Organized Crime as a Free Market Offering

By guest blogger Daniel Hoffman:

For a week now the blogosphere has been in a frenzy over a report published by ProPublica, a non-profit journalism organization that released a study of which doctors received money to speak for drug companies, how much money they got, and the problems created by paying off our "gatekeepers."

For a few days I wasn't sure about the right context for considering this latest scandal.  Was it just another in the weekly drumbeat of off-label marketing, payoffs and distorted data, or did this somehow raise impropriety to a new level of importance?  Then last Sunday two columns in the Inquirer focused my thinking.

One was by consumer columnist Jeff Gelles about another current scandal, the one in home foreclosures.  After scolding corporate suckups who dismiss the matter as much ado over deadbeats and losers, Gelles concluded that, "Underlying all these issues...is the fundamental problem of bad incentives and insufficient regulatory oversight."

A second Sunday column reached another conclusion.  Paul Davies reviewed The Monster, a book by Michael W. Hudson that assesses how the subprime mortgage scandal led to the worst recession in 70 years.  Davies referred to an interview that he had personally conducted on the matter with a local lawyer named Irv Ackelsberg.  Ackelsberg told Davies about the role of Wall Street investment bankers in the subprime swindle and, in the process, "likened the investment banks to the drug cartels, and the predatory lenders to crack dealers."

Davies' column reminded me of a conversation I had last summer with a physician who heads one of the country's top patient-advocacy groups.   After discussing a particular issue for several minutes, I made a passing reference to the pharmaceutical industry, whereupon the good doctor emphatically referred to it as "the world's largest organized crime entity."  My immediate thought at the time was that the remark was just an inflammatory shot of hyperbole, a form of name-calling that occasionally obscures the otherwise good work and hard facts that characterize this individual and his group.

After Sunday's read, I rethought the matter and I now feel we have two industries here, banking and pharmaceuticals, that are necessary to this country as an advanced civilization, yet thoughtful observers of both, without too much exaggeration, can refer to them as criminal outfits.  Reforming both industries involves some highly complicated issues, which is why Congress, the Department of Justice, the Federal Reserve and several other agencies are all weighing in.

In the case of pharmaceuticals and other healthcare sectors, we can at least start by recognizing that healthcare never was and can never be a market.  That notion, of course, is total heresy to the market-as-deity crowd and their mouthpieces at places such as the Wall Street Journal's editorial board.  For these true-believing snake handlers, the market represents the highest point of omniscience, fairness, liberty and ethics that a society can achieve.  In the real world of healthcare, however, a market is as illusory as the hobgoblins and ghosts that kids will portray this weekend.

Several reasons account for the fact that an unregulated market for pharmaceuticals and most other aspects of healthcare remains delusional.  First, sick people either lack the time or the repose to make rational, profit-maximizing choices, a required element of market behavior.

Second, even if they possess such detachment, the asymmetry of information operating against them militates against rational, well-informed choices.  Even most physicians, in matters involving their respective specialties, are unequipped to evaluate the promotional claims that pharma companies make for new products.

Third, making rational, cost-benefit decisions is often impossible because healthcare is such a bundled affair.  Consumers-patients, for example, have no idea of the cascade of services or costs that follow from their choice of, say, a doctor or a hospital.

Fourth, market dogmatists claim that if any goods, services or social action appears desirable or necessary, a market will emerge to fill that need.  For that reason they label it a manifest evil for government to act in place of a market or to alter an existing market by requiring fulfillment of an unmet need.  Invariably the market faithful are run aground by the fact that a potential market consisting of poor people makes it difficult to derive profits and, as a result, such a market rarely emerges.  That typically leads to some smug response about life's inherent unfairness.

Remember these limitations to the free-if-you-can-afford-it market theology the next time you see a campaign ad that blasts a candidate for "favoring a government takeover of healthcare."

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