[ Thursday, December 14, 2006 ]


Big Pharma Love: A blog post by my blogfather Glen Reynolds eariler this week started a small blogfire over the fact that pharmaceutical companies are viscerally hated, despite the good that they actually do in many people's lives. It's gotten to the point that people who work for drug companies can't admit it in public, even if they're actually working on research to develop lifesaving new drugs. It seems to me that a lot of the so-called "populist" agenda involves this type of cheap and irrational vilification. Drug companies, insurance companies, evangelicals, George Bush, "rich" physicians, the list goes on and on.

I think there's a lot of financial irrationality that drives this type of mindless animosity. Drugs cost a lot of money. Hmm. Yeah, they do. Know why? It costs a lot of money to develop those drugs. Take Pfizer: yes, the manufacturer of Viagra. They were developing a drug that would raise "good" cholesterol. But in their late-stage clinical testing in humans, more people who took the drug died than the control group. So they've pulled the drug. They'll get $0 in sales from Torcetrapib. And up to the time they pulled the plug on the trial, they had spent $800,000,000. Eight Hundred Million Dollars. Even if they had produced a viable drug, how much would they have to charge to recover those costs? Well, those are now a total and complete loss. So they have to recover it from other drug sales. Why would any company be willing to spend this kind of money if they can't count on making money when the process is over? None would.

Let's take insurance companies. They have to bring assets to the table and collect enough in premiums to cover all claims paid. They also have to pay all of their operational costs, pay for the reserves they have to bring to the table in the first place, and earn a profit. If there's no prospect to earn a profit, why would anyone run an insurance business, much less put their own assets at risk? They wouldn't. There are really only 2 ways an insurance business makes money: takes in more in premiums or pays out less in claims. There are both market forces and governmental forces that restrict how high an insurance company can raise premiums. Any bad or false claim paid means that those paying in premiums have to pay more. So, it's natural that an insurance company will try to ensure it's only paying legitimate claims, and to otherwise limit what it has to pay out. If insurance companies didn't have the ability to object to claims they don't think should be paid, then either premiums would have to go much, much higher or there won't be any insurance companies to begin with.

Now, let's take greedy, rich doctors. Smart college students have lots of options to them when they get close to graduation. Sure, they'll make choices based on personal preferences and interests, but potential income will be a big factor in career choices. If doctor's don't make good money, smart students won't become doctors. Do you want all of your potential doctors to become investment bankers instead? If doctors don't make good money, that's where they'll go. It's more lucrative, it's easier, it's a shorter career path, you don't have to work for free as an intern or resident, you don't have to deal with a governmental bureaucracy that tries to squeeze you before they'll pay you for the work you do, etc.

Let's look as Senator Wyden's proposal. He wants to reduce the costs of the system and ensure that every American has healthcare without reducing care, quality, or level of service. Hmm. According to the Senator's own numbers, Americans spend $2,000,000,000,000 (that's $2 trillion) on healthcare. Also according to the Senator, Americans are having a hard time affording employer-offered health plans that cost $12,000 - $13,000 for family coverage. I don't know how big those "families" are, but let's assume at least 3 or 4. Since there's 300,000,000 Americans, then on average we spend $6,666 per person per year on healthcare (that's 2 trillion divided by 300 million). So the average family pays $12,000 or so for $20,000 - $30,000 worth of care, but they can't afford it? Who is affording it? The taxpayer, that's who. And who is the taxpayer? Those families, of course.

There is no Santa Claus. That money has to come from somewhere.

Surely we're just spending too much, right? Like for those overpriced drugs. Or on those overpriced physicians.

Well, I'll be on that conference call this afternoon with the Senator. I'll keep an open mind until then, but color me extremely skeptical.

Jeff [10:15 AM]

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