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PHARMA/QUALITY: More in chemo sensitivity testing, by Larry Weisenthal

As I mentioned the other day, I have another article on oncology in the queue which got pressed for space as the election heated up. Larry Weisenthal, MD, is a board certified medical oncologist with a 25 year history of full time work in the field of cell culture drug resistance testing (otherwise known as “chemosensitivity testing”). More about Larry may be found by looking at his CV. He writes:

The issues and data relating to chemosensitivity testing defy concise summary and can be reviewed on my website. For the moment, I just want to make a brief response to the comments of Harvey Fry (on THCB a couple of months back). Harvey had written about chemosensitivity testing:

I fought for chemo-sensitivity testing of cancers over 20 years ago, and finally lost because of the problems with the tests. First, it’s often hard to get a representative sample of tumor cells by biopsy. Then it’s hard to get them to grow. Then you’re not sure whether the cells that grew out are the tumor cells, or normal matrix, like fibroblasts. Then there’s the delay in starting treatment while waiting for the cells to grow out. Then there’s the question of whether cells in metastases have the same response as those in the primary. But the killer was that the clinical response was not that well predicted by the cell survival tests in the lab. And of course, there was the expense.

Unless there has been some major advance in the intervening years, I can understand the reluctance of some oncologists to go back to it. Alternatives to growing the cells and seeing what kills them may now exist, but they are only surrogates for the real end-point of interest.

Firstly, Dr Fry obviously has no understanding whatsoever of the current technologies, which are based on cell death and not cell growth. To put things into historical perspective, interest in “culture and sensitivity testing” for cancer received a tremendous boost with the publication of a preliminary paper describing a cell growth assay in the New England Journal of Medicine in 1978. When the NEJM talks, people listen. Within a year, hundreds of laboratories were working with this particular cell growth assay, and it did, indeed, pose the problems cited above by Dr. Fry. These problems were exposed in a devastating, negative editorial, published in the NEJM in 1983. The NEJM giveth; the NEJM taketh away. All the laboratories shut down; research in the field virtually ceased, and the take home message in the minds of most clinicians was that the assays had been discredited. Dr. Fry’s comments reflect this thinking.

In 1983, other publications introduced assays based not on cell growth, but on cell death. This was a good 5 years before dissemination of understanding of the concept of apoptosis (a genetically programmed cell death pathway which exists in all cells, which is supposed to cause them to commit suicide if they become functionally deranged, but which doesn’t function properly in cancer cells, allowing them to grow abnormally without committing suicide, but which can be triggered to occur by effective anti-cancer drugs). Because clinical oncologists did not understand about apoptosis, these pioneering publications with cell death (instead of cell growth) endpoints were ignored, and neither clinical trials nor the application of cell death drug resistance assays were supported by academic and private practice clinical oncologists.

Despite the theoretical concerns expressed by Dr. Fry, the clinical utility and clinical accuracy of cell culture drug resistance testing with cell death endpoints has now been proven beyond doubt. These data may be reviewed on-line at: http://weisenthal.org/oncol_t.htm. The issues and data are also available in a 27 minute video excerpt of my testimony before an official Medicare technology assessment committee meeting in Baltimore.

Regarding the “expense” part of it. The tests cost in the neighborhood of $2,000, so it’s a legitimate consideration, but expense has to be put in context. A couple of quick examples:

1) A patient was an ovarian cancer patient with primary resistance to paclitaxel/carboplatin who then underwent tandem stem cell transplant/high dose chemotherapy regimens (at a cost of more than $250,000) without ever achieving a response. At a time when she had bulky, non-cytoreducible abdominal and pleural disease, CCDRT confirmed resistance to single agent cisplatin, carboplatin, and gemcitabine, but good activity for the gemcitabine/carboplatin combination. She subsequently received gemcitabine/carboplatin as an outpatient, achieved a durable complete response, and returned to work full time as an oncology nurse, where she remained well, for four years. The cost of ineffective therapy for this one patient alone would have paid for 125 assays.

2) One of our most “loyal” referring oncologists is financially independent and therefore he is free to manage his patients without any conflicts of interest relating to the fact that prescribing chemotherapy instead of counseling against it has financial repercussions to the oncologist and prescribing certain forms of chemotherapy over certain others likewise has financial repercussions. In the absence of information that some drugs are more likely than others to work, it is “ethical” to choose more remunerative forms of chemotherapy. The assay presents great problems for non-independently wealthy oncologists, because they take away their freedom to choose. The above oncologist recently told me of an interesting anecdote. He had a patient scheduled to come to his office on a recent Wednesday for chemotherapy. This treatment would have earned the oncologist $6,000 for a single patient, for a single afternoon’s worth of treatment. But the patient missed the appointment. The next day was the beginning of the oncologist’s vacation. So he had to arrange for the patient to be treated at the nearby, world famous, NCI-designated comprehensive cancer institute, which billed $28,000 for the treatment and which received 75% of this total (the oncologist knows this, because it had happened before).

The cost of drugs is enormous. And this is only part of it. Patients are “followed” with serial CT scans, MRIs, and even PET scans, just to ascertain if the tumor is growing or shrinking. And the hospitalizations for toxicity, etc. The point is that the cost of ineffective therapy is truly enormous, and the assays are particularly good at identifying ineffective therapy.

In summary:

There have been over 40 publications in the peer-reviewed medical literature showing correlations between cell death assay results and the results of clinical hemotherapy in more than 2,000 patients. In every single study, patients treated with drugs active in the assays had a higher response rate than the entire group of patients as a whole. In every single study, patients treated with drugs inactive in the assays had lower response rates than the entire group of patients. In every single study, patients treated with active drugs were much more likely to respond than patients treated with inactive drugs, with assay-active drugs being 7-9 fold more likely to work than assay-inactive drugs. A large number of peer-review publications also reported strong correlations between the assay results and the survival of cancer patients. These data are completely non-controversial and have
never been challenged or refuted. Thus Dr. Fry’s comment that “the killer was that the clinical response was not that well predicted by the cell survival tests in the lab” is absolutely incorrect.

The material on my website is very complicated (it is targeted to health professionals more than to laypersons). For a short overview of the most important issues, I’d recommend the Frequently Asked Questions section, which was also quoted by Wall Street Journal Health columnist Tara Parker-Pope in her weekly question and answer column appearing in the September 21, 2004 issue of the WSJ.

POLICY: The real costs of uninsurance, by Anonymous, with quick UPDATE

Every so often it’s worth remembering the human and economic costs behind our uninsurance statistics. The following TCHB contributor was employed and insured until about a year ago, but like many with her health condition cannot afford insurance now she’s uninsured. I’ve kept the author anonymous for obvious reasons, although she lives in the San Francisco East Bay, but read on and you’ll understand why there are economic costs for all of us from the uninsurance numbers:

I recently had my own health care crisis, and I thought I’d share it with you as something to ponder. I don’t have any context to put it in, so I will leave larger analysis to you. My basic reaction, though, is that as relieved as I am that I had access to good care, the whole process was utterly stupid from the taxpayer point of view.

A few weeks ago I had a large hemorrhage in one eye. This is a harmless condition for most people, but I was worried because I have an underlying genetic condition that causes a form of macular degeneration, and I was worried about hemorrhaging that I couldn’t see in the area of my retina. If this was the case,time was of the essence if I didn’t want to lose a chunk of my vision.

It was 2am when I discovered the problem. I’m uninsured, but I knew that an ER would have to treat me. I walked to Alta Bates in Berkeley. As a pathetic side note, I went to the wrong Alta Bates campus – I then had to walk to the Alta Bates with the ER (on Ashby). By the time I got there, I had a lot of pain in my legs (the same genetic condition causes claudication), and I had trouble explaining to the nurse that while I was limping and in tears, this was normal for me and was not why I needed to see a doctor. 🙂 The only reason I’m relating this is that I don’t think many people think about how poor people go through to actually get to the ER in the middle of the night in the first place.

I was treated very well as a person at Alta Bates. They didn’t make me feel uncomfortable about my lack of insurance at all. They gave me charity forms to fill out. I waited 5 hours to be seen, which turned out to be normal for both Alta Bates and Highland. The initial doctor I saw at Alta Bates did not give me adequate care. She glanced at my eye and told me there was nothing to worry about with that sort of hemorrhage. Since I provided information on my underlying condition up front, she should have given me a thorough eye exam. This visit cost the taxpayer $356.00 for the ER plus whatever the physician fee is (probably around $200.00).

I know enough to test my eyes myself, so the next day I tested myself. My vision was distorted. I tested over and over again just to make sure: I certainly didn’t want to go through the ER experience again. But the tests were always the same, so I went back to the ER. That’s a second $356.00 (possibly more for ophthalmology set up) plus the physician fee. This time Alta Bates gave me an urgent referral to Highland Hospital. Highland has an ophthalmology clinic, and a program for indigent patients. Highland, however, didn’t want to take the referral. It was written on my aftercare instructions instead of the form they wanted. I called Alta Bates to ask for the right form, and they insisted I was holding the referral. I called back and forth all day. Alta Bates finally faxed the referral, and Highland said it would
be at least three days before they could verify they even got the fax(!). This referral had urgent written on it because the Alta Bates physicians thought I needed to see a specialist fairly quickly. At one point I called Berkeley Free Clinic to see if I had any other county health system options for ophthalmology. Highland unfortunately was the only place for me to go.

An Alta Bates nurse then advised me to go back to Alta Bates, get a copy of my medical records, and go to Highland Urgent Care so a Highland physician could refer to the ophthalmologist. That’s right: my THIRD 5-hour emergency room visit for the same problem. The taxpayer was unnecessarily triple-billed because of some bureaucratic issue.

With travel, the trip to Highland took a spectacular 9 hours all together (I’d never been there, and two successive bus drivers forgot to tell me where the stop was). Once again, I have no complaint about my treatment as a human being. I described my situation, and the insurance person didn’t bat an eye. She just gave me the forms to fill out.

I was also very well treated by the triage nurse at Highland. After I told her about the problem with the referral, she physically tried to run after the on-call ophthalmologist. I almost lucked into seeing him right then and there, but he had to go into surgery. He did however give the triage nurse an appointment for me on the spot.

A morning later, I took another trip to Highland. The wait in the ophthalmology clinic was down to an hour. The ophalmologist gave me some tests, took a look at the area of my eye that was the source of distortion, and confirmed it wasn’t actively bleeding. (Keep in mind that I had gone through the past few days under continual fear that I might be losing my sight minute by minute). So, big relief. He thought the distortion was being caused by blood vessels and/or related scarring. It might have actually been there for months: I just never noticed it without the tandem visible hemorrhage. As a member of the uninsured, I had not had access to regular ophthalmology checks that are really necessary for someone in my condition.

Perhaps an economic analyst like yourself might realize that the public issue here is that denying me health care in the first place (especially in a frivolous “specialty”) means that the taxpayer gets to pay long term when I’m permanently disabled.

While I wasn’t in an acute situation, my vision was still damaged. The ophthalmologist referred me to a retinal specialist at Summit. This retinal specialist was supposed to give me an angiogram to show whether blood vessels were the issue, and whether my vision could be helped or at least prevented from deteriorating by laser surgery.

The good news for me as an indigent patient is that I was sent to the same retinal specialist that anyone else would go to. The bad news for the tax payer is yet another weird system disconnect occurred. I went to the retinal specialist, but I didn’t get the angiogram. I got the exact same eye exam I got from the ophthalmologist instead. Afterward, the retinal specialist gave me a rerun of the angiogram and laser surgery talk. He needed to schedule me for another appointment for those. The appointments system was down so the nurse was supposed to call me. My phone is sketchy, so I gave my email as well. It’s been a few days, and I haven’t been contacted by either phone or email. I plan to call after I finish this note.

So many things have been surreal about this entire situation. I was honestly surprised that the people dealing with the insurance forms were all non-judgmental and dealt with me in private. This would not have been the case in my home state of Virginia, where the economy is regulated through shame. 🙂

On the other hand, the actual medical care varied, and it required a lot of proactive work on my part (to negotiate between Alta Bates and Highland). This was difficult for a fairly well-educated and strong person like myself: I wonder what happens to people who are more docile or more acculturated to conditions of poverty. I thought that the first doctor in the Alta Bates ER should have taken a closer look at me, but all the other doctors I saw were great.

It was also stressful to go through all the bureaucratic hassles at a time when it was possible that every minute could be costing me more of my sight. The initial trip to the Alta Bates ER actually gave me a fever – some sort of shuttle between hospital campuses would have been nice. Also, I had to deal with a guy following me and making catcalls as I made my way back home in the wee hours of the morning.

Finally, the redundancy was mind-boggling. It’s a good thing I don’t work at all, because I literally spent half my week in hospital waiting rooms. If I were temping at the time, I would have been out of a job that at this point I would be desperate to cling to. I appreciate that no one cares about the wasted time of a non-entity such as myself, but when you realize that each trip was a *separate* bill to the taxpayer, it might be time to start considering this as a social issue.

This story is not over yet: I need to go back to the retinal specialist, and then probably some laser thing after that. Hopefully, there won’t be any further adventures in nonsense. I will try to remember to let you know if I get to a point where I can total up a final bill.

The only point that is not accurate here is that the taxpayer per se won’t get these bills–they’ll probably be marked down as charity care, after the hospital makes some level of effort to get the money out of the patient. And of course $350 is the rack rate for an ER visit, not what a local health plan would pay. But in the end, we’re all picking up the tab for this foolishness–now and in the future.

UPDATE: The Sunday Boston Globe had an article about a guy who played the uninsurance gamble and lost, and now has to pay Mass General $40,000, where an insurer would have paid them $7-10,000. The key part is that he’s paying off his bill to the General at $700 a month — which is what insurance from Blue Cross would cost him. Prize to the first person who can email me the 5 counteracting incentives in the whole system this article details without having their head explode.

PHARMA/PHYSICIANS: Changing the Identity of Medical Oncology Under Medicare, by Gregory D. Pawelski

Here’s the first in a series of articles I have in the queue about the oncology market. The first is from Greg Pawelski:

Under the new Medicare Prescription Bill (MMA) medical oncologists will be reimbursed for providing evaluation and management services, making referrals for diagnostic testing, radiation therapy, surgery and other procedures as necessary, and offer any other support needed to reduce patient morbidity and extend patient survival.

The fact that medical oncologists received no reimbursement for providing oral-dose therapy to patients had been the principal barrier to the availability of oral-dose protocol. The advent of oral agents ultimately means that medical oncology will need to change its identity, prior to the chemotherapy drug concession. Because oral-dose drugs hold the promise of being more selective, harming fewer normal cells, reducing side-effects and work to improve the quality of life for people with cancer, they will rightfully gain their appropriate share of the marketplace, again.

The new Medicare Bill offers patients benefits they did not have before, mainly some coverage for oral chemotherapy drugs. Since April of 2004, $200 million was available so that some Medicare cancer patients would have transitional coverage for these drugs, until the bill goes into full effect in 2006. Although some benefit was realized, more might have been achieved if the American Society of Clinical Oncology and other groups had lobbied as much for the oral chemotherapy drug issue as they did for office-practice expense reimbursement. They fought long and hard to retain the Chemotherapy Drug Concession.

Increasingly, oral-dose anti-cancer drugs are found to treat cancer effectively and seen as a necessary part of a patient’s cancer care. A number of these breakthrough cancer drugs came on to the market that are only in oral form and previously not reimbursed under Medicare. Patients were being forced to compromise their cancer care due to Medicare not covering many of these life-saving therapies.

The new legislation started the process of providing access to a full range of the latest cancer-related prescription drugs at manageable costs to enhance the quality and standard of treatment for cancer. Medicare recipients were being relagated to treating their diseases with older, more toxic infusional chemotherapy agents at a time when new and more promising cancer drugs were reaching the market.

Compared to infusional therapy, oral-dose anti-cancer drugs can make receiving cancer treatment more convenient for patients by allowing flexibility in taking medication without disrupting work or other activities. They can often result in less time (or no time) spent in office-based oncology practices because of the absence of intravenous administration and its related side-effects.

Targeted cancer therapies will give doctors a better way to tailor cancer treatment. There are a multiple of different cancer drug regimens, all of which have approximately the same probability of working. Treatments may be individualized based on the unique set of molecular targets produced by the patient’s tumor, and these important treatment advances will require individualizing treatment based on testing the individual properties of each patient’s cancer.

What was needed, was to remove the profit incentive from the choice of cancer treatments, which were financial incentives for infusion therapy over oral therapy or non-chemotherapy, and financial incentives for choosing some drugs over others. Patients should receive what is best for them and not what is best for their oncologists.

The new system is clearly an improvement from the standpoint of cancer patients, taxpayers, and advocates of basing drug selection on individual tumor biology, rather than on a least common denominator approach which invites “conflict-of-interest medical decision-making.” I think it is time to set aside empiric one-size-fits-all treatment in favor of recognizing that many forms of cancer represent heterogenous diseases, where the tumors of different patients have different responses to chemotherapy. It requires individualized treatment based on testing the individual properties of each patient’s cancer.

POLITICS: Election winners and losers

I wrote most of this yesterday, but Blogger was giving a lot of trouble, hence I only got to publish my cynical “help wanted” ad.

But given that we have Bush in for four more years and at least two of a very strongly Republican house and Senate, what does this mean for the health care system? We will obviously not be discussing how an obstructionist Congress shot down Kerry’s health care plan. I don’t think that we are going to see any serious expansion of Medicaid to cover the working poor, and the defeat of Prop 72 in California augurs poorly for any expansion of employment based insurance. Overall this means that uninsurance will continue to rise–although public programs will continue to grow somewhat (as they have over the past three years). So we can expect a continued growth in uninsurance and presumably a continued (but probably moderating) rise in costs. There might be some consensus around Frist’s proposal to aid in reinsurance for companies and create AHPs, but these both strike me as tinkering around the edges.

Meanwhile there are some big winners from this election. The gamble taken by big pharma to carry out a scorched earth policy towards the Democrats has paid off–although I suspect the midday exit polls had some in the executive suites choking on their three martini lunches. Plan B–the need to deal with price controls and re-working of the Medicare Modernization Act–will not be needed, although reimportation still has some supporters on the Republican side of the aisle. As my, politically poles-apart but pharma-savvy, contributors The Veteran and Atlas have agreed, the pharma companies need to use some of this breathing room to cut back on their marketing spend, and make their sales machines more cost-effective. But the lack of a strong pipeline for many companies in the industry, and the not-so-minor-for-some issue of lawsuits over drug safety, are still the most important challenges for this industry.

The stock market reacted correctly to the election for the health plans and PBMs, which will continue to consolidate on the gains they have in the built-in increases they’ll see in payments to get them to recruit seniors into managed care plans and the new drug benefit respectively. Pacificare’s stock rally is being matched by Caremark.

Again in the longer term, these gains cannot last forever. The underwriting cycle will eventually come back to bite health insurers, and at some point the government/taxpayer will be unwilling to continue to expend scarce resources on the somwhat dubious ideology of paying more to make Medicare private. But for now the direction is clear and the sailing bright.

And although in my mind I got there first, that bunch of impersonators at the New York Times also reports on the topic in this article called Insurers and Drug Makers See Gain in Bush Victory.

Hospitals and doctors will keep the gains they made in the MMA, but it’s hard to see many more extraordinary gains. The only arena in which there may be a substantive change is in the reintroduction of malpractice legislation. However, given that the White House has to get funding for Iraq, an energy bill and some type of Social Security reform, not to mention the odd Supreme Court justice nomination, through the Senate, it doesn’t seem likely that malpractice is an issue that they’ll go to the mat on if the Democrats object.

And a peripheral issue to most health care players, but an important national one is that the Supreme Court will likely take a severe slant rightwards in the next few years. Sandra Day O’Connor is the swing voter keeping Roe v Wade on the books, and she’s likely to retire, as is Rehnquist. So the abortion situation is likely to change, and if one of the two most liberal justices (82 year old Stevens or 69 year old Ginsburg) were to die in the next few years, then we might be looking at a 6-3 conservative majority for years to come. Perhaps abortion clinics on the Canadian border are the new business opportunity.

BLOGS: Blogger bloggered & quick Wanted ad

Yet again Blogger seems to be down. I’ll leave you cynics with this thought and be back with my conclusions on the impact of the elction tomorrow.

Wanted: 58 million people to support the elimination of human rights, promote torture, plunge their children into monstrous debt, and aid in the elimination of civil liberties at home and international law abroad. An opposition to the principles of the Enlightenment and rational thought is useful. Adherence to obscure interpretation of vague texts written 1900 years ago, selected a couple of centuries later by a brutal dictator who wanted his subjects to worship him as God, is also helpful. Apply at the polling booth on Nov 2.

POLITICS: Wake me up in 4 years

I’m reminded of the scene in Citizen Kane, when Kane loses the election at the last minute and his editors pick between the two headlines. One reads “Victory” and the other says “Fraud at Polls!”. The lefty blogs got very excited about some early exit polling data, and the stock market did too. Now the market will be roaring up, while there’s as much conspiracy theory as you like on the left about what happened between the exit polls and the poll results, and how exactly Florida boosted its turnout by over 29%, had more registrations in poorer and African-American precincts and still went further into the Bush camp. And Ohio, still run by Diebold? I must admit to being pretty baffled. Apparently tons of new voters got riled up about the evils of the Administration, registered to vote and then went in and voted in record numbers….for Bush.

But given that the outcome is set, and that the Senate got much more conservative (with at least two real wingnuts added), the die is more or less cast for the next four years.

For the health care system, this prods us towards the “no change leading to big disaster/crisis/reform” scenario that I’ve hinted at in the past. All indicators are starting to flash orange, and no legislative solutions will come out in the next four years, although they may take another run at malpractice. I think that the 2008-2012 health care crisis election is now a likelihood, depending on the timing of the next recession.

In the meanwhile, there’ll be plenty to write about; just not how Kerry’s plan was shot down in flames by a do-nothing Congress.

I’m off to a corner to cry quietly….

PHARMA: Merck knew more than it let on about Vioxx

A group of emails from within Merck show that the scientists were questioning the data and the marketing people were telling the sales reps to obfuscate. This is really ugly stuff. Taken on its own the views from the scientists aren’t too bad, as they state the actual truth — that good drugs have side effects. But the trial lawyers will not care about that and Merck’s stock is down another 10% today. And you can just imagine the courtroom scene where the plaintiff’s attorney reads management’s instructions to the sales reps to “dodge” questions from doctors about the safety record of Vioxx versus its competitors.

Merck’s long-term is looking bleaker and bleaker. Even though Arcoxia, its new Cox-2 may make it through the FDA — it got a go slow but positive letter last week — the combination of the settlement for Vioxx and the fractured trust with doctors and patients really spells the end of Merck’s reign as the most trusted of the “scientific” pharmaceutical companies that it enjoyed when Vagelos was the CEO. Expect some other pharma to come after Merck within a few months, but perhaps after it’s got a little cheaper.

POLITICS: After today, it may be over

The rumors I hear are that no-one will concede tonight and that the whole thing will go to appeal in Ohio, Florida and who knows where else. Four years ago a done-nothing Governor, who’s only promise was to govern from the middle and not get a blow-job in the Oval Office, “won” election by getting fewer votes than the other guy. Love him or hate him, it’s hard to imagine that after governing the way he has, with the contention that his Administration has created at home and abroad that the numbers for Bush in advance of the next election look exactly the same as they did on election night 2002.

But that apparently is the way it is. God Bless America.

POLITICS: It’s a dead heat

If anyone tells you they know who’s going to win the election, they’re lying. I reported that Harris said it was a dead heat a few weeks back, and not much has happened to change that view. You all know who you want to win. I know who I want, and I’ll report back on Wednesday on what we know, if we know the final answer then.

UPDATE: Apparently, this is not true and there is a certain outome. ESPN reports that for the last 16 elections since they moved from Boston in 1933 when the Washington Redskins win their last home game before the election, the incumbent’s party wins. When they lose, the incumbent’s party loses. Well on Sunday, the ‘Skins lost. Sorry, Bush!

POLICY/POLITICS: Prop 72, sorry couldn’t stop myself!

So I tried to not say any more about Prop 72 and the analysis from the Harvard economist Anna Sinaiko that poo-poohed my theory about labor costs versus profits. But as I never heard back from her, I might as well print what I wrote here after she said this in reply to my earlier letter:

Let me begin with Matthew Holt’s letter, in which he questions: Can we finance health insurance by tapping into (“all-time high”) corporate profits? It has long been recognized in labor and health economics that firms regard the cost to employ a worker as the sum of cash wages and fringe benefits, and offset higher costs of health insurance with lower wages. While in the short term this may be difficult, over the long term, wage reductions are likely to be a consequence of an employer mandate such as SB 2.

Here’s what I wrote to her in reply, as yet not hearing back from her.

By claiming that economics tells us something — in this case “firms regard the cost to employ a worker as the sum of cash wages and fringe benefits, and offset higher costs of health insurance with lower wages” — you appear to mean “economic theory” tells us something. You appear to be saying that the theory says that overall gross labor costs are necessarily static and any change in one part of labor costs will be compensated within those labor costs, either by lower wages or lower employment. Those of us who think of economics as a pretty imperfect science would be interested to know how you reconcile the UK experience with the introduction of a minimum wage with your economic theory? Wages/labor costs there went up and unemployment stayed the same (in fact dipped).

Assuming that no miracles occurred, and that the total amount of revenue in those firms stayed constant, something else MUST have gone down. Unless Adam Smith has changed his text since I went to college “Economic theory” says that there are only four elements in the cost of production: Land, labor, capital, and “enterprise”. You have effectively said that a change in the cost of one of these is self-regulating and that the others cannot change. That is patent rubbish, as the “cost” (or share of revenue) of all 4 elements changes constantly in any market. Or maybe you have created a new “economic theory”. If that’s not what you are saying you need to restate your argument, and answer my criticism properly.

And you never answered my final question. If this all washes out within labor costs and they stay constant, why are corporations (who care only about the “enterprise” or profit part of the equation) so dead set against SB1? I’ll answer it for you. They are not economists and they–like labor unions–live in the real world where these types of battles over distribution of revenue happen all the time because there actually IS something at stake.

And so after that non-reply here comes the real proof. Today’s NY Times has an article about WalMart and how it basically offers fewer health benefits than its competitors and as an aside many more of its employees wind up on public assistance of various sorts for their health care needs. Walmart is more profitable than its nearest competitor Costco because of that, and Wall Street notices:

Wal-Mart says that 23 percent of its employees are not eligible for coverage, but that it covers 58 percent of those who are. That compares with an insured rate of 96 percent of eligible full-time or part-time employees of Costco Wholesale, the discount retailer that is Wal-Mart’s closest competitor nationwide. Costco employees – most of whom are not represented by a union – become eligible for health insurance after three months working full time, or six months part time. At Wal-Mart, which has no union employees, many who work full time must wait six months to become eligible. Part-time workers are not eligible for at least two years. Because of turnover, some employees never work long enough to become eligible.

If there is any place where Wal-Mart’s labor costs find support, it is Wall Street, where Costco has taken a drubbing from analysts who say its labor costs are too high. Costco’s pretax profit margin is only 2.7 percent of revenue, less than half Wal-Mart’s margin of 5.5 percent.

But I guess Sinaiko’s economic theory doesn’t cover Bentonville AK and Wall Street or Sacramento and Athens medicaid payments, so she must be right, and labor costs have no impact on profit margins.

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