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March 27, 2006

Andrew Sullivan Has No Idea What He's Talking About

Andrew Sullivan writes:

The next phase in the Medicare prescription drug entitlement is pretty obvious: the law will be changed soon to ensure that the federal government negotiate with drug companies for the price for the drugs. You can see the logic here at the DailyKos. Once you have laid the groundwork for a new entitlement, the full power of the state is involved. Once you have conceded the principle that all seniors should be able to get the latest drugs by borrowing other peole's money, it's weird to put any restrictions on demand - it will soon grow exponentially, and the "donut hole" will surely be removed by a future Congress. So we'll soon shift to a system of fantastically expensive free drugs of all kinds for all seniors and a crippling of the pharmaceutical industry's research and development arm. The trade-off will be complete: a collapse in research in return for free drugs for the most pampered senior generation in history. Those boomers still have clout!

We can only hope!

More seriously, fretting that centralized bargaining authority will "cripple" Big Pharma's R&D arm is silly. If Pharma ceases being in the top three most profitable industries in the country (#1 for over two decades straight!), maybe they can dial back on the advertising and administration spending, which accounts for about 250 percent more of their budget than research and development. Or maybe the government should just step in further, as they already fund 36 percent of all medical research in the country and taxpayer-funded work developed 15 of the 21 most important drugs introduced between 1965 and 1992. Another study, this one from 1990, looked at 32 drugs on the market and concluded 60 percent would've never been developed without public funds.

Yeah, socialism sure is sucky.

Moreover, the whole idea that centralized bargaining destroys the market is self-evidently silly. Ever heard of the military-industrial complex? Who do you think they're negotiating with? The American government. And you don't exactly see companies fleeing that sector. Meanwhile, Pharma sells to Canada (where prices are lower than they'll ever be here) and the VA, which pays between 50 and 80 percent less for its drugs than Medicare. And unless you think Pharma is in the charity business (or don't understand capitalism), they're operating in those markets at some profit, otherwise they would simply sell to America and let Canadians and veterans alike perish till they increased their compensation. The worst that'll happen is Americans will stop subsidizing a massive discount for Canadians, Brits, Germans, and all the rest.

And by the way, in case you're wondering how some of that R&D works, take a look at the cancer drug Taxol. Discovered by the NIH and licensed to Bristol-Meyers-Squibb, Taxol is sold for $20,000, costs $1,000 to produce, and the NIH gets .5 percent of the royalties. Some deal us taxpayers are getting.

March 27, 2006 in Health and Medicine, Health Care | Permalink


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Moreover, the whole idea that centralized bargaining destroys the market is self-evidently silly.

I never got that idea either. It's really the idea that the government is supposed to be excluded from participation in the marketplace.

Methinks conservatives think the government is the "wrong people", except when they're not, in the case of the military.

Posted by: Dr. Squid | Mar 27, 2006 2:25:42 PM

As someone who worked in pharma marketing, they're not going to skimp on research; in theory it affects the money they have for marketing (which is a lot), and even there, I don't believe they'd suffer that much. There's so much waste in pharma compaies that could be challenged or cut.

The other thing I'd point out is that Andrew comes at this as someone dealing with HIV, so medical research and new drug development is very important to him, and he tends to be somewhat myopic about the notion that pharma is something other than good hearted miracle workers with no profit motive. I tend to discount much of what he says, but in terms of the broader healthcare debate, his viewpoint is worth keeping in mind - reasonably well off cancer and HIV survivors have a very pro-drug-company stance that makes them skeptical of single payer and drug company discipline.

Posted by: weboy | Mar 27, 2006 2:33:34 PM

Back in the 1930's when there was a huge fight over public electric power generation (TVA-style), the argument contained discussion of the desirability of public power existing as a benchmark for judging the effectiveness of private market companies. Public market advocates won that argument and TVA and many other publicly owned organizations came to be (Bonneville! - the source of much of Oregon, WA, and CA's cheap power).

I think the same kind of argument can be made for public research, development and co/marketing of pharmaceuticals. Let's have a benchmark to judge Pfizer, Merck, etc. against. Yes, this mixed-socialism (capitalism light). So what.

There are many diseases that drugs don't get developed for that are true public health problems, but private firms don't want to do. Genital Herpes, for instance. It is a virus. A vaccine could be developed and sold to prevent the disease by either public or private R&D/Mfr/Marketing. But none is, because the private market for a partial treatment is available and profitable. Many other examples exist.

If centralized buying didn't make sense economically, would Walmart not be succeeding? They beat the hell out of their suppliers, but they get low prices because of that effort and the huge volumne they promise to suppliers. Economics 001. Why is the government different?

Sullivan also conveniently 'forgets' that Medicare Part D also is the sole supplier for Medicaid-eligible people, including many young people who have HIV disease. An HIV drug regimen can cost $20-40,000 a year under today's pricing system - way beyond the cost of production. Much of the research was government paid on HIV. He wants to make this issue an old versus young issue, and it surely is not.

Posted by: JimPortlandOR | Mar 27, 2006 2:38:06 PM

Weboy: Good points, and I purposefully left Sullivan's status out of the post because my real question is whether he's truly so myopic that he doesn't realize an HIV sufferer not covered by The New Republic's health insurance and financed by top-flight writing gigs is deeply harmed by the extortionary pricing of pharmaceuticals.

Posted by: Ezra | Mar 27, 2006 2:47:36 PM

I see you've joined Yglesias on the Sullivan bashing wagon. Borat says "Nice, I like."

Seriously though, we don't 'get' these ideas because they are all based on 100% free market theory. To my knowledge, there has been exactly zero modern societies who have tried to operate on that theory. And the ones in the past that have, had, I think we can all agree, less than stellar socioeconomic results. It must be nice to live in the clouds.

Posted by: Adrock | Mar 27, 2006 2:51:07 PM

The "already fund 36%" link doesn't work.

Posted by: Bulworth | Mar 27, 2006 2:59:34 PM

I am skeptical that this sort of reform wouldn't seriously damage the development of new medicines. However, I am willing to be convinced.

Since Ezra did a 'health on nations' series on health care plans in other nations, which was very informative. I would love to see a 'pharmaceutical industry of nations' post. How well does drug innovation work in countries with publically funded drug benefits that negotiate low prices with drug companies. Has research in those countries increased or decreased? How much innovation is happening in other nations?

Posted by: Dave Justus | Mar 27, 2006 4:33:32 PM

Dave Justus: I think that the Americans get screwed. Case in point: if you look at Forbes's list of the top selling list of drugs in the world you'll find Nexium at #7. Nexium is an ulcer drug - which incidentally was developed in Sweden - and is a slightly modified version of Losec (not sure about the brand name in the US) that is claimed to have up to 10% better therapeutical effect than its predecessor. Judging from the sales figures (82 % of sales occured in the US) Americans went for the new improved drug (which of course is patented and damn expensive) wholesale - Astrazeneca has an ace corps of sales reps - while here in the old and socialist world I gather that Nexium is only used by those who actually notice a 10 % improvement. It is worth to remember that Astrazeneca has made enormous profits since early 1990, and Nexium is their best effort so far. I think it is important to reward innovation, but I'm unconvinced that granting monopoly rents to corporations is the best way. Pharma companies tend to be one hit wonders.

Posted by: Dan K | Mar 27, 2006 6:11:48 PM

Dan K:

I don't take acid reflux drug, but el wifo does. She had been on Prevacid until all health insurance plans where I work stopped covering it and one refill cost north of $150. She took Nexium for a while, using free samples, except it didn't work for crap.

I believe that Losec is Prilosec over here, and it's over-the-counter now.

Posted by: Dr. Squid | Mar 27, 2006 10:37:03 PM

Why does anyone pay any attention to Andrew Sullivan? He adds nothing to intelligent discourse except a few screeches from time to time.

Posted by: Marv Toler | Mar 28, 2006 8:19:53 AM

There's nothing unprecedented about being in favor of free-market principles but opposed to collective bargaining. How many Republicans do you know that are pro-union?

They are fine with corporations having bargaining power, but they get all weak in the knees when it comes down to real people like you and me getting bargaining power.

Bush's plan to promote health savings accounts is another good example. He says it's all about empowering the individual and giving people the ability to shop around for health care (as if that's something people want to shop around for). But under the present system, insurance companies are already doing your shopping around for you, and since they have more market power they are able to negotiate lower prices for everyone. Imagine going to your doctor and saying, "I think $50 for that drug is too much. I'll only pay $30." Good luck with that approach. But when your insurance company engages in collective bargaining, they can actually do this, which is why Big Pharma wants the Republicans to make them stop!

Posted by: Steve | Mar 28, 2006 12:12:58 PM

I'd be curious to know what portion of Pharma's R&D goes to developing slightly modified versions of existing drugs, so they can keep getting new patents.

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