Earlier this month, the annual Forbes Healthcare Summit put the difficult relationship between healthcare and capitalism in the spotlight. Many people are uncomfortable with healthcare enterprises that are run purely for profit and create great wealth. But the profit incentive is vital to the innovation that U.S. healthcare greatly needs.
The participants expressed a spectrum of views. Concerns about healthcare cost, quality, and access for all defined one end of the spectrum. ObamaCare has revealed its own "donut hole": people who are neither wealthy nor poor enough to receive subsidies find they cannot afford the deductibles and co-pays, and they fail to get the care they need. An audience member with familial high cholesterol spoke of 23 phone calls needed to get approval for a new cholesterol drug. A payer industry panelist observed that for some payers the business model seems to be "just don't pay claims", and a venture investor complained that CMS thinks its mission is stamping out profits. This line of thinking points towards a single payer system that would damp down the financially-motivated games. But, as Richard Rothman put it, a single national payer means everyone goes to the Post Office for healthcare. I find that thought chilling, and the Post Office has gotten much better since it came under competitive threat.
Martin Shkreli anchored the other end of the spectrum firmly. Shkreli is a former hedge fund manager and CEO of Turing Pharmaceuticals, which famously raised the price of Daraprim, a drug on which it holds a monopoly, about 50x. I'm grateful to Mr. Shkreli for coming, as he must have known he faced an audience that was skeptical at best. He came across like a Wall Street guy from central casting: brilliant, nervy, and not much burdened with empathy. He said his guiding principle is his fiduciary duty to his investors to make profit, and also that Turing has made significant efforts to make Daraprim available to all who need it via special price concessions. Asked if he had any regrets, he said, yes, I should have raised the price more. Last week the FBI arrested and perp-walked Mr. Shkreli on charges of securities fraud committed against his investors. If proven, these charges hollow out Shkreli's principled defense of price gouging on the basis of duty to investors. As an old friend likes to say, "You can't make these things up."
An all-star panel of pharmaceutical executives held the middle ground: Ken Frazier (Merck CEO), Robert Hugin (Celgene CEO), Ian Read (Pfizer CEO), Dr. Len Schleifer (Regeneron Founder/CEO), and Sir Andrew Witt (Glaxo CEO). Frazier set a statesman-like tone: "we are research-based pharma, and we have a broader purpose [than just making a profit]." Dr. Schleifer admitted the industry has done some bad things in the past.
The heart of the middle-ground argument is: innovation depends on a profit incentive, and innovation has brought huge benefits to both health and healthcare cost. Benefits to health include targeted cancer therapies that dramatically benefit a significant percentage of patients, two new drugs that cure Hepatitis C, and two new cholesterol drugs. The recent spike in drug spending is largely driven by the arrival of new drugs after a period when big, mature drugs went generic. Benefits to cost: the Hepatitis drugs are very expensive, and the cost comes up-front, but they cure most patients, avoiding decades of expensive medical care. People benefit from past innovations, like statins that control cholesterol well for most people, for decades after patents expire at a cost of pennies per day. Dr. Schleifer made passionate defense of patents, quoting Lincoln (“Patents add the fuel of interest to the fire of genius”) and pointing out that Regeneron, a start-up pharmaceutical company, worked for 27 years before it enjoyed a profit.
Regulation is another sore spot in the healthcare/capitalism relationship. The entrepreneur panelists (Jonathon Bush/AthenaHealth, Bryan Roberts/Venrock, Nat Turner/Flatiron Health) cited regulations preventing access to data as the biggest roadblock to innovation: "hospitals view patient data as their intellectual property", and "EMRs consciously avoid doing anything intelligent, lest they be considered a medical tool and subjected to FDA regulation." Some innovators are finding ways to make this work, however. 23andMe CEO Ann Wojcicki, whose main product was shut down by the FDA and is now back on the market with alterations, observed that the FDA will be open if you give them the information they want. Likewise Theranos CEO Elizabeth Holmes reported largely positive FDA review of its disruptive blood test technology.
Anthem EVP Marty Silverstein observed that health insurance industry consolidation is about payers equipping themselves to serve consumers better. The Economist recently observed that regulation may hurt other financial firms, but health insurers thrive on it. They seem to have found a happy marriage between return on capital and working in the regulated and politically shaped healthcare world.
Nothing is simple in healthcare, and answers are usually nuanced. But it's a market that offers huge value creation potential and is undergoing accelerated change. Entrepreneurs and other business people who pick their targets carefully, create big value, and work with the system can do well.
