Category Archives: Health Economics

It’s fascinating to watch our flawed legislative system “work.” Buy offs, illegitimate martinets demanding their 15 minutes, deals with money hungry corporate entities, bribery at every level, compromises until it’s hard to recognize what’s really been accomplished and complexity that violates the KISS principle. It’s certainly not pretty, efficient or effective.

Despite all that the resulting bill improves the current dysfunctional non-system and should be passed. This conclusion is more a comment on the current pathetic state of health care in America than an unqualified endorsement.

In a “two party” democracy one would have thought the opposition would have something to offer. But in this case the best they could do was maintain that free emergency room care was the answer to our health care problems. Incredible.

The bill allows insurers to rate on age but appears to stop the practice of varying rates according to illness.

‘‘(a) IN GENERAL.—With respect to the premium rate charged by a health insurance issuer for health insurance coverage offered in the individual or group market—
‘‘(1) such rate shall vary only by— ‘‘(A) family structure; ‘‘(B) community rating area; ‘‘(C) the actuarial value of the benefit; ‘‘(D) age, except that such rate shall not
vary by more than 2 to 1; and
‘‘(2) such rate shall not vary by health status- related factors, gender, class of business, claims ex- perience, or any other factor not described in paragraph (1).

The publicity on the bill claims no one can be denied coverage and that rates will not be increased (presumably after issuance) for a pre existing illness. It does sanction a 3:1 increase based on increasing age, hardly a people friendly policy. Considering that the average cost of insurance for a family is in the range of $10,000, such variation in charges are prohibitive. If this is so it’s hardly a benevolent system or one in which the health and well-being of those covered is the primary objective.

See this in LA Times

Companies in the exchanges would have to offer policies to all customers, regardless of their health status. Insurers could not charge older people more than three times what they charge their youngest customers, an unprecedented national restriction on what is known as age-rating.

It’s also unclear what the bill will do to decrease costs to a more reasonable level; to rein in corporate profits; or whether it will provide objective evaluations of the effectiveness of outrageously expensive therapies and improve efficiency.

Until we are more concerned with patients than corporate profits our health care will be costly and, for the amount spent, mediocre.

Medicynical Note: I’m in awe of a health care system that can charge $20 for a flu vaccine and then add $38 to the bill as a fee for the injection–as I was recently billed. We need to put the health care reform ball in play and make changes in its trajectory as we go.

The maybe in the title is because no one knows whether this new $30,000/month drug (Folotyn) works to prolong life.

And Folotyn has not even been shown to prolong lives — only to shrink tumors. The drug was approved by the Food and Drug Administration in late September as a treatment for peripheral T-cell lymphoma, a rare and usually aggressive blood cancer that strikes an estimated 5,600 Americans each year.

and later in the article:

But Dr. Newcomer said insurers would be obligated to pay for Folotyn because there were no alternatives.

Medicynical note: Even if this new drug worked perfectly in 100% of cases can any health care system afford such pricing? Think of it as sophisticated blackmail rather than health care and you get the idea.

Of course this is simply the most egregious example of drug company gouging. Pricing drugs proportional not to costs or benefit but on how desperate the patient is. A more cynical approach is hard to imagine.

This drug is a poster child for patent reform. We’ve argued that patent length (government sanctioned monopolies) should be dependent to some extent on responsible pricing. If a drug is priced ridiculously the patent should be of shorter duration. The more reasonably priced the advance, the longer the patent–a market solution to price gouging.

Nice article at TPM on pharmaceutical manufacturers manipulating the market. After all money is what it’s all about. Health care, pshaw!

Congress is thinking of doing something about it. PhARMA’s memorable response:.

• “Patent settlements between brand-name and generics companies can resolve expensive patent disputes to help foster innovation and improve access to medicines so that patients can live healthier, more productive lives.” Medicynic: Huh? Improve access by charging more?
• “Law and public policy have always favored settlements, including patent settlements. PhRMA continues to believe that legislation that would impose a blanket ban on certain types of patent settlements or otherwise prevent them could decrease the value of patents and reduce incentives for future innovation of new medicines. This is also unnecessary because the Federal Trade Commission (FTC) and others already have the authority to review and evaluate any patent settlement agreement between a brand name company and a generic company. The courts and enforcement agencies like the FTC are in the best position to review these settlements on a case-by-case basis to ensure that they are not harmful to competition. By imposing a general ban or imposing harsh disincentives, pending legislation would effectively remove the decision-making process from this appropriate venue.”

Medicynical note: So call “ethical” (they used to call themselves this) pharmaceutical manufacturers pay off generic companies, some would say bribe, to not market generics that compete with their branded drug. It’s apparently legal but highly disadvantageous to consumers. A free market, no! Guess who pays?

Interesting take on drug prices in Health affairs blog– http://healthaffairs.org/blog/2009/11/24/drug-prices-and-health-reform/ –Donald Light commenting on his article “Global Drug Discovery: Europe Is Ahead” noted:

• “Europe outperformed the United States and also significantly increased its productivity of NMEs (new molecules) per billion invested. Regarding critical new drugs that are first in class, Europe and the United States were about even, but this means that U.S productivity decreased substantially and Europe productivity increased, as shown in Exhibit 4 of the article.”

He also observes:

• “European countries have also signaled more strongly that companies will be rewarded for significantly better drugs but not for marginally better ones, while U.S. purchasers tend to pay high prices for marginally better drugs as well as good ones. Although the Pharmaceutical Research and Manufacturers of America (PhRMA), the industry trade association, champions high prices, they create an industry fat on easy profits and well-documented opulence.”

And:

• “The second, bigger point of my article for Congress, employers, and insurers is that regardless how productive pharmaceutical companies are, studies show that 85-89 percent of new drugs provide little or no advantage over existing drugs when measured by clinical improvements.”
  

Medicynic believes patent reform is one way to deal with the drug cost problem as outlined here and here. We should:

• “link the length of patents to reasonable pricing. As part of the FDA approval process the proposed price of the new medication would be compared with similar medications already on the market and with the same medication in other countries. The same process that the Canadian patent drug review board uses. If priced a significant amount over the comparator, the patent length would be decreased by some period of time to be determined by the review process–there are many ways such a link could be structured. For unique innovative drugs the cost of development could also be factored into the pricing length of patent equation. Price increases during the duration of the patent would be tied to the rate of inflation. If they exceed that rate the patent length would be proportionally shortened.”

Ten issues that can go away with Health Reform:

1. The approximately 47,000,000 uninsured: Virtually all will have access to coverage with incentives for provider efficiency and the most cost efficient interventions.

2. The profit squeeze on employers who provide health insurance to employees: It’s estimated that U.S. car makers have had expenses of over $1500/car related to health care coverage for employees. A national system, delinked from employer based insurance, allows employers to compete on the same basis as those in other industrialized countries.

3. Our disgraceful system of health care for GI’s and their families: Incorporating the VA and military health care systems is into a National Health Insurance program provides more and better options for care. These would be community based and thus provide more convenient access.

4. The administrative duplication and fraudulent behavior of multiple insurance providers, each with their own administrative overhead and fiduciary responsibility to generate profits: It’s estimated that we spend 30% of our expenditures for health on administration ($1059/capita in U.S. vs $307/capita in Canada). That could easily be halved or more with a national health program.

5. The conflict of interest between insurers, providers and patients.

6. The crisis in emergency rooms: With insurance people will have a place, other than ER’s, to go with non-emergent medical issues Our republican friends cite ER access as health insurance for all but guess who ultimately pays. ER care is the most inefficient expensive care imaginable. Is this the republican way?

7. The dance of the veils billing system: There is no set price for services. Those with leverage, i.e. large insurers, are given large discounts while the individual pays the full amount. If everyone has insurance there will be a consistent negotiated price.

8. Big PHARMA’s free ride: We pay more for medications than any other industrialized country. PHARMA’s mantra that they need profits to encourage creativity is bogus when one considers they spend more on promotion and advertising than research. In a national insurance scheme drug price negotiation will be the rule–as it is in the rest of the industrialized world. (see more below)

9. Bankruptcy due to enormous medical bills

10. Our mediocre health care outcomes: We spend more per capita than anyone, yet our outcomes (longevity, infant mortality etc) are in the middle of the pack. We do better with diagnosed disease but not significantly better than other industrialized countries paying half of what we do. With universal access we can expect this to change.

Medicynical Note: None of this will be automatic and actually having an efficient functioning system of care will require much due diligence and negotiation.

What won’t change is physician unhappiness with reimbursements and the continuing issues with intellectual property rights. No where in the world are physicians as well paid as here. We’ve made the profession entrepreneurial and money driven and in the current non-system reward procedures rather than primary care. It can be anticipated that a national health insurance scheme will want to flatten the disparities and redistribute, somewhat, the fees. One would hope this would guarantee all physicians reasonable reimbursement for their time and expenses. However, meeting the expectations of the profession will be almost impossible–as it is now.

We do need some type of protection for innovators in our system. We should not however delude ourselves that this is a “free market”. Patent protection creates monopoly and in health care that has resulted in a life threatening market distortion that we can no longer afford. We need to somehow require patent holders to price their products responsibly and to be efficient in their product development and marketing. Once again meeting the expectations of the industry and their stockholders will be almost impossible–as it is now.

But in both cases the status quo is not working.

Marcia Angell former editor of the NEJM (New England Journal of Medicine) and thoughtful author on the health care mess has concerns about the house bill and several suggestions.

Her concerns are that the bill will do little to control excess spending and while “budget neutral” will:

• “throw more money into a dysfunctional and unsustainable system, with only a few improvements at the edges, and it augments the central role of the investor-owned insurance industry. The danger is that as costs continue to rise and coverage becomes less comprehensive, people will conclude that we’ve tried health reform and it didn’t work. But the real problem will be that we didn’t really try it. I would rather see us do nothing now, and have a better chance of trying again later and then doing it right.”

She suggests:

• “Drop the Medicare eligibility age from 65 to 55. This should be an expansion of traditional Medicare, not a new program. Gradually, over several years, drop the age decade by decade, until everyone is covered by Medicare.”
  
• “Increase Medicare fees for primary care doctors and reduce them for procedure-oriented specialists.”
  
• “Medicare should monitor doctors’ practice patterns for evidence of excess, and gradually reduce fees of doctors who habitually order significantly more tests and procedures than the average for the specialty.”
  
• “Provide generous subsidies to medical students entering primary care, with higher subsidies for those who practice in underserved areas of the country for at least two years.”
  
• “Repeal the provision of the Medicare drug benefit that prohibits Medicare from negotiating with drug companies for lower prices.”
  

Medicynical Note: Read the article for more detail.

To these suggestions Medicynic would add that we should also reform our patent system to reward responsible pricing of new advances and penalize companies that gouge.