Perfect Example of Blaming the Free Market for Government Interventions
Hillary Clinton, along with many politicians and most of the media, is arguing that the recent large price increase in Epipens is some sort of market failure requiring government intervention to solve.
Democratic presidential nominee Hillary Clinton jumped into the fray over rapid price increases for the EpiPen, a life-saving injection for people who are having severe allergic reactions.
Mrs. Clinton called the recent price hikes of the EpiPen “outrageous, and just the latest example of a company taking advantage of its consumers.â€
In a written statement calling for Mylan to scale back EpiPen prices, Clinton added, “It’s wrong when drug companies put profits ahead of patients, raising prices without justifying the value behind them.â€
Why aren't similar government interventions required to curb greed in the pricing of paint, or tacos, or toilet paper? Because the markets are allowed to operate and competitors know that if they raise prices too high, their existing competitors will take sales from them, and new competitors may enter the market. The reason this is not happening with Epipens is that the Federal government blocks other companies from competing with Mylan for the Epipen business with a tortuous and expensive and pointless regulatory process (perhaps given even more teeth because Mylan's CEO has a lot of political pull). The MSNBC article fails to even mention why Mylan has no competition, and in fact essentially assumes that Epipens are a natural monopoly and should be treated as such, despite the fact that there are 3 or 4 different companies that have tried (and failed) to clear the regulatory process over the last several years with competing products. Perhaps these other companies would have been smarter to appoint a Senator's daughter to a senior management position.
Hillary Clinton is proposing a dumb government intervention to try to fix some of the symptoms of a previous dumb government intervention. It would be far better to work the root cause instead.
Postscript: Credit Vox with the stupid argument of the day:
Other countries do this for drugs and medical care – but not other products, like phones or cars – because of something fundamentally unique about medication: If consumers can’t afford the product, they could have worse odds of living. In some cases, they face quite certain odds of dying. So most governments have decided that keeping these products affordable is a good reason to introduce more government regulation.
Hmm, let me pick a slightly different example -- food. I will substitute that into the Vox comment. I think it would be perfectly correct to say that there is not price regulation of food in the US, and that "If consumers can’t afford [food], they could have worse odds of living. In some cases, they face quite certain odds of dying." In fact, the best place today to face high odds of dying due to lack of food is Venezuela, where the government heavily regulates food prices in the way Vox wished to regulate drugs prices.
mlhouse:
Of course, if these progressives owned the pharmaceutical corporation they would give the product away!
September 2, 2016, 12:49 pmDan Wendlick:
First, one of the reasons that other competitors were given for the rejection of their devices was that they did not work exactly like the Epipen, and might cause confusion or accidental misuse. So I would expect that even if you approved the sale of a competing product, schools would still mandate the use of Epipens rather than train staff in the use of every conceivable substitute device, strictly to shield themselves against liability.
September 2, 2016, 1:52 pmSecondly, the main reason healthcare is expensive is that people have an annoying habit of placing a large value on being healthy over being sick, and a huge premium on being alive rather than being dead. Where these huge value discrepancies exist, it is natural for the players in the market to try to maximize the portion of that value that they extract.
Matthew Slyfield:
" I think it would be perfectly correct to say that there is not price regulation of food in the US"
Not price regulation as such, but all the money the US government spends on agricultural subsidies is justified on the basis of keeping the US food supply both reliable and inexpensive.
September 2, 2016, 1:59 pmDimitri Mariutto:
The Epipen is not even the 'active ingredient', so to speak. It is the delivery mechanism for the drug, not the drug itself. Also, I understand there are other devices available that can deliver the same drug, but they don't work as automagically as the Epipen.
September 2, 2016, 2:17 pmCraig Anderson:
Doesn't work for corn, where the govt mandates that it gets 40% of the crop so it can produce ethanol, a product that uses more carbon to produce it than it prevents, and doesn't have as much energy in it as a gallon of gas, and which raises the price of gas because it's mandated that it be 10% of the gas.
September 2, 2016, 3:11 pmCraig Anderson:
Doesn't work for corn, where the govt mandates that it gets 40% of the crop so it can produce ethanol, a product that uses more carbon to produce it than it prevents, and doesn't have as much energy in it as a gallon of gas, and which raises the price of gas because it's mandated that it be 10% of the gas.
September 2, 2016, 3:11 pmCraig Anderson:
Actually, adding more government regulation and intrusion - and then doubling down on it when it doesn't work - is the Dem's M.O. They constantly turn to more regulation and more spending to "fix" a problem, rather than attack a problem at the roots.
September 2, 2016, 3:13 pmMatthew Slyfield:
That has little impact on the human food supply. They use field corn, not sweet corn for ethanol production. A small amount of what doesn't go to ethanol production goes to making corn flour which is used directly in the human food supply, but the vast majority, probably over 90% goes into livestock feed. Oh, and the mash that's left over after making corn ethanol is also used in animal feed, so ethanol creates very little waste in terms of the food supply.
ETA:
One more point. I said the subsides were justified on the grounds of keeping the food supply reliable and inexpensive. I never claimed that the subsidies actually achieve that in practice.
September 2, 2016, 7:07 pmirandom419:
But these price hikes weren't?
http://www.modernhealthcare.com/article/20150117/MAGAZINE/301179970
Appears to have been reversed shortly afterward:
September 2, 2016, 10:32 pmhttp://www.anh-usa.org/fda-turned-a-ten-dollar-treatment-into-money-maker/
herdgadfly:
Fact is that EpiPen is used to inject Epinephrine into patients suffering from a condition that might bring sever allergic reactions. But no special tool at all is required if you are a medical professional. A simple injection needle works fine but you cannot put the drug accidentally into a vein or artery, so the EpiPen device is for sticking into your big thigh muscle directly through clothing if necessary.
It seems to that a simpler and cheaper device would make someone rich overnight but the FDA won't get out of the way to allow this to happen. Another story here is about why the injector price elevated as a result of discounts granted to Express Scripts and other mail order druggists. CoPay through Express Scripts is only $73.50, not $300
September 2, 2016, 11:50 pmCT_Yankee:
So like in Venezuela, the healthcare is free, just happens that the shelves are bare, but if they did have it in stock, free is so cool. Consider government provided healthcare a subsidy for the undertaker industry. Job creation at it's finest.
September 3, 2016, 1:46 amQ46:
"Other countries do this for drugs and medical care...."
That is because in 'other' Countries' the Government is heavily involved in paying for and/or providing healthcare, so there is no free market in healthcare anyway and payment for drugs and medical care are in competition with funding to buy bombs to drop on Syria, funds to give to Green activists, build bridges to nowhere, pay for welfare, subsidies to farmers, windmills, etc.
In the UK it is announced that the NHS (wholly State funded and provided out of taxation) is to restrict treatment to obese patients and smokers. Forced to pay for healthcare, but unable to get it. This is 'fair' because all have 'access' - access is no good if you cannot get it.
USA apologists for the Obamacare dog's breakfast who trumpet how many more allegedly have 'access' to health insurance should take note.
September 3, 2016, 4:58 amQ46:
But under FDA law, if a physician prescribes EpiPen, the pharmacy must fill the prescription with an EpiPen and cannot substitute.
Unless the physician knows an alternative and specifies it, it is an EpiPen which is dispensed. Since neither the physician nor the patient is paying, neither care.
So no free market.
September 3, 2016, 5:00 amQ46:
Is it? Or is it to about 'jobs' (and of course votes) - keeping farmers in employment who otherwise the free market would eliminate. Subsidies are needed when there is over production and inefficiency.
Since subsidies particularly protect farmers from imports, those imports must be readily available and inexpensive.
The subsidies therefore are not needed to keep food supply reliable and make food more expensive.
September 3, 2016, 5:03 amQ46:
Of course it effects Human food supply!
It diverts land and resources away from growing other crops for Human food, to producing fuel for motor vehicles.
The increase in World food prices - and hunger - as a result is well documented.
September 3, 2016, 5:06 amQ46:
In the UK and elsewhere in Europe there are three near identical brands, EpiPen, Jext and Emerade. All have managed years ago to get approval, nobody gets 'confused'.
September 3, 2016, 5:11 amCapitalistRoader:
September 3, 2016, 6:53 amCapitalistRoader:
The US subsidizes much of the world's pharmaceuticals and medical devices much like it subsidizes much of the world's military defense. Especially Europe and Canada. Say it costs $5 to manufacture a pill but another $100 in development costs amortized over the life of the patent, so the company charges $105 per pill to Americans. But socialized medicine countries can't afford that so they either do without or negotiate with the drug company to pay $50/pill. Win-win, right? Except for American drug consumers, who are subsidizing Europeans' and Canadians' drug development costs.
Going to a "single payer" government monopoly of health care would kill the goose that lays the golden egg.
September 3, 2016, 7:35 amCC:
There actually is government intervention on food. We pay about 2X what we should for sugar due to restrictions on imports. The acreage of peanuts planted is still subject to government limitation. And so on. BUT it is around the margins.
September 3, 2016, 8:41 ammk:
Relevant: https://www.quora.com/Does-the-US-subsidize-health-care-in-the-rest-of-the-world-by-doing-most-of-the-drug-research
It is worth considering the argument that R&D spending compared to marketing of US Pharma is a solid indicator that this argument is not fully correct.
Additionally, drugs that have been developed by publicly funded research and/or whose research costs have been fully amortized (Aspirin, Epinephrine, Insulin, to pick a few that have been in the news for price hikes recently) are not exempt from highly differential international pricing.
Ultimately, the argument that we'll need a highly regulated and protected market allowing rent seeking for monopolies in the US is flawed based on general principles as well - even if this means that cost ineffective research efforts would be suspended, that is the function of a market, and not a detriment.
September 3, 2016, 9:06 ammk:
Funny thing, it's the Dems owning the Epipen company. The issue here is with the lack of a free market, not tribal left vs right.
September 3, 2016, 9:09 amCapitalistRoader:
How do marketing expenditures compare to R&D expenditures in other staples industries: food, housing, clothing for example?
The last time I bought aspirin I think it cost $7.50 for a bottle of 500 from Costco. A penny and a half each.
A relatively free market is the reason why half of the Nobel laureates in medicine this century were Americans. There's no profit in creating new drugs in Europe or Canada.
September 3, 2016, 10:11 amCapitalistRoader:
Related: Biogen’s Plaque-Busting Alzheimer’s Drug Shows Promise: An antibody that clears up brain-destroying plaques may settle the cause of Alzheimer’s once and for all.
From the article:
How much should Biogen be compensated for their investment? Ten percent of the savings to society? One percent? One percent would be $36 billion/year of the savings if their new drug eliminated Alzheimer's disease. But percentage-wise that's a savings account type return. Certainly the risk taken requires a higher return than that, right?
September 3, 2016, 10:41 ampoitsplace .:
It likely both raises and lowers food prices...depending on what food you're talking about. In generaly as one person observed, it diverts land and resources away from growing other crops. On the other hand, the "mash" is used as food for animals, likely driving some people to proclaim "animals are fed grain" (products), reducing human food availability...when the reality is more like animals are fed grain, taking back some of the food potential from the ethanol program. But of course...since we're talking gasoline, it likely raises the cost of darned near everything in small ways, including your trips to the store to pick it up.
September 3, 2016, 12:48 pmMatthew Slyfield:
The only remote possibility for corn ethanol production reducing human food availability to any significant degree is through crop land diversion from other food crops. Only a relatively tiny amount of the type of corn used to make ethanol goes into the human foods supply as other than meat (livestock feed).
September 3, 2016, 2:32 pmmarkm:
And you don't count meat as part of the human food supply???
September 3, 2016, 7:42 pmmarkm:
In particular, if you think that potatoes are unreasonably high and want to go into competition, you can buy some land and plant potatoes. You don't have to spend 3 years and hundreds of thousands proving to the Dept. of Agriculture that your farm is qualified to grow potatoes before you can go into competition with the single existing potato farmer.
September 3, 2016, 7:47 pmMatthew Slyfield:
I'm a carnivore.
The mash left over from making ethanol is itself used as animal feed, The mash retains most of the nutrients except for the sugars and starches. The loss on that end is considerably smaller than you think.
September 3, 2016, 8:51 pmmk:
While we're at it, it's worth noting that a whole lot of the research and health care is provided for by foreign born and educated professionals; the US healthcare system is indirectly subsidized by the education and childcare expenses of foreign countries ;)
(from: http://www.migrationpolicy.org/article/foreign-born-health-care-workers-united-states)
In 2010, the foreign born accounted for 16 percent of all civilians employed in health care occupations in the United States. In some health care professions, this share was larger. More than one-quarter of physicians and surgeons (27 percent) were foreign born, as were more than one out of every five (22 percent) persons working in health care support jobs as nursing, psychiatric, and home health aides.
I am all in favor of a free market in healthcare and pharma; the current debates are all a consequence of the utter lack thereof. Personally, I am a bit surprised that rightists would argue so vehemently in favor of strong regulation and rent seeking.
September 3, 2016, 10:32 pmCapitalistRoader:
That's what rightists do. It's called fascism, where the means of production are owned by private citizens but tightly controlled by government entities. The few private producers win because government regulation keeps competitors out of the market. Politicians and government employees win because the opportunity for graft is high as are employment opportunities for bureaucrats.
Of course consumers lose due to higher drug and device costs and reduced product innovation. But the soft fascism of the Obama administration and the coming Clinton administration provides the perfect cover for failure. When the means of production is private, politicians can always blame the private entities for the "market" failure when in fact the failure was caused by government regulation.
Anyone in his right mind though would argue that the leftists' solution of government owning the means of production results in an even worse outcomes for consumers than fascism.
September 4, 2016, 7:08 amJim Collins:
Actually the Epipen is based on the Atropine injectors that were developed for the military.
September 4, 2016, 8:12 ammk:
One more follow up because I didn't really make it clear below: food, housing and clothing are highly deregulated markets with ample competition. Pharma is the exact opposite.
The core point remains that it's disingenuous to make the argument that the price hikes for Epipens and Insulin are warranted because they are necessary to finance the development of drugs when the relationship of the marketing of the product to research is 2:1 and the research leading to the invention has been publically financed and fully amortized.
September 4, 2016, 8:56 amJohn O.:
Thank you for the platform. I shall now go before my district and claim that the new fields being planted with potatoes are competing with the established farmers and is hurting their lot.
September 4, 2016, 6:27 pmmarque2:
Something to add here. There are two epi-pens. The old one, and the new one which replaced the old one in 2005. What was wrong with the old one that seemed to work fine for 30 years? Nothing but the fact it was off patent, and someone would eventually copy it.
There is a common trick used by the drug industry, when their drug goes off patent, they will collect all the data that was collected over the years of one off issues, and "prove" to the FDA that the drug, which for 20 years, they were happy to sell, is now an implement of grave danger and even death. The company will then replace the drug with the metabolized version and sell that under patent for another 20 years without competition. this has happened to several drugs I have taken over the years.
So the problem with the epi-pen is the old version is banned for some reason, and the new version still has patents on the new spring loading mechanism. When Teva attempted to copy, they were threatened with a lawsuit. The FDA helped squash other versions that used other mechanisms, probably due to a little lobbying from the epi-pen company, and Viola! we have a supply side problem.
September 5, 2016, 11:05 ammarque2:
But we also have a demand side problem. People do not see how much the pen costs because their insurance just charges $20 per prescription. The company that makes the epi-pen can then raise the prices until the insurance company balks. This explains the "direct rebate" program. If you don't have insurance, and prove it to the company they will sell you the device for half price directly through them. This is all to continue gouging the insurance. If people had to pay a percentage of the drug, the outcry would have happened a long time ago, long before the drug became $600.
Finally there is - I forgot what Warren calls it - but the company using the government to expand its profits. Schools are forced to buy epi-pens, due to lobbying, and of course if the company charges $6 or $600, the schools can't say no - they are forced to purchase the things at least every three years.
September 5, 2016, 11:09 amJohnnyreb:
I can do this with my heart medication metoprolol one of the older heart drugs on the market. If I go through my Insurance at the pharmacy I pay a $15 co-pay for a 90 day supply. If I pay cash without using my insurance and the pharmacy does not not have to do the billing paperwork the pharmacist gives it to me for $5.
It is all messed up and I see no way of fixing it.
September 5, 2016, 2:39 pmmarque2:
It is more than just restrictions on imports, 40% of our sugar is allowed to come from overseas from traditional sugar exporters, if your country is new to the sugar business forget about exporting to the US. In the US each state is allotted an amount of sugar they are allowed to grow based on last years crop in each state, and the amount of sugar the government figures should be grown to support the desired price level. If a state like Iowa, has never produced sugar, no farmer can get into the game now, because there was no crop in Iowa last year. This also prevents new entrants (farmers) into the sugar market.
If one choose to grow sugar cane or sugar beets anyway, then the product is not allowed to be sold for sugar production - it can still be sold as animal feed.
Oh and for certain people on another site, this is called a price support and it works much different than a subsidy.
September 5, 2016, 5:44 pmmarque2:
and the pharmaceuticals go along with it as long as the negotiated price is higher than the marginal production cost. So yes, as you said, US customers get to pay the R&D costs for the world, and then we in the US complain about the pharmaceutical companies instead of the trade restrictions by other countries.
September 5, 2016, 5:46 pmmarque2:
why do you think there is no competition in the pharmaceutical market?
September 5, 2016, 5:50 pmDubious response.
Problems with Epi-Pens are caused by government in collusion with companies restricting supply. Blame the government for the Epi-pen problem, and then of course the company lobbied to get it mandated every school must buy them - so why not keep the price high, schools must pay, every three years, no matter what you charge. That was a dumb, but "well meaning" law as well.
JTW:
Worse than just government blocking competitors from entering the market, they're also making the product itself excessively expensive through mass regulation.
September 8, 2016, 12:40 pmIt's got to the point in European countries that some pharmaceuticals have withdrawn from the European market because they can no longer sell there at a profit due to the combination of price control and regulatory pressure.
Life saving critical medication is not reaching consumers because governments make it impossible to manufacture and distribute them without making a LOSS!
THAT's government we can believe in (to use a leftist mantra from years gone by).
tfowler:
The marketing costs compared to the R&D costs, is a far less important issue than it often gets credit for. There isn't one fixed pot of money everything has to come out of. Marketing is done to increase sales. Assuming it works (and if it doesn't well then its a poor business decision but not something nefarious) it increases the revenue stream available to pay for R&D (among other things) rather than decreasing it.
September 17, 2016, 9:31 amtfowler:
http://marginalrevolution.com/marginalrevolution/2009/08/pharmaceutical-rd.html
September 19, 2016, 3:08 pm