The Market Ticker
Commentary on The Capital Markets- Category [Health Reform]

Or worse, one that on-balance when used for the intended purpose might actually harm people!

Tamiflu and Relenza, antiviral drugs stockpiled by governments to tame influenza outbreaks, haven’t been proven to prevent pandemics and may cause more harm in some patients than good, researchers said after reviewing 170,000 pages of clinical-trial data.

So in other words the makers of these drugs talked governments into buying a lot of them, but unfortunately the evidence doesn't support their use for that purpose?

Oh, and the manufacturers don't provide "unbiased" data?  Gee, why would that happen?  Can anyone think of a good reason why a manufacturer of a given thing would be interested in selling lots of it?


The real stunner, from my point of view?  That this is not obvious to everyone and actually needs to be said out loud. 


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If you've read here for any length of time, and certainly since Obamacare first became a matter of discussion, not to mention Leverage, you know that one of my "hammer points" is the outrageously-abusive medical system we have in the United States -- a system that does what it does because our government has granted special dispensation from laws that operate in virtually every other area of commerce.

In virtually every other area of commerce The Sherman and Clayton Acts (15 USC) prohibit, under penalty of law with both civil and criminal felony provisions, virtually any collusive behavior between putative competitors that have the impact of restraining trade or fixing prices.

Also, in virtually every other area of commerce, you are free to transact in goods as you wish, and once you own a good you may resell it should you so choose to another party without interference.

And finally, in virtually every other area of commerce, you may not bill someone for a good or service unless three acts have occurred giving rise to the contractual obligation to pay: Offer, acceptance and an act in furtherance of performance.

But in medicine none of these protections apply because the health "industry" has lobbied for and received special dispensation from laws that are supposed to prevent you from being abused.

Now we have a poster child for this abuse -- Gilead's Sovaldi.

Gilead wants to tier its pricing based on a country's per-capita income. So patients in the U.K would pay about $57,000, Reuters reports, while Germans would pay $66,000 and Americans are paying $84,000.

In an actual free market this would be impossible to enforce.  Gilead could price the drug however it wanted, but you would be free to buy as much of it as you wanted in one place and sell it in another.

Ex transportation and storage costs this would cause the prices worldwide to converge.

This doesn't happen because it is illegal for you, as a person who purchased and thus owns the particular doses of the drug, to bring them into the United States and sell them.  That prohibition is a special restriction that the medical industry "enjoys", and it makes possible this sort of outrageous behavior.

Without the ability to throw you in prison should you attempt to break Gilead's pricing model -- a model that can only work so long as Gilead has the government shoving a gun in your face -- this sort of nonsense would be flatly impossible to maintain.

For now, Gilead has a pretty tight lock on the market, but competitors such as AbbVie (ABBV) are expected to debut treatments later this year. But Congress has no power over individual drug costs, so it's unlikely that all the carping will lead to anything, writes Nathan Sadeghi-Nejad in Forbes. There are plenty of ironies here, not the least of which is that medical innovation is revealing the shortcomings of our health care system.

"The drug is a microcosm of the U.S. healthcare system's structural problems," Sadeghi-Nejad adds. "We want big scientific advances, but are not prepared to handle the costs of a drug so effective and tolerable that every patient wants it at once."

Oh really?

If everyone wants it at once and the particular condition is relatively common (and Hepatitis C is) then the drug should be cheap due to economy of scale.

Markets work because there is a natural set of forces between buyers and sellers.  If the seller demands something that is unreasonable the buyer can either say "No" or find an alternative that costs less.  In the extreme case the seller makes no money and his or her patent expires worthless, at which point the substance becomes available for little more than the cost of manufacturing, as anyone can then make and sell the product.

But in the medical system none of this applies.  You can be (and in fact more frequently than not are!) treated without consenting to the price first, and if you are in an exigent circumstance and can't consent then the sky is the limit; the provider can perform anything he or she can defend as "medically necessary" irrespective of cost and you get charged for it despite not having formed a contract to pay.  But even in a case where exigence doesn't apply (at least in the first instance) this occurs all the time -- you go into the hospital for a routine procedure, walking in, and yet during your stay providers will come in and perform procedures from examinations to administering drugs to various other acts and yet at no time did you consent in advance individually or in bulk to the procedure and the price despite the fact that in many cases it was possible to present you with both and obtain your affirmative consent via signature first.

Try this in the auto repair business and you'll find yourself on the wrong end of an attorney general civil and criminal action.  Try this, in fact, in virtually any other line of work and you will find yourself being sued for fraud and possibly criminally prosecuted.

The exception?  The medical industry.

If you want to solve the problem with health care costs the only answer is to remove those privileges -- stop allowing those firms to use the power of government to compel you to buy only where, when and at the price they wish.  In other words, allow the market to work.  

If Gilead wants to sell their drug for some price they're free to do that.  But the minute they try to sell it for a different price in different places anyone should be free to buy it where it's cheap and sell it where it's dear, arbitraging the difference.  Since in a market economy many people will choose to do so the amount of money those performing the arbitrage can pocket for the service of doing so is limited; if someone gets too aggressive the market will resolve the problem as another person will enter that market and charge a lower fee.  This will continue until the market determines that the incentive to enter the market is insufficient -- that is, there is an insufficient amount of profit available to the next potential competitor to make it worth the effort.

Virtually all of the problems we have in America with our health system and affordability of care are caused by the extreme and outrageous legal protections that the industry has managed to bribe and cajole Congress into providing, and which it then uses to trash you as a consumer.  Medical care in a market without those special protections would cost about one fifth of what it does now, and as a result virtually everyone could literally pay cash for everything they need in that regard.  The reason governments at both the state and federal level refuse to do so is that they are well-aware that should these laws be repealed and the existing anti-trust and consumer protection laws be enforced that same 80% drop in health spending will instantly reflect into GDP and produce the mother of all recessions until that spending and those resources are reallocated into other areas of the economy.  It will also result in a huge number of lobbyists and "advocates", along with many lawmakers, becoming unemployed.

Until we confront where the problem lies and remove the special protections that make this abusive behavior possible we will have no resolution -- or affordable health care.

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