups. It attracted a number of good and long comments from some members of the ygroups, I'm happy with it, below. Posting this with author permission to use their comments.

1. Noy I agree with you generally but I hope you can recommend a way of capping the profiteers who put too high mark ups relative to their operating costs! -- Floro

I thanked Floro for his comments. I added the following:

All high risk sectors and businesses have high profit or high losses financial outcome someday.

Take this hypothetical case. I am an agri-businessman. I want to develop a rice variety that is (a) high yielding, something like at least 175 cavans per hectare, (b) flood resistant, (c) insect resistant, (d) rodent resistant, the stem is yucky to rats, (e) harvestible in just 2 1/2 months, (f) has high multi-vitamin content, and so on. It's like a super-miracle rice. If I become successful there, I will become a multi-billionaire in just a few years as tens of millions of rice farmers, small-scale or corporate farms, from all over the world, will buy my rice seed variety.

Since this is a next to impossible task, I hired the full time services of the best minds around the world in molecular biology, biochemistry, botany, agronomy, biophysics, etc. The research facility is state of the art. I borrowed several hundred million dollars to put all things together.

If I don't succeed in developing such seed variety, sorry na lang. I will lose all my properties and shirts and go to jail and still I won't be able to pay all my loans. That's life.

If I succeed, I will become a super-super rich man. That's life. My problem though is that many people will think that my being so rich is so undeserving, that many governments, the UN, FAO, etc. should all conspire to regulate my seed invention, my research work, my wealth, etc.

So judgment of "too high mark ups relative to their operating costs" is very subjective and hence, subject to heavy politics.

2. I always thought the most democratic way to set the price of medicine is for drug companies to first ask patients (who may be dying or are in horrible pain) how much they are willing to pay for a drug to cure them.

If they give a price that the drug company feels commensurate to the risk/cost of failure, then the company pursues research. If not sorry na lang.

Another way though is to put a gun to drug companies heads to do the R&D. But that won't last for long. People won't study to be scientists if they feel the reward is insufficient. Like it or not, much of the advances in medical tech is a result of the profit motive. Those virtuous people who develop treatments not for money but because the reward of helping his fellow man is enough (e.g. inventors of synthetic insulin) wouldn't or shouldn't be turned off medical research just because their colleague makes more money.

Then there is the state subsidizing drug company research. Two problems:

1.) Subsidies have an oddly reliable way finding their way to people who connections rather than qualifications in ANY society.

2.) The moral dilemma of having patients suffering from one disease subsidizing the cure for the disease of another group of patients. This may result in the former group being unable to help themselves. The price system is pretty efficient in making only those that stand to benefit from something pay for it. One can say only healthy people should pay for the subsidy, but even healthy people have other needs. They may have loved ones sick of another disease. Should we have politicians telling us what our value system should be? -- Mark Belo.

I also thanked Mark for his comments. I added the following observations:

Drugs are just one aspect of treatment. The other aspects are (a) physicians, the specialists and super-specialists if possible, not just ordinary physicians, (b) other health professionals (nurses, radiologists, med techs), (c) diagnostic tests (X-ray, blood tests, CT scan, MRI, etc.) and other hospital services and facilities.

You will notice that there is not much politics, not much calls for more government regulations and price restrictions, in the other 3 groups mentioned above. It's mostly the "evil" innovator pharma companies who invent new drugs. Sometimes the generic pharma companies who invent zero new drugs ride on with the anti-IPR, anti-multinationals bandwagon.

I think ALL known diseases have drugs already to at least control the fast spread of those unwanted cells, if not kill those diseases. It's just that they are "old" drugs, meaning off-patent, have lots of generics equivalent, and are deemed to be not-so-effective because diseases are never static, they are also dynamic and evolve into another branch of the old diseases. I read before that even the WHO recognizes that about 99 percent of all "essential drugs" are off-patent already.

So people want to get those new drugs. More revolutionary, more disease killer. It just so happens that these newly-invented drugs are expensive, their manufacturers just came from spending several hundred million $ just to invent, develop and market those new drugs, they want to get back their investments, plus high returns whenever possible. Thus, people turn to governments, WHO, big health activist NGOs, to call for IPR-busting like compulsory licensing, parallel importation, drug price control, and related measures.

3. Anything that makes an inordinate amount of money will be bound to receive some amount of protest, fair or unwarranted.

The price of healthcare has to place some premium on the skills and talents of the people who provide it. I believe it is unfair to point the finger solely at the pharma companies for this, but they do deserve a heapful of blame since they have perpetuated a corrupt system of introducing and marketing new drugs.

That's because doctors and health facility administrators demand golf junkets, expensive vacations and other perks from the pharma companies to push these new drugs. I don't know which party started out with the payoffs (most likely the pharma companies), but this is a vicious cycle that must be broken.

That's because more and more technology is being thrown at the problem, and while new machines do improve diagnosis and make life simpler for both doctor and patient, the same system as with selling medicine is likewise venal and corrupt. New machines would not help if the people making the diagnoses are not as sharp as they would like to be, even though everybody is an expert now that you can research almost everything from the Internet.

I believe the system for medical tests is fair insofar as cost of operation goes, but as my experience with OFW medical testing tells me, any medical problem can be fixed on your documents.

The state should get out of healthcare altogether, because as things operate, it's what people normally do when they are not sick that is making them sick - overeating, lack of exercise, smoking, eating the wrong kind of food. If government were to intervene, they should run after all producers of consumer goods. For example in Singapore, where the state is all, government intrusion is such that your child's school will call you if you are giving your child the wrong kind of food. The government intervenes if you require additional check-ups once in a while, and take this, if you slack off work because you get sick, you can be subject to disciplinary action.

As to the pharma companies' dilemma, I think Noy you provided the answer yourself - the rate of innovation being demanded from the pharma companies creates interesting side effects:

1) innovation in creating new drugs to battle medical conditions which are not yet properly treated is dependent on societal pressure, and is skewed by public calls for government funding
2) the price of fueling this innovation is dependent on continued profitability of drugs already marketed, or variants of the same that are repackaged once in a while to disguise innovation
3) drugs which are cosmetic or solve conditions which are not life-threatening (i.e. Viagra) hit the jackpot and drive profits, thus skewing everything
4) cutthroat competition fuels the drive for sometimes unethical practices or overpricing all drugs across the board.

For some reason I find this statement made by Mark "I always thought the most democratic way to set the price of medicine is for drug companies to first ask patients (who may be dying or are in horrible pain) how much they are willing to pay for a drug to cure them" offensive for being misguided and stupid. Of course people will pay for anything if they think it will cure them! And how will you safeguard against any kind of scam that makes unreasonable promises? Nothing personal, Mark, but come on, man. -- Joseph "Otep" de Guzman

Lots of good points from Otep there, including the blamability of the pharma industry. Well, all business sectors and professional groups I think, have their own set of problems and weaknesses.

We can divide the pharma industry into two main groups, the innovators and the generics manufacturers. The former are those who invent new drugs, patent them, spend lots introducing the new drug. The latter produce zero new drugs, they only wait for the patent of successful drugs to expire (not all patented drugs are successful), develop their own branded generics, spend lots on marketing as there are many other "me too" drugs by other generics producers.

The corruption in the marketing of drugs I think is committed by both groups, although I think more by the latter. They produce no new drugs, there are so many many generics producers worldwide. So how do you differentiate your own generic products to the generics of hundreds or thousands of other companies, except to spend lots on marketing.

I particularly like Otep's point that "The state should get out of healthcare altogether."
This is similar to my repeated over and over argument: healthcare is principally personal and parental responsibility,not government responsibility. When people over-smoke, over-drink, over-eat, over-sit, over-fight, live in dirty places, etc., even if they have access to free physician visit daily, free hospitalization anyday, free medicines, their health outcome will be poor.

Otep mentioned Singapore's BIG Brother in healthcare. A friend who lived in Singapore for several years told me that if your child is fat, Big brother will make your child run in the school regularly until he loses his excess fat. Big brother is saying, "When you get sick, I take care of you. When you are not sick or before you get sick, I take care of you."

About innovation's side effects, hahaha, I like them. #3 in particular, I have pointed that out in my previous papers. If there are threats of IPR busting and drug price control for patented, expensive but life-saving drugs, then some innovator companies can shift some of their research capability to producing non-life-saving drugs like breast enhancers, penis enlargers, new shampoo, deodorant, mouthwash, skin whiteners, wart remover, various food supplement, etc. Here, there is sure money and yet there is zero threat of IPR busting or price control.

Another diversion is to shift some of their research capability to producing drugs against common diseases by dogs, cats, birds and other pets. With flat or negative population growth of people in many rich countries but fast population growth of pets as more people substitute pets with having kids, there is also big money there with zero threat of IPR busting and drug price control.

Cutthroat competition can lead to unethical drug promotion and soaring drug prices, true. But in most cases, it can lead to price reduction. For instance, at the time that drug price control was imposed in the Philippines in mid-August 2009, amlodipine molecule (against hypertension) has several dozens of different brands. Innovator brand was Norvasc by Pfizer, but there were so many generic brands too. Price range then was from cheapest P8.50 per 5mg tablet up to most expensive P44+ Norvasc. So people really had lots of choices from among those different brands.

4. Noy, again I agree with this example and hypothetical situation. What I am after at are middle men who make money earn money without really producing any added value. -- Floro

5. Floro, "Again I agree with this example and hypothetical situation. What I am after at are middle men who make money earn money without really producing any added value."

Thanks Floro. But hope that the inputs of Otep, Noy, and myself shew what is at stake (the enormous positive contributions of big pharma in a profit motive system) that we need to tread carefully so as not to kill the goose that lays the golden egg. So to speak.

Otep, "For some reason I find this statement made by Mark "I always thought the most democratic way to set the price of medicine is for drug companies to first ask patients (who may be dying or are in horrible pain) how much they are willing to pay for a drug to cure them" offensive for being misguided and stupid. Of course people will pay for anything if they think it will cure them! "

Thanks Otep and you're right. It is stupid! I was trying to show the absurdity of trying to maintain the values of a free society (people should be free to decide if they want to engage in medical research under their own terms) with government meddling. Perhaps the government can just set a price: anyone who finds a cure for AIDS can only charge so-and-so (we could try auctioning patent protection to drug companies). I just wanted to point out the superiority of letting people voluntarily risk their own resources to create medicines on the hope that others would compensate them imperfect as it is.

I say a big problem is that we often see big pharma as some anonymous monolithic thing. It is not a person. It doesn't have feelings. We forget that it is made up of individuals who dedicated their lives to medical research and for whatever reason made the world better. To set price controls is to belittle the efforts and decisions of these people.

I came across a quote from someone who wishes to remain anonymous for fear of his life:

"Christian charity is: what's mine is yours. Communism is: what's yours is mine." : )-- Mark Below

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