The pharmaceutical and healthcare industries are integral to public health, but unfortunately, they are not immune to unethical practices that adversely affect consumers. Two glaring examples of these practices are the manipulation of generic drug prices and the consolidation of healthcare providers, both of which have profound economic and health implications.
Imagine needing a life-saving drug and finding out that the price is sky-high, even though a cheaper, generic version is available. This is not just a hypothetical scenario. Companies like CVS Health and Cigna have been inflating the prices of generic drugs, which are supposed to offer affordable alternatives to expensive brand-name medications. According to a Wall Street Journal analysis, these companies can charge as much as $6,600 per month for the cancer drug Gleevec, despite its generic counterpart costing as little as $55 per month (Walker, 2023). This dramatic price hike is enabled by their control over pharmacy-benefit managers (PBMs), who are responsible for setting and manipulating drug prices.
PBMs are intended to help manage drug spending by negotiating prices with pharmacies and determining which medications insurance plans will cover. However, when PBMs own the pharmacies they are negotiating with, there’s a clear conflict of interest. They are incentivized to keep prices high to maximize their profits (Walker, 2023). This situation is a textbook example of the might-equals-right principle, where powerful entities impose practices that benefit them financially, without regard for social norms or the broader impact on consumers.
Take, for example, the disparity in the price of generic Tecfidera for multiple sclerosis. The Mark Cuban Cost Plus Drug Company offers it for $54 per month, while UnitedHealth charges nearly $1,215 for the same medication (Walker, 2023). These differences highlight how PBMs and their associated pharmacies exploit generic drug pricing, placing an unnecessary financial burden on consumers.
Similarly troubling is the consolidation of hospitals and healthcare providers. Over the past two decades, more than 1,000 mergers have occurred among the approximately 5,000 hospitals in the U.S., leading to fewer choices for patients and higher prices without significant improvements in care (Wainer, 2024). These mergers, driven by both vertical and horizontal integration, enable large hospital systems to acquire smaller hospitals and physician practices, thereby increasing their market power.
This consolidation reduces competition, allowing merged entities to demand higher prices from insurers. These increased costs are eventually passed on to consumers through higher premiums and out-of-pocket expenses. For instance, a study found that six years after hospital mergers that didn’t overlap geographically, prices rose by about 13% on average compared to control hospitals (Wainer, 2024). This shows that even mergers between hospitals in different regions can significantly hike prices due to the enhanced bargaining power of larger hospital systems.
When hospitals acquire physician practices, they often use these acquisitions to channel more business to their facilities, increasing revenue through facility fees without necessarily improving patient care (Wainer, 2024). This practice illustrates the organization’s interest principle, where actions are taken to benefit the organization’s goals, even if they negatively impact consumers.
The manipulation of generic drug prices and the consolidation of healthcare providers are just two examples of unethical business practices that significantly harm consumers. These practices undermine the affordability and accessibility of healthcare, increasing the financial burden on patients and contributing to the overall inefficiency of the healthcare system. Addressing these issues requires stronger regulatory oversight and more transparent pricing mechanisms to ensure that the primary focus remains on improving patient care, not merely maximizing profits.
References:
Walker, J. (2023, September 11). Generic Drugs Should Be Cheap, but Insurers Are Charging Thousands of Dollars for Them. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/generic-drugs-should-be-cheap-but-insurers-are-charging-thousands-of-dollars-for-them-11663692384
Wainer, D. (2024, June 6). Healthcare Consolidation and Its Impact on Prices and Patient Care. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/healthcare-consolidation-and-its-impact-on-prices-and-patient-care-11663692384
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