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Home Publications Blogs Beat the Press Patent Monopolies Lead to Corruption #43,781

Patent Monopolies Lead to Corruption #43,781

Thursday, 29 August 2013 04:55

The New York Times had an article reporting on how the two largest dialysis clinics are lobbying to increase reimbursements from the government. The issue stems from a change in the way the government paid for an anemia drug.

The government had been paying per dosage of the drug. As economic theory predicts, the huge mark-up over the free market price provided by patent monopolies encouraged the massive overuse of the drug. The government swtiched to a flat fee per treatment, which led to a sharp cutback in the drug's usage. The government is now proposing a cutback in reimbursements based on the fact that this drug is being used in much smaller doses. If the research had been funded in advance and the drug were produced and sold in a free market, this sort of problem never would have arisen.

At one point the article includes the bizarre statement:

"The multibillion-dollar dialysis industry has been accused  by medical researchers and former employees of putting a higher priority on profits than on care before ...."

Wouldn't any reasonable person assume that a corporation will always put profit as its top priority? That is pretty much what they claim to do, so this hardly qualifies as a "accusation." It's sort of like accusing a linebacker of tackling quarterbacks.

It is worth noting the amount of money the government pays for dialysis. The article puts it at $32.9 billion a year. (CEPR's really cool budget calculator shows this to be just less than 1.0 percent of federal spending.) This amount is more than 40 percent of what the federal government spends on food stamps each year.


Comments (6)Add Comment
Shouldn't Obamacare have ended the Medicare exception for chronic kidney disease?
written by Robert Salzberg, August 29, 2013 6:41
Nixon signed a law allowing people under 65 with chronic kidney disease, (and certain other conditions), to qualify for Medicare because private insurance was declining to renew their insurance once they got diagnosed.

Now that Obamacare is going to cover people regardless of pre-existing conditions, why not end special eligibility for those with chronic kidney disease?
Misleading Statement by Mr. Lipton
written by Robert Salzberg, August 29, 2013 7:10
Eric Lipton:

"The federal government for decades has covered the cost of what is called end-stage kidney disease, the only chronic disease that has this automatic coverage."

Enrollment in Medicare is not automatic if you have kidney failure. You must sign up and meet all other qualifications besides age. Another chronic condition, ALS, does have automatic sign up for Medicare once you begin getting Social Security Disability benefits.

So coverage isn't "automatic" nor is end stage kidney failure the "only chronic disease that has this automatic coverage."

Rules found on pages 15 &16:

In case you wondered about priorities
written by Jennifer, August 29, 2013 7:16
The multibillion-dollar dialysis industry has been accused by medical researchers and former employees of putting a higher priority on profits than on care before ...
As you say what else would you expect? Unfortunately, too many people can't seem to grasp the idea that a corporation involved in health care might be more about profit than care. This goes double if said corporation is "non-profit".

It is really offensive when those dialysis numbers are compared to SNAP numbers-there isn't any question which set of monies is used more effectively. But when you are making the kind of money those dialysis companies are you have more than enough to buy a few politicians and than you pull out the mom-and-pop companies for cover. Big government stepping on small business!

@Robert Salzberg why yes you might have expected that with the ACA they would have folded the program. But really that would have not been in anybody's interest but the tax-payers. It would have required a shift to whole different system of payment for those providers, and why would private insurance companies want to pay for dialysis if the government will pay for it.
Moral Hazard in Reverse Pisses Off Big Pharma - Save the Supply Side at Any Cost
written by Last Mover, August 29, 2013 7:16

Talk about the elephant of Big Government in the room. This is reminiscent of the GOP recently funding agriculture subsidies while cutting food stamps.

The added twist here is the per dosage versus flat rate subsidy that creates less use, which creates a death spiral for the subsidy since less subsidy is warranted as use falls off.

In other words it's standard market failure. The doctor rather than patient knows what's best in terms of efficacy and dosage so with a flat payment, usage drops. But because it's a subsidy, pay drops too since usage is deemed cost sensitive at the margin. It's moral hazard in reverse and Big Pharma is pissed.

Patent corruption through Big Government is like Big Ag subsidies and food stamps. It's fine as long as the intended beneficiaries get what's coming to them to shield them from "free market" competition.

But when subsidies start backfiring and go in reverse, say due to per dosage versus flat rate terms, then all hell breaks loose because "critical" supplies of health care and food from the supply side are suddenly threatened and must be corrected by Big Government for the One Percent.

As for the rest, let them eat their alloted dosage amounts of health care and food under the respective market failure structure as applied.
Much Deeper Problems With Dialysis Industry
written by Robert Salzberg, August 29, 2013 7:52
New research shows that more frequent and longer dialysis that can be done cheaper at home may be better. Of course, it would cut into the dialysis centers profits. Wouldn't that be a shame?

If the Medicare Advisory Panel ever gets off the ground, this is likely to be an area where taxpayers could save a ton of cash and patients would get better care and likely live longer, healthier lives.

The EPO patent will Go but the Corruption will Stay!
written by Capt. J Parker, August 31, 2013 9:30
Ok, So, Dialysis care is really costly and the financing is politicized. Government is the tail being wagged by the Healthcare Industry dog. It must be due to....uhmmmm....let's see...errrr...PATENTS! Yeah!, that's it, that's the ticket. Patents. EPO, Amgen's anemia drug, had sales in the US are about $3 billion: only about 10% of dialysis care cost. The patent on EPO is about to expire. I predict that event won't put a dent dialysis costs. Dialysis care is that holy grail of progressive healthcare: a single payer system. It has been so since 1972 when congress made all end stage renal disease patients eligible for Medicare. They did so with no debate and bi-partisan support and no clue what they were getting into. If single payer is the way to go then the Times (and Baker) would be writing about how exemplary the system of single payer dialysis is instead of reporting in its problems and trying to blame them (in Baker's case)on drug patents.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.