The annual meeting of the American Society of Clinical Oncology (ASCO) was held in Chicago recently. The conference, which was attended by about 25,000 scientists and doctors concerned with the treatment of cancer, was heavily sponsored by the pharmaceutical industry. Thus, it came as a big surprise when Dr. Leonard Saltz, chief of Gastrointestinal Oncology at Memorial Sloan Kettering Cancer Center in New York, delivered a speech about the high price of cancer-treatment drugs.
It is unprecedented for plenary speeches “to substantially take on the topic of drug costs,” said Dr. Alan Venook, “a professor of medicine at the University of California San Francisco who planned the meeting’s scientific session and invited Dr. Saltz to speak.” Discussing drug prices there is “uncomfortable” because it could be seen as “biting the hand that feeds you.” He also remarked that doctors are “reluctant to antagonize the drug industry because they need pharmaceutical firms to invest in developing new medicines for patients.”
Saltz has been vocal in the past about the high cost of cancer therapies, and even managed to get one drug company to lower its price when his center’s team refused to use it. His remarks focused mainly on an experimental melanoma treatment made by Bristol-Myers Squibb. He cited statistics showing that the median monthly price for new cancer drugs in the United States had more than doubled in the last ten years, but that the price increases didn’t correspond to increases in the drugs’ effectiveness.
In his talk, Saltz spoke specifically of ipilimumab and nivolumab, drugs that have “achieved dramatic results in the treatment of metastatic melanoma,” which was thought to be “basically untreatable” just five years ago. Ipilimumab costs $157.46 per milligram — “about 4,000 times the cost of gold,” he said.
There are many reasons why the prices of many drug have been deemed “too high.”
The patent system. Patents are a grant of monopoly by the government. Patents allow companies to use the power of government to stifle competition and keep prices high for consumers.
The FDA approval process. It can take years for the FDA to approve a new drug. That imposes a great cost on drug companies that they will seek to recoup by charging “high” prices for drugs. There is no reason why an apolitical, voluntary, more efficient, market-based drug-approval process could not replace the FDA.
Government regulations. The government regulatory burden costs businesses billions of dollars every year. It drives up the costs of all products and services. Drug companies especially are saddled with burdensome government regulations.
Medicare. The government health-care system for the elderly known as Medicare is the single largest purchaser of drugs. And according to Saltz, Medicare is currently barred by law from negotiating prices directly with drug companies. Once the FDA approves a drug for a particular use, the Center for Medicare and Medicaid Services has to buy that drug at any price set by the drug manufacturer. Saltz also said that there is conflict of interest in the way doctors are paid. They currently receive a percentage of a drug’s total sales price, which gives them an incentive to “make more money by using the most expensive drugs.” Bushcare (The Medicare Prescription Drug, Improvement, and Modernization Act) and Obamacare (The Patient Protection and Affordable Care Act) have only made things worse.
The high drug use of Americans. There is seemingly a drug for every physical, emotional, and mental aliment nowadays. And — all the potential side effects on warning labels not withstanding — Americans are using them at record levels.
There is another reason why the prices of many drugs have been deemed to be not only too high, but excessive, unconscionable, exorbitant, prohibitive, unfair, or unjust.
While at the ASCO conference, Saltz took the time to speak by phone to Audie Cornish of NPR’s All Things Considered regarding his concerns about the high price of cancer-treatment drugs. The first thing she asked him about was something he said in his speech regarding cancer-drug prices’ not being related to the value of the drug. Here is exactly what he said: “Cancer-drug prices are not related to the value of the drug. Prices are based on what has come before and what the seller believes the market will bear.”
As they should be.
Saltz spoke the truth about prices, even though he is not an economist, and even though he disagreed with what he was saying.
Elements of the medieval quest for the elusive just price, which gave rise to the misguided labor theory of value of Adam Smith, David Ricardo, and Karl Marx, are still with us. But as economists of the Austrian school have shown, value is subjective and subject to change. There is no such thing as intrinsic value. Price is independent of labor, expenses, cost, and risk. It is precisely because value is subjective that voluntary trades are always win-win situations.
That does not mean that prices are arbitrary. Prices, as economist Don Boudreaux recently explained,
(1) reflect underlying realities and, in doing so, (2) inform producers and consumers about how best to coordinate their actions with each other and (3) give incentives to countless producers and consumers to adjust their actions to each other in coordinating ways.
There is no such thing as the elusive “just” price.” A just price is the market price. That means that in a free society there are a number of things that are true about a just price.
A just price is any price set by the lawful owner of a particular good or provider of a particular service.
A just price is any price based on supply and demand.
A just price is any price voluntarily agreed upon by buyer and seller.
A just price is any price that a buyer is willing to pay.
A just price is any price that a seller is willing to receive.
A just price does not exist independently of a transaction between buyer and seller.
A just price is any price not set under some arbitrary government maximum.
A just price is any price not set above some arbitrary government minimum.
A just price is not related to what a good costs to manufacture or a service costs to provide.
A just price is not related to what a good or service is “worth.”
A just price includes any price that is raised in times of shortages and natural disasters.
A just price is any price not constrained by some government regulation.
A just price is both impossible and immoral for any government to calculate, institute, regulate, or control.
There is no such thing as price gouging, predatory pricing, or a price that is inherently unjust. A just price is the market price. In a free society, it couldn’t be any other way.