"Value Creation" & "Value Shifting" in Health Care

There is growing evidence that, save perhaps for some economists, American society is not comfortable with the idea of value pricing in health care, as can be inferred from the uproar over the pricing policy adopted by Turing Pharmaceuticals, which raised the price of one long-established product by 5,000 percent, and of Valeant Pharmaceuticals International. Valeant’s business model has been to acquire already existing pharmaceutical companies with long-established products, substantially increase the prices of these products and further enhance short-run cash flow to shareholders, reducing outlays on R&D by the acquired firms. These strategies are purely value shifting. In fact, it can be argued that by reducing R&D spending, Valeant destroyed social value.