The costs associated with studying, testing, and getting new drugs approved can be staggering, and the money made from selling the new drug is often used to pay for future drugs as well as paying back investments made to produce the current ones. Unfortunately, the people involved in creating life-saving drugs cannot work for free.
Nothing is wrong with making a drug that saves lives and profiting from it. However, when the profits are a direct result of government involvement, it no longer becomes an issue of innovation and the market, but rather an issue of a state-granted monopoly — which is where we find ourselves today.
Thanks to the capture of the state’s drug approval and regulatory arms, pharmaceutical companies control the market and essentially name the price on their drugs.
While the mainstream media often acknowledges that these drug companies charge exorbitant prices for their medications, they conveniently leave out the reason they can do so is because they have the full support of Uncle Sam.
Instead of looking at the corrupt government, who has the unique ability to create and sustain monopolies, the evil market is blamed, and people ironically call for more government — thus creating a vicious cycle of corporatism.
Tech entrepreneur, Shark Tank investor, and Dallas Mavericks owner Mark Cuban is seeking to change this paradigm by launching an online healthcare marketplace that offers generic drugs at affordable prices.
The Mark Cuban Cost Plus Drug Company announced the opening of its online pharmacy last week. As Forbes reports, the new digital pharmacy called Mark Cuban Cost Plus Drug Company (MCCPDC) promises to sell medications for the cost of the drugs plus a 15 percent markup and a $3 dollar pharmacist fee. Shipping is an additional $5.
Currently, the website is offering roughly 100 generic medications that are no longer protected by the government’s patent program and are therefore subject to market prices.
“We will add them as quickly as we can,” Cuban tweeted to someone asking about a medication not initially included on the marketplace. He also noted that they are “building a plant in Dallas so that we can do our own injectables [sic] as well.”
Though Cuban is being hailed by many on the left of some champion of socialism or philanthropy, Cuban’s venture is the epitome of free market capitalism — and this is no charity. He is not operating at any loss and will vastly increase his wealth as a result of this decision. This is great and as people will soon see, in a true free market, prices become naturally lower.
Cuban even admits this and stated that they will stay with their 15% markup even if this new form of competition creates competitors who beat his prices.
“If others beat our pricing, we celebrate,” Cuban said on Twitter.
Increasing the market price of an item to the maximum profit per unit is a natural function of the free market. And, contrary to what the pro-government regulation sect asserts, this increase in price in relation to supply coupled with competition, happens to work toward keeping prices down — unless these prices are protected by a government-granted monopoly.
A Harvard study published in the Journal of the American Medical Association, pointed this out in 2016. The study found that pharmaceutical companies are granted a monopoly by the state which effectively eliminates their competition and allows them to charge any price they want — so they do.
According to the paper:
The most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents.
The most important factor that allows manufacturers to set high drug prices for brand-name drugs is market exclusivity, which arises from 2 forms of legal protection against competition. Together, these factors generate government-granted monopoly rights for a defined period. Initial regulatory exclusivity is awarded at FDA approval.
Austrian economists have been pointing this out for decades. Ludwig von Mises reminds us of the situation in the statement below:
As has been pointed out already, there is no such tendency toward monopolization. It is a fact that with many commodities in many countries monopoly prices prevail, and moreover, some articles are sold at monopoly prices on the world market. However, almost all of these instances of monopoly prices are the outgrowth of government interference with business. They were not created by the interplay of the factors operating on a free market. They are not products of capitalism, but precisely of the endeavors to counteract the forces determining the height of the market prices. It is a distortion of fact to speak of monopoly capitalism. It would be more appropriate to speak of monopoly interventionism or of monopoly statism.
However, the American version of the drug Solvaldi by Gilead, which has an FDA-granted monopoly protecting it, will cost patients a mountainous $84,000.
In India, however, Gilead has to compete in a free market. Competitors, of which there a many, using the older, much cheaper, and equally effective drug, have driven the price down to a mere $4 a pill. This makes the total cost of curing Hepatitis C in India’s free market — $336.
Because the FDA has become little more than a revolving door for the pharmaceutical industry to continually grant itself special privilege, the natural checks and balances of the market do not apply and we see seemingly insane price differences when compared to other markets.
Hopefully, Cuban’s new venture will amplify these truths and show the world that there is a better and brighter future without the state’s interference in it.