Wednesday, October 13, 2004

Medical Madness

Given the present shortage of the flu vaccine, it was only a matter of time before this happened. An enterprising company in Ft. Lauderdale Florida, Meds-Stat, has raised the price per vial of vaccine from around 70 dollars to around 900. Yeah, that's a big jump, but the reaction is what kills me.

Kansas is filing a lawsuit, claiming that they want the medicine sold at the fair-market value, not this "unconscionable" inflated value meant to gouge the consumers.

This just isn't pretty. Apparently, supply and demand is too abstract for the Kansas Attorney General to grasp. It seems he's under the impression that Meds-Stat, the owner of a quantity of vaccine, doesn't actually own them at all. Otherwise, the market price could only be what they ask for it, and what consumers are willing to accept. If people are willing to pay the inflated price, it's a fair one. If not, too bad. THeft is theft, and the "right" to someone else's property, vaccine or otherwise, is theft.

This is very much the same thing talked about in the price gouging situation in Florida. By attempting to institute a price ceiling, all that's going to happen is that consumer relief will be longer in coming.

Let the companies charge what they will for their products; if you don't like it, don't buy it. Don't try to steal what isn't yours, and above all, don't try to get the government to do the stealing for you.


Anonymous said...

Pretend for a moment that I am an experienced helicopter pilot. My job is to take large groups of backcountry hikers to their cabins in the woods. I charge $100 a head for this, and this allows me to pay my expenses with a healthy bit of profit for myself.

Lightning strikes the mountain, and the hikers are soon surrounded by a wall of flame. Since there is a shortage of helicopters, I decide to charge the hikers $10,000 a head, or else they burn to death.

Or perhaps more related...

Terrorists are planning the Los Angeles release of a fever-causing virus that completely incapacitates people until the virus runs its course. The very old and the very young, and people with weaked immune systems are likely to die. The release is unpreventable.

People know this is coming, however, and a vaccine exists. The price of this vaccine skyrockets, leveling out around $900 a shot. So what are the options?

1. - The government does nothing. People put enormous pressure on the company to lower the price. They do not. Millions of people are debilitatingly ill. Thousands die. The company makes a tidy profit from the poeple that took the vaccine.

2. - The government forces the company to lower the price back to the original value, or they seize the stocks by force. Hundreds of thosands of people get ill. Fifty die. The company either makes the profit they would have if they didn't lower the price, or they get destroyed by the military.

3. - The government forces the company to lower the price back to the original value. They do not. The government institutes a quarantine zone and martial law within the release area. A million peple get sick. A few hundred die.

4. - The government does nothing. People put enormous pressure on the company to lower the price. They do, back to the prevous levels. Hundreds of thosands of people get ill. Fifty die. The company turns a profit.

So which would you like to see happen? I'm guessing 2 and 3 are out, since they require government intervention. The company wouldn't have raised the vaccine price in the first place if it didn't make sense, so we're left with option 1. Few people recieve the vaccine, and as a result the virus spreads like wildfire. People all over the earth get ill, and the death toll is enormous. Doomsday scenario? More than 63,000 people die from influenza in a given year. So maybe you should multiply all my numbers by a few hundred.

This is why people are scared of libertarians.

Hey, if I'm wrong, I'd love to hear why.

David said...

"Hey, if I'm wrong, I'd love to hear why."

I'm so glad you said that.

You forgot to mention option five. Here's how it works.

The government does nothing. Companies charge hunderds of dollars for the vaccine. Enterprising people notice the price is high and enter the market. The price lowers and the original company(ies) either go bankrupt or lower their prices, too. (They also get bad PR). No government needed.

This, by the way, is the pattern for virutally every product in the world. The are scant exceptions, but these exceptions only occur under for a short period in time under very specific circumstances.

People are scare of libertarians because they don't know the arguments.

Anonymous said...

Enterprising people? It seems to me as if the properties of vaccination are too abstract rather than supply and demand.

If some entrepreneurs were to come on the scene, and they were to say that they would begin to supply flu vaccines, they'd be in good shape if they wanted to supply them for the next flu season, or the next fictional terrorist outbreak. Vaccines, unlike many other goods or services, can't just start flying off the assembly line. It would be akin to trying to start a vineyard near the end of the growing season.

So what would be so bad about the government intervening in the interim? I have no problem buying the fact that next season, more people will be diving into in the market, just salivating over the possibility that the other company will try "gouging" again.

Tim said...

Thanks for chiming in, David!

I'd like to note that, in addition to encouraging more people to enter into the market for vaccine production, it's important to consider the effects of time-preference.

A corporation interested only in the present is likely to exploit their customers. A future-oriented business (i.e. one that expects to deal with customers again in the future) wants their customers to A) survive to buy another day, B) get pissed off at high price spikes during shortages. These factors tend to lead to businesses exploiting the shortages less than they would otherwise, else they would be sacrificing future revenues in favor of a present gain.

Sure, the govt. can get involved (and it always does...), but the question I'm asking is if it should in the first place.

Tim said...

Looks as if I've hit a hot-button here :)
Good, that means I'm doing my job.

Anonymous said...

"Tend to lead to businesses exploiting less than they would otherwise"!!! Come On! What about the hypothetical current situation. If there is only one supplier of the effective vaccine for that particular strain of the virus, and we are left with a shortage due to contamination problems, than unless someone steps in to force the company to divulge the limited supplies that are not-contaminated, than millions will die! Somebody has to step in, because it is too late in the season for new competition to enter the market!

Anonymous said...

I wouldn't say it's a hot button as much as I would say it's a fascinating question. :)

You guys are indeed doing your jobs. Love the blog. Keep up the good work.

For a moment, let's just say that we know no competitors will be able to enter the market for this upcoming disease season. Is it not then the government's job to get this instant monopoly under control in the interest of public health? I would tend to think yes, yes it is. Interfere in the market, or allow the uncurtailed spread of a preventable diease? I'll take interfere in the market for $1000, Alex.

As far as long-term interests go, I'd like to cite cigarette companies as proof that you don't need to treat companies well in order to keep their business.

I should probably start signing these things to help with continuity.


Mike said...

#3 has a good point that I think is being overlooked. For some people, flu vaccines are not a bag of ice. There is a time-sensitive nature of the market; in fact, the market pretty much exclusively exists for about two months out of the year. If there were sufficient time between now and November for an entrepreneur to hop in, build a vast supply of vaccine, and market it, then David and Tim, you're right. But somehow I doubt such speed is possible, or else we wouldn't even be afraid of such a shortage.

$70 to $900 isn't just a jump, it's excessive greed. That does not justify government intervention, but it certainly does bring the sharp attention of the public, which is where the government inevitably follows. On top of that, the people who need the vaccine the most (the elderly and infirm) are not exactly the people who can pay high prices. Once again, this is not a bag of ice, this is a possibility of saving a life.

#3 is right, the solution you two throw out, while theoretically right, is rather frightening. As most people think along similar lines as #3, I don't see the government ever taking its hands out of this business. Perhaps we would be better served in finding a more long-term market solution that takes into account the presence of the state?

Anonymous said...

Mike, but if the government shouldn't step in, then what are we to do about a monopoly supplier charging $900 to those most in need if there is no other supplier. Wouldn't intervention be necessary in that instance?

Mike said...

Thus my point that one of two things needs to happen:

1. We find a solution that removes the government while still eliminating the $70-$900 jumps (a culture of responsibility, maybe?)

2. We accept that the government will always be involved, and find a solution much better than straight out price controls.

Chris said...

If I may add my two cents here. Perhaps, one "solution" to the problem of a monopolistic supplier of vaccines late in an influenza season might be that the suppliers themselves would fear losing any business the next year or even risk being run out of business for their unethical practices. The AMA - or some similar privately operated medical board - may revoke the vaccine company from any of its future endorsements or what have you. Anyways, while it may not be possible to do something immediately other than outright charity (those who have the capability to purchse $900 vaccines may be willing to give it to others who urgently need it, in order to prevent catching the disease themselves), it is certainly going to be possible to force the company's hand the next time around.

Tim said...

First thing:

Chronic shortages of this nature come to be because some people failed to accurately predict the future state of the market. Other people could have (and perhaps should have) invested in backup supplies of vaccines for just this contingency.


If there are fewer vaccines than consumers, how do we decide where the vaccines are most needed? The libertarian argument would be that the people that need them the most will be willing to pay the most for them. Is it fair? Well, not really, but neither is just having the government decide. You might say that there's a fair way to determine need, but I'd dispute that strenuously. No possible solution will solve everyone; the free market solution seems to me to be the most likely to produce the most fair outcome most of the time.

You all make it sound as if people will die because they can't get the vaccine, but the number of people vaccinated shouldn't change - 100 units of vaccine will service 100 people, and you can distribute that however you like. If some vaccine remains unsold, the price will be lowered, pure and simple.

The easy argument would be that the people that need it most are least able to purchase the vaccine - say, the elderly, often living on a limited budget. For starters, let's count out health insurance, medicare and medicaid. Let's also ignore family and friend networks that would gift or lend money to the needy. Let's ignore charities, churches, civic organizations, etc. Let's toss all that; what's that leave us with?

The fact that A) the elderly are at lower risk than infants and children, since they can more easily choose to increase their levels of isolation, and B) there are just as many infants as adults - why should we prefer the former to the latter when distributing medicine? In what way is that moral?

I wouldn't worry about excessively high prices. Just buy it if you need it, if you don't, don't. If you need it and can't get it by any means, then reduce your risk in other ways. Washing your hands more often is a good start.

Anonymous said...

Saying that if there are 100 vaccines then 100 people will get it is correct, however, that doesn't mean that those 100 people who get the vaccine will be good candidates for the vaccine. If you give the vaccine to 100 people who had little chance of catching the flu during that season, than you keep the number of people who would have gotten sick equal to what would have been the case without the vaccine. However, if you distribute those 100 doses to 100 at-risk patients, then you are more likely to reduce the number of deaths, David. You see, the arguement that 100 vaccines means 100 people saved regardless of who gets it, doesn't have much validity here.

Anonymous said...

Other anonymous said part of what I wanted to say already, namely that there is a really good way to determine "need" for vaccine distribution. You seem to have adressed that point already, Tim.

First, if anyone would be able to accurately predict the virulence of a strain of flu, they'd be in line for a Nobel Prize. :)

So what about medicaid? Appealing to the government like that hardly seems like the libertarian road to take. How is that different than the State seizing the vaccines, forcing the company to lower costs or just buying them all with taxpayer money?

Reducing your risk of infection is much, much easier said than done. If you are a self-sufficient old person, it would be simple (if not horribly boring) to just lock yourself indoors for the peak of flu season. Of course, if you were able to do that in the first place, you probably wouldn't be at risk anyway. Let's take a convalescent home as an example.

In there, we have a large group of at-risk people, many of whom travel to the outside world occasionally. The employees of the home are exposed to the flu virus daily. It is not possible for these elderly people to increase thir level of isolation sufficiently. The emloyees can agree to take work off if they feel slightly sick, but since the flu virus has an incubation period of one to three days, they are infectious before they feel symptoms.

Another scenario: a single working parent who cannot afford $900 to fix their transmission and has minimal health insurance through their minimum-wage job infects their unvaccinated one year old with influenza.

Oh, but what about charities? Well, if you listen to NPR, you know that private donations are more or less what allow them to run. If you listen to NPR, you also know that fundraising takes time, exactly what caused this problem in the first place.

No, there is no way to help everyone. But you can bet your bippy that there is a solution that will minimize impact. I also completely agree that the people that need the vaccine the most will be most willing to pay for the vaccine, but unfortunately, they will most likely be the ones least able to pay for the vaccine.

You also keep using the word "fair". I don't know if this is a good word to be using. Fairness is a completely arbitrary thing, especially when you have as many parties involved as are involved in this one. what's fair for whom? Are we thinking about Meds-Stat, consumers, at-risk patients, the government, or someone I'm not even thinking of? If I were to assign fairness, I'd have to say that the at-risk consumers have a lot more to lose (their lives) than Meds-Stat has to gain (additional profit). Of course, my view of this issue is biased by the fact that I believe anyone that willfully (and unnecessarily) allowing infectious diseases to spread unchecked is irresponsible and deserving of my contempt.

I think Mike's culture of responsibility would be a great thing. Kind of like world peace, a safe cigarette, or Halle Berry finally responding to one of my letters.

Tim said...

My argument, Mr Anonymous, is not so much that 100 vaccines = 100 lives saved - it's that the vaccines will be sold and used no matter what. Also, there's no good way of deciding where the vaccines should go aside from what people decide to do (i.e. what prices to charge and accept).

If there aren't enough vaccines for a given demographic that "needs" them, then how can you decide who gets them? Let's say 100 people need treatment, and only 10 vaccines are available; given this, what can you do? It's like deciding who should use a lifeboat on a sinking ship - no solution is likely to be satisfactory (as all result in some dissatisfaction and injury), but ones that respect property rights are the most, as Rothbard said, moral.

Besides, a company shouldn't gouge their customers - they're hurting themselves, since they'll lose customers (both from deaths and from their selfishness). Responsible companies don't want to look bad; if they're in the public eye, then they'll typically behave.

Tim said...

Furthermore, there are more ways than just one to minimize one's risk - restricting personal contact(s), personal hygene, exercise and a healthful diet with vitamin supplements, etc.

People can assess and balance their risks as they choose. I don't think myself capable of choosing for them. Do you?

Tim said...

Important consideration: a healthy hospital worker may be at higher risk than a sickly, frail newborn or senescent. Age and health may not be enough to determine overall risk. Do you really trust the government to do the math accurately?

And even if they can, the costs of them doing so may be astronomical. The good that they produce is, as Mises would point out, very likely less efficient than that of a market process. Therefore, there is necessarily some measure of waste and economic inefficiency, the effects of which are uncertain (but most likely undesirable).

Tim said...

Did I mention: vaccine prices are low, so few are produced. If prices rise, more will be made. Is that really so bad? Too, I see great opportunities for effective price discrimination, meaning that even the disadvantaged should not be kept from purchasing a vaccine, so long as they're able to pay the minimum (which, I'd say, are likely to be even lower than otherwise would be the case) market price bearable by the producers.