Kevin Drum writes
Today, Aaron Carroll tells us the story of TriCor, aka fenofibrate, a cholesterol drug licensed by Abbott Labs in 1998. Unfortunately, TriCor’s patent was due to run out in 2000 and a maker of generic drugs was all set to produce a generic version. So Abbott sued, which delayed the generic version by 30 months:
. . .
The cost to American consumers of not having access to a generic version of TriCor is on the order of $700 million per year, money that (presumably) accrues to Abbott Labs instead.
This is a part of a longer point but its important to note that its not clear that health care costs were raised as a part of this.
There may have been deadweight loss, though given widespread health insurance and government payment plans its not clear the deadweight loss is that great.
Mostly it seems that at worst money was transferred from consumers and taxpayers to TriCor. This is not an economic cost. It is simply redistribution.
So, one concrete problem that you might have with the US health care system is that it serves to redistribute income in ways that you do not like.
That’s a real thing. You could say, I would rather have the money than Abbot Labs and I understand what problem you face and we can talk about solutions.
However, as generally used the phrase “high health care costs” doesn’t refer to anything that makes any economic sense and so its not clear what the appropriate remedy is.
I would like to encourage people to be more explicit about the real problems that they perceive rather than extensive references to large scale accounting issues.
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Wednesday ~ April 18th, 2012 at 9:28 am
nicholbrummer
how about looking at costs in comparison to other countries with a lower total cost .. then checking where the main difference lies?
Wednesday ~ April 18th, 2012 at 9:29 am
DJAnyReason
This is an absurd argument. What is the “cost” of a new car? According to this, its $0. Oh sure, there’s a “transfer” from me to the car company in the five-digits, but there’s no cost!
This is really some grade-A exceptional pedantry right here Karl. The cost of paying for TriCor went up by $1.75 billion for health care consumers. That is what is meant by “cost” to anybody operating in the real universe.
Wednesday ~ April 18th, 2012 at 10:25 am
BSEconomist
I think you must’ve defined down the notion of an economic cost to be essentially meaningless. I mean, what IS an economic cost if its not a deadweight loss of some sort? If resources are slack, then they can be employed costlessly–the fact they are not can be viewed as a deadweight loss. You can talk about Okun gaps vs Harberger triangles, but its all the same idea, ultimately–someone can be made better off by making someone else worse off.
To put it another way, by blocking competition the most efficient producers of the drug are shut out of the market. This also ties up resources defending the monopoly (i.e. those lawyers could be doing something socially useful). Its almost as if you’ve imagined that healthcare expenditure goes straight into the utility function and so high expenditure is found a priori to be satisficing. That’s circular.
You’ve taken this line before and it was nonsense then, as well. While there are certainly issues with the traditional notion of efficiency in economics–as well as wellfare analysis–it doesn’t bode well that the traditional approach directly contradicts your case.
Wednesday ~ April 18th, 2012 at 10:39 am
BSEconomist
Sorry for the spam-like multiple-comments-in-a-row, but it just occured to me that the likely source of your confusion is just another manifestation of the “wikipedia effect”. Because GDP is prices times quantities for all goods sold in the economy, it is tempting to think that price increases do not make anyone worse off…. or at least do not make the aggregate population worse off (hence your “redistribution” point). This is not the case however. GDP measures neither wellfare nor efficiency in any sense of these words. Take for example wikipedia, which is free. Unambiguously we are all better off for wikipedia’s existence, but wikipedia put for example encyclopedia brittanica out of business. EB costs, say, $100 a volume, for 20 volumes. Undoubtedly EB raised measured GDP by a not-too-insignificant amount. That it no longer exists but free wikipedia does means that measured GDP is lower than it could be. But we are better off precisely because the service we wanted from EB is freely available.
Wednesday ~ April 18th, 2012 at 11:23 am
marknau
One way of examining economic cost is to look at raw resources consumed. If EvilCorp needs 5 workers and 3 steel to make a widget, and can block HappyCorp from making identical widgets with 4 workers and 2 steel, the efficiency loss is the difference in resources consumed as a result.
Note that this loss has NO CONNECTION WHATSOEVER to the amount of extra money EvilCorp can get from the consumers by leveraging their monopoly widget position. They are two completely different dynamics.
The folk-economics view can fall into two mistakes. One is this conflation of economic cost with the extra money EvilCorp is able to get from consumers. The other is to think of “cost” as justly referring only to the sum cost to consumers, and to consider profit to producers as either valueless or (crazy enough) of negative value.
Wednesday ~ April 18th, 2012 at 11:39 am
arvindsuguness
Hasn’t the entire problem of health care costs been that too much “money was transferred from consumers and taxpayers” to health care entities without getting an adequate health return for it? If tomorrow doctors and hospitals all decided to start charging twice as much for MRIs, consumers and taxpayers would rightly complain that their health care costs had increased without any improvement to their health.
Similarly, if the United States was spending twice as much in aggregate on our health care but getting astounding increases in life expectancy and welfare out of it, I doubt you would hear much grumbling about it. The fenofibrate story is problematic simply because consumers and taxpayers are paying more and getting nothing better out of it – because Abott is manipulating the system to create waste that they profit from.
Wednesday ~ April 18th, 2012 at 11:44 am
Kamron
“There may have been deadweight loss, though given widespread health insurance and government payment plans its not clear the deadweight loss is that great.”
Long-run, these costs are passed on to end-consumers- increasing the cost of insurance. In turn, higher insurance costs lead to a drag on employment. That is, when costs are (artificially) changed, behavior changes.
More generally, your entire position smacks of a snow job. eg please do not tell me of some generalized problem with the fellow who “stole” your car stereo last week- this is merely an accounting redistribution, and referring to this as “stealing” is far too vague to be useful. If you have a *real* complaint, please state it objectively.
Wednesday ~ April 18th, 2012 at 12:37 pm
skeptonomist
Let’s define our terms (which Smith fails to do). In ordinary English “cost” refers to the money disbursed by some person or entity. Drum said explicitly “cost to American consumers”, but Smith is apparently referring to something he calls “economic cost”, which he fails to define. Smith says “I would like to encourage people to be more explicit…” Drum was explicit, Smith was not.
Or is this ridiculous post just a joke?
Wednesday ~ April 18th, 2012 at 4:16 pm
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Thursday ~ April 19th, 2012 at 4:12 am
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Thursday ~ April 19th, 2012 at 9:17 am
steveroth
Thank you. I get so tired of hearing that this or that “costs the economy” $X. It makes no sense.
But this doesn’t really either:
“You could say, I would rather have the money than Abbot Labs and I understand what problem you face and we can talk about solutions.”
It’s not about who “has” the money; it’s about how and where (and how fast) it flows.
Wednesday ~ May 9th, 2012 at 6:44 pm
Avery Ray Colter
It seems serendpitious you ask this question after touching on the question of fat people. In NAAFA (the National Association to Advance Fat-Acceptance) and its daughter groups like ASDAH (the Association for Size Diversity and Health), there have long been questions raised about “The Health Care Cost of Obesity”.
- Does this include any consumption of any health care service by any individual who happens to be classified as overweight or obese?
- Does this include the consumption of products and services sold to the objective of weight reduction?
This latter question is of particular concern; if affirmative it signifies the operation of a viciously circular propaganda on this matter.
In general though, it is known that fat people are often shut out of individual health care coverage, and by extension the group agreements which limit allowable costs, and it is also known that the adipose, often with extremely good reason, are given to iatrophobia. This pair of facts paints the picture of precisely the kind of population who, for completely exogenous reasons, will decline to seek care for problems while they are mild and easily alleviated, instead waiting until they are coerced by sheer terror for their lives to have shame and spite leveled at them on barbed shaft, as the effort to retrieve them for emergency transport is made into one of our culture’s most vicious memes.
The entire troika of treatment of these people is a mark of shame on this nation who nevertheless will now blithely lurch into a public forum for which the symbol is our nation’s map with cracks in it. There’s something cracked here all right, but I’m pretty sure it isn’t fat people themselves.
Sunday ~ May 20th, 2012 at 8:31 pm
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