Thank you for the explanation, I do agree that such a system does discourage you from using less expensive suppliers... assuming a lack of competition which you rightly point out is the bigger issue.
Of course, if there were sufficient honest competition it wouldn't need to be cost plus either, it could just be an honest competitive market price.
As long as they are actually manufacturing it the main pressure would be when they inevitably internally question why they are selling it for less than market price. I have seen that discussion, there's a big difference between "we can sell it profitably for this much" and "we can sell it for this much and make this much money".
So how do you provide that internal pressure? One honest competitor that publishes transparent methods for estimating the cost of manufacturing the drug along with case studies making it easy to do in other cases, and commit to using that process.
Or medicare of course, I don't see any reason it needs to be a private company. If they could estimate the true manufacturing cost in a vacuum I would certainly hope they could negotiate better but maybe they just don't know how because they aren't the manufacturer.
Of course, if there were sufficient honest competition it wouldn't need to be cost plus either, it could just be an honest competitive market price.
As long as they are actually manufacturing it the main pressure would be when they inevitably internally question why they are selling it for less than market price. I have seen that discussion, there's a big difference between "we can sell it profitably for this much" and "we can sell it for this much and make this much money".
So how do you provide that internal pressure? One honest competitor that publishes transparent methods for estimating the cost of manufacturing the drug along with case studies making it easy to do in other cases, and commit to using that process.
Or medicare of course, I don't see any reason it needs to be a private company. If they could estimate the true manufacturing cost in a vacuum I would certainly hope they could negotiate better but maybe they just don't know how because they aren't the manufacturer.