Mensch tracht, un Gott lacht

Thursday, January 11, 2007

Benny and the Feds

Or maybe it should be Benny and the Meds.

In any case, longtime TRC/Newswalk member Benjamin Zycher has a piece up at National Review today explaining why the feds shouldn't negotiate prices on meds.

Money quote:

Federal price negotiations will cause sharp price reductions, but this will yield less research and development investment in new and improved medicines over time. Recent economic analysis published by the Manhattan Institute yields projections that the effect would be a reduction of about ten new drugs per year on average, causing a loss of about five million life-years each year, valued conservatively at $500 billion annually, a sum far in excess of total U.S. spending on pharmaceuticals.

It is no mere cliché that life and liberty are always at risk while Congress is in session, and Congress in haste makes the most waste of all. The proposal for drug-price negotiations is an example of a sweeping government measure that ostensibly aims to improve public health and well-being, but will actually result in the redistribution of huge amounts of wealth from the private sector to various constituencies, without the stigma of a “tax increase.” And all that in the first hundred hours.


Amy and Jordan said...

Maybe we should all just voluntarily pay more to drug companies for their drugs so they can have more resources to spend on R&D.

It would analogous to the voluntary "I don't pay enough in taxes" fund: "I don't pay enough for Rx drugs."

Hunter Baker said...

Get started on that right away, Jordan. I suspect we'll be on the right track soon. :)

Tom Van Dyke said...

I like it, Jordan. Rich people should pay more for their drugs than poor people. It's only fair.

Amy and Jordan said...

Here's a response from a Marketplace listener. I'm also not convinced that the argument for non-negotiation amounts to anything more than government welfare for drug companies. Once the government has decided to take our money and spend it on something, I think they have the responsibility to steward that money as well as they can...get the best bang for our buck:

"The guy talking about the drug prices is totally out of it. Does he use Medicare? I bet not. BUT I DO. I am disabled and deal with the drug BS. The Bush Administration is simply giving billions in gifts to Corporate America. The Medicare donut hole has caused incredible pain and suffering, who cares if you have a drug available that they charge way more than Costco does? Studies have proved that seniors can buy from Costco for equal to or less than what they pay their "drug coverage." These drugs are sold for less to big companies like Rite Aid and Costco. Why not the biggest buyer, the U.S. government???? It is just a lie."

Anonymous said...

Medicare bargaining is absolutely no different than the military-industrial complex; centralized bargaining is centralized bargaining. I don't see their bottom lines dropping out. Big Pharma already sells to countries (like Canada and most of Europe) where prices are lower, and already bargains with the VA.

Some interesting facts:

-Big Pharma has been #1 in net profits for twenty years running, out of all U.S. industries.

-Taxpayers fund 36% of all pharmaceutical research through universities and the National Institutes of Health.

-Between 1965 and 1992, taxpayer-funded research resulted in 15 of the 21 most profitable drugs released. In 1990, a study found that 60% of all drugs released are the result of taxpayer-funded research or derived from it.

-An example of how the above works: The cancer drug Taxol was discovered by the NIH. It was licensed to Bristol-Myers-Squibb for production. It costs $1,000 to produce the average dosage. The average dosage is sold by BMS for $20,000. The NIH receives 0.5% of all royalties. A drug that cost BMS nothing to develop nets them 1,900% profits per dose. Now that's a good deal. For them.

Let us assume, briefly and for the sake of argument, that centralized bargaining sucks, and that it will eat into Big Pharma's bottom line such that they have to start cutting. Big Pharma spends more on marketing and administration than it does on R&D. 250 percent more. Forgive me if I think I can stand to see a few less "No sexual side effects!" commercials in exchange for Medicare bargaining.

Tom Van Dyke said...

JFE, I'm willing to listen further to your arguments, altho I can't stipulate any of your offered facts and/or figures at this time.

How much does Big Pharma outperform the stock market in general? I own some Pfizer in my retirement account I think, altho not enough to actually track the stock. Am I making out like a bandit, or what?