Markets Are Great When They Work, But They Don't in Most Aspects of Medicine

One of most maddening parts of the healthcare debate to me concerns the role of markets and the mythos that if we somehow let the free market work, a new era of low costs and high-quality care would usher upon us. I have written before that while I believe free markets are the best approach for optimizing the quantity and quality of most consumer goods, healthcare is inherently different. For the most part, we do not seek healthcare as a market good, but rather something we must use when we are sick to make us better (or to prevent us from getting sick). When we are acutely ill, there is very little choice we can make, and even when we are not sick, there are limits in information that prevent us from making the “best” purchasing decision (where best may not only refer to money, but also perceived quality and other aspects of care we value).

To say that healthcare will improve if we let markets operate is naive at best. While some healthcare organizations might perform better due to attention to cost and efficiency, at the end of the day, healthcare is not something we want to leave to pure market principles. But ironically, despite the lack of operating as a free market, healthcare is profitable for many. I provided a number of examples in that posting a few years ago, and now some new information has come to the fore.

One is an interesting new book by Elisabeth Rosenthal, Editor-in-Chief of Kaiser Health News and a physician and former correspondent for The New York Times [1]. Dr. Rosenthal's book explores how all of the major players of healthcare - insurance companies, hospitals, physicians, pharmaceutical companies, medical device manufacturers, and even codes and researchers operate under a set of “rules” of a highly dysfunctional market. These rules (with copious examples to back them up in the book and more elsewhere [2]), to quote, are:

1. More treatment is always better. Default to the most expensive option.
2. A lifetime of treatment is preferable to a cure.
3. Amenities and marketing matter more than good care.
4. As technologies age, prices can rise rather than fall.
5. There is no free choice. Patients are stuck. And they’re stuck buying American.
6. More competitors vying for business doesn’t mean better prices; it can drive prices up, not down.
7. Economies of scale don’t translate to lower prices. With their market power, big providers can simply demand more.
8. There is no such thing as a fixed price for a procedure or test. And the uninsured pay the highest prices of all.
9. There are no standards for billing.
10. Prices will rise to whatever the market will bear. The mother of all rules!

The latter rule drives home the point of this posting. Even though the book is written from a somewhat liberal political bent, a political conservative could also find cause with the book in its demonstration how the market is distorted by special interests that corrupt government attempts to regulate the market.

More specific aspects of market dysfunction are provided by two recent papers, both authored by OHSU faculty. The first paper by Prasad and Mailankody calls into questions the oft-stated high costs of drug development, which are used to justify the ever-increasing prices charged [3]. Some have been highly critical of their methodology [4] while others have noted that the costs are highly variable but still do not bear any connection to the prices charged [5]. There is no question that drug development is still expensive, and a pharmaceutical company may have many misses in between hits. But we need to be reasonable about using the cost of developing drugs to justify prices, especially in monopolistic or other situations where market-style choices are not available.

Another paper looks at repository corticotropin (rACTH) injection [6]. Although there is no evidence that this treatment is more effective for any indication than much cheaper synthetic corticosteroid drugs, its use has grown substantially, due both to intensive marketing efforts as well as conflicts of interest among those who use it most frequently. It is also one of a growing number of drugs whose price has risen substantially, long after its development.

Other countries besides the US struggle with how to price drugs and other aspects of healthcare. The methods they employ, from negotiating on a national level to saying no to drugs that do not pass muster in cost-benefit analyses, are probably the only realistic solution when markets do not work and when government control of them gets subverted by special interests.

References
1. Rosenthal, E (2017). How Healthcare Became Big Business and How You Can Take It Back. New York, NY, Penguin Press.
2. Rosenthal, E (2017). How Economic Incentives have Created our Dysfunctional US Medical Market. Medium. https://medium.com/@RosenthalHealth/how-economic-incentives-have-created-our-dysfunctional-us-medical-market-b681c51d6436.
3. Prasad, V and Mailankody, S (2017). Research and development spending to bring a single cancer drug to market and revenues after approval. JAMA Internal Medicine. Epub ahead of print.
4. Herper, M (2017). The Cost Of Developing Drugs Is Insane. That Paper That Says Otherwise Is Insanely Bad. Forbes, October 16, 2017. http://www.forbes.com/sites/matthewherper/2017/10/16/the-cost-of-developing-drugs-is-insane-a-paper-that-argued-otherwise-was-insanely-bad/.
5. Love, J (2017). Perspectives on Cancer Drug Development Costs in JAMA. Bill of Health. http://blogs.harvard.edu/billofhealth/2017/09/13/perspectives-on-cancer-drug-development-costs-in-jama/.
6. Hartung, DM, Johnston, K, et al. (2017). Trends and characteristics of us medicare spending on repository corticotropin. JAMA Internal Medicine. Epub ahead of print.