Thursday, January 19, 2017

Multiple Response Post

It sounds like you want to get rid of the FDA and it's regulations. How do you feel about this?

"In any society, in any group of men, there will also be some who will try to help themselves at the expense of others. There will be some who wish to steal, or mis­represent, or resort to force. To protect peaceful productive citi­zens against those who resort to such antisocial actions, govern­ments are necessary, and very necessary."
I don't want to get rid of the FDA, but it is corrupt to the core. The FDA is necessary, but these are the people that are allowing the food industry to sell food with chemicals that cause heart disease, hair loss (be on the lookout for aspartame), and cancer (sodium nitrite). They operate with very little oversight, and they've allowed biotech companies and pharma companies to drain hospitals and health insurance companies of money, which ultimately devastates the average American citizen's chance of receiving affordable healthcare.

In all honesty I don't feel one way or another about a CEO's salary. A CEO's salary is decided by the shareholders, and the shareholders aren't going to pay a CEO that doesn't return on investment. 

If the question is "why are pharma CEO's paid much more than a normal CEO?" then we should also ask "why does a neurosurgeon make more money than a primary care physician?" The simple answer is that the personal cost of becoming a neurosurgeon makes his or her job that much more valuable. Neurosurgery is one of the hardest forms of surgery, it requires very strict testing at a university level, the fees for attending medical school for the time needed to be licensed to practice neurosurgery are in the several hundreds of thousands of dollars, and it's a highly specialized form of medicinal practice in the healthcare industry that requires annual re-training to adjust for new technology and surgical practices. There are only about 3,500 neurosurgeons in the US, as opposed to over 240,000 primary care physicians. 

To quote Percy L. Greaves, Jr. from this speech-turned-article from the Foundation for Economic Education; 

"No businessman in a free mar­ket society can long pay a worker a dollar an hour and sell his prod­uct for five dollars an hour. Why not? Because you and I and thou­sands of others like us would be very happy to go into that busi­ness, pay those men two dollars and sell their product for five dollars if we could. Others would soon offer to pay them three dollars, four dollars, or even four-fifty. In fact, large corporations would be very happy to make profits of just two cents an hour for every worker they employ. They are just not able to pay them much less than the market value of their product. The last one employed would not yield them any profit, particularly in a free society where anyone who thinks he sees a chance to make a profit can come in and bid away any employee who is paid less than the market value of his contribution."

Of course, there comes a point where the employer can't compensate the worker any more than his or her current salary due to the product value of the worker's labor being too low to sustain any more of an increase. This is called the "marginal point."

"Wage rates are ultimately set by the marginal productivity of labor, that is the market value added to the product produced by the marginal em­ployee, the last man hired."
To bring all of this back to pharmaceutical companies, I want to state that the economics and business knowledge required to successfully run a pharma or biotech company far outweighs that of most large corporations. A CEO of a drug company has to be well-versed in physics, chemistry (both organic and inorganic), and general medicine, while also having the ability to understand the ever changing and incredibly complex economics of the drug industry. The Pharma CEO is the neurosurgeon of the CEO business.

The CEO also doesn't set his or her own salary. Being a CEO is a job, and just like any other, the CEO first had to apply for the position. If the shareholders then vote to hire the applicant CEO, then the CEO will negotiate his or her salary with the shareholders, and then the shareholders will vote to approve or deny the compensation. So, if an event occurs where a pharmaceutical company does decide to hike prices in a malicious attempt to steal money from citizens, the CEO would not benefit as much as some would like to think. The shareholders would initially make the most profit, and the CEO's salary raise would depend on how the shareholders vote.

When it comes to the demand of Pharma CEO's, I would argue that there is a huge demand in the market for good drug businessman, especially if we consider the rare-disease market where it can sometimes be impossible for a company to make a profit.

Basically what's going on is that there is a huge demand for drug CEO's, but a smaller supply of people who are knowledgeable enough to do the job.

It is actually quite common for individuals to evade taxes through offshore accounts-remember the huge fuss last year about the "Panama Papers?" The IRS estimates that the federal government loses $458 billion per year due to tax evasion.

Only 36 Americans out of 260,000 people were mentioned in the Panama Papers, and generally most news media outlets have questioned why there weren't more Americans pointed out in the documents. 

To answer a question with a question: Why would a wealthy individual or a large corporation set up an illegal shell company in Panama to hide legally-made dollars when it is cheaper, easier, and legal under US law and tax code to set up a shell company in the US? The US is already considered a tax haven for law-abiding citizens and corporations. When politicians talk about tax loopholes, this is one of the many that are brought up since it's almost common practice for a company to have a shell to evade taxes, form mergers, transfer large amounts of money, and etc. 

The way to solve the issue here is to close tax loopholes for corporations. One could also argue that taxes for corporations should be lowered so that they are less likely to try and evade and hide their taxes. If the corporations are less likely to hide their profits and evade taxes, they'll be more likely to invest the money back into the economy. A lot of people think that if an individual or a corporation has a lot of money, they'll lock it away and never touch it. The reality of the situation is that individuals with large amounts of money become investors, and corporations with large amounts of money grow and hire more workers while reducing prices. Regardless, only a foolish businessman would hoard his money away instead of investing it back into the market. When money is hoarded, it loses value due to inflation. If a businessman or a business wants to continue to profit, they have to invest that money somehow back into the market so they can make profitable returns on their investments.

I would argue that the US's economy is not at the point where it can support a tax cut for corporations, but that's because I'm interested to see how many taxes the federal government will bring in after tax loopholes are eliminated. 

In regards to pharmaceutical companies leaving the country: where would they go? Any country with a population that MIGHT be able to afford these prices already has a free healthcare system in place. Where is this mythical second America that could be their new profit frontier? I think prices are high because we allow them to be high. If we begin buying in bulk from countries that charge less for the same conceptual prescriptions, we can drive down ridiculous American-exclusive prices, therby changing the functionality of lobbyists and the pharmaceutical industries' influence in congress. 

I'm going to have to respond to this one in two parts;

Part 1: In regards to pharmaceutical companies leaving the country: where would they go? Any country with a population that MIGHT be able to afford these prices already has a free healthcare system in place. 

I don't think I said the Pharma giants were going to leave the country. Most pharma companies already sell their drugs on the global market, the only problem is they have to undergo a separate approval process that's similar to the FDA. The difference between the FDA's and every other country's approval process is that the FDA's regulations are the most expensive to uphold in the world. That's why the US has the highest drug prices. 

To give a perspective, this is a list of all of the countries that Pfizer operates in;

  • Argentina
  • Australia
  • Austria
  • Belgium
  • Brazil
  • Canada
  • China
  • Colombia
  • Czech Republic
  • Denmark
  • Finland
  • France
  • Germany 
  • Greece
  • Honk Kong
  • Hungary
  • India
  • Indonesia
  • Ireland
  • Israel
  • Italy
  • Japan
  • Korea
  • Malaysia
  • Mexico
  • Netherlands
  • New Zealand
  • Norway
  • Pakistan
  • Philippines
  • Poland
  • Portugal
  • Romania
  • Russia
  • Singapore
  • Slovakia
  • South Africa
  • Spain 
  • Sweden
  • Switzerland
  • Taiwan
  • Thailand
  • Turkey
  • United Kingdom
  • United States
  • Venezuela
In regards to free healthcare systems, those countries also have lower restrictions, and usually the drug has to pass through a review board which helps lower prices. For example in Canada, the Canadian health ministry, Health Canada, requires each experimental drug seeking to be placed on the market to pass through a drug review board to test its efficacy and it's relationship to other drugs already out on the market. After this process, the doctors that work for Canada's free healthcare system are allowed to choose which drugs to prescribe based off of the results from the board's review. 

To compare this system to the FDA's approval process, I'll quote Dr. Aaron Kesselheim from this CNN article/interview;

"...we [the US] don't have a central agency, governmental or NGO (non-governmental organization) that engages in comparative research that comes up with clear statements of drugs efficacies"
So to bring this quote into perspective, all of the regulations that the FDA places on experimental drug research and development still don't guarantee the US public that they are getting an effective product. The regulations are for the research and post-approval studies, but the overall efficiency could be entirely secretive if the company wanted it so. What can make matters worse is the patent system; since a new drug on the market is protected under patent laws for the next 20 years, doctors may have no other choice but to prescribe this new drug, and they'll have no way of knowing if this new drug is the most efficient that technology can offer, or if it's just the only molecule that managed to get past the FDA's incompetent and inconsistent approval process. 

Unfortunately, some pharma companies have actually lied about research results, and since there is no review process for an INDA approval, sometimes nothing will happen to the company or the drug for many years. Just like how it takes several years for the FDA to review and approve INDA's, it can take even longer to pass legislation to ban dangerous pharmaceuticals from the market. The FDA's initial, and most of the time singular, response to drugs on the market that are reporting severe side effects is to add a warning label. That's why we see TV ads for antidepressants that say, "Warning, may cause thoughts of suicide." 

Accutane is a famous example of what can go wrong when there is no consumer review process for a new product on the market. Accutane was a medicine designed to treat severe acne, and it was created by Roche and approved by the FDA in 1982. From the introduction of Accutane to the year 2002, over 23,000 sever side effects were reported which include but are not limited to: inflammatory bowel disease; ulcerative colitis; crohn's disease; hair loss; depression; birth defects; induced abortion; and more. By 2002, there were 172 suicides attributed to Accutane; additionally, there were 172 children born with anomalies or congenital defects where the mother had been prescribed Accutane while pregnant. The glorious FDA began to help protect citizens by forcing the company to place over 3,000 words of warning labels on the product, but Accutane wasn't removed from the market until 2007 after a number of public lawsuits granted victims of Accutane's side effects dozens of millions of dollars. Just to clarify, Accutane wasn't removed from the market by the FDA; it was removed by Roche as a reaction to public backlash. It was on the market for twenty-five years. 

To see more results of a government organization that has removed the power to review a product from the consumer, this article from DrugWatch goes into detail on other infamous drugs that had to be pulled from the market. 

Part 2: I think prices are high because we allow them to be high. If we begin buying in bulk from countries that charge less for the same conceptual prescriptions, we can drive down ridiculous American-exclusive prices, thereby changing the functionality of lobbyists and the pharmaceutical industries influence in congress.

So for this, I'm going to break it down sentence-by-sentence, because for some of it I agree with you and for some of it I don't agree with you.

"I think prices are high because we allow them to be high"
Yes you are absolutely right. Even though drug companies heavily lobby the government, we are the people that vote in congressman that pass laws that have allowed us to get where we are. At the end of the day the blame of expensive healthcare can ultimately be placed upon every person that voted for a political candidate that promised lower healthcare costs through heavier regulations; furthermore, the blame should also be placed upon every person that voted again for one of these candidates or continues to vote for these candidates, even while healthcare costs continue to skyrocket.

"If we begin buying in bulk from countries that charge less for the same conceptual prescriptions, we can drive down ridiculous American-exclusive prices..."
The FDA will not allow this. I'm assuming that the term "same conceptual prescription" refers to drugs that are made of the same chemical but are branded under a different name. If this were the case, the FDA would not allow imported drugs due to their patent laws. Just as a reminder, a drug patent doesn't just cover the chemical compound of the drug; it also covers the intended use of the drug and its expected treatment regimen. To bring up a past example, the Viagra patent covers the use of Sildenafil to treat erectile dysfunction, and the Revatio patent covers the use of Sildenafil to treat pulmonary arterial hypertension. As a hypothetical, if a drug company in Canada had successfully developed a form of Sildenafil for treatment of cardiovascular disease, it won't be able to sell their drug in the US until the Revatio patent expires.

Another problem would be the issue of exclusivity. Exclusivity can be granted to drugs by the FDA to delay and prohibit competing ANDA's from being developed, approved, or sold on the market for a certain period of time. The FDA grants exclusivity to drug companies to reduce competition and keep prices high so that Pharmaceutical companies can turn a profit off of the expensive process of either developing a successful INDA or ANDA. This is absolutely nuts. If you really are looking for a headache, a foreign company won't be able to sell its drug in the US until it is approved as an INDA or ANDA and the standard regulatory post-approval studies are set in place, which as a reminder can cost several billion dollars and take several years. And even if a foreign company is prepared to do this, they could be stopped by a period of exclusivity granted by a corrupt FDA member. I want to reflect back on one of the earlier blog posts I made where I said the FDA has allowed pharmaceutical companies to create a drug monopoly.

"...thereby changing the functionality of lobbyists and the pharmaceutical industries influence in congress."
This is both bad and good. Pfizer was ranked 23rd in major political lobbying, and during the recent election cycle it was ranked 161st in campaign contributions (top recipient being Hillary Clinton) with an amount of $769 million, as reported by the Center for Responsive Politics. There are 67 lobbyists that are subsidiaries of Pfizer, and 48 of them have previously held government office. Obviously this is bad news. The best defense that I personally could come up with for Pfizer's lobbying practices is this; they would have to continue lobbying in order to be granted certain exclusivities and regulatory freedoms to cut costs. Of course, for Pfizer, this is not such a great argument since they are one of the most profitable businesses in the world. For smaller drug companies or companies that are working in the rare disease market, lobbying could be what makes or breaks a revolutionary cure for a rare disease's chance of getting to sick patients. 

To fix this, the US needs major reforms in FDA standards and regulations and a strict investigation/audit of the FDA and its employees along with a temporary (or permanent) congressional lobbying ban. A single payer healthcare system would only be throwing more money at the problem. 

How do you feel about studies like this?

This question is asking me to go into a long discussion about economics, and this post is already getting long enough. The shortest answer is that this study perfectly explains what is driving up health insurance costs. Private health insurance companies historically have negotiated prices for hospital services, but in the case of Medicare the federal government has pre-set their own prices for services. Medicare is bound to these prices, and it is illegal for Medicare to try and negotiate a price with a hospital. As the study shows, the prices that Medicare pays is much lower than what the average American pays, while private insurances vary on prices for something like an MRI scan by a factor of three. 

If there is a group of people purchasing a product from a company at a reduced price, the company will lose profit. In order to keep profit margins on track, the company will have to adjust prices for the average consumer to make up for the expected revenue loss. Medicare pays less per service, and therefore the private insurance companies pay more. 

Maybe if I feel motivated to write another post, I'll go into detail on how insurance companies also help drive up prices and whether or not we should even use health insurance as a model for healthcare and yadda yadda yadda 

EDIT: I also want to add before I forget; When I talk about Pfizer, I'm only using it as an example since it is one of the most famous companies to describe some of the areas of the pharma industry. Pfizer is a company that definitely price gouges outside of what's ethical, but they're given that power by the FDA. Because of the patent system, big companies become monopolies, and small companies either cease to exist, or they buy rare drugs and hike prices so that they can afford research and development costs and/or survive as a profitable business.

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