So the new maker old off-patent drug that is needed badly but only by a few people, and for some reason isn’t in the Part D or most other private formularies “notices” that it has a monopoly. So what does it do? It puts the price up nearly ten fold . (The drug is called Mustargen and the company is called Ovation Pharmaceuticals). And of course this behavior is matched by other companies that have monopolies bestowed by patents.
Presumably if the market price is that high on the non-patented drug some smart Indian generic will start making it and bring the price down, but that’ll take a little while. And in the meantime 5,000 patients are getting screwed to the wall.
We should have a rational debate about whether there ought to be coverage for certain drugs (and in the UK for instance there is such a debate). But if there’s an egregious monopoly or market-distortion like this, then we know the solution, and it’s called monopsony — or, if you like, price-fixing. Of course this nation’s government doesn’t like to intervene in these types of cases even when it means a bunch of crooks steal blindly from a whole state and help push its economy (and by consequence that of the whole nation) into recession. And I suspect the people who need this drug view Ovation Pharma as Enron wearing lab coats.
But eventually if Pharma (both big and small) continues to abuse its monopoly power, there will be a predictable response. You can argue that making hay while the sun shines is Pharma’s best financial course (if not exactly its best ethical one), but I suspect that whoever sits in the C suites in New Jersey (and South San Francisco) and has to pick up the pieces under the next Democratic Administration may wish that a little restraint had been shown while that sun was shining.
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Yes. No. Yes. What we mean by “professional” seems to be in flux, and I do not know how it will turn out. The obligation of a professional will depend on the answer to your previous question, and also upon on his role.
t
Tom:
Would you also defend the business sense of the markets that profiteered on batteries and water after the LA earthquake?
Or the fisherman, smuggling Jews out of Germany, saying “give me all your money and jewels, or I turn the lights on”?
When life itself is at risk, is any amount excessive?
Are professionals nothing but businessmen? Have they no obligation but to maximize profit?
Harvey
> whoever sits in the C suites in New Jersey (and South
> San Francisco) and has to pick up the pieces under the
> next Democratic Administration may wish that a little
> restraint had been shown
Naaaah. Those in today’s C-suites now will take their sunny-day performance bonuses and run when the weather turns stormy, and the new tenants will work under a set of stormy weather expectations, and they’ll probably have different skill-sets. Either way, the stockholders get the best performance they can under the current conditions, and if they think they can do better elsewhere they’ll get out and invest in something else. All this is presumably factored-in to today’s stock prices anyway.
You can also argue that making hay while the sun shines is Pharma’s only ethical choice. The use of monopoly power, especially monopoly power created by the government, is not abuse; it is expected. There are abuses of the patent system to be sure, but the pricing issue isn’t one of them.
> After years of defending high prices as necessary to
> cover the cost of research or production, industry
> executives increasingly point to the intrinsic value
> of their medicines as justification for prices.
The only justification of the price of anything is its intrinsic value, and for as long as I have been paying attention, pharma has made both arguments. Which argument they use depends on whom they address: when addressing investors they say things like “This device will turn a two week hospital stay into a two day stay, and at $500/day avoided, that means each device is worth $6,000 before we factor-in lost time at work, better risk profile, or any of that. It is really worth $10,000 at least.” Then they try to get $10,000 for the device. When they talk to regulators they say “This device is way better for patients and it takes lots of money to invent and market them, plus you promise inventors patent protection, so leave us alone.”
In both cases they are right. A similar argument goes for drugs and chronic conditions. If we discover that a QALY is worth $75K and there is some drug that provides 90% of .9 QALY, it seems that drug is worth $61K every year, and the medical supervision associated with it is worth $6,700. If a small number of manufacturers make it under Cournot or Stackelberg Quantity Competition, we can predict the price will be less than $61K. Assuming the buyers have no market power, maybe this turns out to be $51K. So even with this very limited competition, patients are better off by (say) $10K/year than they would be under a pure monopoly. Assuming $51K is above the long term average cost of manufacture for both firms, an equilibrium will be found. If free-enterprise is a value, I don’t see how we can claim any injustice in this outcome.
A little aside: What the oncologists are accused of doing is keeping the $10K for themselves, as the gatekeepers so-to-speak for the drugs, plus the $6,750. Actually, they are accused of worse than this. If patients (or their agents) dealt directly with the pharmas, this couldn’t happen, and the $10K would flow to the patients, not to the oncologists.
As Matthew says, an answer to monopoly or duopoly (or any oligopoly) is monopsony, and the price could theoretically be driven below the long-term-average-cost of manufacture. One could imagine a political motive for doing so: “I’m not going to be in office in eight years, so I’ll be a hero today and let my successor clean up the mess later. If he can.” Sorta like some CEOs are accused of doing.
I think ire is raised because the value to patients that flows from drugs & devices gets “concentrated”. For example, you have only two competing for the $61K, but several oncologists comepting for the $6,750 associated with any goven patient — so that component of value gets competed-away, but only $10K of the $61K gets competed away. So the docs & general public see the drug & device manufacturers doing very well, and fallen human nature being what it is, they react, and they are not necessarily rational about it. Which brings us back `round to the top…
t