If prop 79 passes, people below a certain income level in California who don't have health coverage and don't qualify for MediCal (California's state health plan for poor people) will receive "discount cards" that the drug companies will have to honor giving them a 50% discount off prescription drugs.

What I'm wondering is where in the world prop 79 supporters think the money is going to come from? Either they don't understand economics and therefore are not qualified to be talking about politics, or they do understand and they're liars. Anyone who thinks drug companies are just going to cut executive salaries, dividends, and marketing budgets in order to fund this discount is fantasizing.

What will instead happen is that drug companies will simply stop researching the more marginal (i.e. riskier) drugs, like that pie-in-the-sky cure for cancer you always wanted. Forget it now. Instead they will need to spend the money on marketing in order to get enough money from drugs already on the market to continue to make enough of a profit to encourage them to stay in this high-regulatory-risk industry in the first place. Or, if they can't, maybe they'll just research veterinary drugs instead.

So there you go. Prop 79 passes, no cure for cancer. Murderers.

The solution? Cut the regulatory risk by fixing the drug approval process. Let Consumer's Union (a prop 79 supporter of which I'm a member :mad:) and Underwriters Laboratories approve drugs instead of the FDA. Fix the tort system so that people don't get awarded millions of dollars based on bad science. Then maybe we can talk about fixing the patent system and having more funding for drug research come from private non-profits instead of for-profit corporations and governments.

Sean, If prop 79 passes,


If prop 79 passes, people below a certain income level in California who don’t have health coverage and don’t qualify for MediCal (California’s state health plan for poor people) will receive “discount cards” that the drug companies will have to honor giving them a 50% discount off prescription drugs.

Because of the dominance of the combination of government and private prescription drug benefit plans, the starting basis price for the 50% discount has typically already been elevated well above what a monopoly supplier would have charged in a market in which consumers faced drug prices directly rather than indirectly through the part of insurance premiums that employers don't pay.

It is hard to imagine that prescription drugs with a 50% discount are going to be much more affordable for the uninsured.

Regards, Don

Sean, will drug prices be

Sean, will drug prices be allowed to float freely once this 50% drug card becomes law? I would expect prices to rise higher than they are today, which of course are already affected by what Don refers to.

David, Yes, the prices will


Yes, the prices will be able to float as freely as they can now. Basically what the proposition says is that if drug companies don't participate in the discount card program the state will shift purchases for the discount program and other state run programs (presumably MediCal) elsewhere. So you are basically correct, this will result in higher drug costs for the Rest Of Us and slightly lower (though certainly not the 50% advertised) for the Chosen Group. They're playing whack-a-mole with drug prices.

The people who are really screwed will be people who make just enough money not to qualify for MediCal or the discount card program but don't have health insurance. I also wonder if undocumented immigrants will be able to get discount cards. This seems to me like just another way to make more people more dependent on the government.

"Anyone who thinks drug

"Anyone who thinks drug companies are just going to cut executive salaries, dividends, and marketing budgets in order to fund this discount is fantasizing."

We wouldn't want to cut into those fat CEO salaries now would we?
I agree with you that they won't cut their own pay of their own accord. That is why we have to tax their income progressively, and their dividends and capital gains heavily. The reverse is happening with the Bush tax cuts for the wealthy, and with the similar actions of pro-rich Baby Bush Schwarzenegger in California. We cannot continue to incur debt and burden the middle class to pay for infrastructure, the miliary, wars, social programs, etc., without tremendous social upheaveal. Eventually, you're going to have to go to where most of the money is located: in the hands of the richest people, like Gates, Buffet, et al. All you have to do is look at the Forbes Top 400 Richest People list to get an appreciation of the vast untouchable wealth that just those few people have amassed. Their obscene riches stink to high heaven on the face of it and it must not be allowed to continue. This plutocracy must come tumbling down!

This will be a good example

This will be a good example why price controls are bad. Since they only apply to part of the population the rest will suffer, whereas 50% for all would be bad for all. My piece about prescription drugs from Canada shows how the math works out: Blame Canada For Your High Drug Costs.

Nolan, From your BlameCanada


From your BlameCanada article --

The root of the problem is Canada. Canada has socialized medicine as do most of the countries in Europe. Canada dictates the price that a certain drug will be sold at resulting in prices that are lower than in the United States. By setting a drugs price, Canada indirectly raises the price that Americans have to pay.

This is not quite true for economic reasons.

In the American market, the drugmakers will, quite reasonably, set prices at the time of production to maximize their profits in that market alone. Those prices are not affected by whatever happens in Canada as long as no drugs flow from Canada into the US. As long as the prices in Canada are above the marginal cost of production, whether they are controlled or not, then an incremental profit can be realized by the drugmakers by selling into Canada under no resale distribution contract terms.

Canadian price controls do not affect US prices, but rather drug development itself. If a drugmaker can reliably predict a future profitable Canadian market, then more marginal drug developments can be undertaken.

Regards, Don

Sean, _Let Consumer’s


_Let Consumer’s Union (a prop 79 supporter of which I’m a member :mad:) and Underwriters Laboratories approve drugs instead of the FDA._

I'm not entirely averse to changing the FDA approval process, which I agree is unduly burdensome and which contributes significantly to the price of drugs. I do have one question about your proposal though: what provides incentive for the groups you mention to be rigorous in preventing drugs of marginal safety from reaching the market?

Fees to fund the approval process would, I assume, have to come from the drug manufacturers themselves. I can't think of any way for end users to choose their own approval system. I suppose that the entities you mention could all test drugs and then offer lists of approved drugs to subscribers, but it would be awfully easy to free-ride by, say, just looking at my neighbor's list. So funding would, I'd think, have to come from fees paid by the pharmaceutical company.

There would, of course, be competition among approval companies, which should have some effect on the quality of the product. But my question here lies in how this particular incentive structure would define "quality". Wouldn't it be the case that approval companies would have incentive to approve drugs quickly and cheaply? Indeed, wouldn't the companies with the most business be the ones that were most likely to slap "approved" across everything that gets submitted? The ones that did so quickly and cheaply would get even more business, no?

Allowing massive lawsuits against companies that skimped on the approval process would certainly tend to act as a counterbalance to the incentive for quick, cheap, rubber-stamped approval. But you would disallow that, too. So if lawsuits are to be difficult (particularly if combined with adequate buck-passing, such that drug makers can say, "But we submitted it for approval"), awards are to be limited, and approval to be privatized, whence the incentive for really thorough approval?

It strikes me that we can't have it both ways. Keep the FDA and get rid of the massive torts based on crummy science or ditch the FDA but allow for gigantic lawsuits to keep everyone honest, but not both.

This will be a good example

This will be a good example why price controls are bad.

But the price is already controlled to a certain extent. The government grants a drug's inventor an artificial monopoly on its sales for X years. Raise or lower X, and you raise or lower the amount of cash a company is allowed to make off a drug.

BearerBonds--- pray you were

BearerBonds--- pray you were being sarcastic?

Joe, It doesn't seem to be


It doesn't seem to be either/or in the terms you described. Forbidding atrocities like the Vioxx verdict (where the science shows no connection between Vioxx's problems and the cause of the litigant's spousal death, but they were found guilty anyway because the jury couldn't understand the data and thought Merck was "arrogant") is neither here nor there with allowing lawsuits for harm judged by expert juries. It seems entirely coherent to say "testing & verification by private/3rd party organizations" while forbidding huge punitive lawsuits of the Vioxx type. There was no coherent, rational (that word again), or plausible means to connect Vioxx to the proximate cause of death in that particular case.

It would seem that to align the incentives correctly, one would have to hold the approving agencies liable for damages as well. Seems simple enough. Require liability lawsuits to be tried in front of an expert jury and hold the approving agencies liable as well- where's the mismatch in incentives?

Brian, I can't say that I


I can't say that I have any particular problem with such a set-up as long as one doesn't also include caps on potential damages. I'd rather it not be the case that approval agencies/drug companies engage in Ford-Pinto-style calculations about safety. Those sorts of calculations are really possible only when one can reliably guess at the potential damages of lawsuits. When suits could add up to a few hundred thousand dollars but could be a few hundred million, then the parties in question have an incentive to err on the side of caution. Or at the very least, they have incentive to fully and completely disclose all possible side-effects so that I can choose whether I want to run a risk of one problem in order to fix another.

The previous Vioxx decision was a travesty, I agree. Expert juries would fix that sort of screw-up. Limits on awards won't. I rather like the expert jury move. I'd like to extend it to all trials, personally.

Joe, I could see no-limit


I could see no-limit hold'em'accountable in cases where you can prove that they knew the likelihood but went ahead anyway without either publicizing it or taking steps to ameliorate. Obviously this would require some tests on what "due diligence" would require, but for cases like Vioxx where Merck took it off the market voluntarily when the studies were clear, there should not be unlimited punitive liability but strict compensatory liability. (I say these things with a laymans understanding of their meaning, not as a lawyer using terms of art).

So, for the tobacco cases, you could say there was intent to defraud despite the warning labels since it's definitive that the tobacco execs lied in public about what they knew and what they were doing. So, no limit (within reason & some regard for precedent, of course). For Merck, there should have been no question of punitive damages. The punishment for Merck is loss of sales; they did not intend to make money by covering up or minimizing the risk associated with their drug.

Brian, I'm not totally up on


I'm not totally up on this, but I seem to recall reading some evidence that the folks at Merck knew about the problems with Vioxx long before (like several years before) they pulled it off the market. Whether that turns out to be true or not is still an open question. Indeed, it's likely a question that will be settled in court. That seems often to be the only way to get such things out in the open, since, after all, tobacco companies didn't exactly willing mention that they had been lying all along. That information came to light only in the process of various civil cases. I can agree with your general principle, but I'm not yet willing to say that Merck was a responsible corporate citizen.

Joe, Thats what I was


Thats what I was alluding to with the "due diligence." Merck continued doing trials and commissioned trials well after FDA approval when there were hints of a bigger problem. Correlation does not imply causation, but the existence of preliminary reports suggesting a correlation has been used (I think unfairly) to suggest Merck was in a Tobacco-company-esque position trying to cover up something to make money. As I understand it, Merck pulled Vioxx when the expanded studies showed a more statistically robust connection (the risk level, in any case, is quite low, just statistically significant and not mentioned beforehand as a risk factor during marketing). That's good citizenship. And FDA approval ought to mean something- Merck played by the rules, was approved, and got socked anyway. Whats the use of the FDA if you play by their rules and get screwed? FDA approval should have *something* approaching a safe harbor provision if not the full protection/presumption of due diligence.

Lawsuits are not a perfect

Lawsuits are not a perfect answer, but they're the answer I would choose. The FDA should be totally shelved. No one should be in charge of keeping "marginally safe" drugs off the market, since there is really no such thing. There are no safe or unsafe drugs, only the tradeoff of risks and benefits that is unique to each individual making the choice to take the drug. In a way, I think that abolishing the FDA might make big lawsuits less of a problem. Right now, people have this idea that drug safety is something they don't need to concern themselves with, because someone else worries about it for them. They think someone is going to magically know alll the risks and benefits of a drug and tell them, "you can take this drug with zero worries. It's nice and safe. Go ahead and pop that pill!" Consumers of drugs get the idea that if the drug is on the market, that must be a sign that nothing bad can happen to them if they take it. If something bad does happen, someone must be to blame, since it was the job of somebody else to make sure the drug was safe, and nothing bad should happen to you if you take approved drugs, right? Right now, people who take drugs that turn out to have serious risks have this attitude that someone let them down by not making sure that the drug they freely chose to take had no risks. Maybe people buying drugs on the market need to adopt more of a mindset of participants in a clinical trial, one of "I'm stepping into the unknown here. Is it worth it to me?" If people knew that every time they take ANY drug, they are taking a risk (which is the way things really are), then maybe people would give lots more thought to drug safety than they do now, and outside of cases of companies committing fraud or hiding information about risks, it would be harder to blame someone else every time a drug turns out to have ill effects.