Under capitalism, a thing's cost to manufacture has nothing to do with the price of that something.
Read that again and work through your objections. Ideally something's price is higher than its cost so the company can make a profit, but there are so many obvious exceptions that its nice, but not necessary. Thus, who cares how much the pill coming down line costs to manufacture, unless you start hacking into the free market and set price controls, and say that pharmaceutical companies are only allowed to make 20% profit (or however much), Martin Shrekili's play, of buying pharmacutical companies and simply raising prices of drugs, is a legal move under capitalism,
no matter how reprehensible that move may be.
Eh, technically yes, but that's not really what I'm talking about. The way we use the word "cost" varies depending on the context, and I'm responding to a specific usage of that word. I'm not making a broad claim that drugs need to be sold at cost, I'm making a claim that drug costs are not so highly variable that coming up with a consumer price needs to take days of research after a procedure.
jonathan-adly is making the argument that the inherent "cost" of drugs is itself highly variable for hospitals, and that means it's normal and expected that hospitals should not be able to tell patients the price of procedure before it happens. I'm arguing that the "cost" of the drugs is not actually that variable, that hospitals are just downstream of another part of the industry that is engaged in the same price-hiding behavior that hospitals are engaged in.
Of course, under Capitalism "cost" doesn't determine price, the market determines price. But I would also point out that under Capitalism, signing a contract usually involves the terms of that contract being made upfront. Pretty much every other industry in America has figured out how to put a price tag on the products they sell, and I'm not sympathetic towards the medical industry just because up until now it's never needed to learn how. Apple sources its components from manufactures, those manufacturers could change their prices someday. But Apple still puts a price tag on iPhones, and because it needs to put a price tag on iPhones it's incentivized to form long-term contracts with suppliers and to demand a level of consistency in the prices its suppliers offer.
Hospitals haven't needed to do that in a long time.
Price transparency is an important part of most industries under Capitalism, and the medical industry hiding behind variable "cost" as an excuse to avoid pricing their products shouldn't be something we tolerate.
Martin Shrekili's practices (as abhorrent as they might be) are a different conversation. I think that price limits and price transparency are two very different issues.
>But I would also point out that under Capitalism, signing a contract usually involves the terms of that contract being made upfront.
There's nothing inherent to Capitalism that prevents variable priced contracts.
>Pretty much every other industry in America has figured out how to put a price tag on the products they sell,
Maybe for mass produced products they have, but certainly not for custom work. You aren't paying for a product but for a custom service. Paying a doctor to fix your body in many cases is more complex than paying someone to build a house, a bridge, or a piece of software. You won't even get an upfront price for something as simple remodeling your kitchen. A contractor estimates that it will cost $20k and then finds that a leak in your attic completely rotted some of the framing, now it's $50k. A builder starts digging the foundation to your house only to discover a huge boulder that has to be moved.
There are parts of medicine that could be made more transparent, but there is an inherent complexity that makes complete or even mostly complete price transparency impossible.
> There's nothing inherent to Capitalism that prevents variable priced contracts.
Definitely not the norm though, and it is inherent to Capitalism that price transparency is an important part of creating an efficient market.
But sure, it's not a rule. A lot of common things in Capitalism aren't rules, but they're still often signals of a healthy market.
> You won't even get an upfront price for something as simple remodeling your kitchen. A contractor estimates that it will cost $20k and then finds that a leak in your attic completely rotted some of the framing.
A contractor will not however replace the framing and then charge me after the fact. They'll discover the rotten framing, inform me of the new conditions and the new price, and then let me decide. A good contractor will walk me through that process.
> but there is an inherent complexity
Not in the places that we're talking about. The kind of complexity and guesswork and change in procedure you're talking about is not present in the situations that jonathan-adly discusses above. The inherent complexity of fixing someone's body and the inherent variability of what drugs/procedures will be necessary to do so is a good explanation of why pricing a surgery or an entire hospital visit is very difficult. But it is not a good explanation for why hospitals have claimed that the price of a single x-ray is "unknowable".
It most certainly is the norm when purchasing complex custom services.
>A contractor will not however replace the framing and then charge me after the fact. They'll discover the rotten framing, inform me of the new conditions and the new price, and then let me decide. A good contractor will walk me through that process.
If a surgeon could keep your chest open on an operating table while they walked you through the process this analogy would work.
>a good explanation of why pricing a surgery or an entire hospital visit may be difficult. But it is not a good explanation for why hospitals have claimed that the price of a single x-ray is "unknowable".
jonathan-adly has done a great job explaining why drug prices are difficult to calculate upfront.
As for the price os a single x-ray. I'm sure the average cost of a single x-ray could be calculated. But how much is that worth when the entirety of the hospital visit is going to be a variable cost? If you're only interested in a single x-ray, there are already outpatient imaging clinics that will give you the upfront cost.
> It most certainly is the norm when purchasing complex custom services.
An x-ray is not is not a complex custom service.
> But how much is that worth when the entirety of the hospital visit is going to be a variable cost?
This is the exact same argument that hospitals used to use against itemized pricing, and yet it turns out that requiring hospitals to give itemized bills on request has pretty solidly been a good thing for consumers.
There are a huge number of reasons for this, not the least being fostering competition and putting natural pressure on the market to justify its prices helps it become more efficient, and these kinds of opaque systems will almost always naturally lead to inflated prices. There's little reason to believe that up-front price transparency for individual itemized procedures and drugs wouldn't also be good for the same reasons.
At the very least, this would help with the many health decisions that consumers make that aren't happening during life-threatening situations. Most of the time that I get an x-ray, most of the time when I'm being offered pain medication, most of the time when I'm making decisions about whether or not to opt for anesthesia before a procedure, I'm awake and not in danger of immediately dying.
It really doesn't make sense to keep leaning on the most extreme life-or-death situations as a defense for why a hospital can't walk me through the price differences in several different brands of pain medication. But sure, we'll make an exception for surgeons operating while a patient is literally unconscious during a time-sensitive procedure. Most health visits (and the vast majority of all preventative care procedures) do not fall into that category.
> jonathan-adly has done a great job explaining why drug prices are difficult to calculate upfront.
Why is it that Rite-Aid can give me an upfront cost for an aspirin, and a hospital can't? 340B is a rebate system, it doesn't force doctors to avoid talking to patients about the baseline price differences between comparable off-the-shelf name-brand and generic drugs.
>Most health visits, and the vast majority of all preventative care, does not fall into that category.
The kinds of easy issues you're talking about don't need to happen in a hospital. You can already go to an outpatient imaging clinic for an x-ray, a dermatologist's office to have a mole removed, or an urgent care to suture a laceration.
If you need emergent care or you want an elective procedure that requires a hospital stay, you're into the realm of custom services with variable pricing.
>This is the exact same argument that hospitals used to use against itemized pricing, and yet it turns out that requiring hospitals to give itemized bills on request has pretty solidly been a good thing for consumers.
Has it? Has it driven down prices? Has the demonstrated value been worth the cost? Or has it just pushed hospitals into creating longer bills with more creative items and charges. Creative line items like $500 for aspirin perhaps?
> The kinds of easy issues you're talking about don't need to happen in a hospital. You can already go to an outpatient imaging clinic for an x-ray, a dermatologist's office to have a mole removed, or an urgent care to suture a laceration.
Even better: clearly the market has proven that it's possible to offer these services with transparent pricing. Why can't hospitals keep pace?
This also raises the question why preventative care often falls into the same category. Lawyers have a predictable billable rate, personal physicians and doctors often don't. Most scheduled hospital procedures require multiple consultations and planning before the procedures take place. Most of that stuff is not transparently priced.
There's no reason why a hospital shouldn't be able to figure out the cost of minor anesthesia before a scheduled minor surgery. That's not a surprising part of the procedure, that should be something that's fully negotiated with insurance and disclosed to the patient beforehand so they can decide.
> Has the demonstrated value been worth the cost?
Yes, absolutely, you can find tons of stories online about people negotiating smaller bills because itemized bills turn out to include services that they never requested (and in some cases services that were never even actually performed). If you talk to experts about managing personal health costs, pretty much all of them will tell you to always request an itemized bill after you visit a hospital or doctors office.
It's also absolutely worthwhile because you're seeing creative line items like $500 for aspirin that prove that the costs of the services aren't being based on market rates. That's really important information because it opens the door to other questions like "why are these prices what they are", and "can you tell me in advance before you give me a $500 aspirin?"
I mean... you're saying this is the norm in complex industries, it absolutely is not. Complex industries are complex because they don't know up front what they'll be billing you for. That's not even remotely the same thing as "we think your stay should cost $5000 for reasons we can't disclose, so I guess we'll jack up the aspirin cost after the fact to try and prevent anyone from questioning us."
It is extremely worthwhile to put hospitals in a position where they have to answer consumers why an in-patient aspirin is priced so much higher than the market rate for the drug. I don't know if this is your intention, but what you're implying when you say that the itemized bills aren't accurate is that hospital pricing isn't based on any kind of competitive or visible market rate, or even anything objective at all. Which is a pretty bold claim.
Other industries with high-variability pricing exist, but they're not just making up numbers completely out of thin air after the fact and then lying about line items to try and justify that cost. Hopefully hospitals aren't doing that either. But if they're not, if they are actually basing their prices off of the combined prices of the services they provided... then we gotta ask about that $500 aspirin, because that's a weird price.
>Even better: clearly the market has proven that it's possible to offer these services with transparent pricing. Why can't hospitals keep pace?
1. You shouldn't be admitted to a hospital for those minor clear-cut procedures.
2. Hospitals receive public funds to offset the costs of some services.
3. Hospitals are required to provide certain services regardless of the customer's ability to pay.
>Lawyers have a predictable billable rate, personal physicians and doctors often don't.
Laywers will tell you their billable rate, and can give you a semi accurate estimate for simple services. For more complex services their estimates have enormous error bars.
>There's no reason why a hospital shouldn't be able to figure out the cost of minor anesthesia before a scheduled minor surgery. That's not a surprising part of the procedure, that should be something that's fully negotiated with insurance and disclosed to the patient beforehand so they can decide.
If you're talking about local anesthesia sure, but in that case you're unlikely to actually need to be admitted to a hospital unless it's an emergent condition. If you're talking about general anesthesia then there's a reason that an anesthesiologist or a CRNA with many years of training is required to be present.
> Yes, absolutely, you can find tons of stories online about people negotiating smaller bills because itemized bills turn out to include services that they never requested (and in some cases services that were never even actually performed).
Yes but do you have actual data that the benefits are worth the cost? Has it actually driven down health prices in the US overall? Was the additional complexity actually worth it?
>It's also absolutely worthwhile because you're seeing creative line items like $500 for aspirin that prove that the costs of the services aren't being based on market rates.
I think you're not understanding the point of this. You're not going to actually save money by declining to take an aspirin. Of course hospital services aren't based on market rates. Hospitals are required by law to offer certain services regardless of the ability of patients to pay, most patients are insulated from the actual costs through insurance, many patients have zero out of pocket costs, complex procedures are impossible to accurately estimate, and the free market has an inherent problem with extremely price inelastic services.
It's not a free market, and unless we are willing to make drastic changes to society, it never will be. Pricing transparency for hospital commodities is such an insignificant part of health care costs that it's a gigantic waste of everyone's time.
> 1. You shouldn't be admitted to a hospital for those minor clear-cut procedures. 2. Hospitals receive public funds to offset the costs of some services. 3. Hospitals are required to provide certain services regardless of the customer's ability to pay.
1. All of these simple procedures are part of hospital visits. If your leg is broken, you're going to get an x-ray. Most surgeries are scheduled, and those scheduled procedures also don't clear this bar. And again, we get into the question of why preventative care suffers from the same problems. Your position seems to be that once any part of the procedure becomes variably priced, there's no point in trying to price any other part of the procedure. That's a pretty big leap to me, that's not how other industries work. And hospitals don't even work that way, because they itemize their eventual bills to insurance companies.
And I guarantee that insurance companies are not saying "who cares about the individual procedures you performed or what a technician's hourly rate is, the whole thing is variable anyway so there's no point in justifying any of it, just charge us what you think is fair."
2/3. I'm not asking them to tell me what their rebates will be or what discounts they might give me, I'm asking them to tell me what the maximum amount is they want for a standardized procedure. Possible rebates or lower prices that they can't predict are fine. I want a max price for that specific item.
> For more complex services their estimates have enormous error bars.
And hospitals still can't even clear this bar, they can't even tell me what a procedure's price is including error bars.
If hospitals could price their services as well as lawyers, we probably wouldn't be having this conversation right now.
> Yes but do you have actual data that the benefits are worth the cost? Has it actually driven down health prices in the US overall? Was the additional complexity actually worth it?
To those people, to the people who reduced their bills, yes. Is your assertion that we should only be looking at aggregate benefits? Community health pools and charity drives haven't reduced health care costs overall, but they have helped individuals avoid bankruptcy, and I suspect those individuals are grateful they exist.
I'm also confused at what you mean by additional complexity. Are hospitals giving itemized bills to insurance companies or not? It's really not a big ask for consumers to want to be CC'd into that conversation that should already be happening.
> It's not a free market, and unless we are willing to make drastic changes to society, it never will be.
Then socialize it. If you want to argue that the free market isn't a good fit for health care, fine. But that's not really an argument for keeping prices secret, it's an argument for socializing health care and taking it off the free market.
Which, incidentally, if your position is that health care should be socialized, line-item pricing also helps with that because it makes it obvious that the pricing is screwed up. You're upset that line-item pricing doesn't solve everyone's problems, but you can't solve a problem until it's obvious that it exists. At the very, very least, itemized bills and transparent pricing show that a problem exists.
That, on its own, even if nothing else mattered, would make these regulations worthwhile. No entrenched system in the world ever changes unless you put pressure on it.
>And hospitals don't even work that way, because they itemize their eventual bills to insurance companies.
>Are hospitals giving itemized bills to insurance companies or not?
Hospitals can provide an itemized bill after the fact. Not before. They also go back and forth with insurance companies multiple times. It's not actually based on the costs to the hospital. The final itemized bill is the end result of complex negotiation. It isn't actually based on cost.
>"who cares about the individual procedures you performed or what a technician's hourly rate is"
Insurance companies don't care what a technician's hourly rate is.
>I'm asking them to tell me what the maximum amount is they want for a standardized procedure. Possible rebates or lower prices that they can't predict are fine. I want a max price for that specific item.
No surgery is standardized. If you literally want the max price, it's going to be so high you'll never be able to pay it. It won't help you. The individual items don't matter--they're fiction.
>Then socialize it. If you want to argue that the free market isn't a good fit for health care, fine. But that's not really an argument for keeping prices secret, it's an argument for socializing health care and taking it off the free market.
It's not. And it should be public. As long as it's not a free market, none of the normally price discovery mechanisms work at any level in the supply chain. There's no way to provide prices upfront. Any attempt to will fail is just a colossal waste of time. Any list of prices you see is going to be an elaborate piece of fiction.
>To those people, to the people who reduced their bills, yes.
Those people didn't actually reduce their bills because of itemized pricing. They would likely have been able to reduce them regardless. They negotiated with the hospital successfully after the fact the same way an insurance company would.
Hospitals are usually willing to negotiate a bill because they'd rather have some money than none. Whether that's knocking off a line item for $500 aspirin, or nocking 10% off off an opaque $5,000 bill makes no difference.
>Which, incidentally, if your position is that health care should be socialized, line-item pricing also helps with that because it makes it obvious that the pricing is screwed up.
Average prices for procedures can be calculated after the fact. They can be useful in the aggregate. For non commoditized services the averages aren't remotely useful for an individual.
Under capitalism, with that kind of price difference, someone else would move in and start manufacturing the same drug and selling it for less to gain market share. That's competition for you. Or if no one else wants to do the job you could just make it yourself. Cost and price are indeed two different things, but competition keeps the prices of goods down to a relatively low multiple of their manufacturing cost.
Unfortunately what we actually have, between patents and other monopolies the government has instituted on drug manufacturing and distribution, is nothing like capitalism.
>Unfortunately what we actually have, between patents and other monopolies the government has instituted on drug manufacturing and distribution, is nothing like capitalism.
You could replace patents with trade secrets and have many of the same problems (along with some others).
Trade secrets don't prevent someone else from independently developing the same thing, or reverse-engineering the solution. Very few things can be successfully kept as trade secrets for an extended time. Moreover, patents do not preclude trade secrets and in most cases can only make things worse: If one expects to be able to maintain a trade secret for at least the duration of a patent, without independent rediscovery, then one would choose secrecy over the patent since there is no built-in time limit. Patents are thus only viable for those things which would not be expected to remain secret. Having the discovery or invention documented in a patent (which you will be advised not to read due to the risk of a willful infringement penalty) but being prohibited from using it by law is strictly worse than having the knowledge hidden at first but potentially (re)discoverable and free to use once known.
Of course patents are preferable to trade secrets in the vast majority of cases. That's why I said trade secrets have many of the same the same problems, not that they are equivalent.
The problem is that when patents are no longer an option trade secrets (or public funding) become essentially the only viable option to pay for the majority of drug research.
If a drug is unique and desirable, forcing doctors, suppliers and patients into contracts that don't allow reverse engineering is the most likely outcome. In extreme cases drug companies could require patients to only be treated in a doctor's office.
In the case of drugs that can't be kept secret, given the time and effort necessary to develop, much of the economic incentive for that research evaporates.
>Patents are thus only viable for those things which would not be expected to remain secret.
That's not how the math works outs. You can easily construct a counter example where a drug has a greater than 50% chance of remaining secret during the length of the patent, yet taking the patent has a greater expected value.
> Of course patents are preferable to trade secrets in the vast majority of cases.
At least we agree on that much. My point is that when the patent is preferable (in the vast majority of cases, as you say) it implies that a trade secret would not have been expected to last as long as the patent—which makes the patent strictly worse from the public's point of view. We've granted a 20-year monopoly in exchange for revealing information which would have otherwise become public, without restrictions, in less than 20 years.
Maintaining tight control over the distribution of the drug only gets you so far, especially when the underlying research is already public knowledge. Trade secrets, unlike patents, don't block independent discovery, and only the rarest and most expensive drugs would warrant complete control over the supply chain.
As for the incentive to perform the research, that ultimately comes from the patients desiring treatment, not the pharmaceutical companies. Eliminating the monopolies would not reduce the demand for treatments, though it would reduce the profitability of individual pharmaceutical companies.
> You can easily construct a counter example where a drug has a greater than 50% chance of remaining secret during the length of the patent, yet taking the patent has a greater expected value.
Yes, if you are not confident that you can keep a trade secret then the patent becomes the better option. (Isn't that what I said before?) "Greater than 50% chance" is not what I would call "confident". It doesn't change the fact that patents only have a positive net expected value to the recipient in the situations where the public is expected to lose by granting a patent rather than having the knowledge kept as a trade secret for a time. The interests of the applicant and the public are diametrically opposed; if the patent applicant wins, the public loses.
>Yes, if you are not confident that you can keep a trade secret then the patent becomes the better option. (Isn't that what I said before?) "Greater than 50% chance" is not what I would call "confident".
Change it to any arbitrary likelihood below 1. The expected value of a drug during the length of the patent maybe arbitrarily greater than the expected value of a drug after that time period due to reasons other than duplication (alternative unrelated treatments etc..). If it is expected that drug will make nearly all of its total value during the length of the patent, then even a 1% chance of duplication means that the expected value of taking a patent is higher.
Such an extreme disparity between expected value during the patent length and after isn't even necessary when you factor in the additional costs of attempting to maintain a trade secret.
>It doesn't change the fact that patents only have a positive net expected value to the recipient in the situations where the public is expected to lose by granting a patent rather than having the knowledge kept as a trade secret for a time. The interests of the applicant and the public are diametrically opposed; if the patent applicant wins, the public loses.
This is wrong because it ignores the additional costs (both direct and indirect) of maintaining the trade secret.
>We've granted a 20-year monopoly
Minor point--most drug patents have an effective date of about 10 years because of the time it takes to bring a drug to market.
>Maintaining tight control over the distribution of the drug only gets you so far, especially when the underlying research is already public knowledge.
Without the potential benefit of patent protection, we'd almost certainly see research become less open to begin with.
>Trade secrets, unlike patents, don't block independent discovery, and only the rarest and most expensive drugs would warrant complete control over the supply chain.
Probably, but those drugs would become immensely more expensive, or the reward available to an individual company for developing them would go down. Every novel drug would likely warrant some extra level of control (and expense).
>though it would reduce the profitability of individual pharmaceutical companies.
The direct cost of maintaining trade secrets would effectively act as a tax on all pharmaceutical companies doing novel drug development. As would the direct cost caused by duplication of drugs during what would have been the patent protection period. Add in the indirect cost of decreased openness, and the only way to maintain the exact same level of drug research we have today without patents would be to increase public funding for drug development.
I think that's probably a better system to be honest.
Read that again and work through your objections. Ideally something's price is higher than its cost so the company can make a profit, but there are so many obvious exceptions that its nice, but not necessary. Thus, who cares how much the pill coming down line costs to manufacture, unless you start hacking into the free market and set price controls, and say that pharmaceutical companies are only allowed to make 20% profit (or however much), Martin Shrekili's play, of buying pharmacutical companies and simply raising prices of drugs, is a legal move under capitalism, no matter how reprehensible that move may be.