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Politics : A US National Health Care System? -- Ignore unavailable to you. Want to Upgrade?

To: skinowski who wrote (13301)	2/6/2010 10:15:51 PM
From: i-node	3 Recommendations Read Replies (4) \| Respond to of 42652

>> In effect, higher US drug prices are a form of foreign aid. I understand this view but I'm not sure it really is like foreign aid. It may be in some instances. But let's take an example: Drug X has up front R&D costs of $100M, and fixed production costs of $25M. That is, these $125M costs are incurred regardless of whether it is sold in the US or worldwide. The variable cost to produce each dose of Drug X is $0.30, which includes the chemistry and packaging and other variable costs of production. But, the list price in the US is $2.00. So, for each dose they sell for $2.00 they have a net of $1.70 that can be applied to recovery of the fixed costs incurred in bringing the drug to market. Now, someone in Africa says, "Gosh, we could use that Drug X, but there is just no way we could be paying $2.00/dose; there just isn't that kind of money available. If you could sell if for $0.40 a dose, that would be different". So, the question is, "Should we sell the drug for $0.40/dose?" The answer, if course, is that EVERYONE wins if the drug company sells it for $0.40/dose versus just not doing anything. At $0.40, they recover $0.10 toward the fixed costs, money they're out anyway. Technically, they "lose money" on it, if full absorption costing is used (i.e., allocating a share of fixed costs to each dose). But those costs are "sunk", i.e., they've already been spent either way, so full costing isn't appropriate (accountants call this "incremental" costing, i.e., what is the cost to produce an "incremental" unit). To the extent the manufacturer can recover $0.10/dose (without increasing fixed production costs), it helps recover the sunk costs, which in the long run will reduce the cost of the drug to the American market OR will allow the manufacturer to recover the costs more quickly which means they'll be able to develop the next drug more quickly. The point is, that the drug manufacturer is able to get SOME contribution from the African market toward the fixed costs, which is better than just letting it pass, which is the alternative (because, no matter what, the African market can't pay $2.00/dose). Maybe that's foreign aid (foreign countries benefit) but it really isn't at OUR expense, and in fact, passing up on the $0.40/dose would be to OUR detriment.

To: skinowski who wrote (13301)	2/7/2010 6:54:17 AM
From: Road Walker	Read Replies (4) \| Respond to of 42652

That is a good question. In effect, higher US drug prices are a form of foreign aid. Many nations with socialized healthcare systems make drug companies sell them drugs at low prices - under the fear of closing off the markets, or simply breaking their patens and copying the drugs. If we negotiate drug prices the way other countries negotiate drug prices, then the prices to other countries will go up. We are the outlier in the marketplace... and we pay for it. The drug companies are not going to stop doing R&D unless they WANT to go out of business. Any business, any business person will sell his product for the highest price possible if the customer is not allowed to negotiate.... but is forced to pay whatever you ask. The "free market" has organized itself as it usually does, with the largest entities getting the best price. (Not much different than the way Walmart has come to dominate retail.) Because of the power of the drug lobby we have chosen not to participate in the "free market". A good argument could be made that this is an instance where the government is distorting the market by NOT allowing government negotiation.