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:
- Abbott Labs is buying the phama unit of Solvay Chemicals in Belgium for $6.6 billion cash. It's their third big buy this month. They previously bought Evalve Inc. of Menlo Park, Calif., and LASIK surgery equipment maker Visiogen.
- Johnson & Johnson today bought 18% of Crucell, a Dutch maker of flu vaccines, for $442 million. J&J is also reportedly eying Vertex, best known for its hepatitus drug teleprevir. Bristol-Myers Squibb is also eying Vertex, Business Week reports.
- AstraZeneca, the British-Swedish drug giant, is reportedly raising the drawbridge and expecting a bid.
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.