Health care and the free market

I just finished reading a Business Week article about Eli Lilly's acquisition of ImClone Systems for $6.5 billion in cash in order to get ImClone's current cancer drug, Erbitux, and other cancer drugs under development. Cancer drugs hold a unique place for pharmaceutical companies, doctors and patients: They're typically targeted to a single type of cancer, such as lung or breast, there are often no good substitutes, and they're unbelievably expensive. Erbitux costs around $10,000 a month, while Genentech's Avastin costs up to $100,000 a year.

The prices of these drugs are inflated out of all relationship to either their cost to manufacture or develop; drug companies say that these drugs are incredibly expensive because of their development costs, but they rarely point out that they usually include the costs of drugs that never reached the market because they didn't work, were unsafe or couldn't be sold profitably. ImClone can charge $10,000 a month because without the drug, cancer patients die. Some of Europe's national health authorities are pushing back, refusing to pay exorbitant prices for drugs that often extend patients' lives by six months or less. U.S. insurance companies are expected to follow suit.

This is where we reach the fundamental limit of providing health care under a free market system. Patients will pay any price to stay alive, and under supply and demand, drug companies can charge the highest possible price to those patients. The question is whether or not that's in the best interests of society. I don't think that it is. This is a situation where pharmaceutical companies "stick it" to patients, both figuratively and literally. The people who get stuck the hardest are the uninsured, who in the U.S. pay on average 2 1/2 times as much for their medical care as those who have insurance. Even for insured patients, the prices get passed on to insurance companies, and everyone pays in the form of higher rates.

Getting a reasonable rate of return on a drug company's investment is one thing; gouging patients who have no option but to pay or die is unethical and immoral. That's where the wheels fall off.