Friday, September 19, 2008

Caveat Emptor: Drugs and the Free Market

First reported (within my circle of sources and reading material) by PalMD of denialism blog, the FDA is cracking down on the sale of many unapproved "cancer cures" being sold online and elsewhere. This, in itself, is excellent.

It is also a fantastic example why trusting the free market to solve all problems is a completely bogus idea.

I always come back to healthcare whenever I want to talk about the free market. This is partly because healthcare is what I know; I am much more capable of talking about the prices of drugs (in particular) and medical services than I am talking about the prices of various other products because I'm surrounded by them. But, more importantly, the healthcare "market" is a spectacular example of an area where "natural market forces" are completely insufficient regulation.

The short answer for why this is is that the costs of healthcare services are not always clear up front, so there's no way to "comparison shop." You usually get treated and worry about how much it will cost later, especially in an emergency situation. The capitalist model of self-regulation requires consumers to be able to discern the cost of services in order for it to make any sense. How can you be an informed consumer if you can't evaluate the cost or the utility (worth) of goods?

Sure, this is true on some massive scale when we talk about hospital stays and surgeries, but the problem with those is that the only consumers who actually know what they cost are already bankrupt because of them (everyone else is insulated from the scary truth of the real costs thanks to insurance companies). But those are the big-ticket items of the healthcare world. And you might argue that in some cases that they're often essential to the point where price is no object, because most people would rather pay any amount of money than die. (They might regret this decision later when they're being suffocated by hospital bills, but few rational people are going to say "nah, let me die, saving my life will cost too much.")

So let's talk about small out-of-pocket expenses of non-urgent matters.

Buying drugs is, in many cases, like buying any other good. There exists genuine competition in the market, especially when we're talking about non-prescription items. Should I buy Alavert or Claritin? Benadryl or the "store brand?" Which pain reliever do I choose? The fact of the matter is that 99.9% of the time all of these goods are equal. It doesn't matter, from a medical perspective, whether you buy Claritin or Alavert. They're the same drug. The only reason consumers might prefer one over the other is because of advertising and brand recognition--this is a "Coke or Pepsi" scenario.

Most consumers know that Coke and Pepsi are equivalent products (more or less). Sure, they might have a preference for one over the other, and that preference might even stand up to blind taste-tests. But how many consumers really know that the "store brand" is as good as the brand name when it comes to drugs?

If marketing research is any indication, the answer is not many. In 2005, generic versions of OTC drugs made up only 23.4% of the market share. Conversely, generic prescription drugs made up over 75% of the market share. Hmm. Why might this be?

When filling a prescription, most pharmacies will automatically substitute the generic if one is available as long as the physician has indicated that such a substitution is acceptable. Some states (Massachusetts, for example) actually mandate substitution unless the physician indicates otherwise. It's easy to see why generic prescription drugs predominate the market. Many commonly prescribed drugs are more or less only available as generics; the brand names are no longer made or no longer carried by pharmacies (how many people really care about getting brand name Amoxil?). I think it is safe to say that one major reason generic drugs predominate in the prescription drug market is that patients are not actively involved in the brand versus generic decision. They are leaving the decision to someone who is more educated about the product they are buying. The doctor and the pharmacist both know (and will reassure the patient if necessary) that the generic is just as good as the brand for a fraction of the cost.

Letting your pharmacist substitute a generic to save you money is kind of like getting insider information on stocks or letting your broker decide where to invest your money. You're not stupid for consulting your broker. You're smart. You're using your broker's expertise to your advantage. He probably knows a lot more about the stock market than you do, and you will make more money if you let him help you.

There's also the fact that the price difference between brand and generic in the prescription drug market is pretty large. Consider lisinopril, a drug used to lower blood pressure, prevent recurrent strokes, and protect the kidneys of diabetics. Generic lisinopril costs about 50 cents a tablet. The branded product costs twice as much. Cholesterol-lowering simvastatin's (Zocor) generic is about $2 per dose. The brand is about $5. Does it really make sense to pay twice as much for something if you don't have to? Of course not. Consumers aren't stupid.

The short story is that about 75% of consumers, given what amounts to "expert advice," will pick the cheaper prescription drug product. So why do only 25% of consumers pick the cheaper generic when making an OTC drug purchase?

The same reasons why they would choose a branded drug if there weren't a pharmacist between them and their prescriptions.

Brand reputation. Perception of generics as inferior products--misconceptions about quality, purity, and efficacy. Prior "bad experiences" with a generic drug. Inability to pronounce the generic drug's name (yes, I'm serious). And people are suspicious about the origins of "store brand" drugs. I'm not sure where people think they come from--they're made in the same factories and held to the same manufacturing standards as the brands.

There's limited standardization in naming generic OTC drugs. Because drug chains can't rely on brand recognition the same way ("Claritin is for allergies, I saw it on TV") most generic OTCs have very...generic...names. "Non-drowsy allergy relief." "Non-aspirin pain reliever." "Stomach acid relief." I kid you not when I say that there are probably half a dozen products on a given pharmacy shelf that have some variation on the phrase "cold symptom relief" as their only name, leaving the consumer to decide which product to purchase.

If the consumer does not first consult an "expert" (the pharmacist), they is left using the same reasoning tools that affect their decision about brand-name drugs. Anecdotally, I would say that most consumers don't know the active ingredients in their preferred OTC cocktails. They know the color of the box. They know what the product is called. And, most important to the consumer, they know what worked last time they were sick. They want that again, whatever it was, even if it's the wrong drug for the symptoms they have this time.

(Walgreens is brilliant in this regard by shoving the "Wal-" prefix in front of all their generic names. I get a lot of people who ask me for Wal-itin. I don't work for Walgreens. Our Claritin generic is obviously called something else. Many of them don't even seem to realize that Wal-itin is Walgreen's name for their Claritin generic--they think Wal-itin is its own unique drug, brewed in some secret Walgreens facility.)

The price difference between brand and generic OTC drugs seems smaller, which is another major factor. A box of 50 Tylenol costs $6.50 at Walgreens. A box of the generic costs $4.50, $2 less. Normally, when someone offers you the same product at a lower price, you take it. The generic market should be totally destroying Tylenol sales, but McNeil Consumer Healthcare still sold $129 million worth of their flagship product, "extra-strength Tylenol tablets," in 2003. That doesn't include sales of the popular Tylenol PM, Tylenol Cold, or liquid Children's Tylenol. The sum for all these product lines from 2003 is about $242 million.

Think about that for a second. Consumers spent an average of $2 more per purchase to buy products with the Tylenol brand name so frequently that McNeil made $242 million dollars. And they did it for the reasons I've already mentioned above--or perhaps others. Marketing experts spend their whole careers trying to understand and capitalize on this stuff; my understanding of it is very basic.

This isn't like buying generic foods, where you might get something you don't like as much as the brand product. The generic drug industry is tightly-regulated by the FDA. You can't sell generic drugs that are inferior to the brand names, unless your definition of "inferior" is different from the FDA's. The drugs have to work just as well.

You could argue that consumers might be buying the brands over the generics because of factors other than how well they work as drugs. Sometimes brand name drug tablets have coatings or flavorings that make them taste better than their generic counterparts. Maybe the packaging is easier to open. Some people are legitimately allergic to certain dyes or additives that might be present in the generic that aren't in the brand (but this is extremely rare). But this probably wouldn't account for 75% of consumers choosing brands over generics.

No, the short answer to why consumers choose branded products when buying OTC drugs is that they don't actually have all the knowledge necessary to make an informed purchase.

Man, that was long-winded. Let's come back to the original point of the entry.

If consumers aren't making informed decisions about whether to buy brands or generics when making OTC purchases, who the hell thinks that consumers will be able to make informed decisions about how to treat their own cancer?

I'm not talking about violating patient autonomy here. Patients should never be forced to accept treatments against their will. Patients should talk with their physicians and discuss treatment options, then choose whatever they feel is most acceptable. But it is up to the doctor--who has many more years of education on the subject--to lay out the options. If the patient believes that there is an option that the physician has not mentioned, he or she should certainly bring it up.

But when physicians say "no, I don't think that's a good idea," the answer is not to go ahead and do it anyway. By all means, ask for a second opinion. You're entitled to one. But do not decide that somehow you are more qualified than a trained oncologist to choose your own cancer treatment. You are not. Ignoring the advice of experts to pursue the beat of a different drum to your own detriment isn't individuality. It's idiocy.

This is why holding up "freedom of choice" when talking about unproven (and often highly suspect) treatments for cancer or any other disease is a bullshit move intended to distract from the real issue at hand. Your doctor telling you that herbal tea will not cure your cancer is not oppression. Shutting down salesmen who commit fraud isn't oppression, either.

But in the worldview of the champions of truly deregulated free-market medicine, the consumer is granted a delicious variety false empowerment. You have the right to choose any treatment you want--even those that don't work. And if you choose treatments that don't work instead of those that do, well, caveat emptor. May the buyer beware. All sales are final and non-refundable. The only person you have to blame for getting scammed is yourself. And this is disgusting.

So go ahead. Fight for your freedom to get ripped off. The primary characteristic of the free-market is that it's self-correcting, right? Frauds will eventually be exposed and people will stop buying their products.

But how many people should be allowed to die before we say "enough is enough?"


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