Wall Street found a parasite growing in the US economy that could spur the next recession

Filed under: Finance, Business, Economy

• Wall Street's short sellers are beginning to talk about healthcare as the next major threat to the US economy.
• Costs are so high that the market will have to correct sooner rather than later.
• Left unchecked, a market-led correction will be brutal.

Imagine a parasite living in the US economy, siphoning off the cash that has powered the middle class for decades. We know it's there, but no one — on the right or the left — is talking seriously about how to slow its growth.

1. We can handle rising cost with good policy and change the way we think about paying for healthcare.
2. We can handle this with bad policy and deliberately shift rising costs to consumers while the government abdicates its responsibility for the health of not only the American people but also the American economy.
3. Or we can do nothing, which would result in more rising costs, more corporate rent-seeking behavior, and ultimately a recession as household resources go toward medicine and treatment instead of new cars, homes, clothes, or toys.

Blame Bill and Mike

• Valeant was handing fat rebates to any middleman that stood in the way of getting an insurer to pay for expensive Valeant drugs.
• It was spending tons of money acquiring and marketing old drugs instead of developing new ones.
• It used its own pharmacy to push out Valeant drugs at a mind-bending rate as long as insurers would continue to foot the bill.
• It was finding ways to make copays disappear so customers would never know how much their drugs were costing insurers.

We can handle this well

• Express Scripts, the largest PBM, has seen its stock price decline by 17% over the past year. (This after one of its biggest clients, the insurer Anthem, sued it in a 2016 lawsuit accusing it of overcharging.)
• Stock prices for the largest for-profit hospital managers, Tenet Healthcare and Lifepoint, have fallen by 30% and 6% over the past year.
• The Food and Drug Administration has sped up generic-drug approval, putting pressure on prices.

We can handle it badly

We can do nothing

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