File this article at Kaiser Health Network under “things that should make your blood boil”. As it reports the prices of drugs for rheumatoid arthritis really are outrageous:
Wholesale prices for Humira and Enbrel, the two most commonly used treatments for rheumatoid arthritis, known as RA, increased more than 70 percent in the past three years.
Since the first RA drug came to market a decade ago, nearly a dozen have been added. If basic economics prevailed, RA treatments and patients would have benefited from competition. But, because of industry price-setting practices, legal challenges and marketing tactics, they haven’t. The first RA drug cost $10,000 a year. It now lists for more than $40,000 — even as alternatives have entered the U.S. market.
“Competition generally doesn’t work to lower prices in branded specialty drugs,†said Peter Bach, director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes.
But the other aspect of the article that should cause alarm is how poorly the author understands microeconomics. There is no such thing as a “true price”, something she assumes in her remarks. In a genuinely free market supply and demand might determine the market clearing prices for commodities like pharmaceuticals but there is no genuinely free market in pharmaceuticals. They operate under multiple forms of monopolies. Some we call “patents”, government-granted exclusive licenses to sell a particular good or service. Patents have been extended beyond the law and beyond all reason by the willingness of the patent office to grant new patents on things that have already been patented when the patenters tinker with their products in ways that should not be patentable.
The other form of monopoly is physicians’ exclusive license to prescribe medications. That effectively precludes competition.
The solution to these problems is not to condemn economics. It is to reform our systems of intellectual property and occupational licensing to serve the public better. That is their purpose. Not benefiting patentholders and licensees.
In a genuinely free market supply and demand might determine the market clearing prices for commodities like pharmaceuticals but there is no genuinely free market in pharmaceuticals.
True price in a competitive market is exactly its cost of production. But there are no free markets so this is an academic exercise
“In a genuinely free market supply and demand might determine the market clearing prices for commodities like pharmaceuticals”
Might is the operational word here. Pretty sure it was Keith Arrow, could be wrong, who wrote about what would happen if someone invented a really great drug that really worked to cure something important. Gaming it out, it might end up being very expensive, even absent patent laws. Also, look at the current generics that are having their prices jacked up. Some market advocates just can’t see that markets don’t mean we will always end with lower prices. They believe that, but it just isn’t always true.
Steve
“True price in a competitive market is exactly its cost of production.”
” Some market advocates just can’t see that markets don’t mean we will always end with lower prices.”
You two need to have a conversation…………..