Utah sends employees to Mexico for lower prescription prices

Ann Lovell had never owned a passport before last year. Now, the 62-year-old teacher is a frequent flier, traveling every few months to Tijuana, Mexico, to buy medication for rheumatoid arthritis — with tickets paid for by the state of Utah’s public insurer.

Lovell is one of about 10 state workers participating in a year-old program to lower prescription drug costs by having public employees buy their medication in Mexico at a steep discount compared to U.S. prices. The program appears to be the first of its kind, and is a dramatic example of steps states are taking to alleviate the high cost of prescription drugs.

In one long, exhausting day, Lovell flies from Salt Lake City to San Diego. There, an escort picks her up and takes her across the border to a Tijuana hospital, where she gets a refill on her prescription. After that, she’s shuttled back to the airport and heads home.

Lovell had been paying $450 in co-pays every few months for her medication, though she said it would have increased to some $2,400 if she had not started traveling to Mexico. Without the program, she would not be able to afford the medicine she needs.

Here is the full story, via Jonathan Falk.

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So, we know we can't have "one price" because one price would kill research and etc. But has anyone updated those calculations for a much richer world? Could a billion people paying one price make it work?

And of course that leaves aside more radical solutions, like one price plus government rewards for useful innovations ..

Rent seeking in action.

“The patent on Enbrel was originally set to expire on October 23, 2012,[28] but, in the United States, a second patent, granting exclusivity for another 16 years, has been granted.[29]

In the U.S., Sandoz submitted a biologics license application (BLA) for the proposed etanercept product "GP2015" in July 2016. Upon acceptance of the first application process, the U.S. FDA reviewed data from European clinical trials and bio-analytical investigations, demonstrating the biosimilarity of GP2015 to the US-licensed Enbrel.

Sandoz was then countersued by Amgen for patent infringements related to the methods of treating psoriasis and/or psoriatic arthritis. The case Immunex Corp. et al. vs. Sandoz Inc. et al., 16-cv-01118-CCC-JBC (D.N.J.) is pending.“

Tl:dr
Patent expired 8 years ago, this is a biologic which requires clinical trials for biosimilars. Amgen sued Sandoz in federal court, blocking Sandoz from selling their version.

Patents - the best measure of innovation.

The US has been subsidizing the low drug prices for other countries for decades. The government should demand fairness and equal pricing.

The open market solution, with less government involvement, is just to open mail-order delivery from Mexico.

Then solve for the equilibrium.

Good luck getting the FDA and Customs to sign off on that. Even if that went through one bad outcome from dosing or a drug switch would cause a major public case of the cries and everything would revert back.

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FDA would be smacked upside the head for "letting the people down." Just google "India FDA flies too numerous to count", and you can see why we should be cautious about importing drugs.

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> So, we know we can't have "one price" because one price would kill research and etc

Trump should put into place where the US will not allow a drug price that exceeds the the average PPP adjusted price of the drug. That is, if Big Pharma wants to allow Canada to mandate a below R&D price for the drug, then Big Pharma today knows they can make it up in the US by over charging.

Those days should be over. Everyone needs to help pull the wagon when it comes to drug R&D.

Or marketing drugs to doctors and patients could be eliminated, as in all other advanced countries outside of New Zealand.

The savings resulting from that alone would likely add more than 50% to existing R&D budgets of pharma companies active in the American market. https://www.raps.org/news-and-articles/news-articles/2019/7/do-biopharma-companies-really-spend-more-on-market - And although the CEO’s numbers may not be reflective of the industry as a whole (GlobalData in 2017 found that the top 10 drugmakers spent a total of $47.5 billion on sales and marketing while an Evaluate report found that the top 10 in 2017 spent $66.8 billion on R&D), the marketing versus R&D debate will likely continue as researchers and the companies find new ways to slice and dice the numbers.

Sure. But that’s not the root cause here.

See above. There’s a biosimilar ready to launch. Instead it’s caught in a strategic lawsuit so that Amgen can collect monopoly rents.

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Or marketing drugs to doctors and patients could be eliminated, as in all other advanced countries outside of New Zealand.

The savings resulting from that alone would likely add more than 50% to existing R&D budgets of pharma companies active in the American market.
www.raps.org/news-and-articles/news-articles/2019/7/do-biopharma-companies-really-spend-more-on-market - And although the CEO’s numbers may not be reflective of the industry as a whole (GlobalData in 2017 found that the top 10 drugmakers spent a total of $47.5 billion on sales and marketing while an Evaluate report found that the top 10 in 2017 spent $66.8 billion on R&D), the marketing versus R&D debate will likely continue as researchers and the companies find new ways to slice and dice the numbers.

This is absolute nonsense. Drug companies get a positive ROI for the money they spend on marketing. If they didn't, they wouldn't spend it. So if you outlawed marketing, their revenues would drop more than their costs.

There's a difference between doing marketing because the others do and not doing marketing because all are forbidden to. The easiest way to see this is to think of the marketing as an arms race. Limiting the arms race makes all the existing firms better off.

Right analogy, +1

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A study out of Dartmouth was pretty generous on what constitutes "marketing", they pegged annual marketing spend in the US at 26.9 billion. They also pegged total prescription drug sales at $329 billion.

At best complete prohibition on marketing would yield an 8% decline in drug prices.

But that is never going to happen. After all somehow in spite of a bajillion laws about "lobbying" DC retains a well oiled revolving door wherein those from the legislative and administrative machinery turn money into influence well outside of the basic rules. Instead, wherever the cracks are, money will flow through. Maybe you will suddenly find that drug companies give cash "donations" to "patient advocacy" groups who just so happen to tell everyone with obscure disease X all about the wonders of new drug Y. Maybe they will up their game at corrupting the primary literature by funding people with "flexible" understandings of how to write abstracts. Maybe they will partner with some "charity" and "celebrities" to give away their drugs to select charismatic patients with viral campaigns.

Whatever the rules are, there will be compliance costs. There will also be leakage and some "advertising" by another name will leak through. Maybe the end result will be that we block half of the marketing budget, though I am always told on this board how unrealistic that goal is for black markets not staffed with billions of dollars in legal representation.

But some (not all and likely not most) of that advertising is a legitimate get people on medications they do not know they need and do not discuss with their doctor. Infamously, Viagra drastically overshot its assumed market potential because when you could, finally, treat erectile dysfunction without penile injections patients came out of the woodwork. And a certain percentage of these patients newly discussing impotence with their physicians (often seeing physicians for the first time in their adult lives) were found to have heart disease or other treatable cause. Some of the advertising is legitimate. Likewise, some of the physician education is necessary so that docs can prescribe with good knowledge of efficacy and side effects (here I am willing to say that the majority of the spend is BS marketing, but a decent fraction is not). If you ban pharma from spending money educating docs, some one else will have to do so. Moving the funds into the corrupt cesspits that are the specialty boards is not going to lower the total costs to the system. Nor would I expect drug education to be well maintained as government project when the aforementioned lobbyists will undoubtedly capture it within a couple of years.

So again maybe we lop off 1/8th of the total marketing spend as legitimate. Quick off the cuff estimate is that maybe, maybe we drop net prices down a whopping 4%.

That does not begin to bring US prices down to places seen by the those areas of the world that have implicitly decided to kill people to save money.

If you really want lower drug prices, follow the money. It isn't in finding new drug candidates, those are small fry waiting to get bought. It isn't in marketing after FDA approval. It is in the approval process. A company with an only-drug-in-class blockbuster is not selling out to GSK because the hard work is done, they are doing it because the expensive stuff needs such economies of scale and regulatory capture that they cannot hope to be as "efficient".

Drug company profits, marketing budgets … all of that is dwarfed by the cost of getting approval and navigating a byzantine legal landscape. Banning direct advertising to eliminate the "arms race" is only going to result in maybe a bit more than a rounding error.

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Yeah, Okay, good.

Anyways, there’s a company with a proven biosimilar that’s passed FDA tests and the Feds have legally prevented market entry.

This is 100% a government failure.

It's even worse than that. Regulatory capture is the most charitable way of putting it:

The FDA is now forcing manufacturers of drugs that had been around a long time -- -pre-FDA efficacy tests -- to get approval. [The program has a name, but I forgot.] This is the reason for the price explosion of some what we thought were generics.

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+1

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"Trump should put into place where the US will not allow a drug price that exceeds the the average PPP adjusted price of the drug. That is, if Big Pharma wants to allow Canada to mandate a below R&D price for the drug, then Big Pharma today knows they can make it up in the US by over charging."

+1, Americans have been taking it on the chin for decades. It's time to put a stop to bearing a disproportionate share of the costs.

I wouldn't worry all that much. It's just price discrimination. We don't complain that the movie theater ticket prices for our children are lower than for us. Nor do we worry about Black Friday sales, and such.

I shouldn'a been so kind. The possibility of price discrimination is here given by US laws, which cost something to enforce. Then, to legally get around price discrimination we have this poor woman jetting back and forth. All that is part of the cost of the present regime.

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This idea that a President of the United States should mandate drug prices is charming. Perhaps someday a game show can ask "was it Trump or was it Sanders?"

Well said

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Trump admin. actually tried to do that.

https://www.statnews.com/2019/07/09/questions-trump-most-favored-nation-drug-pricing/

I think it didn't survive contact with Big Pharma lobbying.

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So free markets for thee, but not for me.

Why can't the Mexican cartels deliver the good medicine instead of the bad?

Demand, from doctors, is low. :-)

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Everything's fine with US healthcare system...

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Sovereign immunity insulates Utah from suit if the drugs obtained in Mexico aren't safe. Or if the Utah employee is murdered by gangs while in Mexico to fill her prescription. Meanwhile, Trump gave a speech in NH yesterday morning promising not to cut funding for Medicare. In the afternoon, his administration submitted a budget with a half trillion dollar cut to Medicare including $135 billion cut to the Medicare prescription drug benefit. Our hosts like disruption, because they believe it leads to innovation. I commented yesterday that cutting Medicare might induce innovations in health care designed to cut costs, but naively stated that it's not going to happen because proposing cuts to Medicare is political suicide. Now we know why Cowen has learned to like the Orange One: because the Orange One can propose cuts to Medicare and his brainwashed followers won't believe it. This is taking Straussianism to an entirely new level.

If you're going to cut public medical expenditures anywhere, medical care for old people is the place to do it.

They are going to die soon anyway.

Yes. Biology and the financials of risk management don't care about feelz.

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$500 billion "cut" over 10 years, which means an average of $50 billion/year. Big deal. A $500 billion per year cut would be going in the right direction of Medicare for no one!

Ehh it is even worse. The "cut" is just a reduction in growth rate relative to baseline increases. Medicare will not actually be spending a dime less than currently.

It may still be a crappy idea (e.g. we have more beneficiaries every year and growth will lead to increased mismatch between what Medicare spends per patient and what total costs per patient run for providers).

The hilarious thing is, of course, that this is a much smaller decrease from baseline than anticipated by Warren, Sanders, etc. If you believe Warren's math, the amount spent per person will be dropping dramatically in 10 years. Far in excess of what Trump proposes.

Maybe you buy Warren's secret sauce for lowering costs. Maybe you buy Trump's. Me? I have been around this block before. The cost curve will remain unbent. Costs will rise. And, at best, quality will drop commensurate to cost/reimbursement shortfalls. That is how it has worked every other time somebody has tried to game this stuff.

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That’s not what Straussian means.

OK Boomer.

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Californians do this for firearms. Pretty common to get your goods in foreign countries that don't have to deal with capitalism.

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GOP: "Move along. Nothing to see here..."

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If your take-away from reading the post isn't "this is a problem and we should do something about it", you might be a bootlicker.

The answer is so simple. Have the government enforce price caps on big pharma and call it a day......

Let's try it out with college tuition first. Set some reasonable cap, say $50 per semester hour. After all, the content of almost all the classes, particularly the first two or three years, are generic ...

And gasoline, which worked so well in the 1970's.

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Serious question:

How much do you estimate that the government will spend in enforcement costs a priori?

How much do you estimate it will cost downstream once the inevitable regulatory capture begins and the big boys start killing their new competitors?

My best guess to the first is easily billions (likely tens of billions) and my best guess for the latter is a few hundred million dead people. What are yours?

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Better solution, eliminate FDA but make drug company executives criminally liable for any misinformation provided to doctors or general public about their drugs. Also let people buy whatever drugs they want over the counter without prescription. You might say this is crazy but this is the way most non developed countries work and there are no major issues as far as I can see.

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Arbitrage is one heck'v'a drug!

+1

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Anyone wanna buy a couple of Australian epipens? Only $50 US. I'm only making 100% profit on that deal, so I'm basically cutting my own throat.

Note: Pick up only.

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Sounds like a conspiracy to violate FDA rules (which, as we all know, are very important or the FDA wouldn't require compliance)

Not really illegal, methinks.

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On a big issue such as this, FDA does what Congress tells it to. Where is the accountability for Congress? I remember debates from at least 2003 over to what extent pharmaceutical imports from Canada and Mexico should be allowed. To his credit, Ted Cruz actually joined Bernie Sanders on a vote to relax import restrictions. But the bill was killed by a bipartisan coalition that included most Republicans and a few Democrats who depend on pharma campaign contributions.

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It would be interesting to see how well Utah complies with the FDA regulations: https://www.fda.gov/about-fda/fda-basics/it-legal-me-personally-import-drugs

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What Utah is doing will benefit its citizens so this must be communism. We can't have that in the US. If executives aren't paid their millions, then Marx will have the last laugh.

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The top paid pharma exec last year "earned" 58.6 million dollars (Moderna fresh off a massive IPO). Which is, of course less than that earned by Mike Trout.

Of course it makes sense to fret about paying too much to the guy whose company is literally treading a brand new path to whole new suite of therapeutic options rather than the guy who can very accurately strike a fast moving ball.

Truth is, you could confiscate all the earnings of all the C-suite folks at pharma and still not make a dent in prices. Total compensation is something like 1% of market cap, and just getting a few basis points less on your corporate bonds (say because you went to college with the CFO of the bank) is easily worth millions.

I mean seriously, does anyone ever even bother to look at the magnitude of numbers we are discussing? Pharma sales are measured in hundreds of billions. Executive pay is in the tens of millions for the C-suite. Even if you had a thousand C-suite individuals in pharma all earning near the top end remuneration for last year you would struggle to move the needle 1% on price.

Their numbers are public and stuff like marketing or executive pay just is not that large. Maybe you believe the books are cooked, okay fine. You are now accusing these companies on multiple felonies. Okay fine. You somehow expect to be able to force them to cough up the cash even though they can lie on financials gone over not by some government flunky but by the M&A quants the world over and somehow a mere new law will recoup all this money?

Sorry, but no. If pharma is hiding a giant pile of loose cash from investers, M&A quants, and, of course, the insiders whose options vest soon … you couldn't even pry it out of their cold dead hands.

Those commie Utahns flying to Mexico are really putting the hurt on our pharma CEOs who don't get paid as well as Mike Trout. Trump's going to need a bigger wall.

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"I mean seriously, does anyone ever even bother to look at the magnitude of numbers we are discussing?"

Hasn't that always been the problem? Overpaying for bog standard stuff because we don't allow our globalized free markets to work. It could easily be an order of magnitude less like anything else we buy from outside the country. Utahns flying to Mexico is the perfect case for two wrongs that don't make a right. It should not sit well for any sane person.

I see only two ways to make the numbers work on drug prices:
1. Pharma is lying about what things actually cost. And not just to the IRS but to all the people with a vested interested in accurate knowledge about cash flows. Which includes people with vesting options who would need to see the uncooked books. If they could pull that off, consistently, across the sector with nobody breaking silence we have no hope of tracking down the money.

2. The rest of the world is pricing off marginal costs rather than total costs. Equilibrating towards a European average would mean that a lot of less profitable drugs would be dropped from clinical trials and in the long run a bunch of people would die. But its okay, most of them would be Africans anyway.

Googling around turned up these figures for return on equity adjusted for R&D costs: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/roe.html

Pharmaceutical drug companies look pretty healthy by comparison with their 12.65% average R&D adjusted return. That's better than average and really good for companies that actually make stuff. Compare to metals & mining at 3.23%, auto parts 9.42%, chemicals between 5-8%, and machinery at 17.8%.

If you have better metrics to look at, please do share. But, at a glance, I don't see evidence that the pharmaceutical industry would suffer much from charging lower prices. Sure, it would become less sexy -- more like water utilities (9.90%) and less like information services (28.03%). But that's ok.

That's all? Sheesh, the numbers are that LOW?

The majority of pharma firms never hit the equities market so the reporting data is skewed massively toward the most profitable concerns in pharma (the average pharma firm goes bust before it gets bought, but your report is only tracking the 267 most profitable entities). If, when looking only at publicly traded firms, you are not double the sectors dominated by stable firms (e.g. water utilities), you are seriously out of whack. Even worse, we know that the winners any given year account for the vast bulk of the profit. The most profitable pharma companies any year have easily double the profit margins (there is no assurance that a company will stay on top from year to year).

Like a lot of things you need to actually measure the appropriate thing. The easiest way to increase life expectancy at birth is to abort all the kids likely to die young so they vanish from the numbers. Likewise, you can gin up some not terribly representative numbers.

But suppose you are right and pharma takes a bath of 2.75%. How much will that actually lower prices? Well we drop the profits by a fifth. Okay so per the GAO net profit margins are around 20% for the top end pharmaceutical companies. So 80% of the current prices would be utterly untouched and of the remaining 20% you propose that we have pharma take a bath (bankrupting the entire bottom half the industry to the heavy skew each year for the big winners) and achieve a whopping 4% total cost reduction.

Again, how big are your actual savings? Profit is only 20% of the annual costs of pharmaceuticals. You could liquidate all of the pharma profit any year and still not approach the prices paid in Europe.

I can see a few places where you can scrounge up a few bucks here and there by going after some part of pharma ... but ultimately you are arguing that trillion dollar bill is being left on the ground. If advertising is a deadknock loss, then there should be none for only-drug-in-class setups (yet these receive the most advertising). If ROE is crazy high even accounting for lock-in risk and the like ... then somebody should churning out new, slightly less massively profitable companies every year.

At the end of the day, billionaires are not stampeding into pharma to make greater fortunes by clipping off all the alleged fat. Instead, all such schemes, which would have massive compliance costs, appear to amount to less than a 10% price reduction.

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As for the second point about people dying due to lower pharmaceutical profits, what's the evidence? If a drug that primarily benefits poorer Africans is profitable enough to earn a higher than normal risk-adjusted profit, some rational company somewhere will spend money developing it. If it isn't, then it becomes a job for CSR or charity regardless of what is going on with the pricing of other drugs.

If your theory instead is that pharma companies don't have good enough access to capital and need big infusions of cash in order to develop drugs for Africa, why not just make the argument for direct corporate welfare? As it is, the U.S. government is pretty close already by banning the government from attempting to negotiate discounts for drugs available through Medicare Part D.

The vast, vast bulk of QALYs saved in Africa come from unpatented drugs. The profit margin on that IP is pretty close to literally 0%.

Not rational profit maximizing company will ever spend money on the African market alone.

Instead, we currently have a system where the minority of utility derived from a drug (the first decade or so of use) has an obscene profit margin and the fat tail has basically none. Most of the impacts of decreased drug discovery are found in the tail.

Could there be direct corporate welfare? Perhaps. But history has not been kind to this idea. The Soviet Union, for instance, failed to deliver significant new pharmaceuticals. But hey, like a lot of cost conscious systems they kept down costs, by having not a lot (e.g. a lot of Soviet dental, obstetric, and other procedures used no anesthetic for efficiency reasons). But those are the Soviets. What about things like the NHS? Again, I am not seeing all that much movement towards effective drug development coming out of NHS coffers.

Whatever its faults, the US pharmaceutical industry has delivered a couple of decades of increased lifespan in Africa. Could we at least come up with ideas that would actually, significantly lower pharmaceutical prices before risking the life of the historically proven golden egg laying goose?

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But you have to admit, it is comedy gold for anyone who enjoys absurdism, especially when you throw in all the various excuses for why the present American system is not grotesquely flawed.

Not to mention how some people simply frame the subject - one commenter points out that R&D budgets could easily rise 50% if marketing was banned in the U.S., and then someone says that won't lower prices much - only 8% or some such. However, the point of the comment was not drug prices, but simply how to finance more R&D through a simple law, without increasing drug prices for anyone who feels that America's high pharma price are benefitting a bunch of free loaders. Leaving aside that the odds of the drug companies actually increasing their R&D by 50% when presented such a windfall is laughable to the point of absurdity.

Ehh, all the advertising arguments are pretty ignorant. If all this advertising were just some sort of arms race then we would see virtually no advertising for only-in-class drugs. There would be a massive premium for orphan disease because you would not have to advertise.

Yet the market looks nothing like that. New drugs for orphan diseases are heavily marketed. The FDA gives out massive value fast track options for new drugs because orphan diseases are not profitable otherwise.

The biggest costs in pharmaceuticals are regulatory compliance. The biggest determinant of profitability is not how many drugs you can find, but how quickly you can cull out likely losers. Pissing around with small fractions of actual spending is just a sure sign that the people involved are signalling rather than proposing solutions.

Again and again, it takes an awfully weird setup where not a single extant pharma firm cannot afford to ignore the proposed inefficiencies and then make a killing delivery more product at lower costs. Particularly when you look at companies with single orphan disease pipelines, they should be vastly more profitable not needing marketing. Or their CEO pay could be cut massively as they need no particular skill at somehow de facto colluding with competitors. Instead such firms look like the rest of pharma.

I find it awfully hard to believe that a bunch of investors are leaving trillion dollar bills on the ground.

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If you click through -- which you shouldn't, as this is an Associated Press article -- you'll see that "about 10" people are doing this. Tyler wants you to think "Utah" is sending is sending "its employees," but no.

And how about those journalism skills at the AP? They are perfectly happy to settle for "about 10" because that is such a massive number, it has to be approximated. I'd bet the number is 7-9, because if it was 11, surely they would say "more than 10."

I did not need to click through, since this was the second sentence of the highlighted text in what Tyler highlighted. "Lovell is one of about 10 state workers participating in a year-old program to lower prescription drug costs by having public employees buy their medication in Mexico at a steep discount compared to U.S. prices."

Honestly one can say that AP's journalism skills are considerably better than your reading skills.

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Medicare, Medicaid, and private insurer should do this for medical/hospital treatment in some cases.

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Honey I'm off to Tijuana again!

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Before taking generic meds read the book “Bottle of Lies” about drug manufacturing in India

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Trump has been trying to create global pricing for several years. I do not understand the hold up, but I'd assume its Big Pharma, who thinks they can avoid any change to the system.

https://www.statnews.com/2019/07/09/questions-trump-most-favored-nation-drug-pricing/

It seems bonkers to me for Big Pharma to avoid this...embrace it! Charge more in Europe and Canada and blame Trump!

I guess they worry about patents being seized. How well did China do in fighting tariffs?

Seriously, Big Pharma seems unaware that they will get a WORSE deal very soon...instead of adjusting to a global price, they will have to match France's.

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