Tuesday, August 30, 2016

Strangely, public and non-profit agencies tend to be more cost effective in health care than rent seekers

I got some great responses to my article, An open letter to the Epipen girl, Heather Bresch. I wrote that letter to summarize my concerns about the emphasis on profits and the revolving door used to keep them growing. It is clear that Heather Bresch used her family influence to get a job, work her way up the corporate ladder and then used her family influence in politics to increase the value of her company's products.

Heather Bresch and her company Mylan are a great example of how a company likes to talk about the free market, yet uses government influence to increase dependence on their products. They took a product that normally sold for $60 each, and jacked the price up to $300. This could not be possible without government collusion in the market. It's worth noting that the Epipen was developed with taxpayer money and patented upon successful development. It is a reasonable question to ask how many in Congress, including Heather's father US Senator Joe Manchin, own stock in Mylan and voted on bills that could impact the sales of Mylan.

One person responded to my article with a link to this article, King County's incredibly cheap answer to the EpiPen. From the article:
One solution to the soaring price of EpiPens: Build a replacement that costs a fraction as much.
Jim Duren of King County Emergency Medical Services told KUOW’s Kim Malcolm that his agency did just that in 2013, building its own injection kit.
“Excluding the medication, the kit itself costs $15 with all the supplies,” he said. And the doses of adrenaline? “Somewhere between $2.50 and 5.”
And when the medication expires, it’s easy to replace for that $2.50 or so. Contrast that with having to pay hundreds of dollars for a new EpiPen. 
So a public agency came up with a Epipen replacement solution that costs maybe $20 max. The article also notes that "Duren says his agency saved about $150,000 in the first year using the kits and now saves about $250,000 annually. That’s even though they’re used in more than twice as many situations than EpiPens were under the old protocol." That's money that could be used elsewhere in the agency to help others, and after the protocol changed, they were able to provide the same relief to twice as many people.

For decades, we've heard conservatives and neoliberals go on and on about the benefits of privatization. Where are the benefits? Mylan used their political influence to pass a law that required something like an Epipen in every public school to increase sales. Then they raised the prices over the years to meet the increased demand. Isn't that a discrete example of "privatization"?

The contrast between King County Emergency Medical Services and Mylan is striking. King County wanted to provide better services at a lower cost and works within a strict budget in a tough economy. Mylan takes advantage of every opportunity to corner the market and promote their product just to raise the price of the product ahead of demand, then they did an inversion to avoid taxation of their newfound profits.

Economist Dean Baker has taken note of the lack of efficiency in private medical companies and nails it rather well in his article, The Rationale for High Drug Prices: Incredibly Inefficient Research. In that article, Baker demonstrates a contrast between drug research supported by patents and drug research paid for up front. He cites an industry expert estimate to show that it costs $2.5 Billion to develop a single drug by Big Pharma in pursuit of patents. Then he compares that to a malaria drug developed by a non-profit agency Drugs for Neglected Diseases Initiative (DNDI) for $17 million, with the research paid for up front by the government.

Baker provides a cogent analysis by comparing development costs of a single drug by Big Pharma to all of the work done by the DNDI several drugs over ten years. From the article:
As the figure shows, DNDI was able to develop ASAQ, a combination drug for treating Malaria, for $17 million. More than 250 million dosages have been distributed since 2007. It developed Fexinidazole, a new drug candidate and new chemical entity, intended to treat sleeping sickness, at a cost of $38 million. DNDI developed SSG&PM, a combination therapy for visceral leishmaniasis at a cost of $17 million. DNDI's entire budget for its first 10 years of existence was $242 million, less than one-tenth of what DiMasi estimates it costs the pharmaceutical industry to develop a single new drug.
Baker makes it very clear that a non-profit agency can be far more efficient developing drugs and delivery systems than a large multinational conglomerate with a sole focus on profits. Remember, those Big Pharma companies talk a lot about the virtues of the free market, but will be loathe to tell you that patents are government intervention in the market. Big Pharma will not make it clear to us that they support trade agreements like the TPP and the TTIP because those agreements will strengthen and extend their cherished patent and copyright laws. They will never tell you that other methods of drug and medical device development can be more efficient than work supported by patents.

The lesson here is that the profit motive, though useful, is not divine. It is not something to be worshiped, it is something to be used with care, judgement and precision. It must be regulated so that the public good remains the highest priority of any enterprise. This isn't to say that you can't serve the public good without a reasonable profit. It is to say that the quest for profit tends to come at the expense of the public good.
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