Your money or your life

I was reading an interesting article in Today's New York Times (in the Business section, naturally) on cancer drug prices, which have become astronomical for some of the new medications.

In reading the article, you could easily conclude that drug companies, especially the cancer drug manufacturers, price their drugs much the way kidnappers price the release of their victims. In plain English, the drug company version of what the market will bear seems to have much in common with extortion. (The New York Times article describes how it works perfectly, but, with predictable circumlocution, does not actually use that unpleasant word "extortion.")

Given the obvious absence here of competition and meaningful choice, this was not what Adam Smith had in mind.

What will you pay for an extra year of life? Turns out most people will pay a lot, even if they don't have insurance. To the ancient demand of the highway robber, "your money or your life!" most people will reply, "take my money." If cancer victims do have insurance, they are willing to pay whatever the insurance company will countenance. Wouldn't you? Put yourself in that position. The insurance company will pay $100,000. You will live a week without the drug. You will die in a year with the drug. There is even a small chance of long-term remission or cure. What will you do?

I have some experience with this situation. My wife died of leukemia, and underwent some very expensive treatment that kept her alive for about 9 months. There was even some chance of long term remission or cure. But she would have died in a couple of weeks without any treatment. I loved my wife a lot. I personally would have sold my house and paid any money I had, to get her this treatment. I am happy that we had insurance, so that we were not made destitute, as we would have been otherwise. I don't think I am much different from most people.

When people look at this problem, they think that the system is broken (as obviously it is), and at some point, who knows when, though, will have to be fixed. The first thing they think about is rationing, as we see in the New York Times article. That makes some sense, but IMO it should be the second thing we think about.

People accept the prices as a given. They are not. What the drug companies don't want you to think about at all is the out-of-whack part of the pricing--the ratio of the price of the drug to the cost of the research and manufacturing. Much of cancer drug research was, is, and no doubt will continue to be, subsidized by public funds or private foundations. The drug companies parasitize on a great deal of such basic research and patent the end result, and then are in a position to extort money from the dying, or better yet from your insurance company and mine.

What we actually need to fix this problem is a government with the courage and the humanity of, say, the government of Brazil, which is threatening to break AIDS drug patents, to force down the price the drugs competitively so that AIDS sufferers will not die simply because they cannot afford drugs, or, alternatively, so that poor countries will not be impoverished forever to pay off the drug companies as the cost of common decency.

Unfortunately, we are a long way from that.