Kurt Ullman wrote:
In article ,
wrote:
No. I don't accept the premise that the government is setting the
price of drugs at a low or high level.
Governents are currently doing that is most countries. Canada, for
instance, sets the price for new drugs based on a basket of other
country's prices (mostly European who also set the prices).
Interestingly enough, at least in the case of Canada, is that generic
prices aren't price controlled and generally higher than the brand name
medications.
I'm sorry (being sarcastic) I thought we were talking about the USA.
AFAIK the US government does not set the prices of drugs. Even the
Veteran's Administration only "negotiates" the price.
Also, price setting is the model currently being used in the US to
pay the docs and hospitals under the government programs. Has been since
at least the mid-80s and the institute of Diagnostic Related Groups and
their progeny.
Keep your eye on the ball. DRG's and payments for services of MD's and
hospital are not price setting for drugs.
I'm not commenting one way or the other about Medicare, part D or any
similar interference in the market. I'm simply using the post to
correct the two erroneous assertions: that new drugs have to be
financed from inflated prices for old drugs and that we're subsidizing
the drug cost for other countries.
How else are you going to finance the drugs. You have to have profits
from somewhere to pay for it, either in house or some possibility that
the investors will be paid back.
I explained before how the drug companies should be just like others:
go to the market. Of course the investors expect to be repaid and to
make a profit. I have no objection to internal financing -- it happens
all the time in all industries -- but to use the excuse that the
company has to charge an inflated price on an old product because it
has to finance a new one is wrong but apparently swallowed even by the
supposed proponents of a competitive free market (i.e. you lot).
First, for the most part, you'd never get to the stage of having
a promising drug to seek financing for. The drug companies
today spend huge sums on speculative research trying to find
drugs. Everything from sending teams into rainforests to
search for plants, to advanced bio labs. Usually, only after
huge expenditures do you get to the point where you THINK
you might have a new viable drug. And even then many, if
not most wind up failures.
And this differs in principle from other industries how? Don't the
extractive industries have the same problem? Lots of dry holes? Have
you not noticed on a much smaller scale someone starting a business
(say a retail store) in the hope of making a profit and finding that
the customers aren't coming in? This is perfectly normal for all
businesses.
Won't. Thus you see, to use your own example, oil drilling and
exploration go up or down based on the price of oil. WHen it gets more
expensive (outrageous profits) the rigs get going, when it goes down the
drilling does too. Same with most mining operations.
So?
And given that prices are going to be fixed artificially
low, what entrepeneur is going to seek to go into business
with a new drug?
Why do you keep going on about prices being fixed? I'll do what you do
and say: "Let's just accept that the drug company can set its prices
for what the market will bear just as in any other industry." That's
certainly the case for the drugs I use.
In the US, but not always in other places. Canada has a Patent
Medicine Price Review Board. The mandate is to make sure the prices
charged are not "excessive". If that isn't price fixing, I don't know
what is.
And WE'RE NOT TALKING ABOUT OTHER COUNTRIES!!! Sheesh!
And finally, even if they did seek financing, what fools
would invest knowing the govt was going to screw around
and set the price for the drugs?
And once again you bring in a red herring. But even here where there's
the constant threat of government intervention, oil exploration
companies (for example) continue to search for new fields.
But there is not a study showing that that isn't related to the price
of the commodity. WHen the price goes up, so does the number of wells
and people looking for it. WHen it goes down, many pack up and leave. If
the government picks the prices of drugs, you may have a feast or
famine, too.
The price for oil (ignoring price fixing cartels and so-called
speculators) rises and falls based on demand. Demand for drugs in an
oblique way does too. More people with senile decay, more effort to
find and sell drugs to treat it. Fashion and ease of production also
have an effect. For example, at the moment senile decay is fashionable
but BP and Cholesterol are about tapped out.
Apple is in a competitive environment at least to some degree. It
can't jack up the prices of the MAC beyond what the market will bear
so it can't say that it has to charge a higher price so that it can
fund either a new MAC or a new line of business (or iPhone). This is
exactly what the drug companies are doing or say they're doing.
You saying that the drug companies are jacking things up past what
the market will bear? How do they do that? Maybe past what you offends
your sensibilities, but not above what the market will bear.
Patents! But it's not so much what they're doing (we don't have an
alternate universe so I can't determine exactly to what level prices
would fall) but it's the assertion by the companies themselves and
apologists such as you that the reason for high prices is to finance
future drugs.
One would have thought that a rabid capitalist like yourself would
understand that what the drug companies do or propose is the socialist
way: eventually make everyone pay the same for their drugs!
Socialism as both a political and economic system focuses only on
the means of production and not the price.
Nonsense. Don't you scream "socialism" when the government tries to
raise the minimum wage (price of labor)?
To beat a dead horse (apparently that's the only way you'll
understand) manufacturers put their product on sale from time to time
-- i.e., they sell it for a lower price than it normally is sold for
-- but in doing so they actually make more money. Not only do they
sell to customers who would otherwise buy a competitor's product and
some additional sales will be made to people who would buy neither but
also they amortize the fixed costs (like machinery cost, or insurance
for their factory or repair costs or accountant's fees, or any of
hundreds of items that do not depend on number of sales) over a
greater number of items thus reducing the per-unit cost. Revenue for
each item minus unit cost (fully burdened in this case) equals profit.
Lower price = maximumized profit! Or, as an intermediate step for the
drug companies, lower price (but not below marginal cost) = earlier
recovery of the R&D cost and in future greater profits.
Show me the first company that does that before they have to.
Almost every company in the food business, for example. Pepsi and Coke
alternate weekly in price reduction (you'd think it was arranged but
naah, that'd be price fixing, something unknown in American industry).
Any company that has elastic demand (IIRC that's the term for demand
that rises or falls based on price) can profit here and most products
have elastic demand at least for a while. In the drug companies case
when they run out of people suffering from the disease the drug
purports to treat then demand will become mainly inelastic thus the
importance of foreign markets when they've corralled all the domestic
sufferers.
They
make more ONLY in the cases where it is sitting on the shelf otherwise.
It's not sitting on the shelf. It hasn't been produced yet.
(Unless for a time to get marketshare, and even then most of that is
"paid" for elsewhere. WalMart, for instance, has a specific budget for
their rollbacks.
Gaining market share doesn't have to be "paid for" elsewhere if you
don't sell below marginal cost. You still make a profit it's just less
per unit but the extra volume makes greater overall profit.
What I explained above (the dead horse paragraph) is classic Marketing
101 leavened with a little of Cost Accounting 102. I'm not going to
give you or Trader 4F an entire course on the subject.