In today’s NYT business section, Tyler Cowen writes why reducing the middlemen from health care won’t make it a “free lunch.” The basic point is that lower overhead costs are generally created by shifting the costs to health care consumers, generally in the forms of either fewer available treatment options, or longer waiting times for treatment.
This is not groundbreaking, but it reminds me of some information from an EconTalk podcast with Richard Epstein. From the time starting at 33:58:
“Often Times, the sale of drugs goes down in absolute units when they become generic… but what happens is, if you don’t have a brand name, it’s harder to sell it. And if there are 11 guys making it, nobody wants to advertise it. So that the thing tends to disappear from consciousness… Ironically, one of the things you could argue respectably now is that lengthening the patent term will actually help consumers in addition to producers by making sure that somebody’s keeping that drug in everybody’s face.”
The basic economic analysis predicts the presence of generics will dramatically shift the supply curve which seems to predict an increase in quantity of drugs at reduced prices. But the lack of advertising pushes the demand curve even further in the opposite direction. This seems to indicate a dramatic monetary savings at the cost of fewer people getting the drugs they want or need.
