Odetta is a waiver on my desk that I’m declining. She is 61. The fever found her in March — the kind that settles in the brain and mostly finds people who were already poor — and the only medicine that touches it is 62 years old. I bought it in June for $19,000,000. The man I bought it from had priced it at $0.34 a tablet and called the price a ministry. I closed the ministry. The price is $318 a day now. God gave the molecule to the sick for nothing. I’ve corrected His oversight.
You may have read Tom Price in the National Review this week, warning that the Medicare “negotiation,” with its excise tax of up to 95%, will chill the development of new medicines. (Read him here.) He’s right. The chill isn’t a bug in my weather. It’s my season. The industry’s number for a new drug is $2,000,000,000 and climbing. That’s a door I don’t enter. I don’t build drugs. I outlive them, and I buy what they leave behind. Someday your own prescription will be an old one. The old ones are mine.
Let me walk you down the cost column.
The government negotiates the new drugs down to nothing. The companies stop building. The doctors keep writing. The only names left on the formulary are the old ones — expired patents, thin supply, patients too sick to read the label. I own the old ones. The men who made the generics stopped making them years ago. It wasn’t profitable enough for their ministries. I’m the supply now. You’re healthy this week, so the lesson feels academic.
It isn’t. Your premium pays for my inventory. Your premium sits on your paycheck. The paycheck isn’t going up. That’s the part of the forecast Mr. Price doesn’t print.
The arithmetic:
The research they didn’t fund: $2,000,000,000. What I paid at the estate sale: $19,000,000. The old price of her medicine: $0.34. The new price of her medicine: $318.
Read the next sentence twice. The difference between the first 2 lines is where the innovation went. The difference between the last 2 lines is where the patient went. Mr. Price thinks the $2,000,000,000 is lost. It isn’t lost. It’s a door I never had to open. The side entrance cost me $19,000,000, and it opens on the same room.
Odetta’s waiver is one paragraph long. It asks me to supply her course at the price my predecessor charged: $0.34 a day, the number that kept her alive. A full year at the old price is $124.10. I declined the waiver on Tuesday, by email, personally. I’m the one who says no. It keeps the lesson in the family.
A full year at the new price is $116,070.
You’re counting the way I count now.
Here is where most people stop, and it’s the part I want you to learn.
The IRA does not lower a price. It moves a printed invoice. Someone has to absorb the cut. The manufacturer swallowed a third. The PBM swallowed a third. The contract manufacturer swallowed the remainder and passed it to the line — to a sterile fill-finish plant outside Phoenix where a woman named Marisol reclassified herself from “aseptic fill operator” to “line attendant” on the seventh of April, because the new title does not require the fit-test for the half-mask respirator. The respirator is in the locker. The fit-test is in the drawer. I save $1.27 an hour per pair of hands. There are 240 pairs of hands on the line. The vial in your mother’s hand at 7:14 on Wednesday was filled by a hand without the respirator on. The lung is hers. The $1.27 is mine.
Watch what that buys me.
$1.27 an hour. That’s $10.16 a shift. $10.16 a shift is $50.80 a week. $50.80 a week, 50 weeks — $2,540 a year. Per pair of hands. 240 pairs of hands.
$609,600 a year. That is what the 12% fill-fee cut cost Marisol’s knuckles. The biologic in her vials costs $2,940 a dose at the negotiated rate. The fill fee my plant receives is $2.10 a vial. She is filling 1,684,200 vials a quarter. The Lord gave her the hands. I gave her the title. You do the multiplication.
The denarius was always the right frame.
“Friend, I am doing you no wrong. Did you not agree with me for a denarius? Take what belongs to you and go.” — Matthew 20:13–14
The householder was right. The agreement was for a denarius. The denarius is what Marisol is owed. The vineyard is what she is not. The householder and the government set the administered price. The vineyard is the supply. The friend is the demand. Nothing has changed except the vocabulary and the size of the penny. The government’s price is backed by a tax of up to 95%. Mine is backed by being the only bottle in the county. We’re both setting the price. Only one of us has to look the sick in the eye.
I don’t.
The carpet in the pricing wing cost $48,000. I’ve never once asked a patient to lie down on it to earn it back.
Take the ledger up a floor. I’m the Dean of Instruction at Warden University’s College of Business and Economics. I have spent 30 years grading men into the arithmetic that priced Marisol’s title and her locker and Odetta’s waiver. The seminar is Calibrated Deprivation. The textbook is mine. The graduate who priced your last prescription refill is one of mine. He ran the subtraction faster than I would have. I say that with a teacher’s pride. Another set the number on the inhaler your wife’s plan covers. Another priced the pill that keeps your father’s heart on its schedule. You aren’t insured against my faculty. You’re insured for the level of their competence.
No board can fire a curriculum. The model isn’t dying with me. It’s graduating faster.
I am told the refill rate has fallen since the price changed. I’m told this as a caution. The note sits in a folder under the forecast, unopened. The prescriptions that still arrive carry the larger number, and the larger number is the point of the exercise. The smaller number — the one I haven’t priced — may have Odetta’s name on it. If it does, she isn’t on my desk anymore. The waivers I decline are not retained. The desk is clean.
I am told the workforce at the Phoenix line has a morbidity curve I haven’t mapped. I expect my successor will. He will be one of mine.
I sleep well. The quarterly number is the best it has ever been, and I am, on the whole, content.
Sterling A. Varice holds the Hayek-Friedman Chair and serves as Dean of Instruction at Warden University’s College of Business and Economics in Richmond, Virginia. He is the author of three textbooks: Divine Mandates for Labor Utilization, Social Obligations for Profit Maximization, and Calibrated Deprivation: A Manager’s Guide to Employee Motivation.