Why is healthcare not a public good?
I’m sure some of you have excellent economic-centered answers as to why it isn’t, but can we stop and think about how the systems we have created encourage us to remain comfortable sticking to the status quo? Have we been desensitising ourselves from the injustices some of our systems have created?
Recent incidents have reignited this conversation, especially regarding our healthcare and pharmaceutical sectors.
What happened?
Elon’s decision to democratise blue ticks which were previously used to mark legitimate accounts on Twitter, into a product the public can purchase at an $8 monthly subscription has led to an uptick of impersonators. Big corporations and influential people were not spared.
Free Insulin from one of the largest pharmaceutical company
In the early afternoon of the 10th of November, what looked like the official Eli Lilly Twitter account tweeted that the life-saving drug, Insulin whose cost has been soaring the past few years, will be free. The account hit more than 1,500 retweets and 11,000 likes in just a few hours before Twitter disbanded the account. However, the damage was done and Eli Lilly’s shares took a nose dive dropping more than 6%, and wiping billions of dollars from its market cap. The cascading effect affected other insulin makers Novo Nordisk and Sanofi.
What does this tell us?
Apart from the billions of dollars lost by Eli Lilly and other big pharma (boohoo, how sad…), it not only shows the greed and intentions of its investors but also reflects how IP-driven profits can be in healthcare.
Our flawed system enables big pharma to continue to exploit us
Insulin was discovered about 100 years ago by Canadian physician and scientist Frederick G Banting.
In January 1922, Leonard Thompson, a 14-year-old boy dying from diabetes in a Toronto hospital, was the first to receive an insulin injection. Within 24 hours, his dangerously high blood glucose levels dropped to near-normal levels.
Upon finding out about the humongous success of the drug, Banting sold the patent to the University of Toronto for just $1. He hoped everyone who needed it would have access to it.
“Insulin does not belong to me, it belongs to the world.” — Frederick G Banting
Eli Lilly came into the picture when the company was given the right to mass-produce the drug to be made widely available to the public. Instead of following the aspiration of the discoverers, Eli Lilly and other big pharma decided to turn insulin into profit machines, bringing in billions of dollars in profit annually from exploiting desperate users.
Insulin costs on average 800% more than in other developed economies. This stark difference in cost can also be seen for other drugs. The consequence is too much to pay. Last year alone, more than 100,000 Americans died from diabetes.
Another case involving the pharmaceutical sector that still haunts me is former pharmaceutical CEO Martin Shkreli, and his decision to hike the cost of Daraprim, an AIDS treatment drug that has no generic option, from $13.50 to $750 per pill overnight in 2015.
What’s Big Pharma’s excuse?
Big Pharma hides behind the excuse that the price hikes are due to “R&D” for continuous innovation to help develop new medications. However, it is clear as day that the pharmaceutical sector has not been innovating.
Research has shown that 78% of patents approved are related to medications already on the market, while those disease areas not considered growth markets are ignored. From 2000 to 2011, only 4% of newly-approved products were designed to treat neglected diseases that affect lower- and middle-income countries.
Instead, most of its money has been used for share buybacks to boost share prices for its investors, marketing, and patent applications.
Pfizer spent $139 billion on share buybacks and dividends in the past decade — and just $82 billion on research and development in the same period. It was also found that the chief executive’s pay was $27.9 million in 2017.
The Implications
Big Pharma’s actions have killed innovation in the sector, not only by deprioritising R&D for profits, but its unscrupulous ways of hacking the patent process to discourage competition by new entrants entering the sector.
Patents are temporary barriers to entry. This process was used to support the underdogs. We imagine inventors and small-time investors getting legal protection to prevent big corporations from stealing their ideas. However, these days, patents have often been exploited by large corporations like big pharma.
Instead of creating new drugs, big pharma extends existing patents beyond the initial 20-year protection and uses gimmicks to block knowledge creation and issue patents for what is essentially the same drug. This practice is called evergreening, an effective extension of the company’s monopoly on the drug well beyond the period granted by the original patent.
The book, People, Power and Profits: Progressive Capitalism for an Age of Discontent by Joseph E Stiglitz accurately depicts the conditions experience in the sector today.
Many innovations today require hundreds, if not thousands of patents. As a firm creates new products, it may unknowingly risk intruding on various patents. Only large firms that have the capabilities and resources can research existing patents. Furthermore, these large firms often partner with other large firms in the sector, allowing them to share each other’s patents. New entrants however are not part of the club. They risk being sued no matter what they do and how innovative or careful they are. With limited financial resources, they risk losing everything if they fight in court. The only sure winners in these suits are the lawyers of these large corporations and the losers are consumers and small firms unable to enter the fray. This is American-style capitalism in the 21st century.
Is there a better way?
Taking down recommendations from People, Power and Profits: Progressive Capitalism for an Age of Discontent, Joseph E Stiglitz provided recommendations to curb these American-style capitalism challenges.
1. Updating Antitrust Laws
The creation of Antitrust laws in the 19th century was also due to witnessing the growing market power and increasing inequality. These laws worked for a while, big monopolies were broken up and mergers were constrained. However, things took a turn when an army of lawyers and conservative economists narrowed the scope of antitrust. They were more concerned with giving free rein to corporate and business interests, rather than the consequences of market power for our economy or our democracy. Proponents of the latter like Milton Friedman argued that we didn’t have to worry about monopoly because economies were naturally competitive.
However, years of predatory pricing and growing inequality prove his point otherwise. What’s needed now is a change in these presumptions that our markets are fundamentally competitive. Anticompetitive practices should be presumed illegal and the government will have to be more active in resorting to a broader range of tools in not just limiting mergers and enjoining certain anti-competitive practices. Until a competitive marketplace is finally restored, the government may need to regulate.
2. Acknowledging the flaws of IP Rights
As we move to a knowledge-based economy, intellectual property rights (IPR) will play an increasing role. For instance, patents provide temporary monopoly power. However, this also means that knowledge is not being used efficiently and prices are higher than they otherwise would be.
Points from this article also prove that our current IPR regime not only leads to high prices but also stifles innovation. Another instance to prove this is when the U.S. Supreme Court ruled that one could not patent naturally occurring genes, the consequences were dramatic: The tests for a critical gene related to breast cancer, which previously had been patented, quickly became much cheaper and better.
Credit: iStockPhoto.com
After two centuries of research, we now have a better understanding of why Adam Smith’s invisible hand can’t be seen: because it’s not there. More often than not, a firm’s agenda is to create greater profits and market power, not just better products. With these objectives in mind, firms have excelled in using their market power to exploit their consumers, their workers, and the political system, in ways that lower growth, even in a supposedly innovative economy.
The reforms touched on in the book are not aiming to seek perfection, but to curb the extremes of twenty-first-century American capitalism.
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This post was previously published on medium.com.
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Photo credit: iStockPhoto.com