What’s the difference between a hedge fund and a hospital?

September 30, 2015

By Shannon Brownlee, MSc

On the front page of the New York Times  there’s a story about hedge funds being even worse managers of delinquent mortgages than banks, which have off-loaded many of their remaining mortgages. Banks are prevented from behaving badly by stiff penalties when they fail to try to restructure loans, but not so the hedge funds.

Is anybody surprised that hedge funds aren’t being nice to struggling homeowners? When banks were local, they made loans to people in their own communities. When the person asking for money was somebody a loan officer might see at the grocery store on in church, it was harder to be heartless. The bigger banks got, the further removed they were from their customers. Hedge funds are even less connected to mortgage holders, real people who are in over their heads and facing the prospect of losing their homes.

There’s a link here to healthcare and medicine. The bigger and more corporate hospitals get, the easier it becomes to ignore the human consequences of bad care.

Sorrel King, the mother of a little girl who died at Johns Hopkins Hospital from medical error, once told me a story that illustrates what happens when the people who run hospitals sit upstairs in well-appointed C-suites, looking at spread sheets and not having any contact with the day-to-day care of patients.

About ten years ago, Sorrel gave a speech to a group of physicians and hospital managers. She recounted the story of her 2-year-old daughter Josie, who became dehydrated while being treated for burns. Josie went into cardiac arrest when she was given a dose of methadone.

When Sorrel returned home after her speech, there was a bouquet of flowers with a heartfelt note from a hospital CEO who had been in the audience. The note thanked her for opening the CEO’s eyes to the devastating human consequences of medical error – errors that he knew were occurring in his hospital regularly. Yet, somehow, errors were an abstract concept to him, a cost source and something for the legal department to deal with. Until he heard Sorrel’s story.

Maybe hospital executives should make a habit of walking the wards and talking to patients and families.

Continuing yesterday’s post, in the New York Times “Upshot” column, Austin Frakt repeats the well-worn and unsubstantiated claim that high drug prices are the “inducement for innovation.”  This shibboleth aside, his column does a great job of exploring the negative relationship between drug innovation and patent protection.

Patent law was created with the express purpose of promoting innovation, by protecting inventors for a period of time from copycat competition in the market.

The law has had a paradoxical effect when it comes to drug development. Pharmaceutical companies fail to pursue many novel drugs, no matter how beneficial they might be for patients, because the chemical can’t be patented.

On the other hand, me-too drugs, which are slight variations on existing drugs, can be patented, and they are lot easier to develop and test than a completely new chemical entity. Thus we have multiple proton pump inhibitors, antipsychotic drugs, high blood pressure medications, and antidepressants.

There are benefits to having lots of versions of the same drug, each of which has a slightly different side-effect profile. A patient who can’t take one high blood pressure medication may do better on another.  But as Aidan Hollis, an economist at the University of Calgary, argues,  me-too drugs also reduce the incentive for innovation.

One reason the drug industry has been increasingly likely to pursue me-too drugs over novel compounds is the series of court rulings in the 1970s through the 1990s that opened the door to direct-to-consumer (DTC) advertising.

There’s been plenty of attention paid to the effect of DTC advertising (which is only legal in the U.S. and New Zealand) on patient knowledge and demand for drugs, and inappropriate prescribing. Less so, the relationship between the rise of DTC advertising and concurrent increase in me-too drugs. DTC advertising allowed drug makers to maintain high prices by expanding the market for any given class of drugs through “disease branding,” or medicalization — telling consumers they’re sick and in need of their products.