Why Healthcare Cannot Be a Completely Free Market

The concept of supply and demand is the cornerstone of economic theory. For simple commodities, the theory predicts that the demand for a product decreases as the price of the product increases and consumers are unwilling to pay the higher price. The supply increases as the price increases and suppliers increase production to capture increased profits. The actual price of the product is a compromise between the desires of consumers and the acumen of suppliers.

Tutorial on the Regulation of the Pharmaceutical Industry

The pharmaceutical market place is not entirely a free market. The extreme demand for lifesaving products can make standard economic assumptions inoperable. Therefore, regulatory mechanisms have emerged to protect patients and to provide patients access to affordable medications. There are three aspects of pharmaceutical operations in the U.S. that are regulated by the government:

The Decline and Fall of Globalization

To understand what happened in the recent US Presidential election, we have to go back to the early 1980s. At that time the overall global social mood shot upward, probably as a consequence of growing international financial integration that tended to undermine the age-old paradigm of “international diversification”. As the social mood became ever more positive, feelings that “everyone is a potential friend” grew stronger and drove events toward increasing interdependence, trade, and cooperation. It’s no accident that the European Union was formed during this period, along with the World Economic Forum in Davos. This story is graphically shown in the diagram below, where we see globalization totally flat until the mid ‘80s, where it exploded until around 2008.

TRUMP & JOSEPH McCARTHY

No one familiar with the history of this country can deny that congressional committees are useful. It is necessary to investigate before legislating, but the line between investigating and persecuting is a very fine one, and the junior Senator from Wisconsin has stepped over it repeatedly. His primary achievement has been in confusing the public mind, as between the internal and the external threats of Communism. We must not confuse dissent with disloyalty.

Healthcare Patents and Hot-Dog Vendors

While patents on medical devices seem normal, patents on drugs and chemical entities may seem like a stretch. I am not sure that the law makers in Venice in 1474, who invented the legal concept of a patent, envisioned the need to patent molecules. In fact, molecules were not even envisioned at that time. We all know that a patent allows an inventor time to commercialize his or her product, but are patents really needed for the economic viability of healthcare? Shouldn’t healthcare be all about saving lives and promoting health and not about making money on people who desperately need healthcare? Do patents have a benefit to patients, not just the patent holders? I think the answer to this question is “perhaps.” Patents promote diversity of products in the healthcare market place by forcing inventors to develop drugs outside the domain of currently patented products.

A Tutorial on the Regulation of the Pharmaceutical Industry

The pharmaceutical market place is not entirely a free market. The extreme demand for lifesaving products can make standard economic assumptions inoperable. Therefore, regulatory mechanisms have emerged to protect patients and to provide patients access to affordable medications. There are three aspects of pharmaceutical operations in the U.S. that are regulated by the government:

Population Explosion and the Demographic Transition

A mathematical model (Core Model) is presented that describes the gross dynamic behavior of the demographic transition—falling death rates lead to population increase, temporarily rising birth rates,
temporarily increased population growth, decreased fertility, aging of the population, and finally a steady
population size higher than the initial population. Core Model captures these features. The model is based on three fundamental observations 1) people are born, 2) people die, some at a young age, the
rest at an old age, and 3) people give birth more often when conditions are favorable than not favorable.

In addition to boundary conditions, Core Model has one free parameter, which is associated with the rate at which fertility adapts to changing conditions. Core Model predicts that aging populations are a
natural consequence of the dynamics and the speed at which the population fertility adapts to changing
death rates. The model captures the qualitative features of actual country demographic dynamics with
European countries making up most of the post-transition populations and Sub-Saharan Africa making
up those countries just entering the transition.

Two Visions for Healthcare

Last week I attended the Forbes Healthcare Summit in New York City. Over 200 healthcare leaders converged on Lincoln Center to discuss and forecast the future of healthcare in the U.S. The heady atmosphere of the conference will provide material for a number of blogs. In this blog I would like to focus on two different visions for the future that emerged in the conference. The first vision is an extension of our current trajectory in which space-age technology yields dramatic, but expensive, health outcomes. The second vision is one in which common-sense medicine produces low-cost very good health over a large segment of the population, but is not necessarily designed to accommodate specialized high-technology procedures.

Science of Inequality

But … it is part of the American mythology that everyone has the opportunity to be rich.

US Healthcare as a Complex System

Healthcare in the U.S. is complicated. There are dozens of components: hospitals, hospices, assisted living facilities, nursing homes, home care, pharmacies, pharmaceutical companies, the Food and Drug Administration, the Patent Office, specialized physicians, general physicians, physicians assistants, nurses, medical device manufacturers, Medicare, Medicaid, private insurers, self insurers, employers, self-employed, wellness centers, chronic conditions, acute conditions, end-of-life conditions, rare diseases, personalized medicine, cosmetic surgery, concierge medicine, and many more. The complication is impossible for any single person to penetrate or understand.