Corante

About this Author
DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

Chemistry and Drug Data: Drugbank
Emolecules
ChemSpider
Chempedia Lab
Synthetic Pages
Organic Chemistry Portal
PubChem
Not Voodoo
DailyMed
Druglib
Clinicaltrials.gov

Chemistry and Pharma Blogs:
Org Prep Daily
The Haystack
Kilomentor
A New Merck, Reviewed
Liberal Arts Chemistry
Electron Pusher
All Things Metathesis
C&E News Blogs
Chemiotics II
Chemical Space
Noel O'Blog
In Vivo Blog
Terra Sigilatta
BBSRC/Douglas Kell
ChemBark
Realizations in Biostatistics
Chemjobber
Pharmalot
ChemSpider Blog
Pharmagossip
Med-Chemist
Organic Chem - Education & Industry
Pharma Strategy Blog
No Name No Slogan
Practical Fragments
SimBioSys
The Curious Wavefunction
Natural Product Man
Fragment Literature
Chemistry World Blog
Synthetic Nature
Chemistry Blog
Synthesizing Ideas
Business|Bytes|Genes|Molecules
Eye on FDA
Chemical Forums
Depth-First
Symyx Blog
Sceptical Chymist
Lamentations on Chemistry
Computational Organic Chemistry
Mining Drugs
Henry Rzepa


Science Blogs and News:
Bad Science
The Loom
Uncertain Principles
Fierce Biotech
Blogs for Industry
Omics! Omics!
Young Female Scientist
Notional Slurry
Nobel Intent
SciTech Daily
Science Blog
FuturePundit
Aetiology
Gene Expression (I)
Gene Expression (II)
Sciencebase
Pharyngula
Adventures in Ethics and Science
Transterrestrial Musings
Slashdot Science
Cosmic Variance
Biology News Net


Medical Blogs
DB's Medical Rants
Science-Based Medicine
GruntDoc
Respectful Insolence
Diabetes Mine


Economics and Business
Marginal Revolution
The Volokh Conspiracy
Knowledge Problem


Politics / Current Events
Virginia Postrel
Instapundit
Belmont Club
Mickey Kaus


Belles Lettres
Uncouth Reflections
Arts and Letters Daily
In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

In the Pipeline

« The Key Player in the Sanofi-Genzyme Deal Speaks Out | Main | Smell The Vibrations? Fruit Flies Might Be Able To. . . »

February 17, 2011

Health Care Reform and the Drug Industry: How Goes It?

Email This Entry

Posted by Derek

We haven't had enough controversy and arguing around here this week, have we? Let's talk politics for the morning, then. Here's a piece from a former VP for public affairs at Pfizer, arguing that PhRMA got thoroughly snookered during the health care reform bill. He's looking over the current budget proposal:

For biotech and pharmaceutical companies, the president’s budget repudiates one of the most important benefits of their “deal” with the White House: the ability to market biotech drugs without generic competition for twelve years. The president would reduce that period to seven years, precisely the position of the generics industry and a position that the pharmaceutical industry had fought aggressively before it decided to make a deal with the president.

I worried about this sort of thing at the time, in the last post in which I had the nerve to bring up this issue. (In fact, if you go back and read some of the dissenting comments to that post, the twelve-year exclusivity provision was listed as one of the main reasons the bill was a good idea for the industry). Even I didn't think my last paragraph would start coming true quite this quickly, though. (I'll note in passing that my worries about the "doc fix" were justified, too). And yes, it's true that the President's budget proposal is a political football, put onto this earth to be kicked around by all parties, and that nothing in it will necessarily turn into reality. But still - isn't that a rather short time to be about-facing on this provision? Less than a year?

There's an alternate explanation: that the twelve-year provision was never really in there at all. We just thought it was! No, that wasn't marketing exclusivity at all, but data exclusivity. Or not - was it a mix of the two? What sort of mix? All sorts of people are writing to the FDA these days, telling them what they think the law actually means. Not that the agency is legally bound to listen to a word of it.

Even without any backtracking on exclusivity, the article maintains that health care reform was a loser for the drug industry. The author goes on on to detail the various other costs of the bill as it was passed, and then gets to the biggest structural problem:

While the healthy part of the pharmaceutical market will be pounded, the government-run segment of the market, Medicaid, will be expanded by 16 million patients. Medicaid has the worst pricing structure and the worst track record in paying for innovations of any sector in the United States market. Like government health-care systems around the world, Medicaid must be dragged to pay for medical advances. Unlike employers and seniors in Part D, Medicaid patients cannot vote with their feet if their health plan does not provide the new medicines they want. The incentives in Medicaid all run against paying for pharmaceutical innovations.

So, Obamacare significantly expands the worst sectors of the pharmaceutical market while degrading the best.

Well, fine, you may say, this are quotes from an opinion piece at National Review, and what else would you expect but that they're opposed to the bill over there? But these issues would be worth thinking about even if they were squawked out by flocks of crows. I really do worry that the drug industry made a serious mistake by agreeing to the health care reform bill - not only agreeing to it, mind you, but committing large amounts of money to beating the drum for it and seeing that it got passed. And that means that PhRMA made a serious mistake by putting Billy Tauzin in charge of that effort. Perhaps a backslapping deal-maker wasn't what was needed?

Okay, that gets politics out of my system for a bit. The whole health care reform bill is going to end up in the Supreme Court anyway, on commerce-clause grounds, so arguing about specific language may turn out to be a waste of time. But while I'm in the mood, though, I'll close with (what else?) a quote from Barry Goldwater. A government that's big enough to give you everything you want, he used to say, is big enough to take it all away. . .

Comments (63) + TrackBacks (0) | Category: Current Events | Regulatory Affairs


COMMENTS

1. SP on February 17, 2011 9:15 AM writes...

Although your point is mainly about the PhRMA deal, if you're going to bring up your old misguided arguments I'll rebut them again- I can't just let incorrect statements like "I was right about the doc fix" go by without a correction. Someone is WRONG on the internet!
voices.washingtonpost.com/ezra-klein/2010/04/one_more_time_with_the_medicar.html

"If we'd never passed the Affordable Care Act, we'd have still needed to pass the doc fix, just like we'd still have to pay for Medicaid and fund the continuing operations of the Department of Education. The government has its commitments, which are part of the baseline, and then there are new policies, which change the baseline. The doc fix is a baseline issue."
"What some Republicans are trying to do is add the doc fix into the Affordable Care Act. That is to say, they are trying to add the repeal of a Republican policy passed in 1997 into the cost of a Democratic bill being passed in 2010. But that's a bit like adding the cost of the Iraq War onto the bill, or maybe the Bush tax cuts. It's true that those were misguided, costly policies. But they're not part of the Affordable Care Act."

Permalink to Comment

2. Lester Freamon on February 17, 2011 9:25 AM writes...

I really don't understand the quote in italics. Is the claim that people on medicaid won't get "innovative" medicines covered? Is there any example of medicaid patients routinely getting denied a drug that was seriously proven to be a major medical advance? Gleevec is pretty well covered on medicaid; while I'm sure some of the $100k for 2 months life extension cancer drugs aren't. Which is how it should be, IMHO.

Permalink to Comment

3. juniorprof on February 17, 2011 9:35 AM writes...

A good portion of the posts here are related to the woes of pharma and biotech, in particular the massive job losses over the past years. These losses were well on their way under the old health-care model (prior to HCR). An offer of biotech exclusivity for 12 years is a very recent development. Whether or not it is rescinded, presumably bad for the industry means even more job losses due to lost revenue. Despite HCR and the fluidity of its regulation, it seems to me that pharma and biotech continues to operate under the same business model. Governments have their obligations to their people and they will have to pursue them (even a Republican administration would not be able to ignore the looming medicaid/medicare disaster). Pharma and biotech, it seems to me, should eventually have to realize that the business model is broken and that they have to develop a new one to face political and fiscal realities.

Permalink to Comment

4. Anon on February 17, 2011 9:55 AM writes...

The US needs to stop subzidizing drug development for the rest of the world. Hike up prices in Europe and other deveoped countries. If they cannot/will not pay, no drug for you.

Permalink to Comment

5. Hap on February 17, 2011 9:56 AM writes...

The Goldwater quote is nice, but the Republican Party doesn't seem to realize that companies that are big enough to give you what you want are also big enough to take it away. Relevant examples would be (in OH) Cleveland Clinic's refusal to hire smokers, and Scotts's firing of them. If you give business control over health care, you'll get that and more, something that gov't health care, with its monopoly power, has not done.

Permalink to Comment

6. Kay on February 17, 2011 9:59 AM writes...

I realize this post is focused on how the health care bill might affect the pharma industry. But I'd like to put in a comment about how it might affect the pharma worker, especially in a time of layoffs. I was laid off from my pharma job and a week later was diagnosed with cancer. (This sounds like an exageration but it really happened. It was a very, very bad week.) I was lucky enough to have some health coverage continuation from my company, but I ended up having to go on COBRA for 10 months while I had cancer treatments, and I ran up thousands in credit card bills doing it. (COBRA was $760 per month and I was laid off two weeks before the Cobra discount kicked in so I didn't qualify for it.) If I'd been working for a biotech that went under, I woudn't have even had COBRA, since there is no COBRA if the company goes out of business. Since we work in a field where layoffs are increasingly common, more of us are going to be in situations when we lose our health insurance. I'm not commenting on whether the health care bill is the best solution to this problem, just that it's an issue that may affect more of us personally than it did in previous years when pharma jobs were more stable.

Permalink to Comment

7. David P on February 17, 2011 10:09 AM writes...

Strangely, basing the health insurance system primarily by employer does not work out so well when increasing numbers are unemployed.

Permalink to Comment

8. Anonymous on February 17, 2011 10:29 AM writes...

Roads, bridges, national defense, strategic assets, a stable currency. That's all the federal government should be involved in. All the other crap has bankrupted us.

Permalink to Comment

9. Nate on February 17, 2011 10:42 AM writes...

Strangely, basing the health insurance system primarily by employer does not work out so well when increasing numbers are unemployed.

It doesn't work very well for individuals, but it's arguably even worse for our economy. It discourages economic mobility, which is essential for a dynamic, capitalist system, and especially for promoting entrepreneurship. People are terrified of losing their employer-sponsored healthcare or independently dealing with insurance companies, and thus reluctant to change jobs or careers, or to start their own businesses. How are we supposed to stay competitive with this mess? (No, allowing insurance companies to sell across state lines will not fix the problem, nor will tort reform.)

Permalink to Comment

10. Anon on February 17, 2011 11:03 AM writes...

Anon #8: National defence has been a huge contributor to the deficit as well (unpaid for wars anyone?). The lack of regulation lead to a huge bill for taxpayers from the latest recession. Please stop mistaking your a@@ for your head.

Permalink to Comment

11. ano on February 17, 2011 11:06 AM writes...

I would fully support a government sponsored "catastrophic insurance" plan. Bare basics, high deductible. This would, I thnk help with costs and increase mobility.

Permalink to Comment

12. Derek Lowe on February 17, 2011 11:08 AM writes...

SP, my problem with the Doc Fix was that the health care bill pretended that it didn't exist - in fact, pretended that it wouldn't be done at all. This was done to make the Congressional Budget Office scoring come out the right way. A great number of other things were done in the same spirit: to hocus the numbers.

It's worth remembering that the Medicare-reimbursement provisions were in the earlier version of the legislation, but were then specifically removed - again, as I contend, to massage the numbers and to try to buy the support of physicians. All the Ezra Klein sorts of arguments about how these things aren't related, not at all, seem to me to ignore the fact that they once were - and were then decided not to be, when it became politically necessary.

Permalink to Comment

13. Anonymous on February 17, 2011 11:09 AM writes...

The health care system is broken. The use of emergency rooms for standard medical care simply means that the insured need to subsidize the unreimbursed costs, and at a higher cost than if the care were provided in a regular setting. I has been clear to me for several years I am working for the medical insurance, not primarily for the salary.

Permalink to Comment

14. Anonymous on February 17, 2011 11:11 AM writes...

Kay's post is really gut-wrenching. It is increasingly confusing with all the details who is actually benefitting with these policies. It seems like no one is coming out on the top. I hope the proposed system takes care of people like Kay. I sincerely hope that this activist Supreme court does not interfere with legislative process. We saw how they behaved --- Gore versus Bush.

Permalink to Comment

15. anchor on February 17, 2011 11:26 AM writes...

Kay's post was indeed was very sobering! As the French saying goes ...when they talk of much changes, nothing changes and much remains the same. I predict that when it comes to health care plans, nothing is going to change when the smoke clears in 2014. Our political parties have taken turn to blame each other for this mess and neither party wants to anything meaningful. Meanwhile the insurance companies will have a field day!

Permalink to Comment

16. NoDrugsNoJobs on February 17, 2011 11:54 AM writes...

The idea that by covering folks with health insurance they will no longer to emergency rooms has been absolutely debunked in Massachussetts. It is so funny to hear all this discussion about the National plan will do and won't do when there is a plan in Ma very much like the national plan just passed. Tellingly, the people of Mass elected Scott Brown, a republican senator to take Kennedy's seat. first, you need to appreciate that Mass is a very liberal state. Secondly, you need to understand that Scott Brown ran specifically on the platform that he would vote against the national healthcare. All you need to do is look at Mass healthcare today where the premiums are among the very most expensive in the nation and are fast rising, where the emergency rooms are still being overused for all kinds of care and you will get just an inkling of what this thing will look like nationally. Seriously folks, there is no free lunch. Anything that takes spending decisions from individuals allocating their own resources and isolates those people from those costs will be a failure. When I have to pay for things I think about them differently then when I don't. we should all have health savings accounts and basic catastrophic insurance for the rest. Then each person decides how to spend their healthcare bucks. Do I want to go to the emergency room because they give me vicodin when I tell them about my back "hurts" and then pay the $750 bucks out of my own account or do I stay at home? People use services much more wisely when it comes from their own budget - basic fact of human nature. In Russia, bread was free but none of the stores had bread. Healthcare will be that way too - either it will be free and we won't have any or it will be very available and our country will be bankrupt - your choice.

Permalink to Comment

17. passionlessDrone on February 17, 2011 12:04 PM writes...

Hello friends -

I think the ideas on how to proceed best in this discussion part ways very early on; is quality health care a right, or a priviledge? You don't often see it articulated like that, and very infrequently will you get a Republican to out and say, 'If you can't pay for medical care, tough cookies', but until we agree that this is the underlying question, everything else is window dressing.

An insurance company has one primary goal, making money and other secondary goals; providing health care.

The story above is heartbreaking and terrible, and we all know that it happens every day, and worse. But the reality is that there is no fucking way a privately run company, a company whose job it is to make money first and foremost, would ever willingingly sign him up for coverage once his cancer diagnosis was made.

The people on this blog are especially well versed in the complexities, and therefore costs, of treating something like cancer. We've seen articles here about Avastin, something that may or may not help a small percentage of people with some forms of breast cancer; at a cost of 10K / month. How do you craft a policy and premium that makes sense for someone, if you know in advance they are going to be on Avastin, or a similarly priced drug for an unknown number of months?

Health insurance costs aren't like car insurance, while someone with a DUI might incur more costs in the future, there is absolutely no ambiguity with someone who has a diagnosis of cancer. There just is no way to structure a premium payment that is meaningful; it makes no financial sense at all to knowingly give insurance to someone you know has cancer. This isn't a moral question, its basic math.

A for profit model is inherently incompatible with quality health care, especially with how good we have become at making people less sick if we throw tons of resources at the problem. If we find an answer to the moral question, which is difficult, the mathematics become much more straight forward. No one has the guts to do this, however, though I'd place extra blame at the feet of conservatives in this regard. There are problems with socialized models of medicine we could learn from, but at least they've taken the first step, the courage to state on which side of the humanity they stand; as long as any kind of shared system is demonized as one step from Stalinesque gulags we shouldn't wonder why there hasn't been any progress. We've been too dumb to try.

- pD

Permalink to Comment

18. wcw on February 17, 2011 12:15 PM writes...

Ah, Barry Goldwater -- a man who looked at poor people eating dog food, and liked it. Good for him.

On topic, I do not think the Supreme Court is going to grant cert to a commerce-clause challenge, and if it does, it's going to be a carefully chosen case. The partisans on the right own commerce clause expansionism as much or more today than the partisans on the left owned it forty years ago.

Permalink to Comment

19. NoDrugsNoJobs on February 17, 2011 12:26 PM writes...

So passionless Drone, if the profit motive of health insurers is the problem, you should be happy to know that over 40% of health insurers are already non-profit. Over 60% of community hospitals are non-profit. If a person wants a non-profit insurer or hospital its easy they can get one. Most universities are non-profit, I guess that's why Harvard and Princeton's tuitions are so low (whoops!) I guess by your logic, the post office should be kicking fed ex's asses but for some reason the post office service sucks and they lose money and fed ex makes money and is way better. Facts are stubborn things.....

Permalink to Comment

20. Blue on February 17, 2011 12:30 PM writes...

@ 16 As someone who spent 5 years working my way through undergrad as a paramedic I can tell you your statements make no sense. 95% of 911 calls are from people not suffering from an emergency and who have no means to pay for any medical treatment. That means insurance or cash. The fact that they will run up a ~700$ bill for a taxi ride to the ER followed by another ~1000 or so means nothing to them. They have no credit rating to destroy nor would they care if they did. The fact is poverty is very rampant in all parts of the country whether educated researches see it or not. We already provide free health care to anyone who dials 911 or shows up at an ER. The fact is that this economic model is ridiculous. I don't claim to have all or even any of the answers, but when you are required by a medical director to transport everyone who calls 911 to the er (out of fear of lawsuits) and the er is required by law to treat anyone who comes through the door, it seems we might as well end this stupid charade and just provide health care for everyone. If you think someone who cannot feed themselves will hesitate running up a bill at the er you have not spent any time around people who live in poverty.

Permalink to Comment

21. pete on February 17, 2011 12:36 PM writes...

re: the misperception that the Obama proposal slashes marketing exclusivity from 12 years to 7 years, here's more good commentary on the subject:

http://holmansbiotechipblog.blogspot.com/2011/02/market-exclusivity-data-exclusivity-and.html

Permalink to Comment

22. anon on February 17, 2011 12:43 PM writes...

19.) We're looking for volunteers to away potential non-payers from emergency rooms in my town. Would you like the Friday 5pm or the Saturday 10am slot?

Permalink to Comment

23. DCRogers on February 17, 2011 12:44 PM writes...

As someone who has been holding onto health insurance through the skin of my teeth (first COBRA, then Cal-COBRA, then HIPAA high-deductable continuation coverage), I'll settle for any solution that guarantees me *some* coverage.

As a sign of the insanity, I actually got an offer of marriage -- kindly given to get me access to someone else's health plan. (I declined.)

Obamacare is like Churchill's democracy -- the worst option; except for any of the others on the table. Which, as of now, is none.

Permalink to Comment

24. wwjd on February 17, 2011 12:48 PM writes...

@ 20, proponents of universal coverage said emergency room visits would decline if we provided universal coverage to all citizens of Massachusetts. Well, Mass did that and the results are in: emergency room visits actually increased. They also said heathcare premiums would not go up as fast; Results: faster increases in premiums. Mass hasn't seen the savings promised yet.

Permalink to Comment

25. NoDrugsNoJobs on February 17, 2011 1:05 PM writes...

wwjd - that's what I pointed out but it seems folks prefer to believe what they want to believe! They think that if some knucklehead without insurance shows up at the emergency room everytime he bangs his head, that when he gets insurance that he suddenly will not do that! But the thing is, if you have indsurance, its still free to go to the emergency room! Why would their behavior cahnge you might ask? Well, it doesn't - thats the actual result of what happens, their behavior in Mass did not change despite the fact that we have "free healthcare" for poor folks.

Since many folks here like to speak by way of anecdotes and so on, let me tell you about a cousin. She is part of a family that doesn't work and their entire family is on state medicaid. She is 17 and has one kid and apparently thought she might be pregnant (again). Where did she go? To the emergency room to get a pregnancy test! But she has insurance, she can see a doctor but you see, dumb people do not get smarter when you give them stuff, they actually get dumber! Another anecdote: When I was in grad school (oh so many years ago), I did not have health insurance. To tell you the truth, I was not interested in health insurance. If you told me that I had to either get health insurance or pay into some kind of coverage, I would have been really pissed off. You say, "well if something would have happened to you, it would have become my problem then" - not really because first, I have paid my debts throughout my lifetime including many, many thousnads of dollars for education. Secondly, even if I did not pay the bills, how would it have been any different if I had "free" insurance? The other folks would still be paying my freight through my insurance.

I guess I forgot the benefits, the national healthcare bill will actually save the federal budget, kind of like medicaire and medicaid do I guess. Once a sucker always a sucker I suppose

Permalink to Comment

26. SP on February 17, 2011 1:26 PM writes...

I don't know of any insurance that makes it free to go to the ER- most have a copay of $50 to $500 unless you're admitted.
Derek @12- The initial bill tried to do the responsible thing and pass a permanent fix to the SGR. Really it should be a standalone bill but things are often bundled to expedite passage- as I excerpted, the doc fix will continue to happen every year whether or not ACA passed and whether or not SCOTUS overturns it. So as a result of the response by you and your party, we move ever further from anyone doing any responsible legislating out of fear that the other side will use it as an attack. We'll see how sustainable that strategy is.

Permalink to Comment

27. passionlessDrone on February 17, 2011 1:27 PM writes...

Hi NoDrugsNoJobs -

If a person wants a non-profit insurer or hospital its easy they can get one.

Unfortunately, the facts you refer to as "stubborn" tell us that being a non profit do not make it possible that you can operate in the absence of dollars. You can, in fact, still go broke while being a non profit. Did you know this?

Do you suppose I could open a 'non profit' insurance company whose only customers were people with cancer that had no insurance? What do you think my premiums would look like in this case? Do you think I could take in enough with these premiums to pay for hospital stays, radiation, oncologists, and Avastin? Seriously.

If your worldview is correct, maybe you could explain why Kay was so worried about then, seeing how easy it should have been for him to get insurance without COBRA? What's the big deal? For that matter, why doesn't everyone who has cancer and is uninsured just run out to these great not for profit insurers and not for profit hospitals for care? The best part is that it won't affect how much those same companies charge the rest of us, because, after all, they're non profit! What a relief!

I guess by your logic, the post office should be kicking fed ex's asses but for some reason the post office service sucks and they lose money and fed ex makes money and is way better.

There is no way, no way Federal Express could do the job that the post office does. Do you really think that Fed Ex could send a driver to every mailbox in the country, five days a week? Many times there isn't even anything to pick up, but the post office comes by just in case. The post office wasn't designed as a business, it was designed to facilitate communication.

If I want to mail my phone bill on Friday, instead of Monday, will Federal Express come to my house every day to pick up my mail for me, and deliver it for .40 when I do finally decide to mail it?

This blindingly obvious reality is consistently lost on the conservatives bent on painting every process as something that can be monetized in the quest for an extra 3%.

Facts are stubborn things

Indeed.

- pD

Permalink to Comment

28. NoDrugsNoJobs on February 17, 2011 1:33 PM writes...

I thought the problem with the doc fix is that the healthcare bill was sold as somehow helping the budget or at least being budget neutral and in order to do that it had to assume that medicaire docs would no longer get the yearly increases when everybody knew that was a sham.

Permalink to Comment

29. ex-Pfizerite on February 17, 2011 2:49 PM writes...

What everyone forgets is that there is still no way to get a biosimilar approved other that a 505b or two phase 3 clinical trials

Permalink to Comment

30. Andrew Ryan on February 17, 2011 3:11 PM writes...

"I thought the problem with the doc fix is that the healthcare bill was sold as somehow helping the budget or at least being budget neutral and in order to do that it had to assume that medicaire docs would no longer get the yearly increases when everybody knew that was a sham."

You are correct NoDrugsNoJobs. After the election of Scott Brown the Republicans had sufficient vote to filibuster Obamacare. As a consequence, the bill had to be passed via Reconciliation, which is used primary to deal with budgetary and deficit issues. Therefore, it enacted a cut in Medicare that would almost be immediately reversed by a separate bill (the "doc fix") to create the fiction it was a deficit reduction bill that could be passed by simple majority and avoid filibuster.

As to healthcare cost containment, my feeling is that physician salaries are the proverbial elephant in the room. Average physician salaries in the US are 5.5 times higher than in average OECD countries and comprised 22% of healthcare spending in 1999.

http://gregmankiw.blogspot.com/2009/06/physicians-incomes-and-healthcare-costs.html

Bringing physician salaries in line with, say, the UK (1.4X OECD average) would save 16% in healthcare costs in one foul swoop. Not a bad start.

My gut feeling is that the impact of physician salaries is significantly larger in 2011, but I'm still tracking down data.

Permalink to Comment

31. NoDrugsNoJobs on February 17, 2011 3:25 PM writes...

PD - Geez, I thought the post office was the only one that delivered letters because they are the only organization that is congressionally authorized to deliver letters but you seem to be telling me that they are the only ones that can get the job done. I stand corrected, your facts have trumped mine once again....please update the wikipedia, they seem to have it all wrong.

Permalink to Comment

32. SP on February 17, 2011 3:26 PM writes...

@30- Your narrative of what happened with reconciliation and the doc fix has almost no alignment with reality. Where are you getting your facts?

Permalink to Comment

33. Hap on February 17, 2011 4:27 PM writes...

Um, I was pretty sure that FedEx, UPS, and DHL could deliver letters, so long as you are willing to pay them. I don't know where this "not congressionally authorized to deliver letters" thing comes from.

Permalink to Comment

34. Anonymous on February 17, 2011 4:29 PM writes...

@30 The link you posted goes on to explain, at least in part, why physician salaries are so high in the US and why, in the opinion of the author, they are largely justified. I would be careful about suggesting a quick fix for any complex problem, and healthcare seems to qualify as a complex problem.

Permalink to Comment

35. GreedyCynicalSelfInterested on February 17, 2011 4:31 PM writes...

As someone who is uninsured and about a year or two from poverty, I have no hesitation about going to the emergency room and then just not paying the hospital. What are they going to do about it? Ruin my credit rating? Gosh, I'll never be able to buy a house! I don't own a house and probably never will. There are no high deductible insurance plans and even if I was offered one, without a high-paying job I could never afford one. If I had a job with benefits, I would not need to buy my own insurance.

Health care is not free, and it's not a right either people. Making it a right will only bring this over-leveraged welfare state closer to collapse...which it deserves.

To those who think that healthcare is a right, who is going to pay for your communitarian utopia?

Permalink to Comment

36. metaphysician on February 17, 2011 5:52 PM writes...

*cough* Just to butt in, the main reason the USPS is running in the red, is because of bad government policy. Specifically, the USPS gets all the downsides of being a government agency, while also suffering most of the downsides of being a private enterprise. This is because the Postal Service is, technically, a private business. . . but one subject to Congress for almost all its major decision making.

And yes, Fedex can deliver a letter to a house. What they can't do is deliver anywhere near the number of letters the USPS handles, at a cost that wouldn't beggar belief. There is a reason private companies handle packages and express mail, not standard or first class.

You want the USPS to stop losing money? Yell at your Congressman to let the USPS close and consolidate unneeded postal facilities.

Permalink to Comment

37. Kent G. Budge on February 17, 2011 5:59 PM writes...

A big part of the problem is that health insurance, for the most part, isn't.

Insurance pools the costs of low-probability, high-consequence disasters in order to reduce the cost of dealing with those disasters. Few of us will ever have our house burn down; however, the consequences if it happens are very expensive to deal with. Few of us can afford to put aside enough money to cover than possibility. So we make much smaller payments we can afford into a large pool that covers those few who are hit by disaster.

Death is not a low-probability event after a certain age. Every one of us is going to die and it's going to be expensive for a large fraction of us. Insurance is the wrong model for paying those expenses. Fortunately, we have a lifetime to save up against that time -- which is the right model.

Likewise, routine medical care is not a low-probability event. We all go to the doctor from time to time for checkups, vaccination, and relatively minor treatment such as antibiotic prescriptions, treatment of minor injuries, and the like. Again, insurance is the wrong model because these expenses are relatively small and occur with some regularity. Medical savings plans are more appropriate for non-catastrophic care, and they have the advantage that they impose an incentive to self-ration.

Preexisting conditions are definitely a bug in the ointment, since large medical costs are no longer low-probability once you have diabetes, cancer, or heart disease. They're yesterday's lottery ticket. You can only insure against such things before they develop. But that seems like the right model for me: You buy a policy somewhat resembling life insurance, but insuring against serious chronic conditions. It would be purchased early in life and would resemble life insurance, and might even be part of your life insurance policy. If you then develop Type I diabetes, for example, the insurance pays a large lump sum to cover some fraction of your likely lifetime expenses from the disease. Which probably goes into your medical savings account.

Insurance for catastrophic illness in the young; savings for routine and end of life care; life insurance that also insures against development of a chronic condition. I think this would be a much better model than medical insurance alone.

One problem is how to get there from here. I think we'd already be doing things differently if tax regulations were friendlier to innovation. It's too late for me to purchase chronic condition insurance, since I'm already diabetic, so there has to be some kind of grandfathering.

Whether chronic condition insurance/catastrophic medical insurance should come from the private sector or public sector is a separate issue. Insurance through government is certain to be redistributional. Some people don't have a problem with that. Others do. Both sides have arguments, and we're not going to settle it here.

Permalink to Comment

38. cliffintokyo on February 17, 2011 8:06 PM writes...

The President gave biopharma 12-year exclusivity for biotech products, in return for some financial relief to help the crisis.
Pharma acted in bad faith, by suddenly jacking up prices, slashing jobs, and creating drug shortages, which all exacerbated the crisis.
[Not to mention serious unethical practices, which are being deal with separately through $BB fines, (with jail-terms on the horizon?)]
The boss is a Politician, what would you expect him to do? Pat you on the back and say 'don't do it again'?
"As you sow, so shall ye reap"

Permalink to Comment

39. Anonymous on February 17, 2011 10:30 PM writes...

Derek,
You have posts under "Things I Won't Work With."

You need to put this post under:
"Things That Won't Work."

Permalink to Comment

40. Managed Care Pharmacy on February 17, 2011 11:36 PM writes...

#16 - I couldn't be more in agreement about HSAs and forcing people to make resource based decisions.
To go along with it I also believe that costs of medical care should, when possible, be required to be disclosed up front. No more hidden $300 new patient fees and the like.

Permalink to Comment

41. Anatoly on February 18, 2011 2:50 AM writes...

Every government is big enough to take it all away.

Permalink to Comment

42. RB Woodweird on February 18, 2011 7:35 AM writes...

16. NoDrugsNoJobs on February 17, 2011 11:54 AM writes...

"Tellingly, the people of Mass elected Scott Brown, a republican senator to take Kennedy's seat. first, you need to appreciate that Mass is a very liberal state. Secondly, you need to understand that Scott Brown ran specifically on the platform that he would vote against the national healthcare."

Ah, the smell of revisionism in the morning... Brown won because Coakley was 1. seen by independent voters as another Beacon Hill crony, 2. ran a lifeless campaign as though the seat were hers by right, and 3. was female.

If healthcare were the driving issue in Massachusetts, Patrick would not have won reelection in 2010 against Baker, the former Harvard Pilgrim (medical insurance plan) CEO.

Permalink to Comment