Hi Hodafattel,

I believe you have a point here in that life saving technology are being milked for their maximum value. From a business perspective, the company is doing exactly what they are supposed to and to that extent, they are doing an excellent job. However, when you mention that in the case a company has been working on something but will purposefully not introduce this technology to market due to it not being lucrative enough, it does raise ethical concerns. Governing this kind of behavior would be difficult and therefore that in itself would make the endeavor quite tricky. I think the best case would be for this company to license off this technology to a smaller business which would be satisfied with the profit received. 

I agree that there are probably many life-saving medicines and drugs that are deemed not able to be sold at a high margin of profit. I too think it's unethical to solely not release the product just because it won't make the company that much money. But if you look at it from the companies perspective, the purpose of a company is to grow and expand and be able to turn up a profit from what they sell, so that they can expand their mission statement and be able to stay in business. When a product that they devise is just not going to perform well in the market, it makes sense to not sell it as it will cost the company a lot of money in terms of RnD, Quality control, marketing, and other processes behind the scene that is factored into the price. This would in turn take away resources from other products that would be much more profitable for the company and in turn be able to help more people and increase the quality of life. However, there are few instances where the company took money out of the equation and sold the product at a much much lower profit margin. For example, the covid vaccine sold by Pfizer and Moderna, I believe were sold to countries that could afford it at cost and those countries that didn't have the means to buy the vaccine were sold at a discounted price for the greater good of the world. They were able to do this because all the products that they sold had a higher profit margin and were able to cover this vaccine and the lost profits. 

I would generally disagree with restricting what a private company (independent of the government) could charge for its products. It is the companies right to charge whatever they want and it is the choice for someone to agree to pay that price or not. However, this is clearly not the case when it comes to the healthcare industry. Due to the extensive regulatory procedures, testing and development of our medical devices and medicine the competition within the market can often be slim to none. Price gouging often occurs due to the companies knowing they have a product that people NEED but can not buy from anyone else. In these instances I believe there should be government intervention to set a standard margin as you mention to protect the people from the monopolization of healthcare.

@cem34 It is an interesting idea for a company to license off their medical technology to other companies that may find it lucrative to them, however it is likely that if it is not profitable for a larger company then it won't be profitable for a smaller company with potentially less development and marketing resources. Even if it would be of interest to a smaller company, the willingness of any company to license off their technologies as well as the price of acquisition of the license would need to be considered. While it would be ideal to have some regulation to ensure that critical medical technologies make it to market, the reality is that investors demand the high profit margins and companies can not function without pleasing their investors and shareholders. Perhaps government regulation can come more in the form of incentives, where they offer medical device companies certain privileges in return for medically needed products that would otherwise not be released due to a lack of profitability. Anyone have thoughts on what sort of incentives might work?

All of the profit margin depends on the type of product that a company is selling. If the device is something that is fairly conventional, these products are treated like commodities so their profit margin is going to be low and they would need to manufacture a high volume to be profitable. So, getting a lon-term contract deal with hospitals is important to make any profit for these items. 

If the product is high-technology, meaning some imaging, surgical instrument, implants, etc, there is a great barrier to enter into this market so the profit margin for these are going to be way larger. There are R&D costs, need for patents, and greater regulatory compliance requirements. 

According to MedPAC, the profit margins are only 20 to 30% for large companies. Medtronic and JnJ are the top medical devices with the largest revenue with around $27.7 and $27.5 billion dollars in 2015. Companies like this are diversified and sell a mix of conventional and high technology devices so the average profit margin value is not going to reflect the revenue they are making. They use their high-technology devices to make up their money and the profits from the conventional devices are used to conduct even more R&D into these high-technology devices. S 

Financially, companies wouldn't go about developing medical devices if they didn't see profit in the near future, but there are ways companies develop these devices even though they aren't profitable. There are devices similar to drugs, better known as orphan drugs, in the respect that a very small population is affected, so there would be little profit due to the small amount. The government understands this issue and in turn offers incentives if companies go about developing these devices and drugs that do not have a large impact, such as tax breaks, providing high prices, and special filing requirements through the FDA. The market becomes cornered if one company is acting on the small market that affects these smaller populations and is able to assign higher pricing due to the competition not taking advantage of the market. Also, the federal regulations even help these companies pursue these unprofitable ventures by providing marketing for a certain period to spread the news of this market being developed so it can reach those affected communities. There is also patent protection, preventing the competition from developing generic products, which would be easier for others to develop from this main company. The government and companies know that these profits aren't going to be achieved normally, so the government incentivizes these companies by providing these numerous benefits in order to jumpstart their development. Even if a device isn't going to be profitable, there are ways to boost these chances where this smaller population is the target audience.

I like alot of the points mentioned above arguing for both sides. On one hand, I strongly agree that it is not ethical to establish large margins for medical products that consumers would find to be a necessity for their survival or health (insulin, etc,) ESPECIALLY if the product can be produced at a comparatively low cost. On the other hand, being the company with the patented product and no alike on the market, you have to consider the cost of R&D, time, and resources spent into developing the medical product to reach the stage of efficacy and vitalism that it reached. That work put into developing the product, even if for the common good, would have to rewarded to minimally recuperate the costs and then some, which is why alot of companies would charge that high profit margin. There are other costs that can be associated higher margins, such as wages, further R&D into different products, and subsidies that they may have for new product designs that aren't profitable yet.

@cem34 Do you think smaller companies would be able to afford the licensing from these major companies that want a large profit? You made an important though that companies are doing their job from a business standpoint but I wonder at what point does the livelihood of a patient out weight the importance of profit

Like previous replies, I also believe it is unethical life-saving technology potentially may be disregarded if the profit margin is under 80%. A few replies had mentioned government intervention in the form of incentives such as tax breaks and special filing FDA filing requirements as a potential solution. I wanted to provide another solution: expanded government investment into the development of certain medical products that do not have profit margins of at least 80%. Past current events have shown the positive impact of government investment in the development, production, and purchase of medical products. One recent example is the US government’s multi-billion dollar investment in mRNA covid-19 vaccines. NIH and other government grants were instrumental in the access of mRNA vaccine to the American public. These investments enabled companies to face less financial risks. It is likely the profit margin for mRNA coronavirus vaccines was low prior to the pandemic’s onset, and consequently less funding was geared towards its development. However, the events of the pandemic demonstrated the need for advanced preparation through medical technologies such as the vaccines. The US government could set standards for their investment in certain medical products to be better prepared for public crises, and have more communication with biomedical companies regarding potential products. Companies would also benefit as they would still profit after covering costs for the research, development, and manufacturing.