The U.S. Drug Price Catastrophe and the Central Planner

By Aobo Dong

If you are fortunate enough to have an insurance plan with extensive coverage and low co-pays for prescription drugs, chances are you may not be overly concerned with the U.S. drug price catastrophe. For millions of Americans without such a plan, getting the much-needed prescribed medicine often involves frustrating multi-player exchanges between the pharmacy, the insurance company, and the doctor, due to complications such as drug pricing and pre-authorization.

The NYT recently launched an investigation into a simple question: “Why Are Drug Prices So High?” One surprising revelation from the study is that deep drug pricing problems may have been contributing to the ongoing opioid crisis, as insurers restrict patient access to less addictive alternatives. For instance, UnitedHealthcare stopped covering Butrans – a drug that had successfully helped Alisa Erkes to ease her excruciating abdominal pain for two years – just to lower its own expenses. Instead, Alisa’s doctor had to put her on long-acting morphine – a drug in a higher category for risk of abuse and dependence than Butrans. However, since it costs the insurance company only $29 a month, UnitedHealthcare covered it with no questions asked.

Of course, the insurer is not the only player to blame. Pharmaceutical companies and even doctors are often complicit in restricting and misdirecting patient access to prescription drugs. The Martin Shkreli case might be an extreme example of such behaviors, yet it is hard to deny the reality of often artificially inflated drug prices aimed at profit-maximization, with little regard to affordability and patients’ wellbeing.

Proponents for the current drug-pricing model may channel free-market principles in justifying the skyrocketing costs. Yet, as Professor William Sage discussed in his paper “Fracking Health Care” and its presentation at the inaugural HLS Health Law Workshop of the semester, it could be argued that free-market principles are severely compromised by such practices. Sage is interested in determining “trapped resources and values” in our current healthcare system caused by inefficiency in healthcare practices. For him, the high costs associated with health care could be a sign of the “free market” not working efficiently enough. To address such inefficiencies, Sage proposed a number of potential remedies that may “engineer” the “release of trapped values;” one of which is the radical idea of “eliminating the insurance middleman.”

Indeed, in an ideal free-market exchange, buyers (patients) should be able to directly negotiate pricing with the sellers of medical services (doctors) and medicine (drug companies). Insurance middlemen, with good intentions or not, necessarily generate significant operational, transactional, and profit-driven costs that must be counterbalanced by high insurance premiums, large pools of healthy patients, and even restrictions of access to health services and certain pricey prescription drugs. Given the above-mentioned NYT reports, I’d like to push Sage’s reasoning further by illustrating certain features that U.S. insurance companies share with the “Central Planner” in a socialist/communist economic system. A central planner redistributes a nation’s wealth and resources based on their technocratic calculations of the needs of its people for goods and services. Instead of being driven by free market forces, the central planning system relies on what the Central Planner thinks as the most appropriate way of distributing resources. When certain resources are scarce, the Planner would need to make hard decisions to compromise some people’s needs in order to sustain the overall planning machinery.

This is exactly what UnitedHealthcare did to its patients on Butrans. As the Central Planner of a “regime” consisted of millions of members paying monthly “taxes” (insurance premium), it made a utilitarian calculation and decided that certain drugs should no longer be covered due to budget constraints, leaving patients with less costly but more addictive drugs. The patients, as “citizens” of the regime, have very limited say in the decision-making process of the Central Planner, just like voiceless, disempowered people living in authoritarian regimes. Although the Planner often negotiates pricing on patients’ behalf with providers, the results of the collective bargaining is strictly binding; individual patients essentially transferred their market-negotiating powers to the insurance companies that in turn negotiate with providers, and must accept whatever outcomes this process ultimately yields.

Thus, my Central Planner analogy further supports Professor Sage’s argument that free-market principles are not adequately realized under our current healthcare system. Under the semblance of market-driven healthcare pricing arguably lies striking resemblance to a Central Planning system – the very antithesis to laissez-faire capitalism. In contrast, my research into Healthcare Cost-Sharing Ministries (HCSMs) suggests that when groups of patients, represented by a non-insurance advocacy entity, negotiate with hospitals without going through insurance claims, often experience a high success rate of driving down the cost of services much closer to their real “production raw cost” than most insurance companies could achieve. Despite the controversies surrounding HCSMs, they do seem to better represent the value of individual autonomy in health care access than traditional insurance.

Nonetheless, of course, “restoring” the U.S. healthcare system to a more laissez-faire system is by no means sufficient or necessary for addressing the drug pricing catastrophe and the system in general. Perhaps, it is really time to rethink health care as a right, not a privilege. If we can properly reframe the problems in the U.S. health care system as human rights abuses or violations, there might be a way to advance certain reforms without being bound or having to appeal to free-market principles. For more information on the fascinating relationship between human rights and health, Paul Farmer is a great resource. Perhaps, by focusing on health care as a human right in the U.S. context, we could engineer the release of more trapped values in our current system.

Be Sociable, Share!

Leave a Reply

Your email address will not be published. Required fields are marked *