Health Care: The cost of medications

[Ivan Seeking]

Although I do understand that R&D, testing, insurance, legal costs, etc serve to legitimately drive the cost of medications much higher than might seem reasonable, I was shocked by this one!

I have psoriasis and use a number of topical meds to keep it in check. I was aware that these meds were expensive, but I didn't realize that the insurance was paying over 75% of the cost. That is, I had never noticed the retail price for what I'm using. One of these is a cream that is about twice the price of the rest by weight. It is a 0.005% calcipotriol cream that comes in a tube that holds 120 grams of it [about the size of a large tube of toothpaste], so we are talking about 6 mg of the active ingredient.

Retail price: $466.00.

So this is about $78 per mg, and rest come out at about $40 per mg of active ingredient.

If this were some kind of miracle drug that made a severed arm grow back then I might expect a price like this, but I have a hard time understanding how this price is justified. I think this is pretty common stuff used by millions of people.

 

[gravenewworld]

It really is all the R&D costs. For every drug that you see on the market, a company has half a dozen or more other programs that failed and never made it. Pfizer lost almost $1billion on their torcetrapib program alone. Not only does a company have to recover R&D costs, they have to pay all of their employee's salaries, health care benefits, and 401 (k)s . Then after that, they have to make profit to keep the shareholders happy.


The thing that stinks is that Americans basically are the ones who are paying for all of the R&D costs for drugs produced in America, while other countries can buy them at much cheaper prices. The US government should really impose a tax on foreign countries who buy American drugs to level the playing field for the thousands of Americans who have to choose between food or medicine because the costs of drugs is ridiculous.

 

[Ivan Seeking]

How much profit do these companies net annually? And how well do we understand the actual profits and losses?

 

[gravenewworld]

How much profit do these companies net annually? And how well do we understand the actual profits and losses?

I'm sure drug companies were making ridiculous amounts of profits 10-20 years ago. But how much is too much profit to make? At what number is too much profit? Also, the pharmaceutical industry is very turbulent. Just cause a drug company makes ridiculous profits on a drug now, doesn't mean that they will later once their patents expire. That's why they are now constantly saying that the "golden age" of drug discovery has come and gone. Huge firms like Pfizer, J&J, Astra Zeneca, etc. have all had massive layoffs because drug discovery has gotten harder and the FDA more stringent.

That's the other thing I forgot. Patents on drugs start immediately when the chemistry starts in the lab. It may take another 5+ years to work out all the chemistry/toxicity/and pharmacology, another 5-7 years to pass phase I-III clinical trials, and then a few more years to get through the FDA. A patent expires in roughly 20 years, so by the time a lot of drugs even hit the market, a company like Pfizer or Glaxo only has about 5-8 years to recover $1 billion on R&D costs.

 

[Ivan Seeking]

Given that this is the case, it is just a variation on a theme that I noted while working in the medical field: On the average, we just can't afford the miracles of modern medicine.

The cost of my dad's medical care over last thirty years rivals his lifetime income.

 

[Schrodinger's Dog]

Every course of treatment (pills, ointments, inhalers, etc) costs $\simeq$ $13 over here so that is horrendous. My meds would if I had to pay for them come to about $1000 per year. Luckily they only cost about $160 instead, and are free if I'm unemployed.

 

[russ_watters]

That's the other thing I forgot. Patents on drugs start immediately when the chemistry starts in the lab. It may take another 5+ years to work out all the chemistry/toxicity/and pharmacology, another 5-7 years to pass phase I-III clinical trials, and then a few more years to get through the FDA. A patent expires in roughly 20 years, so by the time a lot of drugs even hit the market, a company like Pfizer or Glaxo only has about 5-8 years to recover $1 billion on R&D costs.

The first part may be true, but the second part most certainly is not. The drug industry has a specific exception to patent law that allows them to get an extra 5 years out of their patents: http://www.fda.gov/CDER/about/smallbiz/patent_term.htm

I don't have a lot of sympathy for the drug industry considering what the tech industry goes through. googling and finding data from different years, Intel had a gross income of $9 billion last year and 3 years ago spent $5 billion in R&D. And they have the opposite, though no less serious problem from the drug industry: patent protection only covers them for a few years because the technology is obsolte long before the patent runs out.

Drug costs are one of the biggest "flaws" in our health care system. I put "flaws" in quotes because like with the gun industry, the laws are written by industry lobbyists for the benefit of the industry. Ie, our gun laws are not flawed if you look at them from the perspective of someone who is trying to sell or buy them. For the drug industry, they've succeeded in getting their patent protection extended, in getting the government to restrict competition, and played with the insurance companies to guarantee price controls.

But how much is too much profit to make?

This is anecdotal, but my boss used to do a lot of business at Merck. According to him, the opulence in the offices and magnitude of the bureacracy is unmached in other businesses. It gives the appearance of throwing money around basically just to reduce the apparent profit and justify their fees. That would be "too much profit".

 

[russ_watters]

Given that this is the case, it is just a variation on a theme that I noted while working in the medical field: On the average, we just can't afford the miracles of modern medicine.

The cost of my dad's medical care over last thirty years rivals his lifetime income.

I don't know anything about your dad in particular, but while reading up for the other recent thread on the general subject of healthcare in the US, I came upon a very good point: If you're 75 and have the money to spend, why wouldn't you spend it on healthcare? There isn't a single more important issue in your life at age 75 than keeping healthy. If upping your odds of surviving cancer from 40% to 50% requires your insurance premiums to be a lot higher, people are going to do it. People demand the best and the best costs a lot of money, even if the improvement in outcome is only incremental.

My grandmother is 92 and is still in pretty good shape except she has bad teeth. So bad that she has trouble eating. She's pretty frugal, so she wasn't really in favor of getting them fixed, but my mother convinced her to do it with that exact logic. She has money, she can't take it with her (and her kids aren't that greedy), why wouldn't you spend a few thousand dollars to get a new set of teeth and dramatically improve your quality of life, even if you are only going to use them for a few years?

So I'm not real concerned with the general idea of healthcare being expensive, but there are a few specific problems with it. The drug situation is one of the worst.

 

[Poop-Loops]

Don't insurance companies have deals with pharma companies? I could have sworn that they pay get deals to pay less for drugs than it would cost you if you were buying them yourself.

 

[gravenewworld]

The first part may be true, but the second part most certainly is not. The drug industry has a specific exception to patent law that allows them to get an extra 5 years out of their patents: http://www.fda.gov/CDER/about/smallbiz/patent_term.htm

http://www.cnbc.com/id/16708320/

Torcetrapib was expected to replace the revenues that will be lost when its top-seller, cholesterol treatment Lipitor, loses patent protection, which could happen in 2010. Other patent expirations will rob Pfizer of $14 billion in revenues annually between 2005 and 2007, and analysts said the company's current pipeline just doesn't have the muscle to forge major sales growth.

http://www.fiercebiotech.com/special-reports/2-astrazeneca (top 5 biggest layoff in '07)

http://www.nytimes.com/2007/08/01/business/01drug.html?_r=1&oref=slogin

http://money.cnn.com/2007/12/10/news/companies/pharma_layoffs.fortune/index.htm

http://www.nytimes.com/2007/12/06/business/05cnd-bristol.html?ref=business

http://www.boston.com/business/ticker/2007/12/mass_likely_spa.html

http://seattlepi.nwsource.com/business/288998_lillyicos17ww.html

http://www.newsobserver.com/business/story/973466.html

http://www.fiercebiotech.com/special-reports/3-bayer

http://www.nytimes.com/2007/08/16/technology/15cnd-amgen.html


I can keep going.

Notice the same common theme running around? Competition from generics and the FDAs more stringent approvals guidelines are severely cutting into profits for biopharm companies. Even if you manage to extend a patent by 5 more years, that is only putting a temporary plug in a leak. On top of that you have countries like China who completely ignore all patent laws and manufacture drugs covered under patents and sell them at much cheaper prices.

Drug costs are one of the biggest "flaws" in our health care system. I put "flaws" in quotes because like with the gun industry, the laws are written by industry lobbyists for the benefit of the industry. Ie, our gun laws are not flawed if you look at them from the perspective of someone who is trying to sell or buy them. For the drug industry, they've succeeded in getting their patent protection extended, in getting the government to restrict competition, and played with the insurance companies to guarantee price controls.

Sounds just like the oil, cigarette, and credit card industries.

 

[mheslep]

..This is anecdotal, but my boss used to do a lot of business at Merck. According to him, the opulence in the offices and magnitude of the bureacracy is unmatched in other businesses. It gives the appearance of throwing money around basically just to reduce the apparent profit and justify their fees. That would be "too much profit".

I'll wager a large sum that Merck's opulence and executive compensation, or anyone else's for that matter, does not exceed that of the big tort attorney's.

 

[mheslep]

I don't have a lot of sympathy for the drug industry considering what the tech industry goes through. googling and finding data from different years, Intel had a gross income of $9 billion last year and 3 years ago spent $5 billion in R&D. And they have the opposite, though no less serious problem from the drug industry: patent protection only covers them for a few years because the technology is obsolte long before the patent runs out.

Yes, though Intel doesn't have any equivalent of the FDA to deal with. Thats a large part of the high drug costs. Direct costs aside, I expect even the cost of capital must be much higher for the drug industry due to the increased risk imposed by the FDA process: you can have a drug that's safe enough, accepted over seas, but delayed or outright banned here.

 

[mheslep]

I have psoriasis and use a number of topical meds to keep it in check. I was aware that these meds were expensive, but I didn't realize that the insurance was paying over 75% of the cost. That is, I had never noticed the retail price for what I'm using. One of these is a cream that is about twice the price of the rest by weight. It is a 0.005% calcipotriol cream that comes in a tube that holds 120 grams of it [about the size of a large tube of toothpaste], so we are talking about 6 mg of the active ingredient.

Retail price: $466.00.

So this is about $78 per mg, and rest come out at about $40 per mg of active ingredient.

Walmart is expanding their http://www.walmart.com/catalog/catalog.gsp?cat=546834" supply deal - now 360 drugs on the list. Anything on there $4; I happened to hear it again on the radio a couple of times today. Didn't see calcipotriol(generic or brand name?) on the list though for skin med's they do have:
BETAMETHASONE VAL (cited http://books.google.com/books?id=VK...=rvhYzZDlam2gk4AvNTZtek-Ch20&hl=en#PPA135,M1" as a good but still inferior to calci.)
ERYTHROMYCIN
FLUOCINOLONE ACET
FLUOCINONIDE
GENTAMICIN
SELENIUM SULFIDE
TRIAMCINOLONE (cited http://books.google.com/books?id=VK...gbs_search_s&sig=xO5qfM41k4L-W59tXR41Z2WDteo" as a possible but unusual treatment)All of these in various concentrations and forms.

 

[mheslep]

Every course of treatment (pills, ointments, inhalers, etc) costs $\simeq$ $13 over here so that is horrendous. My meds would if I had to pay for them come to about $1000 per year. Luckily they only cost about $160 instead, and are free if I'm unemployed.

Schrodinger's Dog:
Could you look up Ivan's drug (calcipotrol) on the http://www.bnf.org/bnf/" ? The website blocks access from outside the UK. Relevant questions if the info is available and you are inclined: Is it on the NHS formulay, cost to the NHS, and how long will it be provided? Lifetime?

 

[Schrodinger's Dog]

Sure np.

Damn have to log in. I tell you what though if you don't mind waiting, I can contact an ex colleague from the hospital where I worked to see if they can get access to information, should be no problem. Let me know if you want me to contact someone.

 

[russ_watters]

http://www.cnbc.com/id/16708320/




http://www.fiercebiotech.com/special-reports/2-astrazeneca (top 5 biggest layoff in '07)

http://www.nytimes.com/2007/08/01/business/01drug.html?_r=1&oref=slogin

http://money.cnn.com/2007/12/10/news/companies/pharma_layoffs.fortune/index.htm

http://www.nytimes.com/2007/12/06/business/05cnd-bristol.html?ref=business

http://www.boston.com/business/ticker/2007/12/mass_likely_spa.html

http://seattlepi.nwsource.com/business/288998_lillyicos17ww.html

http://www.newsobserver.com/business/story/973466.html

http://www.fiercebiotech.com/special-reports/3-bayer

http://www.nytimes.com/2007/08/16/technology/15cnd-amgen.html


I can keep going.

By all means, do: you haven't addressed my point that they get extra patent protection that other companies don't. Why am I supposed to feel sorry for a company that loses out on profits from an invention when they've already gotten more out of it than they should?

...and the FDAs more stringent approvals guidelines...

That one's also not true.

Federal approvals of new drugs last year sank to the lowest in five years, a drop some industry analysts attribute to more cautious regulators and less innovation by drugmakers.

The Food and Drug Administration last year approved 17 new molecular entities — active ingredients that weren't marketed in the USA before...

Drug applications include new molecular entities as well as new formulations or new manufacturers of existing drugs. The FDA approved 64% of the applications it decided last year, down from 73% the year before, BioMed data show...

The FDA's standards for approving drugs haven't changed, spokesman Christopher DeFrancesco says. He says the rate of approvals to submissions remained steady at about 80% from 1997 through 2005.

Ira Loss of research firm Washington Analysis says the industry's "research drought" has led to weaker applications, thus fewer approvals. An explosion of drug discoveries started in the late 1980s, peaked in the mid-1990s, then "petered out."

http://www.usatoday.com/money/industries/health/2008-02-03-fda-drugs_n.htm

Now the FDA and the researcher don't provide any raw data, but you can see a clear flaw in the industry analysts' data (note, that may be just a misrepresentation by USA Today to create controversy where none exists): They compare data across different time periods. But a one year drop from 73% to 64% represents three drugs. A difference of three drugs in a year is not enough for a representative sample to show a long-term trend. And, of course, a even if that trend exists, it does not automatically imply the reason for the trend is the FDA and not the drug companies themselves.

Even if you manage to extend a patent by 5 more years, that is only putting a temporary plug in a leak.

Waaa. I have no sympathy for complaining about not getting enough special treatment.

On top of that you have countries like China who completely ignore all patent laws and manufacture drugs covered under patents and sell them at much cheaper prices.

That's a different issue and one also faced by other industries.

Sounds just like the oil, cigarette, and credit card industries.

The cigarette industry lost their grip years ago, but yes, there are other industries that have too-powerful lobbies as well.

 

[russ_watters]

I'll wager a large sum that Merck's opulence and executive compensation, or anyone else's for that matter, does not exceed that of the big tort attorney's.

I haven't been to Merck's office, but you're right about the opulence in law offices (regardless of the type of lawyer). There's a great irony about that: they put their money on display while actually being cheap. I'm working for a client that skimped on their building's HVAC, ended up with 75% humidity, asked my company how to fix it, then tried to do something cheaper, then asked us how to fix that when it didn't work.

But they do have a beautiful water wall and plasma tv in their lobby.

I do dislike the legal profession, and think they get more than they should out of the large cases, but that doesn't change the fact that Vioxx kills people or that the tobacco industry lied about cancer and marketed to kids. Those were not ambulance-chaser cases. But we can have another thread on how to regulate the legal industry to prevent profitteering (it'll be tough, since they are a vertically integrated monopoly)...

 

[russ_watters]

Yes, though Intel doesn't have any equivalent of the FDA to deal with. Thats a large part of the high drug costs. Direct costs aside, I expect even the cost of capital must be much higher for the drug industry due to the increased risk imposed by the FDA process: you can have a drug that's safe enough, accepted over seas, but delayed or outright banned here.

How is the risk of researching a drug that ultimately doesn't pan out any different from researching a new way to make a transistor that ultimately doesn't pan out? It gets worse: the tech industry's research is time dependent.

I technically still own stock in 3dfx. They worked for years on a new technology that was supposed to be great (it was) and when it arrived a year late, Nvidia already had something faster and 3dfx went bankrupt. During the 1ghz race, AMD's 1 year old technolgoy allowed them to scale up faster than Intel's 3-year old technology and Intel was 6 months late on a newer technology and the result was a cracking of Intel's near-monopoly on chips, huge losses for Intel (due to the necessity of price competition with AMD) and huge profits for AMD. (had AMD lost that one, they probably would have folded)

Merck isn't going to go bankrupt and out of business due to Vioxx. The risks are far greater for certain types of tech companies.

 

[mheslep]

But they do have a beautiful water wall and plasma tv in their lobby.

Holly smokes.

I do dislike the legal profession, and think they get more than they should out of the large cases, but that doesn't change the fact that Vioxx kills people or that the tobacco industry lied about cancer and marketed to kids. Those were not ambulance-chaser cases. But we can have another thread on how to regulate the legal industry to prevent profitteering (it'll be tough, since they are a vertically integrated monopoly)...

Well I digressed a bit as this gives me a nice segue back to medical costs caused by legal abuses. Three parts to it: Direct malpractice costs 2% of medical or ~$24 billion; defensive medicine costs (mentioned in the other thread) which are hard to quantify but there's ample suggestion that the costs are huge; finally the medical errors in the US (leading accidental cause of death) which I believe is largely due to the silencing of medical error prevention info for fear of legal discovery, from some guy in a water wall & plasma TV lobby

 

[mheslep]

Sure np.

Damn have to log in. I tell you what though if you don't mind waiting, I can contact an ex colleague from the hospital where I worked to see if they can get access to information, should be no problem. Let me know if you want me to contact someone.

Oh don't go to any trouble. Just thought the NHS info would be available online to anyone in the UK. We had the specific case of Ivan's meds on the table; thought it would be interesting to follow it through - not the pharmacology but per the thread topic the costs and availability internationally.

 

[mheslep]

How is the risk of researching a drug that ultimately doesn't pan out any different from researching a new way to make a transistor that ultimately doesn't pan out? It gets worse: the tech industry's research is time dependent.

I don't say that the semiconductor is risk free, all high tech industries share the pure technical risk of a dry hole. The difference for the drug co's is that even when the strike oil they still have to plead w/ FDA to allow them to turn on the tap which sometimes fails unjustifiably, and they also suffer from large tort abuses that semi- doesnt. I'm not arguing for a Ron Paul abolish it solution, but it can be much improved.

 

[Schrodinger's Dog]

Oh don't go to any trouble. Just thought the NHS info would be available online to anyone in the UK. We had the specific case of Ivan's meds on the table; thought it would be interesting to follow it through - not the pharmacology but per the thread topic the costs and availability internationally.

I think you have to be a healthcare professional in a clinical role, so that's me out. It wouldn't be any trouble, but since I'd be dealing with email it may take a while.

 

[mheslep]

I think you have to be a healthcare professional in a clinical role, so that's me out. It wouldn't be any trouble, but since I'd be dealing with email it may take a while.

Ok how does the average UK Joe find out? Say you read about some new drug to help some illness you have and want to find out if NHS has it yet? Granted its via prescription, but to you have to see the doc just to get an answer?

 

[Schrodinger's Dog]

Ok how does the average UK Joe find out? Say you read about some new drug to help some illness you have and want to find out if NHS has it yet? Granted its via prescription, but to you have to see the doc just to get an answer?

Or you could try NHS Direct, they have a 24 hour internet/phone service, which specialises in dealing with all sorts of health related enquiries. Or yeah next time you're in the Dr's you could probably ask.

 

[Vanadium 50]

How much profit do these companies net annually? And how well do we understand the actual profits and losses?

In 2006, Pfizer made $13B on $48B of sales. In 2007, Merck made $3.5B on $24B in sales. Abbott made $3.6B on $25B in sales.

This is pretty easy to find out - these are publicly traded companies, so they have to file a form called a "10-K" which describes how much money they made. Just about every company has their 10-Ks on the web.

I'll let you decide for yourself if profits in the 15-25% range are excessive or not.

 

[mheslep]

In 2006, Pfizer made $13B on $48B of sales. In 2007, Merck made $3.5B on $24B in sales. Abbott made $3.6B on $25B in sales.

This is pretty easy to find out - these are publicly traded companies, so they have to file a form called a "10-K" which describes how much money they made. Just about every company has their 10-Ks on the web.

I'll let you decide for yourself if profits in the 15-25% range are excessive or not.

In evaluating that you'd also want to know how many companies lost money or went under, rather than looking solely at the winners after the fact.

 

[Schrodinger's Dog]

In evaluating that you'd also want to know how many companies lost money or went under, rather than looking solely at the winners after the fact.

Well to be frank, don't the big fish tend to by out the little fish even if they succeed? Wouldn't be very easy to see who were the winners. Drug companies are not about being forgiving to the smaller fry, they are about profit. And of course you might say rightly so, that is how business operates.

That said though they do tend to work the system to their advantage, I gave one example with http://www.guardian.co.uk/society/2006/jun/17/health.medicineandhealth" where when they realized it was being used outside of that which it was developed for, so they withdrew it, researched a new drug that was pretty much the same thing but with the new trials in tow, and then charged 10000% for the R&D costs from less than £10 to £1000. They make enough money let's face it. And they launch law suits against similar but much cheaper generic drugs, which then have to be withdrawn. The big fish are healthy, who cares about the minnows?

 

[mheslep]

I'm not referring to the big or the little fish that succeed. I'm referring to those that don't, also both big and small. (General Motors lost $39Billion in '07). The large profits make all the headlines; the majority of those that fail or grind away in mediocrity do not. Yet people and capital keep investing and reinvesting in businesses they may or may not fail or lose money. Why? Because some of them do very well.

 

[Schrodinger's Dog]

Ah ok, those that fail despite the system. My bad.

 

[mheslep]

Given that this is the case, it is just a variation on a theme that I noted while working in the medical field: On the average, we just can't afford the miracles of modern medicine.

The cost of my dad's medical care over last thirty years rivals his lifetime income.

Undoubtedly true at the moment but I'm increasingly convinced that this need not be so, and that the chief culprit in expensive health care is .gov intervention, or illicit cooperation w/ the industry. There are so many examples of very pricey technologies that are now cheaply available - genetically created food, modern farming, jet air travel, all w/ billions of R&D behind them but produce products that reach the consumer amazingly affordably.

Fix: Abolish the silly employer tax exemption, or give it instead to individuals; deregulate the insurance industry (currently rigged by the insiders); cut back on malpractice suits; apply antitrust law to doctors and hospitals. A 'separate' health industry is already starting appear outside the govt. rigged game of the current one because its grown so expensive millions are opting out.

 

[Vanadium 50]

They make enough money let's face it.

Perhaps. But if we were to somehow ban profits entirely, it would only turn the $466 tube of medication into a $375 tube. It's important to understand the basic scale of what we're dealing with.

 

[mheslep]

Perhaps. But if we were to somehow ban profits entirely, it would only turn the $466 tube of medication into a $375 tube. It's important to understand the basic scale of what we're dealing with.

More likely the tube would never exist.

 

[mheslep]

Ivan: I am really curious, did any you find those https://www.physicsforums.com/showpost.php?p=1639319&postcount=13" remotely useful?

 

[Ivan Seeking]

I have tried some alternatives in the past but none were effective. However, I'm itching to see what my dermatologist has to say about your list.

 

[mheslep]

Wal-Mart Claims $4 Generics Have Saved Consumers $1 B
http://blogs.wsj.com/health/2008/03/14/wal-mart-claims-4-generics-have-saved-consumers-1-billion/

Wal-Mart’s doing a bit of chest thumping this morning, claiming that its $4 generics program has saved consumers $1 billion — $1,032,573,012.61 as of March 10, to be precise.

The company says the $4 drugs now account for 40% of all prescriptions filled at its stores, adding that nearly 30% of the cheap prescriptions are purchased without insurance.

There should be some way to see if this is effecting any of the nationwide stats on costs. I am guessing high deductible plans (HSAs) have something to do with this.