The Hidden Monopolies That Raise Drug Prices

http://prospect.org/article/hidden-monopolies-raise-drug-prices-0#main-content

214 190 9 years ago

refurb24• 9 years ago

It's interesting how the villains of drug pricing have gone from the drug companies to the PBMs.

At any rate, I don't agree that PBMs cause drug costs to increase. PBMs are simply purchasing groups for insurance companies. They take advantage of bulk purchasing and offer that service to insurers. They also handle the all the complexities in setting a formulary which includes evaluating new drugs, negotiating with drug companies and adjudicating claims. That has real value.

The best example of how PBMs have controlled drug pricing is in HCV. Express Script directly attacked the pricing of Harvoni and Sovaldi. However there was nothing they could do since they were the only HCV drugs available. However, when Viekira Pak became available, Express Script did an exclusive deal with Abbvie which caused Gilead to scramble to price match. The cost of HCV drugs came down by almost 40% overnight. It saved the health care system a lot of money.

Now, I do agree that PBMs pull a fast one on some insurance companies. They are intentionally opaque when it comes to how much you pay for their services. The smart insurance companies ask for "pass through" pricing and then pay the PBM a fee for their services. The not-so-smart insurance companies don't ask for those numbers and get put over a barrel.

23443463453• 9 years ago

Interesting and rather specific and niche perspective. Would you agree that the biggest problems in our healthcare system are transparency, i.e., no way of telling how much something is going to cost in spite of all the data existing to provide just that, and the crushing administrative costs of a system that seems to incentivize massive administrative burdens?

attaboyjon3• 9 years ago

Actually the PBMs are a big villain here. They pocket the difference between the retail price of a drug and the discounts they negotiate with the drug makers. They choose the drugs on their formulary based on this spread.

This one of the reasons why you will see prices for drugs like Insulin going up with each manufacturer raising price in lock-step. The drug makers are not competing to sell the consumer insulin, they are competing to get on the formulary of the PBM.

refurb24• 9 years ago

But that's their job! They are supposed to negotiate lower prices. They, in turn, can market their formulary to insurance companies by saying "If you use us, we can offer a lower cost pharmacy benefit."

And if you're a smart insurance company, you do your due diligence and don't negotiate a contract where you have no transparency into the PBMs costs.

vlunkr• 9 years ago

In this case I think there are several tiers of villains.

Tactic• 9 years ago

There is hardly a single villain in the existing system. Everyone is making a profit that is ultimately at the expense of the citizens.

And even despots do some good. It doesn't mean they are any less a villain.

chimeracoder12• 9 years ago

Americans pay the highest health-care prices in the world, including the highest for drugs, medical devices, and other health-care services and products. Our fragmented system produces many opportunities for excessive charges. But one lesser-known reason for those high prices is the stranglehold that a few giant intermediaries have secured over distribution. The antitrust laws are supposed to provide protection against just this kind of concentrated economic power. But in one area after another in today’s economy, federal antitrust authorities and the courts have failed to intervene. In this case, PBMs are sucking money out of the health-care system—and our wallets—with hardly any public awareness of what they are doing.

As I and other have mentioned before, the easiest way to fix this would be to permit re-importing drugs that were manufactured within the US.

For example, permitting trade across the US-Canadian border provides an equalizing force on the prices across the border, even though, at steady-state, no drugs actually need to make the return trip. In other words, allowing the trade puts an upper bound on the difference between the prices charged in the US and the prices charged in Canada: that difference can be no greater than the costs of reimporting those drugs, or else it becomes cheaper for people to source their drugs from Canada.

By disallowing the trade, we allow the difference to grow unbounded.

A few days before Obama left office, there was a bill that would have fixed that, but nine Democrats joined the Republicans in voting it down: https://www.senate.gov/legislative/LIS/roll_call_lists/roll_...

awinder2• 9 years ago

Or: we could just emulate what those other countries are doing to control prices, which apparently has been empirically proven to be effective. Why set up this rube goldberg export / import system when we could, apparently, just import some good legislation?

chimeracoder12• 9 years ago

Or: we could just emulate what those other countries are doing to control prices

Because centrally setting prices is very difficult, and that difficulty scales super-linearly with size.

Every other country that controls pharmaceutical prices is significantly smaller than the US is, and they also fund much less pharmaceutical R&D than the US does[0], even though they essentially import the benefits of that R&D at reduced prices[1].

If the US tried to do that, pharmaceutical research would completely evaporate in the US, which would impact every other country that either produces or imports drugs produced in the US as well[2].

Instead, cross-border trade ensures that research funding is proportional to drug consumption.

[0] Until a few years ago, US funded more than half the R&D of the entire world. It's now around 44%, mostly because China and India have been growing rapidly.

[1] Even pharmaceutical companies based in Europe receive most of their R&D funding either directly or indirectly from the US.

[2] Which is literally every other country in the world, even countries like India which do not recognize US pharmaceutical patents.

refurb24• 9 years ago

The challenge with that is that simply allowing drugs to be imported doesn't prevent drug companies from allocating volume on a country-by-country level and maintaining price discrimination.

This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesaler tries to buy more, the drug company tells them no. Then all of a sudden Canadian wholesalers are in a bind. Do they sell to Americans and tell the Canadians no?[1]

In an April 8 letter to Canadian pharmacies and wholesalers, AstraZeneca wrote that some prescription drug orders would be reduced because of a new allotment program designed to address "unexpected sales increases"

[1]http://khn.org/morning-breakout/dr00017294/

chimeracoder12• 9 years ago

doesn't prevent drug companies from allocating volume on a country-by-country level and maintaining price discrimination.

It does; for price discrimination, there are three criteria that all need to be satisfied, and one of them is the ability to restrict resale between market segments. If market segments are free to trade with each other, the supplier cannot price-discriminate.

This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesaler tries to buy more, the drug company tells them no. Then all of a sudden Canadian wholesalers are in a bind. Do they sell to Americans and tell the Canadians no?

It's important to understand the difference between the short-term impact and the long-term (steady-state) impact. The case you're referencing is an amusing one, because it's actually AstraZeneca's proactive campaign against what was then a touchstone of the healthcare reform bills[0]. At the time, unrestricted trade in pharmaceuticals was not possible between the US and Canada, and AstraZeneca was making a threat to try and kill the provisions that would have permitted it[1].

The only reason that they can set these quotas in the first place is that US wholesalers can't (freely) export to Canada, and vice versa. If the ban on that had been lifted, AstraZeneca wouldn't be able to set quotas per-country in the first place. They could try, and succeed in the short-term, but in the long term, the prices in both markets would be forced to converge (with the difference bounded by the costs of import/export).

[0] Remember the date: April 2009, just a few months into Obama's inauguration. The public option was still theoretically on the table, and the Baucus plan hadn't happened yet.

[1] It worked - that was one of the parts of the ACA that was killed before it got a vote.

rayiner6• 9 years ago

We "disallow trade" for lots of legitimate reasons. One such reason is when government intervention in another country drives prices below market levels (e.g. we put high tariffs on Chinese steel to counter heavy Chinese government subsidization of that industry).

That's exactly what happens in Canada. Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive drug prices below efficient levels: http://www.becker-posner-blog.com/2009/12/should-the-governm.... Allowing re-importation of those drugs into the U.S. would create a price ceiling at whatever level the Canadian government had negotiated, and would effectively allow the Canadian government to set drug prices in the U.S.

That would be good for consumers in the short term, but not necessarily in the long term. It's no coincidence that the U.S. is the epicenter of pharmaceutical advancements. When I was a kid (early 1990s), HIV/AIDS was something we regarded as a death sentence. I vividly remember people talking in hushed tones when Magic Johnson was diagnosed in 1991. 26 years later, Magic Johnson is still kicking, HIV is no longer a death sentence, and we have Big Pharma to thank for it (and not Canada).

chimeracoder12• 9 years ago

we put high tariffs on Chinese steel to counter heavy Chinese government subsidization of that industry

That's not a good comparison, because we're talking about reimportation - ie, drugs that are produced in the US and exported to another country before being reimported. In general, nobody's interested in reimporting steel produced in the US and exported to China.

Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive drug prices below efficient levels

First, Canadian healthcare is run at the provincial level, not at the federal level. So while each province/territory is a monopsony, they're each fairly small.

Secondly, pharmaceuticals are typically not covered in Canada; patients pay for most drugs out of pocket, and their generic prices are actually not much lower than they are in the US[0]

Allowing re-importation of those drugs into the U.S. in effect allows the Canadian government to set drug prices in the U.S.

With free trade, another country is still free to subsidize the goods that it imports from the US, but with the knowledge that they'll be subsidizing whatever portion of Americans choose to reimport those drugs at the subsidized prices.

In reality, that reimportation won't need to happen, because it'll just apply backpressure on the initial sale prices in both markets from the manufacturer.

[0] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3107113/

koolba2• 9 years ago

That's a pretty shitty way of saying that somebody has to pay and it has to be us (the USA).

Shafting the American consumer because the rest of the world can't or won't pay the "true" cost (including research / marketing / profits) isn't a solution.

dv_dt• 9 years ago

You talk as if the negotiated prices were permanent. The profit extraction flows like water - if most customers negotiate lower prices, then the one market that doesn't (the US), ends up carrying the bulk of the profits.

If the US closes down the allowed margin, the drug maker isn't just going to blink out of existence. I would expect a set of renegotiation between all it's existing customers to rebalance what is a reasonable profit to allow - which admittedly would likely be lower than what is extracted from the US market currently. But that is likely healthier for society in the long term as it would remove all the costs of inefficiency spent on this crazy drug pricing dance that occurs in the US.

jonahrd• 9 years ago

It's insane. I need a drug that costs about $8k every two months in the US. However, I'm living in Canada right now, where it costs $4k. My US insurance company just decided they will no longer cover the drug in Canada, so instead of paying the $4k CAD, they're now going to pay $8k USD and I'll go pick up the drug across the border. Seems like a lose-lose.

gleb2• 9 years ago

You are misunderstanding the incentives of the insurance company. They get to keep 20% of money that passes through them. The only way they can make more money is by increasing the money flow.

You lose though. Insurance is part of your total compensation, you are paying for all this. It's averaged out across a bunch of people, but you are still paying for it.

In summary, drug company wins, insurance company wins, your employer doesn't care and you lose. But you don't even know you lost, and can do nothing about it even if you wanted to.

e403• 9 years ago

As I and other have mentioned before, the easiest way to fix this would be to permit re-importing drugs that were manufactured within the US.

The easiest way to fix this is to have cost controls like every other 1st-world country in the world on drugs and medical procedures. Unfortunately, this is treasonous to Republicans and Democrats are spineless. The current system will be upheld until people get fed up enough to vote for real change.

chimeracoder12• 9 years ago

The easiest way to fix this is to have cost controls like every other 1st-world country in the world on drugs

Ignoring the incredibly loaded term "first world country", that's not true. Not all other "first-world" countries implement price controls on drugs.

Secondly, as explained below, the only reason that works for them is that the single largest consumer of patent-protected drugs (the US) does not, and thereby ends up subsidizing medical research for the rest of the world. (Half of all medical research in the world is funded by the US, and even many European pharmaceutical companies fund their research from the US).

jobu• 9 years ago

I've been buying albuterol inhalers from Mexico for a several years now. Most of my life these inhalers cost a few bucks, but a few years back (2010?) they started costing me $50 for just the copay.

It turns out the pharma lobby was able to get congress to ban CFCs from inhalers (even though the amount of CFCs in these is trivial). Because of that they were able to re-patent them and start charging more. Now I go to Mexico every couple years and buy a bunch of them for less than $1 each. It's the same medication I've always used, now with spanish on the package.

EDIT

Here's a link that talks about the pharma lobby shenanigans for albuterol inhalers: http://www.motherjones.com/kevin-drum/2013/10/heres-why-your...

And here's another that talks more about medical patent evergreening: http://www.nytimes.com/2013/10/13/us/the-soaring-cost-of-a-s...

encoderer• 9 years ago

I think blaming drug companies and wholesalers just misses the point.

Drugs are really good today. Not even the life saving types, but also things like migraine medication or acid reflux relief. If you suffer and have the means, you'll pay what the market demands for relief. And we live in a wealthy country.

code_duck3• 9 years ago

That's true, but there are also many drugs on the market which are barely better than a placebo, or even more harmful than no medication. However, they are still prescribed and billed for as if they are effective.

refurb24• 9 years ago

Have any examples? The FDA won't approve a drug unless safety and efficacy have been proven.

clueless123• 9 years ago

If your drug is so good, you should let the market decide what the fair price.

The problem is that drug companies and wholesalers don't let that happen by lobbying against open markets and government paid healthcare.

rayiner6• 9 years ago

I'm in favor of government-paid healthcare, but you can't have a functioning free market when one buyer dominates. It's the mirror situation of a monopoly.

refurb24• 9 years ago

If your drug is so good, you should let the market decide what the fair price.

Contrary to what people think, drug companies can't just charge whatever they want. Take a look at the HCV drugs. They priced too high and their sales are eroding very quickly. If they had priced lower, they probably would have seen even greater profits.

awinder2• 9 years ago

While this country may be wealthy, there's rampant disparity in who holds that wealth. This is an issue because real people are making the decision to either pay for food or pay for life-saving medications they depend on. The number of people in the cross-section of "suffering" and "have the means" is much lower than the number of people in the cross-section of "suffering" and "don't have the means", and rational society is based on the simple premise of making decisions that optimize society for the majority.

rlpb• 9 years ago

If you suffer and have the means, you'll pay what the market demands for relief.

Actually you'll [be forced to] pay above that price, because the market is distorted by non-free-market forces. The moment drug companies arrange to intervene by having the law altered to their favor, blaming them for inflated prices becomes entirely reasonable.

kyleblarson• 9 years ago

Interesting takeaway: going forward I'll always ask the pharmacy if paying out of pocket would actually be cheaper than using my insurance and paying a copay.

MichaelApproved• 9 years ago

I have insurance with a high deductible. That means, I'm most likely paying a price similar to a cash patient.

Often, it makes more sense to use a free 3rd party "coupon/membership" prescription company to get a better price.

Here are two that have saved me money.

https://www.goodrx.com https://www.blinkhealth.com/

maxerickson• 9 years ago

The price they quote you may be their cash price, which will often be higher than your copay. You can also check which free PBMs they accept and see what those prices are.

zakirenish• 9 years ago

It is almost always the case when it is a generic drug. Also, try to check the price at the small non-chain pharmacy, cash price might be better.

Broken_Hippo4• 9 years ago

Some pharmacies already compare the prices, actually, and when the drug is cheaper than your copay, you just pay the lower amount. At least the pharmacies I've been to in Indiana were like that (CVS mostly, but sometimes Walgreen's).

torpfactory3• 9 years ago

I'm going to make the statement that perscription drugs aren't like other products and shouldn't be viewed as such. People literally need them to survive. This whole system of having something you need to survive being subject to market forces like some other widget is ridculous. Price fixing is absolutely a reasonable tactic to employ when the market for prescription drugs in the US is as completely useless at delivering reasonable costs to patients as it is.

db48x• 9 years ago

You need food to survive as well, but any price fixing inevitably reduces supply. Reducing supplies of food is counterproductive.

joshuaheard• 9 years ago

We need food to survive, and market forces work fine. In fact, I would say that the U.S. supermarket is a model of market efficiency.

torpfactory3• 9 years ago

When I can buy drugs from the Pharamacy for $1.69 a pound I'll be happy to see it driven by market forces. The market simply isn't doing a good enough job getting medications to consumers at a reasonable price.

jellicle2• 9 years ago

A great deal of agricultural regulation and subsidy goes into ensuring the food supply is consistent and in excess of demand. Also, food is almost entirely substitutable - you don't NEED any particular food item. (And for items where there aren't good substitutes, like milk for babies, we have extra subsidies to ensure supply.) Also, no one has a government-granted monopoly on "bread" or "fish". Therefore, the market for food doesn't degenerate under the conditions that prevail currently.

If you needed to eat a whole wheat bagel (only) in the next 24 hours or you would die, and whole wheat bagels were under a government-granted monopoly, the bagel manufacturer could charge you any amount they'd like, couldn't they?

dredmorbius3• 9 years ago

Are you claiming that hunger, malnutrition, and diet-imposed diseases (diabetes, obesity, vitamin deficiencies) don't exist?

If that's the case, then perhaps the market is working find.

If it isn't, then ... perhaps your assertion fails.

rayiner6• 9 years ago

The system is always subject to market forces. The government can budge the market around, but it's like pushing on one part of a balloon--it'll just have an effect somewhere else. When you set prices, you drive investment and talent out of the industry. Why spend years getting a PhD in biochemistry when you can go make $400k/year with just a BS at Google? It's precisely because people need drugs to survive that it's counterproductive to take measures that make pharmaceuticals a less attractive market to invest in, which fixing prices would do.

torpfactory3• 9 years ago

Almost all other developed economies use this approach and it works for them. Many Of these very companies are based on those very countries. We need a reasonable price for these medications. The market isn't delivering them. The scandal here isn't the pay these companies researchers receive. I'm happy to have them paid more for their work. To me the scandal is how much profit is being taken while many people go without due to the price. What do you say to those people who might die for lack of funds?

dikdik4• 9 years ago

WHAAAAAAT?!

You don't hang around scientists much, do you? The people researching and making these drugs do not make a very good living. Not caring about your salary is seen as a mark of a good scientist, I've heard it from many, many people I work under. Most scientists make absolutely crap, even the ones in the pharma sector.

The majority of the pharma profits go straight to the business people that make all sorts of weird deals, jack up prices after cornering the market, get certain chemicals/processes banned so they can re-patent the same drug under a new mechanism, etc.

Why spend years getting a PhD in biochemistry when you can go make $400k/year with just a BS at Google?

Because they like the work and find it interesting, go ask literally any scientist today. Reducing the profitability of pharma companies will hardly move the salaries for scientists because they are not at all tied to profits.

replicatorblog5• 9 years ago

You're over privileging people using the drug today and undervaluing the hundreds of millions who will use it for decades to come. For the most part, the expensive drugs like Sovaldi are under patent protection. That protection lasts for 20 years at max, and practically, a much smaller window since R&D cycles eat much of that time up leaving a small commercial window. Once the patent expires, companies like Teva and Perrigo line up to make generic versions of the drugs and flood the market at ridiculously low prices. A small group pays a surcharge for the long term benefit of society.

galdosdi3• 9 years ago

Sort of. Once the patent expires, the R&D machine will try hard to create new drugs that are just slightly different or potentially "better" in some vague small way for some small number of people, and then the sales/marketing machine will try hard to market to doctors and consumers the idea that this new, still patented version is the right thing and the best and the old stuff is crap.

The new stuff will actually benefit a tiny number of people, but mostly, you'll end up with a lot of those future generation which you think were going to save money, not saving any because they're wrongly prescribed a newer fancier drug that doesn't actually have any benefits for them over the old generic one. This is how pharma has their cake and eats it too.

kellanem3• 9 years ago

The article does a good job of starting to explain the forces, but it's actually even more complicated.

A number of the PBMs are cross invested in pharmacies and insurance companies, and the incentives of 2-3 large pharmacies that control the majority of the market (and how they get paid) is very different than how small pharmacies get paid.

Additionally the way the generic market works vs the branded (patented) meds is completely different. (and the system of how drugs move from patented to generic is _nothing_ like the way patents work in software)

Which is all to say, it's a fascinating space. It's very ripe for innovation.

If you're interested in this kind of thing at Blink we're building a price transparency and payment platform that both routes over and routes around PBMs and gives a unified fair price for everyone in the US.

If you're interested in roughly what the wholesale price is plus a very small markup, you can find it on https://blinkhealth.com

And we're hiring. https://www.blinkhealth.com/careers

Also the re-importing from Canada is a total red herring. As is implied in the term "re-importing" these drugs are made here in the US, there is nothing special about sending them to Canada and bringing them back. There just needs to be a payment platform that allows people to pay the wholesale price with a small markup (vs the "Average Wholesale Price" which is often a 2000-3000% markup over the real wholesale)

Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it.

DarkKomunalec4• 9 years ago

Proportionately to their revenue, pharma doesn't spend that much on R&D: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p...

And that's just compared to advertising - throw in other overhead, and separate R&D into genuinely new drugs vs. generics and flavoured aspirin, and the numbers are even worse.

Of course it's hard to get such comprehensive financial data, but that's just one of the advantages of private healthcare - hiding data to hide how much you're being exploited.

refurb24• 9 years ago

Drug companies spend the most on R&D out of any industry. The average is almost 20% of revenue. That means if you buy a drug for $1000, $200 of that goes back into R&D.

And no, the sales and marketing in that article is not advertising alone. It's mostly sales people who go and visit medical professionals to talk about their products.

rayiner6• 9 years ago

Let's take the middle two from each row: Pfizer and AstraZeneca. In 2013, Pfizer spent 13% of revenue on R&D, while AstraZeneca spent 17%. Google spent 12.9%, Intel spent 20.1%, and Microsoft spent 13.5%. Apple typically spends only 3-4% of revenues on R&D, but it's an outlier in the tech industry.

ch4s34• 9 years ago

what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop

This is really hard to explain to people.

AnthonyMouse2• 9 years ago

This is really hard to explain to people.

It's not that it's hard to explain, it's that it causes people to want to switch from the US system even more, because as soon as you understand it you realize that US patients and taxpayers are being unfairly forced to subsidize more than their share of drug R&D for Canada and Europe.

rhizome2• 9 years ago

Probably because saying something is "financed" by demand is counter-intuitive.

bradleyjg2• 9 years ago

If you're interested in roughly what the wholesale price is plus a very small markup

What about the rebates mentioned in the article several times? I know in the car industry one trick is to go on and on about "dealer invoice" and how great a deal you are getting while ignoring that rebates make that number fairly meaningless.

kellanem3• 9 years ago

Two things going on with the rebates.

1. I think the article is a little one sided in their explanation of the rebate system, though it certainly more opaque than it should be. (some of which is just healthtech is stuck in the dark ages)

2. The rebates really only apply to the branded meds, which are approximately 20% of the market.

svskeptic• 9 years ago

"roughly what the wholesale price is plus a very small markup" .. is not my experience. I just had a pharmacist friend show this to me.

Blink charged the customer $10 for generic Lipitor (atorvastatin) 20mg, 30 pills. And reimbursed the pharmacy $4.90. Hence keeping > 50% of what the customer paid. As per the pharmacist, he would be happy to fill the prescription in cash for $7.50, lowering the price for consumer and making him more margin.

These are real numbers. Blink is in fact contributing to increasing the price for consumers, while being yet another middleman in the process.

jjmorrison2• 9 years ago

Just to provide more info - for a given pharmacy, Atorvastatin 20mg is $.0629 per pill, so $1.887 at cost. For most pharmacies the real cost is going the pharmacist filling the rx. An insurance company would probably reimburse <$5 and may or may not just make that the copay. $10 is way higher than pharmacies would charge for generic lipitor.

Also claiming: Avg. retail: $132.52 You save: 96%

Is the complete OPPOSITE of transparency. $132.52 might be a realistic price for branded Lipitor, but that's not at all what is being sold here.

spangry7• 9 years ago

"Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it."

That would be bad. Based on 5 minutes of googling and 10 minutes of reading, the largest US pharma company is Johnson & Johnson. Their latest earnings report has the following for the 12 months in 2016 (not all expenses are listed here):

- Sales (i.e. revenue): $71.8bn

- Marketing expense: $19.9bn

- R&D expense: $9.1bn

- After tax, after expenses profit: $16.5bn

So, on behalf of my fellow Australians, I'd just like to thank J&J for selling into my country at a substantial loss (and, in doing so, bravely running the risk of breaching their fiduciary duties to their shareholders).

I'd also like to express my gratitude to consumers in the United State, who are apparently so generous that they are willing to subsidise my country's single-purchaser medical system. It's a shame you can't have one as well, but at least you have the world's gratitude for your sacrifice. USA #1!

EDIT: Link - http://files.shareholder.com/downloads/JNJ/4178180194x0x9249...

xadhominemx4• 9 years ago

Less than half of JNJ's revenues is pharmaceuticals, so not a great example to be honest.

jessriedel5• 9 years ago

With all the sarcasm, it's hard to tell how broad of a point you're trying to make. Do dispute the fact that Australia free-rides to a non-trivial extent on US medical R&D?

vilmosi• 9 years ago

> So, on behalf of my fellow Australians, I'd just like to thank J&J for selling into my country at a substantial loss

Are they really making a loss in Australia? Your source doesn't say that.

vonmoltke• 9 years ago

Marketing expense: $19.9bn

Here I go tilting at this windmill again...

"Selling, marketing, and administrative expenses" (SMA) is not just marketing or advertising. It is all the costs of operating the company that are not either R&D or direct costs of producing products sold.

WalterBright3• 9 years ago

Your link says that $19.9 is marked as "selling, marketing, and administrative expenses".

It looks like a dumpster category for all kinds of expenses, not just "marketing".

metaphorm• 9 years ago

Which is all to say, it's a fascinating space. It's very ripe for innovation.

is that a euphemistic way of saying its a train-wreck, where society is hobbled by rent-seeking behavior by monopolist cartels that have used a combination of anti-competitive business strategy and regulatory capture to extract massive amounts of wealth from their captive audience of sick people?

maxxxxx2• 9 years ago

This is just another example of how messed up the US medical "market" is. Almost everywhere you look there are hidden prices, hidden middlemen and so on. I am not aware of any other market where things are so opaque and convoluted.

If the current administration was serious about markets they should mandate that all pricing becomes transparent so a real functioning market can actually develop.

cmdrfred• 9 years ago

I like the 'allow drugs to be bought from Canada' idea. I've been buying mine from India for years at about 1/4th the cost.

novalis78• 9 years ago

Absolutely agree. Something long the lines of what pricepain.com had in mind. This "market" is so ripe for disruption like no other. Sadly, its guarded by a lot of lobbying power and artificial regulations. I think they get away with it "because health".

maxxxxx2• 9 years ago

Americans are now so used to this insane system they can't even conceive that it actually doesn't have to be that way.

kansface• 9 years ago

What good would that do when the customers of the service do not pay for it nor can they even evaluate differences in quality?

Consider eg, the cost of higher education in the US. Tuition is listed up front and students may trivially price compare... yet prices continually go up all the same.

exabrial• 9 years ago

Side note:It's also important to remember it takes an extraordinary amount of investment to get a new drug to market. Often our 'staple' drugs are being used to fund future cures.

iamleppert• 9 years ago

I deal with Express Scripts and CVS Caremark. I have Hemophilia, a bleeding disorder condition I've been born with.

By far, these are the most corrupt organizations in the medical/drug industry. At least the phrama companies actually make something at the end of the day and do research, and employ more than just business people. I am forced by whatever insurance plan I have, to deal with these companies directly because they have whats called a "carve out" -- an exclusive agreement with the major insurance carriers that requires I deal with them directly. I literally have no choice or alternative from which to get my medication.

The reason is clear: my medication costs between $60,000 - $150,000 per month. I'm not kidding, either. It's been this way forever, despite the patents expiring on the medication. Its so lucrative and it makes me ill that so many people are benefiting and using me as some kind of financial conduit due to my medical condition. A significant amount of the money goes to one of these companies. They literally have a markup on the medication on a per-unit basis. So they tack on 20% or 30% to each unit of my medication (think pills, but its actually IU potency units -- its an IV medication I give to myself).

I'm fortunate that, because of these extreme costs, these companies have actually worked out in my favor: they have a dedicated rep assigned to me, and continually renegotiate their position with the insurance carriers to maximize their profit (I'm a high-profit user and thus very important to them).

These companies have no interest in getting costs down, and actually fight for the opposite. A few years ago they bullied the drug companies into offering a co-pay assistance program so they can literally take my insurance for all its worth. Their goal is to max out whatever benefits I have, and at that point usually the patient can be a blocker because they don't have the money for the maximum yearly deductible. However, they basically worked with/forced the drug companies into creating a co-pay program, then raised up the prices for the first order of the year. What happens is the first order I place is always more expensive, and then it gets discounted by some amount (usually my yearly co-pay). I don't have to pay this money however, it comes directly from the manufacture's co-pay assistance program.

So I guess its a triumph in the fact I don't really have to pay much -- if anything for my medication, but that's only because its extreme high price. I'm sure its not like this for other people on the middle and lower ends of the system.

DanBC2• 9 years ago

Wouldn't it be cheaper to fly to the UK once a year and pay privately for the treatment and meds?

Someone here can probably find the private cost of the meds if you didn't mind listing them.

e403• 9 years ago

So I read this and I'm horrified. And I know that no one in the coming years will make this or anything like it a priority in Congress. They give no shits about us. The media spends all day talking about tweets and Russian influence in our election and on our newly minted government officials. Yeah, the latter is important, but health care is really, really important. It's the reason our new POTUS was elected, according to the post-mortums I've seen. NOTHING WILL BE DONE (that is good for the people, things might be done that will be great for businesses).

TheAdamAndChe2• 9 years ago

Remember, Donald Trump was elected because people want change. Most people are aware at this point that the system is rigged, and are looking to change it. It's unclear currently whether populism or socialism will win in the long run, but don't lose hope yet.

jjmorrison2• 9 years ago

The new FDA head is actually very anti PBM, so he might be a force for good here.

http://www.drugchannels.net/2017/03/scott-gottliebs-radical-...

koolba2• 9 years ago

Besides the freedom of speech issue, what arguments are there for not banning prescription drug ads?

AnonMePBM• 9 years ago

I can say this article rings very true. I am generally very impressed by the accuracy of the points raised. But make sure not to associate all PBMs with this practice. We too don't like it. I am pretty high up at a PBM (not one of the big three), and can say our model does not play the same games (crimes!). The point about MAC pricing is not exactly fair however. Some customers prefer to engage this way since it reflects revenue based solely on the usage of medications prescribed. It might sound odd, but this way we reduce (or near zero) other fees that we charge the customer. In general, we DONT recommend this model, but in some cases, it makes sense. I have to stay anon, since I don't speak officially for the company; all opinions are my own.

txmx2000• 9 years ago

The Pharmaceutical Care Management Association, the industry’s lobbying group, claims that PBMs will save health plans $654 billion over the next decade.

That's about $16 per person per month. Not a very compelling argument for keeping your drug monopolies: eliminating them costs little more than a Netflix subscription.

refurb24• 9 years ago

Keep in mind that insurance companies make decisions based on a change in cost of only $0.05 per member. $16 per person is HUGE when you're talking about an insurer who covers 30M+ people.

AstralStorm2• 9 years ago

Ah, the tried and true method of making a market non-free. Increase number of middlemen and make processes complicated so that no transparency remains.

The Hidden Monopolies That Raise Drug Prices

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