No Pictures, But a Mystery for Our Readers
So I went to get a prescription filled today, and I discovered something curious. The drug has a different name and a different price in Germany, but its the same chemical substance, and its made by the same company. We're talking about a big difference in price. At the current exchange rate, the drug costs $75 a month in Germany, but it costs $180 a month in the US. (I should add that there is now one licensed generic in the US, which goes for $125 a month.) I remember reading something about the price difference a few years ago, but I was surprised to see how dramatic it was.
Here's my educated guess/recollection about the reason for the price difference: Europe has pretty lax laws about property rights when it comes to prescriptions. So in order to avoid losing the market to generics knock-offs, drug companies sell their own products at reduced rates (and at times, under different names).
Now obviously Wyeth -- the drug company who makes my medication -- still makes a profit selling the drug for $75. This means that the production and distribution costs are less than $75, and that the other $105, which I pay in the US, consists in (a) money for research and development and (b) extra profit.
So there are two interpretations of what's going on here. One: The price of prescription drugs in the US subsidizes drug research and development for consumers in Europe. Or, stated differently, US customers pay the price of production plus the prices of research, while the European customer pays the price of production plus perhaps some smaller portion of the research. Two: The Europeans have recognized that drug companies make "excessive" profits, and in order to bring down prices into a "fair" range, they have lax laws about this particular form of intellectual property rights. Presumably, both points have a bit of truth.
This raises three questions that I hope you, our brilliant and informed readers, will try to answer.
1) Is there any non-arbitrary way to determine what counts as a "fair" price for a given medication. It can't be determined by the supply and demand mechanisms of the market. Or at least if it were, it would be impossible for the market to charge an unfair price, since the fairness of the price would simply be defined by what the market charged and what the buyers paid. In determining a minimum fair price for a product, one might begin by thinking about the amount of labor that went into the product and the idea of "living wage" in the country where the product was produced. Of course the notion of a "living wage" is pretty vague, since the workers in sweatshops probably aren't dying and being replaced every nine months. In other words, they are receiving enough to live, though often not enough to live the way we would want other humans to live. But in any case, the notion of a "living wage" only helps to determine a minimum fair price, not a maximum fair price.
Suppose a drug costs ten dollars to make (including research) and suppose it is sold for $110. This certainly seems unfair, but I can't come up with any principle that shows why. (Moreover, does it make a difference what the product is? What about brand name tennis shoes that bring in the same amount of profit? I don't really think that either case is realistic, but they raise the basic issue).
2) How does the price of drugs currently get determined in the US. It isn't determined by supply and demand. For those people (84%) and drugs (surely a high percentage of the drugs taken, if not the drugs that are out there) covered by health insurance, the person receiving the drug probably doesn't know the cost of the drug, much less make a decision on the basis of the cost. (I only know the cost of my medication, which shocked me, because I payed it out of pocket for a few months between insurances). So most people taking drugs don't make their decision based on the cost of the drug. Surely doctors don't write prescriptions on that basis either, unless the patient will be paying for the drug. So who determines what the drugs cost? How do they do it?
3) Finally, a factual question: for any given year, what is the ratio of Wyeth's profit to the amount of money they spend on research and development? Surely that ratio ought to give me some rough estimate of how much of the extra $105 I spend on my medication in the US goes to R&D and how much ends up as profit.
Here's my educated guess/recollection about the reason for the price difference: Europe has pretty lax laws about property rights when it comes to prescriptions. So in order to avoid losing the market to generics knock-offs, drug companies sell their own products at reduced rates (and at times, under different names).
Now obviously Wyeth -- the drug company who makes my medication -- still makes a profit selling the drug for $75. This means that the production and distribution costs are less than $75, and that the other $105, which I pay in the US, consists in (a) money for research and development and (b) extra profit.
So there are two interpretations of what's going on here. One: The price of prescription drugs in the US subsidizes drug research and development for consumers in Europe. Or, stated differently, US customers pay the price of production plus the prices of research, while the European customer pays the price of production plus perhaps some smaller portion of the research. Two: The Europeans have recognized that drug companies make "excessive" profits, and in order to bring down prices into a "fair" range, they have lax laws about this particular form of intellectual property rights. Presumably, both points have a bit of truth.
This raises three questions that I hope you, our brilliant and informed readers, will try to answer.
1) Is there any non-arbitrary way to determine what counts as a "fair" price for a given medication. It can't be determined by the supply and demand mechanisms of the market. Or at least if it were, it would be impossible for the market to charge an unfair price, since the fairness of the price would simply be defined by what the market charged and what the buyers paid. In determining a minimum fair price for a product, one might begin by thinking about the amount of labor that went into the product and the idea of "living wage" in the country where the product was produced. Of course the notion of a "living wage" is pretty vague, since the workers in sweatshops probably aren't dying and being replaced every nine months. In other words, they are receiving enough to live, though often not enough to live the way we would want other humans to live. But in any case, the notion of a "living wage" only helps to determine a minimum fair price, not a maximum fair price.
Suppose a drug costs ten dollars to make (including research) and suppose it is sold for $110. This certainly seems unfair, but I can't come up with any principle that shows why. (Moreover, does it make a difference what the product is? What about brand name tennis shoes that bring in the same amount of profit? I don't really think that either case is realistic, but they raise the basic issue).
2) How does the price of drugs currently get determined in the US. It isn't determined by supply and demand. For those people (84%) and drugs (surely a high percentage of the drugs taken, if not the drugs that are out there) covered by health insurance, the person receiving the drug probably doesn't know the cost of the drug, much less make a decision on the basis of the cost. (I only know the cost of my medication, which shocked me, because I payed it out of pocket for a few months between insurances). So most people taking drugs don't make their decision based on the cost of the drug. Surely doctors don't write prescriptions on that basis either, unless the patient will be paying for the drug. So who determines what the drugs cost? How do they do it?
3) Finally, a factual question: for any given year, what is the ratio of Wyeth's profit to the amount of money they spend on research and development? Surely that ratio ought to give me some rough estimate of how much of the extra $105 I spend on my medication in the US goes to R&D and how much ends up as profit.
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