Abject Ignorance of things Economic is Destroying our Health Care System

Posted by PITHOCRATES - January 18th, 2014

Week in Review

The problem in America these days is the mass ignorance of the people.  Thanks to a public school system that does not educate but programs our children to be good Democrat voters.  Higher education taken over by the leftist radicals of the Sixties that forever changed the curriculum to teach our children to distrust capitalism and love government.  When controlled by Democrats, of course.  And people who are for some reason respected for their economic prowess who are absolutely clueless on things economic (see The Daily Show Nails Why Healthcare Will Never Work As A Free Market by Christina Sterbenz posted 1/18/2014 on Business Insider).

Steven Brill, author of Time’s in-depth healthcare analysis “Bitter Pill,” appeared on The Daily Show this week to discuss his opinion of Obamacare.

Brill’s work exploded his career into a love-hate relationship with Obamacare, now leading to a book. Speaking with Jon Stewart, Brill certainly made his criticisms known but we also feel like he pinpointed exactly why healthcare just can’t work as a free market.

Brill told the story of a cancer patient forced to pay $13,700 out-of-pocket, up-front for transfusion of a drug. And that cost only constituted part of a greater $83,000 payment. Brill claims, however, the drug only cost the pharmaceutical company $300.

Stewart came back at Brill with the typical, conservative argument — creating a free market for healthcare where patients pick-and-choose their coverage to create competition and therefore, better options.

“Everyone says, well it’s a marketplace. That guy [the cancer patient] has no choice in buying that drug. His doctor told him, ‘This will save your life. You don’t take it, you’re gonna die,'” Brill responded.

He further argued free markets must host two aspects — a balance between buyers and sellers and secondly, knowledge — neither of which the current U.S. system offers.

“That cancer drug has a patent. That is a monopoly that the government has given the drug company. There is no other drug. That’s the drug,” Brill said.

Jon Stewart is a comedian.  So one can almost forgive his ignorance.  But you’d think a person writing for a publication with the word ‘business’ in its name would actually understand business.  But the author hasn’t a clue.  It’s not her fault.  It’s because of the politicizing of our educational system.  As her dual degrees in journalism and public affairs would have taught her squat about the classical, Austrian or the Chicago school of economics.  Instead filling her head with Keynesian nonsense.  The one economic school embraced by power-hungry governments everywhere that has a proven track record of failure.  For it was Keynesian policies that gave us the Great Depression, the stagflation of the 1970s, the dot-com bubble and recession of the late 1990s/early 2000s and the Great Recession.  Where massive government spending did not pull the economy out of recession but only made things worse.

Why does this pharmaceutical company have a patent?  Or perhaps a better question would be why do we have this one cancer drug?  Why is it that this one pharmaceutical company developed a cancer drug that works that no other pharmaceutical company or government developed?  Because of that patent.  The only reason they poured hundreds of millions of dollars into research and development and paid massive liability insurance premiums for taking a huge risk to put a drug onto the market that may harm or kill people.  They do this on the CHANCE that they may develop at least one successful drug that will pay all of their past costs for this one drug, the costs for the countless drugs that failed AND a profit for their investors.  Who took a huge risk investing, giving this pharmaceutical company the money to pay all of their employees over the years it took to come up with at least one drug that wasn’t a loser.

Does the author of this article work for free?  No.  Of course not.  She has bills.  As we all do.  Even the people working at pharmaceutical companies.  Who don’t work there for free.  Even if the vast majority of their work produces nothing that their employer can sell their employer still pays them.  Thanks to their investors who give them the money to do so until they can actually sell something.  But their investors do this only because of the CHANCE that this pharmaceutical will develop that miracle drug that everyone wants.  A miracle drug that would never come into being if it weren’t for investors who were willing to risk losing huge amounts of money.  Something only rich investors can afford to do.

Health care worked as a free market before General Motors made it an employee benefit thanks to FDR’s ceiling on wages.  Once people stopped paying for what they received all free market forces left the health care system.  And costs began to rise.  This whole “healthcare just can’t work as a free market” is a product of the dumbing down of our educational system.  One that produces people who don’t know the difference between insurance and health care.  Insurance protects our assets against a catastrophic and UNEXPECTED loss.  Like when Lloyds of London started selling marine insurance at that coffee shop.  Every shipper paid a small premium to protect against a POTENTIAL sinking and loss of cargo.  A POTENTIAL financial loss.  Not every ship sank, though.  In fact, most ships did not.  Which is why that little bit from everyone was able to pay the financial loss of the few that did.  For the ships that didn’t sink the shippers paid every other cost they incurred to ship things across those perilous oceans.

This is how insurance works.  Which isn’t how our current health insurance works.  Where people don’t expect to pay for anything out-of-pocket.  Not the unexpected catastrophic costs.  Or the EXPECTED small costs that everyone can budget for in their personal lives.  Childhood vaccinations, annual checkups, flu shots, childbirth, etc.  Even the unexpected things that have a low cost.  Like the stitches required when a child falls off of a bike.  Things that would cost less than someone’s annual cellular costs.  Or things that people can plan and save for (like a house, a car or a child).  When we pay these things out-of-pocket there are market forces in play.  For a doctor is not going to charge someone they’ve been seeing for years as much as a faceless insurance company.  Even today some doctors will waive some fees to help some of their long-time patients during a time of financial hardship.  Because there is a relationship between doctor and patient.

When we pay out-of-pocket doctors can’t charge as much.  Because they need patients.  If they charge too much their patients may find another good doctor that charges a little less.  Perhaps a younger one trying to establish a practice.  These are market forces.  Just like there are everywhere else in the economy.  Even a cancer patient requiring an expensive wonder drug would contribute to market forces if there was true insurance in our health care system.  Cancer is an unexpected and catastrophic cost.  But not everyone gets cancer.  Everyone would pay a small fee to insure against a financial loss that can result from cancer.  Where that little bit from everyone was able to pay the financial loss of the unfortunate few that receive a cancer diagnosis.  Because only a few from a large pool would incur this financial loss insurers would compete against other insurers for this business.  Just like they do to insure houses.  And ships crossing perilous oceans.

Health care would work better in the free market.  It doesn’t today because government changed that.  Starting with FDR putting a ceiling on wages.  Which forced employers to offer generous benefits to get the best workers to work for them when they couldn’t offer them more pay.  This was the beginning.  Now the health insurance industry is so bastardized that it doesn’t even resemble insurance anymore.  It’s just a massive cost transfer from one group of people to another.  Instead of a pooling of money to insure against financial risk.  For the few unexpected and catastrophic costs we could not afford and budget for to pay out-of-pocket.

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One Pharmaceutical Company spent on Average $12 Billion per new Drug they brought to Market

Posted by PITHOCRATES - July 28th, 2013

Week in Review

People hate pharmaceutical companies.  They think they’re gouging them on the price of their medication.  If the people only knew what it cost to bring a new drug to market (see The Truly Staggering Cost Of Inventing New Drugs by Matthew Herper posted 2/10/2012 on Forbes).

The average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much as $11 billion…

Bernard Munos of the InnoThink Center for Research In Biomedical Innovation…divided each drug company’s R&D budget by the average number of drugs approved…

The range of money spent is stunning. AstraZeneca has spent $12 billion in research money for every new drug approved, as much as the top-selling medicine ever generated in annual sales; Amgen spent just $3.7 billion. At $12 billion per drug, inventing medicines is a pretty unsustainable business. At $3.7 billion, you might just be able to make money (a new medicine can probably keep generating revenue for ten years; invent one a year at that rate and you’ll do well).

…the main expense is failure.

Why include failure in the cost? Right now, fewer than 1 in 10 medicines that start being tested in human clinical trials succeed…

It really does cost billions of dollars to invent new medicines for heart disease, cancer, or diabetes. The reality is that the pharmaceutical business is in the grip of rising failure rates and rising costs. We can all only hope that new technologies and a better understanding of biology will turn things around.

This is why our medicines are so expensive.  And why we have to wait for patents to run out before cheap generics hit the market.  Because whoever will manufacture those cheap generics didn’t have to spend $12 billion to bring the drug to market.

If drug companies can’t recover these massive costs they may do something worse than charge us an arm and a leg for a drug that will save our life.  They may stop bringing drugs that can save our life to market.

People say the profit incentive shouldn’t guide something as important as health care and medicine.  But what is the alternative?  Have the government spend $12 billion to develop a life-saving drug?  Because they’re so smart and motivated by social responsibility?  Instead of profit?  Yeah, they sure can pick winners in the private sector.  Like Solyndra.  If you’re not familiar with the name it’s because Solyndra filed bankruptcy.  Because their solar panels were the wrong solar panels to bet on in the private sector.  But the federal government bet $535 million in loan guarantees because they were so sure that Solyndra was a winner.  And their bankruptcy shows why we don’t want the government spending $12 billion to develop a life-saving drug.  For the federal government is just not good at bringing things to market.

So if we want these life-saving drugs we have to let these drug companies recoup the $12 billion they spent to bring a new drug to market.  For the sad reality is that $12 billion is a bargain compared to what the government would spend.

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Regulators had Many Chances to prevent Meningitis Outbreak caused by Compounder NECC

Posted by PITHOCRATES - October 28th, 2012

Week in Review

Compounding is basically making small batches of custom medicines.  A pharmaceutical company may mass produce a pill that a few patients may be allergic to the hard pill coating or want it in a liquid form.  So the compounder makes these custom medicines.  So these are small labs producing small batches of medicine.  Where the small volume of medicine allow a very high level of attention to detail during the production process.  Including many safeguards and precautions.  The problems at NECC happened when they were no longer making small batches in a small lab.  Their problems started when they started acting like a large pharmaceutical company while still using production procedures of a small lab (see Insight: Red flags ignored for years at firm in meningitis crisis by Toni Clarke and Sharon Begley posted 10/26/2012 on Reuters).

A cracked vial here, a missing label there. The complaints coming into New England Compounding Center, the firm at the heart of the deadly U.S. meningitis outbreak, were piling up…

…More than 300 people who received a tainted steroid sold by NECC that was used to treat back pain have been infected with fungal meningitis and 25 have died.

Interviews with former NECC employees and its customers, and a review of internal documents and newly-released state records, paint a picture of a company whose rapid growth was marred almost since its inception by breaches of regulations governing compounding practices. They also show how regulators failed to punish the company despite repeated violations of the rules…

NECC was formed in 1998 by Cadden and his in-laws, the Conigliaro family, with a $5,000 investment, state records show.

So regulators knew about violations for a decade or so and yet never closed them down.  In fact, after numerous violations NECC asked for some leniency in the regulator’s final action.  Which they got.  Because it’s in the power of a state regulator to do that.  For that’s the power of a state bureaucrat.

It was not long before Cadden sought to expand into other states. He found a receptive audience among pain clinics that enjoyed the cost savings NECC offered – in one case, the company told a client it could save $4,500 a year if it purchased a particular steroid through NECC. It also sold to hospitals who were turning to compounders to fill the gaps caused by worsening shortages of prescription drugs from traditional manufacturers.

Nearly 1,200 drug shortages, from chemotherapies to painkillers, were reported between 2001 and mid-2011, with some of the biggest increases seen in the latter half of that decade, according to the Government Accountability Office. Many of the supply disruptions stemmed from manufacturers’ quality control problems and the waning profitability of certain medicines.

NECC thrived on the demand. By the time the company surrendered its license on October 3, NECC was supplying hundreds of hospitals across the country, according to a list of customers released by the FDA…

NECC has stopped operating and faces an array of federal and state investigations, not to mention the prospect of civil suits for liability. Its owners could face criminal charges.

The pharmaceutical industry is a highly regulated industry.  Which adds regulatory compliance costs.  Lawyers often sue pharmaceutical companies.  Because sometimes pills make it through the FDA approval process and yet still hurt people.  Which also adds further costs.  And despite the high cost of medicine pharmaceutical companies can have pressures on profits.  Causing them to drop certain medicines.  Leading to shortages.  And opening the door to compounders.  Who operated under lower overhead costs.  Allowing them to offer scarce medicines at low prices.

So that’s the background to this unfortunate crisis.  Regulators may have created the environment that encouraged the rapid growth of NECC.  And regulators failed to prevent this unfortunate crisis by going easy on NECC despite a record of violations.  What ultimately shut down NECC?  When their drugs started killing people.  For even if no one took any action against them and allowed them to stay in business no one would buy any of their drugs.  Because they were unsafe.  Which is a powerful incentive NOT to sell drugs that kill people.  Not to mention avoiding civil suits and criminal charges.

NECC probably meant no harm.  Nor did the regulators that let them do harm.  But they operated for about a decade until the market shut them down.  Civil and criminal action may follow.  But that is after the fact.  The government didn’t protect the people until after people started dying.  Something the market would have done anyway without the help of government.  So is more regulation going to help make our medicine safer?  Or will it only further increase the costs of the pharmaceutical companies.  Leading to more medicine shortages?  And perhaps setting the stage for another NECC?

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