Perverse incentives to the left; greed to the right. Stuck in the middle with American health care

love Elisabeth Rosenthal’s  2013 NYT series on the high cost of American health care and have been assigning portions of it to my classes for years (including this semester).

So, when I learned she had written a new book about the American health care system, I was all over it and ordered it the day it was published and finished it in less than a week (that’s definitely fast for me– too much time with the internet, not enough with books).

The book is terrific.  I literally cannot recommend it highly enough.  Even if you think you are not interested in health care policy, chances are you’ve had plenty of interactions with our medical establishment and would be fascinated to learn just how perverse so many of the incentives are.   I’ve been a health care policy junkie for at least a decade and I still learned a lot that was new to me.  To some degree, what I learned was just how absurdly depraved and money-hungry the whole system has become.  In many ways, we are looking at a medical system of capitalism amok.  So many people are looking to monetize every last dollar off of human sickness and suffering.  There’s lots and lots of good people who just want to help, but they have been caught up into a perverse and greedy system where, often just practicing medicine, means partaking in a series of sleazy and ethically dubious practices and organizations that are looking to squeeze every last dollar out of patients and the government (i.e., all of us).  And it’s working.  And, as I’ve written time after time, this is largely a matter of policy choice.  Political Scientist Jacob Hacker sums it up quite nicely in his NYT review of the book:

The difference between the United States and other countries isn’t the role of insurance; it’s the role of government. More specifically, it’s the way in which those who benefit from America’s dysfunctional market have mobilized to use government to protect their earnings and profits. In every country where people have access to sophisticated medical care, they must rely heavily on the clinical expertise of providers and the financial protections of insurance, which, in turn, creates the opportunity for runaway costs. But in every other rich country, the government not only provides coverage to all citizens; it also provides strong counterpressure to those who seek to use their inherent market power to raise prices or deliver lucrative but unnecessary services — typically in the form of hard limits on how much health care providers can charge. [emphasis mine]

In the United States, such counterpressure has been headed off again and again. The industry and its elected allies have happily supported giveaways to the medical sector. But anything more, they insist, will kill the market. Although this claim is in conflict with the evidence, it is consistent with the goal of maximum rewards to (and donations from) the industry.

There’s literally dozens of examples from the book that left me open-mouthed that people were able to get away with such greed and perversity, supposedly in the service of human health.  One that really stuck out though, is that of Duexis.  It’s literally a pill that’s just ibuprofen and famotidine.  You can dose yourself with those two for literally pennies a day.  Yet somehow– only in America, of course– they manage to charge $1500 a month for it and get doctors to prescribe it and insurance companies to pay for it.  Ugh.  If I ever had a doctor prescribe something like this to me, I would find a new doctor the next day.

Now, imagine a book full of other such shocking and disturbing examples.  Not exactly fun to read, but totally engaging, and disturbing.  And, also designed to be useful for helping readers navigate this giant mess with their own health care needs.  Or, at least listen to the terrific Fresh Air interview.

About Steve Greene
Professor of Political Science at NC State

2 Responses to Perverse incentives to the left; greed to the right. Stuck in the middle with American health care

  1. Nicole K. says:

    I’m about halfway done with the book. I wasn’t particularly shocked by most of what I’ve read so far. That’s because I’ve experienced a lot of this first hand. Xyrem is my most important medicine. It is the only thing that allows me to get any benefit from sleeping. Without it I’ll sleep 14 hours a day and wake up sleep deprived and disabled. This is from a recent article on the company that makes the drug:

    “Xyrem has the potential to grow meaningfully from current levels based on both volume and price increases,” noted analyst Douglas Tsao of Barclays in a post-Q1 report on the company, which cited an “overweight” on the stock.

    Jazz expects Xyrem to generate $950 million-$975 million in net revenue this year, still the lion’s share of total revenue. UBS analyst Marc Goodman notes that the drug is protected from generic rivals “at least through 2019.”

    Xyrem is considered an orphan drug because it treats a relatively small patient population. So it is expensive, between $70,000 and $100,000 per year depending on the nightly dose, says Cozadd, who added that Jazz raised the price 9% earlier this year.

    “Fewer than 200,000 in the U.S. have narcolepsy and of those, 12,000 take our product,” he told IBD. “These are very disabled patients. If you cannot get restorative sleep at night and can’t function in the day, you wouldn’t have a job. The disability rate for narcolepsy patients is greater than for MS (multiple sclerosis).”

    So they control a drug that people like me have to have in order to live normal lives. They generate almost a billion dollars in revenue selling this drug to 12,000 people. They are continuing to raise prices regularly because they can. There is no competition for this product. People that need it are don’t have any other options. This is not a free market.

    I don’t understand why orphan specialty drugs like this aren’t produced and distributed by the government. The drug is a well known compound that was discovered in the 1870 and seriously studied in the 1960s. It is not expensive to produce. It seems to me that a government pharmacy could produce, distribute, and control medicines like this fairly easily. Since they are only distributed to such a small population, they are only profitable when companies can charge outrageous prices for the medicine.

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