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Why are drugs cheaper in Canada (and elsewhere)?
My Brain

Posted on 01/22/2004 7:29:26 PM PST by maui_hawaii

Here is my assessment:

They are not. Not in reality.

Right now you’re probably sitting there thinking, “Whoa’, that’s totally different that everything I’ve heard” or “it’s cheaper for me, so it’s cheaper”. Let me explain why I am right.

The difference is social systems (namely socialism) and trade policy. Those are the two biggest factors.

Imagine you are a drug manufacturer. What is your largest cost? Is it manufacturing? Not a chance. Your biggest cost is by far development of newer and more cutting edge drugs. The actual manufacturing could be pennies on the dollar in comparison. Quite often the actual manufacturing is farmed out to local manufacturers in the host country. They aren’t really selling the drugs across the border, but rather the know-how to a contractor…in say Canada or Europe.

Because of our system we have taken a lead in developing new drugs. The vast majority of medicine and medical practices are developed here in the US. Why? Because can afford (and do spend money on) the R&D costs.

Now let’s say you develop some really good cancer treatment drug (a fictional example) and it cost you billions in development. Because of the dominant view that drugs are developed for the good of mankind, the drug companies sell drugs in places like Canada where they literally cap what they can be sold for.

What ends up happening is the foreign markets actually in many ways drive up the costs of our prices at home, in other ways they kind of drive down prices. More of the former than latter. Let me explain that seeming contradiction.

First off, one MUST recoup costs of development. Those billions are spent on your cancer drug no matter what.

In a purely ‘Canadian’ system it would take 100 years to recoup the R&D costs of your new drug, if ever. It’s because of price controls.

If the US adopted the socialist price control system it would completely bankrupt the entire industry in less than 10 years thus making everyone worse off. It would happen also if we allow the importation of drugs. 2+2=4.

The R&D costs MUST be recouped one way or another, and the quicker that happens, the faster we get more and better drugs. We are looking at turn-over. One won’t reinvest money they don’t have or have not yet gotten back. Who will pour money into a money losing venture?

Here is how Canada (and others) drive up our drug costs: because of their system they force US consumers to foot the bill of R&D costs. Those costs are simply spread over less consumers. We have a smaller market (compared the entire world) that is the one actually paying for the R&D. Our cancer drug costs are simply not allowed to be priced in globally. They quite literally force us to pay for our own R&D and recoup the costs all by our lonesome (that THEY are benefiting from). Our companies are not allowed to price drugs internationally so that the R&D costs are spread out among more of the people that actually consume the product. We are not allowed to treat foreigners as actual market participants.

In short, the US consumer is subsidizing everyone else’s “right” to have drugs. If the global drug market was not segmented, on average the US consumer would pay 60% less and everyone else would pay 25% more.

How they drive down costs is that what little they do contribute financially does help the drug companies. It’s still though an unfair system. The international markets want something for nothing. If we cut them off from the pot we are SOBs. If we make them pay for what they get we are SOBs. It’s a lose-lose situation.

If the US companies refuse to supply their markets everyone does what China threatened to do: Go buy a few bottles in the US, reverse engineer and manufacture the drugs on their own. Then the drug companies get NOTHING and all patents are disregarded. In other words the drug companies are trapped in the system.

The US is the only place in the world where the costs of drug development can be recouped. That’s the simple truth of it. If that market goes, the whole industry dies. That is why the drug companies are so opposed to drug importation. It would in essence Canada-fy our drug market and seriously stifle the development of drugs.

We don’t want that.

Instead of complaining about the drug companies maybe we should complain about the socialism overseas. Truth is, if you are American, you are paying for some old Canadian lady’s drug bill. That’s what it amounts to.


TOPICS: Your Opinion/Questions
KEYWORDS: drugcosts
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To: doc30
Also I didn't want to write a book... Just start a discussion about a political issue.

Many here have already made GREAT points.

41 posted on 01/22/2004 8:02:39 PM PST by maui_hawaii
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To: <1/1,000,000th%
Patents expire in 17/20 years. Not 7.
42 posted on 01/22/2004 8:02:44 PM PST by DMCA (TITLE 17 Chapter 1 Sec 107)
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Comment #43 Removed by Moderator

To: maui_hawaii
This is a rough outline I wrote while watching the debates.

I don't know about the outline, but your response( Why don't you make a relevant comment.) seems a little rough. Why don't you just post a finished product, and stop soliciting help.

44 posted on 01/22/2004 8:03:54 PM PST by reed_inthe_wind (I reprogrammed my computer to think existentially, I get the same results only slower)
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To: maui_hawaii
The big mark-up is at the pharmacy. How come no one is addressing this? Check out what the drug co. charges the distributors, then what they charge the pharms, then what the pharms price the product at.
45 posted on 01/22/2004 8:04:24 PM PST by Waco
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To: DMCA
That doesn't help you make your point, it makes it look like you are trying to hide something.

Of course I made it up. I said that from the get go. I am trying to use a representation to describe a theory.

Don't go into the 'you're hiding' type stuff.

I am flat out saying that I don't know and want other people's input so I can form a better opinion.

46 posted on 01/22/2004 8:05:31 PM PST by maui_hawaii
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To: Nathaniel Fischer
According to ELI LILLY AND COMPANY AND SUBSIDIARIES 10-Q filling they will spend about 2.5 Billion this year on R&D. They are developing more than 5 drugs with that money. During that same time they will spend about 3.75 Billion on advertising. With a profit margin on 21.12 (Source Quotes.Yahoo.Com) they are not hurting too much.
47 posted on 01/22/2004 8:07:55 PM PST by DMCA (TITLE 17 Chapter 1 Sec 107)
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To: maui_hawaii
I was giving you advice. I was looking at this as someone trying to poke holes in your argument, I thought that is what you wanted. Was I incorrect?
48 posted on 01/22/2004 8:08:46 PM PST by DMCA (TITLE 17 Chapter 1 Sec 107)
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To: reed_inthe_wind
Because I don't know everything. Thats why I am soliciting help.

There might be a doctor here, or a researcher, or many others here that could tell me things I don't know.

I won't apologize at all for soliciting 'help'.

Sorry if the response offended you. Sounded to me like you were attacking me for an honest question.

49 posted on 01/22/2004 8:08:53 PM PST by maui_hawaii
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To: maui_hawaii
Cost is important only to the extent that a drug company will not produce a drug if it can't sell it for more than the cost of production and distribution.

Since a patent confers a monopoloy on the holder of the patent, a drug company pricing a patented drug will price it so as to maximize the profit. Ideally, the company will also price the drug to different buyers based on their willingness to pay, by segmenting the market and charging higer prices to those segments with greater willingness to pay.

Since US purchasers generally have more money, and are willing to pay higher prices, the drug companies price the drugs higher in the US. This is exacerbated by the fact that many purchasers in the US are insured and the person making the purchasing decision is only exposed to the price of the co-pay. The true value of drugs is obfuscated by misleading advertising to the purchasers. Prescribing physicians are induced by a number of means to prescribe marginially more effective, but far more costly, patented drugs instead of older, but still useful, drugs.

Insurers try to reduce costs by developing formularies, and by negotiating lower prices with the drug companies, but they don't really have that much incentive to get tough or they alienate the people they insure. Besides, the insurance companies have been pretty successful in passing the costs on to corporations through the insurance premiums, and the corporations are now passing them back to the employees. Higher prices and higher premiums make it easier for the insurance companies to cover their overheads and increase their profits.

The bottom line is that the drug companies charge high prices in the United States because they can. The reason that they can is because the buyers of drugs aren't exposed to the actual price per pill at the time of sale, and hence aren't reacting to the correct marketplace price signals.

The solution is to stop all coverage of drugs by insurance schemes until the outlay reaches a fairly high threshold, say $2500 or $5000 in a year.

This would make the purchasers far more aware of the actual prices being charged by the drug companies, and this would make them more reluctant to overspend on patented drugs. It would restore health insurance to its proper function of protecting against extraordinary illness and associated costs, while patients pay for normal healthcare costs out of their own pockets.

50 posted on 01/22/2004 8:10:15 PM PST by Lessismore
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Comment #51 Removed by Moderator

To: DMCA
You are right, but try not to get hung up on details like that. I am trying to get a big idea together. Feel free to contribute to that. Thats what I am after.

If my theory can be ammended by using real numbers, please do so. By all means.

52 posted on 01/22/2004 8:11:18 PM PST by maui_hawaii
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To: DMCA
Considering it takes about 5 years or more to develop a drug...
53 posted on 01/22/2004 8:12:05 PM PST by maui_hawaii
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To: Nathaniel Fischer
Thats the idea I am trying to portray.
54 posted on 01/22/2004 8:12:28 PM PST by maui_hawaii
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To: Waco
Thats fair game for the conversation.
55 posted on 01/22/2004 8:13:03 PM PST by maui_hawaii
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To: Nathaniel Fischer
I imagine each drug is different, but you got the idea there.
56 posted on 01/22/2004 8:15:34 PM PST by maui_hawaii
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To: maui_hawaii
5-17 is 12.
5-20 is 15.
12 > 7
15 > 7

Your position is best served if you have concrete facts. It will be much hard to debate the facts if they are all on your side.
57 posted on 01/22/2004 8:16:41 PM PST by DMCA (TITLE 17 Chapter 1 Sec 107)
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To: eastforker
I have noticed that also as I have a family member who is a vet also. Funny, isn't it?
58 posted on 01/22/2004 8:18:22 PM PST by DMCA (TITLE 17 Chapter 1 Sec 107)
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Comment #59 Removed by Moderator

To: Lessismore
The bottom line is that the drug companies charge high prices in the United States because they can.

This isn't all that far off from what I am thinking.

60 posted on 01/22/2004 8:18:58 PM PST by maui_hawaii
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