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I Love Pharma Bro?

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By now you've probably read about the pharmaceutical company CEO that raised the price of a sixty year-old drug from $18 to $750. I have to admit that I was a little late in hearing about Martin "Pharma Bro" Shkreli's move with Daraprim. The drug is critical for extremely few patients and there isn't a substitute (from what I understand).

The reaction was pretty obvious, people were outraged. Shkreli can buy a few more Ferrari's and the sick either pile up tons of debt or suffer the consequences. Insurance may cover some of the cost, but that's going to push up premiums for many other people.

I'm with the people here. Outraged!

However, sometimes I like to take a step back and think about the view from the other side. America is a land of capitalism. We always here how everything is a matter of supply and demand. Shkreli has something in demand and he has the only supply, so he can treat it like a Tickle Me Elmo on Christmas Eve (if it was 1996).

So on one level Shkreli is just being All-American, right?

I can buy that, except that it feels like a misuse of a monopoly. Shkreli has a monopoly in a treatment for this condition. Imagine if a company had a monopoly on oil or providers of internet access (hmmm...). There's a reason why your local gas station can't get away just jacking the prices up to $75 a gallon... even if you need it to get to work to earn an income.

In the healthcare industry, this kind of competition doesn't everywhere. Nothing gets more confusing than trying to figure out the prices of healthcare. I wrote about this when I became a father. I had to get a TDAP booster shot and a flu shot. The office visit, less than 15 minutes long, was billed to my insurance for $369. A quick internet search shows a flu shot is $30 at CVS. A TDAP should be about $31 at a doctor's office. My insurance decided to pay $196 of it, which the doctor's office took as payment in full.

So in short some $60 in services was grossly inflated to $369 and insurance ended up settling it for $196.

It feels like the numbers are just picked out of hat. And that's the point that this Washington Post article makes in a couple of key quotes from experts:

"I think it reflects a widespread appreciation that pricing for drugs is entirely irrational in this country and the pharmaceutical industry has total control over prices and there’s no rationality to the system... It’s such a perfect, crystalline example of everything that can be done, given the lack of rationality in the system, and the total bankruptcy of the justifications for high drug prices in the first place."

"The rest of the health-care system .?.?. no one is explaining the price. No one even knows what the price is. And no one knows what a fair price is... [Shkreli] was transparent — and the industry, the whole health-care industry, is not transparent. It’s not even close. It’s the most obtuse, dense, incomprehensible pricing structure ever created by humanity."

So on another level, one could look at Shkreli as shining a very bright spotlight on a very broken system.

I only wish I had any confidence it would help fix the system. I remember back in 2004, when the Yankees acquired Alex Rodriguez. They were already one of the best teams, with a seemingly unlimited payroll and they added one of the highest priced players in the game. They were the Shkreli of Major League Baseball. The system was broken and as a Red Sox fan, I hoped that it would shine a spotlight on the very broken system in Major League Baseball. (Of course the Red Sox actually enjoyed a substantial benefit by the broken system as they had an almost seemingly unlimited payroll themselves.)

In either case, it didn't seem fair that the Oakland A's would be forever doomed to giving up their stars. Kansas City was always at the bottom of the standings. Some of these smaller market franchises have found ways to compete, but you have to wonder what they could do if there was a salary cap.

I thought that Alex Rodriguez would be the straw that broke the camel's back and changed the game. It didn't happen. I won't make the same mistake in believing that Shkreli's pricing will change the health care game.

I imagine that people will talk about it for a couple of weeks... and there will be no changes.

Maybe that's the real broken system.

P.S. Sorry to end this article on a negative tone, especially on a Monday. On the bright side, there's a lot of room for things to get better right? And of course it is a good thing that such treatments exist to have these discussions in the first place.

P.P.S. I can't decide if this article was a Devil's Advocate post or not. If Shkreli's actions somehow produce real change in the health care system then no. Otherwise, yes.

Posted on September 28, 2015.

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2 Responses to “I Love Pharma Bro?”

  1. Money Beagle says:

    What I’m confused about with regards to the pill going up 5500% is that it’s been around for a long time so any trademarks or patents to give exclusivity would long since have expired so why is nobody else making this?

  2. […] Monday, I published a Devil's Advocate post on Pharma Bro. If you were hiding under a rock, he jacked up the price of a medication by 40 times what it used […]

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