The Real Lesson of Valeant's Debacle

After taking a moment to catch my breath and make sure that the entry wasn’t a typo, I went online and found the same item (with no volume discount) for $3.89. I called the hospital’s billing department to enquire about the 19,700% markup. The representative calmly assured me that the charge was standard and normal. You don’t need a degree in economics to know that an enterprise which considers a 19,700% markup to be normal is not operating within a free market.

Buying health care is not the same as buying detergent. If your detergent doesn’t work, all you have are dirty clothes. If your health care doesn’t work, your life could be at risk. I’m a firm believer that the free market is far more effective in ultimately coming to the best solution between a buyer and seller of anything. But when the stakes are as high as they are, the swings of fairness that we can live with in other commercial interactions are not acceptable in a medical transaction; and in any case the health care market is anything but free. In addition to my own personal experience, consider the following:

Today, most clinical trials of drugs are run by the same companies that are attempting to commercialize them, a conflict of interest that routinely inhibits objective science. The British Medical Journal reported on a study comparing Big Pharma-sponsored trials to all other health care trials. The investigation revealed that those run by Big Pharma were four times more likely to reach positive conclusions about a particular drug than the trials run by others.

One such drug was Vioxx. Only five years after FDA approval, Vioxx was taken off the market. An FDA-sponsored study concluded that the drug had caused approximately 88,000 to 140,000 heart attacks, and approximately 20,000 to 40,000 deaths. Another study revealed that more than half the sales growth in drugs like Vioxx were for patients who should not have been prescribed the drugs in the first place. This was directly attributed to marketing claims that played into our common misperception (and completely logical expectation) that a new drug should be better than the old one.

But the FDA doesn’t require that kind of comparison. A new drug just has to show that it is better than nothing (i.e. a placebo); a policy that has led to a marketplace where me-too drugs proliferate. There are currently seven or eight FDA-approved statins available today, none of which were tested against each other. This leaves the primary job of differentiating between these complex and sophisticated prescription drugs to the marketing department.

Corporate Influence

Just two countries in the world permit the advertisement of prescription drugs directly to consumers: the U.S. and New Zealand. In their recent book “Ending Medical Reversal,” authors Vinayak Prasad and Adam Cifu noted that in the five years ending in 2005, direct-to-consumer (DTC) advertising quadrupled to $4 billion. The obvious conclusion (borne out by other studies) is that DTC advertising works to sell more drugs, but doesn’t answer the more important question, “Does it also work to improve health?”

Corporate health care influence has spread into areas previously considered out of bounds — hospital and academic research, medical schools and professional associations. In 2013 the American College of Cardiology and the American Heart Association recommended the use of statins even for healthy people — increasing the potential statin-using population by nearly 13 million people. Prasad and Cifu noted that half of the panel that made the recommendation had financial ties to manufacturers of statins.

Valeant did not come out of nowhere. Its behavior, while extreme and even predatory, was built on a foundation of existing health care business practices that had evolved over the last three decades.

What will happen to Valeant the business is not as important as what will happen to Valeant, the potential wake-up story. We all want a robust free market economic system along with a robust and effective health care system. The real lesson of Valeant is that the health care system itself has become unbalanced in an unhealthy manner, compromising the free market, the progress of science and our own well-being. Bringing those vital things back into balance, even a little, is to everyone’s benefit.