By Jill Zorn
If you want to get really angry about the seemingly unending and arbitrary rise in pharmaceutical costs, read, “The Valeant Meltdown and Wall Street’s Major Drug Problem.”
This is one of the best examples of how greed is a defining feature of American health care and is a major reason why we pay more for health care by far than any other industrialized country.
The article explains how by 2015, Valeant Pharmaceuticals had reached the heights of success and become a “$90 billion colossus.” Then the story traces the fall from these heights, as the CEO is forced to resign and the stock price plummets.
The author, Bethany McLean, is no stranger to financial scandals, having co-written the definitive book on the collapse of Enron, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron.
McLean explains how Valeant succeeded in driving up their stock price and attracting billions in venture capital from hedge funds. How did they accomplish this feat?
Not by discovering new and better drugs to cure serious illnesses. No, their financial wizardry involved huge layoffs and tax avoidance schemes. But by far their most successful tactic was frequent and outrageous price increases.
“Up to that point in 2015 alone, according to an October report by Deutsche Bank, Valeant had raised prices on 65 prescription drugs by a weighted average of 85 percent, far more than the industry average of 20 percent. Two drugs Valeant sold to treat skin conditions related to cancer had soared nearly 1,700 percent over six years, according to a JAMA Dermatology study. For example, a tube of Targretin gel, which treats lesions caused by lymphoma, rose from $1,687 in 2009 to about $30,320 in 2015.”
The highlighted phrase is an indictment not only of Valeant, but of the entire pharmaceutical industry.
What other industry was able to raise its prices by an average of 20% in 2015?
Of course, pharmaceutical companies are not alone in figuring out ways to milk the health care system for out-sized profits. Insurance companies, including Anthem, Cigna, Aetna and Humana, are currently investing millions in lobbying, seeking support for their too-big-to-fail mergers. The chief benefit of mergers is to allow the formation of monopolies that will have more power to raise prices.
Marcia Angell, former editor-in-chief of the New England Journal of Medicine, in a recent Boston Globe op-ed, describes the insurance industry as one which,
“… thrives by refusing coverage for expensive medical conditions and generally denying claims. These companies’ profits, marketing, and other overhead expenditures are so high that when Obamacare restricted them to 20 percent of premiums, it seemed draconian.”
Hospitals and other health care providers, whether officially for-profit or nonprofit, are getting into the greed act, too, as Angell points out,
“The second, and perhaps greater, underlying problem is the perverse incentives of providers to perform as many highly reimbursed tests and procedures as possible. These providers include hospitals, whether technically nonprofit or not, for-profit outpatient facilities, such as imaging and dialysis centers, and even specialists whose income is proportional to the high-tech procedures they perform.”
And here’s more from a Community Catalyst blog post on hospital profiteering:
“A recent Health Affairs study on hospital profitability has been garnering national press attention for finding that seven of the “Top 10” most profitable hospitals were non-profits…. “Extremely profitable” hospitals—those in the top 2.5 percent of profitability from patient care—use markups pushing 600 percent of cost. And, perhaps tellingly, almost 80 percent of these hospitals are for-profits….”
The study also found that more profitable hospitals had little competition in their markets or were part of larger systems.
Yes, organizations working in health care need to do better than just break even in order to survive and thrive. But that doesn’t mean that health care businesses and providers should “enrich themselves at the expense of society,” as medical ethicist Peter Ubell writes in his Forbes Magazine post, “Is the Profit Motive Ruining American Healthcare.”
Health care is a social good, a human right. How did it become one of the fastest ways to make a buck on Wall Street and on Main Street?
Here are a few other opinion pieces of interest on this topic: