Reader Wade Riddick was not happy about a New York Times article and dashed off a well-argued missive, which we reproduce below:
That little cartel-hugging, rent-seeking suck-up, Austin Frakt, just posted that the solution to high drug prices is higher drug prices:
The number of drugs in short supply peaked in 2014 at 320, the vast majority of which were generic injectables. That doesn’t mean the problem has faded.
These shortages do not occur in expensive drugs. They occur in cheaper drugs. A rational market rations according to price. Expensive items are rarer and cheaper items are more common. In this cartel- and kickback-controlled market, expensive items are plentiful and its all the cheap, generic, competitive, non-monopoly, low-profit, unpatented drugs that are hard to find: methotrexate, injectible magnesium vials, leucovorin, doxycycline, doxorubicin, etc.
Generic injectables are prone to shortage because of low profit margins and
high production costs.
No. They don’t occur in other countries with regulated markets. In fact, we often have to import from foreign markets to solve out shortage problem here at home.
Once we could go to compounding pharmacies, who deal direct with FDA-inspected chemical manufacturers, but the FDA has been closing off this last independent source with the goal of intermediating everything.
Except in unusual circumstances, generic drugs — whether injectable or oral — have low profit margins because no manufacturer retains exclusive rights to produce them.
Frakt wants to solve a problem caused by the privatization of public goods with more privatization of public goods. He’s implying we should patent all drugs and solve the problem of non-competitive monopolies by making everythinga monopoly.
What’s next? The Koch brothers pollute our air so Frakt lets them patent out air and we have to pay extortionate prices if we want to keep breathing?
If these companies can’t survive at these profit margins, maybe they should 1) stop paying dividends, 2) stop paying fat bonuses to the incompetent executives who can’t deliver a product on time, 3) stop giving campaign donations to politicians with money picked out of the pockets of sick customers, 4) stop paying lobbyists to kill competition, 5) stop buying up their competitors.
Prices are also held in check by group purchasing organizations.
No. Prices are high because of the price-fixing of these GPOs/PBMs. They introduce kickbacks into the supply chain. More expensive drugs pay a greater kickback (e.g., “stocking fee”) to the pharmacy and cheaper drugs can’t compete. In that “market” of incentives, the institutional bias quickly swings to the more expensive rival treatments (against the best interests of the customer). We now prosecute railroads when they do it. It’s called middleman fraud.
Railroads used to do this and it resulted in farmers getting squeezed but also end consumers. You can’t run a network and charge both the shipper and receiver. It creates an incentive to manufacture scarcity in capacity. Companies jack up prices instead of adding new capacity. We had a rehash of this in the recent debate over network-neutrality. If you let ISPs charge
senders in addition to their customers, you get the same behavior. Compared to internet services in other countries, this is exactly what deregulated local monopoly utilities have already given us – underpowered, overpriced services.
Most generic injectables are produced by three or fewer companies.
That’s called a cartel.
Cracker Jacks, calling. They want that economics degree back that you fished out of the bottom of the box.
When a manufacturing problem arises at one of them, it threatens a large proportion of supply, and sometimes for dozens of drugs at a time.
Yes, and isn’t it a tragedy how patients die because they can’t afford the more expensive drugs – also made by the same cartels – or there’s just no alternative at all… because, you know, “markets!”
Martin Shkreli or Turing explained his outrageous price hikes by saying he had a “price inelastic product” and an obligation to shareholders.
Translation: He was the only source of a drug and he could charge sick people whatever he wanted and they would have to pay or they would die. In this context, price inelastic = organized crime extortion (aka RICO).
Facing low prices, these few manufacturers must keep tight control over capacity in order to turn a small profit.
Coordinating the restriction of supply to jack up prices is textbook market extortion by cartels.
As technology progresses, it’s getting cheaper to produce these drugs, not more expensive. We have expensive drugs and widespread shortages because our leaders have made the political choice to do so. When you have for-profit public goods, it always descends into extortion.
For-profit war means war without end. Why would any military contractor win or lose a war? That would mean there’s no more profits. Yet the Corporate Welfare Apologists are willfully blind to this.
For-profit healthcare means sickness for profit. When everybody’s healthy, you don’t make money.