Business

Trending Today … FORBES: ‘Proof Of The Failure Of Free Markets In Medicine’

By Rick Ungar, Forbes Contributor

FEBRUARY 2, 2012 – Got an ideological predisposition towards defending the value of free markets in medicine?

Take a look at this –

Each and every year, approximately 3,000 children—typically between the ages of 2 to 5—are diagnosed with acute lymphoblastic leukemia.

Once a death sentence, this deadly disease can now be cured for 80 to 90 percent of those afflicted thanks to an injectable drug called methotrexate. As a result of this wonder drug, tens of thousands of children—who would have died before they even got started in life —are alive and well. And let’s not forget the indescribable benefit to the families of these children who have been spared the ultimate in misery.

Yet, despite this fantastic success rate, kids are now in danger of facing this disease without this life saving drug—all because manufacturing the medicine is no longer as profitable for the pharmaceutical companies as it once was.

With methotrexate having been around long enough to no longer qualify for the patent protections that permit drug manufacturers to charge big prices as a result of  their exclusive ownership of a protected formula—and with the generic version of the drug unable to produce enough profit to inspire drug companies to manufacture this critical chemotherapy—the nation now faces a deadly shortage of this drug. This means that kids are dying —and will continue dying— because the money just isn’t what it used to be for the five manufacturers who have long supplied the critical medicine.

If there was ever an argument for what is profoundly wrong with the profit motive in medicine, this must surely be that argument.

Says Dr. Michael Link, president of the American Society of Clinical Oncology-

This is a crisis that I hope the F.D.A.’s hard work can help to avert. We have worked very hard to take what was an incurable disease and make it curable for 90 percent of the cases. But if we can’t get this drug anymore, that sets us back decades.

Via New York Times

According to the F.D.A., all five of the pharmaceutical companies that make this hugely important medical treatment have either slowed production or stopped making it all together, each claiming ‘manufacturing delays’.

What are the odds that 100 percent of these companies are, somehow, each experiencing manufacturing delays?  Does anyone imagine that these manufacturing delays were occurring back when these companies were making big bucks on the product, achieved by the huge mark-ups that accompany receipt of the patent protection that bars others from competing?

So serious is this situation that President Obama signed an executive order last October ordering the F.D.A to broaden reporting of potential shortages of certain prescription drugs; speed reviews of applications to begin or alter production of these drugs; and provide more information to the Justice Department about possible instances of collusion or price gouging.

Sadly, this directive will not do enough to save the lives of kids who face death as a result of these drug shortages that have now reached critical levels.

And it’s not just kids who are at risk.

There are a large number of life saving drugs for the treatment of heart disease, bacterial infections and additional cancers that are becoming increasingly unavailable because the profit is no longer sufficient to satisfy the business plans of the pharmaceutical companies—despite their having made billions when these drugs were under patent protection. Indeed, during the past year alone, it is estimated that some 180 drugs that are critical for treating leukemia, breast and colon cancers, infections and a variety of other diseases have been declared in short supply – a record that is beyond shameful.

Because of these shortages, the prices for some of these drugs have risen as much as eighty times greater than what was previously charged. You see, keeping the supply of a drug ‘short’ means that the drug companies can charge exorbitant prices due to supply and demand.

So, what is the solution?

We can extend patent protection on drugs so that profits can be maintained ad infinitum. However, this would be government stepping in to artificially keep prices high simply because the drug companies accept no responsibility to make these medicines available once they no longer hold the promise of the giant profits they once presented.

This might be the way we have to go. If a pharmaceutical company can make the case that a better or more advanced drug has not emerged in a given category, and that the drug in question is essential to saving lives, maybe we should extend patent protection on that basis.

However, this is most certainly not anyone’s idea of the free-market and serves only to highlight, with dramatic clarity, what happens when we rely on free markets in medicine. People die as profits fall.

The other solution would be to allow the markets to ‘do their thing’—and if that means children have to die as a result of shortages or because their families simply can’t afford to pay insane prices, I suppose some would say that this is the price to be paid for defending their ideology and their deeply flawed belief that free-markets must exist at any cost—even if that price is the loss of life. Of course, we can all imagine how quickly these people would change their tune if, God forbid, the victim should turn out to be their own child.

But maybe there is another way.

Maybe we should be considering the track record of theses drug companies when it comes to fulfilling  their social responsibilities (shudder) when considering a pharmaceutical company’s patent applications in the future. If a drug company has shown us that they are willing to allow people to die once patents expire and the profit margin on a given drug decreases, is this company really deserving of future patent protection for their new drugs—a protection that we, the people, provide them through our government?

It would be one thing if a particular drug has been antiquated by new medicines that provide a better result, thereby mooting the reason for a drug company to continue manufacturing a drug that is no longer the state of the art. However, when a drug continues to be the sole method of saving lives, why should we, through our government, protect their profit interest only to see Americans die once the drug company is no longer satisfied with what it can earn?

Clearly, free markets do not always work in health care and these deadly shortages certainly serve to prove the case. When pharmaceutical companies lose interest simply because the money is no longer as good as it once was—people die.

To suggest that this practice is beyond unacceptable seems like a dramatic statement of the obvious. Yet, if the behavior of the companies putting little children at risk of death when they have the ability to save their lives is demonstrative of how these pharmaceutical companies choose to act, I suppose the statement isn’t quite so obvious after all.

Source: http://www.forbes.com/sites/rickungar/2012/02/12/proof-of-the-failure-of-free-markets-in-medicine/

2 replies »

  1. With all due respect to Rick Ungar, whom I do not know, his premise is flawed and his solutions not sustainable for his goals; which are indeed worthy. Let’s look at some of the inconsistencies in his fourth paragraph:

    “With methotrexate having been around long enough to no longer qualify for the patent protections that permit drug manufacturers to charge big prices as a result of their exclusive ownership of a protected formula—and with the generic version of the drug unable to produce enough profit to inspire drug companies to manufacture this critical chemotherapy—the nation now faces a deadly shortage of this drug. This means that kids are dying —and will continue dying— because the money just isn’t what it used to be for the five manufacturers who have long supplied the critical medicine.”

    So, let’s break it down. He criticizes the developer/parent company of the drug for charging “big prices as a result of their exclusive ownership” (ownership is the key word here, folks); then he laments the fact the generic manufactures, and I quote, are “unable to produce enough profit to inspire drug companies to manufacture this critical chemotherapy.” Huh, interesting that profit is an essential driver, and apparently acceptable for generic manufacturers that didn’t have any risk or expense in getting the drug to market, but for the developing company profit is bad?

    Here is another idea: What is the upfront cost of getting it to market were significantly lower across the board? What if prices weren’t supported by “artificial” contracts and formularies? What if there was some true tort reform so that that loser pays and there is no settlements allowed? What is our corporate tax structure enticed many pharma companies to relocate here on a level playing field? Guess what, the protection time would be less, the incentives to keep costs and production going to meet demand at reasonable profit would be insured due to healthy competition.

    There is a tendency to view profits and “private sector / publically traded companies as synonymous with the free-market. This is just not the case in our pseudo-free market crony capitalistic economy. I contend we haven’t given a true free-market a fair shake at trying to help solve this price / supply issue. This brings us to the realization that there really isn’t a healthy free-market in healthcare today.

    The “free market” works well in all other major sectors & industries within our economy (except healthcare and higher education). What makes these two industries, specifically health care different? It is because it is so heavily paid for with third-party monies, both government and private health plans, that there is virtually no way to interject consumer price pressure on the supply / demand curve. Our highly regulated pharma industry, oppressive tax structure, and drug price regulation by fiat (or contract) in most other countries causes cost-shifting to newer products to generate profits. For a free-market to work laws must be simple, easy to enforce and regulations must be marginal to the point of the public/business rights protection, but not otherwise excessive.

    So, why is the default reaction always to blame “the free market” when it comes to healthcare? The market, if allowed to react correctly is not moral or immoral; it is amoral. It has no agenda. If the proper incentives are in place, without excessive outside political or regulatory forces that pervert rational business decisions, the market works very well. So I would ask, are political, regulatory, or bureaucratic self-interests any more noble than economic self-interest? If the free-market is so bad, how and why did /does the cost of IT and communication technology continue to fall virtually always to the point of being affordable to the masses?

    I could go on, but I can’t say it as well as in the following video where Phil Donahue interviews Milton Friedman about the “injustices and evils” of the free-market.

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