Why Competition Won’t Bring Down Drug Prices

Martin Shkreli is in prison, but Daraprim still costs $750 per pill. Heather Bresch was hauled before Congress, but EpiPens still cost three to six times more than they did in 2007.

.. This phenomenon, what economists call “sticky pricing,” is common in pharmaceuticals. It has raised the price of drugs for serious conditions including multiple sclerosis and diabetes, even when there are multiple competing drugs.

The problem is that companies have decided it is not in their interest to compete.

..  There’s cover in numbers.

When you’re driving on the highway where a speed limits is 55 and most everyone’s going 70, you’re likely to increase your speed, too. Why should you feel bad? Why would the cop pick you? Someone else in a flashy car is probably doing 90. (For drug makers, Mr. Shkreli would be the hot-dogger who gives others cover.)

.. The parties are not really colluding. They’re not calling one another up to agree to drive too fast; no manufacturer (one hopes) is sitting at a country club agreeing to keep his prices high. This makes drug makers difficult to prosecute under racketeering or restraint of trade laws.

.. But while drug prices in America are going up, many of the same drugs are cheaper — and often coming down in price — in other developed countries, where governments step in to regulate prices.

.. Now you know why Novartis might have paid $1.2 million to Michael Cohen, the president’s personal lawyer and “fixer,” after hearing the candidate’s threats.

..  Britain’s National Health Service sets a price it is willing to pay pharmacists for medicines they dispense. The pharmacists, who are in business for themselves, can then source the medicine from any wholesaler. The cheaper they can procure the medicine, the more they profit.

 

The Other Republican Health Plan

Earlier this week FDA published a list of drugs that don’t face competition from generic alternatives even though their intellectual property protections have expired. FDA said it will expedite the approval process for such applications “until there are three approved generics for a given drug product.”

.. the cost of developing a generic product can run into the millions of dollars, and many can’t fetch the profit to recoup the expense.

.. Consumers pay 94% of the branded price on average when one generic firm enters the market, but that drops to 52% with two competitors and to 44% with three, according to an FDA analysis.

 .. last year generics saved $253 billion
.. Lipitor, which cost $3.29 a unit before its patent expired. The generic version last year cost $0.11.
.. One barrier to innovation is that some manufacturers are abusing FDA safety and risk mitigation regulations to protect monopoly positions
.. Regarding EpiPen, FDA regulations helped keep a generic alternative off the market by requiring an identical device to deliver a shot of adrenaline… most generics are not approved on the first round, and revisions create substantial work for companies and FDA staff. The agency also has a backlog of applications and has struggled to hire enough staff to keep up with applications.