In an article picking up on the Harris data TCHB shared with its stellar, avid readers (that’s you BTW) last week, the NY Times this morning places Pfizer’s decision to give cheap drugs to the uninsured next to the polling data about pharma’s unpopularity next to several examples of egregious price rises. They also quote extensively Roy Vagelos, scientist CEO of Merck in its 80s and 90s heyday, as basically saying that the industry has blown it.
It’s well worth reading the article because it shows that the mainstreaming of the anti-pharma opinion will have a political impact on the industry, and by extension on the election. (Need I remind you again that the two states with the oldest populations are Florida and Pennsylvania, both extremely close at the moment).
However, the Times lumps several reasons together as to why pharma is so profitable in the US:
The pharmaceutical industry earns nearly two-thirds of its profits in the United States since drug prices in the rest of the industrialized world are largely government controlled. Those profits rely almost entirely on laws that protect the industry from cheap imports, delay home-grown knockoffs, give away government medical discoveries, allow steep tax breaks for research expenditures and forbid government officials from demanding discounts while requiring them to buy certain drugs.
It is not the case that each of these "privileges" has equal weighting for the industry. The fact is that allowing personal imports would not have that big an impact on the overall market. Allowing Medicare to bargain as aggressively as say the VA (or worse, the Spanish or Australian governments) would bring what are called "price controls" by Americans talking about the EU or "discounts" by PBMs to a large section of the market.
That would certainly have a big impact on the industry’s margins. But the pharma industry can take note that, under a similar environment of strict price controls from Medicare and Medicaid, its colleagues on the inpatient, outpatient and ambulatory care side have seen their share of the overall economy grow dramatically in the past 40 years. So, if forced to, pharma companies could manage the potential change in their environment. As a potentially relevant example which also works under monopsony purchasing, the defense industry seems to struggle by OK.
Not that the industry would want to go there, and it will continue to do what it can to fight what is increasingly looking like a rearguard action. Of course in a rearguard action a strategic retreat can often work wonders. I stick by my guns and think that big pharma, looking out strictly for its own self-interest, should cave on the Canadian imports but try to continue to muddy the waters on discounts and price controls. After all 15 years of allegedly aggressive discount seeking by the PBMs hasn’t exactly reminded observers of the way Wal-mart treats its suppliers!