Big Pharma: Even Worse Than Used Cars as a Market for Lemons?

Some readers have wondered why this blog from time to time runs posts on the US health care system. Aside from the fact that it’s a major public policy problem in America, it is also a prime example of bad incentives, information asymmetry, and corporate predatory behavior. It thus makes for an important object lesson.

Reader Francois T pointed to an example, a commentary on a paper presented by Donald Light at the annual meeting of the American Sociological Association, “Pharmaceuticals: A Two-Tiered Market for Producing ‘Lemons’ and Serious Harm.” It still appears to be embargoed, but Howard Brody provides an extensive summary on his blog.

Light uses George Akerlof “market for lemons” as a point of departure. For those not familiar with the famed Akerlof paper, a “market for lemons” can occur when consumers are unable to distinguish product quality. The used car market is the paradigm, since the dealer has a much better idea than the buyer of whether a particular car is any good. Unscrupulous operators can stick a lot of hapless chump customers with overpriced clunkers. However, as crooked vendors become more common, buyers wise up a tad and are not longer to pay as much for cars they cannot evaluate. So while the prices buyers are now willing to pay are probably still too high for rattletraps, they are too low for decent cars. People with good merchandise start to look for other channels. Akerlof posits that the market eventually falls apart.

Note that used cars dealers did not set out to create lemons; the cars were bad deals by being overpriced (presumably, if they had been presented, warts and all, they still would have found purchasers, presumably people who thought they could repair them and those who wanted them for parts and scrap). Light contends, by contrast, that major pharmaceutical companies create bad products:

[T]he pharmaceutical market for ‘lemons,’ differs from other markets for lemons in that companies develop and produce the lemons. Evidence in this paper indicates that the production of lemon-drugs with hidden dangers is widespread and results from the systematic exploitation of monopoly rights and the production of partial, biased information about the efficacy and safety of new drugs…Companies will design and run their clinical trials to minimize evidence that their drugs cause adverse reactions and maximize evidence that they are not inferior to or [are] better than a placebo for the target indication. And companies will also learn from the regulatory body how to game accelerated approvals and condition[al] approvals with post-market studies by cutting corners and submitting partial evidence in order to get drugs on the market faster and put the regulator under pressure to approve and not to later rescind.

Yves here. The reason we have an FDA was unsafe food, such as adulterated meat products and unsanitary slaughterhouses, and toxic medicines (such as radium drinks that produced some particularly horrid deaths). And the impetus for the FDA is being proven correct: producers, left to their own devices, value their own profits over their customers’ well being.

Pharma defender will contend this picture is distorted; the industry is highly innovative. Really? Its innovativeness of late is on par with Wall Street’s. The Financial Times reported that of the so-called “new drug applications” to the FDA, 88% were not in fact new drugs at all. They were either slightly different formulations (say, a time released version, so patients might need to take a pill only once a day rather than morning and evening), or were simply getting “off label”uses approved so that that the drug company could market that application (pharmaceuticals can be marketed only for uses approved by the FDA, but doctor are free to prescribe a drug as they see fit). Light has read a broad range of studies and has similar findings, that only 10% to 15% of the drugs approved by the FDA are new compounds. Thus, per Light, “[C]ompany R&D goes largely to a marketing strategy that does not meet societal needs or the needs of patients.”

Brody draws some implications from Light’s study:

Extrapolating from the best available figures, the US suffers about 111,000 deaths annually from adverse drug reactions (that is, drugs prescribed and administered correctly, and leaving aside deaths from medical errors), or more than twice as many fatalities as from auto accidents. This puts adverse drug reactions as the 4th leading cause of death, and besides, adverse reactions lead to about 1.5M hospitalizations per year (the total damage toll being underestimated because we lack good data for nonhospital settings).

If the industry produced drugs, many of which offer no real advantage over existing drugs, and then urged the maximum possible caution in their use, we could perhaps avoid some of this swath of death and destruction. But such, of course, would hardly suit the company bottom line; so instead we have what Light calls the “risk proliferation syndrome.” Company-sponsored research talks up the efficacy and the safety of the drug. Marketing then tries to get physicians to prescribe the drug to as many patients as possible, including those (such as the elderly) inherently at higher risk for adverse reactions, and those who have less and less chance of actually benefiting (because their disease is mild, or for whom nondrug therapy would work better, etc.) The industry does everything possible to speed up FDA approvals of new drugs and to slow down any threatened FDA action to remove an unsafe drug from the market or to restrict its use. The end result is that as many patients as possible are put at risk, while revenues go steadily up.

The financial power of the drug industry allows it to “colonize” medicine in the same way that it has effectively taken over the FDA. This means that more and more of medicine turns into a commercial enterprise placed at the service of industry profits. New diseases are “discovered” that require drugs to treat them. The medical literature becomes indistinguishable from the industry marketing juggernau

Yves here. In one sense, we do have evidence of a market for lemons: the rising popularity of alternative medicine. Some of its appeal is that certain treatments do work (for instance, acupuncture does reduce inflammation) and that alternative practitioners are interested in ailments often deemed as sub-clinical by MDs. one impetus is that some consumers are reluctant to take drugs. Light’s analysis says their concern is not unfounded.

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  1. scharfy

    I cannot dispute the main point of this post.

    However, one must put the American mindset for “health” into context.

    Smoke a pack a day, drink regularly, exercise rarely, McFeedMeNow Burgers on the reg, and a general lazy, obese, lifestyle.

    Then we go to the doc and walk away with a witches brew of zocor to fix high cholesterol, phentermine for the appetite,insulin for the diabetes, xanax for the stress,ambien to sleep, and effexor for the depression.

    Well that sounds problematic.

    Yea sure, big Pharma is evil, they sell all kinds of product.

    But, that we Americans think a bunch of pills can solve atrocious health behaviour – thats just silly.

    Unhealthy Behavior Scoreboard:

    Big Pharma 14
    American Public 35

    End of the 3rd Quarter.

  2. bob goodwin

    I have recently worked with the FDA, and I have no doubt that big pharma has been gaming the system. I also have no doubt that absent regulation there would be more horror stories. All that being said, the FDA is not a functional organization in it own right, and creates tremendous distortions in the marketplace. Companies who are reacting to a slow expensive and unpredictable regulatory process will often make defensive and self serving moves.

    There is zero new innovation happening in the FDA space outside of big pharma. The FDA does not trust newcomers, and sees underfunded companies as the ones needing the most scrutiny. Investors have learned that bad things happen to good people when the FDA gets involved, so there is very little venture capital or funding going into devices or drugs. There are opportunities galore to make breakthrough products, but the market is controlled by the corporatist elites from government and industry.

    1000s of people may have died before the FDA was created. But how many millions might have lived better if the FDA was set up to foster innovation rather than protect incumbents.

    1. Yves Smith Post author

      With all due respect, I think you overstate the FDA as a barrier to innovation. I have a colleague who is a bio medical engineer and FDA/intellectually property attorney, regularly represents clients with medical devices before the FDA (and these are not big players). She says the FDA is more user friendly in the device area and she does not see its approval process for devices as terribly onerous. Drugs are another matter entirely, the clinical trial process is very costly.

      In addition, I know of an Australian company (not via the attorney) that has an innovative knee and hip replacement (more reliable insertion, much better for second joint replacements). Their product is patented like crazy and was approved by the FDA. They are having enormous trouble getting distribution because the industry leader has a lock on the sales channels.

      If you did not have the FDA regulating drugs, you’d have no quality controls. “Pharmaceutical grade” means something. In the dietary supplements area, by contrast, you have NO idea if what you are buying resembles what the label says. Quite often, the dosages are much lower than what is claimed.

      And regular meditation and/or exercise will lower your blood pressure.

      1. Francois T

        “They are having enormous trouble getting distribution because the industry leader has a lock on the sales channels.”

        Every innovator of medical devices that is not part of the “cartel” and wants to sell in the US has enormous problems. The oligopolistic nature of the market could easily trigger a WTO complaint, should any foreign corporation wanted to do so. IMHO, they would easily win their case.

        There is much more about this here:

      2. bob goodwin

        The view inside the venture capital market is that the FDA has been capricious. I spent a week at a medical device conference and met with executives at several prominent medical device manufacturers, and they claimed their position wrt the FDA was ‘defensive’. You may be in favor of this regulation, but you cannot deny that even the smell of regulatory uncertainty buries innovation.

        Even people from the FDA who spoke acknowledged the question, and said ‘it is a historical part of the regulatory pendulum swinging with a new president’.

        As far as your point about the FDA being flexible, or open minded, they are fabulously nice and competent people. However the higher-ups get hired for big salaries by industry – creating a revolving door of competencies which has stalled throughput. The FDA response to this bottleneck is to simply enforce the rules more rigidly.

        If one has a lot of money they can get new products through that chain. But even the large multinationals are pulling in their horns.

        Regulation is not all benefit and no cost.

  3. Jim

    Yeah, I’m sure accupuncture is just the thing for cancer. And lots of some weed will lower your blood pressure. Why bother with these poisonous drugs? Everybody was healthier in the 18th century anyway.

    1. Yves Smith Post author

      This isn’t as simple as you suggest. Did you even read the post? You appeared to have missed that adverse drug reactions kill 110,000 people a year, and that estimate is likely low.

      I’ve repeatedly had doctors recommend procedures with low success rates. And conversely, on the big pharma front, there is no interest in effective treatments that can’t be protected (this of course makes sense from an IP standpoint but is terrible from a public health standpoint). For instance, a top Indian medical researcher has concluded that turmeric is a powerful cancer prophylactic. She could not get any funding to isolate what about tumeric was so effective because the concern was that it could not be protected. A prophylactic is far more valuable from the patient standpoint, but treating people who are sick is more profitable.

      Similarly, gamma-hydroxybutyric acid is a far better sleep inducer than any sleeping pill on the market. Puts you into a deep high quality sleep and is out of your system in four hours. Big pharma created a huge scare about its use as a date rape drug (and this is not alternative med conspiracy theory, I was told this by an endocrinologist who regularly told patients to use GHB when it was legal and was very much on top of the efforts to squash it). It’s now a Schedule 1 drug, meaning as illegal as heroin.

      There is also evidence that so called auto immune diseases are actually the result of infection by pathogens called mycocides. Big pharma has sought to discredit the doctors pursuing this line of inquiry, since the drug that is effective against mycocides is tetracycline, a cheap, off patent antibiotic.

      1. Francois T

        “I’ve repeatedly had doctors recommend procedures with low success rates.”

        Oh My! This is a problem that has plagued the Art of Healing since…well, the dawn of times.

        Consider the example of tonsillectomy:

        “The Tonsillectomy Riots also remind us about the durability of profitable medical procedures even in the face of evidence against them. By the mid-1930s, fully one-third of all operations performed under anesthesia in the United States were tonsillectomies. Around that same time, research that included a pioneering study of New York City schoolchildren began to show that the tonsillectomy rate was more dependent on physician preference than on objective indicators. Nonetheless, the growing medical literature on inappropriate and even dangerous tonsillectomies had little effect on actual practice until Congressional hearings in the 1970s spotlighted parents whose children had been harmed or killed. Only then did the profession react. “

        In other words, it took public exposure and threat of Congressional action to act as a deterrent to greed.

      2. Dan Duncan

        Yves has been watching too many George Clooney movies.

        Cut to the beautiful Indian medical researcher (hopefully Frieda Pinto, the damsel in SlumDog Millionaire).

        She has, according to our narrator, Yves Smith, “concluded” (?!?!) that tumeric is a powerful cancer prophylactic. She wants to pursue this breakthrough, but cannot get funding!

        [Cut to Alex the Grey Parrot, whose researchers got millions from the NSF!

        But cancer prevention? Zip, zilch, nada.

        The evil execs at Big Pharma have made sure that all her grant requests were killed.

        [Evidently, none of these execs have ever had the misfortune to lose a loved one to cancer. And if they did…they did not care…and now…Cut to a white, puffy middle-aged Pharma exec, who is of course, an American. He’s rolling around in a bed of filled-out prescription pads with his coke-whore mistress. They are snorting the good stuff with hundred dollar bills. Cue evil laugh now.]

        Enter George Clooney as a sincere lawyer who operates a solo practice for environmental causes and the needy.

        He hears about the babe-researcher and vows to help her get funding money…

        While researching both the babe-researcher and the governmental funding process, Clooney learns about Alex, the Grey Parrot.

        After some sleuthing, Clooney learns that Alex is “retired” and is now the pet of the Big Pharma’s coke whore mistress.

        It turns out that Alex was nothing but a front to cover the Big Pharma conspiracy to divert money from cancer prevention and steer it over to Alex! [Alex, incidentally, also developed a nasty coke habit. So sad.]

        So…the Big Pharma execs have actually kept cancer in our lives, killed millions and devastated the lives of all the families and all the children. All of this, so the execs can get rich and keep both coke whores and really smart parrots as pets.

        More drama ensues. Clooney, enrolls some allies in the form of Matt Damon, Sean Penn and BradJoLina (who manages to get in the non-sequiter that she does frown on Quran-Burning–it’s intolerant, plus it’s bad for the environment).

        In a case of astonishing Dues ex Machina, the 10 foot-tall green freaks from Avatar enter the picture and slay the Big Bad Pharma Execs. Damon, while on the shoulders of the Avatarian Leaders gets to utter the classic line: “You’re not so big now are you, little white man?!”

        And the epic concludes with a Multi-Cultural Pantheistic Orgy where all the players hold hands around a giant oak tree and they smoke a giant stogie of the now legal 100% healthy sleep-inducer Gamma-Hydroxybutyric…and they drift off into a peaceful, environmentally friendly sleep where “One is ALL and ALL is One.”

        And a now clean and sober Alex winks into the camera and says:

        “The End.”

        [Director’s note: I’d have loved to give a part to Francois T, since he made this all possible…but due to his 14 other posts in this thread, I figured it might…just might…be a case of over-exposure.]

        1. Yves Smith Post author


          The Indian (as in India) medical researcher is not someone I read about, this is one degree of separation via someone I know very well and is no slouch (as in very skeptical by temperament). And she is extremely respected in India, she trained an entire generation of scientists.

          BTW, your argument is pure ad hominem.

      3. propertius


        There’s more than one researcher looking at tumeric (and curcumin, the hypothesized active ingredient) and its possible uses. A Medline search for “tumeric cancer” turns up 1416 papers on the subject going back to 1981. A quick scan of the abstracts indicates that there are, in fact, a number of clinical trials of curcumin currently in progress for tumors of the GI tract. It appears to have limited usefulness for other cancers because it is not water-soluble and is therefore very difficult to administer, is poorly absorbed, and is rapidly excreted. Several researchers are attempting to find analogues of curcumin to circumvent this problem.

        See, for example:

        1. ginnienyc

          Curcumin in phospholipid suspensions is also being used at MD Anderson to arrest the progression of MGUS, the precursor of multiple myeloma.

        2. Yves Smith Post author

          Why do you assume the researcher was not WELL aware of the literature? And you seem not to understand FDA procedures. As I understand it, they want an isolated compound and they want to understand the mechanism. Curcumin is the principal curcuminoid but not the only one. The FDA would never approve turmeric, it isn’t a single compound. You also assume an oral delivery mechanism.

          And your “oh, just go and do a trial” is wonderfully disingenuous. Clinical trials are costly, they are a major barrier to entry.

          I heard this account maybe fifteen years ago, so I don’t recall all the details, but she had some novel aspects to what she was working on, and needed $100,000 to prove out some of her work on a larger sample. She had good contact here and spent some time in the US trying to raise money. No takers.

          And re generics, you also conveniently gloss over the issue that by the time a drug goes generic, it has an established market. The economics are known.

          1. propertius


            I’m not exactly certain what the point of this response (I assume to me) is. I never asserted that this particular researcher was in any way unaware of the current literature, nor did I state (or even imply) that one just needed to conduct “a trial” in order to get a new treatment on the market. What I was attempting to point out was that there are a great number of researchers at multiple centers in multiple countries pursuing very similar lines of research, and that they’ve been doing so for nearly three decades – and that they’ve encountered real, technical issues with using tumeric compounds in a clinical setting. None of this means that drug companies don’t devote far too much money to marketing and lobbying and too little on research, nor that regulators aren’t often far too cozy with the industries they’re supposed to regulate.

            None of that alters the fact that literally hundreds of researchers in multiple countries have been able to obtain funding “to isolate what about tumeric was so effective”, including quite a few in India. I do not know how much, if any, of their funding has been provided by pharmaceutical companies. Given the priorities of corporate management these days, perhaps none.

            No sort of attack on you, your opinions, your acquaintances, or their acquaintances was intended, expressed, or implied – so I find the rather hostile response both unwarranted and somewhat perplexing. I also find some of your conclusions about my supposed opinions a bit odd – while low bioavailability and poor water solubility are certainly obstacles to oral use of curcumin, short half-life is a problem no matter how a dose is administered. If your intention is to use curcumin as a chemopreventive rather than as a treatment, it is difficult to see how most other dosing methodologies would be practical (e.g., exactly how often is one expected to receive an injection of a short-lived compound in order to prevent a disease?). Chemotherapy is, of course, a completely different matter.

            A variety of naturally-derived substances, from aspirin to Taxol, have been granted both approval and protection over the years. Why compounds derived from tumeric might present special legal or regulatory difficulties is beyond me, but I am not an IP attorney and this is therefore well outside my area of expertise.

            It is certainly difficult to get approval for preventative treatments, simply because the whole clinical approval process is oriented towards treatment (and because the risk/benefit calculation for a drug given to healthy individuals in order to prevent an illness they may never get is very different than that for a treatment to be given to the mortally ill). Prevention studies require large samples and long time periods to be conclusive. That these difficulties might discourage funding by short-sighted for-profit entities seems (to me, at least) an excellent argument for expanding public research funding.

          2. Yves Smith Post author


            Sincere apologies, this was meant to be in response to youvegottobekidding, who was pretty dismissive in tone. I must have had two windows going and got distracted when going between them.

    2. Francois T


      Don’t worry so much. I know it is anxiogenic to contemplate the nuances of a problem with numerous shades of gray, but we’re on it.

      Take the Blue Pill.

      1. Jim

        If I might be serious for brief moment, I will take my chances with the drug industry as it is, rather than torment it to be perfect, which it can’t be and won’t be and which is a waste of time. I really doubt it wants to kill people but some seem to think it does. There are other problems more serious such as advertising drugs to the public to pressure doctors to prescribe them. That can and should be prohibited.

  4. attempter

    Just like in all other racketeering sectors, the market here is broken.

    We know that in oligopoly sectors the patent regime doesn’t encourage innovation but squelches it. This is in addition to the fact that Big Drug, like all other rackets, is really a free-riding leech on massive public investment, and should never have been allowed to exist on a profiteering basis in the first place, since it’s a classic corporatist privatize-profit-socialize-cost setup.

    So it’s no surprise that the result is not only that more and more of the cost goes not to drugs at all but down a rathole (this effect was also described in yesterday’s post), but that the drugs which are produced are of lower and lower quality.

    These are the predicted effects of oligopoly. Since we’ve long known empirically that these are the effects, we have to assume that anyone who still supports this kind of structure consciously wants exactly these effects.

    Once again the choices are stark – we can eradicate the rackets and redeem our freedom and prosperity, or we can submit to the steady erosion of these, submit to ever lower product quality and general quality of life, and regress to impoverishment and serfdom.

    1. Jim

      I presume most of the suggested “remedies” would lower the profitability of the industry. But, one might ask, what profits? Here is how some major drug stocks have fared over the past ten years: Pfizer down 57.85%; Glaxo SK down 27.82%; Roche down 18.14%; Merck down 43%; only one major drug company, Novartis, is up 49%. Compare all this to the SP 500, down 26%. Not much ten year profitability there. Of course perhaps these companies should be regulated (driven) out of business and it all be turned over the a government corporation. Would we be better off that way?

  5. leroguetradeur

    The problem with the US healthcare system is the nature of its regulation. In a two by two matrix, the US has chosen the second worst option. That is, it has privately run health care, and privately run insurance. The second ensures that a huge percentage of spend is eaten up by overheads in the insurance sector, as they all compete to avoid taking on bad risks, and that coverage is limited, expensive, associated with employment, and so on. This is the reason health care costs are a leading cause of personal bankruptcy.

    The worst alternative in the matrix would be to have state run health care, with privately run insurance. New Zealand reportedly has that, with the result that it not only has the expense and inefficiency burden, it is said also to have the UK syndrome of filthy hospitals, unaccountable staff, high unionization, rationing of care.

    The UK system where both care and insurance are state sector, is probably the second best. It is not at all good, its like saying walking is second best to cycling if you want to get there faster and with less effort. But it is better than the bottom two.

    The best system, and its the difference between bikes and cars, is the European one, with state run insurance and privately run care.

    As the Bible says, by their fruits ye shall know them. Yes indeed.

    1. NS

      Neil. Pharmacology is a science with proven methodology over time. The methodology behind assessment of treatments isn’t and should not be a crap shoot but increasingly it is. The methodology itself has been tampered with by profit motives and lack of personnel to assess early study quality or those involved in development of medications who have serious conflicts of interest.

      Old school here, thank gawd I took pharmacology in college. Much of development now is for medications that are just barely different from older medications treating common problems where the money incentive lays that are just as if not more effective than the newly patented latest and greatest and vastly cheaper. After being out in a large population over time, one can assess its effectiveness vs side-effects.

      Unfortunately, there are some new therapies for a variety of problem which are not only expensive but have a lot of risk associated with them for individuals. Physicians must assess risk vs benefit for them. Often people see ads for these medications that promise overly rosy results for chronic and debilitating diseases that afflict not just the aging but young who seek normal lives; then pressure physicians for the therapy. It may or may not be appropriate.

      The ethics behind scientific processes have been compromised. It is upsetting beyond words for many current and former health care professionals who practice as a vocation as opposed to having just a job.

      Nevermind that however, our culture rewards movies stars, sports stars and corrupt CEOs who are worshiped like rock stars. What is wrong with this picture?

      1. Francois T

        “The ethics behind scientific processes have been compromised.”

        This is an understatement. Orac, the author of Respectful Insolence has an excellent post about this very topic.

        In the example discussed in the link above, (Hormone Replacement Therapy) the sneaky influence of marketing dollars is rather pervasive. All the more so because, as Dr. Howard Brody reminded several commentators, legitimate needs of the patients got “hijacked” or piggy-backed upon by unscrupulous marketing.

        It’s certainly valuable to have this information in the public record, and to know that “HRT” was yet another area manipulated by ghostwriting. My qualifications come from having followed this discussion fairly closely at the time, and conferring with some of my evidence-based colleagues on what advice to give to our patients when the RCT’s were announced showing that “HRT” increased both cardiovascular and breast cancer risks. My worry is that we are engaged in some revisionist history right now on the “HRT” question. A few points to recall:

        * Fugh-Berman mentions only in passing that one clear-cut benefit of HT, which I don’t believe has ever been denied, is prevention of osteoporosis. As we proceed today to vilify HT, with the benefit of 20-20 hindsight, we tend to forget the plight of the 80-year-old woman with a broken hip, who was in danger of dying or being stuck for life in a nursing home as a result, and the strong desire to prevent such an occurrence if possible.
        * Also minimized today is the reality of severe hot flashes and the fact that many patients, when we tried to stop their HT, came back complaining bitterly of the lowered quality of life, and in some cases even frank incapacitation this caused.
        * Then, consider the actual “number needed to harm” as revealed, not in industry-sponsored commentaries, but in the raw numbers contained in the supposedly reliable RCTs that first revealed the true risks. As best as I can recall, for conditions like breast cancer and other cancers, the number of patients who would have to take HT for a year for 1 to end up with a cancer was in the range of 500 to 1200. That is a real risk, but it’s within a numerical range that a woman with severe hot flashes, or at high risk for osteoporosis, might rationally decide to continue HT even knowing the risk.

        In hindsight, we know now that HT was oversold as a preventive for cardiovascular disease, and this seems mainly the result of relying on observational studies before RCT results were available. The RCTs clearly showed increased, not decreased cardiac risk. It’s good to now know that this misimpression was not completely accidental but was aided and abetted by ghostwritten marketing articles. The complete picture is a bit more nuanced than this one article conveys, IMHO

        As anyone can see, it is not a simple matter. That is why smart regulations and a political will to let evidence based science to do its job (instead of a wam-bam-thank-you-mam end of trimester money-driven paradigm) is crucial to the long term wellness (pun intended) of the health care sector.

  6. Neil D

    There have always been snake oil salesmen and people in pain will always give away their money for the promise of relief. Heck – people give away their money for the promise of eternal life.

    That’s what makes the health care “market” so dangerous. People will literally go bankrupt clinging to life and we don’t have the heart to say no to a dying child or even a dying old person.

    I would love to see price controls that give a healthy profit to companies that discover and produce life saving drugs like antibiotics, vaccines, and chemo that actually works.

    But that’s the hard part – figuring out what really works.

    1. Francois T

      “That’s what makes the health care “market” so dangerous.”

      Even before using the “dangerous” qualifier, consider the fact that health care is the only sector that can pretty much generates its own demand.

      Case in point: When the province of Québec instituted universal health care, several physicians quickly started to game the system in a rather sneaky way. They would flag those patients who were coming to the office infrequently and send them “reminders” that they were due for an office visit. (every six months!) The letter would highlight the fact that the suggested dates for visit were “dedicated slot times” for them, basically promising no waiting times and personalized attention. These patients didn’t have any justifiable medical condition that would warrant a bi-annual follow up, but the trick worked out pretty well thank you very much. Until, of course, the practice was curtailed by these damn “socialists” for the evil gubmint.

      Life is so tough for those dedicated entrepreneurs!

  7. NS

    Thanks for bringing up this topic Yves. The ‘for profit’ model in health care has created some very twisted incentives which are similar to the financial industry. The difference is the toll it takes on individuals.

    The rise of alternative medicine is in part due to the loss of faith in medical practice and pharma but also because people have been programmed via TVads etc., OTC medications to diagnose and treat themselves.

    The very, very unfortunate side-effect is postponement of professional care in early treatment of serious problems.

    Caveat Emptor should not be the plan with medical care. The rise of HMOs, PPOs is metered care at the hands of CEOs. Repeat offenders who overcharge clients, overcharge the govt while denying payment for critical life saving medications, treatments otherwise have been chronicled over and over; and yet the same crimes are repeated often with mere wrist slapping IF a class action suit is brought that takes years to come to term.

    The US health care system is barely above Eastern Europe in quality of care while we pay the most of any other nation. Its backwards and its ultimately BANAL.

    Pharma outsources/consolidates while advertising 24/7 on TV (that costs nothing right?). Meanwhile little 8 year old Suzi single mom pays 10 times more for her asthma medication and works a second job to keep up with the inflation in health care costs.

    Enough. Its ethically and morally corrupt.

  8. Francois T

    “Some readers have wondered why this blog from time to time runs posts on the US health care system.”

    How can anyone run a blog on capitalism without talking about a sector that makes up for 17% of the total GDP of this country?

    Just wondering…

  9. Roger Bigod

    A minor quibble: acupuncture doesn’t reduce inflammation. All the studies I’m aware of say it’s just placebo effect. It’s impossible to do a true control, but there’s no difference between stimulation at the proper meridians and key points and random stimulation, AFAIK.

    It may have some restricted effectiveness under limited circumstances. But if the inflammation has a treatable cause, such as a bacterial infection, acupuncture is not the way to go.

  10. mark

    The most expensive part of drug development (by far) is clinical testing. Typically a drug is tested on several hundred to several thousand people (total of all studies combined) for weeks to months at a time (in each study). The cost of these is in the tens to hundreds of millions of dollars.

    It is well known that this is inadequate and that the real test for a drug comes in the first year that it is on the market and it is given to tens of thousands or more people for longer periods of time.

    Lesson 1: Never take a drug (with the possible exception of anti-cancer drugs) until it has been on the market for more than a year.

    Lesson 2: The cost of clinical testing must become, at least in part, socialized. One possibility might be public funding of much larger trials after some initial criteria are met by the Pharma company. The cost of this might be paid back by a portion of the profits of a successful drug going to the public testing agency.

  11. Debra

    As a former clinical psychologist, I am involved in a three year ongoing “experiment” with people who have received psychiatric diagnoses, most of whom are, or have been on medication of some form or another. An Internet forum support group.
    One of the first things that I told them was… that the “efficacity” of any psychotropic drug was dependant on the nature of the relationship they had with their prescribing doctor (a relationship built on TRUST, CARING, etc., OR NOT ?), and that there was and still IS no way of measuring all this…
    Three years later, most of the participants in this self help forum where I participate ALONGSIDE the others has led to… REDUCED CONSUMPTION OF PSYCHOTROPIC DRUGS, and more importantly to the increasing realization among all that THE DRUG, ALONE will not solve their “problems”, but needs to be incorporated into a bunch of other supportive activities that contribute to their feelings of self esteem.
    Also happening… people’s increased capacity to realize that THEY are the best judges of what is going on in their bodies (AND THEIR MINDS, SOMETIMES..) and that the EXPERTS are not God.
    Helping people in any care situation depends on a partnership where both participants are working together.
    It does not work well when.. EXPERTS deal out fixes to credulous, desperate, and utterly dependant people consigned to voluntary servitude in… a CONSUMER society.

  12. Don in GA

    Yves, Maggie Mahar’s book “Money Driven Medicine” does a very good job of documenting the rampant fraud in the medical profession. The FDA is probably even more captured by industry than the SEC. And as bad as Big Pharma is, the medical device industry is even worse. Price fixing and kickbacks to high volume surgeons are rampant.

    Given our fiscal situation and aging population I think the escalation of health care costs is unsustainable and margins of big pharma and the medical device industry are as well.

    We can’t afford to let the healthcare and financial services industries continue to act as parasites on the U.S. economy.

  13. eric anderson

    Another good post. It appears to me that America has no sense of proportion. The number of killed and disabled by preventable medical errors, drug errors being perhaps chief among them, dwarfs the number of killed, wounded, disabled in the wars in Iraq and Afghanistan. This medical holocaust has been going on for decades, and the public barely hears a peep of it in the mainstream media. Probably because the biggest advertisers on the nightly news programs are drug companies.

    I have no answer except caveat emptor. However, with third party payment, the buyer is not the direct consumer, it is the insurance company, or Medicare/Medicaid. Why wouldn’t it be in the interests of insurance companies to crack down on bad medicine? I suppose because certain political factions would immediately claim the “mean insurance companies” were withholding treatment and killing people for more profit?

    Having known some who, using alternative medicine, have overcome cancer that came out of remission, I also wonder how effective treatments that are not patentable can ever be approved — become “standard of care.” There are insufficient funds for testing, and huge barriers to acceptance. It’s another huge problem in our system. Even if the FDA is functioning properly to ensure our medicines are safe and effective, that does not mean there aren’t non-toxic, natural, non-patented alternatives that are even more effective than the FDA-approved designer chemicals. But who will champion them?

  14. petridish

    Maggie Mahar’s book is excellent. May I also recommend Greg Critser’s “Generation Rx: How Prescription Drugs are Altering American Lives, Minds and Bodies?” It is a well-documented and detailed account of how we have gotten where we are with the drug “industry.”

    At some point it should occur to someone that an effective, accessible and affordable healthcare system is only possible in a nation that values the lives of its citizens above all else.

    Sometimes I wonder if, in a perverse way, the predatory American healthcare system will be self-limiting. As fewer Americans are able to afford increasingly expensive care, those who take comfort in their unlimited access to “benefits” will be mined more extensively for their ability to produce profits. More deleterious drugs, more cancer-producing CAT scans, more dangerous tests and hospital stays will be peddled to a shrinking customer base. It may be, then, that those who question the wisdom of uncritical, unlimited consumption of “healthcare” survive, while those lucky, entitled few are hoist by their own, over-treated petards.

  15. Yearning to Learn

    I have not seen any significant data that accupuncture is effective at dealing with inflammation, but there is an interesting amount of research looking into its effectiveness at dealing with chronic pain, especially chronic low back pain.

    other people have brought up the idea of accupuncture=placebo. the research is unclear, but thus far accupuncture does not seem to be significantly more effective than “fake” accupuncture. however- in the end who cares? if a treatment works for a person, so be it. I’m happy as a clam.

    I think regular people misunderstand placebo. it isn’t just some ‘all in your head’ sort of situation. we don’t understand placebo. you can cure cancer, cure blindness, cure just about anything with placebo. how? who knows. that’s why we run our medical tests against placebo as opposed to running tests against no treatment.

    I routinely use accupuncture in my practice for the patients who fail conventional therapy (and sometimes as first line therapy). I also use some alternative medicines and also some yoga. does it work? sometimes. are these miracle cures that are “better” than western medicine? In general, it depends. Overall I’d say no. But if they work for an individual then I think they’re great.

    The issue that we run into with the “alternative” medicines (called supplements) is that they are completely outside of any regulation.

    For instance… did you know
    -many supplements in the US are sold by the big pharma companies, just under subsidiaries with different names?

    -there are no laws about purity, quality, or dosage when it comes to supplements. Thus, if you try to buy Echinacea 900mg capsules, who knows what is in there.
    it could LEGALLY be filled with grass clippings or there could be 400mg instead of 900mg in there or whatever.

    these products are OUTSIDE of all regulation. thus, if you are given poison ivy instead of Echinacea in your capsule there is NOBODY to report it to. If 1,000 peopld die using supplement X there is NOBODY to report it to. this doesn’t mean that these products are unsafe. It means that there is no way for a consumer to know.
    there is also no way for a doctor to know… thus many (not me) tend to shy away from them

    Worse, since there is no regulation, there is no reason to do studies. Why do a study on a product to see if it works, if it is safe, if it cross reacts with another medicine? it costs money. You can FOR FREE just put the product out there and say “this supplement helps for X, not evaluated by the FDA”.
    you’d be insane to spend R&D dollars for something you can just put out there for free.

    the explosion of alternative medicine is partly due to the loss of faith in Western Medicine, and partly due to advertising. what sounds better:
    “Take drug x. It works well! May cause sedation, erectile dysfunction, rectal bleeding, etc”
    “Take supplement x. it is great! (not evaluated by the FDA)”

    the big pharma advertises HARD for supplements. They also were a big part of the movement to get supplements removed from the purview of the FDA. The so called “Dietary Supplement Health and Education Act” of 1994.

    remember, the FDA is NOT ALLOWED to ban a supplement.

    The example that comes to mind for me was when Aristolochea (a chinese herb) was suspected in causing urinary tract cancers. it was banned in europe but not in the US (nobody had authority to ban it).

    the way I think about it is thusly:
    -“drugs” are chemicals that change the body in some way. They can have positive and negative benefits.
    -“supplements” are chemicals that change the body in some way. They can have positive and negative benefits.

    in other words: they are the same thing, different name.

    one last point I want to re-make in a different way.
    if you think you are screwing big pharma by using supplements, there is a good chance you are wrong.
    many supplements in the stores and coops are made by big pharma.

    all window dressing folks.

  16. Roger Bigod

    Another scandal is the “DSM”, of approved psychiatric diseases. If a diagnosis can be inserted into the manual, treatment becomes reimbursable, which opens up a whole new market for pharma. Thus bonanzas like “childhood behavioral dysfunctional disorder”.

  17. Anonymous Jones

    It is of constant interest to me how almost uniformly fantastic the analysis is in Yves’ posts and how truly pathetic the analysis is in most reader comments on this site.

    What draws these people here? They don’t seem to be able to think their way out of a paper bag; yet they wind up at the blog of one of the most thoughtful, intelligent writers extant.

    You look up and down these comments and there isn’t a single valid challenge to Yves’ thesis about poor incentive structures.

    This is not complicated. She is asking that we investigate the structure and determine whether there is a better way. Maybe there isn’t. Maybe there is.

    There are pot shots at the FDA over innovation. (What does that have to do the topic, the possibility of “capture”?)

    There is the idiotic, off-topic reductio ad absurdum somehow implying that Yves is promoting alternative medicine in all instances for all medical issues. (Huh? She suggested that we don’t use modern medicine to treat cancer? How f*cking stupid are you?)

    There is the use of the term “evil” over and over again. (Where was the concept of “evil” in Yves’ post? It’s like I’m surrounded by those dolls that “talk” except that all they really do is parrot a few mismatched phrases completely unrelated to the topic at hand, except the motivation is not a battery in the back but a deep feeling of resentment, rage, hate and dreams of schadenfreude.)

    There is so rarely any understanding of the concept of not letting the perfect be the enemy of the good. (Yes, the “solution” we pick will not be perfect. It will have problems. Hopefully, it will have fewer problems than the alternatives. Showing us a problem with a proposal is not the same thing as making an idiot out of the person who proposed it. Maybe there isn’t a better proposal. Is this difficult to understand?)

    I do not have all the answers. Far from it. But I certainly share Yves’ feelings about this. I have often thought of prescription drugs in the context of the market for lemons. After many bad experiences, I’ve been forced to adopt the “lemon” rule of thumb (i.e., to use a prescription drug *only after I have exhausted any other reasonable alternative*). It’s always going to be decision-making under uncertainty; and this is the best rule of thumb I’ve come up with given the parameters I’m facing. My experience with prescription drugs has been mostly terrible, with a tiny few wonderful, almost miraculous exceptions.

  18. youvegottobekidding

    no one is stopping tumeric from being studied or approved as a cancer compound. no one.

    You, the NIH, the Indian Government, the various Cancer Societies are all free to run a randomized, blinded, controlled clinical study (per the FDA guidelines) prove that tumeric is better to current therapies and gain the stamp of approval from regulators worldwide. The pharma industry would have no say in any of this.

    In fact large clinical trials looking at only generic drugs are common. Here are some examples

    could go on all day.

    Of course having some actual knowledge about something precludes it from being a good blog post.

    1. mark

      Also, the idea that a compound, i.e., the active principle, extracted from turmeric wouldn’t be patentable is, ahem, patently absurd. Even in the unlikely event that the active principle were already a known compound, it’s use as an anti-cancer agent would absolutely be patentable.

      These kind of “use” patents are extremely common. For example, if company A patents compound X and claims its use for disease Y but not Z, then I can, if I can prove that the compound’s use for disease Z is unexpected, i.e., not obvious to one skilled in the art, I can obtain my own “use” patent for compound X exclusively for use against disease Z.

      1. Yves Smith Post author

        First, the researcher was aware of the risk that any anti- cancer properties of turmeric might not come from a single compound in turmeric. Second, look at the problems with monacolin K (lovastin) having red yeast products marketed that were reverse engineered to be identical to the drug (no joke, at least one was). The FDA has been pretty successful in beating this back (over time) in the US, but overseas is another story.

  19. Canute

    A suggestion, not original: The National Institutes of Health spend about $30 billion a year on the basic research that ends up becoming pharmaceuticals. Private industry spends another $26 billion a year taking that research and turning it into marketable drugs. I don’t know where the 88% copycat drug ratio fits into that number. Let’s assume that most of the $26 billion actually goes into truly new drugs. Then big pharma sells these patented drugs to Medicare and Medicaid for hundreds of billions.

    Why not have the NIH keep its research in-house, spend another $26 billion to actually develop the drugs, and then have the U.S. government hold the patents? We, the people, could then license the patents to private drug companies for a percentage of the gross and let them compete on price and quality.

    This would save us some major billions. It would also have the beneficial effect of prioritizing the development of necessary new drugs instead of yet another Lipitor knockoff.

    As it is we seem to have a problem of regulatory capture equivalent to the MMS jokers who were supposed to regulate offshore oil drilling.

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