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Comment by mft_ | Hacker News Reader

On the scale of a market in the many many billions, the costs imposed by FDA aren’t even a rounding error. That’s not why drugs are expensive.

Generally, Pharma companies charge a lot for medications in the US _because they can_ - because no one stops them. Lots of other countries have systems which limit price, or set drug prices according to value, or similar.

Why doesn’t the US? Fundamentally, it’s got to come back to allowing money and thus big business to influence the US political system so directly. Until this is fixed, sadly little is likely to change.

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Health insurance company profits are capped at 20% of the premiums they take in[1]. So not only because they _can_, but they actively want healthcare costs to go up, because that's the only way they get to increase their profits.

https://www.healthcare.gov/health-care-law-protections/rate-...

Meanwhile in Germany and Switzerland there are non-profit health insurance companies:

* https://en.wikipedia.org/wiki/Healthcare_in_Germany#Health_i...

* https://en.wikipedia.org/wiki/Healthcare_in_Switzerland#Comp...

Both usually rank quite well in various international comparisons.

The US has a great healthcare system, but abysmal health insurance.

Lots (perhaps most?) of US health insurance providers also non-profit.

Are lot of tiny non profit insurance companies exist generally created by companies or religious groups to run their insurance. However, in terms of the overall market share it’s under 1/3 and significantly less when you look at companies that accept anyone.

Lot's of Hospital Systems in the US are ostensibly non-profit, but the number of Administrators & executives (and their salaries and bonuses) have been going way up

This doesn't appear to be true. There are other ways for health insurance companies to increase profits.

The US Health insurance industry spends on average, 86% of premiums on healthcare costs[0], which means they can increase their profits by reducing those costs, since 80% is the floor.

12% of the left over premium gets spent on operating expenses, which leaves the industry with a 2-3% profit margin[0]. So another way of increasing profits is for the companies to become more efficient.

These figures are for the industry as a whole. Any individual company will have other avenues of increasing profit, such as growing their market share.

[0] https://content.naic.org/sites/default/files/inline-files/20...

> Generally, Pharma companies charge a lot for medications in the US _because they can_ - because no one stops them.

Walmart charges what they do because they can as well. Pretty much everyone charges what they can and nobody stops them. There aren't many business out there pricing stuff lower than what they can get away with.

There is a billion dollar opportunity here for whoever sells insulin at half price to the US market. Looking at the enormous price differences, it seems very likely that the opportunity exists. These are manufacturing prices; presumably before subsidy [0]. Unless I've really misunderstood what they are saying there is a huge opportunity for someone to get rich here. The most likely reason the prices are high is because the US government has somehow made it illegal to sell cheap insulin.

[0] "First, the manufacturer prices available in the MIDAS data do not reflect rebates or other discounts that might have been applied after drugs left the factory; we expect that, in many countries (and particularly in the United States), the net price paid for drugs was lower than the reported manufacturer prices shown in our results tables." - In the linked report

Walmart sells an inexpensive OTC insulin type ($25 a vial).

https://diabetesstrong.com/walmart-insulin/

It's an older formulation, and not commonly prescribed, unless you're cost sensitive.

Why doesn't competition step in and increase the supply of insulin, thereby decreasing its cost? If insulin is 1/8th the cost elsewhere why can't I import it from overseas and sell it locally, making arbitrage profits?

Is there something other than regulatory capture going on here? If not it's less a case of "because they can" and more a case of "because others can't".

Because your cheaper product needs to be fda proved, which either is extremely expensive or these is some huge cartel conspiracy. Probably the first.

Short answer: because of regulations.

Just to give you an example how ridiculous the US health care is. I used to live in California and I had an inflamed wisdom tooth. It cost me so much to get it out (fully insured, premium+, high income insurance) that the amount I had to pay __after__ insurance (out of pocket) would have been enough to buy a ticket to go to Europe, visit a random country get the operation done, fully pay for (without insurance coverage) it and fly home to Cali.

The state of Utah flies employees to Mexico to fill prescriptions there because: "The cost difference is big enough that the state's program can pay for each patient's flight, provide them with a $500-per-trip bonus, and still save tens of thousands of dollars"

https://www.pharmacist.com/article/utah-sends-employees-mexi...

>would have been enough to buy a ticket to go to Europe, visit a random country get the operation done, fully pay for (without insurance coverage) it and fly home to Cali.

This isn't even uncommon among people in Europe. A lot of people from Western Europe get on a 50 bucks Ryanair flight to Hungary or Romania, get their dental work done and fly back home.

The difference is the price of ticket to fly over a continent + the Atlantic Ocean vs fly over few countries. On the top of that, the other reason why people in some Western Countries (for example Ireland) do this is very surprising: quality of service. Ireland used to not have emergency dental service and even the general dentistry was not that great while being much more expensive (not US level though) than in Hungary, Romania or Poland. There is an entire industry specialised in Hungary and Poland to server Western clients.

FWIW health insurance and dental insurance are very different - dental insurance is always separate from health insurance and often covers very little, often nothing beyond checkups. The last time I had a plan offerred it covered up to $1200... but cost $100 a month. The cost was actually equivalent to the price of checkups. I'm not sure why this played out the way it did -- probably because it is procedure focused.

FYI the dental insurance company forced me to submit the claim against the general insurance company and only wanted to deal with the case when it bounced back. I had a premium dental insurance at the time. This is what insurance companies can do in the USA and most people who are moving that are not aware of it, because it is so unimaginable that one of the richest countries of the west has an insurance system like that.

And this is the REAL issue. If I was allowed to start a pharma company as easily as I could start a software company then you bet I would be doing that instead of SAAS. I can guarantee that prices would be lower than the rest of the world, and that American pharma companies would be top-of-market in international markets as well.

But, the mafioso in-bed-with-the-gov-and-politicians absolutely corrupt elitist-owned system that we have in America is ruining this country.

And to all the people downvoting the "regulation" comments: You are being COMPLETELY intellectually dishonest, and you know it. Game theory validates that regulatory capture is 100% the issue. The Universe and nature work by a set of laws that has been investigated since the 50s with Von Neumann, Nash, etc. It is time that we stop telling ourselves that some politicians in government are going to magically create legal algorithms that outperform the laws of the nature. It is dangerous, immoral, and stupid and it ends up only protecting and embedding the existing corrupt elite for life.

I generally agree with the sentiment but you definitely go too far.

> Game theory validates that regulatory capture is 100% the issue.

Regulatory capture cannot be the issue because it exists pretty much everywhere (in the Western world, I guess), yet US prices/insurance/medical spending is higher than in e.g. Europe.

Maybe it's the US flavour of regulatory capture - that's an option - but then you should be railing against that, not pulling a fake reductio ad game theory argument out of your sleeve - I mean, what do you propose as the alternative, an unregulated drug market? I mean, I'm very much in that direction - I believe all drugs should be legal and accessible, the only restriction I'd put on the "freely" part of "freely accessible" (e.g. new/experimental drugs only if you're dying, hard drugs like heroin only if you go through 6 months of classes & psychiatric evaluation, etc.) - but even that's clearly still a "regulated market" (e.g. disallows misleading advertising).

I'm curious about the details of this for insulin. Is it a problem with one political party or with both? Does the pharma oligopoly control the politicians through donations/funding? Or is there a legitimate IP protection reason that the pharma companies have that justifies the lack of competition for insulin provision?

This is not about direct costs. It's about FDA banning competing products so one company can charge astronomical prices.

It's not that other countries didn't have the same rules. Before you can market a generic in Germany you must convince the Institute for Pharmaceuticals and Medical Devices that your product is comparable to the brand-name medication. People like to blame the FDA but tend to disregard that Europe and Japan have similar safety requirements.

When you read some of the inspection reports from White Oak you wonder: what would pharma manufacturing in <insert faraway country here> look like if they knew the FDA didn't exist!

As I understand it the FDA is different.

Even if your product is comparable to the brand-name medication, the cost, time, and uncertainty of getting a permit is so prohibitive that many smaller medications are left with well protected monopolists.

That's at least what I hear. I don't work in the industry.

The monopoly or the public authorities aren't even the problem, natural monopolies are well understood and brought under control by regulation. There are three manufacturers of insulin in the US, about six worldwide. Everywhere else the natural monopoly is dealt with by price controls, except in the US. They could, but they don't want to.

Why would insulin be a natural monopoly? It seems like a commodity, which is kinda the opposite.

Aside from modern insulin variations under patent, but that's different.

I suspect the barrier to entry that creates these monopolies is again the access to FDA approval. You can only really make money in the US market, due to the price controls elsewhere.

The high US drug prices subsidizes the world to a big extent, and I wonder how much of a drug industry would survive if the US also went for price controls.

Why would insulin be a natural monopoly?

It's the confluence of the low profit margin, high barrier to entry (FDA) and inelastic demand. The market does not support more than five or six players worldwide. It's like that for any generic.

That's common to all commodity medical supplies. Remember the IV saline shortage after Hurricane Maria took out the manufacturers on Puerto Rico? That doesn't need FDA approval (the facility does need inspection though), but you don't spin up a sterile bulk manufacturing facility in 6 months because of upfront costs that will take an eternity to recover.

You can only really make money in the US market

You can fleece the US citizen only so much. Elizabeth Warren showed in 2004 how stretched he is, and it has only gotten worse since. The rest of the world may pay less but it's bigger. Also, when you can justify the cost to the public authorities it will be paid - note that a course of glecaprevir/pibrentasvir Hep C protease inhibitor is 26 kUSD in the US and a comparable 27 kGBP in Britain. A heap of money, but beats the liver transplant, both in cost and quality of life.

The bigger threat to pharma is the poor return on investment. Information technology pays off faster and with lower risk. Goldman Sachs suggested the government step in, they are the only ones with big enough pockets. The suggestion is sound.

> It's the confluence of the low profit margin, high barrier to entry (FDA) and inelastic demand. The market does not support more than five or six players worldwide. It's like that for any generic.

That's precisely what I'm saying!

If we agree on the facts, our difference seems to be that I don't consider FDA regulations "natural". They can be reformed, and then we'd see many suppliers cranking out cheap plentiful insulin.

They can be reformed, and then we'd see many suppliers cranking out cheap plentiful insulin.

That's just nonsense. The other highly inelastic market is oil, there are massive price excursions when supply and demand are not matched. Have you seen what happened when oil demand dropped this spring? Prices completely fell off a cliff! Demand will not increase just because new capacity enters the market, instead prices will drop to make everyone unprofitable, including the new entrant, who will never be able to recover the initial investment.

It sounds like we agree that prices would fall.

Since the problem we're talking about is the very high prizes for insulin etc in the US, does that mean we agree this would be a solution for that problem?

No. You'd see volatility and a price drop until someone goes bankrupt, and then the system is back where it was before. Good luck finding an investor for that.

Why the market fetishism? The state of affairs needs price controls.

Prices do drop with innovation. Consider the praziquantel story. The compound was discovered in the early 1970s by a Bayer-Merck joint venture as part of a discovery effort for tranquilizers. It wasn't psychoactive but very efficaceous against flatworms (schistosoma and tapeworm) and then promptly shelved because of its high price, the synthetic route was complicated.

South Korea had a schistosoma problem at that time and couldn't pay Bayer for the compound or patent license, in the early 1970s Korea was still a threshold country, so at first they pirated it and then, because the original isoquinoline route required expensive starting materials the Koreans developed their own route. The glycine route made it possible to produce it cheaply for their own people and also opened up the worldwide veterinary market. This was actually the foundation for the Korean chemical industry.

The market works. It's well understood, just it works not in the way you think.

I strongly disagree with your view of how markets and prices work, but I think we've have to agree to disagree here.

Thanks for the chat!

Your comment seems to suppose that basic economics do not apply to healthcare; do you believe that it's a 'special case'? I see healthcare as being similar to every other market, and think that the cost issues are driven by regulations and incentives.

Healthcare is an inelastic market. If the new iPhone is too expensive, keep an old one, of buy a used one. If your insulin dose is too expensive, you die. Normal market rules of supply and demand do not entirely apply to Health care markets.

There are lots of inelastic markets, and I'd agree they do often suffer from short-term price volatility, but the US healthcare market suffers from longer-term price 'anomalies', which I believe are a product of its unique regulatory landscape.

Other markets with inelastic demand and/or supply also suffer from long-term price anomalies: take housing/rental in SF. There’s certainly some more contributing factors that make an inelastic market turn into a problem, but it’s fairly obvious that it’s not governed by the regular “simple” market explanation of supply and demand converging to a price point if the demand is essentially fixed.

Housing and real estate have a regulatory environment which may be as Byzantine as that in healthcare! Real estate is a little 'better' because you have competing regulatory regimes which serve to (somewhat) moderate the extremes, but it's still quite bad.

If you're looking for a contrasting inelastic market (one with a simpler regulatory landscape), I'd look for other industries with high capital costs, such as semiconductor manufacturing.

> If your insulin dose is too expensive, you die.

While that is true, you are not including the option of switching to a cheaper insulin. The older insulins (R/N/L) were, the last time I checked, something like $25 per bottle, over the counter.

Cheaper insulin is worse insulin, harder to manage, and ultimately will shorten your lifespan. If you've never used it before/are underresourced about its useage it can 100% still mean a death sentence. Still inelastic imo.

I was replying to the statement that "if your insulin is too expensive, you die". Cheaper insulin is not harder to manage than dying.

Cheaper insulin, being harder to manage, can and does kill you.

Haha, no. If your insulin dose is too expensive, you die. If my insulin dose is too expensive in America, I ship it from generics factories in India¹.

The problem for you is that you can't do what I do. And maybe the problem for you is also that I can't sell you what I get this way.

So in America you have 'shortages'. I do not. And if you wanted, you could also choose not to have 'shortages'.

I remember the same thing happening when Chloroquine was 'in short supply'. I could always get some. You never could. This is by choice. You live by rules that the universe does not require of you. These are probably for other reasons like perhaps you believe in living by the categorical imperative. But there are predators in this forest who do not believe in that.

¹ Even insulin can come here stably and safe. But drugs for other conditions are easier. And what I'm saying here is not strictly true if you're familiar with the details: it's not actually a generic, etc. etc. The important thing is that it's cheap and available.

It sounds like you’re saying “this isn’t a problem if you simply break the law”, which obviously isn’t a real solution to the problem.

It makes obvious that the problem is the law.

Exactly. Thank you.

Demand is relatively inelastic in healthcare. Supply is not. The fact that I need a product does not constrain suppliers from supplying it. So normal supply elasticity of supply rules apply.

FWIW, I was sketching out the situation in the US healthcare market generally, and not specifically referring to the insulin situation.

To expand slightly (all IM opinion/observation):

a) Often, there isn't a 'market', as there might not be multiple competitive options for each disease.

b) Even in situations where there are (say) two roughy similar treatments for a disease, market forces don't always apply - manufacturers differentiate via other routes and try to avoid price erosion.

c) It's uncertain how often price directly influences prescribing decisions (in the US, or indeed in many countries).

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