Thursday, April 28, 2016

Robber Baron Capitalism victimizes Mother Theresa

Yesterday the Senate Special Committee on Aging held a feel-good hearing at which the Senators excoriated Michael Pearson, the soon-to-be ex-CEO of Valeant Pharmaceuticals, for rapacious drug pricing, and hedge fund manager William Ackman for making Valeant a darling of the Wall Street world.

It's a valuable truth about organizational life that every system is perfectly designed to achieve the results it actually produces. The two articles cited in the previous paragraph and a third about "The Complex Math Behind Spiraling Prescription Drug Prices" provide insight about how the current U.S. system inevitably produces stratospheric drug prices. Here's how it works:

  1. The first step involves rewarding CEOs lavishly for short-term profits. It's important not to look too deeply into how the profits are made, as long as the method is - or appears to be - legal. My my previous post  about Michael Pearson's compensation shows how this first step towards moral corruption can best be carried out.
  2. One variant of step two involves identifying a valuable old drug that is priced affordably. Make sure it has no competitors. Then, buy it and jack up the price by hundreds of percents. That's the route Michael Pearson at Valeant and Martin Shkreli at Turing Pharmaceuticals took.
  3. As an alternative, identify a serious medical condition for which there is no effective treatment. Develop a new, better approach. This is the path of discovery and developing genuine new value. Up to the the point of setting a price, this step is morally admirable.
  4. Recognizing that (a) we control a vital component for human health, and (b) health organizations are committed to human health, (c) set a stratospheric price, since (d) we have the health system over a barrel. 
  5. If whoever is purchasing our stratospherically-priced drug protests, accuse them of (a) rationing care, (b) stifling innovation, or best (c) both.
This is how the fine-tuned medical-industrial complex facilitates runaway drug costs. Historically, providers have been governed by Mother Theresa's ethics - do what is needed for human health no matter what it costs. The Michael Pearsons and Martin Shkrelis may be acting within the law, but they're not acting within the ethics of care. Unlike Pearson and Shkreli, who simply recycle established products at new prices, pharmaceutical companies that develop treatments that create new possibilities for human healing are participating in the health care calling. But when they charge astronomical prices, they're joining with the Pearsons and Shkrelis in robber baron conduct.

Hard bargaining helps, but it isn't likely to be enough to lead to fair pricing. My guess is that some form of regulation or other change in law is likely to be required. How to do it is beyond my pay grade. But happily, we in Massachusetts elected Elizabeth Warren as Senator, and consumer protection is her specialty. I'm going to send this post to her office with a simple message: PLEASE HELP!

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