Comment by dkjaudyeqooe 2 months ago
Although you're right, it's a little misleading.
The point is that governments won't pay any price, they usually negotiate a (good) price given their buying power. As you say they may not buy it, but countries that dictate a price (generally) cannot force a company to supply it.
Ultimately it comes down to market forces, even if the market looks very strange, with essentially one buyer and one seller.
> There is no real market to enable price discovery
Note also that this is a feature, not a bug. You don’t want drug companies figuring out what price makes them the most money, because the market for patented drugs is not a competitive market (or a transparent one for the consumer). The price that makes the company the most money is not the same as the one that maximizes welfare.
> You don’t want drug companies figuring out what price makes them the most money, because the market for patented drugs is not a competitive market (or a transparent one for the consumer). The price that makes the company the most money is not the same as the one that maximizes welfare.
It's not supposed to be competitive, that's the entire point of a patent. They're supposed to be able to extract nearly the full value of the drug during the patent term, because that's the value of the drug existing, so that's how much incentive you want there to be to create it. After that the patent expires and it becomes a cheap generic, which is what the public gets out of the deal.
The point is that there’s nothing magical about price discovery under an anti-competitive system. It doesn’t maximize welfare, so there’s no reason to complain about another system that doesn’t allow for price discovery. That’s not a bad thing.
It’s far far more efficient to have an expert guess the price that maximizes public welfare. They won’t get it 100% correct, but they’ll do better than monopoly pricing
Romania has state mandated public health insurance (if you're employed or if you make over minimum wage from non employement sources, you have to pay for public health insurance), but the private health insurance market is also thriving.
But, in Romania, Ozempic was negotiated/price controlled by the government to be for around ~100$/month. First year or two supply was enough, so we got it, this year demand in places with more cash is high, so Romanians don't get any more Ozempic (but we still have Rybelsus)
> Romania has state mandated public health insurance (if you're employed or if you make over minimum wage from non employement sources, you have to pay for public health insurance), but the private health insurance market is also thriving.
Where this happens it's basically because the public wants more insurance than the government is providing, e.g. you're required to pay $3000 for $3000 worth of insurance but there are people who want $5000 worth of insurance so they buy another $2000 in private insurance.
But that doesn't really change the problem because the extra insurance covers different stuff. If your coverage from the government covers the drug and your coverage from a private insurer covers longer inpatient stays or hospice care, the latter is unrelated to the former. Meanwhile there are still a lot of people who only have the government insurance and can't switch to a different provider for that coverage because the government plan is required by law. And even if you could get drug coverage from a private insurer, the patient would then be paying for the whole cost of the drug out of the private insurance premiums even though they're still paying for the public insurance, which will deter people from doing that unless the government coverage is not just bad but catastrophically bad.
The way you could make it work is that instead of the government setting the retail price of the drug, they set how much they pay for the drug and the patient pays the rest, which the patient could then have covered by private insurance at their option. Then you actually have price discovery because if the drug is worth more to people than the government is paying, they'll buy the amount of private insurance needed to pay the rest.
> But, in Romania, Ozempic was negotiated/price controlled by the government to be for around ~100$/month. First year or two supply was enough, so we got it, this year demand in places with more cash is high, so Romanians don't get any more Ozempic (but we still have Rybelsus)
Production capacity isn't normally the issue for drugs under patent. The issue is that you need somebody to pay enough to cover the R&D or otherwise you don't get the drug, and drug R&D is crazy expensive because the price has to cover the R&D cost for all the drugs that don't work out.
> Production capacity isn't normally the issue for drugs under patent.
https://www.fiercepharma.com/pharma/ozempic-shortages-contin...
https://www.tga.gov.au/safety/shortages/medicine-shortage-al...
For one of the most popular drugs in recent years, yeah, production might take some time to ramp up.
The issue definitely isn't R&D cost recuperation: in the US Ozempic is much more expensive, but in Romania nobody would pay that much (government or private).
> For one of the most popular drugs in recent years, yeah, production might take some time to ramp up.
Which is why it's an outlier.
> The issue definitely isn't R&D cost recuperation: in the US Ozempic is much more expensive, but in Romania nobody would pay that much (government or private).
This has nothing to do with whether the government sets the price. If people in the US would pay $1000 and people in Romania would pay $200 but the government sets the price at $100 in Romania then there is $100 less incentive for R&D.
> Ultimately it comes down to market forces, even if the market looks very strange, with essentially one buyer and one seller.
That isn't really a market.
Suppose you have a government that requires everyone to pay for public health insurance, effectively eliminating the market for private insurance because hardly anybody buys private insurance when they both already have public insurance and have paid the money they'd have used to buy it in taxes. Then the government insurance declares the maximum price they'll pay. Is there any meaningful way to distinguish this from price controls? The vast majority of customers can't afford the drug without insurance and the government is the insurance company and is setting the price through regulation.
In particular, notice that this has all of the problems of price controls. There is no real market to enable price discovery, no effective way for customers to switch insurers and thereby punish insurers who pay too much and have high premiums or pay too little and have poor coverage, it's just regulators making up a number and saying take it or leave it.
And even at that, you shouldn't have a problem for generic drugs because then the insurance can just put it out for bids and still have price discovery (i.e. a lowest bidder). But here we're talking about brand new drugs that are still under patent, which have one supplier because they're supposed to be expensive because that's the incentive for the drug companies to fund the R&D and cause them to exist to begin with.