First thread of two on drug pricing... (second will be more of an FAQ). I invite pressure testing of each point. Branded drugs cost America $271B in 2018, 1.3% of America’s $20.5 trillion GDP or 1.5% of American’s $17.6T total personal income $17.6 trillion. 

Two products of equal price are equally affordable to someone with a given amount of money in their pocket. $271B spent on drugs is no more or less affordable that $271B spent on the military, hospitals, schools, roads, entertainment, food, housing, or just bureaucracy. 

Therefore, anyone who says that America, given the size of its economy, can’t afford the 1.3% of GDP or 1.5% of personal income on new (branded) drugs is presenting as fact what is merely their judgment as a fact. We are all free to judge for ourselves. 

Given that $271B is affordable to America, we can discuss three things... 1) whether we want to spend that on branded medicines, 2) whether we have to spend that much, and if yes to both, 3) how to spread those costs so that they don’t fall too much on patients. 

It’s a basic truth of markets that what we spend money on as a society is a reflection of what we value and want. If we like movies, we pay for them, and Hollywood gives us more of what we want. When we stopped buying vinyl records, fewer got made. 

If America didn’t value new medicines, it wouldn’t pay for them. America does pay. So there’s a vibrant drug development industry that serves American patients. The drug industry still sells those same drugs to other countries for less, but only for marginal profit. 

The industry however won’t make just any medicine. American hospitals don’t pay much for new antibiotics. They try to make do mostly with older, generic antibiotics and avoid using a better newer medicine, treating it as a last resort. So antibiotics don’t sell well.  

So the drug industry doesn’t invest very much in antibiotics. When America reassures scientists and investors that it needs new antibiotics badly enough to pay for them, it will see results. Until then, mere altruism isn’t proving to be as productive. 

So whether we want America to afford $271B on drugs is a question of whether we want to incentivize and fuel the discovery and development of new drugs for unmet needs. I look at what science can do and how much suffering there is that science can solve and I vote yes. 

Whether we need to spend $271B is another question. Maybe we don’t need to spend so much if the same drugs can be had for less. It’s not the most important question (but we’ll get back to it) because even if the right number is $200B, what matters is the next question. 

How can we spread $271B (or even $200B) across America so that patients can afford drugs. If only patients (those now sick) were made to pay out of pocket (OOP) for medicine (let alone the rest of healthcare), they couldn’t afford it. Healthcare is unaffordable out of pocket. 

Most of us spend most of our lives healthy. We earn most of our lifetime income while we are healthy, but we tend to fall ill later, disproportionately in our retirement. Some get sicker than others. Some get sick earlier than others. No one can plan for that risk alone. 

You could cut all drug prices by 90% and you would still have Americans struggling to afford their cancer treatments, going without. It should be clear that neither drugs nor any healthcare really is affordable to patients without some kind of insurance to spread the risk/cost. 

So the answer to the 3rd question is “insurance”. And when a patient can’t afford their treatments, it’s because their insurance has failed to make it affordable. Current proposals in Congress to lower out of pocket costs are right on the money. That will solve affordability. 

 And of course all patients need to have insurance with low OOP costs. That can be called universal insurance, but that doesn’t mean that it must be a single government plan (I.e. single payer, Medicare for All). Insurance plans can, should, and do compete on quality. 

 But instead of competing to charge the lowest premiums by trying to figure out how to deliver proper insurance (ie. pay for treatments you need when you fall ill) more efficiently, insurers keep costs down by jamming plans full of loopholes. Like less honest Swiss cheese. 

 They used to discriminate on the basis of pre-existing conditions (remember?), refusing to pay for a woman’s treatment for recurrent breast cancer because she had beaten it once before when she was on a different plan. That kept premiums down but left patients hanging. 

 Congress outlawed that practice. So plans switched to increasing deductibles and copays, more broadly discriminating against the sick when that’s who it’s for. There are even loopholes so clever that an insurance company can make more off of you when you get sick. Here’s how: 

 Let’s say you need insulin. Your plan has negotiated a big rebate from the drug company for that insulin. You have to pay full price out of your deductible but your insurance keeps the rebate. Congress knows about this tactic and is working to close it. 

 The point is that $271B is affordable for America and can be affordable for patients but only if patients have proper insurance. The trouble is that right now only about $210B is sourced from taxes and premiums and $61B is charged to patients as OOP costs. (Source: IQVIA) 

 In the context of nearly $3T collected in total in taxes and insurance premiums for healthcare (the vast majority going to doctors and hospitals), leaving out the $61B (2%) that makes drugs unaffordable to some seems a bit arbitrary. You can’t say that 2% is unaffordable. 

 It would take ~2% increase in premiums to make branded drugs affordable to patients. Considering our nation’s $17.6B in personal income, it would take a 0.3% rise in taxes to pay for all OOP costs. Not impossible - just a choice. 

 And only a fraction of OOP costs are unaffordable; many people are reasonably healthy, have jobs, and can cover their OOP costs. If we shifted even $20B of OOP costs to premiums or taxes to ease the burden on the hardest hit patients, we would solve affordability. Tiny shift. 

 Back to question 2. Though America can afford and should afford (to signal their importance to drug developers) to spend $271B on branded drugs, using proper insurance to shield patients from that cost, can’t we spend less? We overlook that we soon will. 

 Unlike spending on hospital, which is an eternal rent, branded drugs will go generic (and I propose regulations for the few that don’t yet), and remain useful forever, offering us a bargain. Our parents paid off the drugs that are our generics today. Shall we invest for our kids?