The hits just keep on comin’. The AP reported last Friday that “Vermont, already a leader in the effort to cut health care costs by reining in drug companies’ marketing, could become the first state to require the firms to report how much they spend providing free samples of their wares to physicians.”
Are they serious? Forget for a moment that various drugs in a class affect different patients differently, so that clinical effectiveness is not constant across such “me-too” medicines, notwithstanding the ignorant assertions of many pharmaceutical “experts.” This means that “free” drugs offer a real service, allowing physicians and their patients to discover the medicine most effective for a given patient, hardly a trivial objective. More fundamentally, what is the cost of a “free” drug sample? Is it the price that the sample would have sold for? If so, is that the official retail price, one of the several government prices, the price paid by insurers, some listed discount price, or the average wholesale price? Or is it the marginal cost of producing the pill, presumably something on the order of a dime? Or maybe it is that marginal cost with some proportional allocation of the fixed cost (about $1 billion) of discovering the drug and bringing it to market. What proportion would that be, given that future sales cannot be known with certainty? Etc.
And so even on its own terms, this quest to require reporting of the amount spent “providing free samples” to doctors is preposterous, a full-employment act for the bureaucrats and lawyers seeking hammers with which to beat pharmaceutical producers. But more fundamentally, the assumption that marketing must drive costs up, and with them prices, is fundamentally flawed. Because costs for most drugs are characterized by the presence of large-scale economies, “marketing,” whether in the form of advertising, free samples, or logos on coffee mugs, yields a larger market, and with it average costs lower and prices reduced. Perhaps the geniuses in Vermont and elsewhere who promote this snake oil can tell us why that outcome is to be shunned.
– Benjamin Zycher is a senior fellow at the Pacific Research Institute.