Why drug companies and the "free market" don't belong together

Image from UCAN's
Consumer Watchdog Blog.

One of my close friends is a firm believer in free market economics. He argues that regulation gets in the way of supply and demand, and that the market will find its own equilibrium (i.e. "balance" or "correct" itself) without the interference of regulators. He and I have gotten into some very heated arguments about the regulation of healthcare and drug companies because I don't believe that these industries can be treated in the same way as other sectors of the market. I'm not going to address the issue of the regulation of healthcare/insurance right now because the scope of that argument is way beyond a single blog post. What I do want to point out, however, is the necessity of proper regulation of drug companies.

Prescription medicines cannot be a free market. Why? Because consumers have neither director control nor significant choice when it comes to the medicines they are prescribed. Certainly we can ask our doctor to prescribe a less-expensive alternative (when one exists) or choose not to treat a given condition or illness, and we have a choice about where to get our prescriptions filled. But in many cases there will be a single drug—or set of drugs—that provide ideal treatment for us. Sometimes the ideal drug will be incredibly expensive (see: Biologics) due to the research and clinical trials that were necessary to bring the drug to market. Other times the ideal drug will be absurdly inexpensive (see: Prednisone, generic tricyclic-antidepressants, etc) because it is off-patent and inexpensive to produce.

My health insurance has a $1500 annual prescription limit, so I'm lucky that the vast majority of medications I'm currently taking fall into the latter category. (And no, I do not have a "choice" to purchase a different plan from my employer, nor can I afford to purchase private insurance). But it means that my doctor and I must be strategic about the drugs we choose, and that when/if she decides that a biological medication like Enbrel, Rituxan, or Benlysta is necessary for my treatment, I will need to seek financial assistance from an outside entity like a charity or from the individual drug company that produces and distributes the medication. It is up to me to know what drugs are covered, what drugs are not covered, and how I am going to distribute my annual benefit.

generic MTX vial

Yet sometimes something goes terribly awry, usually at the level of manufacturing, and suddenly a drug which previously fell into the "generic" and "inexpensive" categories becomes a hot commodity. Right now that's the case with my old nemesis methotrexate. This article from the New York Times outlines the current situation, focusing on methotrexate's utility as a life-saving treatment for childhood cancer, though the drug is also widely prescribed for a broad range of autoimmune conditions. The problem, as I see it, is that there is little profit to be made on a drug like generic MTX, so when one manufacturer (out of five) has to recall a drug because of a manufacturing issue (like, "Ooops, we found a bunch of glass shards in a whole batch..."), there's no [financial] incentive for the other four manufacturers to pick up the slack, even if by doing so they will potentially be saving lives.

A situation like this also raises the issue of who should be in charge of making sure the company is using the correct manufacturing techniques and properly inspecting the finished product so consumers aren't harmed. The free market economist would argue that the demand and supply would be enough, but I disagree—particularly because consumers rarely have a choice in which manufacturer their generic drug comes from, nor do pharmacies make this information readily available. Unless an agency like the FDA steps in, there is no reason for the companies not to choose the most inexpensive manufacturing process, even if it means a minor decrease in quality, and make those products available for sale. In this case, harm to individuals becomes a number, a probability, a risk-benefit analysis that is disconnected from the experience of actual human beings.

So then the drug goes on the grey market, and people are suddenly paying 80 times more for the drug than they normally would. Ultimately this brings me back to what I see as the key ethical question at the heart of debates about healthcare: Should access to treatment be tied to one's income and economic power? Or do all people deserve access to life-saving drugs and medical procedures, regardless of income? Should drug companies be driven by profit? My free market friend would argue that the only way new drugs will be developed is if there's the possibility for major profit once the drug is released. That strikes me as a chilling state of affairs.