Capitalists hate capitalism
Merck’s version of “market pricing” is “whatever we ask for.”
As the Marxist agitator Adam Smith once said, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
Smith understood that capitalists hate capitalism. They don’t want to compete with one another, because that would interfere with their ability to raise the prices their customers pay and reduce the wages they pay their workers. Thus Peter Thiel’s anticapitalist rallying cry, “competition is for losers,” or Warren Buffett’s extreme horniness for businesses with “wide, sustainable moats.”
These anti-capitalist capitalists love big government. They love no-bid military contracts, they love ACA subsidies for health insurance companies, they love Farm Bill cash for Cargill and Monsanto. What they don’t love is markets.
Case in point: pharma giant Merck. The Inflation Reduction Act (IRA) includes a provision that allows Medicare to (finally) start (weakly) negotiating the prices it pays for (a tiny handful of) drugs. If you’re scratching your head and wondering if you understood that correctly, let me assure you, you did: the US government is currently prohibited from negotiating drug prices when it bargains with pharma companies.
In other words: Medicare simply pays a pharma companies — whose products build on billions in publicly funded basic research, whose taxes are reduced by billions in research credits, whose patents are backstopped by billions in enforcement — whatever it demands.
To do otherwise, you see, would be socialism. Markets are “efficient” because they “discover prices” through bidding and selling. In the case of publicly purchased drugs, the price that Uncle Sucker “discovers” is inevitably “a titanic sum” or possibly “add a couple more zeroes, wouldya?”
Enter the IRA. Starting in 2026, Medicare will be permitted to negotiate the price of ten (10) drugs. The negotiations will use the prices of other drugs from the dysfunctional, monopolized market as a starting point and go up from there. The negotiations go on for three years, and there are multiple stages where pharma companies can hit pause with court challenges:
https://prospect.org/health/2023-05-11-regulators-bungling-drug-price-reform/
The system will not consider the prices that Medicaid or the VA (which are allowed to bargain on prices) pay. Nor will it consider the prices that other governments pay — the US is alone in the wealthy world in offering the anticapitalist price-taking posture when dickering with the pharma companies.
But this isn’t enough for Merck. They are suing the Biden administration over the IRA’s drug pricing plan, arguing that it is an unconstitutional taking under the Fifth Amendment:
Merck is represented by Big Law firm Jones Day, who made their bones by representing the RJ Reynolds from smokers with lung-cancer, arguing that the smoking/cancer link wasn’t scientifically sound. That’s not the only fanciful argument they put before a judge: Jones Day also represented Trump in his attempts to overturn the 2020 election (they also hired Trump’s counsel Don McGahn as he exited the White House’s revolving door).
As Ryan Cooper writes for The American Prospect, Merck’s argument is that the “fair market” value of its drugs can only be discovered if its single largest customer — Medicare — simply pays whatever Merck demands of it:
https://prospect.org/health/2023-06-08-merck-negotiating-drug-prices-unconstitutional/
They explicitly denounce the idea that a powerful buyer should use its market power to extract price concessions from sellers like Merck: “leveraging all federal insurance benefits (amounting to over half of the prescription drug market) to coerce companies to abandon their First and Fifth Amendment rights is a quintessential unconstitutional condition.”
Rebutting this argument, Health Secretary Xavier Becerra said, “negotiating for the best price is as American as apple pie. Since when is competition in this American system a bad thing? Why should we be the patsies around the world and pay the highest prices for medicines?”
The irony here is that Merck itself is a very powerful buyer. Whether negotiating commercial leases, raw materials or wages, Merck is ruthless in extracting the lowest prices it can from its suppliers. The company attained its massive scale the old fashioned way: buying it. By drawing on its nearly limitless access to the capital markets, Merck bought out dozens of its competitors:
https://mergr.com/merck-acquisitions
Anticapitalist investors funded these acquisitions in the expectation that Merck would be able to use its market dominance to pay suppliers less, charge customers more, and use some of the resulting windfall to corrupt and bully its regulators so that it could buy still more companies, charge still higher prices, and impose crushingly low prices on still more suppliers.
The IRA’s drug-bargaining provisions are extraordinarily weak. When they were first mooted in 2021, I talked about how Democrats were caving on muscular drug price controls that would benefit every American (except a handful of pharma shareholders):
https://pluralistic.net/2021/11/18/bipartisan-consensus/#corruption
They did so despite wild, bipartisan support for imposing price discipline on Big Pharma, and ending the 300% premium Americans pay for their drugs relative to their cousins abroad. 95% of Democrats support strong price controls; so do 82% of independents — and 71% of Republicans:
No one believes Big Pharma’s scare stories about how this would kill R&D: 93% of Americans reject this idea, including 90% of Republicans. They’re right — nearly all US basic pharma R&D is directly funded by the federal government, with pharma companies privatizing the gains:
https://khn.org/news/article/public-opinion-prescription-drug-prices-democratic-plan/
Despite the fact that really whipping the shit out of Big Pharma would be both popular and good for America, the Dems’ final version of pharma bargaining is a barely-there nothingburger where ten drugs will become slightly cheaper, after the next federal election. This is called “political realism” and it’s a fantasy.
The idea that limiting drug controls to the faintest, most modest measures would make them easier to attain was obvious nonsense from the start, and Merck’s anticapitalist lawsuit proves it. Merck will settle for nothing less than total central planning — by Merck. For Merck, the role of the federal government is to wave through a stream of mergers culminating in Merck’s ownership of every major drug; patent extensions for these drugs to carry them into the 25th century and beyond, and unlimited sums paid for these drugs on Medicare.
Given all that, there would have been no downside to the Dems passing an IRA that subjected the drug companies the same modest, commensense, market-based discipline we see in Canada, or the UK, or France, or Germany, or Switzerland.
But that’s not the IRA we got. Instead of defending a big, visionary program in court, the Biden admin is facing down Jones Day and Merck to defend the most yawn-inducing, incrementalist half-measure. What a wasted opportunity.
If you’d like an essay-formatted version of this post to read or share, here’s a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
https://pluralistic.net/2023/06/09/commissar-merck#price-giver
Cory Doctorow (craphound.com) is a science fiction author, activist, and blogger. He has a podcast, a newsletter, a Twitter feed, a Mastodon feed, and a Tumblr feed. He was born in Canada, became a British citizen and now lives in Burbank, California. His latest nonfiction book is Chokepoint Capitalism (with Rebecca Giblin), a book about artistic labor market and excessive buyer power. His latest novel for adults is Attack Surface. His latest short story collection is Radicalized. His latest picture book is Poesy the Monster Slayer. His latest YA novel is Pirate Cinema. His latest graphic novel is In Real Life. His forthcoming books include Red Team Blues, a noir thriller about cryptocurrency, corruption and money-laundering (Tor, 2023); and The Lost Cause, a utopian post-GND novel about truth and reconciliation with white nationalist militias (Tor, 2023).
