Saturday, October 31, 2015

Why Martin Shkreli Raised the Price of an AIDS Drug by 5,000%

Holman W. Jenkins, Jr. at WSJ explains the government programs, incentives and regulations that made it a logical business decision to do so:
 The plague of third-party payership encouraged by the tax code, Medicare, Medicaid and ObamaCare helps make it possible for the industry to hike prices without losing sales.

Probably no unpronounceable name is more pronounced lately than Martin Shkreli, whose company, Turing Pharmaceuticals, bought the rights to an AIDS drug and raised the price 5,000%. His argument (we’re paraphrasing): “Thanks to the environment Washington has given me, I can make more money for shareholders by jacking up the price of the drug because customers will keep buying it.”

The exception that proves the rule was the reaction of another drug maker, Imprimis, that took advantage of a federal regulation that lets manufacturers market an unapproved drug made by mixing approved substances. Imprimis offered a cheaper substitute for Mr. Shkreli’s jacked-up drug, but, sadly, the loophole it exploited is one applicable to AIDS treatments and few others.

Valeant is another company in the news for following the Washington incentives to a tee. It pared back investment in new drugs in favor of acquiring existing products, then ran up their prices. It transferred its legal domicile to Holland to escape onerous U.S. taxes on non-U.S. profits. Last week it came under suspicion for dealings with pharmacy companies aimed at making sure patients, when their doctors prescribe a Valeant product by name, get the Valeant product and not a cheaper substitute.

Unfortunately, if one rule prevails in American health-care policy, every problem must be tackled by doubling down on the policy mistakes that created the problem. Is health insurance being priced out of sight because of the inflationary impact of subsidies+regulation? Then double down on subsidies+regulation as the Affordable Care Act did.