Are hedge funds and private equity firms driving up healthcare costs?

The actions of hedge funds and private equity firms to drive up the profitability of their investments also cause the costs of healthcare delivery to rise dramatically, according to a non-profit, left-of-center organization.

A new study by Hedge Clippers has concluded that hedge funds and private equity firms move to quickly increase the prices of the services provided by the healthcare businesses they acquire, driving up costs for everyone.

That has specifically been the case for pharmaceutical prices. Among the 25 drugs with the fastest-rising prices over the past two years, 20 "are owned or have been acquired by firms with significant activity from hedge fund, private equity or venture capital firms," according to Hedge Clippers.

Some drugs, such as vitamin supplements for pregnant women, have had their prices raised more than six-fold, while a drug to treat high blood pressure and prevent strokes has risen by more than ten-fold. "Branded pharmaceuticals--drugs for which no lower-cost generic alternative drug exists--see their prices increase many times over to satisfy the greed of speculative investors," the report said.

The issue was brought to the fore last month when Daraprim, a drug that has been on the market since the early 1950s, had its price raised from $13.50 a tablet to $750 a tablet almost immediately after it was taken over by a company whose chief executive officer has extensive experience in hedge fund management.

The report also noted that recent changes in regulatory rules allows parties to challenge patents on existing drugs, allowing funds to do so while making "short" bets against the price of the stock of the company that hold the patent. 

The issue of rising drug prices has been bedeviling the healthcare sector as of late. The growth of both drug spending and pricing has outpaced other factors of healthcare delivery. Spending on prescription drugs rose by 11 percent last year, according to data from the Altarum Institute, more than quadruple the pace of 2013. Pricing was up at a nearly 12 percent pace during the second half of 2014. 

To learn more:
- read the Hedge Clippers article