Where Richard Epstein Hands Dr. Relman His Head

Point of Law

The Relman review, however, makes so many instructive errors that a different course seems preferable...

Relman is a doctor by training who fancies himself an expert in "social medicine," who has, as best I can tell, no formal training in any of the collateral disciplines that bear on the comprehensive analysis of health care...

In my view, there is nothing whatsoever in Relman's traditional medical background that offers him any comparative advantage in dealing with the full range of property rights, regulatory, marketing, patent, and tort issues that are examined in Overdose, which should be evident to anyone who has worked his or her way through Relman’s review...

Clearly if we are to have pharmaceutical companies, then we must allow them to have some profits in order to attract and retain capital. Relman is not subtle enough to distinguish between a risk-adjusted competitive rate of return and monopoly profits, or to recognize that the former advances social welfare and the latter retards it...

The system of government control that Relman proposes is ruinous to the ends of patient welfare and social prosperity that he supports...

His fundamentally unsound world view does create a huge professional and philosophical chasm between us. Worse still, it infects every portion of his New Republic review....

But Relman is thoroughly confused about how corporations work. The management owes duties of loyalty and care to the shareholders; after all shareholders have put their money in with the firm, and it would hardly do to allow the management to misappropriate the funds so that the shareholders go home empty-handed. But the customers of the firm are not investors, and they can walk away and buy somewhere else if they do not like what they get. The key challenge to any firm is to figure out how to secure their repeated loyalty and that can only be done by offering them goods and services that they value at more than they pay, which the corporation can produce at a cost lower than the prices they can command....

Nor does he see any reason to do so because he takes the view that I will abandon my principles at the drop of the hat by arguing "for stronger government support of the industry's monopoly rights and for government protection against price competition from abroad. He wants handouts from the public without public oversight." Here, Relman has lost his intellectual compass....

Relman's statement about "government protection from price competition from abroad" also reflects either economic ignorance or conscious deceit....

For Relman, who knows nothing about the fine print of this initiative, to call this program "free trade" is a bad joke....

But then again perhaps Relman is in favor of those provisions that hold that doctors, as a condition for being able to work in the voluntary market, have to devote as much of their time to government service for the poor as the state asks, for fees that it determines....

In Relman's world regulation is a free good. In the world we live in, it is not....

But don’t count on Relman to make the right adjustments. He first notes the standard figure of $800 million, developed by DiMasi's team several years ago doubled today, only to comment: "Yet both these figures include the so-called time—cost of the money spent, a theoretical and much-disputed quantity that contributed about half of the $800 million figure." So now we have it: the "so-called" cost of capital is not a cost of production because, at least to one untutored physician, a dollar spent today is precisely offset by a dollar earned eleven years from now.

Relman's brief foray into pharmaceutical pricing reflects his total ignorance of the subject....

Relman notes that prices remain high at retail pharmacies, but misses the point when he treats that segment of the market as representative of the whole, when in fact they are not....

It is in this world wholly incomplete to make his observation that "the listed wholesale price of a prescription drug almost never goes down, no matter how much its sales increase." Listed prices are not where the action is. What you have to know is the number of side deals and rebates and special programs that constitute the full market, about whose structure Relman does not have a clue....

Relman of course touches none of these issues. He notes that cancer therapies can run $50,000 per annum, but does not examine either the cost or benefit side for these drugs, or how deregulation might lower prices. He notes that the industry runs high profits, but scoffs at the notion of risk-related return, even in the face of the industry's mediocre performance in the stock market. To him the "the industry" (and never the firm) just "dictates" prices....

Maybe Relman doesn't think that pharmaceutical companies should behave like ordinary firms. But he surely gives us no inkling here of what pricing regimes follow from his own enlightened view of the industry....

Relman is equally uninformed when it comes to advertising, which in his inimitable authoritarian style he would like to limit or ban....

Next Relman does not appear to believe that advertisements lower average costs because of his excessive reliance on list price as evidence of market prices. But of course they do, for why else would a firm advertise if it could not recoup those costs and then some?...

Relman is oblivious to the need for trade-offs at the margin—here and everywhere else....

Relman is equally fearless when he takes on the patent issues....

On this point, Relman and Angell are the defenders of the single worst idea of regulatory policy to come along in a long time....

Relman and Angell's repeated defense of their position remains a mystery. Ruinous and foolish, from a social point of view, are apt words to describe so misguided a social policy....

Even though Relman makes an utter hash of the economic issues, one might think that he would do a bit better in talking about the health and safety issues, which are more up his alley. But again he misfires on all cylinders....

There is no question that the history of protectionism in the United States and elsewhere is replete with cases where disappointed competitors raise deliberate health scares to keep out superior products with lower price tags. But this is not one of them. Relman, however, dismisses the matter with a wave of the hand, calling the entire concern "spurious," without ever bothering to say why. He does not explain why the huge return from selling bogus goods gives no incentive for unscrupulous people to break into a porous system. He does not explain why long supply lines through foreign territory increase the opportunities to distribute counterfeit drugs into the market. He has no explanation as to why private companies spend small fortunes to label and track goods in an effort to thwart counterfeiting. He gives no explanation as to why every FDA official who has looked at this issue, in both Democratic and Republican administrations, will not give their blessing to parallel importation or why Congress, after its usual bluster, always backs down on the issue....

In response it could, and should, be said that health care raises real problems with information, but so do lots of other goods, including complex financial services and retirement plans, computer programs and the like. There are differences in all these goods, but one mistake that Relman makes is to think that only former editors of the New England Journal of Medicine understand just how difficult it is for ordinary people to understand medical services. But again, that problem is not unique to health care, but arises in other markets as well, like real estate and life insurance. And so in some instances people hire brokers, and in others they hire doctors. It is one thing not to know much about drugs, but it is far more dangerous not to know that you do not know anything about drugs....

Relman is dismissive of any critique of FDA policy, in large measure because of the touching faith that he places in clinical trials....

The point here is not some nasty pharmaceutical propaganda. Indeed the most vocal attackers against clinical trials, without exception, are not pharmaceutical companies (who fear the liability implications of allowing people to use their drugs), but the ordinary patient who knows how to make the simple expected utility calculations that elude Relman and, more importantly, the FDA. ...

Whether correct as a matter of constitutional law or not, the impulse for the attacks on the FDA come from the people who want to take the drugs. And Arnold Relman knows so much about medicine that he is prepared to turn them away at the gate. ...

But the deluge of angry letters to the FDA when it refused to follow the positive recommendations on the promising new vaccine for advanced prostate cancer, Provenge, for example, was mounted by patients who saw in it the only refuge from advanced prostate cancer. Yet at no point does Relman address any of the mountain of evidence against him. Nor does he turn his scientific eye to each new FDA protocol that requires additional trials on smaller populations,...

Indeed, one important use of good clinical trials is to throw out of court the various law suits in tort litigation, but you would not know this from Relman's screed, because he does not mention a single word about tort litigation, even though he well understands the risk that medical malpractice litigation poses to medical progress. ...

There is a common theme to all the points contained in Relman's ill-tempered broadside. Relman's belief about the operation of pharmaceutical markets was the attitude that my grandmother took to flea markets. If the other guy wants to sell at a given price, don’t buy, because he is there to rip you off. Today, Relman's view is that if the company makes a profit, then we have to be suspicious about its motive and its performance.He utterly fails to grasp that most markets in ordinary goods—pharmaceuticals included—survive because they generate win/win transactions, just as Smith and Friedman said...

Then again, anyone who thinks that Milton Friedman was talking through his hat when he spoke about the efficiency of markets will take a jaundiced view of private profits and public health, thinking that they will mix no better than oil and water. I can't comment on his medical skills, but as a professor of social medicine, even at Harvard, it would help if Dr. Relman took, for the first time, Economics 101.

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Noob

Should drugs be regulated?

The purpose of a corporation is to make money. You can make money in ways that are good and ways that are bad.
Bad ways: Printing it on a printing press.
Stealing it.
Selling worthless goods.

Good way: Creating a good that persons will pay for because they benefit from them.
How do you know a good is worth it?

If it is food, you can tell it is good because it tastes good and doesn’t make you sick.

How do you know that a drug is good?
You don’t get sick when you take it but you do get well.
Ok, most of the time you get well anyway so if I want to make some money all I have to do is put out some sugar pills and say it is a miracle cure, and I can make money. By the time the public finds out it is a fraud, I am living it up in Palm Springs.

Antidote for this, there has to be a trusted professional outfit that uses scientific methods to decide if a drug is effective. It could be the FDA or even a private group.

Experience proves that you can’t convince a group that is non- biased by self interest that the drug is effective, you are foolish to trust the drug company president who is motivated by his salary, bonus and retirement fund not to fluff up the results of company’s research.
Of course we are way beyond this rather simplified scenario, but the same principles apply. Many of these decisions about whether a drug is effective or not depend mind numbingly arcane applications of statistical math, epidemiology, skill at selecting and enrolling populations and eliminating subtle bias. Finding effective new drugs has been more and more difficult. The scientists jump up and down with joy till they almost shit in their pants if they even find a modicum of valid data that holds up over time. On the other hand the bean counters who finance millions in research want to push some kind of product out the door to help the bottom line.

Then there are the political pressures pushed by patient advocates for this or that new treatment. And why not? Some of the people are dying and need answers now.
Truly, the American system of finding cures through a medical/industrial complex, with government participation has worked to advance medicine, but it is not cheap or “fair.”

Pharma does the research

Antidote for this, there has to be a trusted professional outfit that
uses scientific methods to decide if a drug is effective. It could be
the FDA or even a private group.

Not sure if you're trying to describe the current situation or recommending a new one. Generally in the current situation it is not the FDA that conducts the studies, but the company itself. What the FDA does is review the company's research at the end. While the FDA makes that decision, the actual science is done by the company itself. Look at it this way: if a Nobel Prize were awarded for the scientific advancement represtented by a new drug, chances are it would not be awarded to someone in the FDA review board, but rather to key scientists who had labored for years on the development, and that sort of role is generally done in the employ of the company.

 

 

naive

How do you know that a drug is good?
You don’t get sick when you take it but you do get well.

This is tremendously naive. Educate yourself; look up chemotherapy.

Many of these decisions about whether a drug is effective or not depend mind numbingly arcane applications of statistical math, epidemiology, skill at selecting and enrolling populations and eliminating subtle bias.

I don't think you know what you're talking about. The determination of the efficacy of a drug does not involve "mind numbing arcane statistical math."

mind numbing arcane statistical math

Correcting for selection bias in a series of confidence tests would typically be involved, and to most people that is mind numbling statistical math. Actually I don't think most people even begin to understand statistical significance.