I'm not an expert on drug science. But we know: Price controls don't work. And having the government "negotiate" for prices is not free market but de facto price controls. And while there's a lot of data about R&D reinvestment, lobbying spending, etc. I noticed the author ignored big kahuna: The US leadership in medical patents, being 10X more active than #2 Germany. The US creates the majority of medical inventions and there is almost no competition. Seems we want to keep that?
I'm sort of confused by the chain of reasoning here. The writer made a promising point about the abuse of patent law: We generally agree that inventors should be able to have their monopoly and charge really high prices--for a limited time. The trade-off is we incentivize more inventions, and we limit the market abuse with a time limit. The writer claims that the pharma companies are abusing the system by making small tweaks, claiming a new patent, and charging high prices with just the same old product.
Well hold on then: If patent abuse is the root of the market abuse, why not tackle the patent abuse? This is an obvious path to pick up, but the author doesn't . Why not? Getting intellectual property right is hard, but we have an actual track record of getting it right. On the other hand, the track record of government price controls is as clear as day: Unqualified dumpster fires every time tried. I don't get why the author didn't push for cleaning up the patent law abuse he uncovered here. Patent reform would help our pocketbooks and get the incentives right for pharma investment.
Brilliant breakdown on pharma's shift to financialization over innovation. The part about companies spending more on buybacks than R&D (577 vs 521 billion) really undercuts that whole "high prices fund research" argument. I've seen firsthand how pharma reps frame this as inevitable market dynamics when its really just rent-seeking behaviour protected by lobbying. Seems like the Swiss model could work here if we got past the ideological hangup that any government pricenegotiation is "socialism."
Another anti Pharma article which doesn't talk at all about where the vast majority (85+%) of healthcare costs come from in the US. And no mention about how 93% of prescriptions in the US are for generic medicines, which average 18% cheaper than in other developed countries.
Apple has greater profit than the 10 largest US Pharma companies combined. Why not write an article about how many people in the US struggle to pay their monthly smartphone/cell service bill?
Treat big pharmas as common utility companies? Show me one utility company that is capable of fundamental innovation as big pharma does. I am not denying that there have been significant abuse on the part of big pharma. But Michael Lind's solution is worse than the disease. It is essentially a socialist treatment for the side effects of capitalism.
My take away from this piece is that US consumer pays a lot for medicine because companies can and do charge it, and then thanks to the Citizens United decision, spend part of the proceeds making sure elected representatives represent them and not the US consumer. Some bold politicians will have die on the hill of change for anything to happen.
Finding abuse in this industry is shooting fish in a barrel but I am unclear as to where money to fund R&D is supposed to come from. Right now it is coming from the US consumer, on that we can agree. But take that away and what happens. Perhaps, as suggested, it can come from decreased returns to investors or as comments have suggested from the advertising budgets. Both seem contrary to the self interest of those running pharma and thus human nature. Squeeze them and the likely response is to cut research which won't be noticed for decades. So you are either going to have to coerce Pharma to fund the research at the expense of those other things or coerce free riders, which is everyone else in the world, to replace funding now coming from American consumers. The latter is probably easier and has an obvious analog to everything else the Trump administration is doing in foreign policy. The obvious target is EU/UK which are both rich and obviously exploiting us. Just as an aside, while I have Part D, I have had to purchase meds off plan to get around timing problems caused by Medicare policy. They were actually marginally cheaper.
Good thoughts here, but I'd like to take every dollar I'm giving Big Pharma and give it to a fund for medical research that cuts out pharma companies entirely. I think we have a fair number of scientists working at universities who are ready to innovate up a storm if this same pot of money, a big portion of which is always just profit and lobbying costs, went into 100% science. And Big Pharma's "innovation" will always stop at certain doorways: when immunotherapy, for instance, becomes much simpler and cheaper to administer than months and months of expensive chemo drugs, where will its incentive go then? If someone gets over cancer in "one dose," God forbid, that is so much less profitable than months and months of agonizing treatment, relapse, etc.
You have more confidence in academia than I do. If there is anything that COVID proved, they will follow the money and are as petty as any bureaucrat. Since medical researchers are not interchangeable, someone has to make the allocation decisions. How much for cancer vs heart attacks? And perhaps more importantly, how much for lifestyle chronic diseases. Watching the latest dust up about food stamps, I found myself wondering, "when did the the Left become pro-junk food". There are drugs that combat obesity now but is that really the best approach. I don't pretend to know the answers but I do think that decentralization and preventing group-think is important. Moving away from Big Pharma is one piece of the puzzle but group-think in the universities is still a problem. If we could make EU/UK pay their share, they would probably fund it via their universities which would be filtered through multiple national cultures.
Trump is simply a transitional President. He has had good instincts on things like drugs but often falls back to his love of big businesses making lots of money. A President who really could buck special interests like pharma or a congress ready to perhaps lose an election is quite a step to take.
Pharma would not run out of money for R+D, they can simply spread the costs out with what they charge to other G-20 nations. Pharma is going to make great drugs in the near future, they aren't going out of business.
The article completely ignores the extensive TV marketing costs incurred by the big pharma corporations.TV ads for multiple products ain't cheap and add considerable costs which could be avoided. Does the public really need to know about treatment options which should be decided by trained medical professionals?
Pharma got TV ads instead of what they originally wanted, which was patent extensions. And now the ads keep TV stations afloat, thus encouraging them to lobby against restrictions on advertisements.
Regarding your penultimate paragraph about the “Left”, most basic research is today funded by the public, via NIH grants to universities and hospitals. What drug companies do is “commercialize” those basic findings. The story of penicillin is a case in point. Industry had to figure out how to grow the mold at scale, and that effort cost more than the basic research that discovered it. That story is also an exception to the rule. What you say the “Left” wants is already happening.
Wow! Another Commonplace essay that makes sense. We liberals who are also accounting savvy have been saying this for years. The math ain’t mathin’ and hasn’t for decades. It’s no coincidence that the largest lobby in DC is Big Pharma. Any measure of what portion of revenue they spend on lobbying, including advertising?
There is a simplier and more obvious explanation of this tragedy. The drug companies used America as a buffer dealing with socialized medicine countries for profits. Those countries could negotiate lower prices and the drug companies could just add that cost to America.
The healthcare market is the only market where the providers of goods and services just jam customers with whatever they feel like charging, and customers are in no position to bargain fairly. Big Pharma are, in a way, like Big Banks who benefit enormously from government/system subsidies and insulation from competition, and therefore they aren't entitled to free market dynamics like a normal, independent company.
I suppose some kind of cost-plus approach, like for defense companies, might make sense in the end. The pharma companies would load the calculation up with as much garbage as possible, but it would probably result in lower prices than the gouging that occurs now.
You did a sneaky switch in there. You talk about reinvesting a percentage of profits, but to show how low it allegedly is, you give percentage of *revenue*. Revenue is much higher than profits.
I'm not an expert on drug science. But we know: Price controls don't work. And having the government "negotiate" for prices is not free market but de facto price controls. And while there's a lot of data about R&D reinvestment, lobbying spending, etc. I noticed the author ignored big kahuna: The US leadership in medical patents, being 10X more active than #2 Germany. The US creates the majority of medical inventions and there is almost no competition. Seems we want to keep that?
I'm sort of confused by the chain of reasoning here. The writer made a promising point about the abuse of patent law: We generally agree that inventors should be able to have their monopoly and charge really high prices--for a limited time. The trade-off is we incentivize more inventions, and we limit the market abuse with a time limit. The writer claims that the pharma companies are abusing the system by making small tweaks, claiming a new patent, and charging high prices with just the same old product.
Well hold on then: If patent abuse is the root of the market abuse, why not tackle the patent abuse? This is an obvious path to pick up, but the author doesn't . Why not? Getting intellectual property right is hard, but we have an actual track record of getting it right. On the other hand, the track record of government price controls is as clear as day: Unqualified dumpster fires every time tried. I don't get why the author didn't push for cleaning up the patent law abuse he uncovered here. Patent reform would help our pocketbooks and get the incentives right for pharma investment.
Brilliant breakdown on pharma's shift to financialization over innovation. The part about companies spending more on buybacks than R&D (577 vs 521 billion) really undercuts that whole "high prices fund research" argument. I've seen firsthand how pharma reps frame this as inevitable market dynamics when its really just rent-seeking behaviour protected by lobbying. Seems like the Swiss model could work here if we got past the ideological hangup that any government pricenegotiation is "socialism."
When your number one goal is comfort for retirees, you'll get financialization.
Or the $233M a year they spend on lobbying…
Another anti Pharma article which doesn't talk at all about where the vast majority (85+%) of healthcare costs come from in the US. And no mention about how 93% of prescriptions in the US are for generic medicines, which average 18% cheaper than in other developed countries.
Apple has greater profit than the 10 largest US Pharma companies combined. Why not write an article about how many people in the US struggle to pay their monthly smartphone/cell service bill?
Look at the number of medical patents by nation. Effectively the USA is the only innovation shop open for business on the planet.
Treat big pharmas as common utility companies? Show me one utility company that is capable of fundamental innovation as big pharma does. I am not denying that there have been significant abuse on the part of big pharma. But Michael Lind's solution is worse than the disease. It is essentially a socialist treatment for the side effects of capitalism.
My take away from this piece is that US consumer pays a lot for medicine because companies can and do charge it, and then thanks to the Citizens United decision, spend part of the proceeds making sure elected representatives represent them and not the US consumer. Some bold politicians will have die on the hill of change for anything to happen.
Finding abuse in this industry is shooting fish in a barrel but I am unclear as to where money to fund R&D is supposed to come from. Right now it is coming from the US consumer, on that we can agree. But take that away and what happens. Perhaps, as suggested, it can come from decreased returns to investors or as comments have suggested from the advertising budgets. Both seem contrary to the self interest of those running pharma and thus human nature. Squeeze them and the likely response is to cut research which won't be noticed for decades. So you are either going to have to coerce Pharma to fund the research at the expense of those other things or coerce free riders, which is everyone else in the world, to replace funding now coming from American consumers. The latter is probably easier and has an obvious analog to everything else the Trump administration is doing in foreign policy. The obvious target is EU/UK which are both rich and obviously exploiting us. Just as an aside, while I have Part D, I have had to purchase meds off plan to get around timing problems caused by Medicare policy. They were actually marginally cheaper.
Good thoughts here, but I'd like to take every dollar I'm giving Big Pharma and give it to a fund for medical research that cuts out pharma companies entirely. I think we have a fair number of scientists working at universities who are ready to innovate up a storm if this same pot of money, a big portion of which is always just profit and lobbying costs, went into 100% science. And Big Pharma's "innovation" will always stop at certain doorways: when immunotherapy, for instance, becomes much simpler and cheaper to administer than months and months of expensive chemo drugs, where will its incentive go then? If someone gets over cancer in "one dose," God forbid, that is so much less profitable than months and months of agonizing treatment, relapse, etc.
You have more confidence in academia than I do. If there is anything that COVID proved, they will follow the money and are as petty as any bureaucrat. Since medical researchers are not interchangeable, someone has to make the allocation decisions. How much for cancer vs heart attacks? And perhaps more importantly, how much for lifestyle chronic diseases. Watching the latest dust up about food stamps, I found myself wondering, "when did the the Left become pro-junk food". There are drugs that combat obesity now but is that really the best approach. I don't pretend to know the answers but I do think that decentralization and preventing group-think is important. Moving away from Big Pharma is one piece of the puzzle but group-think in the universities is still a problem. If we could make EU/UK pay their share, they would probably fund it via their universities which would be filtered through multiple national cultures.
Fantastic article with solid economics. Posted to - Center on Capital & Social Equity - www.inequalityink.org
Trump is simply a transitional President. He has had good instincts on things like drugs but often falls back to his love of big businesses making lots of money. A President who really could buck special interests like pharma or a congress ready to perhaps lose an election is quite a step to take.
Pharma would not run out of money for R+D, they can simply spread the costs out with what they charge to other G-20 nations. Pharma is going to make great drugs in the near future, they aren't going out of business.
The article completely ignores the extensive TV marketing costs incurred by the big pharma corporations.TV ads for multiple products ain't cheap and add considerable costs which could be avoided. Does the public really need to know about treatment options which should be decided by trained medical professionals?
Pharma got TV ads instead of what they originally wanted, which was patent extensions. And now the ads keep TV stations afloat, thus encouraging them to lobby against restrictions on advertisements.
Regarding your penultimate paragraph about the “Left”, most basic research is today funded by the public, via NIH grants to universities and hospitals. What drug companies do is “commercialize” those basic findings. The story of penicillin is a case in point. Industry had to figure out how to grow the mold at scale, and that effort cost more than the basic research that discovered it. That story is also an exception to the rule. What you say the “Left” wants is already happening.
Wow! Another Commonplace essay that makes sense. We liberals who are also accounting savvy have been saying this for years. The math ain’t mathin’ and hasn’t for decades. It’s no coincidence that the largest lobby in DC is Big Pharma. Any measure of what portion of revenue they spend on lobbying, including advertising?
There is a simplier and more obvious explanation of this tragedy. The drug companies used America as a buffer dealing with socialized medicine countries for profits. Those countries could negotiate lower prices and the drug companies could just add that cost to America.
IMHO:
- All requests for publicly-funded drug testing should be placed in the public domain prior to funding decisions.
- If funded with public funds, the testing should be performed at national labs by disinterested third-party employees.
- Actual test procedures should be documented in writing and recorded in their performance, (to help ensure reproducibility).
- The outcome data of all publicly funded testing should be available to the public.
The healthcare market is the only market where the providers of goods and services just jam customers with whatever they feel like charging, and customers are in no position to bargain fairly. Big Pharma are, in a way, like Big Banks who benefit enormously from government/system subsidies and insulation from competition, and therefore they aren't entitled to free market dynamics like a normal, independent company.
I suppose some kind of cost-plus approach, like for defense companies, might make sense in the end. The pharma companies would load the calculation up with as much garbage as possible, but it would probably result in lower prices than the gouging that occurs now.
You did a sneaky switch in there. You talk about reinvesting a percentage of profits, but to show how low it allegedly is, you give percentage of *revenue*. Revenue is much higher than profits.
GREAT post - thanks for this comprehensive overview!