Why the U.S. Pays More Than Other Countries for Drugs

[lazyboy]

http://finance.yahoo.com/news/why-u-pay ... 00462.html

Norway and other state-run health systems drive hard bargains, and are willing to say no to costly therapy.

Good article. The way the US health care system is designed prices are kept high. This system is likely to stay in place for along time. For my variable portfolio I am looking to invest in a high performing health care fund. The funds I like are: Vanguard Health Care VGHCX , the Admiral ($50,000 min) one: VGHAX. Also like to consider the Health Care index fund and etf :Vanguard Health Care Index Fund Admiral Shares (VHCIX)- min $100,000, Vanguard Health Care ETF (VHT). The index fund and etf have a lower expense ratio. The first fund had been around since the 80s and has done really well. The etf may be the better choice...

[WiseOne]

The reason drug prices are kept high in the U.S. is that pharmaceutical companies have very strong lobbies, not to mention that they practically own the FDA.  You could argue that the U.S. is subsidizing pharmaceutical research which benefits all those other countries with price controls, but that's an effect of the above political clout - not the primary reason.

As long as this situation continues, buying a pharmaceutical stock is a decent bet.

[Tyler]

The pharmaceutical lobby is undoubtedly strong, and I agree drugs are likely more expensive than they need to be. Still, I always find this topic interesting for a very common ideological inconsistency. 

The system is certainly not perfect, but drug companies generally charge for their product around the world based on what people in the country in question can afford to pay.  The US naturally pays much more for the same drug than Nigeria, which many people interpret as companies gouging wealthy countries.  The fact that the low price of the drug in the poor country is below the sustainable price and that global sales should be considered as a whole gets glossed over.  Cost redistribution = bad, and is something to be corrected by the government.

But flip the topic from drugs to health insurance, and many people change their tune and consider that as the only fair way to do it.  Wealthy people should naturally pay more for the same product to make it affordable for everyone.  Cost redistribution = good, and is something to be managed by the government.

It's almost as if people love redistribution of wealth when they're on the receiving end but resent it when they are not.  Go figure. 

[jafs]

Also, there was a law passed during the Bush II administration that prohibited the government from negotiating with drug companies.

So, whereas before, as a large buyer (Medicare), it could have negotiated prices downward, since then it can't do that.

[WiseOne]

...drug companies generally charge for their product around the world based on what people in the country in question can afford to pay.

True but only to an extent.  Drug prices are far lower in Canada (for example), because that country's medical system negotiated lower prices with manufacturers.  It's why there are laws against ordering your medications from Canadian pharmacies - the big pharma lobbyists made sure you have no alternative but to pay the inflated U.S. prices.

The drug prices in the U.S. are not set by anything like the free market.  It's monopoly pricing with the government's blessing, plain and simple.  You can't have a free market where one party gets to set the price for a commodity that has no alternatives, and the other party is forced to pay that price and not permitted to haggle it down.  That's Medicare, yes, but realize that Medicare is the primary driver of drug prices.

Incidentally, this situation is a big reason for the rise in insurance prices.  Drugs (unfortunately) command a very large share of overall medical costs.  Consider this for example:  At a typical 3 month followup visit, a physician will write two or three prescriptions, each costing several hundred $$ per month (but $1-2K/month is not unusual, nor is more than 3 scripts).  The physician gets somewhere between $50 and $200 for the visit.  About once a year (or every 4th visit) they'll find an excuse to order lab tests and/or procedures that will cost, let's say, $2000.  Do the math and tell me where the $$ is going!

[MachineGhost]

The reason drug prices are kept high in the U.S. is that pharmaceutical companies have very strong lobbies, not to mention that they practically own the FDA.  You could argue that the U.S. is subsidizing pharmaceutical research which benefits all those other countries with price controls, but that's an effect of the above political clout - not the primary reason.

+1.  It's quite possible its a de facto cartel now.  That would be an interesting legal angle to try.  There's no logical reason it should take over a billion and 10 years just to get palliative lifestyle drugs approved (i.e. symptom treatment not cures) through three Phase trials.  That's where the large drug markups come from.  It's anti-trust and anti-competitive behavior.

We need separation between economy and state like you wouldn't believe.

[MachineGhost]

The system is certainly not perfect, but drug companies generally charge for their product around the world based on what people in the country in question can afford to pay.  The US naturally pays much more for the same drug than Nigeria, which many people interpret as companies gouging wealthy countries.  The fact that the low price of the drug in the poor country is below the sustainable price and that global sales should be considered as a whole gets glossed over.  Cost redistribution = bad, and is something to be corrected by the government.

They only did that due to activist uproar and to improve their PR image.  It wasn't a free market consumer response.  Shareholder capitalism is not concerned with conscious capitalism.

It's almost as if people love redistribution of wealth when they're on the receiving end but resent it when they are not.  Go figure. 

It's a behavioral bias.  Losses hurt 2.5x more than the equivalent in terms of gains.

[MachineGhost]

True but only to an extent.  Drug prices are far lower in Canada (for example), because that country's medical system negotiated lower prices with manufacturers.  It's why there are laws against ordering your medications from Canadian pharmacies - the big pharma lobbyists made sure you have no alternative but to pay the inflated U.S. prices.

Fortunately, passing legislation is only half the battle.  The other half is enforcement.  I'm sure there's bigger fish to fry for the USPS or Customs than worrying about [re]imported pharmaceuticals from Canada.  BTW, did everyone know even Big Pharma offshores their drug manufacturing to India?  They have interesting patent protections over there that is the reverse of the way the USA works.

I get my drugs (without a prescription) overseas, thank you.  The six-figure earning lobbyists can go fuck themselves since the laws they advocate for "the little people" don't apply to them by virture of their overpaid taxpayer-funded salaries.

I'm seriously thinking I should move to DC.  Why bother to fight?  Joining the frenzy is the path of least resistance.

[MachineGhost]

Incidentally, this situation is a big reason for the rise in insurance prices.  Drugs (unfortunately) command a very large share of overall medical costs.  Consider this for example:  At a typical 3 month followup visit, a physician will write two or three prescriptions, each costing several hundred $$ per month (but $1-2K/month is not unusual, nor is more than 3 scripts).  The physician gets somewhere between $50 and $200 for the visit.  About once a year (or every 4th visit) they'll find an excuse to order lab tests and/or procedures that will cost, let's say, $2000.  Do the math and tell me where the $$ is going!

Lab companies, insurance companies and Big Pharma?

[Pointedstick]

I get my drugs (without a prescription) overseas, thank you.

Would you mind elaborating on this?

[lazyboy]

Granted that the high cost of drugs and other medical costs in the US, are for all the above reasons: Big Pharma, lobbies, Medicare laws under Bush 2, insurance companies, lack of a single payer system that most or all of the developed world has, etc, etc. ...Getting back to the original post- does it make sense to invest and profit from this trend that seems to favor this form of American monopoly? WiseOne indicated yes, it's a decent bet. 

[MachineGhost]

Would you mind elaborating on this?

Cheaper, easier and less hassle than dealing with an overbusy physician (if that lucky!) gatekeeper in an HMO filling in all those EMR fields.  I don't like being in a submissive position and that is patient to doctor, unfortunately.  At least in insurance networks.

I only buy from India or Mexico (sometimes Thailand but its been a long time) where prescriptions are not needed.  And not lifestyle drugs (i.e. turgid crap like Viagra) since those are the ones where all the money is for counterfeit fraudsters.  Stupid is as stupid does.

[lazyboy]

I bought Vanguard Health Care because profits seem baked in longterm by the business/government/medical system. And the products and services are considered essential by most people. Personally, I'd prefer and vote for, a different system. But since its rigged this way I'll try to profit from it cognizant that one day I and loved ones could lose a fortune in future medical expenses.

[MachineGhost]

I bought Vanguard Health Care because profits seem baked in longterm by the business/government/medical system. And the products and services are considered essential by most people. Personally, I'd prefer and vote for, a different system. But since its rigged this way I'll try to profit from it cognizant that one day I and loved ones could lose a fortune in future medical expenses.

I like yours and WiseOne's thinking and I'm going to find a way to include it in my PP.