Tuesday, February 28, 2012

Addictionist Perspective: Prescription Drug Economics 101

The national drug problem in the United States perplexes many people.   Reports of media stars with drug problems highlight the societal pervasiveness of addiction.  ER visits for narcotic abuse and overdoses continue their rise; the Center for Disease Control (CDC) publishes chilling reports on the escalation of drug overdoses (http://1.usa.gov/vzU1V3).  Within a stone’s throw, a person in the U.S. can obtain prescription narcotics anywhere in the country.  Why is this?

If the economics are examined, the answer starts to unfold.  Money as defined by Wikipedia is:

“any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context” (http://en.wikipedia.org/wiki/Money)

Because of the deep supply chain of narcotics, high demand from end users, and abundant liquidity of the black market for prescription drugs, Vicodin, Xanax, and Oxycontin and other controlled substances have become a form of money.  These tablets are portable, divisible, store value, and are used to buy, sell, and trade goods.

It is amazing to see the economics of controlled substances described in real dollars.  It takes only pennies to manufacture opiate medications like Vicodin.  On the street, Vicodin can go from $3.50 to $5.00 per pill.  In essence, Vicodin is a $5 bill.  On the street, Oxycontin is often priced for around $1 per milligram making a single tablet of Oxycontin 80mg around $80 to $100 in value.  So a script written for 120 tablets of Vicodin is authorizing someone to obtain 120 individual $5 bills or around $600 dollars.  Prescribing 60 tablets of Oxycontin 80mg is like handing someone $4,800 in a 2 inch bottle!  Prescriptions of 60 tablets of Oxycontin enable one to enter the middle class.  Medications are diverted into the black market for more than one reason, but the economic reason is easy to see when tablets are converted into dollars.

Think about the spread between the cost of obtaining narcotics and the price one could sell them for in the black market.  A $10 copay for 120 Vicodin equals around 60x levered return ($600/$10).  A $40 dollar copay for Oxycontin equals a 120x levered return ($4,800/$40).  Hedge fund managers can only dream of making these types of spreads so reliably. 

 In summary, narcotic medications are a form of money.  The quicker this is realized by policy makers, insurers and physicians, the faster solutions can be formulated.  Until narcotics are appropriately priced in the prescription market, the entire pricing system of medicine is distorted.

 In the next post, the rabbit hole gets deeper. 

Tuesday, February 14, 2012

Perceived Cost Bias: A Mental Menace

One of the most interesting perception phenomena I have encountered in clinical medicine is a person’s perception of medical costs.  Interactions with acute care hospitals seem to be the driving force in the formation of high cost perceptions.  In short, the amazingly high bills create sticker shock.  The natural human tendency is to generalize the hospital cost experience and apply that cost perception to all facets of medicine.   No doubt, there are lab tests and medications that are incredibly expensive, but are all parts of medicine equally expensive? What about medical care that occurs outside of the hospital?

What is the cost of a cholesterol panel?  Do you know?  What is your best guess?  Write it down. 

When I ask, I usually hear guesses ranging from the $50’s to the $400’s. What is your guess?  Seriously, write it down.

If you shop for the price of a cholesterol panel from the websites listed on HealthScepter, you can find a price for as low as $25.00 from iNeedLabs.com (http://www.ineedlabs.com/Lipid-Panel.html).  If you guessed significantly higher than $25.00, then you can see how the perceived cost bias has changed your thinking. 

This perception problem is more than just an interesting academic exercise.  Many people do not seek follow up testing needed to control chronic conditions due to the perception that the price will be so high that they cannot afford it.
So here is my challenge for you.  If you need some lab tests, use HealthScepter to check the prices of the labs you need.  If you have skipped a necessary test because you think the cost will be too high, check to see the direct cash price.  Delaying care can be serious.  So start comparing prices.  It is time to Rule Your Healthcare®. 

(Disclosure:  HealthScepter does not currently receive any revenue from iNeedLabs.com)