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Death by Free Market

I’ve made no secret that I believe in free markets (I have started several companies and have worked as a CEO) but I have two caveats: First of all, what I mean by free market is not always what politicians or conservative pundits mean when they use the term “free market”. A free market is one where there is real competition, and this always requires some level of regulation (for example, to eliminate monopolies). Second, I’m a pragmatist, not an ideologue, so I understand that there are markets where real competition is impossible.

We used to understand this, which is why the government controlled utilities and other markets where competition is not achievable. But somehow along the way the religion of less-regulation-is-always-better took over and we forgot about the era of robber barons and economic crashes that preceded proper regulation. (As a side note, as a pragmatist I also believe that regulations can be good or bad — our goal should be to eliminate bad regulations while creating and enforcing good regulations).

What this lengthy prologue is leading up to is a story in NPR today which points out a market that is obviously out of control. Drug company Gilead purchased a smaller company that had developed a cure for Hepatitis C. They then proceeded to bring this drug to market and are charging $1000 per pill, which means that the cost for a full course of treatment is a minimum of $84,000 just for the drug (which doesn’t include other medical costs including necessary companion drugs).

Drug researchers have estimated the cost of producing this drug as between $150 to $250 for the entire course of treatment, which means that the markup on this drug is 33,600%. Of course, drug companies claim that this kind of profit is required to overcome the costs of developing and testing a new drug.

Really? I’ll ignore the fact that Gilead didn’t actually develop the drug themselves. But how much money do they actually need? There are more than 3 million people with hepatitis C in the US alone, which means that Gilead stands to make up to $252 billion on this one drug just in the US (worldwide estimates put the number of people with hepatitis C at 170 million).

Unfortunately, the people who need this drug have little choice. Without treatment, they will likely die. Alternative treatments include things (like liver transplants) that cost even more and have bad side effects.

But what makes this worse is that this drug is closely related to antiviral drugs that were developed 20 years ago as a cure for HIV/AIDS. Governments, including the US government, paid for most of that research.

So in a “free” market, where a company was able to take advantage of massive amounts of government research, and which is protected by government-provided drug patents, whose customers need the product in order to survive, what is a fair price? Is there such a thing?

Maybe it is time to start considering the price to society. How many people will die in the name of drug company profits? How much will it damage our economy to have people wait until they need expensive and debilitating liver transplants because they couldn’t afford a drug that is inexpensive to manufacture?



  1. PATRIOTSGT wrote:

    I completely agree with you on this one IK. I am for free markets, but tis is an example of the dark side of them. While what they are doing is perfectly legal as far as I can tell, it is far from ethical.

    Another of my biggest gripes with drug companies is the continuous barrage of commercials and advertising, particularly those ED drugs. They’re sort of like drug dealers (no pun intended) trying to get new customers hooked.

    It’s also part to blame on the physicians who acquiesce to the demands of patients and prescribe them whatever they ask for from powerful pain meds to sexual enhancers. Where’s the Hippocratic oath gone.

    Wednesday, January 1, 2014 at 9:55 am | Permalink
  2. David Freeman wrote:

    Well said!
    I also believe in a free market as you describe the term. Although I think the idea of Corporations being people (Citizens United) is ridiculous, I do believe that everyone/thing that requires society in order to exist also has responsibilities to society as well. Regulations are necessary to require corporations to be responsible players in society.

    Wednesday, January 1, 2014 at 9:55 am | Permalink
  3. fodderwing wrote:

    “But how much money do they (Gilead) actually need?” The question is irrelevant if we want free markets. As long as government “regulations” continue to distort the real value of such things, we will have that thousand dollar pill. In a free market, Gilead would never be able to charge that much. I wouldn’t pay it, would you? I may even have a tough time finding an insurance company that would pay it. Good thing we are all gonna have free medical care, or thousand dollar pills could be a problem.

    Wednesday, January 1, 2014 at 10:42 am | Permalink
  4. David Freeman wrote:

    I think IK made the point that “regulations can be good or bad — our goal should be to eliminate bad regulations while creating and enforcing good regulations”.

    I don’t think it is government regulations that “distort the real value of such things” in the Gilead case and if I’m wrong and a government regulation is responsible for the outrageous pricing, then it is a bad regulation and should be fixed.

    We’ll never have truly Free Markets as long as Corporations have so much influence that they can carve up the markets as they please just leaving the crumbs for small businesses.

    Wednesday, January 1, 2014 at 11:02 am | Permalink
  5. wildwood wrote:

    Drug companies don’t really want cures for diseases. They prefer long term treatments. No telling how many cures are hidden away. So the fact that they are even offering this drug is somewhat surprising to me. Perhaps word got out about the drug and they couldn’t squelch it or the $1000 pill was the next best thing, knowing that those afflicted would clamor for it until insurance companies were forced to pay for it.

    And speaking of bad laws and rules, those allowing long term patent rights on drugs are in great need of change.

    Wednesday, January 1, 2014 at 12:18 pm | Permalink
  6. Fodderwing wrote:

    Indeed, big Corporations are a problem, but big Government is no solution as long as Government is in bed with them. Markets are not interested in compromise, government is all about compromise, hence its total inability to nullify bad regulations and keep only the good.

    The players are patients, medical providers, and insurance companies. Each petitions government for regulations that will benefit themselves, and government ends up responding with legislation that nobody is happy with. A regulation that is “bad” for medical providers is “good” for patients, etc. It’s always been messy, always will be.

    Happy New Year.

    Wednesday, January 1, 2014 at 5:09 pm | Permalink
  7. David Freeman wrote:

    Happy New Year to you to Fodderwing. I look forward to continued shooting from the hip on my part as well.

    Wednesday, January 1, 2014 at 5:21 pm | Permalink
  8. Iron Knee wrote:

    Fodderwing, you say:

    “But how much money do they (Gilead) actually need?” The question is irrelevant if we want free markets.

    I’ve been thinking about this statement of yours and I think it completely misses the point. You are saying that Gilead should be able to charge whatever the market will bear; that in a free market there should be no regulation on what they can charge. But the ONLY reason they can charge $84K for their drug is because the government grants them a patent on the drug. If it were not for government intervention, then anyone else could easily manufacture the drug and (way) undercut them. Also, as I mentioned, without the government funded research on antivirals, this drug would not have been developed. So again, it is government intervention that allows them to make all this money.

    So unless you are willing to eliminate all government intervention — including patents, government “picking” winners and losers by funding AIDS research, anti-monopoly laws, etc. etc. — your statement that in a “free market” Gilead should be able to charge whatever they want is just wrong.

    On the other hand, I agree with you that fighting big corporations with big government has big problems when government is totally in bed with the corporations. I’m not sure I agree that government has a “total inability to nullify bad regulations and keep only the good”. I’ve seen government get rid of bad regulations and adopt good ones plenty of times. If we really believe that all government regulation is a problem, then we should just become like Somalia.

    What I’m trying to achieve here is to get people talking about how we (yes, you and me) can improve government (in the “ask not what your government can do for you, but what you can do for your government” sense). Money is always going to be a problem in government, but it is clear that Citizens United absolutely made it worse with no mitigating advantages and should be reversed. I’m not interested in ideology — either “all regulation is bad” because that’s just ignorant, nor “the government can solve all problems” because that’s just as ignorant.

    The answers aren’t easy, but they are worth finding and discussing.

    Thursday, January 2, 2014 at 11:46 am | Permalink
  9. fodderwing wrote:

    Dang, Iron K., I completely missed the point again! I have owned and operated two small businesses and tend to be over-protective of the marketplace, that’s for sure. Life was not about ideology then, it was about … well … business. Business people, however, tend to know which ideologies hurt them and which ones help, so indirectly life may always include the ideological side.

    Also, we are a civilization, and could not be Somalia if we tried. Yes, government regulations provide stability, but they are not the only thing that does.

    Thursday, January 2, 2014 at 12:56 pm | Permalink