Modern Day Scrooges Are Ruining Our Health Care System

12/3/13

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a “sustained release” version of an existing drug which is already marketed under the name Cystagon by Mylan Pharmaceuticals. Cystagon needs to be taken every six hours, which means patients need to be awoken from their sleep each night to take a pill. A doctor hypothesized that coating the pills would lead to the drug being absorbed more efficiently. Raptor licensed this discovery, ran a 43-patient, six-week trial, and won approval from the FDA to sell a coated version of Cystagon as Procysbi. This new version only needs to be taken every 12 hours, so the dosing is much more convenient, and it has a few other benefits as well. What’s the premium that Raptor decided to charge for this? Cystagon costs about $8,000 per year, whereas Procysbi entered the market at a staggering cost of $250,000 per year. Yes, there are only about 3,000 people with this disease worldwide, so one could make all sorts of arguments about value propositions, limited markets, unmet needs, etc. However, if Mylan can make a reasonable profit on Cystagon selling it for $8,000 per year, Raptors’s outrageous pricing of Procysbi simply looks like gouging.

Excessive Layoffs

Over the past few years you’ve probably read countless articles about the “patent cliff”, where many blockbuster drugs were going off patent. As a result, industry profits were going to be crushed as branded medicines were replaced with generic counterparts. Predictions were dire. It’s true that generic medicines now make up about 80 percent of prescriptions in the U.S. However, I suggested several years ago that the “patent cliff” was a myth and would not dent industry income. You can now this judge for yourself: here are the actual numbers over the past five years (from IMS Health):

US Drug Sales

2008 – $291.5B

2009 – $300.3B

2010 – $307.4B

2011 – $320.7B

2012 – $325.7B

Note that these are sales figures, not profits. During this same time period, and despite the fact that industry revenues were going up, BioPharma collectively laid off hundreds of thousands of workers. These layoffs are still going on at many of the largest biopharma companies. By my calculation, fewer employees + greater revenues = higher profits.

Have things changed since Charles Dickens’ day?

The data would suggest price gouging is clearly not limited to the healthcare field. Politicians of a certain persuasion today are only too happy to champion the freedom of the wealthy to pocket as much money as they can. Here’s how Michael Lewis described the root cause of the recent financial crisis in his book Boomerang: Travels in the New Third WorldIt’s a problem of people taking what they can, just because they can, without regard to the larger social consequences… Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could without thinking about the long-term consequences.”

The larger issue gets to the heart of much of our current political debate. Don’t we have a responsibility to help each other out, or should we, like Scrooge, only concern ourselves with grabbing for the biggest piece of the pie that we can? The healthcare industry has an unlimited potential to develop new treatments and medicines based on a plethora of recent scientific advances. However, costs need to be brought under control for this vision to succeed, which means the excesses detailed above need to be called out, protested, and curtailed. After all, what’s the point of discovering new drugs and developing new treatments if a good percentage of our citizens can’t afford them? Ebenezer Scrooge is ultimately redeemed at the conclusion of A Christmas Carol and becomes a generous man. We can only hope that his modern day successors undergo a similar transformation and help reform a healthcare system that too easily exploits the ill, the disadvantaged, and the uninsured.

Stewart Lyman is Owner and Manager of Lyman BioPharma Consulting LLC in Seattle. He provides strategic advice to clients on their research programs, collaboration management issues, as well as preclinical data reviews. Follow @

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  • Tom Hopp

    Amen Stewart. You have laid it out beautifully. If I thought any of those big medical industry moguls had half the conscience Scrooge did, I might have some hope for their enlightenment. But I think we’ll only see cheaper healthcare when these new robber barons are forcibly compelled to surrender some of their vast, immoral, personal cash-grabs. By that I mean, vote Democrat.

  • JSchaible

    Modern day Scrooges? What a load of liberal tripe.

    The issues with modern healthcare are more the natural result of layer upon layer of government mandated bureaucracy, defensive medicine and separation of the buyer and seller from free market forces.

    As you point out, many supermarkets see razor thin margins. But not all.
    High end grocery stores still exist, where customers who value service
    and quality products still shop and thus reward those stores with higher
    margins.

    The rest are forced into a death fight volume business, given astute price sensitive buyers know the price of milk and are willing to switch from one store to another to save a nickel. Are you seriously suggesting this is your solution to healthcare? Unlike hospitals, grocery stores are still not
    forced to give what they sell (say that milk) to all who walk in their doors, regardless of if they can pay or not. If they did, you can bet they too would charge exorbitant prices on zucchini and tomatoes just to survive. (Ethically, is healthcare so much different from food?)

    So maybe today’s healthcare market is on the verge of collapse. But it is not from greed of providers that is causing it to fail. Still, ever the rational optimist, I see green shoots at the same time. You note “medical tourism”. Such is little more than free market capitalism returning to a broken system – where allowed. Educated customers seeking out better pricing and higher end services, allowed to be provided in countries with free healthcare
    markets by those seeking to profit from the exchange.

    In the early 1990’s I had the privilege of spending a day with the late Harold Nue of New York City’s Columbia Presbyterian Hospital, the legendary Chief of the Division of Infectious Disease specialist. We spent most of the day in the isolation wards seeing the legions of uninsured ill from the Harlem
    community. Full blown AIDS, multidrug resistant TB, you name it. But then, after lunch, we rode the elevator to the McKeen pavilion. The doors opened to a different world. Gone was the hospital, replaced with all the appointments of a high end hotel. There was even a piano player in a tux and tea service making the rounds. I was amazed. The cost? A mere $250 out of pocket over the $1,250 insurance billed cost of a standard room. I asked about the disparity. Dr. Neu agreed the optics seem stark, but
    pointed out that patients on this floor paid so much extra out of pocket (plus
    in charitable donations to the hospital) that for the profit margin was so wide
    it allowed for another five patients without insurance to be treated for
    free.

    Like Scrooge, most Americans prove at this time of year, in the end we freely give generously. But the key is in the gift. No one is generous when it is mandated, coerced and extracted from us, which is the way healthcare is headed.

  • Pasteur

    One thing is for sure, if I was looking for consulting for my enterprise I’d NEVER use Lyman Consulting. After reading this garbage, I thought it was a joke when I read the background on the author. Wow.