How Healthcare Interacts with Capitalism

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How Healthcare Interacts with Capitalism

A stethoscope sits on top of 50 dollar bills symbolizing the dilemma of healthcare versus capitalism.

A stethoscope sits on top of 50 dollar bills symbolizing the dilemma of healthcare versus capitalism.

A stethoscope sits on top of 50 dollar bills symbolizing the dilemma of healthcare versus capitalism.

A stethoscope sits on top of 50 dollar bills symbolizing the dilemma of healthcare versus capitalism.

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Some people see healthcare as a right and believe that it should be provided to all by the government; however, at the moment, healthcare is still mostly privately run. Healthcare is just as much of an industry aimed at helping people, as it is aimed at turning a profit. Although the healthcare industry is a somewhat free market, it is one of the most regulated industries in our capitalist society. After speaking with leaders in the medical field, I came to the conclusion that although our medical system has some deep-running flaws, it is far more effective and beneficial than how it is portrayed by many in this country.

Healthcare is constantly debated in US politics and many aspects of the healthcare industry, specifically large pharma and medical device companies, are constantly criticized by the public and media. Although in some cases this criticism is deserved, the companies with questionable conduct are clearly not a representation of the entire healthcare community. Over the past year, I have had the privilege of getting a glimpse of a healthcare profession by working with Dr. Thomas Kim, an orthopedic hand surgeon at California Orthopedics and Spine.  I think Dr. Kim was able to put the dilemma of the healthcare field best, “I think some of the bad apples really ruin it for the rest of the good apples … there are some bad apples out there that yes, that try to nickel and dime the patients. And it’s not only insurance companies and big pharma companies. Some physicians are the same way too.” However, personally, I believe that this is true of almost any industry. Any company in the world can either be totally focused on profits or do its best to satisfy both its shareholders and the public.

In regard to large medical companies, many people forget that despite the industry being highly rewarding when successful, it is also very risky. Healthcare companies provide innovations that save lives and I was fortunate to speak with the CFO Glaukos Corporation and ex JPMorgan investment banker, Joe Gilliam. Glaukos Corporation is a company committed to transforming the treatment of those with glaucoma worldwide with the use of pharmaceuticals and new minimally invasive surgical techniques. Mr. Gilliam did not want to discuss his company in detail but did state a remarkable statistic “one time at JP Morgan, we went back and looked at all of the Pharma or Biotech Pharma Ipos from 1990 and the median, the median return on those IPOs was, and I’m making a number up, like negative nine percent. So the average return on those ideas was something like plus nine or 12 or something like that.” Despite a lack of completely accurate statistics, the general theme simply shows that when medical companies do succeed they can make it big, but in many cases, medical companies fail.

As I would go on to learn after speaking with my father, Jeff Hoffman, who is an investment banker working at Guggenheim where he focuses on mergers, acquisitions, and initial public offerings (IPOs) of medical device companies, these high outliers are caused by the high margins companies are able to achieve. They have already spent so much money on development they have to return large profits for their shareholders or owners. My father also explained that when a company attempts to get a drug approved it can take years and on average costs close to two billion dollars. Clearly getting a drug approved is a hard task but this is not all medical companies have to do. When discussing how the medical field has changed for large companies my father he explained, “in the past, if you had a product approved and it worked, usually it got paid for [by insurance companies] now it takes years and years in addition to run trials to show that something, not just clinically beneficial but may save money or the cost-benefit of it is more important.” Companies, nowadays, not only have to seek the approval of the government but also convince insurance companies of the value of their product. The Food and Drug Administration and the modern structure of health insurance create an environment that is especially stifling for companies.

Joe Gilliam speaks at a conference about the Glaukos Corporation.

At the moment, many are calling for a further regulated industry and/or universal healthcare. Although I see the validation of these ideas, most people do not acknowledge the negative effects these actions could have on the industry. Many European countries have heavily regulated healthcare systems and I directly asked Mr. Gilliam if he believed there would be a decrease in innovation in the medical field if the US went to a similar system and he answered, “if the United States started to look like Europe, from that perspective, you would basically kill the innovation side, uh, of the healthcare industry.” However, I went on to learn from my father and Mr. Gilliam that the situation is slightly more complicated than the fact that heavily regulated or governmentally controlled healthcare industries stifle innovation.

The fact is at the moment the US healthcare industry is subsidizing Europe and the rest of the world’s healthcare. In simple terms, in the US, companies compete in a free market and can somewhat set prices to turn a profit, once they deal with insurance companies. However, in Europe due to the centralization of healthcare, the governments can demand to pay very low prices due to their hold on the market. My father explained this situation well using a hypothetical where “if it costs them[a company] literally a dollar to make a drug, a pill, for example, if they sell it for $300 in the United States and Europe says we’re only going to pay $5 they’ve already got it developed so they’re still better off selling it for five dollars than none.”  If the entire world only paid five dollars for the drug, the company may never recoup its investments. Companies have to make up for development costs for any drugs that work but also for those that fail. This method of subsidization is no longer sustainable and is costing the American people far too much money but at the moment has preserved innovation.

Dr. Thomas Kim is just recently out of his hand surgery residency at Brown University and now works full time at California Orthopedics and Spine.

 

Doctors face a similar long-term investment dilemma as companies as they work through years of medical school. Once they graduate, they have large debts to pay off and in many cases can’t solely focus on helping others while they deal with financial responsibilities. Many people complain that doctors’ salaries are still too high despite the rising cost of school and the length of their training regime. As I see with my own eyes and from his own words, Dr. Kim clearly practices medicine because he enjoys helping others and making a difference in his community. For Dr. Kim, “coming out of training is the first time I actually felt that conflict between the financial burden me coming out of school with all these loans but also seeing these patients, treating these patients.” It is a constant mental struggle for Dr. Kim when seeing an uninsured patient but it is also never simple with an insured patient. Every insurance company negotiates the prices of procedures and drugs with companies. The struggles of the healthcare industry affect those at the patient interaction level just as much as they do large companies.

At the end of the day, it is clear something needs to change. Healthcare is far too expensive in the US leaving many to run the risk of being uninsured. Doctors are being pushed out of the profession due to the cost of education versus the return of being in practice. Furthermore, the US at the same time is subsidizing healthcare for the rest of the world. Despite these facts, US companies help create life-saving drugs and most doctors are in their profession to simply help people; it is very important for people not to forget these things. There are definitely steps that need to be taken to improve our system. I do not have all the answers. It would take pages and pages more to scratch the service of workable answers but I believe that the world will continue to steam ahead and healthcare will without a doubt follow.