Quotulatiousness

September 1, 2016

Don’t blame the market for the EpiPen price hike – blame the FDA

Filed under: Bureaucracy, Government, Health, USA — Tags: , , , — Nicholas @ 03:00

Scott Alexander explains why “the market” has very little to do with the outrageous price hike for EpiPens:

EpiPens, useful medical devices which reverse potentially fatal allergic reactions, have recently quadrupled in price, putting pressure on allergy sufferers and those who care for them. Vox writes that this “tells us a lot about what’s wrong with American health care” – namely that we don’t regulate it enough:

    The story of Mylan’s giant EpiPen price increase is, more fundamentally, a story about America’s unique drug pricing policies. We are the only developed nation that lets drugmakers set their own prices, maximizing profits the same way sellers of chairs, mugs, shoes, or any other manufactured goods would.

Let me ask Vox a question: when was the last time that America’s chair industry hiked the price of chairs 400% and suddenly nobody in the country could afford to sit down? When was the last time that the mug industry decided to charge $300 per cup, and everyone had to drink coffee straight from the pot or face bankruptcy? When was the last time greedy shoe executives forced most Americans to go barefoot? And why do you think that is?

The problem with the pharmaceutical industry isn’t that they’re unregulated just like chairs and mugs. The problem with the pharmaceutical industry is that they’re part of a highly-regulated cronyist system that works completely differently from chairs and mugs.

If a chair company decided to charge $300 for their chairs, somebody else would set up a woodshop, sell their chairs for $250, and make a killing – and so on until chairs cost normal-chair-prices again. When Mylan decided to sell EpiPens for $300, in any normal system somebody would have made their own EpiPens and sold them for less. It wouldn’t have been hard. Its active ingredient, epinephrine, is off-patent, was being synthesized as early as 1906, and costs about ten cents per EpiPen-load.

Why don’t they? They keep trying, and the FDA keeps refusing to approve them for human use. For example, in 2009, a group called Teva Pharmaceuticals announced a plan to sell their own EpiPens in the US. The makers of the original EpiPen sued them, saying that they had patented the idea epinephrine-injecting devices. Teva successfully fended off the challenge and brought its product to the FDA, which rejected it because of “certain major deficiencies”. As far as I know, nobody has ever publicly said what the problem was – we can only hope they at least told Teva.

[…]

Imagine that the government creates the Furniture and Desk Association, an agency which declares that only IKEA is allowed to sell chairs. IKEA responds by charging $300 per chair. Other companies try to sell stools or sofas, but get bogged down for years in litigation over whether these technically count as “chairs”. When a few of them win their court cases, the FDA shoots them down anyway for vague reasons it refuses to share, or because they haven’t done studies showing that their chairs will not break, or because the studies that showed their chairs will not break didn’t include a high enough number of morbidly obese people so we can’t be sure they won’t break. Finally, Target spends tens of millions of dollars on lawyers and gets the okay to compete with IKEA, but people can only get Target chairs if they have a note signed by a professional interior designer saying that their room needs a “comfort-producing seating implement” and which absolutely definitely does not mention “chairs” anywhere, because otherwise a child who was used to sitting on IKEA chairs might sit down on a Target chair the wrong way, get confused, fall off, and break her head.

(You’re going to say this is an unfair comparison because drugs are potentially dangerous and chairs aren’t – but 50 people die each year from falling off chairs in Britain alone and as far as I know nobody has ever died from an EpiPen malfunction.)

Imagine that this whole system is going on at the same time that IKEA spends millions of dollars lobbying senators about chair-related issues, and that these same senators vote down a bill preventing IKEA from paying off other companies to stay out of the chair industry. Also, suppose that a bunch of people are dying each year of exhaustion from having to stand up all the time because chairs are too expensive unless you’ve got really good furniture insurance, which is totally a thing and which everybody is legally required to have.

And now imagine that a news site responds with an article saying the government doesn’t regulate chairs enough.

June 10, 2016

A breakthrough in our understanding of the causes of depression

Filed under: Health, Science — Tags: , , , — Nicholas @ 02:00

Scott Alexander takes a quick look at a recent discovery in medication for depression:

A few weeks ago, Nature published a bombshell study showing that ketamine’s antidepressant effects were actually caused by a metabolite, 2S,6S;2R,6R-hydroxynorketamine (don’t worry about the name; within ten years it’ll be called JOYVIVA™®© and you’ll catch yourself humming advertising jingles about it in the shower). Unlike ketamine, which is addictive and produces scary dissociative experiences, the metabolite is pretty safe. This is a big deal clinically, because it makes it easier and safer to prescribe to depressed people.

It’s also a big deal scientifically. Ketamine is a strong NMDA receptor antagonist; the metabolite is an AMPA agonist – they have different mechanisms of action. Knowing the real story behind why ketamine works will hopefully speed efforts to understand the nature of depression.

But I’m also interested in it from another angle. For the last ten years, everyone has been excited about ketamine. In a field that gets mocked for not having any really useful clinical discoveries in the last thirty years, ketamine was proof that progress was possible. It was the Exciting New Thing that everybody wanted to do research about.

Given the whole replication crisis thing, I wondered. You’ve got a community of people who think that NMDA antagonism and dissociation are somehow related to depression. If the latest study is true, all that was false. This is good; science is supposed to be self-correcting. But what about before it self-corrected? Did researchers virtuously say “I know the paradigm says NMDA is essential to depression, and nobody’s come up with a better idea yet, but there are some troubling inconsistencies in that picture”? Or did they tinker with their studies until they got the results they expected, then triumphantly declare that they had confirmed the dominant paradigm was right about everything all along?

March 19, 2016

The Monopoly Markup

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Published on 18 Mar 2015

Ever wonder why pharmaceuticals are so expensive? In this video, we show how low elasticity of demand results in monopoly markups. This is especially the case with goods that involve the “you can’t take it with you” effect (for example, people with serious medical conditions are relatively insensitive to the price of life-saving drugs) and the “other people’s money” effect (if third parties pay for the medicine, people are less sensitive to price).

March 16, 2016

The Social Welfare of Price Discrimination

Filed under: Economics — Tags: , , — Nicholas @ 03:00

Published on 7 Apr 2015

Now that we’ve learned a little about price discrimination, we can begin to think about whether or not price discrimination is bad for society. How does price discrimination affect output, and what is this effect on social welfare? If price discrimination increases output, it is likely beneficial for society. If output isn’t increased, social welfare is reduced. What are some examples of perfect price discrimination? Universities practice perfect price discrimination all the time. Students pay different amounts for their education based on many different factors surrounding each student’s ability to pay. This practice increases profits and also increases the number of students able to attend college. For this reason, price discrimination by universities likely increases social welfare.

March 6, 2016

European Socialists During WW1 – Frontline Medics I OUT OF THE TRENCHES

Filed under: Europe, History, Military — Tags: , , , , — Nicholas @ 02:00

Published on 5 Mar 2016

Indy sits in the chair of wisdom again to answer your questions about World War 1. This time we are talking about the German parliament, the European socialist movement and frontline medics.

January 20, 2016

QotD: Nursing

Filed under: Health, History, Quotations, Science — Tags: — Nicholas @ 01:00

In the company of medical people who know the history of their craft you can get a good discussion going about the exact date after which medical attention was more likely to help than harm you. Opinions generally settle somewhere between 1910 and 1940.

That’s within living memory. People of the generation before my own had little to hope for from medicine. The more realistic among them knew this. My own father, born 1899, regarded the entire medical profession with fear and mistrust. A hospital, he believed, was a place where poor people went to die. A major theme in the background noise of my childhood was the voice of my mother — a professional nurse — nagging Dad to go see a doctor about some ailment he was suffering. “Why won’t you at least go see him? He won’t HURT you.” Dad knew better. Most things mend by themselves. He lived to be 85, dying at last of pneumonia, which was known to people of that generation as “the old man’s friend.”

It wasn’t all negatives before “the early 1950s, when medicine was turning into a science” (Lewis Thomas). There was nursing; there was surgery; there were a handful of useful drugs.

Nursing — the art of keeping patients clean, comfortable, and cheerful — must have saved far more lives than doctoring in the long dark ages before antibiotics. Florence Nightingale (a significant mathematician, by the way) has to be reckoned one of the great benefactors of humanity.

John Derbyshire, “The Scariest Science”, Taki’s Magazine, 2014-11-13.

January 19, 2016

Non-conspicuous consumption of quality

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Don Boudreaux on the amazingly thin line that now separates many of the quality consumption goods of the ultra-rich from the nearly as high quality goods of ordinary North American consumers:

This list includes also non-prescription pain relievers, most other first-aid medicines and devices such as Band-Aids, and personal-hygiene products such as toothpaste, dental floss, and toilet paper. (I once saw a billionaire take two Bayer aspirin – the identical pain reliever that I use.) This list includes also gasoline and diesel. Probably also contact lenses.

A slightly different list is one drawn up in response to this question: When can median-income consumers afford products that, while not as high-quality as those versions that are bought by the super-rich, are nevertheless virtually indistinguishable – because they are quite close in quality – to the naked eye from those versions bought by the super-rich? On this list would be most clothing. For example, an ordinary American man can today afford a suit that, while it’s neither tailor-made nor of a fabric as fine as are suits that I suspect are worn by most billionaires, is nevertheless close enough in fit and fabric quality to be indistinguishable by the naked eye from expensive suits worn by billionaires. (I suspect that the same it true for women’s clothing, but I’m less expert on that topic.)

Ditto for shoes, underwear, haircuts, corrective eye-wear, collars for dogs and cats, pet food, household bath towels and ‘linens,’ tableware and cutlery, automobile tires, hand tools, most household furniture, and wristwatches. (You’d have to get physically very close to someone wearing a Patek Philippe – and you’d have to know what a Patek Philippe is – in order to determine that that person’s wristwatch is one that you, an ordinary American, can’t afford. And you could stare at that Patek Philippe for months without detecting any superiority that it might have over your quartz-powered Timex at keeping time.) Coffee. Tea. Beer. Wine. (There is available today a large selection of very good wines at affordable prices. These wines almost never rise to the quality of Chateau Petrus, d’yquem, or the best Montrachets, but the differences are often quite small and barely distinguishable save by true connoisseurs.)

I’ve made this point about the wines before (I’ve tasted each of those wines, but don’t believe the price difference justifies buying them over nearly-as-good equivalents that lack the prestige factor), but Don is talking a much wider range of goods and services where there’s barely any real quality difference between “ordinary” and what the very richest among us can obtain.

January 16, 2016

Introduction to Price Discrimination

Filed under: Economics — Tags: , , — Nicholas @ 03:00

Published on 7 Apr 2015

Price discrimination is common: movie theaters charge seniors less money than they charge young adults. Computer software companies sell to businesses and students at different rates, often offering discounts to students. These price differences reflect variations in the elasticity of demand for these different groups. When demand curves are different, it is more profitable to set different prices in different markets. We’ll also cover arbitrage and take a look at some examples of price discrimination in the airline industry

December 30, 2015

QotD: Medicine before antibiotics

Filed under: Health, History, Quotations, Science — Tags: — Nicholas @ 01:00

Explanation was the real business of medicine. What the ill patient and his family wanted most was to know the name of the illness, and then, if possible, what had caused it, and finally, most important of all, how it was likely to turn out

[…]

During the third and fourth years of [medical] school it gradually dawned on us that we didn’t know much that was really useful, that we could do nothing to change the course of the great majority of the diseases we were so busy analyzing, that medicine, for all its façade as a learned profession, was in real life a profoundly ignorant occupation

[…]

Once you were admitted [to hospital] … it became a matter of waiting for the illness to finish itself one way or the other … Medicine made little or no difference.

Lewis Thomas, The Youngest Science, 1983, quoted by John Derbyshire in “The Scariest Science”, Taki’s Magazine, 2014-11-13.

December 15, 2015

Hillary Clinton’s well-intentioned plans will make the prescription medicine market even worse

Filed under: Business, Economics, Government, Health, USA — Tags: , , , , — Nicholas @ 04:00

Another older post from Megan McArdle on the nice-soundbites-but-terrible-economic-notions from the Hillary Clinton campaign to fix the prescription medicine marketplace:

Hillary Clinton thinks drug development should be riskier, and less profitable. Also, your health insurance premiums should be higher. And there should be fewer drugs available.

This is not, of course, how the Clinton campaign would put it. The official line is that Americans are just paying too darn much for drugs, and she has a plan to stop that:

  • Regulate direct-to-consumer advertising more heavily, and strip its tax deductibility
  • Require drug companies to spend a certain percentage of revenue on research and development, or face penalty payments and the loss of their R&D tax credit (I am inferring that this is what she is talking about, since the actual language of the proposal is long on paeans to the importance of federal research funding and short on details)
  • Cap out-of-pocket costs for drugs
  • Reduce the exclusivity period for biologic drugs
  • Prohibit companies from making side payments to generic manufacturers to keep generic competition off the market
  • Allow drug reimportation
  • Require that new treatments be proved to be a substantial improvement over existing treatments — i.e., eliminate the dreaded “me too” drugs
  • Allow Medicare to “negotiate” drug prices

Eliminating the side payments seems eminently sensible. (Yes, yes, you can strip my libertarian card, but market-rigging contracts shouldn’t be enforced.) It also seems reasonable to require some sort of comparative effectiveness research. Other provisions will certainly drive down drug prices, at the risk of also driving down innovation.

Still other provisions, however, are simply bad economics. In what other market do we worry about having a second product available that’s merely just as good as the first? Should we really only have one antidepressant, one statin, one blood pressure medication, and so forth? Might there be variation among patients so that drugs that are statistically about equally effective in large groups are nonetheless individually more or less effective for different people? Might one drug’s side effects be better tolerated by some patients than another’s? Might having two drugs in the category help keep prices down?

Then there is notion that we should force pharmaceutical companies to spend a set percentage of their revenues on R&D. This seems to me to be … what’s the word I am looking for? Ah, I’ve got it: “insane.”

[…]

Economically, large parts of this plan make little sense. Politically, many of these items would be very difficult to pass, not least because the Congressional Budget Office would assess the likely effects and would make it sound much less appealing than it does in a gauzy stump speech. But away from those harsh realities, purely as campaign rhetoric, it probably works very well.

December 14, 2015

The Monopoly Markup

Filed under: Economics — Tags: , , , — Nicholas @ 04:00

Published on 18 Mar 2015

Ever wonder why pharmaceuticals are so expensive? In this video, we show how low elasticity of demand results in monopoly markups. This is especially the case with goods that involve the “you can’t take it with you” effect (for example, people with serious medical conditions are relatively insensitive to the price of life-saving drugs) and the “other people’s money” effect (if third parties pay for the medicine, people are less sensitive to price).

December 8, 2015

Still more to learn about the human immune system

Filed under: Health, Science — Tags: , , — Nicholas @ 03:00

A brief post at Real Clear Science on a recent discovery in human immunology:

Think again if you thought that doctors had long since identified and described exactly how the body defends itself against microorganisms.

Scientists have recently discovered a whole new side to the immune system: a rapid immune response that kicks in well before any of the other known mechanisms.

“I hate to use the term ‘text books will write about this’, but this [discovery] really is brand new and we will need to write a new chapter,” says co-author Søren R. Paludan, professor of virology and immunology form the Department of Biomedicine, Aarhus University, Denmark.

In collaboration with groups from the US and Germany, the scientists showed that when the body’s outer defence, the mucosa lining that surrounds certain organs, is disturbed by a virus, the underlying layer of cells are the first to react and sound the alarm. They summon the body’s cell soldiers, which attack the invading virus.

Both this alarm system and the ‘soldier’ cells operate completely separately from what were believed to be the first responders to immune system attacks.

December 2, 2015

Maximizing Profit under Monopoly

Filed under: Economics, Health — Tags: , , , , — Nicholas @ 05:00

Published on 18 Mar 2015

AIDS has killed more than 36 million people worldwide. There are drugs available to treat AIDS, but the price of one pill is incredibly high in the U.S. — coming in at 25 times higher than its cost. Why is that? In this video, we show how patent rights have created a monopoly in the U.S. market for AIDS medication, causing pills to be very expensive. In other countries, however, such as India, which does not recognize patents on AIDS medication, prices remain low. Using this example, we go over how monopolies use market power to increase prices.

October 28, 2015

Reducing the costs of regulation

Filed under: Bureaucracy, Government, Health, USA — Tags: , , — Nicholas @ 04:00

Henry I. Miller discusses a worthwhile regulatory change that would increase the availability of medicines in the US marketplace without reducing public safety:

The FDA would be a good place to start. Bringing a new drug to market now requires 10-15 years, and costs have skyrocketed to an average of more than $2.5 billion (including both out-of-pocket and opportunity costs) – largely because FDA requirements have increased the length and number of clinical trials per marketing application, and their complexity.

The detrimental effects of FDA delays in approving certain new drugs already available in other industrialized countries are well-documented and deserve as much attention as drugs’ high costs. An example is the three-year delay in the approval of misoprostol, a drug for the treatment of gastric bleeding, which is estimated to have cost between 8,000 and 15,000 lives per year.

[…]

A practical workaround to overcome regulators’ risk-aversion and capriciousness would be “reciprocity” of approvals with certain foreign “A-list” governments, so that an approval in one country would be reciprocated automatically by the others. That would make more drugs available sooner in all of the participating countries, increasing competition and putting downward pressure on prices.

Such an innovation would also help to alleviate another critical problem: The United States is experiencing shortages of certain critical pharmaceuticals, many of which have been essential in medical practice for decades. The majority are generic injectable medications commonly used in hospitals, including analgesics, cancer drugs, anesthetics, antipsychotics for psychiatric emergencies, and electrolytes needed for patients on IV supplementation. Hospitals are scrambling to assure adequate supplies of drugs that are in short supply, or to find substitutes for them. Reciprocal approvals would make numerous alternatives available.

As referenced yesterday, the FDA regulations also create temporary monopoly situations where only one company has the permit from the regulator to produce this or that medicine, so there’s nothing standing in the way of massive price increases if there are no close substitutes to provide price competition.

October 27, 2015

Update on that $750 pill and the regulatory system that made it inevitable

Filed under: Bureaucracy, Business, Health — Tags: , , — Nicholas @ 05:00

Tim Worstall follows up on all-world scumbag Martin Shkreli and his enabled-by-the-regulator insane price increases for a decades-old drug:

We have an interesting and important economic lesson for public policy here: markets, they work. More accurately, we don’t have to worry about someone attempting to exploit their possession of a contestable monopoly. We only have to worry, possibly take action, if someone has an uncontestable monopoly. And given that there’s very few of them that we don’t create ourselves for other reasons, this means that monopoly is just one of those things we can keep a wary eye upon but not worry over excessively.

Our example comes from Martin Shkreli. The basic background is that this entrepreneur thinks he’s found a pretty cool business model. There’s a number of pharmaceuticals out there that are well out of patent but still have small and useful markets. FDA regulations (no, we’ll not go into the details of how or why this happens) mean that it’s not as easy as one might think to produce generic versions of these out of patent drugs. So, as a business plan, buy up the rights to the permit-ed (as in, with a permit, not just those allowed, as in permitted) generics and as a result of the difficulty someone else will have in getting into the same market, some pricing power is available. You can then raise the price and start to bank your considerable profits.

This caused outrage when Shkreli announced that this was exactly what he was doing:

    Turing Pharmaceuticals, the company that last month raised the price of the decades-old drug Daraprim from $13.50 a pill to $750…

A 5,000% price rise certainly indicates that Turing thinks it has pricing power and thus that it has considerable monopoly power.

[…]

Markets, they work. As Mr. Shkreli is just finding out:

    Turing Pharmaceuticals, the company that last month raised the price of the decades-old drug Daraprim from $13.50 a pill to $750, now has a competitor.

    Imprimis Pharmaceuticals, Inc., a specialty pharmaceutical company based in San Diego, announced today that it has made an alternative to Daraprim that costs about a buck a pill — or $99 for a 100-pill supply.

This is not the same drug: it’s a slight variation, a close substitute. But it’s close enough that Turing isn’t going to be making much money from what it thought was monopoly pricing power. Because it was a contestable monopoly, not an absolute one.

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