Ah, another Christmas Eve story that (not surprisingly) has gotten little attention. Most of the ire directed against the phony health care reform bill focuses on how it further enriches a fat and undeserving health insurance industry. The media has given less attention to another group that has thrown plenty of lobbying dollars at getting its needs met through favorable legislation, namely, Big Pharma. And its investment appears primed to pay off particularly well in this case. I now get one of my prescriptions from Australia. Even with the dollar lower than it was a few years ago and factoring in the cost of international shipping, the price is less than 1/4 of what it would cost here. The drug companies clearly are not selling their products in other advanced economies at a loss. This price disparity illustrates how badly the industry has been able to skew the playing field against the consumer here.
Generics at least apply some pressure on pharmaceutical companies (which despite their howls about their need to invest, spend more on marketing than R&D, and have not doubt they do everything in their power to classify expenses as R&D). But given the egregious rent-seeking of this industry, more aggressive measures are warranted (but have zero chance of happening).
Obama is looking more and more like W’s third term, with the occasional empty gesture to the peasants. He is not merely failing to hold the line, but is actively engaged in retreat, as far as the average citizen is concerned, and devoting his considerable rhetorical skills to trying to sell it as victory. From Reuters (hat tip reader John D):
The hurdles include extensive protections against generic versions of pricey biotech medicines, an incentive for Medicare recipients to use more brand-name drugs, and a possible end to payments from brandname makers to delay the launch of copy-cat medicines…
President Barack Obama has often pointed to generics as a key way to cut costs, but big pharmaceutical makers such as Pfizer and Merck came to lawmakers and the White House with an $80 billion, 10-year pact to cut prices and pay additional taxes to help fund the expansion of health insurance coverage.
Yves here. I would love to be able to obtain the internal documents of major pharmaceutical companies that devised this scheme as to how they came up with this arrangement, and how it compares with their forecasts were there no law change. I wager that these supposed cuts merely commit them to price reductions that these companies expected to face regardless as certain drugs came off patent. I would further bet that this $80 billion reduction is offset in part, if not to a considerable degree, by the hobbling of generics.
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Big Pharma sucks.
Im sorry, that’s all I could come up with on such short notice.
Karl Denninger makes a nice contribution to the issue. http://market-ticker.denninger.net/archives/1792-The-True-Intent-of-Health-Reform.html
That’s an awfully clunky way of getting to a single-payer system, but if that’s the plan, their shrewdness is inscrutable …. to most of us, anyway.
Yves, I agree generally, but on your medicine, you should understand the companies are recovering their research costs (and FDA approval costs), not their production costs.
Jon,
I did not belabor the classification of “research” but it is widely known that drug companies perform studies on existing drugs SOLELY for the purpose of giving their sales force new marketing patter (the salesmen are supposed to get new talking points every year to eighteen months). That no doubt gets counted as an R&D expense. Similarly, I have been told by former Big Pharma corporate staff of how expenses were dumped as much as the accountants would allow on the non-drug businesses so that the drug businesses would show higher margins (that being considered desirable because the stock market assigns higher multiples to drug earnings than, say, to hair color).
And what has this research been for in the last few years? Nearly 90% of the new drug applications are for extensions and reformulations of existing drugs, which are primarily ways to extend the life of existing patents. The National Institutes of Health, NOT big Pharma, funds fundamental research.
So the argument that Big Pharma needs these high prices to recoup its R&D costs (implying we’d all suffer if their margins were crimped) does not stand up to much scrutiny. A significant percent of what they call research does NOT go to finding truly new medications, but to marketing and patent defense.
You beat me to it.
And as an Australian I would like to note that the US tried to get our PBS killed as part of the FTA deal a few years back. I believe the Liberal (which in Oz is the RIGHT-wing party) government of the day told the US negotiators in no uncertain terms that the PBS was absolutely non-negotiable.
(It helped that Australia is the only country in the world where the US runs a significant trade surplus. Mostly IT and armaments.)
For those of you who don’t know how the PBS (Pharmaceutical Benefits Scheme) works, the Australian Government acts as a monopoly purchaser for “scheduled” items. If a prescribed item is on the schedule, the purchaser pays a low fixed price at the pharmacy regardless of the wholesale cost.
There are also arrangements in place so that any individual/family does not pay more than a specified amount for scheduled prescription drugs over the course of a year.
Doctors prescribe scheduled drugs wherever possible, so there is a huge incentive for manufacturers to get their drugs scheduled. The government uses the resulting leverage, and quantity purchasing arrangements, to get lower wholesale prices but the whole scheme still requires subsidisation of the order of $100 per person per year.
All pretty socialist, but there is overwhelming support in Australia for the PBS and I’m afraid horror stories from the US about drug costs are generally used as justifiers for the subsidy.
I was very impressed with the PBS. They also do serious research on which version of a drug to buy. They are pretty attuned to the Big Pharma trick of marketing a slightly reformulated version of an existing drug with very limited improvement over the original at a vastly higher price (often simply a time release so the patient only needs to take it 1x/day rather than 2x). Perhaps most important, I never heard anyone in Oz complain they wanted or needed to buy a drug not included in the scheme.
It’s not common, but it does happen.
(For a variety of reasons, including cost/BENEFIT, but not normally COST.)
ozajh,
A similar system exists in some of EU member states from Eastern Europe. It works out very nicely for the people, and foreign drugs (even American ones) are very affordable or entirely free. For chronic illness or things like cancer, HIV, diabetes, etc, they are entirely free.
I go to Hungary, Romania, and Greece often. Recently I bought from Romania a medication for an American friend. It is the same brand name as in the US, same box, same made in the USA, same everything. Except the price, which is 10 times less than what is in the US. In America a box costs $300, in Romania I paid $30.
Vinny
Yves,
To go further in the R&D meme, one of the “rationale” (read:talking point) that Big Pharma uses to justify high prices in the US is the notion that, thanks to all the R&D made in USA, the US leads to world in innovative therapies and key discoveries in the field.
Inquiring minds will appreciate the healthy skepticism of those who studied this question in a scientific manner:
http://brodyhooked.blogspot.com/2009/08/europe-leads-us-in-drug-research-phrma.html
The next paragraphs discuss how the author (D.W. Light) of the study “Global Drug Discovery: Europe Is Ahead” proceeded to reach his conclusion. Definitely worth a read IMPO.
The reaction of PhRMA could be considered rather amusing, if it wasn’t such a serious topic.
I could go on and on about how tricked and spinned the results of a sizable number of clinical trials have become in US research, but that is a topic too vast for this post.
Even for the legitimate R&D costs, why should these be borne by US consumers alone? That arrangement has to end.
David,
You are missing the point. The drug companies are ripping off the American customers NOT in order to recoup their R&D, but because they can get away with it.
Unlike citizens of other nations, the American people do not have a government to protect them from predators like Merck or Pfyzer or AstraZeneca, or other elements of the American medical organized crime.
The American medical system is indefensible. It is, as I stated here before, a criminal operation. And I work in it, so I know.
Vinny
There are a few problems with that Reuters piece. The 12-year data exclusivity for biotech drugs is definitely a gift to the industry but I have problems with the rest of it.
Closing the doughnut hole is good for Medicare recipients. Period, full stop. Some other way should be found to get people onto generics.
It’s simply ridiculous to contend that ending pay-for-delay is a bad idea. Pay-for-delay costs consumers billions. It delays generics getting to market and forces people (and insurers) to continue paying for branded drugs for years longer than necessary. Don’t be fooled by the patent claims. Here’s how the game works: big pharma gets a composition of matter patent for a promising compound that eventually makes it to market. These patents are almost never challenged or overturned. Then starts the “patent strategy”. Big pharma gets multiple other patents on the same compound for things like formulations, alleged new indications not previously contemplated, changes in production methods and the like. These later patents are the ones that are challenged by the generic companies and these patents are often overturned for many reasons but most commonly “obviousness”. In other words, the later patents should never have been awarded by the patent office because their claims were obvious to anyone “skilled in the art”. These patents only real purpose is to pose a phony new barrier to entry of a generic competitor.
Pay-for-delay is a boon to the generic companies and big pharma alike. The only loser is the consumer. The generic companies get a big payday and don’t have to spend any money on legal battles or silly things like producing product and big pharma gets to keep the gravy train rolling for years longer than otherwise.
Mark,
The piece cites continuation of pay for delay as a bad thing, read the first paragraph I excerpted. I’m not sure what your beef is. The rest of the piece states the impact of the bill as far as generic manufacturers are concerned, but it is far from endorsing pay for delay.
In the first two paragraphs the piece says “Generic drugmakers face several obstacles in the bill backed by Democrats that they worry will dampen a potential increase in use [of generics]…The hurdles include…a possible end to payments from brandname makers to delay the launch of copy-cat medicines.”
There is a “critics charge” paragraph near the end but then goes on to quote an analyst as follows “Eliminating the [pay-for-delay] deals will create a lot more uncertainty for generic drugmakers, said Morningstar analyst Brian Laegeler. “They wont be able to settle. They will either have to win or just not play.”
The overall impression is clearly that ending pay-for-delay is a bad idea because it is bad for the generic companies. I agree that it will negatively impact the generic companies bottom line but the notion that ending pay-for-delay will slow down the introduction of generic drugs is absurd.
Won’t this lead to more people going overseas (e.g. Mexico, Canada) for treatment? Maybe one spin-off could be medical cruises- cruise ships in international waters dispensing medicine and treating patients?
Anyway, one “benefit” is that all these deals make it less likely for the Democrats to be tarred with the socialist brush, which may get them some votes in 2010
Back in August, Obama acknowledged he bought off the drug lobby in a secret deal so as to get a bill passed.
From August in the NYTimes:
http://www.nytimes.com/2009/08/06/health/policy/06insure.html
And remember that the drug companies stopped the Senate from allowing drug imports:
http://www.bloomberg.com/apps/news?pid=20601103&sid=ar4.zkHgCZfQ
Obama is looking more and more like W’s third term, with the occasional empty gesture to the peasants. He is not merely failing to hold the line, but is actively engaged in retreat, as far as the average citizen is concerned, and devoting his considerable rhetorical skills to trying to sell it as victory.
Yes, that is a very good summary of how I feel these days!
The NYT had a good op-ed piece yesterday titled “The Obama Way” that is worth reading. An extract:
———-
Obama baffles observers, I suspect, because he’s an ideologue and a pragmatist all at once. He’s a doctrinaire liberal who’s always willing to cut a deal and grab for half the loaf. He has the policy preferences of a progressive blogger, but the governing style of a seasoned Beltway wheeler-dealer.
This is a puzzling combination, for many, because we expect our politicians’ principles to align more neatly with their approach to governing. Our deal-making Machiavels are supposed to be self-conscious “centrists” (think Ben Nelson or Arlen Specter). Our ideological liberals and conservatives are supposed to be more concerned with being right than with being ruthlessly effective.
It’s also puzzling because Obama promised exactly the opposite approach while running for the presidency. He campaigned as a postpartisan healer who would change the cynical ways of Washington — as a foe of both back-room deals and ideology-as-usual. But he’s governed as a conventional liberal who believes in the existing system, knows how to work it and accepts the limitations it imposes on him.
http://www.nytimes.com/2009/12/26/opinion/26douthat.html
———-
Jojo,
I find the “doctrinaire liberal” tag to be utter BS. Obama is dead center, maybe even center right, with the occasional hollow progressive gesture to try to hang on to the traditional Democratic base. He made a bunch of unmet liberal promises, like raising taxes on high earners. He is a Rubin/Hamilton project Democrat, which is NOT liberal. Clinton, who was forced to the right partly by his own gaffes (particularly the Frankenstein’s monster of a health care plan which Hillary devised, which still came close to passing), depicted that stand as “Eisenhower Republican.”
Yves:
I guess one could look at the Clinton Bill two ways, half full or half empty. Healthcare for the nation in 1993 was ~$800 billion with a projection of ~1.7 trillion in 2000 as compared to the ~$2.6 trillion monster we have now. The growth appears to have slowed down; but, I guess there is a limit to how many times one can double it size. The 2001/2003 tax breaks certainly could have paid for healthcare earlier in the decade and Clinton’s bill would have come at a much cheaper price. I am sure by now Harry and Louise would be questioning their thoughts on it by now if they were not on Medicare.
Ozajh remarks on cost-benefit in Australia would certainly be getting to the heart of the matter and the major issue with US Healthcare today. As recognized in the articles cited by yourself and Ed plus both of your comments, we spend way too much time concentrating on cost rather than a cost benefit analysis of drugs, techniques, equipment, and innovation. There is much more to be saved in looking for the better results rather than the cost and the cost of treating an older population.
Would Clinton’s bill have slowed the cost increases in healthcare and healthcare insurance? I feel confident we eventually would have learned the role of cost/benefit analysis as opposed to just cost. The Urban Institute has a nice analysis here: http://www.urban.org/uploadedpdf/411965_failure_to_enact.pdf on projected costs if healthcare reform is not enacted. It appears to be pretty consistent with what we have experienced in the past.
Most Americans seem to forget the only ones who have true healthcare insurance are those on medicare or those who are covered by the VA or in the military. Everyone else with ESI are gambling in a market place with a shrinking Civilian Labor Force.
Ross Douthat, the author of that piece depicting Obama as a doctrinaire liberal who settles for half a loaf, is one of those “sensible” conservatives the NY Times loves to publish, like David Brooks. (Although they forgot about the “sensible” part when they hired William Kristol.)
If you’re right wing like Douthat, even a “sensible” right winger, then of course a center right politician like Obama looks like a doctrinaire liberal.
Douthat probably looks at Rubin, Summers, Rahm Emanuel, et al., notices that they are to the left of Phil Gramm on a few subjects, and figures that makes them doctrinaire liberals.
Why do you think that?
I recall massive effort across all forms of media to attack every aspect of that effort… think I still have “expert” WP OpEd(s) in a folder somewhere.
I actually read that proposal, beginning to end. I never saw one… not a single MSM piece, which accurately reflected what that plan proposed, and read an awful lot stating wide generalizations and specifics that were utter, flat out lies.
I had reason to be interested on a number of fronts:
* my folks were starting to get “up there” and began having health issues. Getting ahead of those things w/my own research became a necessary endeavor, as prescribed treatments as it turned out were a roll of the dice: attendant physicians often uninformed or just plain really not interested. My mom had early glaucoma w/some macular problems. Kaiser almost blinded her… literally. If we had gone another 6 months w/their treatment, she would have no sight. Long story, I could break down treatment details… summary: she sees better now (just turned 88) then she did in ’95, w/no prospects of going blind.
* My father had ankle swelling in ’96 (he was a health/fitness nut before there was such a genre… skipped rope 450 reps every morning when this happened), they (again Kaiser) diagnosed it as heart attack w/no tests of any kind: blood, ekg… nothing. He had whole bunch of contra-indications that indeed it was not a heart attack, and that indeed he should not be treated w/all the shit they poured into him. Again, pretty much on my own plowing through Stanford Med library found cause matching all his symptoms: rare form of (then, practically unheard of) asian flu. Actually had blood tested positive for it through an independent lab.
Many, many such experiences… some w/my own health. And through my own efforts researching what ever issue was at hand, we all repeatedly ended up w/far better outcomes.
Beyond that, I was doing a lot of programming for HC orgs then, and right in the middle of their logistics and also “on the floor”… saw the good, bad & ugly.
In particular, I mention this because among other things, Hillary’s “plan” included building public/accessible data base of conditions/symptoms/best treatments etc. etc. My biz was computer programming (code monkey), and at that time we were doing a lot of HC “stuff”. In the tech communities, discussions re: how to utilize emerging “internet” in HC was very focused and detailed… led to beginning of HIPAA II RFC process in ’97.
The quantifying of symptoms/illnesses/best treatment was absolutely doable, yet all I read (and heard from a lot of HC pros) was the absurdity of such a notion. Among other reasons, much of this sentiment was to protect (what at the time was just beginning as emerging/rampant process) kickbacks from pharma to prescribe (whatever) for (whatever). Having been engaged in HIPAA II implementation in big way through ’05, I can tell you emphatically, from 1st hand experience, this process did indeed become rampant. And very very often, least optimum treatments displaced best treatments as a result (same thing happened w/a lot of “cash cow” surgeries, BTW).
Among other things, one of fallouts was huge swath of physicians (literally) displacing their own “keeping up” through various journals w/pass-through-bot prescribing what best paying pharma rep stuffed in their pockets.
Much, much more in this vein… right up to all kinds of research for cures displaced by profit-motive medications which made a particular malady “more liveable”. Tons of this stuff.
Anyway, all anecodatal now… but from where I sat at the time and having read “HillaryCare” thoroughly, I personally had a high regard for efficacy of the proposals by & large, along w/nauseating antipathy for just about everything I heard/read… from every quarter, in trying to kill it so as to not cut off amoral profit taking w/good, best available information.
…
In leadup to last election, I had a notion of Kucinich as just a little to loose and wobbly to be taken seriously… too whacky. However, he came through here (Albuquerque) in early primaries and gave a talk on HC… I attended. He made a very articulate case that HC driven by profit motive was immoral, detailing much (including some of what I mentioned above).
Changed my opinion of the guy, in fact this was a notion I had developed through my years working in and dealing with the industry. AFAIC, it is the same mentality driving this (pharma specifically, HC delivery/cost structure in general) that took over WS and created what your blog has been largely devoted to “deconstructing” for some time now.
Seems pretty clear to me that when a critical mass of society becomes driven/motivated by capturing control of $$ to the exclusion work required to deliver thoughtful, purposeful… eg. excellent work products, that we end up w/exactly what we’ve got now in US economy.
just my $00.167 worth (and falling fast!!!)
just one example, in reference to…
Competition of HIPAA II software was beginning to heat up by late ’99… regs were taking substantial shape, internet “stuff” was getting reliable… everything was coming together. Part of developing this stuff was getting test bed environments… eg. hospitals/med centers to run your beta products, provide means for feedback/iterative correction & improvement, bug tracking, etc. Especially critical was user evaluation… getting into the facilities, observing/interacting w/HC attendants to get their interactions w/computers as effecient as possible.
We had such a beta site in one of largest med centers in pacific NW. In early 2000 (eg: as .COM driven DOW was peaking but before crash) I will never forget observing in multiple OR rooms: TV mounted in plain view of OR team running constant DOW ticker, w/all eyes in the room constantly looking up to gauge their earnings for the day.
Haunts me to this day.
Obama signaled his political leanings clearly during his campaign when he expressed admiration for Reagan as ‘transformational in a way that neither Nixon or Clinton were not,’ and again, in his Nobel acceptance speech with the line “For make no mistake: evil does exist in the world.” ‘evil in the world’ signaling solidarity with Bush policies. Chilling.
No, what he said was that he admired Reagan for being a transformational leader for the Republican Party. To most liberals (who were being offered a choice between the new and Clinton-lite) it implied that he would try to be a similar transformational leader for the left.
I think it would have been relatively difficult to predict that Obama would be such a sell-out based on the type of campaign he ran.
A video of Obama on Reagan is worth a hundred thousand words”
I agree that it was more than “relatively difficult to predict that Obama would be such a sell-out based on the type of campaign he ran,” but it in no way implied to me who voted for Obama anything other than a signal to the right –the first clue I had without the ability to interpret it because I ‘hoped’ for the best like so many liberals and tried to keep an open mind in spite of my doubts –it was definitely a cringe moment.
And, by the way, the other thing I noticed at the time and am reminded watching now, is how coolly he spoke about the 60s as if he had been there. He was born August 4, 1961, an 8-year-old at the end of the decade. It was just a moment that came across to me as a little too smooth, but I wouldn’t insist on the reliability of my intuition in that case; he’s entitled to know his history, about the ’60s or about Lincoln. It was his interpretation of Reagan, like he brought us out of the dark, that was troubling.
I agree completely about the “smooth” part. Ever since he denied supporting the public option in the campaign and spewed that “95%” crap about health care reform I’ve been thinking about the kind of person we elected. I’ve met and unfortunately been occasionally swindled by smooth talkers and I’m increasingly of the impression that I’ve once again become the sucker.
I can’t believe that last year I actually voted early for Obama. I even watched his silly speech downtown, which caused me to miss an important episode of the Sympsons, which is inexcusable, of course.
He had me fooled, but never again.
Vinny
The US healthcare system is a disaster. Given a little more time, it might collapse completely and allow something new to emerge in its place.
That’s why Obama is pushing the healthcare bill. To make sure that we are stuck with existing institutions and have no chance to try new things. It’s just bad.
I am more and more impressed with this site. This article is sterling work from Yves Smith. Big Pharma has been one of the problems here for decades, and it shows you how easily the media is manipulated by politician’s talking points that the issue of Big Pharma has been lost in this debate. Also I want to say that I really love that this site has podcasts, and I love listening to the nakedcapitalism podcasts on my ipod. I don’t know why other financial blogs don’t have this function, but I want to beg the hosts of this site to always keep the podcasts as an option on the site.
Ted,
It’s a great site. I do most of my reading here now. I have not tried the podcasts, but I will soon.
Vinny
Those rightwing corporate sellout maniacs like Paul Krugman and Jay Rockefeller and Al Franken and Ted Kennedy’s wife sure are crazy for supporting this bill. What do they know about policy history?
Because history has taught us that anything that is wrong gets fixed right away with excellent policy, that big powerful lobbies can be felled completely by someone who “fights”, that the structure of the Senate and campaign finance are irrelevant and can be overcome if only Obama would….fight.
Keep going, Yves! Truth ’em. Team Obama could singlehandedly and heal all the world’s sick babies if only they would fight a little! It’s so easy. So what if no critics ever offer specifics on how? We know what he should do – fight!
Len,
With all due respect, I don’t see how anyone with an operating brain cell, and I include Krugman, can support the health care bill as it now stands. I am putting up a separate post.
You all seem very educated and i would like to pose a question about big Pharma. I work at Valero and am contemplating leaving the big money I make in the oil industry and working for Merck. If I get hired of course. I am so scared to jump right now from one fire to another. Which in your mind has the best future. I am just looking for an opinion.
Thanks guys and i too love reading these posts I learn alot about what makes people tick here.