Doubly inequitable:

The research that led to the discovery of most drugs was subsidized by government research grants. So the costs are "shared" but the profits are not.

R&D costs may indeed by high but in some cases these drug oligopolies spend even more on marketing. Yet a few still make rather large operating margins. Go figure.

the government knows that if you crack down on pharm profits, new drug discoveries will stall. that's why the majority of new drugs are discovered in the US.

Of course "these drugs only cost a few dollars to produce." But only the second through the last pill are that cheap. The first pill costs hundreds of thousands, if not millions, of dollars to produce.

Does anyone know if there has been a study of the comparative prices of the Tier 4-5 drugs in the various private insurer Medicare Part D formularies, and a further comparison to what those drugs cost under, say, the Canadian, UK, and French systems?

Also, does anybody know if the Part D insurers get reimbursed by Medicare when one of their insured clients has reached his level of "catastrophic" coverage in a given year ($6,250 this year) in his Part D coverage, but is still racking up charges for a very expensive Part D drug?

Thus, the insured's responsibility once he is into catastrophic coverage territory is capped at a 5% coinsurance payment, where the 5% is 5% of the price for the drug as listed in his carrier's formulary. (I think I have that last part right.) That would be plus or minus – depending on how he got to the $6,250 -- $5,000 for a drug which "retails," i.e., is listed in his insurer's formulary, at $100,000 a year.

The specific question is: can the insurer turn around to Medicare and get some sort of reimbursement for the $95,000 that he would otherwise have to eat (less his profit margin, of course)?

A link would be most appreciated if you have it.

Billyblog,

The insurers sign contracts that meet general conditions with Medicare. They are reimbursed by patient, not drug use. So, of they have someone taking a drug for which the insurer pays $100k, they would have to eat it.

Dean,

Thanks for the clarification. I appreciate it. If you have a link to the precise point in the legislation or the regulations which makes this clear, that would be lovely.

BTW, especially without a backend subsidy to pull their chestnuts out of the fire, it would seem that this would provide a powerful incentive for the insurers to inflate the cost of Tier 4 drugs in particular, with the only tempering mechanism being the supposed competition in the marketplace.

But, of course, the insurers hold most of the cards on this, with the ability to add, drop, and recategorize the drugs in their formularies pretty much on the fly, with only the most diligent consumer having the ability to keep up with the whack-a-mole game of bait and switch that these guys can – and do – play, as evidenced in the recent Gina Kolata article in the Times.

Here it would seem that an essential data point would be what those Tier 4 drugs cost in the state controlled – in terms of pricing – formularies of other countries. In the simplest possible terms the question is: does monopsony or so-called free market competition result in lower prices for these sorts of drugs?

As you well know, this is not a theoretical exercise. There is an empirical answer to this question. Thus, you have yourself argued earlier – relying on CBO -- that the answer is that monopsony – as played out in the state run or otherwise heavily influenced healthcare systems of other developed countries – has better outcomes in general, i.e., from the consumer's, and not Big Pharma's, point of view. I realize that your 2006 study is out of date in some respects, but not so much that it would cause us to antecedently doubt that the basic outcomes would still be materially similar.

Thus, it would be interesting to see if this finding holds up in the special case of Tier 4 (and 5) drugs.

Doing anything this weekend?

It costs roughly $800 million dollars to bring a single new molecular compound to market and only about 1% of drugs ideas that work in a lab ever make it through clinical trials and FDA approval. Most patents on drugs are granted for 20 years but since it takes about 7-8 years to go through FDA, the patents are only good for 13 years of sales. However, the first 3-4 years of the drug hitting the market usually has poor sales since doctors do not know the new compound.

Lastly, if patents for drugs for rare diseases were abolished, no drug company would ever put in the effort to do research on these diseases. We are already seeing a plethora of viagra clones since those are the drugs are make money. While reducing patent protection would help patients in the short run, it would be a dead end in the long run.