Drug Prices in the USA

Topic: Health Care, Economics

re: Canada mulls end to drugs by mail order, by Colin McClell, Associated Press, 6 Jan 2005,

The discussion of restricting Americans from buying drugs from Canada highlights failures of the current system. Unfortunately the focus in not on health care or the best economic plan but rather monopolistic behavior and economic regulation that is politically motivated to support high drug prices within the United States.

Most articles on reimporting drugs to the USA will mention the idea that the United States FDA does not trust the drugs manufactured by American companies overseas. Why should Americans have to believe the contention of the United States FDA over Canada, Germany or Japan's drug regulators? If American's want to trust that the drugs sold in one of those countries by one of the largest drug companies in the World selling drugs is good enough for them why does the USA have to laws to prevent it? The argument that the drugs sold by these companies worldwide are dangerous seems like a poor argument to me.

Second there is the contention that without the ability to overcharge American's the drug companies won't invest in Research and Development. This is such a poor argument I can't believe people can make it without suffering a big blow to any credibility they had. Obviously drug development has a very cost (creating a high fixed cost) and often drug manufacture has a small marginal cost (though at times the marginal cost is also high). Right now the companies count on the American market to provide funds for much of the research, development, marketing and profits. Then they sell the drugs in other markets only looking to maximize profits looking at marginal costs. Obviously, if they no longer could count on excessive prices in the United States they would have to spread the fixed cost over the rest of the world. The argument that they won't invest in research and development without excessive costs in America is false. They would adjust their pricing structures around the world based on losing the cash cow of the American consumer. That should be obvious to anyone who even took one economics course.

Should the drug companies have the ability to use price descrimination. Probably. So if they want to say that people in Manhatten have to pay 5 times as much as those in Madison, Wisconsin that is their option, right? I don't have a problem with that, but, actually I am not sure they have that option. My guess is US laws would prevent this but I may be wrong.

Should the drug companies have the right to say if you buy the drug in Madison you can't sell it to anyone in Manhatten. This doesn't seem right to me. Now drugs have the complication of medical necessity, etc. so in order for a person in Manhatten to buy and use them they would have to comply with the laws the government has setup to regulate medical care. So whatever those medical requirements are would have to be met but arbitraty rules about pricing should not be in any way a part of that discussion. The ability to allow price descrimination is the trickiest part of this issue. I support the idea the drug companies should be allowed to use that tool. If the drug was developed from basic research funded by the American taxpayer, how should that be factored in? What about just favorable tax treatment the company may receive? More time needs to be spent on this facet of the health care system.

Should the drug company have the right ot only sell the amount they want in Madison at the low prices? Maybe. Should the drug company be able to limit the amount it sells to Canada. Probably.

So now "Canadian health officials are drafting a proposal to prevent Internet pharmacies from selling mail-order prescription drugs to U.S. consumers." Why would they do this? They are restricting the economic activity in their country. Are they doing it because they don't believe their drugs are safe as the United States FDA contends? I don't think so. Are they doing it because they fear their country will be punished by the drug company and their citizens will suffer health consequences of those actions by the drug companies? I doubt it. Are they fearful of political repercussions from the United States? Possibly, but I doubt it. I believe they fear the overall economic result of allowing free trade of medical drugs would be less beneficial than the current deals they have negotiated with the drug companies. So their economy would suffer more from lossing special deals the American drug companies offer in selling drugs to Canada then the economy gains from the trade.

Is Canada deciding not to sell drugs to United States citizens via the internet within their rights? I sure think so. It soes raise the quesiton why the Canadian politicians have managed to get American companies to give their citizens better deals than the American citizens recieve. It seems if you look at the money the American politicians take from drug companies it is pretty obvious why they setup rules that result in Americans having to pay much more for the same drugs manufactured by American companies than do the citizens or Canada, Germany, England, Japan, Australia, Mexico or pretty much anywhere on earth.

If the Canadian government decides to shut off a way United States citizens had found to take advantage of the better deal the Canadian government got Canadians than the United States government got their citizens that may be the function of the market (the free market is obviously not so free when you examine the issue of drug prices). The fact that Canada chooses to maximize the benefit for Canada, even if that means American consumers suffer, should not be seen as the Canadian government selling out. They are doing what they exist to do, provide their citizens the best results they can. Now, how you describe how the American goverment has created situation where their citizens have to pay much higher prices for drugs that American companies make that is a different story. In that case it does seem like something that could be described as selling out.

The last two sentances of the article by Colin McClell:

"Despite the Bush administration's support for a ban, importing cheaper drugs from Canada is popular with U.S. lawmakers of both parties and has considerable support in Congress. The House has passed a bill allowing reimportation, and lawmakers in both parties say that it would pass the Senate if Republican leaders would allow it to come up for a vote there.

While reimporting drugs is technically illegal, those laws are not enforced. Ten million illegal shipments of prescription drugs worth $1.4 billion entered the United States in 2003, about half of them from Canada."

Other Links:

• Prescription for Power: New Common Cause Education Fund Study Exposes How Drug Companies Prevail Over Consumers and Public Health Groups in Washington
• The Battle Over Americans' Rights to Affordable Reimported Prescription Drugs
• More on excessive medical costs from Curious Cat Article Connections
• A Question of Drug-Making Donors
• Drug Companies Major Contributors to Bush-Cheney, United Steelworkers of America Political Action Fund
• Drug bill a well-financed victory for industry

Wikipedia and Anti - Elitism

Topic: Internet

re: recent post by by Larry Sanger, co-founder of Wikipedia: Why Wikipedia Must Jettison Its Anti-Elitism

Wikipedia is an awesome example of the power of the internet. Essentially it is a freeware, open source encyclopedia. The results are amazingly good, still it could be improved. Many have knocked the Wikipedia because they can't believe a project that allows anyone to edit the content could possibly work. I must admit I am amazed how well it does work. Larry's long post makes some great points about what needs to be improved.

He focuses on "the root problem: anti-elitism, or lack of respect for expertise." He also points out a serious problem: "So, for any person who can and wants to work politely with well-meaning, rational, reasonably well-informed people--which is to say, to be sure, most people working on Wikipedia--the constant fighting can be so off-putting as to drive them away from the project." I hope they can find a way to work on improving both these problems. His suggestion of a trusted source releasing "vetted versions of Wikipedia articles" sounds like a good one to me. In any event I hope some solution is found and Wikipedia continues to flourish rather than colapse under its own weight.

The Open Directory project was another useful open source freeware project that had a great begining but now has deteriorated to the point of insignificance. I think Wikipedia will be successful, the question is how successful. I hope Larry's ideas result in improvements.

Digital Rights Management

Topics: Miscellaneous and Economics

From Cory sets DRM strawmen ablaze:

"For starters, any market-correction for DRM will surely involve informed customers making good purchase decisions about the DRM in their devices. That's what this debate is all about. The implicit, "Stop complaining and let the market sort it out" in these comments ignores the fact that complaints about DRM are vital to the market sorting it out."

This quote cuts to one of the critical issues in the current debate on digital rights management. I believe the market will most often reach the best solution. That does not mean regulators do not have a role to play, they do definitely have such a role. I tend to prefer limited regulation while relying on the market to reward the bestsolutions.

The idea that the marketplace works without debate and comment is fundamentally flawed. The way the marketplace will reach the best solution is through open and honest debate, competition and educated consumers. The emergence of world wide web and blogs do a great deal to make the market more efficient and effective. The invisible hand is more capable with more informed actors in the marketplace.

When consumers are ignorant they make decisions based on incomplete understanding of their interests the effect is to have the market's invisible hand reinforce the wrong behavior. This is a fundamental shortcoming in the market. The increase in customer knowledge will not only increase the individual's happiness but the overall performance of the economy.

The debate over digital rights management should continue (see Cory responds to Wired Editor on DRM ). I must admit I am surprised at the playing field now. I would have thought less restrictive solutions would win out in the marketplace (I actually still think they will). Right now very restrictive solutions seem to be winning. My guess is that once consumers learn more about the current path, those consumers will search for options that give them better options. Then some producers will seek to fill those desires. Advocacy from parties other than those who seek to maximize their profits in selling digital content is a very good thing. Owners of digital content should be able to seek to maximize their profits but a market solution does not mean they alone dictate the terms of the solution.

For society the best possible result is a free exchange of ideas and education of the various players in the market. Then let those players vote with their decisions in the marketplace. My guess is people will prefer to have digital works with less restriction and will reward those that offer such products with purchases that would otherwise go to those with restrictive policies. However, if consumers are ignorant they won't know the limitations imposed on the digital content they believe they are buying (or the product they buy to manage their digital content that cedes what they would think of as their right to control the content on their device to others). Individual players can suffer, as the advantage they were able to gain by taking advantage of the ill informed is lost, but overall that is the best result for society.

One interesting option in the market now is the Creative Commons.

The Greatest Wall Street Danger of All: You

Topic: Investing

re: Born Suckers - The greatest Wall Street danger of all: you by Henry Blodget.

Henry Blodget mentions two profoundly (though simple) important factors that lead to poor investment decisions: Prospect Theory and Outcome Bias. He lists 7 factors, I find two profound.

Prospect Theory (more details) essentially states people are eager to "lock in gains" (sell positions with profits to realize gains) and hold losses (deffer selling positions in which they have losses so as not to "realize" the loss). Like many profound ideas the simplicity of the idea undermines the importance. This factor can make a huge difference in investment results. Many of the most successful investors understand the importance of this idea. And they repeat the importance of taking action to avoid falling into the patterns prospect theory predicts.

William O'Neil (founder of Investors Business Daily) - "Remember, 7% to 8% is your absolute loss limit. You must sell without hesitation - no waiting a few days to see what might happen or hoping the stock rallies back; no need to wait for the day's market close" page 90, How to Make Money in Stocks: a winning system in good times or bad, 3rd Edition, 2002.

From The New Market Wizards: Conversations With America's Top Traders by Jack Schwager
Schwager: "What else have you learned from Soros?"
Stanley Druckenmiller: "I've learned many things from him, but perhaps the most significant is that it's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." (page 207)
This is obvious, so what value does it offer? As Prospect Theory states peole have a tendency to sell profits and hold losses. Often this means you make less when you are right. It can also mean you loss more when you are wrong (because you are reluctant to sell - I must admit I can still fall into this trap).

Outcome Bias - "We tend to evaluate decisions based on outcomes instead of probabilities. Thus, we congratulate ourselves for stupid choices that happen to turn out well and vow to never again make smart choices that happen to turn out badly." from Born Suckers. For example, I decide to thrown a dart at the newspaper and move all my portfolio into the one stock that is hit. If that stock is the best performer of the year I will have very good results, however, the that will not be due to my great decision but luck. Luck is a factor in investing, but the way to achieve exceptional performance is to developing investment strategies that give you an advantage in the market.

I have used an online portfolio management and performance tracking tool for several years: Marketocracy. It is a tool that helps me learn, by seeing the real results of my investing decisions. It is also a great way to provide others a view of how my ideas have played out as measured by Marketocracy. My marketocracy fund has beaten the S&P 500 by an average annual rate of 10.32% (as of this posting) since it was started in 2000.

One final thought on investing from Jesse Livermore (as remembered by his sons) - From page 141 How to Trade in Stocks: "the stock market must be studied, not casually either, but deeply, thoroughly. It's my conclusion that most people pay more care and attention to the purchase of an appliance for their house, or when buying a car, that they do to the purchase of stocks. The stock market, with its allure of easy money and fast action, induces people into foolishness and the careless handling of their hard-earned money, like no other entity."

Good investing to you in the new year.

Google Photo Management Software - Picasa

Topics: Freeware - Photos

I am a big fan of Google, the search engine, and the company. Google bought Picasa, digital photo management software, a few months ago and decided to give the software away as freeware. I just got around to downloading Picasa. My initial reaction is that this is a wonderful product. I suggest you give it a try. It can automatically inventory all the images on your computer and it does a great job of organizing the photos for you.

The only Google service I would not recommend at this time is their desktop search software. It is amazing powerful and seems like it could be a great help. But it seems to me to the possible security issues warrant holding off using it until they improve the software, which I am confident they will do.

This Blog, is run on Blogger, another Google purchase. Blogger is good but I sure hope they offer some enhancements fairly soon, especially the ability to assign topics to individual posts (like the labels they use in Gmail).

One one final Google not, if you would like an invitation to get a free Gmail account (Google's email service), just let me know and I can send you an invitation (until I run out of invitations).

Happy Holidays,

Adventure Capitalist and China Wakes

Topic: Books - Economics

I recently read two books that offered perspectives I found worthwhile and were enjoyable to read.

Adventure Capitalist by Jim Rogers tracked his trip around the world by car. Previously he had documented his around the world motorcycle journey in Investment Biker. His views offer a worthwhile perspective that is often missed, in my opinion. That said I wouldn't accept his views as the final truth they are valuable as one perspective to shed light on areas that are often overlooked.

China Wakes, by Nicholas Kristof and Sheryl Wudunn documents their time as Journalists in China (1988-1993) and again offers valuable insight into China. Obviously even gaining an incredibly oversimplified view of China would take a great deal more than one, or even ten books. Still the authors provide viewpoints that I found added, in a small way, to a picture of what China, was, is and may become. I plan to read their book: Thunder from the East: Portrait of a Rising Asia.

Big Cats in America

Topic: Miscellaneous

I found a recent Washington Post article interesting: Mountain Lions Move East, Breeding Fear on the Prairie. Many new realities are suprising. Some are historically important worldwide like the fall of the Berlin Wall. Others are not as significant but still something I would have thought extremely unlikely such as the return of Cougars to a wide range of the United States. I would have thought big cats would be found only in Zoos and in the remote West and in East Africa, of course.

I suppose I shouldn't be so suprised since for years I have heard we have far more deer today than ever before. Still I would not have predicted the wide spread return of big cats we seem to have experienced in the last few decades. I don't recall hearing about this before this year, when I started to read and hear about the increased human and big cat interactions resulting from the increased population of cougars (also known as pumas or mountain lions).

I would imagine we will have people overact when the inevitable problems are covered by the news media. "It is exceedingly rare for a mountain lion to kill a human being. In the past 110 years, the cats have attacked 66 people and killed 18 in the United States and Canada, according to figures compiled by Iowa's Department of Natural Resources. Fatal attacks are far less common than fatal bee stings or lightning strikes."

Related Links:
- Big Cat Comeback? 2004
- Cougar Reports on the Rise in Eastern U.S. - National Geographic 2003
- Mountain Lion Foundation
- Mountain Lion Attacks On People in the U.S. and Canada
- Outdoor Hazards - shows the number of human deaths annually in California (100 deaths from automobile collisions with deer, 86 from lightning strikes, 18 from dogs, 1/3 fom mountain lions [1 death every 3 years])

Management Improvement Articles

Topic: Management - Library Additions

The articles added to our library this month are especially good, in my opinion. Recent additions to the Curious Cat Online Management Improvement Library include:

* A Brief Guide to Interactive Planning and Idealized Design by Russell L. Ackoff
* Improving Problem Solving by Ian Bradbury and Gipsie Ranney
* How To Compare Six Sigma, Lean and the Theory of Constraints by Dave Nave
* In the Beginning by A. Blanton Godfrey
* A Holistic View of Six Sigma by Roger Hoerl and Ronald Snee (this is a chapter from there excellent new book: Six Sigma Beyond the Factory Floor.

Find links to these, and other new additions, on the Curious Cat Management Improvement New Articles Page or search for management improvement articles. Please contact me, if you are interested in having us include your article in the library.

John Hunter