Free Enterprise in Healthcare?

Written by: Stephen Blythe on Sep 18, 2007 4:00 PM EDT

No one will argue that free enterprise doesn’t stimulate innovation and hard work. One of the biggest challenges we face in health care is how to provide health care to all Americans while maintaining a system which fosters innovation, research, and development. But when health care is out of the financial reach of many Americans (over 42 million receive Medicare, another 42 million receive Medicaid, and 47 million have no insurance) one has to wonder where the profit is going to come from – and why their must be profit – if everyone is to be covered. Rudy Giuliani recently compared health care to plasma TV's – saying that all we need is more people buying health insurance through the private sector to drive down the cost – “just like the cost of plasma TV’s has come down over the past few years.”

Rudy – I got news for you: American health care is NOT an example of free enterprise! There is no competition! Let’s look at some examples: About 25 years ago Tagamet came out for treating ulcers. A wonderful drug, it was quite pricy for the time at $65 per month. But people bought it because it worked – it was a wonder drug. Soon Zantac came out, which worked as well but had fewer drug interactions, so it quickly became very popular also. Over a few years Pepcid and Axid came out. When their drug reps would come into my office to chat me up about their products, they would compare them favorably to Zantac. Not better, but just as good. I would always ask – will they cost my patients any less than Zantac? I was always told that they were priced “comparably” – meaning the same! I always told the reps to tell their corporate bosses that if their product were priced competitively I would prescribe it. Pepcid and Axid never gained much market share because they never competed. Eventually Pepcid was allowed to market an OTC (over-the-counter) version which was a 10mg tablet, keeping the 40mg tablet by prescription only. The pharmacy cost for a 40mg tablet (prescription) was $2.60, or $78 per month. The pharmacy cost for a 10mg tablet (over-the-counter – with competition from Maalox, Mylanta, Tums, Rolaids, Zantac 75, etc.) was only $0.20! So there was never any price competition for the prescription drug – only for the one people paid for out of their own pockets. Regardless of this rip-off, insurance companies continued to happily pay the $78 per month for 40mg Pepcid. Likewise, many insurance companies paid $50 for a tube of “Lotrisone” cream – a patented mixture of common cortisone and antifungal creams, each of which could be purchased for $2 or less. Of course the insurance companies get secret rebates from the drug companies, so we never really know what they pay for a given medication. This keeps the normal retail price high so that those without insurance get screwed. This is only legal because it is arranged through intermediary shell companies called “Pharmacy Benefit Managers”, or PBM’s.

Every service in health care costs far more to the cash-paying patients than is charged to insurance companies. A CT scan at our local hospital costs $3,000, when no insurance company pays more than about $650. A new-patient visit with a specialist may set you back $420, when Medicare pays them $160 or so. In a free-enterprise system you would think that cash would be more valuable than a future payday that requires billing and record-keeping expenses. I had a patient who needed a stress test – he called the hospital to see what it would cost him – and they could not or would not tell him! He was supposed to just wait until he received the bill to know what the cost would be! Likewise, if you are in the hospital or the office, and I or another doctor tells you that you need a CT scan or a consultation from a specialist, do you get to price-shop (or shop quality?)? THAT would be free enterprise!

Rudy thinks that with competition health care will become cheap like plasma TV’s. Well, Rudy, a LOT of old folks buy hearing aides, and the price of those is now $2-3,000 each – about the only electronic device that has gotten MORE expensive! Interestingly, the VA system, which provides hearing aides to about a million veterans per year, and which negotiates for the best price, pays about $300 a unit for hearing aides. And meanwhile our congressman Dave Weldon voted to prevent the U.S. government from negotiating lower drug prices for the Medicare Program. Our current approach to health care has failed an unacceptable number of Americans. It is time for a serious look at the system.

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