Democrats Set Their Sights More on High Drug Prices

Pharmaceutical drugs

Normally, it is preferable to let the market determine the price of something. With something that is believed to be essential, we need to really make sure the market is free.

Free markets need to actually be free markets for them to do their thing and seek out efficiency. The key word here is free, and freedom in this context must be preserved if the free market system is to be allowed to play out.

Any restrictions upon the free market must be truly justified, and while politicians can justify things like tariffs and a more closed system, due to wanting to see domestic companies benefit and don’t mind seeing their people pay the price for this with higher costs, there needs to be limits to this.

What stands out so much with pharmaceutical drugs is that people at least have the perception that they are essential in many cases, and in some cases they are. If you have type 1 diabetes insulin therapy is required to stay alive. With type 2 diabetes, while insulin therapy may make this form of diabetes worse, not better, the overall perception is that this is needed, because they are told it is, and people will therefore pay a lot of money for these things.

The drugs get prescribed, people feel a strong urge to fill them, and they pay whatever they cost, even hundreds of thousands of dollars a year. In a lot of cases, there may be better alternatives, but with the pharmaceutical industry doing such a great job of steering people away from anything they don’t sell, and they are in complete command of the majority of people’s attempts to manage their health. This is what makes predatory pricing with these drugs so dangerous.

Many do need insulin to live though, and while insulin is a hormone, and you can’t patent that, you can create analogs of it and this is what the industry does, taking things in nature and altering them to be distinct enough to patent. These alterations are responsible for a lot of side effects, but no matter, people need to get milked and these patents together with their autocratic power over the industry allow companies to milk people to their heart’s content.

Once they get their patent, all you need now is an army of doctors to prescribe them, and they have the entire conventional medical profession at their command, who in turn command their patients. This is a pretty profitable way to conduct an operation indeed, especially if we are using absurdly excessive pricing.

When the generals of the industry command their soldiers this way and the orders are followed without question right down to the patients, this does create a situation perhaps as distant as we could get from free choice in a free market, and we have to be particularly careful with such a thing.

If it costs you $300 a month to live, you will pay it or literally die trying. If the price rises to $3000 a month, as it has now for some patients, you will pay it or die trying, and pay anything for this. This is what economists call inelasticity of demand, where the price rising doesn’t affect it very much, and this demand is extremely inelastic, since people will pay anything not to die and is therefore only limited by their ability to pay or get coverage to pay.

While there may be competitive goods out there, including just refusing to take the medication or pursuing another type of treatment, few people are aware of them, and are told to just take this stuff and listen to no one else. Your life doesn’t have to be in danger here as you’ll be standing at the counter like the people who do need the help, herded into drug stores like sheep, and fork over whatever amount is asked. If we allow these prices to be 20 times higher than they should be, people may complain about getting ripped off, but do not see any alternative.

These are the situations where we need to be careful not to over-regulate, not to look to protect the profits of domestic companies while your own people suffer, because with demand this inelastic and the stakes so high, they will just be preyed upon.

Pharmaceutical drugs cost a lot more in the United States than in other countries. The reasons for this aren’t that simple, and some of the proposed solutions can look pretty complicated as well, but we could go a long way toward fixing this problem with one simple move, allowing people to buy these drugs where they are cheaper.

It still is interesting to look at how this mess has gone so wrongly, how it could even be possible for the United States to both have the largest market for this merchandise and also the highest prices in the world by far.

The U.S. has a rather fragmented system of health care insurance, but even so, you would think that these big insurers would have both enough economic power and enough of a vested interest to get these prices down on their own.

As it turns out though, they really don’t have enough of an incentive to do so, and higher prices actually builds their business. There is more to protect against and can therefore charge more. No one has cared enough to fix this, but times are changing, or at least they might be.

When No One Watches the Henhouse, the Hens are in Big Trouble

In countries where the government pays for these things, they do have a strong interest in keeping prices down, as well as the means to do it. Insurers in the U.S. don’t pay the ultimate costs though, so they just happily pass them on to their subscribers, who pay these extra costs, happily or not.

This is why health care insurance is so broken in America. At no step along the way do we have any real cost controls. The government doesn’t care, your insurer doesn’t, the providers don’t, and whether or not you care simply doesn’t matter.

Does this mean that the government needs to step in and impose cost controls like they do in other countries? Canada doesn’t have such a thing, and even though they have socialized health care insurance, it doesn’t apply to pharmaceuticals at all. Private insurers handle it up there, but somehow, they manage to buy these drugs at a small fraction of the cost that the U.S. insurers do.

People are paying $450 for a 10 ml bottle of insulin in the U.S., translating into $3000 per month for some patients, where you can order the same bottle from Canada for only $21. When the same thing costs over 20 times more in the U.S., that tells you that this is no minor thing, and speaks to just how massively inefficient things are when it comes to health care in the United States.

If everyone could just order their prescriptions from Canada or elsewhere, and insurers were required to cover these purchases in the same way that they would from a domestic supplier, that alone would fix things. While not everyone has internet access, especially with older people who consume the most here, there isn’t even a need for that, as all we have to do is allow American pharmacies access to these markets and they would be falling over each other to be able to offer these drugs at drastically reduced prices.

We know for certain that this industry cannot regulate itself, and while we debate how we might improve this, opening up the border would surely do it. Becoming more competitive now becomes necessary, even though as far as the drug companies go, it’s basically the same companies selling this to you anyway.

They have simply marked up their prices in the U.S. to extreme degrees, whatever the market will bear, and this market bears much more due to U.S. protectionism and other factors. This is what has to go, and the blood is much more on the hands of government regulators than it is on the drug companies, who are just doing what companies are supposed to be doing, which is maximizing their profits. If you encourage the wolves to eat prey by fencing it in like this, they will indeed fill their bellies.

With a single stroke of a pen, this problem can be fixed, and fixed to an extent that we could not really achieve otherwise. There is so much graft in the health care industry that is structural, like the deals distributors make with suppliers where the company legally gets bribed not to negotiate in good faith, along with the other quirks that allow for the price of drugs to rise so high.

Drug companies make it their business to be intimately familiar with the cracks in the American system, and do their best to bilk this market for every last dollar it can extract, whether or not this means lives lost. None of this depends on a moral argument though, unless you count the government being in cahoots with them and allowing all this to happen by way of their protectionism.

There are certain punishments for being American that our government may be willing to tolerate, and some things are just going to cost more. When it comes to getting the care that you need to avoid suffering and even to avoid death, this sort of thing cannot be something that we should be putting domestic corporate profits first, where this suffering and death of our people gets pushed under the bus.

We expect companies to act this way, but in a free market, those who are best situated to satisfy our needs the most will be rewarded, and the reward will be mutual as we will get the most value this way. This sort of thing simply may not work in a closed system though, and it is failing miserably in the completely closed U.S. pharmaceutical market, where we are penned in like farm animals and milked to the max.

While there is the potential for overseas suppliers refusing to cannibalize their profits by shipping their drugs from elsewhere to the U.S., and since a lot of these drugs are under patents, meaning no one else can offer them right now, we might worry that this might cause the market to dry up for certain drugs. This could be fixed easily with regulation though, where we not only allow access, we require it, if the companies plan on continuing to do business in the country.

It Should Not Cost Any More to Buy Pharmaceutical Drugs in the U.S.

We could instead look to put caps on domestically sold drugs, which is the road that some politicians are looking to go down, even President Trump. Price controls actually interfere with the market, taking something that is broken and seeking to just put a veneer on it, while the wood that it is covering continues to rot.

What happens when we do this is that we may make progress toward market efficiency, but this progress becomes constrained by the broken system. For instance, if we just tell them that they cannot sell above Canada’s price, they may not be able to make that work in the U.S. for various reasons, and may refuse to clean up their act and just stop selling the stuff. Since we’re not allowed to order from Canada, this can leave us no place to get what we need.

What this would serve to do is to wrestle some of the excesses here but leave far too much of it in place, where we still get fleeced but we reach a compromise. This improves but does not fix the problem, and we should settle for nothing less than parity and in fact it should be cheaper to sell these drugs in the U.S. due to greater efficiencies based upon volume.

If we are serious about fixing this, we need to first identify the real problem, which is clearly protectionism. As long as we want to protect these drug companies at the expense of the people, we will have a problem. This is not the clothing business and while more reasonably priced clothing is nice, health care is not a nice to have and should never be subject to decisions that allow for its cost to be massively inflated at our great expense.

The FDA claims that it does not allow the importation of pharmaceuticals because they have not themselves approved the drugs, although in almost all cases they have, as these are the same drugs. That’s just a terrible argument, as if they did want to prevent drugs that they have not approved from crossing the border, this does not extend to all drugs regardless of approval status.

Like with all government agencies, money talks, and these companies go even further by having their own people run the agencies, or tempt people into being much more friendly to them with a plum job awaiting them at the firm.

The best and perhaps only good way to fight all this graft and corruption is to remove the unfair constraints upon the market that they benefit from and let them fend for themselves in the free market. We do need to take back the FDA and other agencies that are riddled with the industry’s own people, who make decisions that are clearly and openly biased, but we need to start to care more about this first.

This has become a big enough issue to have Democratic candidates bring it in full view and promise to take measures to fight this. Elizabeth Warren claims she will lower the price of insulin during her first day in office, but none of this will go all that far in correcting this huge problem, as it will instead just result in some fairly minor changes that still will have the cost of drugs in the U.S. considerably higher than elsewhere.

We should never be willing to just settle for a little less broken but still broken. There is only one reason ultimately why people in the U.S. pay so much, and it’s because the government allows this to happen.

While Bernie Sanders and others may be open to the idea of allowing us to import these things freely, this is still a long way from getting a bill passed, even if he somehow wins the presidency. The House and the Senate must also be on board, and a lot of pockets have been stuffed with drug money, enough to make such a thing very challenging if not impossible. They basically will have to agree to their punishment, or they will just have their puppets in Congress vote it down, and you can bet that they will not allow their knuckles to be rapped that hard.

What is behind all this, and much more, is the health of the American political system, one fundamentally based upon bribery. When the only thing we can do is choose between candidates who have both been well bribed, and if the best we can do is pick the one that is being controlled by puppet masters that we find less distasteful, we don’t have much of a choice here. The wolves are clearly in control, and this control also involves conditioning people to ignore what really goes on, and this includes this issue, where we should see a lot bigger outcry than just a whimper or a defeatist attitude.

If we want to fix this at a deeper level, we will spend less time investigating petty things and be daring enough to look a lot more closely on how political influence works in the country, instead of being so accustomed to the political corruption that goes on that it doesn’t even need to be hidden. If we dare to hold the FDA accountable for the public welfare, perhaps they will finally take responsibility for things such as it costing 20 times more for something here.

There just isn’t a good explanation for this, other than their seeking to benefit certain drug companies at the expense of even people’s lives. This is where our fingers need to be pointed, and until we do, we might cut back on how much we are preyed upon, but we will never get rid of it.

While companies cannot really be blamed for making as much off us as they can, when it comes to governments, who are not supposed to be setting our interests aside in the name of more profit, they simply need to be held to a higher standard. We don’t hold them to this, and therein lies the real problem as well as the real solution.

Ken Stephens

Chief Editor, MarketReview.com

Ken has a way of making even the most complex of ideas in finance simple enough to understand by all and looks to take every topic to a higher level.