Rethinking Healthcare

U.S. medical industry complex spending its market subsidies

Posting in Government

Doctors are the gatekeepers to the U.S. market, not insurers and not the government. So drug and device makers get a full retail mark-up here, without the haggling over price and efficacy that are common in Europe.

All the money we waste on drugs and medical devices does go somewhere.

Mostly it goes to drug companies and device makers. The U.S. market is very, very friendly for these folks. Once they get FDA approval they don't have to convince a government that theirs is the best treatment, or better than other treatments.

They just go out and sell.

Doctors are the gatekeepers to the U.S. market, not insurers and not the government. So drug and device makers get a full retail mark-up here, without the haggling over price and efficacy that are common in Europe.

This has acted as a subsidy to U.S. drug and device makers, an enormous subsidy they are now spending:

The action is not all one-way. U.S. companies are also worth buying thanks to the good deal they get at home. That's why Sepracor, which makes inhalants, was bought recently by a unit of Japan's Sumitomo. Nearly $160 billion in health care related deals have been done this year, mostly in the drug area.

UPDATE: Covidien, which is based in Ireland, also agreed today to buy Aspect Medical of Massachusetts, which makes brain monitoring systems, for $210 million.

This is the flip side of health reform. Any effort to push down health care costs could cost these companies money and power. This is what Betsy McCaughey was talking about early this year when she charged health reform treats health reform as "a cost problem instead of a growth industry.”

It is a growth industry. And you're behind the growth. The question is whether you can afford to continue being so generous. The industry's merger frenzy suggests the answer is no.

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Dana Blankenhorn

Contributing Editor

Contributing Editor Dana Blankenhorn has written for the Chicago Tribune, Advertising Age's "NetMarketing" supplement and founded the Interactive Age Daily for CMP Media. He holds degrees from Rice and Northwestern universities. He is based in Atlanta. Follow him on Twitter. Disclosure