The Limits of the Free Market and Health Care

I got a lot of email about a piece I wrote yesterday on Tricor, a drug mainly used to reduce cholesterol levels developed and tightly controlled by Abbott Labs. Many of them defended the actions of Abbott Labs. I think this one captures the flavor of them:

What you don’t understand is that this is how the free market works. Abbot Laboratories is doing just what a company is supposed to do. They’re making money for their shareholders. They didn’t break any laws. They didn’t do anything wrong. They’re making money to compensate for the high cost of research into new drugs like Tricor.

Well, first of all, I think the fact that they settled lawsuits for $300 million means they might have done something wrong. But that’s not what I want to focus on.

Second of all, Abbot didn’t do the research into Tricor. They licensed it from another company. So I don’t know what we need to compensate them for. But that’s not what I want to focus on either.

I want to focus on the free market argument. See, I’ll concede that this is how the free market works. But if I do, can those of you who wrote me concede that therefore maybe the free market isn’t the answer to “how do we reduce health care spending”?

Cause I agree that this is how companies act. I really do. But by maximizing their profits, Abbott Labs is costing the US an extra $700 million each year.

The FDA could change any number of policies, though, to make this better. They could make new regulations to eliminate the “moral hazard” of the 30-month grace period when a patent infringement suit is filed. The FDA could decide not to allow drug makers to continue to use the same name for simple reformulations of a drug, making it harder to get everyone to make the switch. These would both result in reducud health care spending. But that’s “interfering” with the free market.

We could also allow pharmacists to switch people to “bioequivalent” doses of generics even if they’re not exactly the same dose. But that’s “interfering” with the free market.

We would start using carrots and sticks to get physicians to stop prescribing the expensive name brand drugs when the generics are pretty much exactly the same. But that’s “interfering” with the free market.

You can support the free market here; that’s fine. But can you then acknowledge that “unleashing the free market” isn’t always the answer to reducing health care spending?

[Cross-posted at The Incidental Economist]