The first and most fundamental change is to give up the idea that free market economics are always and everywhere optimal.
This faith – and it is a faith, with its own Holy Ghost (the Invisible Hand) – has cleaned out the wallets of Americans with an efficiency that would excite the envy of a TV preacher. Those too poor to write a check are offered as human sacrifices[1] to this jealous god.
From The Invisible Hand Is Shaking
Here are three facts for your consideration:
- Medicare and Medicaid account for about half of prescription drug spending in the US ($174B of $329B total in 2016).
- CMS, the agency that administers Medicare and Medicaid is statutorily prohibited from negotiating drug prices, and must pay for all FDA-cleared drugs prescribed by a physician.
- Most drugs are Me-Too drugs – they offer few if any advantages over their competitors, and can readily be exchanged for them.
From The Growth of “Me-Too” Drugs
If forced to negotiate prices with CMS, drug makers would have no leverage: CMS controls an enormous share of their market and can say “Screw you, give us our price or we walk. Your competitor’s drug will work just fine.” Given the immense sunk costs in R&D, and minimal marginal costs to manufacture a drug, pharmas would have no choice but to cave – it will always be better to sell at a low price than to not sell at all.
Appeals to corporate responsibility or conscience are a waste of time. Pharmas are profit-seeking entities and will always charge what the market will bear. And that’s OK. Or if it’s not, then maybe it’s time to socialize drug development.
Markets are human institutions, not divine creations. Governments make markets. We can make them work for the good of the many or the good of the few. Paying top-dollar for truly innovative drugs that address unmet needs is not a problem. Paying big money for the third heartburn drug or statin is not just a problem, it’s robbery. Let’s leave faith-based robbery to the professionals.
Footnotes