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American healthcare seen from Europe, Part II
Welcome back to the second part of a three part conversation about American healthcare with a public health expert here in Europe. Many thanks for the helpful comments about Part I. My subject, who has agreed to let me call him "Mr. François" is following closely as well and hopes to respond to some of these comments after our final interview together.
The topic of our second conversation was more specifically about the role that pharmaceutical companies play in both Europe and in the US in determining the cost of medical care
(NB: market regulation of healthcare is the subject of our final conversation though I indicated yesterday that it would be part II. My apologies!).
In this session, I was interested in knowing why the same medicines are more expensive in the US compared to Europe and how this affects the global drug market. Also, why doesn't the market regulate costs of medicine effectively? And finally, how is Obama's plan for regulation of drug prices better than McCain's? Since my subject works for a large pharmaceutical company with a market both in the US and in Europe, I felt he was in a good position to respond.
Blevins: Why is medicine so expensive in the US?
This is a very good question. The main difference between the US and Europe is that in the US, healthcare in general, and thus drug access and price, is based upon the patient's ability to pay whereas in Europe these costs are based upon patient need. In other words, the state, like any client, will always negotiate prices that will allow it to pay for large segments of the population in the most efficient way. It's like buying in bulk if you will. Individuals don't have this power. Individual capacity to pay (and not need within the population) determines prices. This means that both the cost of care and the cost of administering medical care rise at a much faster rate in the US.
Blevins: I see how the government can force cheaper initial prices for medicine and for care, but I don't really see how this makes costs rise over time.
Let me explain. In the last 10 years in the US, your annual inflation has been around 8 percent. But your drug prices (are you ready for this?) have risen 80 percent. This is because there are many competing companies and no central regulating agency which can step in when these companies start speculating on prices. In other words there is no entity that can control price inflation.
And there's more, the absence of a central regulating agency within your healthcare system has caused administrative costs to skyrocket, because, since all these companies are in direct competition, they spend exorbitant amounts on marketing and don't share any of the administrative costs of healthcare. Each company reinvents the wheel if you will, developing basically the same types of drugs and care without cooperating at all. That's incredibly inefficient and takes a real toll on the consumer, who pays for all this.
Blevins: Since most pharmaceutical companies are multi-national, does this affect the price of medicine globally?
Absolutely! Most pharmaceutical companies, even if they have headquarters in other countries, also have an affiliate in the states. Since medicine in the states is so much more expensive, they index the cost of different drugs by using the price in the states. This means that although other countries get lower prices for the same drug, globally the company tends to maintain relative homogeneity in the price. This pulls up drug prices globally.
Blevins: I'd like to turn to the candidates' plans as a way of wrapping up this second interview. How does Obama address drug costs in his plan and why is his response better than McCain's?
Obama's plan is superior for one fundamental reason. Both McCain and Obama agree that drug prices are rising too fast but the essential difference between both programs lies in the federal price negotiation: should we negotiate (or not) prices with drug manufacturers and define reference prices? Obama says yes because he and his advisors realize that the market is too volatile to prevent market inflation of the cost of medicine.
In our final conversation we discuss why market regulated healthcare in the US has not been successful and whether or not this is inevitable in a society with private healthcare. We also take a final look at the candidates' plans.
The topic of our second conversation was more specifically about the role that pharmaceutical companies play in both Europe and in the US in determining the cost of medical care
(NB: market regulation of healthcare is the subject of our final conversation though I indicated yesterday that it would be part II. My apologies!).
In this session, I was interested in knowing why the same medicines are more expensive in the US compared to Europe and how this affects the global drug market. Also, why doesn't the market regulate costs of medicine effectively? And finally, how is Obama's plan for regulation of drug prices better than McCain's? Since my subject works for a large pharmaceutical company with a market both in the US and in Europe, I felt he was in a good position to respond.
Blevins: Why is medicine so expensive in the US?
This is a very good question. The main difference between the US and Europe is that in the US, healthcare in general, and thus drug access and price, is based upon the patient's ability to pay whereas in Europe these costs are based upon patient need. In other words, the state, like any client, will always negotiate prices that will allow it to pay for large segments of the population in the most efficient way. It's like buying in bulk if you will. Individuals don't have this power. Individual capacity to pay (and not need within the population) determines prices. This means that both the cost of care and the cost of administering medical care rise at a much faster rate in the US.
Blevins: I see how the government can force cheaper initial prices for medicine and for care, but I don't really see how this makes costs rise over time.
Let me explain. In the last 10 years in the US, your annual inflation has been around 8 percent. But your drug prices (are you ready for this?) have risen 80 percent. This is because there are many competing companies and no central regulating agency which can step in when these companies start speculating on prices. In other words there is no entity that can control price inflation.
And there's more, the absence of a central regulating agency within your healthcare system has caused administrative costs to skyrocket, because, since all these companies are in direct competition, they spend exorbitant amounts on marketing and don't share any of the administrative costs of healthcare. Each company reinvents the wheel if you will, developing basically the same types of drugs and care without cooperating at all. That's incredibly inefficient and takes a real toll on the consumer, who pays for all this.
Blevins: Since most pharmaceutical companies are multi-national, does this affect the price of medicine globally?
Absolutely! Most pharmaceutical companies, even if they have headquarters in other countries, also have an affiliate in the states. Since medicine in the states is so much more expensive, they index the cost of different drugs by using the price in the states. This means that although other countries get lower prices for the same drug, globally the company tends to maintain relative homogeneity in the price. This pulls up drug prices globally.
Blevins: I'd like to turn to the candidates' plans as a way of wrapping up this second interview. How does Obama address drug costs in his plan and why is his response better than McCain's?
Obama's plan is superior for one fundamental reason. Both McCain and Obama agree that drug prices are rising too fast but the essential difference between both programs lies in the federal price negotiation: should we negotiate (or not) prices with drug manufacturers and define reference prices? Obama says yes because he and his advisors realize that the market is too volatile to prevent market inflation of the cost of medicine.
In our final conversation we discuss why market regulated healthcare in the US has not been successful and whether or not this is inevitable in a society with private healthcare. We also take a final look at the candidates' plans.
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I find it odd that you are interviewing a european expert about the US system. After reading parts 1 and 2 I really have to question this persons credentials. He only seems to have a superficial understanding of the US system.
For example, his insistence on how the "market determines the price of medicine and the price of major medical treatments" in the US is false. He is either misunderstood or is over-simplifying the situation. The price of major medical treatments is not determined by the market, it is more complex than that with several entities and regions contributing to the price. The main determinant of price is Medicare. No other entity determines that price of treatments more than Medicare. Medicare sets a price and the major insurance companies then follow suit for the most part. But there are also variations in price from region to region and state to state. For example, Alaska is an expensive state.
An example of setting the price of treatments is the screening colonoscopy procedure. A couple of years ago, Medicare dramatically cut the reimbursement for this procedure, and then most insurance plans followed.
"Medicine" which I take to mean "medication" or pills, is an entirely different story. I honestly don't know how that price is determined. However, in the US, drug companies only have a limited time to sell their drug until the patent runs out and it can be manufactured by others. This induces a plan to make as much money as possible in the limited time they have. There is also a lot of collusion between the drug companies and the insurance companies with prices being negotiated. But I don't know much about how that works.
I am not saying the US Healthcare system is a good one. Hell, it isn't even a system in the true sense of the word. However, the problem is vast and complex and before we can solve the problem we really need to know what the problem is and what is causing it. Your expert really does not meet that criteria.
November 2, 2008 9:53 PM | Reply | Permalink