Vicious Rants of an Angry Yellow Man

Today's blog is a 2nd part installment on healthcare. Recently someone wrote in our local newspaper asking 2 questions. First is why drug companies charge much more in U.S. than in Canada. The second is why hospitals may charge $10,000 but will accept say $1500 from Medicare. What is the true value of the care they delivered?

The answer to the first question is easy: Because they can. Under Canada's national health, the government determines what a drug is worth and if the drug company won't sell it at that price, it loses the Canadian market. In the U.S. if a company has a patent on a drug, it can sell at any price because there is no competition from a generic. Of course, Medicaid and private insurances can negotiate for a better price, but patients who pay out of their own pocket will have to pay what the company wants to sell the drug for. So if you have no drug insrance coverage, you should buy your drugs from a reputable Canadian pharmacy. It is the same medicine.

The drug companies will argue that the prices are high because they have to pay for research and development costs. If prices are controlled in U.S. like Canada, then it will decrease research and thus decrease introduction of new drugs. Certainly if one develops a completely new drug, a patent of certain length is deserved so that a company will profit. But most of the basic scientific research that leads to creation of new drugs take place in universities, or labs under government funding. The drug companies turn the basic knowledge into making a new drug, get it tested and approved for use. So it is not just the private companies doing all the inventions. If the drug companies comes up with a completely new class of drug that changes the treatment of a disease, they will be richly rewarded under any system. But most of the time they come up with "me too" drugs which change 1 or 2 molecules of previous drugs. I would bet the R@D budget of some of the drugs on the market is less than their advertising budget. I don't advocate total price control but there should be a system where "me too" drugs should not cost $5 a pill.

Regarding the 2nd question we have to look at what is value. If you make a pair of sneakers and you price it at $150, probably nobody will buy it. Then you can lower the price or you can refuse to sell them at all. Obviously a pair of Air Jordans is really not 6 times better than a generic pair of sneakers. But Nike can set the price because people want to buy them. In healthcare hospitals can set their price if the market is really free. If you have a heart attack you are going to pay whatever the hospital charge or else you die. But hospitals can't charge you before you are treated. This is because the law forces hospitals to treat you whether you can pay or not. So if a drug addict who shot a cop comes in with gun shot wound the hospital and doctors there will have to treat him even though he will never pay after he gets out. So in order to make up for those people who have no insurance and have no money to collect from, hospitals have to charge everybody a lot more. But Medicare and Medicaid pay only what they want to pay. So $10,000 becomes $1500. Insurance companies who have a lot of patients can negotiate with hospitals and generally pay a little more than Medicare. So it is hard for hospitals to make up for the losses from the uninsured whom hospitals are forced to treat. Some insurance companies would not negotiate in good faith with hospitals and when their customers go to ER the insurance companies would pay much lower than the norm. Hospitals tried to bill the patients for the balance which upset patients. It appears that politicians are going against the hospitals on this because patients are voters. But unlike the sneaker seller, hospitals cannot hold back service. At least not until they are forced to close the ER.

So who gets screwed? The uninsured who have some money. If you are working and have a house and bank accont but no insurance, you will have that $10,000 debt. You can probably negotiate down the amount but not to anywhere near $1500. This is one of the reason why our system needs an overhaul. The working poor or middle class without insurance are the ones who can go bankrupt if they get a serious illness. If you are a drug addict or an alcoholic you get free medical care in ER which in turn causes someone who works hard for his money to lose everything he has. Is that fair?