Lowering the Cost of Medicare

I’m coming off a week of enduring “the common cold”, one of the miserable human conditions for which there is no cure.  Modern medicine promises cures for just about everything else; have you, too, been afflicted by those incessant “low T” ads?  Unfortunately, the cures always have a price, often a very large one.  And that price is a too neglected factor in the current Medicare debate.

Long ago, Aristotle, Aquinas and other thinkers concluded that, as a moral necessity, the price of things must reflect their actual worth.  They wrote that the actual price charged for a thing must be its “just price.”  Surely Adam Smith, himself a moral philosopher, knew that as he unveiled his new science of Economics.  His great failure though, and it was great and it was a failure indeed, was to introduce “the invisible hand of the market” to wash away all sin.  That worked in 18^th century Scotland, a classic traditional “small market” economy”, but somehow has lost its cleansing power in our 21^st century age.  Smith’s assumption of buyer and sellers with common moral norms getting together under conditions where each knows fairly well the “just price” that should be charged, and by their decisions help set it, no longer is even close to describing our current economy.  Modern economists see only “all the market will bear” as the criterion for price, and justice has nothing to do with it.

That comes to mind in reading a Washington Post article on the cost of cancer drugs, written by three distinguished oncologists, Hagop Kantarjian, Tito Fojo and Leonard Zwelling.  They ask why 11 of the 12 new cancer drugs approved by the FDA last year each have an estimated annual cost of over $100,000, yet only 3 of the 12 actually improve survival rates, and then only in minimal ways.  They note that the average monthly cost of cancer drugs has more than doubled in the past 5 years (this, in a time of recession!).  They delve in their article into moral issues specific to oncology, such as whether price should be based on survival rates or actual effects on tumors, but raise broader issues also.  For example, the usual justification by drug companies for their charges is “product development costs”, including costs of testing unsuccessful drugs, but it also includes items like education (we all know about those physician “seminars” in the Caribbean and Hawaii included in that) and advertizing.  The internal pricing each company arrives at for those items is arbitrary and varies a lot company to company.  Is it just to bill a dying patient for physician jaunts to Hawaii?  And companies “pay to delay” the entrance of cheaper generic drugs into the market.  Should patients bear the cost of that?

But here’s the really big item.  The VA gets drugs at half the price of Medicare because the VA is allowed to negotiate price but Medicare is prohibited.  As a result, the prices Medicare must pay for are two to four times the prices charged for the same drug in other countries.  Those are not drugs from the cheap fly-by-night outfits the drug companies rail about, but the prices paid to the same U.S. companies that are doing the railing.  Unchaining the market to wave its invisible hand would bring remarkable reductions in the cost of drugs, but of course that’s not all that’s needed.  Medicare negotiating would be an enormous gain for the economy and the patient, but would still leave the patient ignorant and feeble amid the pressures big pharmaceutical companies can exert.  Much stronger investigation and regulation of the claims companies make for efficacy of their drugs is required, along with strong regulation of the cost accounting that goes into setting prices.  In the EU regulators approve drug prices, and costs are substantially lower; in the U.S., such prices are unregulated.  The FDA responsibility should be expanded to include medicine price regulation.

All our politicians speak of the need to reduce the cost of Medicare.  Too many of them speak as though it’s a matter of reducing eligibility and coverage.  In fact, the biggest savings are available without any reduction in service.  In other countries, a moral principle of health care is that no one should unduly profit off the sickness of others.  They provide excellent health care at reasonable prices, guided by that principle.  For the U.S. to address “morally acceptable prices” for medicines would be a major step in that direction.