I guess they already killed the OP to preserve the conspiracy.
Ack! What a waste of my 1000th post 
Well, actually, I think I was at 1200 or so anyway before the Great Deletions of February.
Great, my OP got eaten. I’ll try to summarize it:
A few times a month, I end up at a dinner sponsored by a pharmaceutical company. These dinners tend to be very nice and accordingly expensive.
A lot of people are really down on these dinners, as they feel the cost of the dinners adds to the insane cost of prescription drugs. After some thinking, I don’t agree that it does.
Let’s say I build birdhouses. It costs me $5 to make a birdhouse, and I can sell them for $50; any more than that and people stop buying them. If it suddenly costs me $10 to make my birdhouses, it doesn’t make any sense for me to raise my price to $55, since people are still willing to pay only $50. Similarly, if it suddenly costs me $2 to make them, it doesn’t make sense to lower my price to $47, since people are willing to pay $50.
It’s the same with drugs. Vioxx costs around $90/month. It costs that much because people/health plans/etc. are willing to pay it, not because of any great expense in developing it. If they never threw another dinner or gave me another pen, people are still willing to pay $90, so why would they charge any less? (There is an argument that such marketing tactics drive up the price that people are willing to pay, but that’s a different argument.) That’s assuming, of course, that your company wants to maximize profits, which I think is safe to say of the major pharmaceutical companies.
People say I’m just trying to justify, but I think I’m right. Any comments?
Dr. J
Doc, you’re economic theory is reasonably on. Price of goods should be set what the market will bear to maximize returns.
In the case of drugs, these dinners are part of the cost of sales. If,as a result of these dinners, you become educated about a particular drug, prescribe said drug, recommend said drug to colleagues, etc., the drug company is getting a return on investment in your dinner. It might be a pricey dinner, but how much Vioxx at $90/month do you have to prescribe before the drug company is ahead of the dinner game?
—It costs that much because people/health plans/etc. are willing to pay it—
Since new drugs are nearly monopolies, it’s probably true that some people would be willing to pay even MORE for the drugs. The company simply sets prices at whatever level will maximize their total revenue, which is a little different than “what the market will bear.” In a non-competative situation, the market will “bear” almost any price: the question is when raising prices starts to lose you too many customers who can’t afford to give you money.
Are the dinners WORTH it? In this case, since the price of the drug has little to do with the cost of producing it, the only real consideration is whether it’s really worth it to the companies involved to spend money promoting a drug that otherwise could be spent researching new drugs for continued profit in the future. Does the promotion benefit them enough in increased sales to offset the loss from not investing as much in research or something else? Who knows…
What it does put the lie to is the idea that drugs “have” to cost that much because otherwise companies couldn’t fund future research. In reality, the fact that they can throw around promotional money is a sign that the price line is really not so bright and hard after all: there’s probably NOT a good reason that, at any particular price, they couldn’t lower the price just a little more by cutting into promotional activities: which are almost always blurry as far as their resulting payoffs. Of course, the reality is that these companies are not in the game just to be altrusitic: they also want to make some nice monopoly profits too. The REAL problem, in my mind, is that they feel as if they can’t say so in public without being shamed: which is ridiculous. People who don’t start drug companies to work for cures have little right to bitch about companies that DO do so, and change high prices for it. The world is certainly no WORSE off because they made an expensive cure, and arguably better off.
I don’t think it’s that people are willing to pay it, it’s that they really don’t have much choice. My father is an Emergency Room doctor, and he’s always bringing stuff home from the drug reps for us to laugh at. He’s brought back things that talk to us (complete with big batteries and microchips) that are light-sensitive, things that clip on to stethoscopes, and really nice pens, to name a few. Once, one of the drug reps wanted to take them all on an expensive deepsea fishing trip.
Nice dinners are just the beginning, DrJ. My father, who manages a long-term-care pharmacy in Texas, and my mother were treated to a soiree at the Majestic Theater in San Antonio, complete with dinner before the play, box seats at the theater, and dessert after. My dad knows he can rely on drug reps to provide lunch with CEUs for his staff. It’s a savings for his company, since the CEUs would otherwise have to be paid for in the form of seminars, travel expenses, and time off.
I myself have eaten very well at the expense of the Vioxx rep, among others. (I work in medical billing; the lunches were for everyone in the office.) I’ve also attended various training seminars sponsored by drug companies that discussed various aspects of treatment. (As a coder, this is important since I have to know what I’m coding and billing for.) I go away from these with thick handouts, reference materials, and information that has made the difference between getting paid and not getting paid.
Yeah, the goodies doctors and pharmacists (and occasionally, nurses) get do contribute to the cost of drugs. It’s part of the cost of doing business. On the other hand, the benefit is in the fact that doctors and pharmacists are more knowledgable in what they’re prescribing, and that these drugs are available in the first place.
Robin
What if you started treating potential birdhouse buyers to gala dinners and trips to Lake Tahoe, and your cost per birdhouse rose to $45, but you managed to increase your sales from 100/month to 1000000/month?
Personally Dr J, I’m a hardliner. I won’t take anything from the reps except product samples and those balls that light up when you bounce them. (I’m a sucker for a cheap toy.) It is wrong. I won’t even talk to them. Drop off hte info that describes why your med is better and I’ll look it over. Does the cost of the dinners amount to much? Nah. Not on the scale of their marketing budgets. But they do it because it works. You are more likely to prescribe their product because you took that bribe. Protest all you want that it aint so, but they know their data - it works. You won’t do the cost benefit analysis and cooly decide if product A is better than product B for each possible indication and if so by enough to justify its much greater cost … you’ll just use it cause your superficial analysis of it is that it works just fine and in the back of your mind you want to pay them back. Why else are the newest quinolones so often used when Amox (or no abx at all half the time!!!) would do just as well? And that dramatically drives up the costs of health care.
(Sorry, MsRobyn, but the drug rep aint the best place to get our objective education.)
I offer to take those tchotkes off of your hands, guys.
Purely in the interest of having guilt free health care providers.
Drop me an e-mail. 
You can keep those stupid Clarinex tissue boxes thoug.
Has anyone read the book Bitter Pills by Stephen Fried? It’s not at all a scaremongering book; I found it actually remarkably well balanced. (The author’s wife develops an awful reaction to a new antibiotic, and eventually makes a recovery linked in no small part to some mental health medications. So he’s not anti-drug, just pro-information.)
I don’t know if the rep dinners drive up the cost of the drugs. I have a suspicion they’d be as high anyway. I do know that the pharma companies feel these giveaways help their sales, though. The industry just passed a set of new regulations to cover some of the more egregious abuses, but I can’t remember where those can be found.
I work at a plaintiff’s law firm, so I hardly ever see these guys at their best. In the course of a recent suit I got to see some training videos that a major company had for their sales force; the salesmen are in the business of selling, not sharing unbiased information, that’s for sure!
I was at a seminar recently, where one of the speakers said that the industry spends $11 billion on pharmaceutical promotions each year with $5 billion of that spent through sales reps. Unfortunately, he didn’t say where those numbers are from, and the speaker was a plaintiff’s law primarily suing the pharmaceutical indusrty.
I should think that costs that large make some impact on the cost of the drugs.