Two days ago I wrote about the dual agency problem pharmaceutical executives face: "They're clearly crucial participants in the sacred calling of health care. At the same time, they're embedded in a highly competitive industry with strong profit demands. Pharmaceutical executives work in the jaws of a severe dual agency challenge: sacred calling vs the invisible hand of the market."
Today's New York Times offered a telling detail on how the jaws of money led Valeant Pharmaceuticals directly to disgraceful - though legal - "leadership" in the health care sector.
Valeant's legal but disgraceful strategy was to achieve monopoly power by buying rights to old drugs and then raising prices to stratospheric heights. I call this disgraceful because human health is not a commodity to be traded and sold. Valeant added "value" (money) for shareholders and staff, but subtracted value from the domain of human health - directly, via reducing access to needed drugs, and indirectly, by contributing to demoralization within and about health care through its sordid practices.
Here's the crucial detail. The CEO would only receive a bonus if the stock price rose by a specified amount each year, and the shares he was awarded would only vest if the stock rose by 15% in three consecutive years. Last year his salary was reduced to zero, making him totally dependent on stock price. These are legal incentives from the perspective of finance, but they're disgraceful incentives from the perspective of improving human health.
On July 31, 2015, Valeant's stock sold for $257.53. At 9:58 AM today it was selling for $28.89. I hope the 89% drop will convey to investors that financial performance should not be the key criterion for evaluating performance in the health sector.
The reason the Valeant story leads me to rant so vociferously is that for health care professionals pharmaceutical companies are partners in delivering health care. When a drug allows us to help a patient in a meaningful way, we're grateful to the pharmaceutical company. It's analogous to our relationship with consultants who help our patients achieve better outcomes.
The problem isn't that Valeant made an honest mistake. We all do that. It's that they were playing by rules that don't belong in health care. Disgraceful rules!
[See here for a previous post on Valeant. For a post on how I felt personally betrayed by a scandal involving the drug Abilify, see here. And for a post about Valeant in today's Pharmalot blog, see here.]
I believe I have reasonable understanding of all the benefits a market economy can provide. I'm writing on one right now. But there's a widespread feeling among clinicians and patients in health care that resonates with this cartoon: