Reducing Health Care Costs

David Leonhardt says that reducing health care costs will require the U.S. to make difficult decisions regarding the types of medical procedures insurance should cover:

A Lesson From Europe on Health Care, by David Leonhardt, NY Times: Shortly before he moved to Greece last year, an American named John Econopouly received the unpleasant news that he needed a hernia operation. He had the surgery done in Northern California, and it didn’t go so well.

After spending less than a day in the hospital as an outpatient, Mr. Econopouly went to a friend’s house to sleep off the surgery and found that his wound had reopened... “Basically, I didn’t feel cared for.” For this, he paid more than $2,000 over and above the thousands of dollars that his insurance policy paid.

A few months later, once he had moved to Greece, he found out that he needed a separate operation for another hernia, giving him a chance ... to do his own little comparative study... The Greek hospital was much dirtier than the one in California ... and he was put in a room with a handful of other patients. The stench was brutal. ... But the care itself was another story. It seemed much more thorough than it had been in the United States. He spent the day before the operation undergoing tests, including one that discovered a heart murmur, and the day after the operation in the hospital being observed. Although he didn’t have Greek health insurance, his final bill was only $700.

A few weeks ago, I wrote a column arguing that this country’s increased medical spending over the last half-century has, on the whole, been overwhelmingly worth it. Thanks to new treatments for everything from premature births to heart attacks, human life has continued to lengthen...

In Greece, the government and individuals combine to spend about $2,300 per capita on health care each year, and the average life expectancy is 79 years. Canada, where the hospitals are probably cleaner, spends about $3,300, and people live to about 80. Here in the United States, we spend more than $6,000, yet life expectancy is just below 78.

The answer to this riddle turns out to be fantastically complicated —but also fantastically important. Health care costs are already rising at an unsustainable rate... So if the rest of the world has something to teach us, we should be taking it seriously.

The most obvious difference between their health care systems and ours — that their governments provide universal insurance — certainly plays a big role in the cost differences. Look behind the receptionist at your doctor’s office, and you will very likely see a staff of people filing claims to different insurance companies. The insurance companies, meanwhile, employ a small army charged with figuring out how to avoid covering the unhealthy.

The administrative costs of our patchwork bureaucracy eat up about 25 percent of health spending, which is why would-be reformers have long focused on these costs. But... Even in Europe’s single-payer systems, administrative costs account for about 15 percent of health spending...

So something beside administrative costs is at work here, and it involves a basic cultural difference. Americans seem to be less willing to take no for an answer and more willing to try almost anything, no matter how expensive or how slim the odds, to prolong life. ...

There are enormous benefits to the American refusal to go gently into that good night. It has made us obsessed with medical advances and turned this country into the world’s research laboratory...

But much of it is simply wasteful. ... This, I think, is the main lesson that we could stand to learn from Europe and Canada. We Americans tend to treat any rejection of a health claim as some conspiracy by insurance companies, the government, doctors and the pharmaceutical industry. In other countries, people have arrived at a better understanding that health care necessarily involves economic triage...

Fortunately, there are some causes for optimism. ... Eventually, you could imagine a set of scientific standards to determine which care would be covered by Medicare... The important thing to remember is that we can’t simply avoid these decisions. One way or the other — wisely or capriciously — we will end up restraining health care spending...

Where is most of the money spent? It's not as simple as cutting back spending a little bit for everyone. Here are some statistics from Finkelstein and McKnight (2006). This table shows that medical spending is very skewed: If you order people according to their spending on health care, the top 10% of spenders account for 72% of all spending and the top 1% of spenders account for 30% of all spending. 

Share of health care spenders	Cumulative share of US medical spending
Top 1%	30%
Top 5%	58%
Top 10%	72%
Top 30%	90%
Total population	100%

Source: Berk & Monheit (1992)

So limiting spending means limiting care for people in the tail of the distribution, often people in need of life-saving or life-prolonging care. Here's an example from the conference I attended last week of the kind of decisions we must face:

Eileen Drake, whose duties with PCC Structurals includes the job of human resources director for 7,000 employees in 11 states and China, said medicine can do more than some companies can afford to pay for. She recalled an employee at a plant that was self-insured who came down with an illness that required lifesaving drugs costing $26,000 a month. The employee came to the company for help.

The question was, she said, “Are we going to pay for the drugs or let him die...?”

She didn't say how she answered the question. But her point was that to limit spending, somehow we must decide who lives and who dies. That won't be easy.

Comments

[yartrebo]

"Eileen Drake, whose duties with PCC Structurals includes the job of human resources director for 7,000 employees in 11 states and China, said medicine can do more than some companies can afford to pay for. She recalled an employee at a plant that was self-insured who came down with an illness that required lifesaving drugs costing $26,000 a month. The employee came to the company for help."

The problem is pretty clear in this case - it's the fault of the patent system. The marginal cost of virtually all drugs is low enough that they shouldn't be rationed at all.

[Elvis]

I just had a hernia operation in Japan. Very similar experience to the Greek operation. Hospital not so clean or new. Care was fantastic. 2 days 1 night in the hospital (but it's common to stay a week for this operation)
Cost: about $500 out of my pocket (I believe the national insurance covers 70%)

I would _think_ that American businesses would be crying for national health insurance to get this burden off their shoulders.

[Elvis]

"She recalled an employee at a plant that was self-insured who came down with an illness that required lifesaving drugs costing $26,000 a month. The employee came to the company for help."

And the company emailed a doctor in Canada...

[Don Lloyd]

yartrebo,

The problem is pretty clear in this case - it's the fault of the patent system. The marginal cost of virtually all drugs is low enough that they shouldn't be rationed at all.

No, you can't see the problem until you see what price the insurance companies are charged. In all likelihood, the $26,000 per month price is never paid (except possibly by the government), but it serves only as a base price to be discounted for the insurance companies. It is impossible to believe that even a monopolist with a patent believes that $26,000 a month would be a profit-maximizing price in a free market without the third party insurer payers.

Regards, Don

[ken melvin]

"It is impossible to believe that even a monopolist with a patent believes that $26,000 a month would be a profit-maximizing price in a free market without the third party insurer payers."

Might want to check out Genentech's product line.

[james]

you can't see the problem when it is framed by aa author who uses phraaes like "fantastically complicated" and cites a 1992 study that superficially confirms the obvious - the care for ill people costs more than it does for less ill people and care for iller people costs more than it does for ill people

three is a cost/benefit problem and there are a large number of players who make serious amounts of profit from the current state of affairs

i learned recently that insurers have an antitrust exemption so they can compare experience data

what would happen if insurance health care costs were transparent - not proprietrary information and investigators with less economic dependency on revenue streams could examine who is getting paid to do what and evaluate the cost/benefit

[Donald A. Coffin Donald A. Coffin]

David Leonhardt is an excellent reporter and does a fantastic job covering health care issues. But...

In some senses, a comparison of health care costs (in dollars) across countries isn't all that useful. The comparison will be affected by changes in exchange rates, which ought to be irrelevant, and, more importantly, by overall levels of economic well-being. A more robust comparison would be per capita health care expenditures divided by per capita income (or by per capita GDP), in local currencies.

Surely, for example, part of the reason that per capita expenditures on health care in Greece are lower than in the US is a consequence of lower levels of pre capita income (and, therefore, lower wages/salaries/earnings of people employed in health care). The US spending is about 15% of per capita GDP, and Greek spending is about 12% of per capita GDP--which is not so different as the dollar figures make it appear.

[C'u @ the ICU]

From the ICU (in a big well known NYC hosp). I'll give you the problem -- Too many critically ill geriatrics that have no chance of actually of coming back to 20% of what they were before, but there is no system or family is not willing to do the "right thing".

So do you think that a terminally ill cancer patient (60's F) who also has renal failure (kidneys) goes into cardiac arrest about 12:30pm brought back after 45minutes of resucitation -goes to OR- comes back and placed on nitric oxide vent (very expensive hi-tech stuff) to die at 6:30pm. (about 75K worth of equipment alone -not counting the staff cost).

You see this day in/out - During a peirod of 2 weeks a few month back I intubated 5 patients (3- terminally ill lung cancer/2-AIDS patient ) 4 of them had the do not intubate /resucitate paperwork - but at the last moement the "proxy" back out of following their instructions- all died within a week & all accrued at least 50K worth of care.

If the problem is not the paperwork/ is usually a family memeber that refuses or simply can't bear making the decision and a default decision is made.

But then the cost meter starts running. Invasive procedures are done - which many patients, becuase of immune & age issues become infected, which then need antibiotics -which then the bugs become resistant to and need other newer antibiotics that are more expensive, and on and on. Eventually you have someone that is a gigantic petrie dish of bugs.....

All of this while no hope of ever recuperating and the cost meter running still....

[me]

Drug costs here are exorbitant because we subsidize the rest of the world.

Secondly, all of this discussion fails to discuss the basic difference of the health care models. The US pays nothing until you are really sick, and then spends tons to restore your health.

The rest of the world provides a preventative model.

In the short run there may be higher costs associated with switching in the US, but in the long run it is far cheaper to discover pre-diabetes in a person's 30s and treating with cheap glucophage, rather than waiting until they have diabetes and take a variety of expensive drugs and/or insulin.

As the article points out, 1/4 of US healthcare dollars are paid to insurance companies, who like rebate companies try every trick to get out of paying.

We spend the most and have the least successful heath outcomes.

[me]

Drug costs here are exorbitant because we subsidize the rest of the world.

Secondly, all of this discussion fails to discuss the basic difference of the health care models. The US pays nothing until you are really sick, and then spends tons to restore your health.

The rest of the world provides a preventative model.

In the short run there may be higher costs associated with switching in the US, but in the long run it is far cheaper to discover pre-diabetes in a person's 30s and treating with cheap glucophage, rather than waiting until they have diabetes and take a variety of expensive drugs and/or insulin.

As the article points out, 1/4 of US healthcare dollars are paid to insurance companies, who like rebate companies try every trick to get out of paying.

We spend the most and have the least successful heath outcomes.

Another example is whebn I get a panel of blood work for diabetes the bill form the lab is $400-600. The final cost to the insurance company is usually under $50.

[Isabel]

Cu@theICU, in your experience, what do people say when they are well, or fairly well: I want everything possible done to me, or I don't want to be intubated/ressuscitaded/etc? I'm curious to see if there is any cultural difference at that level.

[Isabel]

I must be in a contrarian mood today. What does this mean exactly?

"Drug costs here are exorbitant because we subsidize the rest of the world."

[evagrius]

Everyone knows that the rest of world mooches off the U.S for everything; medicine, entertainment,hi-tech, weapons, money- everything.
They're just a bunch of lazy louts compared to hard-working Americans!

( Sarcasm-of course- but I'll bet someone will state exactly what I've stated except in a more couched language).

[anne]

"Drug costs here are exorbitant because we subsidize the rest of the world."

Thank you for asking, since the sentence is repeated continually. Because France or Australia negotiate drug prices with companies the prices are less than charged in America, so we are supposedly subsidizing the rest of the world since in the sane rest of the world drug prices are lower than in America. So, force drug prices up in Japan and drug prices will fall in America. Say what?

[save_the_rustbelt]

Having managed some imaging units, my guess is that at least 33% of MRI scans ordered by orthopedic surgeons are for risk management purposes, this is, malpractice lawsuit prevention.

Having worked with lawyers to settle malpractice claims against orthopedic surgeons, I don't blame the surgeons.

We need a more sane malpractice system. The current system is a disservice to both physicians and patients, but a massive economic benefit to a few lawyers.

[calmo]

What 'me' said and this...
Those terminal years and those few who can afford those precious months (maybe years, maybe days) of extended life...so much for those national stats showing our relative and humbling performance.
Well, time to get less humble and institute a core health care metric: ex geriatric costs. Maybe time to get seriously less humble and use the bottom 99% of the population --as per wages, yes? A little adjustment and we can look as good as anybody.
The wealthy (for whom money is no object)[do you have enough money to ignore costs? do you have enough money to present obstacles for others? Buffet and Gates experiencing simultaneous heart attacks get differential care from the world's #1 and #2 heart surgeons. And in the case where #2 surgeon is not available..] irrespective of nationality get the care --often coming to the US for that expertise.

[Isabel]

Like, clients of a Mom&Pop shop subsidize WalMart clients?
After all, the Mom&Pop shop buys "retail", like the US Government/State/Health Provider, whatever, and the French/Australian/etc Government buys "bulk", isn't it? Or?

[Isabel]

"The wealthy... irrespective of nationality get the care --often coming to the US for that expertise."

Yes. But not only the wealthy, and not only to the US. In Portugal (a country not particularly rich, nor particularly known for its healthcare system), the State will cover your treatment abroad if you can prove that it cannot be provided at home (nor replaced by another equivalent technique). I'm not saying that, in that case, it might not help having a cousin well placed in the medical establishment, or that they won't try to ship you to Spain, or France, or Germany instead of accross the Atlantic. But it can be done.

[Bruce Wilder]

In 1962, as a young child, I had an accident in which I suffered a double fracture of the skull. I spent a week in the local community hospital and six weeks recuperating at home and eleven weeks back at school, but restricted from energetic play at recess. I recovered. The worst part that I remember was the doctor removing several weeks of ear wax from the ear that had been bandaged for who knows how long.

I found the bill a few years ago. My parents had Blue Cross/Blue Shield with their employers, and paid 20% of most charges. The hospital stay cost them $120, and outpatient care another $80. Their combined household income at the time probably barely reached 5 figures, if it did, but I seriously doubt that this was a hardship.

Now, obviously, I did not get an MRI, because the technology did not exist. Today, a patient in a similar situation would, and, though costly, it would do absolutely no good. Also, the hospital in 1962 charged about $.05 for an aspirin, and today, they would charge about $20.00.

I am tired of people just blithely saying that we will have to choose who dies and who lives, and that all this great technology is extending life expectancy, without actually proving it.

Some of the most effective medicine is super-cheap. And, some -- particularly in well-organized trauma centers -- is expensive, but effective.

And, a huge chunk is just crap. An enormous amount is spent on people, who are dying in old age, and, I'm sorry, you will have to show me that it is the patient, who actually wants this nonsense. Prove it, don't assume it, because I have been there with my parents, and I did not see it. I mean I saw the doctors and the hospital ready to pounce like vultures, but I did not see my parents volunteering to spend many months in a hospital with tubes running thru every orifice. My mother was pressured into a major lung surgery for lung cancer, which she regretted every supposedly additional day it got her, because she never had the strength to recover from it.

And, let's get serious about the economics of pharmaceuticals. Drug prices are arbitrary, and arbitrarily astronomical. Doctors only know about the newest and most expensive drugs, and most of those drugs are chronic treatments priced at the absolute maximum amount. Can any doctor anywhere competently prescribe aspirin as a blood thinner or niacin to reduce arterial plaque, treatments that cost pennies? They won't get continuing education at a tropical resort to learn how. They will get educated on bechstra, a super-expensive pain killer that is also just a plain killer.

American health care is seriously screwed up. It doesn't work. And, it should not be necessary to blame the victims or to celebrate its non-existent achievements.

[anne]

Donald A. Coffin, please reference your source on portions of GDP spent on health care, when possible, to make comparison easier. Thanks.

[anne]

http://content.healthaffairs.org/cgi/content/abstract/23/3/10

- 2004

U.S. Health Care Spending In An International Context
Uwe E. Reinhardt, Peter S. Hussey and Gerard F. Anderson

Using the most recent data on health spending published by the Organization for Economic Cooperation and Development (OECD), we explore reasons why U.S. health spending towers over that of other countries with much older populations. Prominent among the reasons are higher U.S. per capita gross domestic product (GDP) as well as a highly complex and fragmented payment system that weakens the demand side of the health sector and entails high administrative costs. We examine the economic burden that health spending places on the U.S. economy. We comment on attempts by U.S. policy-makers to increase the prices foreign health systems pay for U.S. prescription drugs.

[Holly W.]

Elvis: I would _think_ that American businesses would be crying for national health insurance to get this burden off their shoulders.

This is something I keep wondering about, too. GM complains that $1,500 of every car purchase goes to employee healthcare costs, but are they pushing for a single-payor healthcare system to relieve them of that responsibility? So far as I can tell, no. Smaller companies just throw their employees to the self-insurance wolves, but don't join together to try to get the burden shifted. Rumour has it that foreign companies are hesitant to open branches in the US because they might be expected to provide health insurance. Surely businesses would be thrilled to see themselves completely exonerated from the choice of either providing health insurance to their employees or looking like grinches when they don't?

STR, I think this is up your alley ... any thoughts?

[Donald A. Coffin Donald A. Coffin]

Easy. I took per capita GDP from the World Bank (www.worldbank.org, then head for the statistics part) data and the data on expenditures from Loinhardt's article as posted by Mark.

[Holly W.]

me: in the long run it is far cheaper to discover pre-diabetes in a person's 30s and treating with cheap glucophage, rather than waiting until they have diabetes and take a variety of expensive drugs and/or insulin.

Cheaper and better still that they should be encouraged to change their lifestyle to get more exercise and improve their diet, don't you think? Type II diabetes is a terrible disease that people should want to make every effort to avoid. It's appalling to see so many people being diagnosed with a painful, life-shortening disease which is, in probably most cases, preventable.

[piglet]

Leonhardt's main point is that there is less triage, or rationinng of medical services, in the US than in Europe. "In other countries, people have arrived at a better understanding that health care necessarily involves economic triage..." Is there any evidence to support this claim? I would like to see it before coming to this kind of conclusion.

In countries like Germany and Switzerland, which spend around 11% of GDP for health care (more than other countries but less than the US), there are government bodies that define in detail what treatments and drugs must be covered by insurance. Those lists are subject to public debate, and while talk of rationing has appeared in recent years, it is by no means the case that economic triage is an accepted concept. The law states that any necessary, effective and cost-effective medical treatment must be provided. Those criteria are of course subject to much dispute. Basically, an expensive treatment that has only a small chance of success, or that is only marginally better than a less expensive treatment, can be denied on the grounds of cost-effectiveness. However, if the 26000$ per month drug is the only way to save the patient's life, it couldn't be denied on the grounds of cost. I don't know how this would be handled in the US system but I doubt very much that any treatment an insured American is entitled to would be denied to a German or Swiss. [Notice that the case cited by Mark wouldn't have arisen in Germany or Switzerland because that worker would have been properly insured.] The situation may be different in the UK, where rationing may come in the form of waiting lists.

I think it is quite irresponsible to bring up rationing - "deciding who lives and who dies" - without first trying less reprehensible solutions, like bringing down bureaucratic overhead, and without first doing serious research. And please stop assuming that there is a single "European model". There isn't.

[anne]

Donald, thank you for making such a comparison relative simpler. I will look to the World Bank reference in a little while. I cannot open the New York Times article, however, for some temporary mysterious server reason.

[piglet]

OECD Statistics on health care spending (2004 is the latest available year) can be found at

http://www.oecd.org/document/16/0,2340,en_2649_34631_2085200_1_1_1_1,00.html.

DOnald: Greece is said to spend 10%, not 12%, of GDP on health care, which is above OECD average. The per capita figures cited by Leonhardt seem to be PPP corrected. Here is an overview comparison for Greece:

http://www.oecd.org/dataoecd/31/3/36957914.pdf

[anne]

http://www.oecd.org/document/16/0,2340,en_2649_33929_2085200_1_1_1_1,00.html

http://www.oecd.org/dataoecd/60/28/35529791.xls

Finally, I was able to bring up David Leonhardt's article, and there with the bottom link is the relevant data on portion of GDP spent on health care. Thank you.

[piglet]

Here's a better link: www.oecd.org/health/healthdata

You might want to check out "Highlights on a selection of countries".

[anne]

http://www.nytimes.com/packages/other/business/20061018healthgdp.xls

Thank you, Piglet. Here is the link for the OECD data on Excel. My reading of the comparison of health care spending as a portion of GDP for 2004, is the same as Piglet's.

[evagrius]

There's a lot being overlooked in these comments;

one is cultural- as a visiting professor from the U.K once pointed out in a class during my university days, "Americans have no sense of tragedy". That is, there's a refusal to accept the human condition as it is- with all its pluses and minuses, including disease and death. The clearest indication of this is the so called "grief industry".

Another is related to what one poster pointed out- malpractice insurance. It's high in the U.S. because of the notion that someone, somewhere, has made a mistake, allowing someone to die or remain sick. It just can't be natural for these things to sometimes occur.

Related to this is another cost often overlooked.Auto and home insurance are lower because of universal health care. Since those costs are covered, there's no need to have coverage more than the minimum.( One might also look at the huge number of lawyers in the U.S. - far greater than other countries).

Then there's the notion of preventative medicine or social health- not all countries have this in toto, but most have some structure that allows infants and children good access to health care and good nutrition.
There's some of this in the U.S. but it depends on locale and often, it's not the public health services that provide these services but health insurance companies- a rather ironic approach.

It's good to have these debates but perhaps the costs should be further explored as well as what public health entities can and should do- if they had funding.

[save_the_rustbelt]

"...Can any doctor anywhere competently prescribe aspirin as a blood thinner or niacin to reduce arterial plaque, treatments that cost pennies?..."

Actually my doctor did both.

The niacin gave me hot flashes and prickly heat, which my wife thought was hilarious. It calmed down eventually though.

[bakho]

There are multiple problems and issues in health care so looking at aggregate health care costs can be very misleading. There are the problems of end of life care that can be very expensive. End of life care is separate from universal coverage and preventative medicine issues. Medical care is complex and requires different solutions for different problems.

[save_the_rustbelt]

Holly:

GM won't push for a single payer plan because:

1) they know it is useless at this time
2) they have bigger issues
3) the GM/UAW plan has been so ridiculously generous that they have wrung out $4B =/- without gutting the plan, there is more to negotiate
4) a split will develop between current UAW members and retirees, eventually the membership will get desperate and throw the retirees overboard

Eventually GM will have to dump 65+ aged retirees onto Medicare, rather than providing primary coverage. This will be doable with white collar, a more difficult issue with UAW.

[me]

I must be in a contrarian mood today. What does this mean exactly?"

WEll, exactly what it means is, that as Gerald Andersen, a professor of Medicine in the School of Medicine at Johns Hopkins University testified before the Senate Finance Committee:

In my testimony this morning I will make five points:

• First, other industrialized countries, have committed considerable political capital and developed sophisticated programs to determine the appropriate use of pharmaceuticals and to control pharmaceutical prices. The U.S. has not.

• Second, our analysis shows that the U.S. pays twice as much for a market basket of 30 commonly prescribed pharmaceuticals as other industrialized countries.

• Third, if other countries paid more for pharmaceuticals; prices in the U.S. would not necessarily go down.

• Fourth, the attempt by the U.S. trade representative to encourage other countries to raise their pharmaceutical prices suggests that there is one single price that all industrialized countries should pay. Enforcing this policy would lead to pharmaceutical price fixing on an international scale.

• Fifth, the U.S. should use prices in other countries as a benchmark for the prices it pays for pharmaceuticals, especially in the Medicare program. Lower prices for pharmaceuticals would improve access to
pharmaceuticals and could be used to eliminate the “doughnut hole” in the Medicare program.

The results of the price comparison are shown in Exhibit 3. Prices for the basket of pharmaceutical prices in the U.S. are given a value of 100. Averaged over the market basket of 30 pharmaceutical products, prices were 57% lower in Canada, 60% lower in France, and 52% lower in the United Kingdom compared to the United States. Assuming a 20% discount for U.S. purchasers, prices were 46% lower in Canada, 50% lower in France, and 40% lower in the United Kingdom compared to the United States.

So what means is, why the hell do we pay a dollar for a pill when the same pill is 43 cents in Canada, 40 cents in France, and 48 cents in the UK? That is one hell of a subsidary, and that is what I mean.

http://finance.senate.gov/hearings/testimony/2004test/042704gantest.pdf

[anne]

Ah, you mean Americans are paying an implicit "subsidy" to drug companies in higher prices by not having an institution other than the Veterans Administration to negotiate drug prices. I understand, but the sentence, "Drug costs here are exorbitant because we subsidize the rest of the world," which is often used suggests that we are paying a subsidy for lower drug prices in France. The wording must be more subtle for the important point you are making.

[Isabel]

All right, me, I had understood the same thing as Anne, but I totally agree with you.

[donna]

We need to pay to prevent major health care problems later on. I just had a colonoscopy done, and the foctor found a small HPV lesion which he suggested I have removed. I had that surgery done last week, and part of the tissue removed was cancerous. If I hadn't had the colonoscopy, this would have developed into a nearly certainly fatal illness requiring very expensive care. Thank goodness I have health care coverage and could well afford the colonoscopy and surgery.

It's about providing preventative care and catastrophic coverage. Everyone in this country ought to be covered for those two things. Being the only industrial nation not to do so is a very, very tragic thing for this country.

[anne]

Donna, I am pleased for you.

[elvis]

A great resource book is by Dr. Marcia Angell (former editor for the New England Journal of Medicine)

http://www.nybooks.com/articles/17244

I read it 2 years ago and what can I say? It's a devastating critique of US Pharma. The medical Industrial Complex is leveeing a heavy tax on US citizens.

By the way, asprin was found to be effective at preventing colon cancer years ago, yet the researchers who discovered this never promoted it. Reason: they don't make a market in asprin.

To be fair, the Japanes medical system has it's problems, too. Nothing's perfect, but some things are less perfect than others.

[anne]

http://www.nybooks.com/articles/17244

July 15, 2004

The Truth About the Drug Companies
By Marcia Angell - New York Review of Books

1.
Every day Americans are subjected to a barrage of advertising by the pharmaceutical industry. Mixed in with the pitches for a particular drug—usually featuring beautiful people enjoying themselves in the great outdoors—is a more general message. Boiled down to its essentials, it is this: "Yes, prescription drugs are expensive, but that shows how valuable they are. Besides, our research and development costs are enormous, and we need to cover them somehow. As 'research-based' companies, we turn out a steady stream of innovative medicines that lengthen life, enhance its quality, and avert more expensive medical care. You are the beneficiaries of this ongoing achievement of the American free enterprise system, so be grateful, quit whining, and pay up." More prosaically, what the industry is saying is that you get what you pay for.

Is any of this true? ...

[Thorough and excellent.]

[JRossi]

Finally, I've seen some data that corresponds to my prejudices! The cumulative health care costs table is at the heart of the US cost problem. We pull out all the stops for the very old and the very sick, and it costs. Anyone who wants to reform our system must reckon with this fact.
Also, preventive care is a great thing in that it alleviates suffering, which is the whole point of medicine. But preventive care does not save society money in the long run, because people live longer and use more medical resources over time. But of course preventive care is overall a great idea, as is catastrophic coverage.

[me]

"should be encouraged to change their lifestyle to get more exercise and improve their diet, don't you think? "

Yes, I agree, however I have diabetes on both sides of my parents families and when I was diagnosed, I was not overweight. I only gained weight after taking diabetes medications that cause weight gain.

That also doesn't explain why Asians have double the incidence of diabetes compared to whites.

But healthy living is good for everyone.

[elvis]

[anne: Is any of this true? ...]

The book has even more damning critiques, such as:
-most research is carried out by universities (and funded by the US gov.)

-since the '80s under a bill to encourage commercialization of uni research (innocent enough) many research profs/universities have started colluding with Big Pharma (not only US Pharma!). i.e. they use gov funds to do research, set up their own companies, and then sell out to Big Pharma.

-There have not been many great new meds developed recently, but there have been a lot of variations of old sellers to keep the copyright. Many of these new variations don't even work as well as the originals, but get heavily promoted to doctors.

-Big Pharma spend far more on wining and dining doctors and promoting their 'new' meds than they do on research.

In general, she says that for a long time Phama companies were rather boring. They were steady blue chip companies with reasonable P/E and growth. Then during the '80s some rules and perceptions changed and Pharma took off to become Big Pharma.

The picture she paints is very nasty. Her writing is clear, crisp and intelligent. A great (and alarming) read.

[anne]

Elvis,

Marcia Angell is a careful thorough researcher, with extensive experience in just such evaluation of the drug industry as the study entails. I will add in a while, but argue with her while paying close attention.

[elvis]

"I will add in a while, but argue with her while paying close attention."

I'm the sort of person who reads stuff and gets sold on it right away. [fortunately I didn't hear about Enron!] I also enjoy challenge. I'll look forward to any arguments you present.

[anne]

http://www.nytimes.com/2004/09/14/health/policy/14conv.html?ex=1252900800&en=fe413194a662c12b&ei=5090&partner=rssuserland

September 14, 2004

A Doctor Puts the Drug Industry Under a Microscope
By CLAUDIA DREIFUS

WASHINGTON - In many ways, Dr. Marcia Angell is an unlikely muckraker. A pathologist by training, she is the former editor in chief of The New England Journal of Medicine. She is also a senior lecturer at Harvard Medical School.

But just days short of her 65th birthday and her first Social Security check, Dr. Angell is taking on the American pharmaceutical industry with a new book, "The Truth About the Drug Companies: How They Deceive Us and What to Do About It" (Random House). "I don't worry about labels," Dr. Angell said in an interview at the Hotel Monaco, where she stopped during a book tour.

In a 1996 book, she noted, she argued "that there wasn't a shred of evidence that the breast implants were causing all the disease they were said to."

"I was said to be a tool of the pharmaceutical and device companies," Dr. Angell recalled. "I call them as I see them."

Q. Why produce an investigative book on the pharmaceutical industry?

A. Because everyone knows that prescription drug prices are sky-high. Americans pay far more for our drugs than people in other countries. The drug companies say, "We need high prices to cover our staggering research and development costs, and if you do anything to squeeze our prices, it will stifle innovation." The book was written to examine that argument.

Q. The pharmaceutical companies say their prices are steep because they spend somewhere in the neighborhood of a billion dollars per drug bringing them to market. Did your research support this assertion?

A. A group of economists - mainly funded by the drug companies - came up with the widely quoted figure on this. They said that it cost $802 million to bring a drug out. They, however, were looking at the most expensive drugs to develop: new chemical compounds developed entirely in house. Most new drugs aren't that at all. Most are what people call "me too" drugs, which are slight variations of older drugs already being sold.

According to these economists, the real cost of bringing out those rare original drugs is actually around $403 million. But they doubled it by factoring in how much money the companies might have earned if they'd invested that $403 million. Moreover, the economists did not figure into their total the many generous tax breaks these companies receive for doing research and development. This is a highly inflated figure.

The fact is that for the last two decades the drug companies have been hugely profitable. Last year there was a little wiggle downward, but in 2002, the 10 biggest American drug companies had a median profit of 17 percent of sales compared to a median of 3 percent for the other Fortune 500 companies. In the 1990's, profits ran between 19 and 25 percent. Prices are high to keep profits high.

Q. Exactly what are these "me too" drugs you argue against?

A. They are minor variations of old drugs already on the market. Sometimes a company creates a "me too" drug as a way of extending a patent on an older one. For example, AstraZeneca created Nexium to replace the virtually identical Prilosec when its patent was about to expire. By putting out these me-too's, the companies can get new exclusive marketing rights on what are essentially the same old drugs.

Other companies come in with their own me-too's because markets are expandable. It's been shown that when you advertise one me-too drug, you increase the sales of all of them.

Q. Why do you have a problem with this?

A. The prevalence of the me-too's really says an awful lot about the lack of innovation within the pharmaceutical industry. If you look at the new drugs marketed over the last six years, 78 percent weren't even new chemical compounds. They were just new combinations or different formulations of old drugs. And 68 percent were classified by the F.D.A. as unlikely to be improvements over drugs already on pharmacy shelves.

At the same time, there are shortages of some important drugs that the pharmaceutical companies aren't much interested in making because they are not as profitable as the me-too's. But the companies don't have to turn out needed drugs, if they are not lucrative. And they don't.

Q. How much of the high cost of drugs is the result of marketing and sales expenditures? ...

[james]

http://www.prospect.org/deanbaker/

Beat the Press
Dean Baker's commentary on economic reporting
October 20, 2006

More Corruption in the Health Care Industry: If Only Economists Knew Economics

The NYT has yet another story detailing the problems of patent monopolies in the health care industry. This time the problem is a diagnostic device of questionable accuracy.

Economists know that the monopoly profits created by patents give drug and medical equipment companies enormous incentives to lie about the merits of their products. But, economists almost never talk about this implication of their theory. As long as an auto worker is getting more than $20 an hour or a textile worker is getting more than $10 an hour, economists won't have time to waste worrying about drug and medical supply companies ripping the country off for billions at the same time that they jeopordize public health.

--Dean Baker