The Biotech/Heathcare Scam Bubble Bursts

In early 2015, I expressed sentiment of healthcare and biotechnology being a ‘scam’, divided into two parts:

1. The ‘scam’ of exorbitantly priced treatments (orphan drugs) for rare diseases, which are paid for by taxpayers. Since policy makers have this fixed belief that every life is worth saving at any cost, drug companies have an economic incentive to charge whatever they want, particularly for rare diseases.

2. The Obamacare healthcare spending binge.

Here are some examples:

Study confirms medical costs rising for post-ObamaCare patients – along with premiums

U.S. Economy Doomed by Healthcare

This expansion of costs has many drivers, most of which result from the system’s perverse incentives for fraud, overbilling, marginal treatments and defensive medicine.Technological and medical advances offer more options for treatment, and can push costs up–but advances can just as readily push costs down, too.

The primary drivers of rapidly increasing costs are:

1. The cartel/crony-capitalist structure of U.S. healthcare
2. Defensive medicine to stave off litigation
3. Profiteering from needless or ineffective tests, procedures and medications
4. Fraud and overbilling
5. The concentration of expenditures in a small sector of the population
6. America’s inability and/or unwillingness to have an adult discussion over end-of-life care for the elderly.

$1000 bottle for nail fungus (Valeant stock has plunged from $200 to $30 on revelations of their overbilling scheme. Valeant’s business models depends on patients using their expensive drugs, versus cheaper alternatives)

Health Brief: Study Finds Medicare Overbilled by Hospices

Anthem sues Express Scripts over prescription drug pricing

Councilman questions city’s $1.6M prescription drug deal with Express Scripts

Even before Obamacare, the healthcare sector used inflated and or dubious pricing schemes to boost profits at the expensive of patients and insurers.

From 2010-2015 (during much of Obama’s presidency) healthcare costs spiraled out of control, both from biotech companies possibly charging too much for drugs, to hospitals and hospices charging too much for admissions. Insurers, taxpayers, and patients ultimately footed the bill, and now it seems the scheme may be coming to an end, as healthcare and biotech stocks have substantially under-performed the broader market since July 2015. In late August 2015, I sold my healthcare and biotech stocks, due to deteriorating price action. Then in September 2015, Hillary made her infamous tweet vowing to come down on high prices, which mauled the sector further, but thankfully I had already sold.

With either Hillary or Trump becoming president, expect some form of price controls, ending the 2010-2015 heathcare/Obamacare spending binge. Trump may try to undo or replace parts of Obamacare, and Hillary may try to put price controls on drug prices but keeping Obamacare intact. Whether or not either of these will succeed is up in the air, but there is a lot of political pressure for review and reform of healthcare costs, and this is hurting the healthcare sector which for years had been buoyed by indiscriminate spending.

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