Full Moon Fever: WSJ Editorial on Healthcare “Mergers and Inquisitions”

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Hospital workers, law enforcement, and talk radio hosts will often remark how the Full Moon tends to charge the atmosphere with an increased level of lunacy.* Tonight’s Full Moon in Virgo seems to have really riled up the members of The Wall Street Journal editorial board to a new level of paranoia over healthcare reform.

Today’s Journal editorial (“Mergers and Inquisitions”) blames the specter of healthcare reform as the number one culprit causing “wealth destruction” of health stocks “for investors and the economy.” (In the minds of the editorial board, wealth destruction and nationalization should only apply to the financial sector.) The editorial board does not want to admit that defending the status quo is a prescription for disaster that threatens the long term financial viability of big pharma and the health insurers.

The editorial applauds big pharma consolidation, yet admits these deals only provide a “short-term” benefit “for shareholders of the target companies.” The era of blockbuster drugs such as Lipitor is coming to a close as big pharma loses patent protection on its biggest cash cows in 2011. As blockbuster drugs lose patent protection, consumers switch to inexpensive generic formulations. Evidence that economic conditions have necessitated consumers cut out or cut back taking medications surfaced long before President Obama took office, along with the steady decline in private health insurer membership.

“The U.S. is the last major pharmaceutical market without universal price controls,” laments the editorial, fearing drug price controls will end the nation’s reign as “the world’s main financier of new drug discoveries.” Economic reality -not partisan politics- necessitates the end of U.S. consumers financially subsidizing drugs for the rest of the world. The editorial board has always sought to perpetuate the myth that U.S. consumers must pay more than their counterparts in other countries for medications in order to fund drug industry “innovation.” Innovation comes from research and development, but mergers cut into R&D budgets and limit the competitive drive for innovation.

The Journal’s circular argument fails to take into consideration that big pharma’s blockbuster model is flawed. The industry is totally focused on the life cycle management of its existing products, rather than innovating in a way that creates affordable products that consumers want to buy. This is where they really do need a dose of free market capitalism instead of relying on subsidies from US consumers.

What the editorial is most paranoid about is “the coming era of government-run health care,” despite admitting that “few people love their health insurer.” It’s not as if “government-run healthcare” is an unknown species in America. People 65 and older receive their healthcare from the government through Medicare, the poor through Medicaid, and members of Congress are insured through the federal government by “the taxpayers.” As more people find they are underinsured, lose their employer-based coverage, and find even the most minor ailment is grounds for being rejected for an individual health insurance policy, “government-run health care” becomes better than no healthcare at all. Contrary to popular belief, the ER is not a place of last resort for healthcare. Yes, they will stabilize your condition if you are unable to pay but once stabilized, the hospital will escort you through the exit door.

So where does the editorial board’s defense of the status quo leave private health insurers? The insurers’ first reaction is to derail any government attempt at a public insurance option such as “Medicare for All.” Healthcare insurers would like nothing better than for the government to pay them to provide health insurance to all Americans. This would allow the insurers to maintain the status quo and boost their membership through government subsidies. Dream on! The more likely scenario would be for private insurers to subcontract administrative services for the federal government, as well as sell supplemental policies to consumers and businesses. It is likely that the government will establish minimum coverage standards for both the private and public insurance options, which would be adopted by most businesses. This would open a huge market for supplemental insurance policies. Employers would offer supplemental policies to attract and retain prized workers, and consumers would purchase them to mitigate their out of pocket healthcare expenses.

*From the Latin luna (Moon).

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