You've just pushed the problem around. Saying "get rid of the free market" in only a solution if you have a concrete alternative.
In a monopoly situation, the price tends towards 100X in my example, which is still less than the value provided. Even in a monopoly, nobody's paying more for a product than they receive value from it.
Yes, it may still seem unfair, but what else are you proposing? Nobody should sell the product? How is that making anyone better off?
You only see people asking questions about "well, who captures the extra value? what's fair?" etc when you don't have a market. When you actually have a market, then these questions cease to be relevant, because the price is already set.
The problem has nothing to do with free market concepts breaking down, or disagreements about what's fair. The problem is that we've artificially prevented this market from existing. Fix that and the problem goes away.
In theory, you could calculate the exact value provided by this drug (under the QALY model).
Under your theory a fair method to price life saving drugs doesn't exist. The person getting the drugs will effectively extract infinite value while the company will only extract a finite value.
Not really true, I'm afraid. People killing themselves (or allowing others to kill them) to ensure a payout to their families happens with some regularity.
2. Usually this happens because they place a higher value on their children's life and well being than their own. So even in the case were someone does place a value on their own life, it's only in relation to someone else's life.
The case of 2 is interesting because it shows that of the people who would accept a finite sum for their own life, very few would accept a finite sum for their chidren's life.
Since paying for the child's healthcare is the responsibility of the parent in a free market, we are back to my previous point that their is no fair free market way to price life saving drugs.
Who is worse: the person who doesn't save the child, or the person who saves the child, and sends a bill later?
Fairness is whatever two people will agree to pay for a service.
Imagine how silly it would be if we all paid the same amount for seats on an airline - which is how it worked before deregulation. Many seats would go empty, the utility would not be maximized, and we'd be missing out on the great transfer of wealth from the rich to the poor.
You might say that without it airplanes would not fly at all, and you might be right. But it's incredulous to claim that without these profits the medicine would not exist at all; it has existed already for 5 decades. (And we have patents as a system specifically designed to allow for funding the creation of drugs)
Were it not for a (probably illegal in this case) monopoly, other people would be able to make that same pill for $5 per tablet. And then nobody would pay $50 for the pill.
Supply and demand IS NOT the same as "charging everyone as much as they will pay for everything". It's inherently unfair to everyone who has to buy that thing, and that's why people think it's a rip-off, because it is.
[edited to remove some hyperbole]