Category: Medical travel/medical tourism

Sovaldi: a near-perfect example of price discrimination

March 19th, 2015 by

The controversy over the pricing of Gilead’s Sovaldi for Hepatitis C is a textbook example of price discrimination in action. I hope that my quick review of some of the principles involved will help explain what’s going on.

Gilead sells Sovaldi for high prices in the US: up to $85,000 or so for a course of treatment. The price is a little lower in Europe, substantially lower still in middle income countries and less than  $1000, or 1 percent of the US price in poor countries such as India. Such stark differentials set up major financial incentives for people in richer countries to obtain the product in poorer countries. With more than $80,000 per patient at stake, grey marketers could easily make millions of dollars and even an individual patient from a rich or middle income country would find it financially worthwhile to go to a low income country to procure the medicine.

This isn’t just theoretical. I was approached by a consultant representing large US employers who were exploring pharmacy tourism that would send patients abroad for their drugs.

Gilead has responded by taking steps to limit diversion of product. Patients must present IDs showing they are residents of the country to be eligible for the low-income country price. Patients can only get one bottle of medication at a time. Naturally some folks, including Doctors Without Borders, are complaining about the burden on patients and caregivers, and accusing Gilead of being greedy and maximizing profits.

Although the anti-Gilead people have a valid perspective, my sympathy is mainly with Gilead. The concept of price discrimination: charging different prices to different customers based on willingness or ability to pay, maximizes a monopolist’s profits but it also maximizes societal benefit. As the simplified chart below illustrates, Gilead makes the most money if it can sell the medication at different prices in different countries. That also leads it to sell the highest quantity of product, meaning more people can be treated.

 

Price discrim

If Gilead were required to charge the same price everywhere in the world –as shown below– it would result in a windfall for consumers in high income countries (“consumer surplus”) and lack of affordability in poorer countries (“deadweight loss”), because patients in poorer countries could not afford to be treated. Even assuming Gilead wanted to maximize its profits in that scenario fewer people would get the treatment.

No discrim

 

Because of the opportunity for price discrimination, Gilead was willing to introduce Sovaldi in rich and poor countries at the same time –something that doesn’t usually happen.

For price discrimination to work, the following conditions must hold:

  1. The firm (Gilead) must have some monopoly power. In this case the monopoly is based on patent rights. Gilead critics can try to undermine this power by encouraging governments to ignore patents.
  2. Markets must be able to be segmented and kept separate. Here that means segmentation by country, but theoretically it could be done down to the individual level so that rich people in poor countries pay the same or more than poor people in rich countries. (In rich countries there are other mechanisms to do this, such as patient assistance programs, but let’s not make this even more complex.)
  3. There can not be leakage between markets, otherwise the price is eroded in the expensive market. That’s why Gilead needs to confirm residency and why pharmacy tourism undermines societal benefit.

Price discrimination maximizes profits and maximizes societal benefits by increasing the number of people who can afford treatment, while rewarding the monopolist for bringing a valuable innovation to market. It’s not necessarily true that patients are harmed when Gilead maximizes its profit.

Allowing and even encouraging price discrimination is good global health policy. It encourages innovation and lessens global disparities.

By healthcare business consultant David E. Williams, president of Health Business Group.

Health Business TV: Cash for specialists, eVisits again, nursing shortage mythology

July 18th, 2014 by

https://www.youtube.com/edit?o=U&video_id=SqEf7ry112cIn this fifth episode of Health Business TV, I discuss my interview with HelloMD about cash payments to specialists, the long and slow evolution of eVisits, more on the nursing shortage myth, the United Independent Party in Massachusetts, and an update on the proposed 29% health insurance premium hike for our business..

Please subscribe to the YouTube channel and tell your friends!

 

By healthcare business consultant David E. Williams of the Health Business Group

 

Cracking Health Costs: Interview with Al Lewis

August 9th, 2013 by

Al Lewis, inventor of “disease management” and Tom Emerick, former head of global benefit design at Walmart, have teamed up to write Cracking Health Costs: How to Cut Your Company’s Health Costs and Provide Employees Better Care a guidebook for businesses looking to save on health care expenses right away.

In this podcast interview, Al discusses the “snake oil” wellness industry, explains why an ounce of prevention is not worth a pound of cure, touts domestic medical tourism and describes how the disease management field has reacted to his earlier indictment of them: Why Nobody Believes the Numbers: Distinguishing Fact from Fiction in Population Health Management.

As always, Al is informative and entertaining.

Rerun: What questions should health plans and employers be asking about medical tourism?

August 27th, 2010 by

The Health Business Blog is on summer vacation until Labor Day, and will be re-running some classic posts from now till then.

This item originally ran on August 9, 2007. I was into medical tourism at the time, traveling to Singapore and South Korea to check it out for myself. If you’d like to comment, please do so on the original post.

Until now, medical tourism has mainly been a self-pay phenomenon. But over time the patient base has expanded from the plastic surgery crowd to the uninsured and underinsured. Now health plans and employers have started to ask what role medical tourism can play for them. We’ve been receiving a number of inquiries on the topic at my consulting firm, MedPharma Partners. Soon we’ll be developing a medical tourism white paper. In the meantime, here are some questions health plans and employers should be asking:

  1. Should I include overseas providers in my network at all? If so, which ones?
    • For some payers the time is now. For others waiting to learn from the experience of others will make more sense
    • The providers that are popular with self-pay patients may or may not be the right ones. Proximity, local infrastructure, quality and capacity may be more important considerations for employers and health plans
  2. How should I engage my employees or members? Should I require patients to travel or should I make it optional?
    • The moment health plans and employers start to encourage the use of overseas providers they will be met with suspicion, but there are ways around this. Making overseas care optional will reduce the suspicion but limit the savings
    • It’s important to let prospective traveling patients engage with their peers. That’s one objective of the forums at MedTripInfo
    • It can also make sense to share some of the financial benefits with employees and members or simply to grant them additional vacation time, which they can enjoy overseas
  3. How do I guarantee quality and overcome the challenges of patient safety?
    • You might want to ask this of your local providers, too! But seriously, there are international accreditation bodies like JCI. Also, many overseas hospitals are going over and above those requirements
  4. What about medical malpractice and liability?
    • That’s a tough one to address and we’ll see what evolves. There are promising approaches emerging involving arbitration and insurance for complications
    • This may be a hard argument to make, but patients actually don’t have great recourse in the US when things go wrong. Cases take several years to reach trial and plaintiffs usually lose, unlike in other personal injury cases
  5. How will pre- and post-travel care be coordinated?
    • This issue needs to be addressed differently depending on the procedure and patient population
    • It’s essential to work with your existing provider network rather than handling medical tourism in a vacuum
  6. Should I contract with providers directly or work through an aggregator?
    • It will be difficult to develop and maintain a comprehensive network on your own so working with one of the emerging provider networks is a better idea
  7. What procedures and treatments should be included?
    • This will depend on your patient population but it will generally include orthopedic and cardiac surgery
  8. How much am I likely to save and how can I increase that number?
    • Most of the estimates tossed around, touting “90% savings” and so on are based on a comparison of US charges with the price paid overseas. First of all, only the uninsured get stuck paying charges, plus you’ll need to factor in the costs of travel –maybe also for a companion. I haven’t seen a really good estimate of the true savings potential for an insured population
  9. How will domestic providers react?
    • Depends on how they’re managed, and this is one place where the interests of health plans and employers may diverge. Health plans may want to use the threat of sending patients abroad in order to beat down providers on price. Employers are more interested in maintaining relationships
  10. What is the relationship between medical tourism and consumer directed health plans?
    • In theory patients with consumer directed plans are a great fit for medical tourism. In practice, they may blow through their HSA even at steeply discounted international prices, so it may not make that much of a difference
  11. How well does medical tourism fit with limited benefit/”mini-med” plans?
    • Potentially very well. It offers the opportunity to include a major medical component at an affordable price

If you’d like to comment, please do so on the original post.

Medical tourism in South Korea

November 17th, 2008 by

Yesterday’s New York Times devoted an article to the emergence of medical tourism as a growth industry in South Korea. (See South Korea Joins Lucrative Practice of Inviting Medical Tourists to Its Hospitals)  If you’d like a more in-depth look at the topic, check out the series I wrote on the topic when I visited South Korean hospitals a year ago.

The entries can be accessed as follows:

I also did a podcast interview with James Bae of the Council for Korea Medicine Overseas Promotion.