The Cost Curve: How market forces can restrict medical access

It seems like a daily occurrence: A new medication comes to market – only to be priced so high, access is limited to a lucky few.

Many factors impact the cost of medications. Sometimes the cost is due to years of expensive research & development needed to bring the medication to market. Other times, costs rise because a drug manufacturer changes ownership and the purchaser simply wants to maximize profits.

We witnessed this recently with the acquisition of the drug Daraprim, used to treat a life threatening parasitic infection that disproportionately occurs in those suffering from HIV/ARC. In this instance, the purchaser, a start-up company, increased the drug cost from a manageable $13.50 per pill to an outrageous $750.00 per dose! To the shock of many, the price increased overnight – leaving many patients unable to access this lifesaving medicine – and sparking a nation-wide outcry.

As more and more states legalize medical cannabis, many are concerned that profit will be placed above patient access and compensation will overshadow compassion and care.

One of the fears is that big business will move into the green industry with an eye on maximizing profits in the emerging medical cannabis market. This is a very real concern, especially in states that restrict commercial cultivation by limiting the number of licenses or by making licensing cost prohibitive through exorbitant fees or expensive permits.

Another concern (cost driver) that can limit patient access, is excise or value added taxes, as well as sales tax. These types of tax structures add costs to the end user by increasing costs (through taxation) from seed to final sale. Simply put, the product (in this case medical cannabis) is taxed at every level; from cultivation to wholesale distribution, from the dispensary to the end user. This type of structure can add upwards to 50% in cost to end user (patient).

An additional cost factor is profit margin, which begs the question: “When is enough profit enough?” Basic consumer economics indicates that the supply and demand curve will set the price. As demand increases, so will the product price.

This type of economic price model works well for a variety of goods and services; but not so well when the product are medications, which are inelastic goods.

In other words, if 10,000 individuals rely on drug X for health reasons, the same number will still rely on drug X regardless of the cost or increase in cost. And, if individuals need the medication for quality of life purposes or to obviate serious health issues, and drug X can only be purchased from limited sources, a ‘captive’ market exists and costs can be manipulated. This is because the patient can’t  choose to purchase the medication from another source or simply “take their business elsewhere.”

In fact, anecdotal reports from Minnesota and Illinois indicate that medical patients are returning to the black market for medication because of the increased costs when purchasing cannabis from legal sources. No doubt, the aforementioned market factors have driven costs to the point that patients in need of medication have been priced out of the legal market, and driven back to the streets.

This is doesn’t have to be! Medical cannabis is unique – it can be produced by the patient (or caregiver) at a relatively low price, which, in turn, circumvents the producer, wholesaler and retail seller. When legally able to produce medication, the patient can, and often does, “take their business elsewhere.”

The ability for a patient to produce his or her own medication can mitigate and keep costs down for the individual. This can mean the difference between access or not – especially those who are economically disadvantaged or on fixed incomes – both of which are common in the disability/chronic illness communities.

Whole plant access and home cultivation are crucial components of comprehensive legalization and allow the patient to control medication costs – not the supply and demand curve or big business.

Grassroots Ohioans structured our amendment with this in mind. We believe there is no sense in having legalized medical access to cannabis, if the cost of the medication is prohibitive to the very people who need it.

Mike MacGuffie