Drug Affordability

Most older Americans–make that “most Americans who are paying attention”–know that this country doesn’t have a healthcare system. As a former student put it, we have a healthcare industry. And we pay through the nose for it. A superficial google search will turn up mountains of data confirming the fact that healthcare costs in the United States vastly exceed those of other advanced countries, while giving us a “system” that ranks somewhere between 35th and 37th in the world.

I encountered the data that really made me aware of the insanity of market-driven healtcare several years ago, when I served on a committee organized by a medical-school friend. At the time, seventy percent of all healthcare costs were paid by governments at the local, state and federal levels. Not just Medicare and Medicaid, but through various other programs, and especially through the obligations of government-as-employer of teachers, police and fire personnel, etc. etc.

What really made an impression on me was data showing that those payments by government would be sufficient to pay for all medical care in a national system that eliminated health insurers’ marketing costs, claims processing, overhead and profit. 

I’m a big fan of markets in areas where they work. Healthcare isn’t one of those areas. You don’t go “shopping” or comparing prices when you’re having a heart attack.

The Affordable Care Act was a good first step in delivering healthcare to Americans who’d been priced out of the market. It also gave added freedom to those whose medical issues had locked them into their jobs, thanks our insistence on tying coverage to employment. Drug costs, however, remained far higher than in other countries, thanks to the lobbying clout of “big Pharma,” despite the fact that the federal government is the major funder of research and development.

Reducing those costs is among the many under-appreciated accomplishments of the  Biden Administration. As the Washington Post reported, “Monumental changes to prescription drug prices for seniors are coming.”

Thanks to the Inflation Reduction Act, one of President Biden’s signature achievements, prescription drugs are set to become substantially more affordable for seniors. Yet many Americans seem unaware of just how monumental these changes will be.

The article listed “six things to look for.” The first of those included eye-popping savings for both individual Americans and the government.

For the first time in history, Medicare can now negotiate directly with manufacturers. For the initial round of negotiations, the Centers for Medicare and Medicaid Services chose 10 drugs that treat common health conditions, including cardiovascular disease, cancer and rheumatoid arthritis.
Each of these medications costs consumers in the United States three to eight times what people pay in other countries. In 2022, Medicare paid an eye-popping $46.4 billion for them. The impact to consumers is equally staggering. As CMS Administrator Chiquita Brooks-LaSure told me, “Some of these drugs are thousands of dollars per year for people who depend on them to live.”

It will take some time for negotiated prices to take effect. Assuming the federal government prevails in the lawsuits filed by pharmaceutical companies, CMS expects lower prices to be in place in 2026.
But that’s only the beginning. Fifteen more drugs will be selected for 2027 and then 20 per year from 2029 and thereafter. The lower prices are projected to save the federal government $100 billion over the next several years. Crucially, this means that the negotiations won’t just benefit people who are on these specific medications; the savings are passed along, indirectly, to everyone on Medicare.

Other changes, thanks to the Biden Administration, will include a cap of $2000 per year on out-of-pocket Medicare spending, and significantly lower costs for insulin. Other changes include an income-based subsidy for the most vulnerable Medicare enrollees, making all adult vaccines recommended by the Centers for Disease Control and Prevention free for everyone with Medicare Part D, and requiring drug companies to pay a rebate to Medicare if they increase prices faster than inflation. 

There has been very little media attention to these hard-won changes, presumably because skill at the actual business of governing is less sexy than wall-to-wall coverage of threats to desperate immigrants and hush-money payments to porn stars. 

In her “Letters from an American,” Heather Cox Richardson often compares the autocratic and corrupt self-interest of Trump and the MAGA movement to the Biden Administration’s focus on making life better for average Americans.

Reducing the cost of lifesaving prescription drugs– rather than limiting women’s reproductive liberties and forbidding medical providers to assist trans children– is a perfect example of the wildly different priorities of today’s Democratic Party and the Republican MAGA cult.

In November, vote accordingly.


Research & Development

Let’s talk about drug prices.

Years ago, I was persuaded by arguments from friends who worked at Eli Lilly, Indianapolis’ own “big Pharma” company, who explained the considerable expense entailed by the development of new drugs–including losses incurred when, after the expenditure of millions of dollars, efforts to produce a new medication failed–the drug ended up being shelved. If the government imposed caps on what could be charged for the medications that did emerge, there would be little incentive to spend the zillions necessary, and we would all suffer.

That seemed reasonable, because I didn’t understand how the production of these medications actually worked, and what profits were actually incentivizing.

What initially triggered my deeper investigation was the overwhelming amount of advertising by big Pharma. (Take the purple pill!!) Companies were spending enormous amounts to “incentivize” patients to demand prescriptions from their doctors. (I don’t know about other doctors, but mine absolutely hated these ads, which required him to explain to his patients why pill X or elixir Y was inappropriate for them.)

My preliminary research (granted, a few years ago) revealed that big Pharma was spending more on advertising than on research and development.

Then there was the data showing how much those companies spent on lobbying…

Then there were the reports showing that efforts to produce new medications seldom if ever addressed so-called “orphan” maladies–that is, severe illnesses from which relatively few people suffer–since the markets weren’t attractive. They did spend generously, however, to produce slightly different versions of already-successful products.

But the most revelatory information came when I joined academia and kibitzed with colleagues on the medical faculty. Until then, I hadn’t realized how much pharmaceutical research and development is funded by government. Taxpayers pay, and drug companies profit.

A recent report from Inequality.org highlighted an example from the recent COVID pandemic.

Moderna, the world’s hottest new Big Pharma giant, now has four of its top players sitting on the annual Forbes list of America’s 400 richest. In early 2020, Moderna had none.

Moderna’s Forbes 400 billionaire quartet owes its current good fortune completely to the company’s Covid-19 vaccine. And who made that vaccine possible? U.S. taxpayers. Moderna’s Covid vaccine, as Public Citizen research director Zain Rivzi puts it, “would not exist without the massive contribution of the federal government at every step of the way.”

The Biden administration’s chief science officer for the Covid response, David Kessler, calculates that the federal tax dollars handed to Moderna for vaccine development, testing, and initial manufacture total about $10 billion. And that figure doesn’t include the brainpower of the scientists at the U.S. National Institutes of Health who spent four years actively collaborating with Moderna’s researchers.

Moderna has now filed for a patent on the key vaccine breakthrough these scientists helped produce. The company’s patent application makes no mention of the NIH scientists, a snub that could, notes a Wired analysis, have “major ramifications.”

What are those ramifications? Well, evidently, if a patent gives federal scientists the credit they deserve, the government can license the technology for Moderna’s vaccine to developing countries where vaccination rates remain low.

But if Moderna gets its way — gets approval for a crucial patent that denies credit to federal NIH scientists — the company’s billionaires would have “sole control” over the Covid vaccine technology that U.S. scientists and tax dollars did so much to create. That control would enable Moderna to continue placing profits ahead of people. Way ahead of people.

Over the course of this year’s first six months alone, Michael Hiltzik of the Los Angeles Times points out, Moderna “pocketed $4 billion in profits on $5.9 billion in revenue, almost entirely from its Covid vaccine, its only product.”

Meanwhile, according to the Mayo Clinic, the most commonly used forms of insulin cost 10 times more in the United States than in any other developed country. Other medications Americans rely upon to survive are also disproportionately expensive here.

According to the Commonwealth Fund

Drug spending in the United States is at an all-time high and still rising. Studies have repeatedly shown that the U.S. pays far more for the same prescription drugs than other high- and middle-income countries. Patients in the U.S. are more likely to report that they can’t afford their medications; half of all of adults with lower incomes go without care because of cost.

Commonwealth also debunks that argument that once seemed reasonable, opining that it “is an overreaction to say that any efforts to address drug pricing will stifle innovation,” since–among other things–the pharmaceutical industry has the largest profit margins of any sector among publicly traded companies.

And since U.S. taxpayers will continue to bear a substantial portion of R & D costs.


A Doctor’s Prescription

As the primary battles heat up, “Medicare for All” (or in Mayor Pete’s more “do-able” formulation “Medicare for All Who Want It”) has become perhaps the hot-button issue.

The Trump Administration continues to wage war on the Affordable Care Act, a/k/a Obamacare–part of Trump’s determination to erase anything and everything Obama accomplished– and thanks to Mitch McConnell’s success in placing partisans on the federal bench, that attack may succeed.

Anyone who follows the news, or has a Facebook feed, knows what we “consumers” think, and polling confirms that large majorities of Americans would welcome some form of national, universal healthcare. But what about doctors? What do medical professionals who have to work within today’s uneven patchwork of a system have to say?

I asked my cousin, the cardiologist whose insights I periodically share.

I encourage you to click through and read his post in its entirety, but I want to share several observations that I found particularly telling. The first is his reminder that we don’t go “shopping” for healthcare the same way we shop for a new pair of shoes.

Although comparison shopping makes sense when we buy a product like an automobile, such market forces do not apply to health care. Negotiation of prices of various treatments is seldom available, especially not for the complex needs of the desperately ill who consume a large share of resources. Multiple private insurance plans obscure this issue even further.

He then cites a recent study that found a significant part of the variation in medical spending–and more than half of all Medicare spending– to be determined by capacity rather than by medical need.

And speaking of cost…

In contrast to the ACA’s requiring private insurers to spend at least 80-85 percent of their revenue on delivery of health care, more than 98 percent of Medicare’s expenditures are so devoted. Estimates vary, but one-quarter to one-third of our current costs are driven by insurance company overhead, profits, and the administrative costs. Roughly half of these costs would be recovered under single-payer and could instead be devoted to the delivery of meaningful health care.

And then there are drug prices.

Drug prices must be controlled:  Acceptable drug lists vary widely among health plans. Negotiated prices depend strongly upon the buyers’ purchasing volume. Only a single-payer system enables the kind of unified bulk purchasing of drugs and medical devices that would give the buyer adequate power. A model for this structure exists today here in the Department of Veterans Affairs (VA). Due to governmental authority to negotiate drug prices for the VA, it pays roughly half the retail price of drugs.

I italicized that last sentence, because it astonished me. No wonder other countries allow government to negotiate drug prices–and we can all guess why Congress expressly forbids our government to do the same.

But what about doctors’ pay? Shouldn’t doctors’ incomes compensate them for those years of medical training and residencies? Wouldn’t we lose medical personnel under a national system?

A recent analysis found that a single-payer model does not lead to a loss in physician income, allowing for care-givers to receive adequate reimbursement of expenses plus fair profits, while ensuring value for taxpayers. Streamlined billing under single payer would also save physicians vast overhead costs, enhanced by reducing the need for the many employees to fulfill the varied requirements and forms of the private insurance companies. Moreover, physicians might best be compensated with regular salary-type payments rather than the current “fee for service” model, which encourages excess medical tests and procedures that drive up costs without providing better outcomes.

And finally, what about private insurance? Opponents of a single-payer system warn that people who love their current coverage (these are people I’ve yet to encounter, but I’ll assume for the sake of argument that someone, somewhere, actually likes Anthem, et al) would lose it. My cousin seems to be recommending Mayor Pete’s “Medicare for All Who Want It” approach. He also makes a point that Kamala Harris made in a recent interview:

The population of the U.S. would likely require additional tiers of care provided by private insurers, which might add extra services to basic care such as private room selections, lower waiting periods for non-urgent problems, elimination of co-pays, long-term care, dental care, etc.

The bottom line: the doctor has diagnosed America’s current approach to healthcare as deathly ill and probably terminal. You can read his prescription in its entirety at the link.


The Public Good

Americans need to reclaim the concept of the public good, and nowhere is that more important than in health policy.

Law Professor Fran Quigley has a new book coming out that examines the interface–or more accurately, the lack of an interface–between Big Pharma, Congress and the common good. Quartz recently published a review of the book, and began by referring to the infamous “Pharma Bro,” Martin Shkreli, who purchased a life-saving drug that had been on the market for some time, and jacked up the price astronomically–because he could.

Shkreli is not an outlier, according to Indiana University law professor Fran Quigley’s new book Prescription for the People. The pharmaceutical industry jacks up prices on life-saving drugs to extort windfall profits from desperate patients as a matter of course. That’s an immoral way to treat medicine, Quigley argues. The solution? Stop treating medicine as private property—and start treating it as a public good, like education or infrastructure.

It’s one thing to allow private companies and markets to set prices for items like big-screen TVs or cars, Quigley explains via email. In those cases, “purchasers can compare prices and walk away from the transaction if they wish.” But a patient with cancer or a child diagnosed with Type II diabetes can’t just walk away. “That kind of choice is not present when the good in question is life-or-death and there are no options for comparison shopping,” he writes.

 One of the great virtues of Quigley’s book is its explanation of the major role government plays in drug research. Big Pharma has long justified high prices by citing the costs of R & D; as Quigley points out, much of that research is funded with our tax dollars–but drug companies, not taxpayers, enjoy the return on that investment.

Furthermore, drug companies don’t actually funnel the bulk of their profits into research and development. Case in point: Reuters has reported that Pfizer made $45.7 billion in revenue in 2014, of which it spent $14.1 billion on sales and marketing and $8.4 billion on research.

The book details the various ways in which drug companies’ concern for the bottom line takes precedence over concern for the public’s health, and it goes into considerable detail about the perverse public policies that have facilitated those companies’ profitability.

The genesis of those favorable policies? Follow the money.

How did we get to this point? “In the last 40 years, the pharmaceutical industry has deployed billions of dollars of lobbying and political campaign contributions” to change laws to their benefit, Quigley says. One of their most remarkable successes was the 1980 Bayh-Dole Act, which allowed corporations to patent publicly-funded research. This means that pharmaceutical corporations essentially receive monopolies to sell government-created products, “truly one of the most bullet-proof business models in modern history,” Quigley says.

Quigley also takes aim at current patent practices.

The US should even consider ending medicine patents altogether, Quigley argues. “The patent system fails miserably in making medicines available to those who need them,” he says. Studies show that 70% of newly marketed drugs make no therapeutic advances on existing medicines; they are “me-too” drugs that try to carve out a portion of already existing markets for things like cholesterol medication, without bringing any improvements to the table. Furthermore, patents prevent competitors from building on previous research. Expanding grants for patent-free, open-source research would focus medical research on innovation, and make research findings available to everyone immediately, Quigley argues.

Quigley is not the only observer who faults the current patent system; economist Dean Baker goes considerably farther:

Are corporate patent and copyright monopolies a form of government-licensed private taxation? Dean Baker of CEPR thinks so: “Government-granted patent and copyright monopolies are actually much more important in determining future flows of income than debt. In the case of prescription drugs alone, patent and related protections raise the price of drugs by close to $370 billion a year over the free market price, a bit less than 2.0 percent of GDP. This is considerably larger than the current interest burden of the debt, which is approximately 1.6 percent of GDP, net of money refunded from the Federal Reserve Board to the Treasury. These monopolies are effectively like privately collected taxes.”

The book is Prescription for the People.

I know Fran Quigley, I know both his passion and his meticulous attention to fact and evidence. He’s a clear writer and a clear thinker. You should buy the book.


Socializing Risk, Privatizing Profits: Big Pharma Edition

My friend Fran Quigley has an important article in Truthout about the skyrocketing prices of lifesaving drugs. The current outrage over a steep hike in Epipen prices makes it particularly timely.

As Fran notes, We the Taxpayers provide research dollars to support drug development (socializing the risk that any particular line of research will hit a dead-end). Big Pharma spends more on marketing than on R and D, charges what the market will bear and then some for the drugs it does develop–and pockets the profits.

It is hard to overstate the level of dysfunction in the US medicines system. The headline-producing greed of “pharma bro” Martin Shkreli was just the most dramatic example of a pharmaceutical industry whose patent monopolies grant it immunity from market forces while its political clout shields it from government regulation. Taking full advantage of taxpayer-funded research, drug corporations make record profits, even by Fortune 500 standards, and pay their CEOs as much as $180 million a year. Those corporations spend far more on incessant marketing to consumers and physicians than they do on research — part of the reason they have largely failed to develop new medicines that address the most deadly illnesses and diseases.

The United States is alone among western democracies in not negotiating drug prices. Medicare and Medicaid represent huge portions of pharmaceutical company customers, but Congress has consistently defeated measures that would allow government to use its leverage to bargain on prices. As a result, as Fran points out, “One in every five US cancer patients can’t afford to fill their prescriptions, and many seniors on Medicare are forced to cut their pills in half to stretch their supply.”

Congressional reluctance to push back against inflated prices and unwarranted price hikes can be attributed to politicians’ disinclination to kill the goose that lays the golden egg: each year, Big Pharma ranks among the biggest spenders on both lobbying and campaign contributions.

A ballot initiative in California–the Drug Price Relief Act– is taking aim at this status quo.

The initiative, recently certified by the California Secretary of State as Proposition 61, calls for state agencies to be blocked from paying more for a prescription drug than the price paid by the US Department of Veterans Affairs. Unlike the Medicare program, the VA is free to negotiate the price it pays for drugs and as a result, pays as much as 42 percent less than Medicare and usually significantly lower than state Medicaid programs. The primary force behind the ballot measure, the AIDS Healthcare Foundation, says the law could save Californians hundreds of millions of dollars a year in lower government costs and lower individual co-payments. The California Legislative Analyst Office says it cannot provide an accurate estimate of the savings, concluding that it is impossible to predict how pharmaceutical companies would react to this first-ever restriction on state drug spending…A July 2016 poll conducted by the initiative campaign, Californians for Lower Drug Prices, showed over two-thirds of voters supporting the ballot measure.

Predictably, the measure is being opposed by the pharmaceutical industry, which is pouring big bucks into a campaign against it. It will be very interesting to see what happens–both in other states and nationally–if the ballot measure succeeds.

There’s an old saying that pigs get fed, but hogs get slaughtered. California voters will decide which category best fits Big Pharma.

Stay tuned….