"The Senate will never vote to confirm Dr. Donald Berwick as CMS administrator", Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee told reporters earlier today. According to Modern HealthCAre, Baucus said that he has discussed Berwick's nomination with Republican senators and they plan to oppose Berwick under any circumstances.
“Republicans won,” he said about the nomination.
For his part, Berwick told reporters that he was grateful for the White House support he has received since 42 Republican senators wrote President Barack Obama last week to demand that he withdraw Berwick from consideration. Earlier today, Modern HealthCare quoted Berwick saying that he is "focusing on the job."
For Republicans to flatly refuse to consider a presidential nominee without letting him testify at a confirmation hearing signals something far short of "bipartisan cooperation."
Do they actuallly have that much power?
Perhaps. But arrogance can be dangerous.
I find it hard to imagine that the Obama administration will roll over and say "Okay. We'll let forty-two senators decide who heads up Medicare." The gang of 42 do not even represent a majority of the 100 elected representatives in the Senate. But of course, 60 votes would be needed to break a filibuster, which is why the group, led by Sen. Orrin Hatch, believe that they have the clout to pull this off.
Maggie,
I am outraged! What can we do?
Dr. Rick Lippin
Southampton,Pa
They apparently had enough clout for the Obama Administration to chicken out of a confirmation hearing when there were less than 42 Republicans total in the Senate. Last I heard there are even more Republicans now, so the answer to you question is yes they have that much power and apparently they plan on using it. Was it “bipartisan cooperation” when the administration wouldn’t let him sit down for a job interview? The faux outrage is a little much. I await your deletion.
Jenga–
Neither the administration nor Berwick refused to sit down for a confimation hearing when Berwick was originally nominated.
If you read the post, you will discover that Senate conservatives kept postponning the confirmation hearing.
Before Congress went on its summer vacation, Berwick (who had been nominated in March) still was not on the list to be considiered for confirmation.
Some Obama nominees waited for a year to be shceduled.
And the head of CMS is a very important post that needed to be considered as quickly as possible.
Berwick had been a public figure for a great many years–named one of the 3 most important people in heatlh care by Modern HealthCare in 2007.
Right behind the person who was then head of Medicare.
As a result, Berwick’s life and career was an open record. Much had been written about him. He was not an unknown with possible skeletons in his closet.
He had given numerous, lenghty, widely-publicized speeches explaining his views on heatlhcare.
There was no need to delay the confirmation hearing. The Senate had all the information it needed.
Please– check your facts, before spreading misinformation. .
You are the one that are wrong on Facts. The Berwick recess appointment was out of the ordinary because the confirmation process didn’t even begin. It is laughable that you hold Republicans responsible for the delay. In the eleven weeks prior to the nomination Chairman Baucus never held a single hearing on Dr. Berwick. It wasn’t “conservative senators” that failed to put him on a list, it was Senator Baucus the Chairman of the committee who is in charge of the calendar. To start the process you have to fill out a questionnaire for the Senate Finance Committee and disclose finances. Once done a hearing is scheduled by the Chairman. The fault was either Berwick’s for not disclosing finances and his questionnaire or Baucus for not scheduling a hearing. Not, I repeat not, the fault of Republicans as you would falsely suggest.
Jenga:
Explain why, a reasonable person would not hold the part of “NO” responsible? A party responsible for the demise of Wall Street, a massive layoff of labor since 2001, a skewing of capital gains to 1% of the taxpaying population, the off-budget funding of two wars, the lies about SS and Medicare, etc.
I await your answers. Why are the Repubs now credible on this doctor?
I’ve seen no demise of Wall Street, they seem to be doing pretty well. In fact, I’m not sure what any of your statement has to do with the statement at hand, Senate confirmation, unless you want Obama to just go ahead and dissolve Congess and install martial law.
@Jenga, your arguments remind me of the old lawyer saw that “If your client is innocent argue the facts but if he is guilty then argue the law.”
Berwick’s approval didn’t have the chance of a snowball in Hell. That reality was made clear way in advance. Debating whether a recess appointment was his fault or not is rhetorical nitpicking.
This president so far has scored very low in the number of recess appointments while incurring multiple self-inflicted political injuries. He has tried in vain to lead the GOP horses to a stream of bipartisan water. Unfortunately he seems not to have learned that you can lead horses to water but you cannot make them drink.
http://thepoliticalcarnival.net/2010/07/06/ap-source-obama-filling-medicare-post-by-recess-appointment/
As for Wall Street, you are absolutely right. As the rest of the country has sunk lower Wall Street has flourished. I noticed several years ago how announcements of big layoffs seemed to trigger an uptick in the price of a stock. Wages have always been a liability. Ricardo’s Iron Law of Wages, that Nineteenth Century nugget, is the new paradigm for business. But as you said, that is not germane to this post.
John B.-
Thanks much.
What you say is true, and you’re also right about Wall Street.
Tradtionally, the market goes up on unemployment (lower costs for corporations.)
But I think we may be reaching a point where high unemployment– which cuts into consumer spending– is going to catch up with the market.
People interested in health care need to keep their eye on the ball in this incident. This has nothing to do with Senate protocol or slights to offended politicians. The Berwick episode is an early skirmish in the political fight over how the US chooses to address the health care crisis in the future, especially how it will attempt to control costs.
Since there is no question that runaway health care costs are unsustainable and would destroy the economy, the government, and health care itself if allowed to continue unchecked, the great debate is not whether but how to bring health care costs under control.
Conservatives, with Rep. Paul Ryan as their lead spokesman, advocate what they like to call a market solution, but which really is a plan to limit health care available to most people by making it financially inaccessible. Ryan’s plan to replace Medicare and Medicaid with flat grants, require enrollees to purchase coverage in the private market where there is substantially less service per dollar spent, and to limit increases in the grant to the rate of inflation would decrease health care spending by making the cost of health care out of reach for many seniors and low income Americans. Other “market” programs based on markedly increased co-pays, deductibles, and co-insurance would have a similar effect of preventing access to health care for low income and middle class Americans by making the cost more than they can pay.
Dr. Berwick was and is a major spokesman for the competing argument. He and his allies plan to control health care costs by decreasing spending for ineffective care, decreasing care that is actually harmful, and by increasing the use of inexpensive techniques to decrease costs due to injury to patients caused by medical care. Studies have demonstrated that there are literally hundreds of billions — that’s with a “b” — of dollars spent every year in the US on procedures, tests, and treatments that either do not improve patients’ health or actually damage it, and that injuries caused by preventable complications of health care cost additional hundreds of billions. Berwick and his fellow scientists advocate an approach that combines research to identify this spending and to stop insurance coverage — both public and private — for ineffective spending, as well as using payment patterns to encourage improved patient safety.
Recently conservatives have made it clear they will oppose this. Their attacks on Dr. Berwick are one example of that, as are statements they have made deriding effectiveness research and implementation of the results. They do this partly based on genuine ideology that rejects government participation regardless of its utility, and partly to protect the financial interests of big players (and donors) in the health care field. After all, one person’s wasted spending is another person’s yacht.
The US stands alone in the developed world in its unwillingness to engage in management of health care spending to eliminate waste, and as a result spends twice as much per person and as a percentage of GDP as average, while at the same time attaining worse results both in overall health and in effectiveness of care for specific illnesses. The rate of spending for health care is not sustainable, since it will consume the GDP in a generation or two. The choice of how to control that is clear: we can exclude more and more people from access to health care, or we can exclude spending for waste. The battle lines are being drawn, and Don Berwick is an early casualty.
Pat S.
Thank you.
I would add only that Berwick is not yet a “casualty.” At best, he will stay in D.C. through the end of 2011, and make more progress in implementing the ACA, helping create accountable care organizations, pushing pilot programs forward, etc. The more he can get done, the harder it will be for conservatives to “undo :reform.
At worst he will go back to IHI very soon and continue the job of fighting waste and errors in our system . From his very influential position at IHI he will inspire more hospitals and doctors to reform the system from wtihin.
Ultimately, they have the power to do this. They prescribe the tests, treatments and drugs; they choose the medical devices we use.
Of course some doctors and hospital CEOs don’t understand–or don’t care–that our health care system is quickly becoming unaffordable even for hte middle class and upper-middle class–and that the high prices are caused by overtreatment, paying too much for everything and preventable erros.
So some doctors and hospitals won’t change the way they practice unlelss Medicare and private insurers force them to–using financial sticks as well as carrots.
But some health professionals are dedicated to higher quality, less expensive care, even if no one is paying them extra to do it. So that word will go forward, with people like Berwick in the vanguard.
(Grieving over the loss of Berwick at CMS, I’m moving past rage and toward my usual survival mechanism: “well, we’ll just have to do it another way.” )
When you referred to him as a casualty, I couldn’t hep but think of a conversatsion I had with a friend from Colombia, explaining the Berwick situation to her.
She said “Ah, someone honest in government. In my country, they would assassinat him. Here they push out. It’s the same– always corruption.” :
But of course it’s not quite the same. We’re not quite at the point of assassinating honest people in government — though, I must say, we are coming close . . .
Returning to what Berwick stands for: as you say: Berwick frightens people because he understands that 1/3 (he would say maybe as much as 1/2) of our health care dollars are wasted on inffective treatments and over-priced procedures and products that are no better than less expensive procedure and products that they are trying to replace. In addition preventable errors add to the hazardous waste in our system.
We know precisely where much of that waste is.
Berwick was (and remains)
determined to reduce the waste.
Critics call that “ratinoning.”
Berwick calls it “rationing with your eyes wide open”– choosing what to pay for and what not to pay for based on what medical evidence shows about effectiveness for patients who fit a particular profile.
What we are doing now, says Berwick is “rationing with our eyes closed”–not looking at medical evidence, but instead letting “the market” ration by ability to pay.
You’re entirely right:, by lifting co-pays and deductibes, conservatives would increase rationing by ability to pay.
Berwick on the otherhand, would pay only for effective care and make that effective care availabeto for everyone, regardless of income.
Maggie, do you ever recycle old posts?
This comment by Dr. Pat S reminded me of something he wrote as a guest a couple years ago. It impressed me so much I have it bookmarked.
https://healthbeatblog.com/2009/03/a-guest-post-what-the-doctor-ordered.html
His message remains timely. (Unfortunately…)
John Ballard —
Thanks.
“I am a one note man,
I play it all I can”
— “One Note Man” by the Youngbloods
I recycle this idea more or less constantly, since I think it is the most important theme in health care reform AND in government spending and deficit control. We cannot emphasize this concept too much, or tell too many people about it.
I am not by any means the originator of these ideas — Don Berwick is one of many of the real pioneers of the concept.
Thanks though, and feel free to use my past post in any way you can to spread this critical message.
Maggie —
“Berwick calls it ‘rationing with your eyes wide open.'”
This is”rational care,” not rationing.
I reject the term “rationing” in discussing avoiding paying for ineffective or dangerous care.
Rationing is the controlled distribution of scarce and valuable resources, goods, or services.
The services and goods involved in this approach to health care reform are not scarce, and in fact are not even valuable. That is the point. They are worthless at best, harmful at worst.
It is the opponents of rational care who like to call it rationing, since they are engaging in propaganda trying to prevent the government from protecting the people from poor medical care either because they believe the government should butt out and “let the buyer beware” or they are trying to protect companies and people who are making large profits selling care that patients don’t need.
The Pure Food and Drug Act is not “rationing” of dangerous or worthless drugs or food additives, it is a protection of the public from poisoning or swindling by stopping the marketing of bad products. This is very much the same. We are asking the government and private insurers to stop wasting our money on things that don’t work, since we cannot afford to pay for that waste, and since it does not benefit patients. We are further asking that the government spend some time and money in finding out more about just which things work and which don’t, although as you say we have plenty of information now to get started with important savings.
We are not asking for rationing of care — that is restricting or reducing access to needed and valuable health care procedures, tests, and treatments. We are asking for rational care, avoiding waste on worthless or harmful things.
Rx: Stop wasting money on drugs, devices and procedures that don’t work and may harm patients.
IOW, oversight of medical care similar to how controlled substances are managed.
The Controlled Substances Act (1970) regulates drugs but there is no corresponding authority to regulate medical care.
We need a scheduling system for medical care similar to that used for controlled substances, with tax money for Schedules I and II, and private money for everything else.
Efficacy and QALY should be the metrics.
There. I finally said it.
Those who favor cryogenics or eternal life support should be welcome to it. But like cosmetic medical and dental procedures they need private financing or Cadillac insurance coverage.
Pat S.–
Of course you are right.
Refomrers are not calling for rationed care, they are calling for “rational care.”
But Berwick calls rational care “rationing with our eyes wide open” because he realizes that the vast majority of Americans view anyone (an insurer or the gov’t) or even their doctor saying “No” to any treatment they might want as “rationing.”
Unfortunately, a great many doctors also view a refussal to cover anything that they might prescribe
as rationing.
When it comes to communicating with people, and persuading them, Berwick is extraordinarily gifted.
So while I agree with you, I’m inclined to stick with his metaphor about “rationing with our eyes wide open”–and he reocgnizes that the use of the word “rationing” in this context is only a metaphor.
John–
I agree tha we need a system that reocgnizes the risks and benfits of legal drugs.
Like “conrolled subsances” all legal drugs also carry risks– and the benefits are often not nearly as great as the manufactrer advertises.
This means that, yes, we need to control and regulate legal drugs (much as we try to control ileagal drugs-)-in order to protect patients,
PpOf course, atients don’t have to accept the prootection.They might choose to pay for the more expensive drugs out of pocket, but taxpayers shouldn’t be paying for
less effective, more expensive products.
Finallly, patients need much more very honest infomation about risks as well as benfits, so that they can make better decisions
Maggie —
With all due respect to Don Berwick, use of the term “rationing” to describe not paying for ineffective care is like using the term “death tax” to describe estate taxes, “baby killing” to describe abortion, or “death panels” to describe end of life counseling. It is a loaded term adopted by opponents to bias the whole discussion in their favor.
To even suggest that protecting the public from wasteful and even dangerous care is “rationing” is putting the discussion on the wrong foot and giving an advantage to the opponents by adopting a loaded term. It is, as economist Brad De Long likes to say, an “unforced error.”
Pat S.
Health care dollars are finite in this sense: the more we spend on health care, the less we have to spend on education, the enviroment, affordable clean housing, the arts, etc. etc.
Unlike some, Berwick does not believe that health care is more important than anything else. I have heard him say that we probably should be spending about 12% of GDP on health care.
That means that we have to make choices. And this is something the American people need to understand.
We need to think about priorities collectively, as a society, not individually, in terms of “me and my family.”
In truth, we cannot give everyone every experimental medical treatment or test that he might want–unless we have medical evidence (at the very least observational evidence) that it would be effective.
We can’t operate on everyone suffering from angina to give them quick (but temporary) relief from the pain. Those surgeries don’t reduce mortalities. And a change of diet and exercise plus medication as needed is a more sensible way to address angina. It takes longer, but the resultss are long-lasting.
Americans looking for a “quick fix” don’t want to hear this.
We don’t want to do knee replacements for every 50-year old who feels his knees are harming his tennis game. He’s likely to outlive the artificial knee, and need another one down the road. And the purpose of health care is not to replace body parts so that people can play tennis. Those dollars could be used to provide better nutrition for the huge number of American children living in poverty. (Meanwhile, the 50-year-old with creaky knees might want to switch to swimming. He also might try physical therapy.)
Most importantly, we can’t do everything we might possibly do to make people feel and look younger. The notion of making 70 the new 50, 90 the new 70, is dangerous, particularly because, in too many cases, our bodies will outlive our minds.
At some point, Americans must accept that aging is a natural process–as is death.
We also have to make choices when deciding how to spend reserach dollars. I personally am less than enthusiastic about geonomic research aimed at “customizing” medicine for each individual. From what I have read, this would be very expensive. Could we really afford to do it for the entire population, or are we simply developing something for the top tier of our tiered medical system?
I think we need to discourage drug-makers and device-makers from investing in extraoridarily expensive drugs and devices that only a few could afford.
This is what Berwick means by “rationing with our eyes wide open”–making thoughtful choices.
I understand that you feel that by even using the “r” word, we are conceding the argument to the conservatives.
But Berwick believes that Americans need to grow up, and accept the fact that everyone cannot have everything they might possibly want. They need to accept the idea of setting priorities–which means rationing.
At once point several years ago when he was quite discouraged Berwick said to me “sometimes I think this country is just too immature for health care reform.” He didn’t mean too young; he meant too selfish.
Again, reform is all about recognizing that health care dollars are finite, and thinking collectively.
Maggie, I guess I agree with you and Berwick. The immaturity comment could be equally applied to the overspending/undertaxing we have been doing. I understand that perhaps we can’t afford knee replacements for everyone who wants one.
What about allowing for a health plan for those who have the resources to pay the bill and another for the rest of us?
I read the comment about the 50 year old man who thinks he needs to have knee replacement to play tennis. I suffered for 8 years with extreme knee pain and really tried to grin and bear it but it effected my quality of life as I couldn’t walk, excercise or go food shopping unless there was an electric cart available. I had a series of 5 shots to this knee and tried that twice. I had cortisone shots and nothing worked as I had bone on bone. So, unless you have lived in this world of constant pain and no sleep or quality of life, there should be no smug comments. While total knee replacement is a voluntary operation, it is no joke to go thru and many folks put it off. I presently have a torn miniscus in my other knee and I don’t play tennis. I am trying to nurse it and have been to the doc but am again putting off surgery due to the threat of pulmonary embolisms, which is what happened to me last time. So, again, it is a very serious operation with a long recovery time and not something to take lightly,but what a relief to be able to enjoy life with my family again.
Maggie –
When you say that resources are finite, you’re preaching to the choir as far as I’m concerned as I’ve said the same thing over and over again. That said, I agree with Pat that Berwick’s use of the word “rationing” is inappropriate when we’re really talking about covering and paying for services, tests, procedures, drugs and devices that provide sufficient value for money and not paying for those that don’t. On the other hand, we actually do ration organ transplants. While most insurance covers these procedures, there are simply not enough organs for everyone who could benefit from one. As a result, we developed elaborate protocols to determine who get them and who doesn’t. That’s rationing! It’s different from sensible resource allocation which is what Pat describes. At the same time, if people want to spend or waste their own money on procedures of little value relative to their cost, that’s their prerogative. When spending taxpayers’ or insurers’ dollars, however, it’s a different story or at least it should be.
Joyce–
You write: “I suffered for 8 years with extreme knee pain and really tried to grin and bear it but it effected my quality of life as I couldn’t walk, excercise or go food shopping unless there was an electric cart available.”
I can only imagine how hard that was–and, not being able to go grocery shopping is very, very differnt from not being abe to play a good game of tennis!
I didn’t mean to suggest that people in pain that make it impossible to lead normal lives shouldn’t have knee replacements–whatever their age.
Barry & Joe Says–
If someone is able to pay the bill, out of pocket, for a very expensive operation that may provide minimal benfits– or a $100,000 cancer drug that keeps the aveage patient alive for an extra 2 months– that might be fine . . .
Except for the fact that We
All Pay for the research that went into developing that drug or developing that surgical procedure.
Drug companies and device companies pass on the costs of their research in the form of higher prices
for all drugs and devices.
And gov’t passes on the cost of NIH research in the form of higher taxes.
Do we really want to all pay manufacturers and the govt to investigate treatments that 98% of Americans will never be able to afford?
Wouldn’t we rather have them spend their resources researching treatments that would help many of us manage chronic diseases –even if these products and services are not as lucrative for the comapnies? (By definition,
the profit margin on things that only the very, very wealthy can afford –and feel that they deperately need, is very high.)
The problem is that, in order to do right by their shareholders, companies must add the cost of developing these drugs to all of their products. . . .
Maggie –
I’m not a fan or trying to micromanage how drug companies spend their research dollars. Also, what would you do about orphan drugs which, by definition, target a comparatively small population and must be priced high to make the economics work? If drug companies knew that we simply would not pay for new drugs, except for orphan drugs, that cost more than, say, $100K or maybe $150K per QALY, they might rethink either how they spend their research budget or how they price their products. With regard to the management of chronic disease, we already have a lot of good drugs, including numerous generics, to manage hypertension, lower cholesterol, and the like. Historically, you complained about drug companies developing too many “me too” products that are little or no better than what we already have but are priced considerably higher. As for the NIH, they’re more focused on basic research and I’m inclined to leave them alone too.
The fact is that the wealthy will always be able to buy up, go to another country or otherwise access care that lower income people can’t afford. I have no problem with that as long as the quality and scope of healthcare available to the broader population is widely perceived as good enough.
Barry–
Would “good enough” be good enough for your child?
Resources are finite. As a society we need to think collectively and set priorities as to what we
want insurers (both private and govt) to pay for.
In some cases, we decide that as a society, we want to pay for “orphan drugs” that are needed by very few people–particuarly when those people are children who have not yet had a chance at a full life.
But often,those orphan drugs are more expensive than they need to be. From society’s point of view, it makes no sense for drug companies and their investors to be making double-digit profits on human suffering. Large drug companies and their investors rarely take large risks, and so there is no reason to reward them with double-digit profits.
As for very wealthy individuals paying out of pocket, of course they have a right to do that. But if government and insurers refuse to pay sky-high prices,the market will be to small for it to be profitable to manufacture a $200,000 a year cancer drug for the small number of seniors who could afford to pay the full price out of pocket in order to live an extra three or four months (or 1 year, in the case of a very, very few.)
I say seniors because the average age for an adult to develop cancer is 65.
Those reserach dollars should be used to improve the quality of life for all of us in youth and middle-age, rather than trying to eke out extra months at the end.
“Would “good enough” be good enough for your child?”
In Germany, the public system is “good enough” for your wealthy oncologist friend. That’s what I have in mind.
On the orphan drugs, I’m not sure I understand how you think the price should be determined. Is it cost of development plus a modest margin? If so, how do you factor in the billions they spent on drugs that didn’t pan out or failed late stage trials? In the last 5-10 years, prescription drugs hasn’t been a great business. Just look at the stock price performance of the large drug companies.
People who invest in the biotech sector, especially the smaller companies and start-ups, take plenty of risk. If they don’t perceive the potential for commensurate reward, they won’t invest their money in the first place.
Concerning a two tier system, Maggie writes: “Except for the fact that We All Pay for the research that went into developing that drug or developing that surgical procedure.”
Joe Says: Well if fewer people can get the treatments, there will be less money spent to develop the treatments. I’m not sure I want a pay out of pocket program, but allowing for those who want anything and everything to buy into an insurance pool that covers more would seem reasonable.
This would allow for freedom of choice, but of course with a price. I would simply accept the truth that there will be a two tier system and try to make the basic tier as good as it could be with outcome research.
Barry–
Here’s the problem– the public health system in Germany is significantly better (in terms of otucomes, patient satisfaction etc.) than our very pricey health care system.
If, under reform, we achieved the same level of health care for everyone in the U.S. that people enjoy in Germany’s public systemI would be very happy.
But that will mean shifting priorities and resources.
In Germany hospitals have relatively few private rooms (used for cases when a private room is medically necessary.)
I terms of hotel-like amentiites, German hospitals are Spartan.
But when it comes to Medical Care, the level of care is very high.
Our hospitals spend so much on amenities and private rooms in order to attract wealthy, very well-insured patients (and the docs who treat them.)
Also, in Germany, the top tier of more expensive care is NO better in term of medical care and outcomes. This top tier that people pay for is all about private rooms, shorter waits, etc.
This is why the oncologist I interviewed saw no point in signing up for it.
By contrast, you suggested that medical outcomes that are “good enough” would be fine for the middle class and working class.
As for drug-company and investor profits, as I made clear, I’m not talking about small start-up companies, I’m talking about Big Pharma –and it does not take big risks.
Over the past two years, Merck and Pfizer have seen their stock prices rise by double digits (25% and 40%.)
Finally, see this excellent piece by Jim Edwards on BNET which points to a new ing AO report highlights the fact that we saw “a 29.1 percent rise in drug prices between 2006 and 2010.”
Are drugs 30% more effective than they were 4 years ago? NO.
GAO points out that while drug-makers claim that they’re just raising prices to recover the cost of resarch, the truth is that “Much of the time, they’re just trying to find the ceiling on a reimbursers’ willingness to pay. Insurers and the federal government tend to acquiesce, especially if the drug company has a monopoly on a treatment.”
This is not free market competition. This is extortion.
The post child for drug-maker greed: ” KV Pharma (KV.A), which jacked up the price of the pregnancy drug Makena from $10 a dose to $1,500 a dose. KV took advantage of the FDA’s orphan drug program, which allows companies to gain pricing monopolies if they can prove old drugs have important new uses. (The fact that KV’s old CEO was just sentenced to prison didn’t help the company explain that, however.)”
See Edwards’ post here http://www.bnet.com/blog/drug-business/10-reasons-drug-prices-always-go-up-8212-and-what-we-can-do-about-it/7621?tag=mantle_skin;content
“Over the past two years, Merck and Pfizer have seen their stock prices rise by double digits (25% and 40%.)”
During the same period, since the post meltdown market lows of March, 2009, the S&P 500 index is up 57% excluding dividends. You’re cherry picking statistics to make a debating point. Any long term investors who owned PFE, MRK or most of the other Big Pharma stocks for the last 5-10 years have lost money on an absolute basis and clearly underperformed the broad market averages. While they were big money makers for investors in the 1990’s, they haven’t been since then.
Hospital prices are up even more than drug prices over the last 4-5 years, especially for those with significant local or regional market power. Their care isn’t any better either. Just because most of them are non-profit why are you willing to give them a pass while singling out the drug companies for profiteering? There have been numerous major drugs that have gone off patent in the last five years with quite a few more to come in the next five including Lipitor and Plavix in the next year or so. This is why insurers’ drug claims, other than the ultra expensive specialty drugs, have been increasing much more slowly in recent years than both hospital inpatient and outpatient services. When it comes to cost growth, it’s the hospitals that are killing us.
Barry–
I’m very sorry– I didn’t mean to cherry- pick numbers. As I think you know, I don’t do that.
I knew that Pharma had done badly in the period before the last two years, but I didn’t realize that when compared to the S&P
Pharma had underperformed.
(I own virtually no S&P stocks or mutual funds that own S&P stocks, so I don’t keep close track of the S&P.)
I just went back and looked at a long-term chart. .I should have done more research before quoings s gains over the past two years for Merck & Pfizer..
I am most familiar with Pharma’s profits throughout the 1990s– which were enormous.
Finally, I agree that hospital costs–and hospital waste–are adding greatly to health care inflation.
BUT — climbing drug prices (see the second half of my comment) also are driving inflation. And it’s not just that prices are so much higher; Americans are taking more drugs. .
Thanks to direct-to-consumer advertising as well as dinners for docs who recommend or spread the word about certain drugs, many of , us over-medicated. This particularly true of older Americans, whose bodies cannot handle the high doses and many drugs that they are taking.
Medicare really needs the power to negotiate for lower prices the way the VA does. The VA has been very successful in this area, and the drugs that are not in its formulary have protected Vets from some dangerous drugs.
When we talk about reducing health care costs by reducing waste, we need to realize that this means cutting waste in myriad ways–in many sectors of the health care economy.
There is no one villain–not insurers, not docs, not hospitals, not drug-makers nor device-makers.
This is why the Affordable Care Legislation is so complicated, and so long– it aims to trim waste in vritually every sector of health care.
And I think that if we do that, we can do more than “break the curve” of heatlh care inflation. The waste is enormous– at least 1/3 of helath care dollars are squandered.
We can–and should– reduce the total cost of care as a percentage of GDP.
No other country spends such a high percentage of GDP on healthcare. And we are not getting good value for our money.
Some other countries spend much more on education, K-12. If we want to be globally competitive, we should think about paying teachers more– in order to attract those in the top 10% of college graduates to the profession.and giving them smaller classes (so that they can teach.) Try to imagine attempting to teach 28 6-year-olds how to read.
Finally , on drug stocks: Over a long period of time (20 years or more) drug stocks have been perceived as “growth stocks.”
Given the fact that large drug companies are Not taking large risks, and are producing a necessity, they really shoudl be companies that provide steady,but low growth for investors (dividends, and total returns of, say, 5% to 6% –in today’s environment (i.e. given where inflation is today.)
Drug stocks have been so volatile in recent years because people still see them as “high-growth stocks” (as they were in the 1990s) and turn on them when they disappoint very high expectations.
As I have suggested in the past, companies that produce necessities should be like old-fashioned utility companies that offered steady, realiable dividends for widows, orphans and retirees.
(I think of the old Bell Atlantic as an example of a reliable stock.)
I think you might agree that we need more stocks like that– and fewer high fliers– especially as more and more Americans retire and need steady, reliable income.
Maggie –
I agree with you about the DTC advertising and the lunches, especially the former. I also agree that there is no single villain. I like to say that there is no silver bullet to fix healthcare but lots of silver pebbles that cumulatively add up.
Regarding reasonable long term returns from stocks, most pension funds, including the one I work for, think along the following lines. Since 1926, a period for which we have pretty robust data, the real (excluding inflation) return on Treasury Bills was zero. The return on longer term Treasury Bonds was about 3%. A broad index of equities such as the S&P 500 returned 6% or a three percentage point premium above bonds to compensate for the additional risk should a company go bankrupt. Add in inflation which averaged about 3% producing a total nominal return from equities of 9%. We use 2%-3% as our long term inflation factor though it has recently been less than that.
I hear what you’re saying about treating large drug companies as utilities. There are important differences, though, between utilities and drug makers. Utility generating plants are capital intensive assets and it’s comparatively easy to determine how much capacity is needed to serve a given customer base, allow for growth and the lead time to build new facilities and provide an adequate reserve margin to allow for outages and maintenance shutdowns. Regulators allow utilities to earn a return on their rate base that falls within a “zone of reasonableness.” For drug companies, we could debate how much they should spend on marketing and advertising. On the research side, though, there are lots of failures, especially in recent years relative to their multi-billion dollar R&D budgets. If the price they could charge for their successful drugs were regulated, we would have to have a mechanism that allowed them to recoup the cost of their failures as well.
It is important to note that roughly 70% of all prescriptions written are for generic drugs and that number will be rising though generics only account for 15%-20% of the dollars spent on drugs. I, for example, take five prescription drugs to manage my heart disease – 4 generics and one brand (Plavix). If I had to buy them all at Wal-Mart, they would cost about $2,200 per year or thereabouts. The cost of the Plavix alone is 85% of the total. Plavix loses patent protection in 2012, so those costs are slated to decline materially for me and millions of others and for the insurers who pay most of our bills.
Personally, I have no problem with Medicare negotiating drug prices if it is prepared to use the formulary approach coupled with tiering, though I’m not sure how accepting seniors will be when they find their choices limited. They are likely to make their displeasure known to their Congressmen and Senators but that’s an issue for another day.
Barry–
I would argue that Pharma spends too much on reserach at a time when it has become much, much harder to develop a new drug which will make a significant difference in reducing human suffering.
Virtually all of the low-hanging fruit has been picked.
Over the past 10 years, most of the new “block-buster” drugs have been hyped–it’s not clear that they significantly reduce human suffering. (Merick’s “vaccine” for cervical cancer is a case in point; Pap smears have already made cervical cancer a rare diseae in developed countires, and in countries that make Pap smears avaiable at no charge (no co-pay– Sweden) cervical cancer is virtually non -existent.
Gardasil is not worth what we’re paying simply for this very expensive vaccine to prevent genital warts (which are not fatal and can be removed.)
And there is a real danger that girls who have been “vaccinated” will think this means they dont’ neew Pap smears, even though Gardasil only protects against viruses that cause 70% to 80% of the cancers.
In recent years other blockbusters have been withdrawn from the market becuase it turned out that risks outweighed benefits.
And of course drug-makers spend many resarch dollars on unneeded “me-too” drugs.
What I’m suggesting is that investments in drug resereach just aren’t paying off in terms of producing safe drugs that
represent real progress.
(By real progress, I don’t mean buying the average cancer patient an extra four months of poor quality life.)
Of course Americans like the idea of contant innovation and endless progress. . . But the truth is that we still haven’t found a cure for the vast majority of cancers and it’s not likely that we will any time soon.
If venture capitalists want to take high risks while looking for high returns by investigating Alzheimer’s, doing geonome reserach, etc– fine.
But I don’t think large drugmakers should be spending what they now spend on reserach because we’re not getting good value for the money. And we reallly can’t afford the mark-ups on their products to cover the cost of their many failures and redundant research.
(We have enough medications for allergies.)
Finally, we know that Americans are over-medicated.
As for the returns that shareholders shoudl expect from drug-makers, I would suggset that is they gambled less trying to produce “block-busters” did much less research, and focused on safe manufacturing practices and distribution, these companies could be more like old-fashioned utilities, paying modest but steady dividends somewhat above inflation.
The expectation that they will be “growth stocks” as they were in the 1990s is, I think, misguided, and simply pushes the companies to hype products in their quest for that miracle drug.
In general,the whole notion that health care stocks (for-profit hospitals, device makers, equipment makers, etc.) should be growth stocks has led to much corruption
in the industry.