Why is the health care industry allowed to be for-profit?

[Chief_Pedant]

@Leaper

That’s what one Slashdot reader asks in a story about Brazil basically voiding a patent on a Merck AIDS medication after long negotiations with the company failed to bring the price down.

The question intrigues me, in the sense that on the surface, it SEEMS to be a good question. Drug companies and doctors hold peoples’ lives in the balance. It certainly APPEARS that such activities are more important, and more basic, than the ability of a few people to make a lot of money, especially when so many of those activities are helped along by taxpayer money in this country.

Yet intellectually, I know there are probably some very good reasons; I just can’t articulate them in my mind effectively. Would anyone care to?

Re Merck in particular: Merck sells for about $50 a share. Ten years ago it sold for about…$50 a share. Someone may be making massive profits off healthcare but Merck doesn’t seem to be the poster child for that.

What drives us to create a better world? Wealth, fame and benevolence are at the top of the list. Perhaps a sense of duty for some…

As a capitalist (and deserving of excellent health, according to Quiddity Glomfuster) I would argue that the healthcare “industry” gives better healthcare when it has a profit motive than when it does not. It is obvious to me than in a heterogeneous society, at least, capitalism with voluntary benevolence and moderate regulation creates wealth and its corollary benefits better than it would without a profit motive.

Healthcare is not a monolithic industry, and in the US, at least, it is loaded with inequity and inefficiency, of course. A discussion of that would go pretty far offtopic…for all the folks bumming over drug company profits, why not just buy drug company stock if it’s such a great deal?

We are entering a stage where healthcare becomes globalized like everything else, and healthcare in the US is going to have to compete with healthcare everywhere else. If we take the profit motive out of creating better healthcare we won’t do ourselves any favors. Let the hip replacement industry in the US compete with the hip replacement industry in India and we’ll see better and cheaper hip replacements.

Let the drug industry compete worldwide for creation and production of drugs and we’ll see better and cheaper drugs. Or we could take away the profit motive and hope Paris Hilton and Mother Theresa go into medicine.

[flickster]

@RickJay

The market price of a chocolate bar is about a dollar right now. That is the profit maximizing price. If you charge more than a dollar, your sales losses outstrip per unit profits. If you charge less, your per unit losses outstrip sales gains. It’s a buck a chocolate bar, let’s agree on that, okay? Now suppose that you run a chain of convenience stores and suddenly the State of New Jersey announces that you can only charge 70 cents for a chocolate bar because they’re insane or something.

What’s going to happen if you tell your customers in Texas, “We have to charge you $1.20 a chocolate bar to make up for New Jersey?”

I’ll tell you what’s going to happen: You’re going to lose money, because you’re a moron. The market warping effect of government intervention in New Jersey didn’t change the market price of a chocolate bar in Texas. The market clearing price is STILL going to be about a dollar. You can’t hammer the free market to make up for your bad luck. You’re fucked. Of course, you might not sell as many chocolate bars in New Jersey, because it’s not worth it to you. In fact, perhaps you will choose to sell no chocolate bars there at all if you find the cost of selling one is higher than the state-mandated price ceiling of 70 cents.

But the market price in Texas is a buck. You can’t change that just because you wish you could make that money back somehow.

Problem in applying the above example is that the pharmaceutical industry pricing is not based on a free market until after the drug maker’s patent allows competition to move in. While under patent protection, they are the only supplier and can set the price to what they want, where they want.

[Key_Lime_Guy]

@Plan B

If you guarantee everyone free or inexpensive health care you are, in effect, conscripting millions of doctors, nurses, etc. and telling them that they must work and they must do so at a low wage.

Doesn’t sound moral or efficient to me.

We (in effect) guarantee everyone inexpensive roads, and water, and college. It’s part of the social contract. Are those workers ‘conscripted’ at a low wage?

[flickster]

@Key Lime Guy

We (in effect) guarantee everyone inexpensive roads, and water, and college. It’s part of the social contract. Are those workers ‘conscripted’ at a low wage?

Silly me, I didn’t realize any of these things were guaranteed

Social Contract??? I must have missed hearing about this as well :smack: Damn my public school education…

[RickJay]

@flickster

Problem in applying the above example is that the pharmaceutical industry pricing is not based on a free market until after the drug maker’s patent allows competition to move in.

Again, wrong. A “free market” is a free market. Having a patent doesn’t mean the laws of supply and demand don’t apply.

While under patent protection, they are the only supplier and can set the price to what they want, where they want.

You can’t just set any price you want just because you have a patent. That’s obviously nonsense, because if it were true, then the price of all new, patented drugs would be $1,000,000,000,000 a pill. I mean, they’d make more money that way, right?

But they can’t do that, because the market won’t allow it. Even a monopoly must adjust its price to what the market will bear (generally, this means they will set the price at which marginal cost and marginal revenue are the same). Even if you hold a monopoly on a drug, the customer can opt to not buy the drug, or to pursue alternate means of therapy, or buy less of the drug, or what have you. It’s a different price function, of course, but the market still determines the price.

The Wikipedia article on monopolies actually has a very good explanation of how monopolies set prices:

Monopoly

The point is that even with a patent monopoly, **there is an ideal price from which a rational seller will not deviate. ** Why would they? They’re going to set the price at the ideal price. Doesn’t matter what they pay in Belgium.

[kidchameleon]

@RickJay

But - and I don’t mean to harp, because I do have a point - what’s not typical about it, either? Some goods and services have elastic demands and some have inelastic demands. Every good or service has a relative level of elasticity.

Well, drug pricing isn’t typical for a multitude of reasons. It’s very inelastic, so compared to the majority of the market it seems to ignore changes in the economy. Secondly, the user doesn’t always pay for the product. Non-users could be paying for the drug or users could be over paying for the drug. Supply and demand isn’t direct in this case. Additionally, you have a set of customers that don’t really care what the price is. While you can’t charge your $1 trillion a dosage you refer to, one could see a drug double or triple in price due to low profits. That has no effect on the demand for the drug.