You probably know The McLaughlin Group. It’s that political talk show where a panel of extreme right-wing Republicans (Buchanan & Blankley) argue with a pair of extreme right-wing Democrats (Clift & O’Donell), and they call it representing the spectrum of American politics. God knows, it probably does.
So last weekend while I was in the gym in NYC I noticed that they were having a special on health care. Filling in for the extreme right wingers were HHS Sec Leavitt and Pfizer CEO Hank McKinnell. Filling in for the right-wing Democrats were Susan Denzter, the PBS health reporter, and Jay Crosson from Kaiser Permanente. I guess they pass for liberals these days!
I spoke with Humphrey Taylor at WHCC and he told me that the Harris data shows now that 36% of the nation thinks that the health care system needs to be completely dismantled and rebuilt — and that basically no one thinks it’s going well. That number was at 40% when Clinton was elected, so we’re on our way! But of course that point of view wasn’t going to get represented in our mainstream "liberal" media. Here’s the transcript
As you might expect, there was a fair load of pap talked. What was said on the show is italics, my comments are in between
McLaughlin–This HSA plan puts the individual in charge of health spending, not the insurance company, so the consumer becomes the buyer, and the buyer will pay attention to the price of medical services. Patients will shop. Patients will negotiate. Patients will put the economy of the market to work. Health care will suddenly become transparent.
Grace-Marie Turner sure got to him. Has he never heard of PPO contracting?
Question: How essential is the market dynamic for health cost containment and quality? Jay Crosson.
MR. CROSSON: Savings accounts are a great deal.
Someone from Kaiser said that? Can he do basic math? Isn’t his organization reeling from the problems of competing with the HDHPs? His buddy Robbie Pearl certainly thinks so.
They’re a wonderful deal for people, and they make a lot of sense. We just need to make sure that the deductible part of these plans does not interfere with patients’ access to those very services we need to prevent the complications of heart disease, hypertension and the like.
And why oh why would that be a problem for a pre-paid HMO with lots of chronically ill people? (Don’t answer, it’s rhetorical). And if it is, why are HSAs a "great deal".
Don’t worry, there’s a journalist here to talk some (and I mean only some) sense.
MS. DENTZER: It’ll help at the margin. Most of these plans essentially are high-deductible health insurance plans. But broad coverage is going to kick in for people at $5,000 or $10,000. So if you have a serious chronic illness, you’re going to shoot through that in no time. So it’s not going to influence — if we think about the fact that 80 percent of health spending is related to 20 percent of individuals who are high-cost, very sick individuals, as Hank says, it’s not going to affect those people. It’ll help, but it reminds me of a bumper sticker I saw recently that said, "You should buckle your car seat belt because it will keep aliens from snatching you out of the car." I mean, it’s a good idea to buckle your seat belt, but it’s not going to create these enormous effects that some people claim.
But who needs sense when a pharma CEO who’s presided over his company’s stock going into the tank can rehash some real rubbish, that is coincidentally, bad news for his company!
MR. MCKINNELL: Well, an informed consumer, in a free market with choices, improves quality and reduces costs. We have many, many examples of this; two, actually, in the medical field. One is cosmetic surgery. The other is Lasik surgery, where, in the last four years, the quality has improved and the cost to the consumer has fallen by half. It does require transparency in pricing and quality, and that’s an enormous hurdle that we’re going to have to —
Let’s ignore the fact that Lasik surgery not only doesn’t represent the major problem–dealing with chronic care–but that actually the "proof" of its price decline has been shown to be bullshit by Paul Ginsberg. And that when you get to the many examples, it’s not two out of many; it’s two–Lasik and boob jobs.
MR. MCLAUGHLIN: Well, as a matter of public policy, would you recommend to the president that he make mandatory health insurance for 45 million Americans who don’t have it, on the basis — MR. CROSSON: Yes. Not now. I think it’s a reasonable plan, but we need to see how it works in Massachusetts. They have some big problems they have to overcome first.
Very brave Mr. Crosson. But don’t worry, if you want to hear some real ignorance ask a pharma CEO.
MR. MCKINNELL: Well, there’s two important characteristics of the Massachusetts plan. One is it was a bipartisan effort. I can’t see that happening in Washington today, unfortunately. Secondly, it is a way to solve what we call the problem of the uninsured.
<Here comes the real rubbish
But the uninsured don’t have a problem. They get access to health care. It’s a problem for all of us who pay taxes and all of us who pay medical bills.
The uninsured get access to health care? In the middle of "Cover the Uninsured Week", and with the IOM saying that 18,000 Americans die a year from being uninsured, McKinnell couldn’t think of a single qualifier to put in that sentence?
The real answer here is to provide an insurance mechanism, which they’ve done, but it also needs to be able to purchase a high-quality plan. That high-quality plan has not been defined yet.
But what he didn’t say is "if you let us write the bill like we did in 2003 we’ll make sure that the ‘high-quality health plan’ covers all our expensive drugs, and that the tax payer gets screwed".
Meanwhile he’s still speaking the mantra of "I want to be a consumer goods company":
MR. MCLAUGHLIN: If you carry your thinking to its logical conclusion,
you’re going to recommend the elimination of employer- sponsored or
underwritten health insurance for employees. Is that correct?
MR. MCKINNELL: I do think that would be a good idea, for the simple
reason that employers aren’t particularly good at providing health
benefits to their employees. We don’t provide life insurance or
automobile insurance. Why would we provide health insurance? Let’s put
that in the hands of the consumers spending their own dollars.
Given the very effective job pharma’s done running up its profits at the hands of third party payers over the years, I’m baffled as to why they think they’re going to do better given that the margins of a typical consumer goods company are way below theirs. Perhaps he thinks a 40% decline in their stock price isn’t enough…or is he just possibly saying something he doesn’t really mean. If so that habit was catching, and Leavitt was getting infected:
MR. MCLAUGHLIN: The president likes bold moves. Will you recommend to
him, Mr. Secretary, that he mandate health insurance for 45 million
Americans and the other Americans who don’t have it? LEAVITT: It’s (the Mass plan) a powerful idea, and it needs to be tried. And
if it works, other states will follow. And who knows? Maybe the United
On the other hand he forgot to say….."err, no. We don’t believe in that communistic single payer government run health care nonsense".
Then of course they went on to the real issue of health reform–or at least the one everyone can agree to agree on. More IT please. And then McKinnell actually said something sensible:
MR. MCKINNELL: Well, you won’t get any disagreement on this panel of
the need for electronic medical records. But let me caution you that it
will take a lot longer than we think.
And then we’re onto the predictions–
SEC. LEAVITT: In five years, that irritating medical clipboard they
always hand you when you walk into the clinic will be a thing of the
Maybe we should be buying Phreesia stock then.
MCKINNELL: My prediction: During our lifetime, the pharmaceutical
industry will eliminate the risk of cancer and heart disease for our
children and grandchildren.
And put itself out of business! But don’t worry I’ll be long retired
MR. CROSSON: This time the health-care crisis is real. The country will
solve it. We always get to the right answer.
Gotta love an optimist. After all we’ve cracked the problems of the Middle east, energy, education, the drug war, etc, etc. What’s this little nugget compared to those!
MS. DENTZER: Medical research will lead us to universal coverage,
because people won’t stand for giving up the benefits that it will show
us in the next 15 years.
And I think she may well be right, but it’ll be coverage that either McKinnell and the industry or the taxpayer is not going to likeMR. MCLAUGHLIN: The Massachusetts experiment will work and it will spread.
So a show just like our health care system. Everyone screaming stuff that they heard they ought to be saying without thinking whether it benefited them. The lone journalist having to play the sensible analyst without a real industry critic being let in the room. And no discussion or thought about those who are really getting the shaft. Then again, a show just like Washington.
Belated stealth comment: Kaiser is already offering HSAs.
If Medicare were allowed to negotiate drug pricing and administer the program it would have been easy to understand and would have covered more people then MedD seems to be. I don’t think the 40-60 providers per state is a plan designed for patients but one engineered for business and to keep tax money going to business and very high administration costs and ultimately going to Republican campaign donations. It is also easier for drug companies to keep prices up when dealing with so many distributors rather then one large institution. Adding another layer of profit takers is not what the system needs. Right now I don’t believe much I hear about so called savings under this plan (more lies?) but we’ll see as time goes by how it will work out. I have seen reports about the losers in this “plan” and that is pharmacists’ margins.
Peter had said:
> The VA [negotiates drug prices] while the Bush
> administration has banned Medicare from that
> same option.
The VA and Medicare are really two different ideas: the VA delivers services, and determines what those services are. Medicare was supposed to be a financing mechanism with total patient-choice (which short-term at least was good for everyone except the taxpayers). As it is, the PBMs that manage Part D benefits do the negotiating.
Barry & Tom, I’m reading your posts and appreciate the dialog.
> Isn’t the political pressure for drug importantion
> and price controls for Medicare purchases of drugs
> part of the fallout from aggressive drug pricing
> over a long period?
Importation is not the issue: there are lots of imported drugs. What do you want to bet that my Advair in England and Canada costs less than it does here, even though its from GlaxoSmithKline (a UK pharma)? Its usually drug re-importation that’s being talked about.
If this ever gets serious, what will happen is that the pharmas will estimate the needs of Canada for their particular drugs, and refuse to ship more than that number of doses there. There will not be a surplus in Canada to import into the USA at monopsony-imposed prices. This is probably happening already. Maybe a few busloads can go from Illinois up to Canada to fill their Rx, but the pharmas can prevent huge damage to their margins by controlling the supply.
My bet is the pharmas figure nothing much they can do will change the behavior of governments. I point out again that all drugs combined acount for 10% of helath sector spending. If they’re going to be regulated they’re going to be regulated, and they’ll cross that bridge when they get there.
> cost reduction opportunities
There are cost reduction opportunities, but they’re not often big. Mostly I think the “voluntary merger” has to do with access to distrubution channels, and the market for corporate control (aka “empire building”). So they tell the shareholders of both companies how much better off they’ll be after the merger. They might end up a little less volitile (a good thing) but this isn’t because of cost reductions. If these guys are right, they also end-up more hide-bound research-wise. Matthew pointed them out with this post from today. It will not be so bad if the big pharmas quit doing primary research, and focus on what they’re good at (risk management, regulatory approval, marketing & distribution, manufacturing). As much as the populists here don’t like it, marketing matters and some companies are much better at it than others. And it adds tremendous value.
Tom, great analysis as usual. One thing I’ve learned from you is that you are far more precise in your use of the language than I am. Take, for example, my statement about people buying drugs because they have to and not because they want to. I agree that once someone has a problem, he or she is grateful that there is either a cure, a medication that will relieve suffering, or, in the case of Viagra, address a lifestyle / quality of life issue. However, I’m sure these people would prefer to be well enough to not need any of these medications in the first place.
Regarding the issue of drug industry price sensitivity, the free drug program for the needy is obviously helpful and a lot better than nothing. At the same time, with overall health costs persistently rising faster than inflation, I wonder if the industry might be net better off if it were somewhat less aggressive in raising the price of established drugs just because it can and is trying to “make hay while the sun shines”. Isn’t the political pressure for drug importantion and price controls for Medicare purchases of drugs part of the fallout from aggressive drug pricing over a long period?
Regarding the drug mergers, such as Pfizer and Warner Lambert, they are often driven by new product pipeline issues as well as large cost reduction opportunities from eliminating duplicate functions. If a CEO of the acquired company (usually) has to be paid off to make the deal happen, it’s a small price to pay from a system standpoint even though I wish it weren’t necessary. At the end of the day, if consolidation into fewer but larger entities makes the industry more efficient and competitive and better able to sustain high risk / potentially high return R&D activity, I’m for it.
> people don’t buy these medicines because
> they want to but because they have to
Barry, you hinted at this, but I think you’re also contradicting yourself a bit. People don’t buy what medicines because they want to? Antibiotics? Sure. Insulin? Sure. Viagra? Hmmmmm. Maalox? Sure. Prilosec? Hmmmmm. Nexuim? Well…
I can even point to myself. I have a very mild case of athsma. I could get along with no treatment — I’d feel bad a lot and couldn’t ride a bike. Sailing my very small sailboat might be a problem sometimes. I could treat with a generic inhaled steroid and albuterol for maybe $30/month. But I choose to use Advair @ $60/month — I feel better more days, and the dosing is much easier to comply with. I have not had a puff of albuterol for years. I do not even have an active Rx for it anymore. They tell me that Advair will theoretically slow any progression I may be at risk for, but its kinda uncertain. But the 100% increase in cost (to me) is a choice of mine, right?
Q: What is “adequate” treatment?
> I think [the pharma] industry needs to be at least
> somewhat sensitive to pricing, especially when its
> profitability is already more than adequate on
It is somewhat sensitive: witness the “free drugs” programs you see.
Here’s the difficulty: the industry’s average profitability does not drive the decisions for any one company. Every executive knows that missing just one drug development cycle (and these run 10 – 20 years) can doom the company as an independent enterprise. And of course, end his tenure along with his chances of ever landing another position. Drug development is risky, and personally risky for the executives. And so you see the big seperation agreements — the guy’s got to get anough cash to maintain hinself for the rest of his life. One reason you see pharma mergers is because someone’s pipeline is dry whilst the patent protections that keep the company independently afloat are running out. They all work hard to make hay while the sun shines. This isn’t to say everything they’re doing is smart, and it is my feeling that the patent system props up some of them longer than a sound public policy might demand.
Peter, I think, wants to see the government deal with the pharmas the way they deal with Boeing and General Dynamics, or maybe regulate them the way they regulate power and telephone companies. The trouble is that pharma does a lot of science, and not much engineering: defense contractors do lots of engineering but not much science. They aren’t the same thing. Science is a lot less certain, and uncertainty is the very definition of “risk”. Other governments (and their citizens) are free-riding on the Americans’ willingness to finance risk. I don’t know that there’s anything for this. Probably not.
> I’ve read recently that the drug industry pegs the
> average cost to bring a new drug to market at about
> $800 million
The average cost to bring a new drug to market depends on how you count “cost”. The $800M figure includes all the “dry holes”, and the drug development methodologies in use (I understand) encourages drilling holes in unlikely places. There are experts on this — I am not one.
> Do “for profit” hospitals really want shorter
> stays for insured patients?
This depends on the reimbursement contracts. For Medicare patients, they usually want shorter stays. For contracts that call for payment of a percentage of charges, they might not. This is part of the point behind “pay for results, not services” movement. Medicare (at least in theory) pays for the result, not the process.
Even with Medicare DRG style reimbursements, there is are circumstances where the hospitals lose out when stays are shortened. One has to do with “stranded assets”. What if stents worked so very well that CABG surgery were completely unnecessary? What about all those operating rooms and ICU beds? All that equipment we have to do heart surgery? All of a sudden, it is worthless, or worse.
Another has to do with a circumstance where the price of the drugs or devices that shorten the stay “soak up” so much of the available reimbursement that the hospital can’t cover the cost of delivering the service to the patient. Maybe the hospital gets $4,500 to treat something. In the old days, it took a week, and $500 in drugs. Now with a new drug, it takes a day, but the drugs cost $4,000. Nobody disputes the patient is better off. But this leaves the hospital with next to no income. So here is a situation of the hospital no longer being able to cross-subsidize (remember, nobody really knows what anything truly “costs) and we also have the stranded asset problem.
Doctors and nurses, and even the evil managers (believe it or not) want to serve patients well — which means they want to discharge when the patient will be at least as comfortable and well cared-for somewhere else. Payers are less interested in paying for the comfort or convenience of the patient: they seem to have a more “technical” approach to discharge decisions. There is a tension here between what the healthcare pros want to do and what the patient through his intermediaries is (evidently) willing to pay for.
Peter, You raise some interesting issues here. First, regarding drug pricing. I am certainly not an expert on this and perhaps Tom Leith can correct any misstatements that I make, but here’s my take: I’ve read recently that the drug industry pegs the average cost to bring a new drug to market at about $800 million including the R&D, clinical trials, and other associated costs. Once the patents are in hand and the FDA gives its approval, however, the cost to manufacture and package the drug can often literally be measured in pennies per pill. Thus, once the initial investment is recovered and with a tiny marginal cost of production, the companies can sell pills at price controlled rates in other countries and still contribute handsomely to profit. However, if the U.S. tried this tack as well, it could have a signficant adverse effect on innovation which is already a high risk business with many failures.
My comment about the industry being somewhat more profitable than it needs to be relates to the fact that people don’t buy these medicines because they want to but because they have to. While shareholders will always encourage management to price their products to maximize profits, I think this industry needs to be at least somewhat sensitive to pricing, especially when its profitability is already more than adequate on average.
The core issue surrounding drug pricing in the U.S. vs overseas boils down to how does the developed world fairly share the high risk and cost associated with innovation without killing or sharply reducing innovation?
Regarding the oil industry, their profits are extraordinarily high right now, but there is a critical difference. Oil prices are a world commodity priced in dollars and all developed countries pay essentially the same price for imports of a given quality. Price is a function of supply and demand with an overlay of geopolitical factors (fear of supply disruptions, etc.) The industry invests in very capital intensive projects based on long term price forecasts. Since prices are much higher now than the companies expected when they made their earlier investments, profits are extraordinary. However, it’s not their fault. Also, there is a lot that people can do to reduce their energy consumption, at least over the intermediate term.
Finally, I don’t understand your point about hospitals being unhappy if a new drug results in shorter hospital stays. What are they going to do? Go the the FDA and say don’t approve this drug because it will result in shorter hospital stays which will hurt our revenues and profits!? Besides, my understanding is that the most profitable procedures for hospitals are surgical interventions that require very short stays like cardiac stents and the like.
Barry, your first two “could be, maybe” points could be valid. I would think that given the bad PR drug companies have had they would have been on the airwaves pretty fast to give those results as offsets for the price. Reducing hospital stays is not something that would sell to all prescribers of the drugs. Do “for profit” hospitals really want shorter stays for insured patients? I tried to do some hostipal stay research but the variables are so wide it seems impossible to put a good number on it. The TV ads say nothing of those benefits. I don’t think the molecule tweaking really results in much that is measurable, at least by the patient, maybe by the bought off FDA. In these cases you just need to prove it on paper with small numbers and of course with drug company test numbers. Again, where are the ads for all these great improvements. They could use the PR right now.
As to profitability comparisons I guess there are all sorts of ratios that can be generated. Creative accounting can hide and expose profits when it suits the companies goals. Enron came up with some pretty neat ways for valuation. I don’t know how you can say big pharma has been more profitable than it needs to be given your free market view though. Do you feel the same way toward big oil?
For the most part I also don’t believe in govm’t controls on wages/prices/profits when the market is doing a pretty good job of acting like a free market, not a monopoly or with the ability of putting legislators in its hip pocket. But allowing large institutions to “negotiate” prices is certainly one way to keep costs down. The VA does just that while the Bush administration has banned Medicare from that same option. Bringing drugs in from Canada is not the solution. Why should Americans take advantage of that country’s ability to negotiate and regulate their drugs when there is no political back bone or will here to do so. If the cost/profit ratio in Canada is not good for drug companies then they have the ability to pull out, Canada can’t force them to sell there. So I guess they’re doing ok as they continue to sell there. Americans are chumps when it comes to drug prices, just wave the flag and pretend “free market” and Americans fall in line.
Thanks for all of the interesting and informative stats from the KFF. I would like to make a few general points.
1. It is hard to know or quantify to what extent increased utilization of and spending for prescription drugs eliminated or shortened hospital stays thereby potentially saving the overall system money.
2. Even some of the drug approvals that were mere minor improvements over prior art may have made it possible to either reduce dosage frequency, reduce side effects, or increase the number of people who could tolerate the treatment.
3. When there is a comparable drug available at a much lower price, like Prilosec vs Nexium, insurers have the ability to require prior approval for Nexium or require a much higher co-pay or exclude it from their formulary altogether.
4. Regarding your point about the profitability of the drug industry, profit as measured by net income to sales is not the correct way to rank profitability across industries. This is because asset intensity differs enormously from one industry to another. For example, in 2005, Pfizer generated 43 cents of sales for each dollar of assets. Weingarten Realty, an owner and operator of neighborhood shopping centers, generated 15 cents of rental revenue (sales for a REIT) for each dollar of assets. Kroger, a large supermarket chain, generated $2.96 of sales for each dollar of assets. Finance types like me prefer to look at EBIT ROA which means earnings before interest and taxes as a percentage of assets. The average for large corporations on this measure ranges from 10%-13% depending on the year and where we are in the economic cycle. On this measure, in 2005, Pfizer earned 10%, Weingarten Realty earned 8.2%, and Kroger earned 9.9%.
That said, there have been years in the recent past when the large drug companies were extraordinarily profitable. For example, Pfizer’s EBIT ROA in 2001 was an incredible 29.3%! On average over the past 10 years or so, I personally believe that Big Pharma has probably been somewhat more profitable than it needs to be in order to attract capital to support its business and to provide its investors with a satisfactory risk adjusted return.
While I don’t believe in government controls on prices, profits, or wages, I do support drug importation from Canada as well as Western Europe because I think it will inject more competition into the system here. The end result, however, could be for the industry to find a way to move toward price convergence around the world by charging more in other countries as well as reducing prices here or failing that, refusing to sell certain drugs in some or all overseas market.
From Kaiser Family Foundation – November 2005
“Factors Driving Increases in Prescription Spending
Three main factors drive increases in prescription drug spending:
1.The increasing number of prescriptions (utilization) 2.Price increases
3.Changes in the types of drugs used
Utilization: From 1994 to 2004, the number of prescriptions purchased increased 68% (from 2.1 billion to 3.5 billion), compared to a US population growth of 12%. The average number of retail prescriptions per capita increased from 7.9 in 1994 to 12.0 in 2004.3 The percent of the population with a prescription drug expense in 2002 was 61% (for those under age 65) and 91% (for those 65 and older).
Price: Retail prescription prices (which reflect both manufacturer price changes for existing drugs and changes in use to newer, higher-priced drugs) increased an average of 8.3% a year from 1994 to 2004 (from an average of $28.67 to $63.59),6 more than triple the average annual inflation rate of 2.5%.
Changes in Types of Drugs Used: Increases in prescription spending generally result from newer, higher-priced brand name drugs whose availability is affected by the research and development (R&D) activities of pharmaceutical manufacturers and government-supported research. Manufacturer R&D spending increased from $13.4 billion (17.3% of sales) in 1994 to an estimated $38.8 billion (15.9% of sales) in 2004.8 New drug use is also affected by the number of new drugs (new molecular entities) approved by the US Food and Drug Administration, which has fluctuated over the past decade, with 21 approvals in 1994 and 36 approvals in 2004.9 Both prescription use and shifts to higher-priced drugs are affected by advertising. Manufacturers spent $11.9 billion for advertising in 2004 (excluding the $15.9 billion in retail value of drug samples), with $7.8 billion (66%) directed toward physicians and $4.0 billion (34%) directed toward consumers. Spending for direct-to-consumer advertising — typically to advertise newer, higher-priced drugs — was 15 times greater in 2004 than in 1994.10 From 1995-2002, pharmaceutical manufacturers were the nation’s most profitable industry. In 2004, they ranked third, with profits (return on revenues) of 16%, compared to 5% for all Fortune 500 firms.11Insurance Coverage for Prescription Drugs.”
When drug companies were allowed to advertise directly to consumers the cost of drugs went up 30% to cover the cost. Much of the so called “R&D” is molecule tweaking to get either a new patent or an extension of the existing one. Drug companies would rather invest resources in developing those drugs that require long term cronic use so as to max revenues. Much of the R&D is done by government or universities. I think the “10%” figure is misleading because why were so many people traveling to Canada for prescriptions? And why are so many local government health plans looking to buy from Canada? Why was this issue such a big deal for drug companies. The drug companies then had to go to the Bush administration to get bailed out of the PR mess by getting the government to pay the full cost of the profitable drug company revenues. Keep those campaign donations coming in.
In one of her posts a few weeks back, Dr. Tuteur made the point that a number of diseases that used to be death sentences are now chronic diseases that can be managed. Others have said, including on Sunday’s show, that 75% of the health spend relates to management of chronic disease. Finally, Pfizer CEO McKinnell indicated that prescription drugs are still only 10% of healthcare spending, maybe a bit more.
I am a classic example of the first two points. I take five prescriptions for heart disease plus aspirin. When I last saw my cardiologist, I asked him (out of curiosity) what the average number of scrips his typical heart patient takes. Answer: 4-5. He said just about everyone is on a statin drug, a beta blocker, and an ACE inhibitor. All take aspirin and some take Plavix. Others take one or more drugs for issues specific to them. I estimate that if I had to pay the full cost of my scrips out of pocket, it would be about $4,000-$5,000 per year.
With regard to the price difference vs other coutries that have price controls, I think an extreme case of the fallacy of composition is at work here. Nothwithstanding federal spending on medical (including drug) research, Big Pharma spends plenty on R&D. However, once you have the patent, the marginal cost to actually manufacture the drug is tiny, so they can enhance their profits by selling in overseas markets at price controlled rates. The bottom line is that the unrestricted U.S. market (and U.S. consumers) wind up picking up most of the R&D burden for the whole world. I think Big Pharma should narrow the gap by refusing to sell some drugs overseas if those governments push too hard on the price side.
One area where I do fault the drug companies is the pricing of some of the new biotech drugs that are coming to market. In these cases, I think the long term answer is QALY metrics. That is, if the cost of the drug, combined with other required treatments, can’t be delivered at a cost within a QALY threshhold, the treatment, including the drug, should be withheld unless the patient can self-pay.
If the US really wants to get a handle on out of control medical costs it should start in one place: stronger regulations for big Pharma.
There is the over reliance on medicines, as if the solution to everything is to pop a pill. Medicines and prescriptions should be the last resort, not the first. It is awful to turn on TV these days and see all of the drug companies ads. This direct to consumer advertising is causing a signifcant overuse of prescription medicines that may not even be necessary in many cases. The use of medicines and prescriptions should be made between patients and their physicans. Direct to consumer televsision advertising by the pharmaceutical companies should be banned.
Why do Americans pay 300 to 500 percent more for most medicines than the rest of the industrialized world? The US government does not place any restrictions on the prices that big Pharma can charge. In countries like the UK and Australia, their governments allow Pharma companies to make a 10 to 30 percent profit on most medicines. And before any one chimes in saying that big Pharma needs exorbitant profits for research, it is important to remember that most of the major pharmaceutical discoveries are actually done with funding from US government research.
Next, we can put better regulations on the big insurance companies, and how they conduct business, but this is a topic for another post.
I think there’s too many vested economic interests in the present system for any change to take place for quite a while. From posts here,”You go first, no you, no, you go first.” Know one (non-patients) knows what the new “system” will look like so the devil you know is best. I also don’t think the present corrupt two party political system will be pushed to do anything but pander to industry lobbyists and their bribes. New wonks would be easy, legislation will be a blood bath.
In regards to Jay Crossens praise of HSA’s, I suspect he is looking in the future after Kaiser’s EMR is fully implemented and Kaiser starts to offer large deductable plans to compete with the competitors who are skimming from the risk pool.
However, Dr. Crossen is wrong on this, HSA’s are a terrible deal and don’t address Kaisers real problem with declining membership, the ongoing trainwrek that is the employer based healthcare system. Kaiser lives off of employer based healthcare on a middle to large scale, and that seems to be declining. They want a piece of that small business individual action. What they should be doing is pushing for Universal Care, and then leveraging their size, range of services and quality to compete.
As a long-time TMG fan, I can tell you this was not like other shows: i.e., NO SHOUTING! Of course, the fact that Blankley, Buchanan, and Clift were not on the panel could have been coincidence.
Disappointingly left out of the discussion: ballistic executive salaries/benefits, obscene payer profit margins, and an overall resistance to change business-as-usual in the payer, provider, and vendor communities. A good discussion regardless but of course, we wonks want more!
We need some new wonks to lead the way. Someone or a group of someones who can and will break through the rhetoric and skip past all of the reasons why we have to wait even longer before we do something meaningful about healthcare in this country. As this post points out so well, CDHPs and HSAs aren’t going to solve the problem of out-of-control costs for chronic illness care, unless, of course, all the folks who are skipping their meds and not going to see their docs because they can’t pay for it, just up and die (without needing to go to the hospital first).
BTW, Jay is a doc…a pediatrician…heads the Permanente Federation. Robbie Pearl is also a doc…Exec. Director of the Permanente Medical Group in Northern Cal.
“McLaughlin–This HSA plan puts the individual in charge of health spending, not the insurance company, so the consumer becomes the buyer, and the buyer will pay attention to the price of medical services. Patients will shop. Patients will negotiate. Patients will put the economy of the market to work. Health care will suddenly become transparent.”
Just like direct pay has brought down the cost of lawyers. Or how about energy pricing transparency, that’s brought down prices.