Sunday, October 4, 2015

More On Drug Price Increases -- "The Rule, Not The Exception" -- Unfortunately. [Now IMPROVED With. . . Tech Industry Analogy!]

At the outset, let us recall that Apple is NOT pharma. Apple has tended (for the last five or so years) to hold prices steady, even as it delivers vastly improved capabilities in each iteration of its newest product. Let us also recall that no one will die, if they don't use the Apple specific product. They can "limp along" -- with a Samsung or HTC. [Ironic content fully-intended.]

So, perhaps it is unfair to draw parallels between tech pricing, and pharma pricing. But each industry asserts that a vast R&D expense line is needed to stay competitive. I think we all agree that is true. What happens above that expense line (at the sales revenue/pricing line), is where they differ most significantly -- for the purposes of this post.

That is to say. . . what strikes me most, here is not the randomly obscene Valeant and Turing price increases -- but the idea that pharma wide, prices on mid-stream, older drugs are rising -- in double digit percentages, year after year. In many of these cases, patients will either grow very sick or die, without the now well-vetted drugs. And pharma raises prices. It does so until some generic competitor is able to get to market and undercut them, usually, all at once. But that "frictional" often three to five year price climb, at or very near the end of a drug's patented life -- is more the rule than the exception, as a pharma pricing strategy.

And so (with technology industry examples in mind), it is high time to ask -- why should we as a nation of consumers tolerate that? Apple knows keeping the customer is the best profit inducer. So, keeping the patient "on med" ought to be the number one priority of pharma. To be clear, I don't think government price control (via legislated price mandates) is the answer.

No, I think free market negotiating -- BETWEEN the government, and the drug companies (i.e., repealing the Bush 43-era no-negotiating legislation stance) -- on Medicaid, Tri-Care and the analogous program payers' drug purchasing contracts, is the answer. Clearly private insurers and prescription benefit management companies are negotiating -- and negotiating hard. [Which is why some argue pharma must be free to charge the government payers -- without negotiations. I disagree. The math doesn't bear it out.]

We often hear WSJ pundits extoll the free market mechanism. It is time to let it work -- on drug pricing. Here's the snippet of the NYT article that put me in mind of making this point, this morning -- over hot coffee, fresh orange juice, yogurt and a banana:

. . . .[W]hile more conventional [drug] companies do not typically triple or quadruple prices overnight, they do often raise them year after year at a rate far faster than inflation. Big pharmaceutical companies like Pfizer and Merck raised list prices an average of 13 percent in 2014 and 8 percent so far this year, according to Deutsche Bank. . . .

Inflation is barely two per cent, as experienced by consumers overall this year, and less if we fully load the decrease in gasoline prices into current estimates. Compare that to 13 per cent increases on drugs, on average. So -- as I wrote last weekend, over my coffee -- smaller versions of the Shkreli scenario are the rule, not the exception. And as I wrote, both he and Saunders learned these tricks from Fred Hassan. It is the rule -- not the exception. And only a free negotiating market will curb it effectively. Legislation cannot. Here endeth the sermon.


Anonymous said...

So, there is a large discussion that the USA is paying for the negotiated prices that Pharma has to deal with in Europe.

If we go with unfettered capitalism, the companies have to make a $ or two. With the $2 taken away by the European price fix, where do companies get the chance to establish the better cash flow?

If we restrict them from making the big bucks here~how will it impact R+D?

Just asking the 'larger debate.' Which to me is: how much is too much?

Condor said...

Your points are excellent, Anon.

And clearly not a debate we will solve in comments -- it is a complicated manifold problem.

However, it is clear that multinational pharma makes quite a heady margin -- and generates cash flow which is eclipsed only by the likes of Apple.

The US cannot dictate how the EU prices medicine -- or health care. But the idea that we should prevent our own government from negotiating prices with pharma seems. . .Un-American. And I realize that term adds nothing to the debate.

But it is a debate for the ages. I will return to it in future posts.

I for one don't think the multinational pharma industry is as sstrapped as it claims to be -- on R&D, or cash flow. Just my $0.02.

Namaste, and do stop back!