Comment by breischl | Hacker News Reader

Comment by breischl | Hacker News Reader

Parent Full thread

>This article has some shoddy logic... all that potentially happens is a transfer between the consumer and the manufacturer.

The point of the article is that this is an expensive mess for everyone except the manufacturer, which means approximately everyone. As a consumer, having the manufacturer "transfer" money from your pocket into their own sucks. Seems like the article's logic is actually pretty decent.

Also, even if we accept that the marginal cost of producing a pill is near-zero, that's ignoring the entire rest of the supply chain. It's not like drugs are magically teleported. There are real costs in time, money, and resources for creating the packaging, transporting drugs, stocking/shelving them, unstocking them, sending them to a disposal location, and then disposing of them. All of that is a complete loss. Most of it generates various forms of pollution, waste, and other externalities. This also sucks for ~everyone.

Basically, outside of theoretical econ-land, wasting perfectly good things is wasteful.

> As a consumer, having the manufacturer "transfer" money from your pocket into their own sucks. Seems like the article's logic is actually pretty decent.

As I addressed in my second paragraph, it is not actually a transfer unless you introduce new assumptions into the standard model of a monopoly. Please describe them.

> There are real costs in time, money, and resources for creating the packaging, transporting drugs, stocking/shelving them, unstocking them, sending them to a disposal location, and then disposing of them.

These are, in almost all cases, trivial compared to the development cost of the drug. You can group them under the marginal cost of the pill.

> Basically, outside of theoretical econ-land, wasting perfectly good things is wasteful.

Much worse than theoretical econ-land is non-quantitative land where all "waste" is bad and cost-benefit analyses are never done, not even at the order of magnitude level.

Please, by all means, construct a more accurate model. But just criticizing the imperfections of a model, which always exist, and then making non-quantitative value judgements is how we get recycling programs that cost 10 times the value of the material they recover.

>Please, by all means, construct a more accurate model.

Gee, you get to just hand-wave an entire manufacturing process and supply chain into insignificance, but I need a model, huh?

Fine. Let's use a generic drug (ie, not paying patent/development costs) as a proxy for how much the entire supply side costs. How about loratidine. You can get that at Walmart (stocked on the shelf, since that's mostly what the article was discussing) for about 10 cents/pill.[1] Of course that's completely ignoring the disposal costs. I strongly doubt that disposing of hospital/pharmacy quantities of drugs is as easy as chucking them in the municipal landfill. Let's say it costs 10% of the purchase price. So 11 cents/pill just to run a pill through the supply chain and then dispose of it.

Intensifying the napkin math... CDC says there were ~3.4 billion visits that resulted in drugs "provided or ordered". [2] Let's say that those were an average of 7 days worth of drugs ordered, so ~30 billion doses. Let's say that 10% of that much is either wasted by the consumer, or wasted while sitting on a shelf before anybody bought it - 3 billion pills.

3 billion pills/year * 0.11 cents/pill = $330 million/year. I dunno, seems potentially significant, at least to an order of magnitude level. Especially since the costs of the FDA program to extend the shelf life was around 1% of that much.

Ref:

[1] - https://www.walmart.com/ip/Equate-Loratadine-10-mg-300-ct/20...

[2] - https://www.cdc.gov/nchs/fastats/drug-use-therapeutic.htm

> Gee, you get to just hand-wave an entire manufacturing process and supply chain into insignificance, but I need a model, huh?

Nope, for this you just need a number! (In my comment, the "model" part referred to how monopoly pricing was done.)

> So 11 cents/pill just to run a pill through the supply chain and then dispose of it.

Good, your estimate process is a reasonable one, and I accept this number.

> $330 million/year...I dunno, seems potentially significant, at least to an order of magnitude level.

Ok, let's compare to what the article says:

> Experts estimate such squandering eats up about $765 billion a year — as much as a quarter of all the country’s health care spending.

So we see that our cocktail napkin math has been extremely useful, and that the article has overstated the size of the issue by some three orders of magnitude! (25% --> 0.01%) The many suggestions in the article that this is important on the level of the entire health care system is absolute bunk.

Thank you for engaging in this exercise with me!

$765B is their estimate for all waste, not just wasted pills:

    ProPublica has been researching why the U.S. health care
    system is the most expensive in the world. One answer,
    broadly, is waste — some of it buried in practices that
    the medical establishment and the rest of us take for
    granted.  We’ve documented how hospitals often discard
    pricey new supplies, how nursing homes trash valuable
    medications after patients pass away or move out, and how
    drug companies create expensive combinations of cheap
    drugs. Experts estimate such squandering eats up about
    $765 billion a year — as much as a quarter of all the
    country’s health care spending.

Later on they say:

    Tossing such drugs when they expire is doubly hard. One
    pharmacist at Newton-Wellesley Hospital outside Boston
    says the 240-bed facility is able to return some expired
    drugs for credit, but had to destroy about $200,000 worth
    last year. A commentary in the journal Mayo Clinic
    Proceedings cited similar losses at the nearby Tufts
    Medical Center. Play that out at hospitals across the
    country and the tab is significant: about $800 million
    per year. And that doesn’t include the costs of expired
    drugs at long-term care pharmacies, retail pharmacies
    and in consumer medicine cabinets.

This isn't estimating the same thing as the GP's $330M (hospital waste instead of consumer waste) but $800M is on the same scale, suggesting to me that the marginal cost of drugs might matter some.

(I do agree with your point that most of the cost, and especially the most egregious examples like the wasted epi-pens, don't represent real costs because of monopolies.)

Hey thanks! This is a good clarification. I'm happy to modify my criticism from "the author is strictly off by a factor of 1000" to "the author strongly leads the reader to believe the size of the effect is 1000 times stronger than it really is, but he deftly avoids saying anything that's technically false, and in any case the reader shouldn't care about this since it represents an dead-weight loss of about $2 per person per year, which is less than the value of the reader's time spent reading this article".

Reply on news.ycombinator.com