Why Martin Shkreli Thought He Could Get Away With It

It’s not so hard to take advantage of— even hurt — those we can’t see. The famous Milgram experiments at Yale were a study in obedience, but they wouldn’t have been ethically possible if the “teacher” and “learner” were in the same room. The ruse would have been up, because abstracting our behavior towards others changes the way we feel about it. That’s why most of us still eat cheeseburgers.

“If I could push a button and five people in the world would die, but I’d get free cable for life, I’d do it,” Liz Lemon said.

Cost is abstracted in the American healthcare system, so our feelings about it change. Even when it’s clear something is wrong, it’s hard to point at it. It works, because there’s a middle monolith between the person receiving care and the person paying for it. He doesn’t mind being called the bad guy so long as he keeps getting paid.

Had he been a bit more discreet, the suddenly-infamous Martin Shkreli could have gotten away with his Daraprim extortion, because he wasn’t extorting sick people. That’s a bad look and even a tone-deaf cockatiel like Shkreli knows it. “If you cannot afford the drug, we will give it away for free,” he said in the early days after the news of the price increase broke.

No, he was extorting health insurance companies. The man in the middle. He was probably pretty confident there weren’t going to be protests in the street on behalf of poor, poor Aetna.

It’s the perfect scam. People with great insurance can pay us 600k a year. People with no insurance? We’ll give it away for free to save face because we can. But there’s a problem. Shkreli was a hedge fund manager; surely someone told him that there’s no such thing as a free lunch. A quick glance at Aetna’s last few earnings reports will show you that they aren’t in the business of losing money. So what’s the knock on?

• Health Insurance Deductibles Outpacing Wage Increases, Study Finds
• Health Care Costs in Massachusetts Surged 4.8 percent in ‘14
• Insurance rates rising for Florida Healthy Kids

There’s no sense in debating the merit of capitalistic healthcare. It’s the system we’ve got. But capitalism is based on a shared understanding of value in every transaction — rational self-interest.

The Wheel of “Well We Can’t Just Sit Here” has spun back around to the 1980s, and we’re seeing capitated-style fixes come back into vogue. ACOs and the like are putting the onus for fixing costs back on the provider. They are projects that feel right ideologically, but ones doomed to fail until we figure out how-the-hell-much stuff actually costs and why and if those things have any basis in reality. It’s disheartening when a real reformer like Dr. Vivian Lee gets laughed at when asking for basic cost accounting from a health health care system. Cost accounting is not brain surgery. Brain surgery is brain surgery. Cost accounting is Business 101.

“Cost accounting is not brain surgery. Brain surgery is brain surgery. Cost accounting is Business 101.

We’re told that 5 percent of the population accounts for roughly 50 percent of American healthcare spending. This is not new, by the way, and in fact is less extreme than in the relatively recent past. Now let’s consider that based on a study released this week by Andrew Hill of the University of Liverpool, the following is true.

• Novartis manufactures a Leukemia drug called Glivec. It costs about $159 to make a yearly dose, including a built-in 50% margin.
• In Europe, this drug costs patients between $29,000–35,000 per year.
• In the United States, it costs patients $109,000 per year.

The argument over the cost of R&D in the drug industry is a tired act of tail chasing. But the fact is that Novartis sets a price for Glivec. A physician may or may not have any idea what Glivec costs. Even if he or she does, the job requires meeting or exceeding the standard of care, and an individual physician can exert no control in the market. A leukemia patient’s insurance will hopefully cover that cost sans co-pay. The patient will pay the co-pay, likely never knowing what the “real” cost of the drug is. Novartis bumps the price tomorrow, and almost no one notices, except for the insurance company, who adjusts accordingly. Novartis is shielded in abstraction.

Awareness is the answer and things like California Health Compare are great places to start. When the fog lifts and the numbers are laid bare, outcomes can be different. According to a recent article on CNN.com, “(Dr. Peter B.) Bach, of Memorial Sloan Kettering, said that when buyers can say no, for whatever reason, they can control prices better. In fact, Bach’s hospital refused the colon cancer drug Zaltrap in 2012 because it cost double that of a reasonably good alternative, Avastin. The company that manufactures Zaltrap, Sanofi, worried that other cancer hospitals and doctors would follow suit, so it halved the price of the drug.”

Halved.

Whether you read the Weekly Standard or The Nation, we can agree on this: When the informed consumer is removed from capitalism, it becomes base extortion. Personally, I don’t think Martin Shkreli reads much other than Ayn Rand novels, Eminem lyrics and his own Twitter feed, but that’s why he thought he could get away with it. And why the next one will.

Justin Kunkel is VP and Principal at Benjamin & Bond. You can follow him on Twitter @justkunk, or @benjaminandbond.