A flamethrower of a column published by Time Ideas last week (Big Pharma’s Patent Abuses Are Fueling the Drug Pricing Crisis”was a simple and angry narrative premised on the misplaced and mistaken assumption that market values in healthcare are automatically corrosive.

And like nearly the entire corpus of content and commentary aiming to “pull back the curtain on the industry’s ongoing anti-competitive practices” and strategies to defend/grow The Business, the curtain is rarely pulled back far enough to reveal the part played by the other leading actors: the $480 billion pharmacy benefit management market sharing the stage with pharmaceutical companies in shaping drug pricing and access (i.e., Express Scripts, CVS Pharmacy and Optum), and the $252 billion market in employee benefit management and brokerage services (e.g., Willis Tower Watson and Marsh & McLennan), whose revenue model is tied to greater utilization of PBMs.

Look no further than the economic gymnastics behind Amgen’s pricing strategy for its generic version of Humira, a drug to treat rheumatoid arthritis and the world’s best-selling medicine, to help understand the multi-dimensional dysfunctionality of the healthcare economy in the United States. “The numbers suggest the biggest winners may be health insurers and others in the supply chain, but not patients,” writes Ed Silverman, in his column for STAT (Amgen pricing for its Humira biosimilar may benefit PBMs and insurers more than patients”). Here’s why: The drug company will offer its medication, called Amjevita, at two different discounts — 5 percent and 55 percent — off the roughly $80,000 wholesale, or list, price. The maneuver reflects the behind-the-scenes negotiations that occur between pharmaceutical companies and the pharmacy benefit managers, or PBMs, that create formularies, or lists of medicines for which insurance coverage is provided.

“Once again, the warped incentives baked into the U.S. drug channel will limit the savings from biosimilars. Our crazy system is forcing Amgen to launch both a high-priced and a low-priced version of its Humira biosimilar,” explained Adam Fein, who heads the Drug Channels Institute, a research firm that tracks the pharmaceutical supply chain. “Unfortunately, patients will lose because some plans and PBMs will block access to the cheaper drug. The plans and PBMs who adopt the higher-priced version will get bigger rebates, while patients with coinsurance and deductibles end up paying more out-of-pocket.”

Any system is going to be operating most of the time in failure mode. Where our strategy stories fail is in their linear framing, their targeting “only certain parts of the complex profit-making puzzle,” and their inability to create step change in the nature of competition.

 

The Issue is Finding New Market Objectives 

‘Market values’ are not automatically bad (“EBITDA” is one of those market values — it’s a measure of management performance). Markets are the best way of aggregating information, something the fractured and fracturing and fragmented and fragmenting healthcare industrial-complex worldwide is trying to figure out (the market for global healthcare interoperability will reach $8 billion).

And markets can’t be disentangled from controversial questions about the right way to “value” them, so there’s always a perpetual awkwardness around commercial transactions involving disease and health. The pharmaceutical industry is stigmatized because it is an easy target, a ‘simple example’ of an industry making profit off people’s worst tragedy.

Where the hypocrisy comes is from the $1.5 billion market of peer-reviewed medical journals and medical publishing, and the $110 billion market for academic thinking, believing that market-based reasoning is inherently wrong in healthcare. (See this viewpoint, Salve Lucrum: The Existential Threat of Greed in US Health Care, by Don Berwick in JAMA last month for an example.)

The gravitational pull of the financial services market (i.e., Wall Street, and the fiduciary responsibility of executives of publicly-traded companies to create shareholder value) is also missing as fuel keeping the dumpster fire burning. And the $30 billion invested in digital health technology last year by VCs (money looking for ROI)? Not in the narrative. The complex system of markets invested in, and kinetically-trapped by, a $4 trillion health economy is a mushrooming mess of dysfunction because it is being argued and analyzed with mental fantasy: the belief that you can somehow remove ‘the market’ as in incentive. Or even worse, turn things over to “the government” to manage.

“Profit” isn’t a dirty word. It’s not automatically bad to pursue high salaries (or sales commissions), just ask the JAMA advertising sales team.

What’s needed is a new economic objective from which to spark new feedback loops. This is about working with strategy to “swell the individual and aggregate prosperity of the citizens” (to quote Alexander Hamilton, the first Treasury secretary of the United States). Good policy today requires not just a ‘right analysis’ of the economic problem, but the right synthesis. This is about strong social imagination, a new category of ideas, creative leadership to structure market innovation that bridges the philosophical fault-lines separating the value and growth agendas of industry and government.

The “price” of pharmaceuticals is not the issue — the issue is working out a new general theory of markets that positions the ‘production of affordable health’ as an economic objective, where the basis of strategic competition is outcomes from new economic systems (“ecosystems”), not consumption of individual inputs.

Yes, we need to reframe the conversation from election-cycle policies to generational policies with a long-term focus on getting better EBITDA from a $4 trillion investment. But that raises the question: who “cares” over the long term?

The path to “fixing” healthcare doesn’t start with monotonous repetition of histrionics, but with creative leadership that can inspire and align value agendas on ‘shared marketspace’. Until that happens, we can look forward to another 50 years of “crisis” and structural stalemate, unable or unwilling to stop abusing ourselves to death.

 

/ jgs

 

John G. Singer is Executive Director of Blue Spoon Consulting, a global leader in strategy and innovation at a system level. Blue Spoon was the first to apply systems theory to solve complex market access and integration challenges in the pharmaceutical industry.