Drug manufacturers make insulin available to insurance companies at a much lower price via middlemen called pharmacy benefit managers. The difference between the list price and the lower price negotiated by the pharmacy benefit managers is called the spread. Part of the spread is pocketed by the pharmacy benefit managers, leading to a perverse incentive in which the higher the list price of the drug, the higher the earnings of the pharmacy benefit managers. The price rise affects the uninsured and under-insured the most, many of whom can no longer afford to buy insulin at its list price any more.
Pharmaceuticals are only about 10% of all healthcare costs [1].
The vast majority of healthcare spending goes to hospitals and doctors, yet the political environment hyper focuses on drugmakers. Why isn't there a larger focus on reducing the costs of hospitals and healthcare professionals?
Because every time someone gets around to focusing on anything, there's a loud chorus of people who thinks the focus should be elsewhere. The fact of democratic policy making is that it's hugely inefficient, and is rarely able to focus on anything at all, so the only way forward if you want to get anything done is to ride the wave of opportunity when it presents itself.
I agree, why is it that doctors make such high salaries? Is it because of the long and relatively difficult education and training that they have to go through? That is definitely part of it but in my opinion those salaries (which in many countries are publicly funded) could be reduced drastically by training more doctors.
Professional societies have a strong interest in artificially keeping the supply of qualified doctors low in order to keep salaries high. University admissions for medical school continue to be extraordinarily low in proportion to the number of applicants yet there are still shortages in many parts of the country.
If you paid doctors less, there's no reward for spending your entire 20's and early 30s in training, already earning almost nothing. Nobody, especially nobody talented, will do it.
It's already probably not worth it from a purely financial perspective, when you consider the options would-be doctors have (they are among the highest performing students already -- they could easily be lawyers, professors, engineers, etc).
The real growth in medical costs are from administrative overhead and the vast new amounts of paperwork that doctors have to spend their time shuffling.
If doctors spent 80% of their time in patient interaction or actual diagnosis, there would not be a perceived doctor shortage. Instead, it's 70% paperwork and filling out forms to check the right regulatory boxes. Increasing productivity by culling the paperwork and regulatory bloat will be vastly more productive than pumping out more low-quality doctors.
In plenty of other countries doctors are paid substantially less and the quality of healthcare is better. I don't think it's impossible for the U.S. to do what everyone else is already doing.
The statistics in similar free market countries (labor, not health care) are curious. Interested in any links you have, but this NYT blog post [1] seems to show that, GDP-per-capita normalized (which seems reasonable; second chart), there isn't that large of a divergence between what I would assume would be comparable nations.
Nurses make 0.9-1.4x, GPs 1.7-4.1x, and specialists 1.7-7.6x GDPpc.
Certainly a range, but nothing jumps out at me as "the US is an order of magnitude outlier."
I'd be fascinated to make a further breakdown of these numbers in terms of style of country's health care system, to see what correlations drop out though...
It should be possible to train doctors faster tho. Asking them to go through four additional years of undergraduate program before they study medicine just adds years to it.
Something like that, as long as they know how to perform the specific procedure and how to deal with all the things that can go wrong.
The coding equivalent of doctors training would be a) taking a general bachelor's degree b) taking a 4 year computer science degree c) specific training in programming in 24 different languages and 400 frameworks d) get a job programming in Java and eventually forgetting most of the other stuff.
I think there would be a lot of merit to a workshop + 1 certified engineer method. Allow a medical facility to employ less-generally trained specialists (e.g. nurse practitioners) to perform procedures, as long as they have one generalist with deeper knowledge on site during procedures and who signs off on courses of treatment.
I realize this is somewhat the resident model, but it seems like there's room to expand that, decrease costs, and provide a job opportunity for people who are fine accepting a lower salary and stopping their medical training at that point.
Having had a few friends go through medical school, I absolutely have compassion for their side of the equation. They go into extensive debt (yes, usually with good loan terms) on the promise of "if you make it, then you'll be able to repay this / have the debt forgiven." But it doesn't seem like there's any "I don't want to go all the way" escape route.
>If you paid doctors less, there's no reward for spending your entire 20's and early 30s in training, already earning almost nothing. Nobody, especially nobody talented, will do it.
I don't think that's true. If you look at admissions to even second rate schools there are many times more students that there are spots. Students with grade point averages in the high nineties are being turned down and others are not even attempting it because the odds are so slim. Medicine as a profession is very prestigious because it carries a strong association with helping people and requiring high intelligence. Reducing wages might actually increase the quality of doctors because you might tempt some into other professions who are interested in it mostly for financial reasons and bring in some other people who are very passionate but might not have done it because of the very tough competition.
Dean Baker makes the important point that while our politicians are happy to support the outsourcing of manufacturing, they're in favor of protectionism when it comes to doctors and medicine[1]. This is part of what drives up costs for the average American.
In the US a lot of non-specialty doctors make around $150-$200k, meaning they're in line with some snot-nosed kid with a bachelor's in CS and an offer from Google. Becoming a doctor isn't the end-all it used to be unless you really love it and/or are really good.
Plus, you know the whole 4 years of graduate work, 3 tiers of USMLE testing, 3 years of residency at what works out to be less than what you can make at Starbucks, a few more as a fellow before you can even start practicing. Even at the top end (cardiologists, anesthesiologists, neurologists), you're going to pretty much salary cap at around $750k pre-tax. There is a lot of waste in medicine, but the salary of doctors is pretty fairly priced.
Imagine if cardiologists all of a sudden went 'value-based free market' in their pricing. With all the retiring boomers in their waning years, I could very easily see 6 hours of labor for a staff of ~6-8 in the OR performing a bypass being billed at $100k.
Most countries have doctors skip undergrad which makes a huge difference. The US problem is people become doctors late in life and retire relatively soon after that. In UK Medical school might be 4-6 years, but saving 4+ up front and possibly a 'gap' year is huge. No only do people work longer, but they also have fewer years of compounding interest effing them over. Net result is you simply need around 20% fewer people to go though medical school.
Most (all?) countries outside the US seem to agree that roughly one year of undergrad maths/physics/chemistry blended into their med school program is enough.
None? I really, really don't care if the guy operating on my appendix can calculate torque. I care that he knows a lot about appendixes and has a steady hand.
Society doesn't seem to take issue with screwing over kids who go to law-school (outside the top 3) with asinine levels of debt and low salaries. All salaries should be subject to market forces.
> Bad lawyers also don't kill people as frequently as bad doctors.
You mean other than death row cases and suits to pay for life-saving treatments and suits that affect product safety and prosecutors who fail to convict violent recidivists and ... ?
About three quarters of a million people die each year just from HAI's... never mind all of the other problems, pain, expense, and poor outcomes. Lawyers do a lot of harm, but doctors are have unique access, and it would seem, shitty hygiene.
Meanwhile lawyers operate at scale. How many people do you estimate would have died if tobacco companies had won their challenge to laws prohibiting them from advertising to children? And that's the damage from one lawyer losing one case.
Not to pick on you, but your statement reflects a prejudice that many professions -- including doctors, but also lawyers, professional athletes, even hitmen -- are far too happy to exploit.
Worth noting this was "Issued by Global Policy & International Public Affairs, Pfizer Inc." (a large pharmaceuticals company) in October 2015 and there is an odd phrase in the footer that reads "Do Not Detail."
"Detail", in pharma parlance, refers to making sales presentations to physicians. The people who do this were once called "detail men".[1] This has declined somewhat now that pharma can advertise prescription drugs directly to patients.
Also, this is arguably the most corrupt aspect of medical pricing. Putting these sociopathic predators under the thumb of good governance satisfies a moral as well as an economic desire.
I'm not disputing the 10% number (though I don't know what all it includes - does it include drug delivery systems, like what is under discussion in OP's article?). I'm disputing the overall conclusion in that paper that "drug costs aren't really worth focusing on." I also dispute the assertion that other areas of health care aren't also being focused on for cost insanity. 10% is still a huge number, and if you happen to be one of the unlucky souls dependent on a medicine that goes up in price by many multiples it's a gigantic deal to you.
What do you mean by "results doctors by themselves can achieve"? Do you just mean to exclude drugs?
Or are you somehow also excluding IVF, MRIs, CTs, LASIK, stents, DNA sequencing, laparoscopic surgery, newborn screening, liposuction, and transplants?
That's right. New procedures are part of what professionals do, and knowing which one to apply each time is their trade. You can't buy that in a bottle.
One reason would be if pharma has a sufficiently larger margin than hospitals and doctors. It might be the case that there's more to save in that 10% than the rest of the 90% (especially when the cost of implementing change is considered).
>Why isn't there a larger focus on reducing the costs of hospitals and healthcare professionals?
Because that's exactly the wrong end to save money with health care. Drugs work with an economy of scale, highly specialized jobs, like medical doctors and the myriad of others, don't scale like that.
I'd rather save money buying generic drugs, than saving money by visiting an inexperienced/barely educated medical doctor.
Not to mention: Dumping wages isn't a good long-term approach to any sector, least of all health care sector.
When Edward Burger Flipper has a bad day, due to low pay and crappy working conditions, the worst that can happen to you as a customer is you get some stomach troubles from badly prepared food. If a doctor or nurse has a bad day, due to low pay and crappy working conditions, it may cost you your life.
Which is fine, honestly. I don't actually pay money for either of those (Obviously I pay with data and things). They also aren't something that is going to save my life in the same way as insulin does for a diabetic or an epi pen does for those allergic enough to need one.
I don't actually care what percentage profit the drug companies make so long as the end user can both access the medication and clearly afford to pay for them.
> They also aren't something that is going to save my life in the same way as insulin does for a diabetic or an epi pen does for those allergic enough to need one.
Which is more reason for those companies to be profitable, not less. The bright kid choosing between making $200k straight out of college peddling advertising or entertainment and making that much mid-career with a bio-chem PhD is willing to take a little bit of a haircut to work on socially-valuable things, but probably not that much of one.
> I don't actually care what percentage profit the drug companies make so long as the end user can both access the medication and clearly afford to pay for them.
That's a failure of the government's healthcare programs, not drug companies' pricing methods.
I'd agree they should be more profitable, but like most things, profit doesn't follow good works.
The point was more that it doesn't matter that entertainment companies make a higher profit because that profit doesn't generally put folks lives in danger. Unless the government reorganizing health care to provide more straightforward profits, upping the profits hurts folks because they are more likely to feel the increase. Hence the last statement: The important part is that the end folks get access.
And you are right, that is the government's fault. It isn't just healthcare programs, however. They could go different routes to reimburse drug companies for r&d costs, for example. Sure, the money would still come from taxes, but hopefully(!) it'd be more transparent with some of these things.
while i sympathize with the implication that facebook and google are not socially valuable, it's important to note that those advertising engineers help finance free worldwide communication, self-driving cars, and smartphones.
To add to that, the percentage spent on drugs is a bit of a meaningless number.
Let's say a magic pill was produced that completely prevented heart attacks. Drug spending would go up and all other costs would dramatically decrease (hospital stay, surgeries, etc).
Suddenly the cost of drugs is 20% and everything else is 80%. That would be a good thing, no?
Lack of price transparency is the fatal flaw in nationalized healthcare. I'm endlessly surprised it's not top on the list at every debate.
Lasik is an out-of-pocket procedure. It has the highest satisfaction rate of any surgery and the price has gone steadily down since it was introduced.
Should all healthcare be out of pocket? Maybe not. But if most consumers purchased most health services retail instead of via invisible negotiated prices, insurance would get cheaper too. (And until that happens, prices will continue to go up).
Medicare set a cap on the first 30 days post heart-attack care in the 90s and hospitals respected it -- but day 31 got a lot more expensive.
Inelastic demand is the fatal flaw in any non-nationalized non-single payer-system.
Lasik is great, but it is a very optional surgery. Lots of people opt to just go with contact lenses or glasses, Lasik is just a more convenient longer term solution to the problem, but it isn't necessary for anyone.
Where the the screws really get turned in health care costs are for the treatments that you actually need to have a reasonable chance to continue to exist should you have certain health issues: Hep-C regimens, EpiPen-type systems, etc.
(Of course there are other factors that contribute on top of inelastic demand, like what I would consider too-lengthy intellectual property coverage for patented treatments, eliminating the possibility of cheaper alternatives altogether in some cases).
If there's a single effective treatment for Hep C that's a different question. This article is about an injector for naloxone. Are we really saying there's no market for a cheaper syringe?
I hear your point that some treatments are difficult to make subject to market forces.
There's a market for cheaper syringes, but nobody is serving it.. possibly due to what appears to be blatant and wide-scale price fixing in the pharmaceutical industry (including the generic manufacturers).
For every medical condition, there is a long list of treatment options with varying levels of cost, efficacy, pain, convenience, etc. It can be quite elastic because of this.
Actually from what I've seen, market forces fix this. In Asian countries with capitalist medicine (e.g. India and Thailand), you can just call up to inquire about the price for things.
Consumers won't make a purchase if they don't know the price.
for elective/ non-essential medical needs, private healthcare is good. but for essential care, what price can someone put on their life? it's a means to extort if life saving procedures are private!
> for elective/ non-essential medical needs, private healthcare is good. but for essential care, what price can someone put on their life? it's a means to extort if life saving procedures are private!
Only of the provider is a monopoly. One provider can't charge $5000 when the other will do the same thing for $50.
Same reason a can of beans doesn't cost a thousand dollars even though you have to eat to live.
When I'm hungry I don't get taken to a bean factory and force fed beans, then given a bill for my beans in 3 months. I see the price before I eat them.
That only applies to emergency care, which is not a majority of healthcare expenses and should reasonably be handled in the same way we handle the Fire Department.
The Fire Department is paid for by taxes and puts out the fire. If you don't want to lose everything you own you can either carry fire insurance or manage to not have your house catch fire.
Are you suggesting that we should have government fire insurance?
I am pointing out that the current healthcare model IS very close to the current fire department model. In both cases, you likely need private insurance to deal with catastrophic loss. So saying "make medicine more like fire insurance" doesn't really make sense.
The problem is that it isn't. You need insurance for catastrophic loss, not for everyday expenses -- that's the problem with existing medical insurance.
Suppose you needed a new garage door opener for your house. If fire insurance was medical insurance then you would have the insurance company buy you one because it would be dangerous to not be able to get out of your garage if there was a fire. Then garage door openers and plumbing and doorknobs and smoke alarms would all cost ten times as much because people aren't price conscious when the insurance is paying for something, and fire insurance premiums would get completely out of hand.
Gotta love the libertarians. If the market thing doesn't work they can just say "It's not capitalist enough". Same as the scrum people "Scrum not working for you? You are just doing it wrong."
In the US the quality of service is regulated but there are not many price regulations. Tell me, in what way would the US system have to change for medical providers to give clear pricing information? Be specific, don't use words like "capitalist" or "regulation".
To start with, eliminate the massive subsidies for low deductible health insurance, and eliminate the regulations which mandate the provision of specific services. Then the high cost of low deductible health insurance will induce consumers to choose high-deductible plans, making them more price sensitive.
As a non-libertarian, regulator friendly way to achieve this, you could also ban first dollar coverage.
What you are pretty much saying is that first we need to put a lot more financial pain on patients so the high cost will force them to become more price sensitive. And somehow doctors and hospitals will then quote accurate prices?
1. You're saying higher deductible will increase the 'financial pain' to the consumer. Wrong -- what matters to consumer is cost for services + cost of insurance.
2. You're saying quoting accurate prices is the goal -- I think quoting prices at all is the goal. If consumers aren't moving to cheaper providers, prices will always go up. There are price controls built into insurance programs but they're not based on the real cost of providing a service so they can hurt quality.
3. You're saying 'financial pain' comes from high prices today. The real concern is that 0 price sensitivity increases the % of GDP allocated to health care to unsustainable levels. I can suffer pain today if it turns health cost growth from positive to negative.
Yes, doctors and hospitals will need to quote prices, otherwise consumers will take their business elsewhere. At least, that's what happens here in India.
We can't do that for many basic surgeries or medicines. Not because it's impossible, it's just that many hospitals and doctors don't know how much something costs [1, 2]. At the same time, for traumatic injuries, etc, you get shipped to the nearest hospital. You have no price negotiation power at that point. We should have a book value like shop rates for autos.
Yet somehow, in India I can simply ask a price and be told one. Is Apollo Health just asking Shiva, and He refuses to answer outside the borders of India?
Honestly it's silly boarding on stupid that we can't do that. I've heard various arguments. Most of them come down to a) doctors are sacrosanct, or b) it would cost too much money.
The biggest is that employers can give you health insurance without paying taxes on it. There are a variety of Obamacare and other such rules which insist on low deductibles for certain categories of events. And of course, medicare/medicaid.
It's long but a very thorough treatment of the problem. The existing pharma system is very, very profitable and there is a ton of resistance to anything to rock that boat. Lately profitability has been coming from price increases instead of innovation but pharma is okay with that as long as it lets them pay billions in dividends.
I feel a lot of people in this thread must not have any chronic health conditions. I see comments about how this is a free market and that this is okay. I suspect if Pharma was bankrupting you like it is me, your stance might change.
I think the LA Times takes the crown for the most unperformant tracker and advertising infested legitimate news site. Ghostery counts 88 advertisers / tracking scripts on this page and it still not done loading. What a disaster.
This article talks about absurd pricing for new patented delivery mechanisms for old generic drugs - the epipen, the evizio naloxone auto-injector (and presumably the Narcan insufflation device).
Anyone who might need to deliver these drugs -- to their allergic kid, addict friend, etc -- ought to learn how to use a syringe, and skip the price gouging. Someone on the opiates subreddit sent me a couple vials of naloxone and some needles - I sent a donation to cover shipping & handling.
I think more attention should be drawn to prescription drugs that harm patients. For example, the caller to a NPR Science Friday segment [1] was annoyed that her doctor made her "manic and suicidal" with the depo-provera injection, and that this awful drug is still on the market.
The title is misleading. It says "value" but only ever discusses "price" which is a related by distinct concept. That confusion is actually emblematic of the wrong-headed approach the media takes to the pharmaceutical industry: it ignores the value created by innovations in drugs.
Just in my adult life there has been enormous advances in treating HIV, Hep-C, and various cancers. When I was a kid in the 1990s, HIV was a death sentence people talked about in hushed tones. With modern anti-retrovirals:
> What did this do to life expectancy? In 1996-97 the life expectancy at age 20 of an HIV-positive person was 19 years, in other words they could only expect to live, on average, in the absence of any improvement in treatment, till they were 39. By 2011, this had improved to 53 years, i.e. death on average at 73.
What is the value of living to 73 versus living to 39? Big enough where the $10-12k annual cost of anti-retrovirals is a bargain in comparison. Probably a way better bargain than a $700 iPhone.
When you make something that creates a ton of value for people, you are able to charge a lot for it and make a big profit. There is nothing nefarious about that, and indeed those outsized profits are essential to making the system work. Turning drugs into a price-regulated ghetto is going to do nothing more than drive investors to areas like advertising where nobody will blink when they see a 30% profit margin. Unless you're willing to replace that private investment with public investment (as we have done in the defense industry), that's a terrible idea.
from the perspective of the individual, their own life is priceless, but from a societal level, each life certainly has a price. The US Govt uses 10mil as the price of an average life (for a soldier).
> There’s a good reason why U.S. drug prices are so much higher than what people pay in other countries. Most other developed nations place limits on how much drug companies can charge to prevent them from taking advantage of the sick. A fair profit is fine. Price gouging is not.
Ok so what is happening here if it's not clear is this. People in the US are subsidizing so that people in those countries don't pay as much. Point being if people in the US paid the same price (in theory) the drug companies wouldn't make enough money to support their operations. As a result prices would rise for everyone and drugs in the US would cost less. I guess it's to simple for our government to enact some kind of 'most favored nation' clause whereby the discounts given to other countries must be given here. My guess is that that doesn't happen simply because it works in the favor of the drug companies (who will lobby) to have the current system.
The Republicans could have shown their seriousness about free market healthcare and consumer oriented lately if they had required medical pricing (and quality numbers) to be transparent so patients can make an informed decision.
Of course they didn't but I think this needs to be pointed out repeatedly.
Companies wouldn't be able to "charge a billion dollars" or even increase the existing prices by 5,000% overnight, as it happened for several different drugs last year, if the generics and drug importation markets were much more "free".
How does FDA testing even affect drug prices? They demand proof of safety and efficacy.
As far as safety goes, the interests of pharma and the FDA coincide. You really don't want to find out that your compounds causes adverse effects once it has hit the market, it's a guaranteed win for the lawyers. People in the field will remember the Vioxx lawsuits. They were expensive to defend and a PR disaster as well, because it became known that Merck had a list of people it wanted silenced.
And if the FDA won't confirm efficacy for you you can be sure that your health insurance will be asking for proof before they pay. The only reason that Gilead can charge as much for their Hep C drug is that it is still cheaper than a liver transplant, and it is proven to work!
There's lots of drugs that everyone knows are safe and effective, but no one wants to shell out the money to get them approved. Just because the FDA says it provides proof of safety and efficacy doesn't mean that's what actually happens.
But, even more, your argument as presented is self defeating. If the companies already have to do enough research into the drug to make it safe (because 'You really don't want to find out that your compounds causes adverse effects once it has hit the market, it's a guaranteed win for the lawyers'), and that it works ('your health insurance will be asking for proof before they pay'), then why do we need another organisation that requires a different set of tests?
I'd be curious to see even a partial list of those "safe and effective" meds that nobody wants to pay to run through the approval process.
From my perspective, it seems like a substance that's already through the R&D pipeline would be relatively cheap to turn into something for sale, compared to developing new drugs "from scratch".
Compounding drugs is a non-trivial problem, public safety demands compliance and testing. Not too long ago, there was a rash of deaths (!) from a homoeopathic (!!) belladonna preparation. Turns out, the manufacturer was honest and did use belladonna but had a problem with their dilutions, the distribution was uneven and some of their globuli actually had sufficient atropine to kill an infant. The things were sold as a teething aid.
edit: The post title changed, it used to reference drug value
the value of a drug is the amount someone is willing to pay for it. different for everyone.
while im a big proponent of lower drug costs and agree drugs cost more than they should/could,
drugs are typically very underpriced compared to their actual value. a drugs actual value to the a person can be tremendous. if we charged people the same amount as the value it brings them, they would not buy it! it would be a wash! since lots a people are buying lots of drugs, we know drugs are typically priced under their real value; that's a good thing!!
in other words, talking about the value of a drug if you're arguing to lower their cost is the last thing you want to do!
> Drugs are typically underpriced compared to their value.
For drugs under patent, which are monopolies, that's unlikely.
For drugs for which there is relatively unrestrained competition in supply, that's expected, since competition drives prices down toward costs even if value is much higher.
since competition drives prices down toward costs even if value is much higher
Indeed. In fact, for many drugs volumes and prices are such that the market will support just one supplier in the market, and then funny things happen.
There is exactly one supplier of benznidazole, which is one of the few things that actually work against T. cruzi. The other thing that works is nifurtimox, and that is in short supply as well.
And if they can't pay for it, let them suffer the consequences!
Edit: Please stop editing your post as people reply to it. This was is before you changed it.
> the value of a drug is the amount someone is willing to pay for it. different for everyone.
>Drugs are typically very underpriced compared to their value. otherwise no one would buy them!
> e.g talking about the value of a drug if you're arguing to lower their cost is the last thing you want to do!
The articles dances around the details of who these players are and how they conspire to push up drug prices in America. This article captures the dynamics very well: http://www.diabetesforecast.org/2016/mar-apr/rising-costs-in...
and the accompanying graphic is the picture that is worth a thousand words: http://www.diabetesforecast.org/2016/mar-apr/images/insulin-...
A good summary from a more recent article on insulin prices: https://medium.com/insulin-report/why-does-insulin-cost-so-m...
Drug manufacturers make insulin available to insurance companies at a much lower price via middlemen called pharmacy benefit managers. The difference between the list price and the lower price negotiated by the pharmacy benefit managers is called the spread. Part of the spread is pocketed by the pharmacy benefit managers, leading to a perverse incentive in which the higher the list price of the drug, the higher the earnings of the pharmacy benefit managers. The price rise affects the uninsured and under-insured the most, many of whom can no longer afford to buy insulin at its list price any more.