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31 July 2006

One small step for market transparency...



On 14 July 2006 I saw the Channel 7
Editorial presented by Chuck Stokes. The subject for that day was the
unnveiling of the web site michigandrugprices.com.



Imagine a database of no less than 30 often-prescribed medications
are tracked by price and vendor at the above website. A price
instance database
of 30-some medications and maybe 30 or so (as is
so often the case) chain pharmacies and pharmacy departments. As
Stokes said, it's a start. Nevertheless, I would imagine such a
database (perhaps even in the proprietary ".mdb" or Access�
format) could fit easily on a 1.44MB floppy. When I get a round tuit
I will visit the Michigan drug prices website and see how webstacled it
is.



Michigan law for some time now has entitled people to prescription
price quotes in person and over the phone. The mechanization of the
process using a website is important in that people now need not worry
if their requests for quotes are holding up the line at the pharmacy
counter. A website also has the potential to warehouse empirical
microeconomic data (price quotes) for a large number of medications,
and hopefully also a large number of pharmacies, both chained and
otherwise. The potential also exists to build a veritable
informational lens for the drug-using public. Perhaps some of the
techniques of modern portfolio theory can be used to match optimized
portfolios of pharmacies to consumers' portfolios of prescriptions. This is a
more computationally intensive task than determining which particular
pharmacy has the lowest total price for a given individual's market
basket
of prescriptions. Such market baskets (or bundles) are
all-too-familiar to persons who have recently used online `databases'
set up for the purpose of matching Medicare Part D `recipients' and
their vouchers to single insurance companies. When Part D was first
announced, the AARP was for it because they saw it as the best thing
for health care that also has short to medium term political
feasibility in the United States. I saw it as that, but more
essentially as a small step for the cause of
transparency
and a giant leap for the cause of privatization, not
just of Medicare but of information.



Markets (in the sense of "the market for X" or "the going rate for X")
are described (rightly or wrongly) as being on a scale
(depending on which "X") from "monopoly" to "perfect competition."
The former is characterized, according to theory, by
market opacity, price discrimination and high entry and exit costs.
The latter is characterized by transparency (understood to mean
both buyers and sellers are street wise regarding prices),
the "law of one price," and open competition, unhampered by
(say) licensing (in either the IP or credentialing sense),
protection rackets, trade secrecy, and other barriers to entry.



Some of the least wealthy places and people have been getting some
medications at reduced prices, which is location-based (I forgot which
degree that's supposed to be) price discrimination. This seems to the
pharma-ceutical industry to be more palatable than compromising their
strongly held political views on the subject of patents-in-perpetuity.
I speak as one who applauds price discrimination in favor of people
who need it badly, yet I am also a militant advocate of extreme
transparency, especially in consumer and labor markets. This
phenomenon is called "conflicting wants," and is a disease of
normativists such as myself. Perhaps a world in which people of
modest means can benefit from immodestly priced pharmaceuticals is
only possible if the pharmaceutical marketplace is managed according
to a Providian-type business model, in which empirical data points
about the supply and demand curves (which contain the relevant information
about prices and their elasticities), especially in the aggregate, are
closely guarded proprietary information, which those members of the
public purchasing "prescription (or general healthcare) discount
cards" can access a few data points at a time, which it is claimed
(with `satisfaction' guaranteed) results in smaller (`up to' 70
pct. in some cases) outlays for covered (now you're covered!) health
care products and services.
One must not misunderestimate the economic wisdom displayed by
President Bush in appointing Providian's former chaircritter
to head up whatever investigative unit of the SEC was supposed
to address transparency and conflict of interest issues in the
financial markets.

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