Drug prices increasing – duh!

I agree entirely, but this still begs the question of why the insurance companies and managed care organizations have not apparently made any effective efforts to bargain down the prices of drugs (and why the legislation that enabled the new Medicare drug benefit does not allow Medicare to bargain down prices.) And it begs the larger question of why insurance companies and managed care organizations, and Medicare and Medicaid have never made any effective efforts to assess the costs of particular health care services and goods, and never made any effective efforts to pay according to the cost of producing them, or their worth to patients.
See our post on Health Care Renewal (http://hcrenewal.blogspot.com/) entitled “Wooden Headed Health Care Reimbursement.” (http://hcrenewal.blogspot.com/2005/08/wooden-headed-health-care.html/)

Regarding Dr. Poses’ question, one reason third party payors don’t bargain as much as you would think is that pharma is careful to defend their prices based on ‘economic value’, an implied “worth to patients.” That is, they do an analysis of the cost of care that their drug will replace, and set their prices at equal to or less than that cost. For example, high prices for the original anti-ulcer drugs like Zantac were compared to the cost of surgical care, the standard of the day. Orphan drugs, cancer drugs, etc. are priced after a careful analysis of what people are paying for comparable drugs/therapies, and/or what increased life expectancy is worth, etc. Third party payors probably don’t have the analytic firepower to find the holes in these analyses, so they go with the flow.

So people in pharma can sleep at night because they believe their products create a so-called economic surplus (i.e., they create more value than existing products). But there are at least two problems with this situation. First, only the first drug in a new class really adds a lot of economic value. All the ‘me-to drugs’ don’t add as much, yet they usually ride on the price charged by the first. The pharma industry is careful to avoid price competition with patented drugs. Instead they fight with marketing dollars. In my experience, most things that really work better are picked up quickly by doctors, so little advertising is needed. But when you are selling the sizzle with not much steak, you get an arms race of waste like automobile and drug advertising.

Second, most people are taught as toddlers to share, and the more important the item the more important it is to share. Guzzling all the water when lost in the desert is just wrong. And when pharmaceutical companies try to grab every little bit of any economic surplus they create, squeezing every nickel out of sick people, they are justifiably considered greedy.

Most people are taught as toddlers to share, and the more important the item the more important it is to share. Guzzling all the water when lost in the desert is just wrong. And when pharmaceutical companies try to grab every little bit of any economic surplus they create, squeezing every nickel out of sick people, they are justifiably considered greedy.