Saturday, December 10, 2005

The high cost of cheap medications.

In responding to this post, I was reminded of one of my pet peeves. Socialized medicine. Especially the government mandated price caps on drugs that Canada and most other countries with socialized medicine impose. Everyone loves to bash drug companies, almost as much as they love to bash oil companies. After all, they charge so much for their product people seem to feel that they are being unjustly gouged, but the reality is not nearly so simple.

It's all about risk

The economics of drug companies and oil companies are actually very similar. Oil companies have to simultaneously keep their short term institutional investors happy by making money today, while also looking for and investing in oilfields that may or may not have any commercial oil, and even if they do they won't be ready to come on the market for years, and by then the price of oil may have dropped or the cost of development risen enough that what seemed economically viable when the investments were initially made, are now red ink bleeding from the balance sheet. To guard against that possibility, oil companies do try to make as much money as humanly possible without raising the price so much that other suppliers undercut them when the marketplace allows it to counterbalance the possible massive loss if things don't work out.

Drug companies have to spend massive amounts on research sifting through hundreds of thousands of compounds so that they may or may not come up with the next blockbuster drug, then they have to test that drug, for years, then they have to market it, then they have to litigate to keep the lawyers at bay when the inevitable lawsuit ensues over a known and published or even unknown and unpublished side effect. None of those steps are cheap or without risk. All the while they have to keep their short term investors happy too.

We pay for Canada's socialized medicine.

If drug companies cannot spread the cost among all customers, they have to spread the cost amongst those customers they can in order to stay in business. Well if we are the only country without price caps, guess who gets the lion's share of the bill? You and Me and good old Uncle Sugar... Meanwhile Canada and Europe and other places enjoy the fruits of American investment without having to make any investments themselves. Next time you spend $75 bucks for a 30 day bottle of some miracle drug, just think how much cheaper it would be if the rest of the world would only pay it's fair share.....


Blogger Digitaldon37 said...

Why not have the US government slap a VAT or something on exported drugs to help level the playing field and pay for some of the socialized medicine that we already have?

December 12, 2005 11:17 AM  
Anonymous said...

I say we test all new drugs on lawyers first.

December 13, 2005 4:50 AM  
Blogger Rorschach said...

The VAT wouldn't work because in in many cases, the drugs aren't actually manufactured in the States.

December 13, 2005 8:28 AM  

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