PNHP

NAIC consumers' report on ACA's private insurance reforms

NAIC consumers' report on ACA's private insurance reforms

Implementing the Affordable Care Act’s Insurance Reforms: Consumer Recommendations for Regulators and Lawmakers

National Association of Insurance Commissioners (NAIC)
August 2012
These materials were prepared to assist regulators, lawmakers, and the National Association of Insurance Commissioners (NAIC) during ongoing implementation of the comprehensive insurance reforms called for by the Patient Protection and Affordable Care Act of 2010 (ACA). The purpose of these recommendations is to convey the perspectives of consumer advocates on appropriate standards and guidelines for implementing these reforms, which will go into effect in 2014.
These recommendations are limited to the ACA’s insurance reforms and do not address other critical reforms of equal importance to the consumer representatives and millions of consumers, such as the expansion of the Medicaid program, the implementation of health insurance exchanges, the availability of federal subsidies, and the need for meaningful consumer outreach and education, among others.
Table of Contents
Guaranteed Issue and Guaranteed Renewal
Elimination of Preexisting Condition Exclusions
Rating Reforms
Definition of the Small Group Market
Limitation on Waiting Periods
Coverage for Participating in Approved Clinical Trials
Essential Health Benefits, Including State-Mandated Benefits
Actuarial Value, Limitations on Cost-Sharing, and Catastrophic Coverage
Stop Loss and Self-Insurance
Limited Medical Benefit Plans
Risk Adjustment
Reinsurance
Risk Corridors
http://www.naic.org/documents/committees_conliaison_1208_consumer_recs_aca.pdf

You likely don’t have time for this now, but this report is so important that you should download it now, or at least keep the link for later downloading. If nothing else, when you have time, you should read the six page executive summary of the recommendations.
So what is this that makes it so important? It is a report prepared for the National Association of Insurance Commissioners by respected authorities who represent consumer interests (that is, patients). It discusses details of reforms of private insurance that should be considered as the Affordable Care Act is implemented.
It is important to understand the complexities and interactions of the various private insurance reforms that should be considered. Two things are clear: 1) They will never get the details aligned such that the final product will serve the best interests of patients, and 2) The complexities leave wide open the opportunities for the private insurance industry to game the system – obviously for their own benefit and not for the benefit of patients.
This report does not address many other important issues such as the changes in Medicaid, the complexities of the private insurance premium and out-of-pocket subsidies, the fate of the 30 million who will remain uninsured, and, most importantly, how this highly flawed, outrageously expensive, and highly fragmented model of reform is the worst model to try to best serve the interests of consumers (oh yes, patients).
Maybe it’s time for someone to write that much needed paper, “It’s the Private Insurers, Stupid!”

Blue Shield's contract dispute with University of California hospitals

Blue Shield, UCLA end long health insurance dispute

By Chad Terhune
Los Angeles Times, August 10, 2012

Nonprofit insurer Blue Shield of California said it resolved a lengthy contract dispute with UCLA and other UC system hospitals over reimbursements for patient care.

The previous contract expired Dec. 31 as the two sides bickered over rising medical costs. These disputes have become more common across the country as some insurers try to rein in healthcare costs and major hospitals exert their market power to maintain adequate reimbursements.

Contract talks broke down between UCLA and Blue Shield in 2006 and 2008 as well.

http://www.latimes.com/business/money/la-fi-mo-ucla-blue-shield-20120810,0,3160712.story

And…

Blue Shield top executives’ pay changed little in 2011

By Chad Terhune
Los Angeles Times, August 11, 2012

Nonprofit insurer Blue Shield of California said its outgoing chief executive earned $4.6 million last year, off slightly from a year earlier, as all insurance companies faced new government rules on how customer premiums are spent.

The San Francisco company declined to comment on the value of Bodaken’s retirement pay and benefits or to reveal the pay package of his successor. Paul Markovich, chief operating officer, will take over as CEO Jan. 1.

http://www.latimes.com/business/la-fi-0811-health-insure-pay-20120811,0,1114038.story

Comment: 

By Don McCanne, MD

We should be able to agree that a health care financing system should be designed to optimally serve the health care needs of the patient. Under the private insurance model of health care financing, there should be no better example as to how that might work than non-profit Blue Shield of California’s coverage of care at the public University of California academic medical centers. Surely, a large non-profit traditional insurer and a system of public university health centers would collaborate to serve patients first.

California’s Blue Cross set the stage. It converted to a for-profit corporation, and then engaged in practices to improve investor return. An important part of their strategy was to impose contract restrictions on both patients and providers. To remain competitive, Blue Shield adopted the same strategies, blurring the distinction between the for-profit and non-profit Blues in California.

There are clinical situations in which the most appropriate care would be provided at one of California’s prestigious university medical centers. A health care financing system that was designed in the patients’ best interests would ensure access to these centers when appropriate. But that is not what happened in this instance when disputes arose over contract terms on the provider side. Though there was no dispute on the patient side of the contracts, Blue Shield patients nevertheless were potentially exposed to severe financial penalties should they access care at the university centers.

So this is what we get with the best in private insurance financing – contract disputes that are disruptive to patient care. If a single payer system – an improved Medicare – were our only program, spending would be priced right, based on global budgets and negotiated rates. Patients would no longer be restricted to contracted networks imposed on them by private insurers. Instead, patients would consult with health care professionals of their own choice and would receive care in facilities that best served their own medical needs, rather than in facilities that best complied with the business plans of private insurers.

Why do we keep paying private insurers for their expensive administrative services that they use to impede our access to care? That’s not very smart.

Blue Shield’s contract dispute with University of California hospitals

Blue Shield, UCLA end long health insurance dispute

By Chad Terhune
Los Angeles Times, August 10, 2012

Nonprofit insurer Blue Shield of California said it resolved a lengthy contract dispute with UCLA and other UC system hospitals over reimbursements for patient care.

The previous contract expired Dec. 31 as the two sides bickered over rising medical costs. These disputes have become more common across the country as some insurers try to rein in healthcare costs and major hospitals exert their market power to maintain adequate reimbursements.

Contract talks broke down between UCLA and Blue Shield in 2006 and 2008 as well.

http://www.latimes.com/business/money/la-fi-mo-ucla-blue-shield-20120810,0,3160712.story

And…

Blue Shield top executives’ pay changed little in 2011

By Chad Terhune
Los Angeles Times, August 11, 2012

Nonprofit insurer Blue Shield of California said its outgoing chief executive earned $4.6 million last year, off slightly from a year earlier, as all insurance companies faced new government rules on how customer premiums are spent.

The San Francisco company declined to comment on the value of Bodaken’s retirement pay and benefits or to reveal the pay package of his successor. Paul Markovich, chief operating officer, will take over as CEO Jan. 1.

http://www.latimes.com/business/la-fi-0811-health-insure-pay-20120811,0,1114038.story

Comment: 

By Don McCanne, MD

We should be able to agree that a health care financing system should be designed to optimally serve the health care needs of the patient. Under the private insurance model of health care financing, there should be no better example as to how that might work than non-profit Blue Shield of California’s coverage of care at the public University of California academic medical centers. Surely, a large non-profit traditional insurer and a system of public university health centers would collaborate to serve patients first.

California’s Blue Cross set the stage. It converted to a for-profit corporation, and then engaged in practices to improve investor return. An important part of their strategy was to impose contract restrictions on both patients and providers. To remain competitive, Blue Shield adopted the same strategies, blurring the distinction between the for-profit and non-profit Blues in California.

There are clinical situations in which the most appropriate care would be provided at one of California’s prestigious university medical centers. A health care financing system that was designed in the patients’ best interests would ensure access to these centers when appropriate. But that is not what happened in this instance when disputes arose over contract terms on the provider side. Though there was no dispute on the patient side of the contracts, Blue Shield patients nevertheless were potentially exposed to severe financial penalties should they access care at the university centers.

So this is what we get with the best in private insurance financing – contract disputes that are disruptive to patient care. If a single payer system – an improved Medicare – were our only program, spending would be priced right, based on global budgets and negotiated rates. Patients would no longer be restricted to contracted networks imposed on them by private insurers. Instead, patients would consult with health care professionals of their own choice and would receive care in facilities that best served their own medical needs, rather than in facilities that best complied with the business plans of private insurers.

Why do we keep paying private insurers for their expensive administrative services that they use to impede our access to care? That’s not very smart.

Blue Shield's contract dispute with University of California hospitals

Blue Shield, UCLA end long health insurance dispute

By Chad Terhune
Los Angeles Times, August 10, 2012
Nonprofit insurer Blue Shield of California said it resolved a lengthy contract dispute with UCLA and other UC system hospitals over reimbursements for patient care.
The previous contract expired Dec. 31 as the two sides bickered over rising medical costs. These disputes have become more common across the country as some insurers try to rein in healthcare costs and major hospitals exert their market power to maintain adequate reimbursements.
Contract talks broke down between UCLA and Blue Shield in 2006 and 2008 as well.
http://www.latimes.com/business/money/la-fi-mo-ucla-blue-shield-20120810,0,3160712.story

And…

Blue Shield top executives’ pay changed little in 2011

By Chad Terhune
Los Angeles Times, August 11, 2012
Nonprofit insurer Blue Shield of California said its outgoing chief executive earned $4.6 million last year, off slightly from a year earlier, as all insurance companies faced new government rules on how customer premiums are spent.
The San Francisco company declined to comment on the value of Bodaken’s retirement pay and benefits or to reveal the pay package of his successor. Paul Markovich, chief operating officer, will take over as CEO Jan. 1.
http://www.latimes.com/business/la-fi-0811-health-insure-pay-20120811,0,1114038.story

We should be able to agree that a health care financing system should be designed to optimally serve the health care needs of the patient. Under the private insurance model of health care financing, there should be no better example as to how that might work than non-profit Blue Shield of California’s coverage of care at the public University of California academic medical centers. Surely, a large non-profit traditional insurer and a system of public university health centers would collaborate to serve patients first.
California’s Blue Cross set the stage. It converted to a for-profit corporation, and then engaged in practices to improve investor return. An important part of their strategy was to impose contract restrictions on both patients and providers. To remain competitive, Blue Shield adopted the same strategies, blurring the distinction between the for-profit and non-profit Blues in California.
There are clinical situations in which the most appropriate care would be provided at one of California’s prestigious university medical centers. A health care financing system that was designed in the patients’ best interests would ensure access to these centers when appropriate. But that is not what happened in this instance when disputes arose over contract terms on the provider side. Though there was no dispute on the patient side of the contracts, Blue Shield patients nevertheless were potentially exposed to severe financial penalties should they access care at the university centers.
So this is what we get with the best in private insurance financing – contract disputes that are disruptive to patient care. If a single payer system – an improved Medicare – were our only program, spending would be priced right, based on global budgets and negotiated rates. Patients would no longer be restricted to contracted networks imposed on them by private insurers. Instead, patients would consult with health care professionals of their own choice and would receive care in facilities that best served their own medical needs, rather than in facilities that best complied with the business plans of private insurers.
Why do we keep paying private insurers for their expensive administrative services that they use to impede our access to care? That’s not very smart.

To Isaiah

Donald M. Berwick, MD, MPP
JAMA. 2012;307(24):2597-2599. doi:10.1001/jama.2012.6911

Thank you for letting me share this glorious day with you and your loved ones. Feel good. Feel proud. You’ve earned it.

In preparation for today, I asked your dean of students what she thinks is on your mind. So, she asked you. The word you used—many of you—was this one: Worried. You’re worried about the constant change around you, uncertain about the future of medicine and dentistry. Worried about whether you can make a decent living. You’ve boarded a boat, and you don’t know where it’s going.

I can reassure you. You’ve made a good choice—a spectacularly good choice. The career you’ve chosen is going to give you many moments of poetry. My favorite is the moment when the door closes—the click of the catch that leaves you and the patient together in the privacy—the sanctity—of the helping relationship. Doors will open too. You’ll find ways to contribute to progress that you cannot possibly anticipate now, any more than I could have dreamed of standing here when I was sitting where you are 40 years ago.

But look, I won’t lie; I’m worried too. I went to Washington to lead the Centers for Medicare & Medicaid Services, full of hope for our nation’s long-overdue journey toward making health care a human right here, at last. In lots of ways, I wasn’t disappointed. I often saw good government and the grandeur of democracy—both alive, even if not at the moment entirely well.

But, like you, I also found much that I could not control—a context torn apart by antagonisms—too many people in leadership, from whom we ought to be able to expect more, willing to bend the truth and rewrite facts for their own convenience. I heard irresponsible, cruel, baseless rhetoric about death panels silence mature, compassionate, scientific inquiry into the care we all need and want in the last stages of our lives. I heard meaningless, cynical accusations about rationing repeated over and over again by the same people who then unsheathed their knives to cut Medicaid. I watched fear grow on both sides of the political aisle—fear of authentic questions, fear of reasoned debate, and fear of tomorrow morning’s headlines—fear that stifled the respectful, civil, shared inquiry upon which the health of democracy depends.

And so, HSDM and HMS Class of 2012, I’m worried too. I too wonder where this boat is going.

There is a way to get our bearings. When you’re in a fog, get a compass. I have one—and you do too. We got our compass the day we decided to be healers. Our compass is a question, and it will point us true north: How will it help the patient?

This patient has a name. It is “Isaiah.” He once lived. He was my patient. I dedicate this lecture to him.

You will soon learn a lovely lesson about doctoring; I guarantee it. You will learn that in a professional life that will fly by fast and hard, a hectic life in which thousands of people will honor you by bringing to you their pain and confusion, a few of them will stand out. For reasons you will not control and may never understand, a few will hug your heart, and they will become for you touch points—signposts—like that big boulder on that favorite hike that, when you spot it, tells you exactly where you are. If you allow it—and you should allow it—these patients will enter your soul, and you will, in a way entirely right and proper, love them. These people will be your teachers.

Isaiah taught me. He was 15 when I met him. It was 1984, and I was the officer of the day—the duty doctor in my pediatric practice at the old Harvard Community Health Plan. My nurse practitioner partner pointed to an exam room. “You better get in there,” she said. “That kid is in pain.”

He was in pain. Isaiah was a tough-looking, inner-city kid. I would have crossed the street to avoid meeting him alone on a Roxbury corner at night. I’m not proud of that fact, but I admit it. But here on my examining table he was writhing, sweating in pain. He was yelling obscenities at the air, and, when I tried to examine him, he yelled them at me. “Don’t you f—–g touch me! Do something!”

I didn’t figure out what was going on that afternoon. Nothing made sense. I diagnosed, illogically, a back sprain, and I sent him home on analgesics. Then, that evening, the report came: an urgent call from the lab. Isaiah didn’t have a back sprain; he had acute lymphoblastic leukemia. And we didn’t have his phone number.

The police helped track him down that night, to a lonely three-decker, third floor, a solitary house in a weedy lot on Sheldon Street in the heart of Roxbury. Isaiah lived there with his mother, brothers, and his mother’s foster children.

What followed was the best of care . . . the glory of biomedical science came to Isaiah’s service. Chemotherapy started, and he went predictably into remission. But we knew that ALL in a black teenager behaves badly. Unlike in younger kids, cure was unlikely. He would go into remission for a while, but the cancer would come back and it would kill him. Three years later, he relapsed.

I drove to his apartment one evening in 1987 and sat with Isaiah and his graceful, dignified mother around a table with a plastic red-checkered tablecloth and explained the only option we knew for possible cure—a bone marrow transplant, not when he felt sick, but now, at the first sign of relapse, when he was still feeling fine. He was feeling fine, and I was there to propose treatment that might kill him.

They didn’t hesitate. Isaiah wanted to live. He got his transplant, from his brother. His course was stormy, admission after admission followed, then chronic complications of his transplant—diabetes and asthma. His Children’s Hospital medical record that year took up five four-inch-thick volumes. But he got through. Isaiah was cured.

We became very close, Isaiah and I, through this time and for years after—long conversations about his life, his hopes, his worries. He always asked me about my kids. And his mother, close, as well. An angel—a tough angel raised by her sharecropper grandfather on a North Carolina farm, who read Isaiah the riot act when she had to and who fiercely protected him—and who, during the darkest times of his course, continued to tend her ten foster children, as well as her own.

I came to know Isaiah well, but it wouldn’t be quite right to call us friends—our worlds were too far apart—different galaxies. But my respect and affection for Isaiah grew and grew. His courage. His insight. His generosity.

But there is more to tell.

Isaiah smoked his first dope at age 5. He got his first gun before 10, and, by 12, he had committed his first armed robbery; he was on crack at 14. Even on chemotherapy, he was in and out of police custody. For months after his transplant he tricked me into extra prescriptions for narcotics, which he hoarded and probably sold. Two of his five brothers were in jail—one for murder; and, two years into Isaiah’s treatment, a third brother was shot dead—a gun blast through the front door—in a drug dispute.

Isaiah didn’t finish school, and he had no idea of what to do for legitimate work. He got and lost job after job for not showing up or being careless. His world was the street corner and his horizon was only one day away. He saw no way out. He hated it, but he saw no way out. He once told me that he thought his leukemia was a blessing, because at least while he was in the hospital, he couldn’t be on the streets.

And Isaiah died. One night, 18 years after his leukemia was cured, at 37 years of age, they found him on a street corner, breathing but brain-dead from a prolonged convulsion from uncontrolled diabetes and even more uncontrolled despair.

Isaiah tried to phone me just before that fatal convulsion. He had my home num
ber, and I still have the slip of paper on which my daughter wrote, “Isaiah called. Please call him back.” I never did. He would have said, “Hi, Dr Berwick. It’s Isaiah. I’m really sick. I can’t take it. I don’t know what to do. Please help me.” Because that is what he often said.

Isaiah spent the last two years of his life in a vegetative state in a nursing home where I sometimes visited him. At his funeral, his family asked me to speak, and I could think of nothing to talk about except his courage.

Isaiah, my patient. Cured of leukemia. Killed by hopelessness.

I bring Isaiah today as my witness to two duties; you have both. It’s where your compass points.

First, you will cure his leukemia. You will bring the benefits of biomedical science to him, no less than to anyone else. Isaiah’s poverty, his race, his troubled life-line—not one of these facts or any other fact should stand in the way of his right to care—his human right to care. Let the Supreme Court have its day. Let the erratics and vicissitudes of politics play out their careless games. No matter. Health care is a human right; it must be made so in our nation; and it is your duty to make it so. Therefore, for your patients, you will go to the mat, and you will not lose your way. You are a physician, and you have a compass, and it points true north to what the patient needs. You will put the patient first.

But that is not enough. Isaiah’s life and death testify to a further duty, one more subtle—but no less important. Maybe this second is not a duty that you meant to embrace; you may not welcome it. It is to cure, not only the killer leukemia; it is to cure the killer injustice.

Antoine de Saint-Exupéry wrote, “To become a man is to be responsible; to be ashamed of miseries that you did not cause.” I say this: To profess to be a healer, that is, to take the oath you take today, is to be responsible; to be ashamed of miseries that you did not cause. That is a heavy burden, and you did not ask for it. But look at the facts.

In our nation—in our great and wealthy nation—the wages of poverty are enormous. The proportion of our people living below the official poverty line has grown from its low point of 11% in 1973 to more than 15% today; among children, it is 22%—16.4 million; among black Americans, it is 27%. In 2010, more than 46 million Americans were living in poverty; 20 million, in extreme poverty—incomes below $11 000 per year for a family of four. One million American children are homeless. More people are poor in the United States today than at any other time in our nation’s history; 1.5 million American households, with 2.8 million children, live here on less than $2 per person per day. And 50 million more Americans live between the poverty line and just 50% above it—the near-poor, for whom, in the words of the Urban Institute, “The loss of a job, a cut in work hours, a serious health problem, or a rise in housing costs can quickly push them into greater debt, bankruptcy’s brink, or even homelessness.” For the undocumented immigrants within our borders, it’s even worse.

For all of these people, our nation’s commitment to the social safety net—the portion of our policy and national investment that reaches help to the disadvantaged—is life’s blood. And today that net is fraying—badly. In 2010, 20 states eliminated optional Medicaid benefits or decreased coverage. State Social Services Block Grants and Food Stamps are under the gun. Enrollment in the TANF program—Temporary Assistance to Needy Families—has lagged far behind the need. Let me be clear: the will to eradicate poverty in the United States is wavering—it is in serious jeopardy.

In the great entrance hall of the building where I worked at CMS—the Hubert Humphrey Building, headquarters of the Department of Health and Human Services—are chiseled in massive letters the words of the late Senator Humphrey at the dedication of the building in his name. He said, “The moral test of government is how it treats people in the dawn of life, the children, in the twilight of life, the aged, and in the shadows of life, the sick, the needy, and the handicapped.”

This is also, I believe, the moral test of professions. Those among us in the shadows—they do not speak, not loudly. They do not often vote. They do not contribute to political campaigns or PACs. They employ no lobbyists. They write no op-eds. We pass by their coin cups outstretched, as if invisible, on the corner as we head for Starbucks; and Congress may pass them by too, because they don’t vote, and, hey, campaigns cost money. And if those in power do not choose of their own free will to speak for them, the silence descends.

Isaiah was born into the shadows of life. Leukemia could not overtake him, but the shadows could, and they did.

I am not blind to Isaiah’s responsibilities; nor was he. He was embarrassed by his failures; he fought against his addictions, his disorganization, and his temptations. He tried. I know that he tried. To say that the cards were stacked against him is too glib; others might have been able to play his hand better. I know that; and he knew that.

But to ignore Isaiah’s condition not of his choosing, the harvest of racism, the frailty of the safety net, the vulnerability of the poor, is simply wrong. His survival depended not just on proper chemotherapy, but, equally, on a compassionate society.

I am not sure when the moral test was put on hold; when it became negotiable; when our nation in its political discourse decided that it was uncool to make its ethics explicit and its moral commitments clear—to the people in the dawn, the twilight, and the shadows. But those commitments have never in my lifetime been both so vulnerable and so important.

You are not confused; the world is. You need not forget your purpose, even if the world does. Leaders are not leaders who permit pragmatics to quench purpose. Your purpose is to heal, and what needs to be healed is more than Isaiah’s bone marrow; it is our moral marrow—that of a nation founded on our common humanity. My brother, a retired schoolteacher, tells me that he always gets goose bumps when he reads this phrase: “We, the people . . . ” We—you, and me, and Isaiah—inclusive.

It is time to recover and celebrate a moral vocabulary in our nation—one that speaks without apology or hesitation of the right to health care—the human right—and, without apology or hesitation, of the absolute unacceptability of the vestiges of racism, the violence of poverty, and blindness to the needs of the least powerful among us.

Now you don your white coats, and you enter a career of privilege. Society gives you rights and license it gives to no one else, in return for which you promise to put the interests of those for whom you care ahead of your own. That promise and that obligation give you voice in public discourse simply because of the oath you have sworn. Use that voice. If you do not speak, who will?

If Isaiah needs a bone marrow transplant, then, by the oath you swear, you will get it for him. But Isaiah needs more. He needs the compassion of a nation, the generosity of a commonwealth. He needs justice. He needs a nation to recall that, no matter what the polls say, and no matter what happens to be temporarily convenient at a time of political combat and economic stress, that the moral test transcends convenience. Isaiah, in his legions, needs those in power—you—to say to others in power that a nation that fails to attend to the needs of those less fortunate among us risks its soul. That is your duty too.

This is my message from Isaiah’s life and from his death. Be worried, but do not for one moment be confused. You are healers, every one, healers ashamed of miseries you did not cause. And your voice—every one—can be loud, and forceful, and confident, and your voice will be trusted. In his honor—in Isaiah’s honor—please,
use it.

Health care cost — Myth versus reality

By Ethan Parke
Vtdigger (Montpelier, Vt.), Aug. 9, 2012

Single payer critics warn that Vermont should not go forward with Green Mountain Care because there are too many unknowns. But one thing is certain — if we do nothing, health care expenditures in Vermont (from all sources) are expected to reach $10 billion a year by the year 2020. That’s a back-breaking $16,000 per person, which could very well doom our economy.

A single-payer system would empower Vermont, as a commonwealth of citizens, to take charge of its own health care spending. One accountable entity, subject to public oversight and control, would administer the flow of dollars from all sources to health care providers, eliminating the excessive profits and administrative waste that plague our current system.

Yet the single payer naysayers claim that doctors will leave the state, and infer that costs can be controlled only at the expense of health care quality. This has not been the case in other countries, which have a single-payer system with plenty of doctors, but which spend less than we do, and have higher indicators of health.

So where exactly is the fat in our current system? What can be cut without sacrificing quality? These are important questions that the Green Mountain Care Board would do well to examine in detail. The board must correctly identify the root causes of health care inflation in order to make the right decisions as we move toward a single payer.

Along the way, the board should be careful to avoid misconceptions. A prize-winning Michigan journalist, Julie Mack, recently wrote an article debunking the myths that opponents of health care reform recite as reasons why we must live with the world’s highest health care costs. See her article here.

The five false assumptions are (1) we have the best care in the world; (2) we don’t ration care as other countries do; (3) we have bad habits and are therefore less healthy than people elsewhere; (4) our medical malpractice lawsuits are out of control; and (5) the U.S. government is a free spender on health care.

Mack showed that all five of these assertions are contradicted by statistical evidence. She based her conclusions on a 2011 report by the Organization for Economic Cooperation, and from other reliable sources, such as the nonpartisan Congressional Budget Office. Mack then went on to list the real reasons for high health care costs, roughly in order of magnitude. If she is correct, these are the things the Green Mountain Care Board should focus on fixing:

First, U.S. health care providers charge much more than providers in other developed countries. For instance, in 2007 an appendectomy in the U.S. was billed at an average of $7,962. In Canada the charge was $5,004, and in Germany $2,943. An MRI in the U.S. averaged $1,009, while the same test was $304 in Canada, and only $187 in Britain. The same disparity was true for pharmaceuticals. In the U.S. we simply pay much more per product or per service, than people in other developed countries.

Second, in the U.S. we use more medical interventions, usually at a high price tag, and we use less low cost primary care. Yet overall health outcomes in the U.S. are not better than in other countries. For instance, in the U.S., a heart patient is 45 percent more likely to undergo angioplasty or bypass surgery than patients in Norway, which ranks second in the use of these procedures. However, the U.S. mortality rate for heart disease is 41 percent higher than Norway’s.

Third, the fee-for-service reimbursement mechanism used in the U.S. creates a powerful incentive to overdiagnose, overprescribe, and overtreat. Fee-for-service encourages providers to pad bills with unnecessary procedures, to game the system, and even worse, to commit insurance fraud.

Fourth, on a per capita basis we spend about five times more on doctors in the U.S. than in other developed countries. For instance, in 2008, U.S. orthopedic surgeons averaged $442,450 per year in pre-tax earnings, while in Britain, which ranked second in earnings for this specialty, the orthopedic surgeons earned $324,138. In other countries, the average earnings were less than $210,000. These higher incomes resulted from higher fees, not from higher numbers of services or higher medical school tuition bills. Compounding the problem, Americans tend to use more specialists and less primary care than patients in other countries.

Fifth, the U.S. has fewer government regulations aimed at controlling costs. Outside of Medicare and Medicaid and a handful of other government programs, providers essentially charge whatever they can get away with. Government programs get charged the least, private insurance plans get charged more, and perversely, the uninsured get charged the highest rates of all. There is little, if any, government regulation on these practices. Pharmaceutical companies and medical device manufacturers are especially adept at overcharging. They routinely make 20 percent profit margins.

Finally, the fragmented reimbursement system in the U.S. results in wasteful, inefficient spending. As providers chase numerous payers, administrative confusion and red tape abound. Moreover, in the midst of this maze, the amount of insurance reimbursement for a particular service begins to affect how often it is ordered. According to the former head of Medicare and Medicaid, Dr. Donald Berwick, the U.S. could save $150 billion to $250 billion a year by eliminating this kind of waste. “Much is done that doesn’t help patients at all, and physicians know it,” said Berwick.

The Green Mountain Care Board is surely aware that these real inflationary factors must be addressed as they work on implementing the federal health benefits exchange and the state single-payer system. The board should waste little time discussing cost driver myths such as Vermonters’ bad health habits and medical malpractice reform. These issues are better left to others to debate. Instead, the board should focus on developing the mechanisms for negotiating reimbursement rates and making timely, but cost conscious payments to providers.

We can have a high quality health care system that is universally accessible and controls costs — but a single-payer system is the prerequisite. The opponents of single payer would have the state do nothing, or would turn back the clock to a time when insurance companies could cherry pick the healthiest customers, leaving the sick and injured to fend for themselves. Now is the time to move forward with a single, publicly accountable payment system, that will end health care unfairness and alleviate the biggest shackle on the state’s economic growth — uncontrolled health care spending.

Ethan Parke is a resident of Montpelier, Vt.

http://vtdigger.org/2012/08/09/parker-health-care-cost-myth-versus-reality/

Pharmaceutical R&D – its cost and what it delivers

Pharmaceutical research and development: what do we get for all that money?

By Donald W Light, Joel R Lexchin
BMJ, August 7, 2012

Data indicate that the widely touted “innovation crisis” in pharmaceuticals is a myth. The real innovation crisis, say Donald Light and Joel Lexchin, stems from current incentives that reward companies for developing large numbers of new drugs with few clinical advantages over existing ones.

The “innovation crisis” myth

The constant production of reports and articles about the so called innovation crisis rests on the decline in new molecular entities (defined as “an active ingredient that has never been marketed . . . in any form”) since a spike in 1996 that resulted from the clearance of a backlog of applications after large user fees from companies were introduced. This decline ended in 2006, when approvals of new molecular entities returned to their long term mean of between 15 and 25 a year.

The real innovation crisis

More relevant than the absolute number of new drugs brought to the market is the number that represent a therapeutic advance. Although the pharmaceutical industry and its analysts measure innovation in terms of new molecular entities as a stand-in for therapeutically superior new medicines, most have provided only minor clinical advantages over existing treatments.

How much does research and development cost?

Although the pharmaceutical industry emphasises how much money it devotes to discovering new drugs, little of that money actually goes into basic research. Data from companies, the United States National Science Foundation, and government reports indicate that companies have been spending only 1.3% of revenues on basic research to discover new molecules, net of taxpayer subsidies. More than four fifths of all funds for basic research to discover new drugs and vaccines come from public sources. Moreover, despite the industry’s frequent claims that the cost of new drug discovery is now $1.3bn (£834m; €1bn), this figure, which comes from the industry supported Tufts Center, has been heavily criticised. Half that total comes from estimating how much profit would have been made if the money had been invested in an index fund of pharmaceutical companies that increased in value 11% a year, compounded over 15 years. While used by finance committees to estimate whether a new venture is worth investing in, these presumed profits (far greater than the rise in the value of pharmaceutical stocks) should not be counted as research and development costs on which profits are to be made. Half of the remaining $0.65bn is paid by taxpayers through company deductions and credits, bringing the estimate down to one quarter of $1.3bn or $0.33bn. The Tufts study authors report that their estimate was done on the most costly fifth of new drugs (those developed in-house), which the authors reported were 3.44 times more costly than the average, reducing the estimate to $90m. The median costs were a third less than the average, or $60m. Deconstructing other inflators would lower the estimate of costs even further.

Hidden business model

Although the industry’s vast network of public relations departments and trade associations generate a large volume of stories about the so called innovation crisis, the key role of blockbuster drugs, and the crisis created by “the patent cliff,” the hidden business model of pharmaceuticals centres on turning out scores of minor variations, some of which become market blockbusters.

Myth of unsustainable research and development

Complementing the stream of articles about the innovation crisis are those about the costs of research and development being “unsustainable” for the small number of new drugs approved. Both claims serve to justify greater government support and protections from generic competition, such as longer data exclusivity and more taxpayer subsidies. However, although reported research and development costs rose substantially between 1995 and 2010, by $34.2bn, revenues increased six times faster, by $200.4bn. Companies exaggerate costs of development by focusing on their self reported increase in costs and by not mentioning this extraordinary revenue return. Net profits after taxes consistently remain substantially higher than profits for all other Fortune 500 companies.

Towards more cost effective, safer medicines

What can be done to change the business model of the pharmaceutical industry to focus on more cost effective, safer medicines? The first step should be to stop approving so many new drugs of little therapeutic value. The European Medicines Agency (EMA) does Europe a disservice by approving 74% of all new applications based on trials designed by the companies, while keeping data about efficacy and safety secret. Twenty nine per cent of new biologicals approved by the EMA received safety warnings within the first 10 years on the market, and therapeutically similar drugs by definition have no advantages to offset their unknown risk of increased harm. We need to revive the Norwegian “medical need” clause that limited approval of new drugs to those that offered a therapeutic advantage over existing products. This approach led to Norway having seven non-steroidal anti-inflammatory drugs on the market compared with 22 in the Netherlands. Norway’s medical need clause was eliminated in 1996 when it harmonised its drug approval process with that in the EU. EU countries are paying billions more than necessary for drugs that provide little health gain because prices are not being set to reward new drugs in proportion to their added clinical value.

We should also fully fund the EMA and other regulatory agencies with public funds, rather than relying on industry generated user fees, to end industry’s capture of its regulator. Finally, we should consider new ways of rewarding innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137 (Sen. Bernie Sanders), rather than through the high prices generated by patent protection. The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again. This approach would save countries billions in healthcare costs and produce real gains in people’s health.

http://www.bmj.com/content/345/bmj.e4348

Comment: 

By Don McCanne, MD

This important BMJ article by Donald Light and Joel Lexchin gives us the background that explains why we have the feeling that the pharmaceutical firms are gouging us with outrageous pricing, in spite of their excuse that these prices are necessary to support their research and development – an excuse that seems not to hold water.

The pharmaceutical industry wants less government involvement (except for the research money), when what we need is much more government involvement. Under a single payer system that included pharmaceuticals, prices would be negotiated based on truly legitimate costs plus fair profits, and not based on wasteful expenses such as product research designed primarily to reset the patent clock.

As Light and Lexchin explain, even the European nations would benefit with a greater regulatory role in improving value though such measures as determining medical need of new products. But just think how much better off we would be in the United States if we would just get past the concept that we must
go all out to protect the sacred marketplace – a concept that has allowed the pharmaceutical firms to continue to plunder us.

Pharmaceutical R&D – its cost and what it delivers

Pharmaceutical research and development: what do we get for all that money?

By Donald W Light, Joel R Lexchin
BMJ, August 7, 2012

Data indicate that the widely touted “innovation crisis” in pharmaceuticals is a myth. The real innovation crisis, say Donald Light and Joel Lexchin, stems from current incentives that reward companies for developing large numbers of new drugs with few clinical advantages over existing ones.

The “innovation crisis” myth

The constant production of reports and articles about the so called innovation crisis rests on the decline in new molecular entities (defined as “an active ingredient that has never been marketed . . . in any form”) since a spike in 1996 that resulted from the clearance of a backlog of applications after large user fees from companies were introduced. This decline ended in 2006, when approvals of new molecular entities returned to their long term mean of between 15 and 25 a year.

The real innovation crisis

More relevant than the absolute number of new drugs brought to the market is the number that represent a therapeutic advance. Although the pharmaceutical industry and its analysts measure innovation in terms of new molecular entities as a stand-in for therapeutically superior new medicines, most have provided only minor clinical advantages over existing treatments.

How much does research and development cost?

Although the pharmaceutical industry emphasises how much money it devotes to discovering new drugs, little of that money actually goes into basic research. Data from companies, the United States National Science Foundation, and government reports indicate that companies have been spending only 1.3% of revenues on basic research to discover new molecules, net of taxpayer subsidies. More than four fifths of all funds for basic research to discover new drugs and vaccines come from public sources. Moreover, despite the industry’s frequent claims that the cost of new drug discovery is now $1.3bn (£834m; €1bn), this figure, which comes from the industry supported Tufts Center, has been heavily criticised. Half that total comes from estimating how much profit would have been made if the money had been invested in an index fund of pharmaceutical companies that increased in value 11% a year, compounded over 15 years. While used by finance committees to estimate whether a new venture is worth investing in, these presumed profits (far greater than the rise in the value of pharmaceutical stocks) should not be counted as research and development costs on which profits are to be made. Half of the remaining $0.65bn is paid by taxpayers through company deductions and credits, bringing the estimate down to one quarter of $1.3bn or $0.33bn. The Tufts study authors report that their estimate was done on the most costly fifth of new drugs (those developed in-house), which the authors reported were 3.44 times more costly than the average, reducing the estimate to $90m. The median costs were a third less than the average, or $60m. Deconstructing other inflators would lower the estimate of costs even further.

Hidden business model

Although the industry’s vast network of public relations departments and trade associations generate a large volume of stories about the so called innovation crisis, the key role of blockbuster drugs, and the crisis created by “the patent cliff,” the hidden business model of pharmaceuticals centres on turning out scores of minor variations, some of which become market blockbusters.

Myth of unsustainable research and development

Complementing the stream of articles about the innovation crisis are those about the costs of research and development being “unsustainable” for the small number of new drugs approved. Both claims serve to justify greater government support and protections from generic competition, such as longer data exclusivity and more taxpayer subsidies. However, although reported research and development costs rose substantially between 1995 and 2010, by $34.2bn, revenues increased six times faster, by $200.4bn. Companies exaggerate costs of development by focusing on their self reported increase in costs and by not mentioning this extraordinary revenue return. Net profits after taxes consistently remain substantially higher than profits for all other Fortune 500 companies.

Towards more cost effective, safer medicines

What can be done to change the business model of the pharmaceutical industry to focus on more cost effective, safer medicines? The first step should be to stop approving so many new drugs of little therapeutic value. The European Medicines Agency (EMA) does Europe a disservice by approving 74% of all new applications based on trials designed by the companies, while keeping data about efficacy and safety secret. Twenty nine per cent of new biologicals approved by the EMA received safety warnings within the first 10 years on the market, and therapeutically similar drugs by definition have no advantages to offset their unknown risk of increased harm. We need to revive the Norwegian “medical need” clause that limited approval of new drugs to those that offered a therapeutic advantage over existing products. This approach led to Norway having seven non-steroidal anti-inflammatory drugs on the market compared with 22 in the Netherlands. Norway’s medical need clause was eliminated in 1996 when it harmonised its drug approval process with that in the EU. EU countries are paying billions more than necessary for drugs that provide little health gain because prices are not being set to reward new drugs in proportion to their added clinical value.

We should also fully fund the EMA and other regulatory agencies with public funds, rather than relying on industry generated user fees, to end industry’s capture of its regulator. Finally, we should consider new ways of rewarding innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137 (Sen. Bernie Sanders), rather than through the high prices generated by patent protection. The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again. This approach would save countries billions in healthcare costs and produce real gains in people’s health.

http://www.bmj.com/content/345/bmj.e4348

Comment: 

By Don McCanne, MD

This important BMJ article by Donald Light and Joel Lexchin gives us the background that explains why we have the feeling that the pharmaceutical firms are gouging us with outrageous pricing, in spite of their excuse that these prices are necessary to support their research and development – an excuse that seems not to hold water.

The pharmaceutical industry wants less government involvement (except for the research money), when what we need is much more government involvement. Under a single payer system that included pharmaceuticals, prices would be negotiated based on truly legitimate costs plus fair profits, and not based on wasteful expenses such as product research designed primarily to reset the patent clock.

As Light and Lexchin explain, even the European nations would benefit with a greater regulatory role in improving value though such measures as determining medical need of new products. But just think how much better off we would be in the United States if we would just get past the concept that we must go all out to protect the sacred marketplace – a concept that has allowed the pharmaceutical firms to continue to plunder us.

Myths about Canada, U.S. health care debunked

Canadians aren’t flocking to U.S. for medical care

By Bill Mann
MarketWatch, The Wall Street Journal, Aug. 9, 2012

PORT TOWNSEND, Wash. (MarketWatch) — It’s a relief to see hard facts finally emerging on this side of the border about Canada’s single-payer health-care system.

For years I’ve heard Canada’s popular medicare (the Canadian term for universal health care) system slagged by lies, distortions, and outright ignorance on U.S. radio talk shows and other American popular media (where do people GET this stuff?). And for years, I’ve tried to set the record straight in my online and newspaper columns, having lived in Canada and actually having used their system. My son and his family are now covered by it in Vancouver.

Also, for years I’ve heard from Canadians, in Comments under my pieces and in email, thanking me for trying to set the record straight. They overwhelmingly like their medical delivery system, which turned 50 just last month.

I’ve also heard Canadian talk-show callers upset and incredulous about the nonsense being circulated south of the border about their single-payer medical system, which is still evolving as Ottawa pays less and the provinces pay more of growing health-care costs.

Anyone who wants a strong, honest defense of the Canadian system should keep a copy handy (and print out, as I have) a well-written piece — a touchstone, actually — in the latest online edition of the journal of the U.S.’ large and powerful AARP.

The well-researched, fact-based AARP article is written by an American, Aaron E. Carroll, M.D., and is titled “5 Myths About Canada’s Health Care System.” Its subhead:

“The truth may surprise you.” It just might, my fellow Americans.

To separate fact from polarizing talk-show nonsense, Carroll, the director of the Center for Health Policy and Professional Research in Indianapolis, examined the major myths about the Canadian and U.S. systems, myths I hear repeatedly voiced on U.S. talk shows of all political stripes.

The first myth Carroll takes on is the oft-heard one about Canadians supposedly “flocking” to the U.S. to get medical care. An eye-popping pie chart, generated by peer-reviewed journal “Health Affairs,” shows only a tiny sliver of Canadians heading south for care — less than 1%.

Even more telling here is a “Health Affairs” survey of U.S. hospitals near the Canadian border, where you’d expect all these “care-deprived” Canucks to go first. A vast majority saw fewer than one Canadian a month. Bigger hospitals, even those rated by U.S. News & World Report as “America’s Best,” also saw very few Canadians, in either emergency or elective care. And these are exactly the hospitals where you’d expect to well-off Canadians to go.

(I love the metaphorical title of the Health Affairs study, “Phantoms in the Snow: Canadians’ Use of Health Care Services in the U.S.”)

The second myth, about Canadian doctors supposedly taking U.S. jobs, is also debunked by Carroll’s research and facts, which show high Canadian physician satisfaction in Canada and fewer Canadian doctors heading south to practice — less than 0.5% of all Canadian MD’s in the most recent findings.

(Charts and graphs from hard data, something many MarketWatch readers appreciate. Carroll’s well-researched article is loaded with them).

The third myth concerns how Canadians ration health care in specific areas. Every Western nation rations medical care out of necessity. As we’ve mentioned here before, Americans have chosen (so far, anyway) to ration medical care by income.

One favorite argument, heard on the floor of Congress and elsewhere, is that Canada denies hip replacements to older people. Absolutely not true, Carroll documents. Older Canadians get a ton of hip replacements. He can’t resist adding this wry note in the AARP piece:

“Know who pays for care for older people in the U.S.? Medicare. A single-payer system.”

The fourth myth is that Canadians have far longer wait times for medical treatment because of its system. This is one I hear all the time. Carroll says this is true, BUT…there’s a good reason:

Canadians have shown admirable restraint — something normally in short supply here in the U.S. They’ve actually opted to hold down medicare costs by consciously waiting longer and limiting supply, mostly for elective procedures. Imagine that.

Canadians, in other words, have made a choice to be fiscally conservative, Carroll says in his well-documented article. They’re more realistic and less demanding than many American patients are. Carroll says that Canadians COULD, if they wanted to, cut down wait times — by spending more on health care. But they’ve actually made a conscious choice not to do this.

This is no smoke screen: I’ve heard callers on Canadian radio shows state exactly this many times. They’d rather show personal restraint by waiting a bit longer than running up deficits.

The final myth about Canada rationing health care in its system and the U.S. not doing so governmentally, is trickier, Carroll admits. But he points out that although the U.S. pays quite a bit more of its GDP than Canada does on health care, far more Americans in need of care go unseen by doctors. And U.S. medical outcomes, he adds, are middling at best.

Feel free to have a discussion on the two systems, Carroll concludes. His piece has hundreds of Comments below it, not surprisingly — many of them rehashing the same old tired myths about Canada’s popular system his piece debunks).

But, he adds, but if you do have a discussion on this important subject, “Stick to the facts.”

Given the U.S.’ history in this politically charged area, as my Canadian friends would put it, “Not bloody likely.”

http://articles.marketwatch.com/2012-08-09/commentary/33111026_1_canadian-system-single-payer-medical-system-medical-care

Pharmaceutical R&D – its cost and what it delivers

Pharmaceutical research and development: what do we get for all that money?

By Donald W Light, Joel R Lexchin
BMJ, August 7, 2012
Data indicate that the widely touted “innovation crisis” in pharmaceuticals is a myth. The real innovation crisis, say Donald Light and Joel Lexchin, stems from current incentives that reward companies for developing large numbers of new drugs with few clinical advantages over existing ones.
The “innovation crisis” myth
The constant production of reports and articles about the so called innovation crisis rests on the decline in new molecular entities (defined as “an active ingredient that has never been marketed . . . in any form”) since a spike in 1996 that resulted from the clearance of a backlog of applications after large user fees from companies were introduced. This decline ended in 2006, when approvals of new molecular entities returned to their long term mean of between 15 and 25 a year.
The real innovation crisis
More relevant than the absolute number of new drugs brought to the market is the number that represent a therapeutic advance. Although the pharmaceutical industry and its analysts measure innovation in terms of new molecular entities as a stand-in for therapeutically superior new medicines, most have provided only minor clinical advantages over existing treatments.
How much does research and development cost?
Although the pharmaceutical industry emphasises how much money it devotes to discovering new drugs, little of that money actually goes into basic research. Data from companies, the United States National Science Foundation, and government reports indicate that companies have been spending only 1.3% of revenues on basic research to discover new molecules, net of taxpayer subsidies. More than four fifths of all funds for basic research to discover new drugs and vaccines come from public sources. Moreover, despite the industry’s frequent claims that the cost of new drug discovery is now $1.3bn (£834m; €1bn), this figure, which comes from the industry supported Tufts Center, has been heavily criticised. Half that total comes from estimating how much profit would have been made if the money had been invested in an index fund of pharmaceutical companies that increased in value 11% a year, compounded over 15 years. While used by finance committees to estimate whether a new venture is worth investing in, these presumed profits (far greater than the rise in the value of pharmaceutical stocks) should not be counted as research and development costs on which profits are to be made. Half of the remaining $0.65bn is paid by taxpayers through company deductions and credits, bringing the estimate down to one quarter of $1.3bn or $0.33bn. The Tufts study authors report that their estimate was done on the most costly fifth of new drugs (those developed in-house), which the authors reported were 3.44 times more costly than the average, reducing the estimate to $90m. The median costs were a third less than the average, or $60m. Deconstructing other inflators would lower the estimate of costs even further.
Hidden business model
Although the industry’s vast network of public relations departments and trade associations generate a large volume of stories about the so called innovation crisis, the key role of blockbuster drugs, and the crisis created by “the patent cliff,” the hidden business model of pharmaceuticals centres on turning out scores of minor variations, some of which become market blockbusters.
Myth of unsustainable research and development
Complementing the stream of articles about the innovation crisis are those about the costs of research and development being “unsustainable” for the small number of new drugs approved. Both claims serve to justify greater government support and protections from generic competition, such as longer data exclusivity and more taxpayer subsidies. However, although reported research and development costs rose substantially between 1995 and 2010, by $34.2bn, revenues increased six times faster, by $200.4bn. Companies exaggerate costs of development by focusing on their self reported increase in costs and by not mentioning this extraordinary revenue return. Net profits after taxes consistently remain substantially higher than profits for all other Fortune 500 companies.
Towards more cost effective, safer medicines
What can be done to change the business model of the pharmaceutical industry to focus on more cost effective, safer medicines? The first step should be to stop approving so many new drugs of little therapeutic value. The European Medicines Agency (EMA) does Europe a disservice by approving 74% of all new applications based on trials designed by the companies, while keeping data about efficacy and safety secret. Twenty nine per cent of new biologicals approved by the EMA received safety warnings within the first 10 years on the market, and therapeutically similar drugs by definition have no advantages to offset their unknown risk of increased harm. We need to revive the Norwegian “medical need” clause that limited approval of new drugs to those that offered a therapeutic advantage over existing products. This approach led to Norway having seven non-steroidal anti-inflammatory drugs on the market compared with 22 in the Netherlands. Norway’s medical need clause was eliminated in 1996 when it harmonised its drug approval process with that in the EU. EU countries are paying billions more than necessary for drugs that provide little health gain because prices are not being set to reward new drugs in proportion to their added clinical value.
We should also fully fund the EMA and other regulatory agencies with public funds, rather than relying on industry generated user fees, to end industry’s capture of its regulator. Finally, we should consider new ways of rewarding innovation directly, such as through the large cash prizes envisioned in US Senate Bill 1137 (Sen. Bernie Sanders), rather than through the high prices generated by patent protection. The bill proposes the collection of several billion dollars a year from all federal and non-federal health reimbursement and insurance programmes, and a committee would award prizes in proportion to how well new drugs fulfilled unmet clinical needs and constituted real therapeutic gains. Without patents new drugs are immediately open to generic competition, lowering prices, while at the same time innovators are rewarded quickly to innovate again. This approach would save countries billions in healthcare costs and produce real gains in people’s health.
http://www.bmj.com/content/345/bmj.e4348

This important BMJ article by Donald Light and Joel Lexchin gives us the background that explains why we have the feeling that the pharmaceutical firms are gouging us with outrageous pricing, in spite of their excuse that these prices are necessary to support their research and development – an excuse that seems not to hold water.
The pharmaceutical industry wants less government involvement (except for the research money), when what we need is much more government involvement. Under a single payer system that included pharmaceuticals, prices would be negotiated based on truly legitimate costs plus fair profits, and not based on wasteful expenses such as product research designed primarily to reset the patent clock.
As Light and Lexchin explain, even the European nations would benefit with a greater regulatory role in improving value though such measures as determining medical need of new products. But just think how much better off we would be in the United States if we would just get past the concept that we must go all out to protect the sacred marketplace – a concept that has allowed the pharmaceutical firms to continue to plunder us.