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So I recently read @PeterKolchinsky's book, "The Great American Drug Deal". Great read, full of valuable insight into the biomedical industry. Here's a few tidbits: (1/10)
The drug industry as a whole does not make exorbitant profits. With profit margins from 10-20%, it has lower margins than banks/software and more in line with those of oil/gas. (2/10)
Most complaints about drug pricing comes from "branded" drugs, which are under patent and sold exclusively by the drug company that brought it to market. (3/10)
The way to think about these is that the high prices charged during the exclusivity period (10-20 years) is a way to incentivize and pay off the R&D costs associated. (4/10)
Once it's paid off and the drug goes generic, prices drop dramatically and it becomes part of the firmament of cheap drugs that permanently elevate our standard of care. (5/10)
We've created bad incentives for health insurance companies. In order to stop health insurance companies from making extra profit, we've mandated that insurance companies have to spend 80-85% of revenues on patient care (Medical Loss Ratio). (6/10)
The rest of the revenue is spent on operations, with anything leftover as profit returned to the shareholders. (7/10)
Notice that this seemingly well-designed policy links the absolute profit of health insurance companies to the overall amount spent on healthcare (hospital services, administrative/doctor/nurse salaries, drugs). (8/10)
Hence, health insurance companies have no incentives to contain healthcare expenses, only to maintain appearances of doing so. (9/10)
For more, you'll have to read the book yourself :P (10/10)
