Controlling prices - Government administration, or private sector kneecapping?

The Wall Street Journal
January 12, 2015
High Health-Care Prices: More Talk Than Action
By Drew Altman

People in the U.S. go to the doctor less frequently and have much
shorter hospital stays than people in other countries that spend far
less per capita on health care. But health services are consistently
more expensive here than in comparably wealthy countries.

Price is the major factor that distinguishes the cost of our system from
those in other developed nations. The sticker shock of some medical
services and drugs is also the dimension of the health-cost problem most
visible to the public. So it's interesting that most efforts in this
country to address health-care costs don't focus on price much at all.
Instead, they focus on reforming the delivery of health care and
provider reimbursement to reduce the volume of health care Americans use
and to weed out unnecessary procedures and hospitals days.

To be sure, high medical prices are talked about a lot. One reason there
is more talk than action is the anti-government environment, which would
inhibit regulatory action to constrain prices. Taking on price also
means taking on health care's powerful industry interests. More
effective competition between providers would help reduce prices, but
the health-care industry appears to be consolidating more than
competing, as is the health insurance industry.

It would be a mistake to make price the only focus of a cost-reduction
strategy. But it's striking that while price is such an important reason
our system appears to cost so much more than others, efforts to reduce
the high prices of medical care are not a meaningful part of current
cost-reduction efforts.

(Drew Altman is president and chief executive officer of the Kaiser
Family Foundation.)

http://blogs.wsj.com/washwire/2015/01/12/high-health-care-prices-more-talk-than-action/

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Reuters
January 7, 2015
U.S. hedge fund plans to take on big pharma over patents

U.S. hedge fund manager Kyle Bass, who won fame for predicting the
subprime mortgage crisis in 2008, plans to take on some of the world's
biggest drug producers by challenging the patents of their top brands,
he said on Wednesday.

Bass, the founder of Dallas-based Hayman Capital Management, L.P., said
some drug firms were hanging onto patents in questionable ways and he
planned to take around 15 firms into a so called Inter Partes Review
(IPR) process created by the America Invents Act. in 2012.

"We are going to challenge and invalidate patents through the IPR
process ... (and) we are not going to settle," Bass said in a
presentation in Oslo, Norway's capital.

"The companies that are expanding patents by simply changing the dosage
or the way they are packaging something are going to get knee capped,"
he said.

Bass said the firms he planned to challenge had a combined market
capitalisation of $450 billion and if he succeeded that could halve,
benefitting his investments and reducing medicine prices in the United
States.

"This is going to lower drug prices for Medicare and for everyone," he said.

Bass did not name any targets and also declined to elaborate on how he
planned to make a financial gain from the challenges. He also declined
to give details on his investment position.

http://www.reuters.com/article/2015/01/07/pharmaceuticals-haymancapital-idUSL3N0UM42O20150107

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Comment by Don McCanne

Health care prices are much higher in the United States than in other
nations. The difference seems to be that other nations rely much more on
government administration of pricing whereas we depend more on the
marketplace, especially on the private insurance industry that has a
relatively weak negotiating power over our medical-industrial complex,
worsened by ongoing consolidation within the industry.

That is not to say that the government does not play any role. The
administered pricing of our Medicare program has been more effective
than the private insurers in slowing the increases in the costs of
health care. The private insurers have slowed the increase in insurance
premiums but at the terrible cost of transferring risk and payment
responsibilities to patients.

That said, government administered health care pricing in the United
States is still too weak. We even prohibit the government from
negotiating drug prices in the Medicare Part D program. Drug pricing is
not only obscene, it is criminal, or at least it should be a crime when
companies can price their drugs at tens of thousands of dollars only
because our dysfunctional market will bear those prices.

Since we have not allowed our government to take a more active role, we
should ask if the private sector can be capable of providing greater
value. Up to this point it has not been so, as is verified by the fact
that we have far higher prices than other nations.

But suppose the private sector did move in using their unique tools to
control markets. Consider the approach of hedge fund manager Kyle Bass.
He is famous for creating large fortunes by betting against the market
with tools such as credit default swaps in the subprime mortgage crisis
and credit default swaps on government bonds in Greece.

Based on this Reuters article, apparently now Bass wants to bet against
drug firms that seem to be abusing the patent laws to drive up drug
prices. He is quoted as saying that these companies are "going to get
kneecapped." Wow! When he is finished, he says, "This is going to lower
drug prices for Medicare and for everyone." Although he has not revealed
his strategy, it does not take too much imagination to come to the
conclusion that he may well use credit default swaps to make another
fortune once he is effective in disabusing the industry of their belief
that these innovative patents are valid.

Which is better? Is it better to allow the private sector to use
innovations such as credit default swaps to bring about fairer pricing
of drugs, even though considerable funds are redirected upwards, further
increasing income and wealth inequality? Or is it better to have
government administered pricing wherein there is no opportunity to
create new fortunes by using Wall Street tools to divert health care
dollars to the wealthy? If for no other reason, you would think that
government administered pricing should be preferred simply because it is
more effective.

Since we do not seem to be inclined on relying on our government to
serve our needs, maybe we should think more about private sector
opportunities. For starters, someone might want to secure a patent on
kneecap replacements. Our friends on Wall Street would no doubt
recognize the investment potential, and the venture capitalists would be
lined up at your door.