20.2.17

THE CASE FOR MARKET TESTS.

The business honor society Beta Gamma Sigma recognized Northern Illinois University graduate Jeffrey Aronin with a Medallion for Entrepreneurship.

Mr Aronin's entrepreneurship included the marketing of an artificial steroid, something that Margaret "University Diaries" Soltan laid off on his business school days as learning "how to jack up the price."

The problem, dear reader, is that thanks to all the third parties involved in the researching, testing, and prescribing of medications, there is no price discovery.
Those who need costly medications can face thousands of dollars in deductible and co-insurance payments, depending on how their insurance plans cover drugs and whether they get help from patient assistance programs. Even with insurers covering most of the expenses, that coverage can come at a cost to all consumers in the form of higher premiums.

"This idea that the vast majority of people out there are just paying flat $20 copays, it's based on an old understanding of what insurance (does)," said Rena Conti, a University of Chicago associate professor of health policy who studies drug prices.
Note carefully: covering most of the expenses.  Manufacturer puts a number on an invoice, but nowhere in the writing down of that number are there any market tests by which that number bears any resemblance to the marginal cost, nor can it, as the biochemists working whether on grants, consulting contracts, or salaries, have few opportunities to shop their skills on an open market.
Aronin said the company set the list price of deflazacort, which will be sold under the brand name Emflaza, at $89,000 based on resources it invested to bring the drug to market and complete clinical studies, as well as to fund future research and ensure broad patient access through insurer reimbursement and its own assistance programs.
"Based on resources" is corporate-speak for "wild-ass guess."  "Ensure broad patient access through insurer reimbursement" is corporate-speak for "They make wild-ass guesses too."

In the absence of market-tested betterments, you get wild-ass guesses.  Maybe the cross-subsidies work out well for people of modest means.  On the other hand, in the presence of market-tested betterments, you get continuous improvement and cheaper stuff.

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