Oil and Generic Drugs: Finding a Balance Between Market Forces and Regulation

February 29, 2016

Healthcare requires a mix of regulation and market power, but what do we do when the two no longer balance each other out?

The Saudi Arabian oil minister has announced that his country will continue to pump the black gold despite a global glut and cratering prices. Generic drug prices, in what some have described as a market failure, continue to escalate, much to the dismay of patients, payers, politicians, and pundits. Hospitals and insurance companies continue to consolidate and merge and the results have been escalating prices with little innovation. Do you see the pattern?

The idea is to use your strength to outlast the competition and hope they go out of business. Then, you consolidate, merge, roll up, acquire or get to the point where, hoping to stay within the sidelines of anti-trust law or flex your cartel muscles, you dominate the market and raise prices in the next cycle. Some call the strategy a market failure. I call it capitalism and, from a business perspective, a viable strategy, to a point. Because we are talking about life-saving drugs and sick care, however, escalating prices have reached a tipping point and taken its rightful place on presidential debate stages and campaign stump speeches. So what to do?

Once again, the debate centers on the proper balance of regulation and market solutions and pits those with a heavy hand against those with the invisible hand. More regulation comes with consequences, like the potential to stifle innovation and political reality of the medical-industrial complex-Congressional axis of power. Market solutions will require changing the rules in an increasingly contentious political environment. Once again, we are stuck.

In the meantime, pills that used to cost pennies on the dollar are biting into patient's wallets, patients are paying more out of pocket, older people have high debt loads and events are forcing them to make tough choices or work longer than they expected to.

There will always be tension between regulation and innovation, between medical products being a right or a consumer good and the conflict between the ethics of business and the ethics of medicine.

Proposed legal and regulatory solutions will be competing for air time against market solutions so be prepared to see an endless stream of ads until November. I'm betting we will resolve this in the typical American way—create the perception of a crisis, pass legislation and rules that will make both sides unhappy, and move on to arguing about something less pressing, like campaign finance reform or guns.