PNHP

The Looming National Benefit Crisis

The Looming National Benefit Crisis

By Dennis Cauchon and John Waggoner
USA TODAY – 10/4/2004

The long-term economic health of the United States is threatened by $53 trillion in government debts and liabilities that start to come due in four years when baby boomers begin to retire.

The $53 trillion is what federal, state and local governments need immediately – stashed away, earning interest, beyond the $3 trillion in taxes collected last year – to repay debts and honor future benefits promised under Medicare, Social Security and government pensions.

“As a nation, we may have already made promises to coming generations of retirees that we will be unable to fulfill,” Federal Reserve Chairman Alan Greenspan told the House Budget Committee last month.

“Economists agree this cannot go on,” says Joseph Stiglitz, President Clinton’s chief economic adviser from 1995 to 1997. “We can borrow and borrow, but eventually there will be a day of reckoning.”

Economist James Galbraith of the University of Texas in Austin is a rare optimist in this debate. “I’m not at all concerned about Medicare or Social Security,” Galbraith says. “Unless the government goes broke, Medicare isn’t going to go broke, and the U.S. government isn’t going to go broke because it can print money.”

Galbraith says the country can handle higher tax rates, as Europeans do, and can save money by cutting spending elsewhere, such as on defense, and by implementing a Canadian-style health care system that uses private doctors and hospitals but has the government set prices and pay the bills.

“We are an enormously rich country,” he says. “Providing health care and a modest living for our elderly is certainly something we can afford.”

http://www.usatoday.com/news/nation/2004-10-03-debt-cover_x.htm

Comment: It’s about priorities. Nothing more, nothing less.

Lifespan Crisis Hits Supersize America

Robin McKie, science editor
The Observer – Sunday September 19, 2004
http://observer.guardian.co.uk/international/story/
0,6903,1307825,00.html

Bloated, blue-collar Americans – gorged on diets of fries and burgers, but denied their share of US riches – are bringing the nation’s steady rise in life expectancy to a grinding halt.

Twenty years ago, the US, the richest nation on the planet, led the world’s longevity league. Today, American women rank only 19th, while males can manage only 28th place, alongside men from Brunei.

These startling figures are blamed by researchers on two key factors: obesity, and inequality of health care. A man born in a poor area of Washington can have a life expectancy that is 40 years less than a woman in a prosperous neighbourhood only a few blocks away, for example.

‘A look at the Americans’ health reveals astonishing inequalities in our society,’ state Professor Lawrence Jacobs of Minnesota University and Professor James Morone, of Brown University, Rhode Island, in the journal American Prospect .

Their paper is one of a recent swathe of studies that have uncovered a shocking truth: America, once the home of the world’s best-fed, longest-lived people, is now a divided nation made up of a rich elite and a large underclass of poor, ill-fed, often obese, men and women who are dying early.

In another newly published paper, statisticians at Boston College reveal that in France, Japan and Switzerland, men and women aged 65 now live several years longer than they do in the US. Indeed, America only just scrapes above Mexico and most East European nations.

This decline is astonishing given America’s wealth. Not only is it Earth’s richest nation, it devotes more gross domestic product – 13 per cent – to health care than any other developed nation. Switzerland comes next with 10 per cent; Britain spends 7 per cent. As the Boston group – Alicia Munnell, Robert Hatch and James Lee – point out: ‘The richer a country is, the more resources it can dedicate to education, medical and other goods and services associated with great longevity.’ The result in every other developed country has been an unbroken rise in life expectancy since 1960.

But this formula no longer applies to America, where life expectancy’s rise has slowed but not yet stopped, because resources are now so unevenly distributed. When the Boston College group compared men and women in America’s top 10 per cent wage bracket with those in the bottom ten per cent, they found the former group earned 17 times more than the latter. In Japan, Switzerland and Norway, this ratio is only five-to-one.

Jacobs and Morone state: ‘Check-ups, screenings and vaccinations save lives, improve well-being, and are shockingly uneven [in America]. Well-insured people get assigned hospital beds; the uninsured get patched up and sent back to the streets.’ For poor Americans, health service provision is little better than that in third world nations. ‘People die younger in Harlem than in Bangladesh,’ report Jacobs and Morone.

Consumption of alcohol, tobacco and food can also have a huge impact on life expectancy. The first two factors are not involved with America’s longevity crisis. Smoking and drinking are modest compared with Europe. Food consumption is a different matter, however, for the US has experienced an explosion in obesity rates in the past 20 years. As a result, 34 per cent of all women in the US are obese compared with 4 per cent in Japan. For men, the figures are 28 and 2 per cent respectively.

‘US obesity rates jumped in the 1980s and 1990s, and the vast majority of the population affected by obesity had not yet reached age 65 by 2000,’ state the Boston group. ‘As the large baby boom cohort begins to turn 65 in coming years, a stronger connection between obesity rates and life expectancy may emerge.’

In other words, as the nation’s middle-aged fatties reach retirement age, more and more will start to die out. Life expectancy in the US could then actually go into decline.

Blue Cross Chief Warns of Impending Peril

By Jerri Stroud
St. Louis Post-Dispatch
09/29/2004

The health care industry needs to get its house in order before the government imposes a system that no one will like, the president and chief executive of the Blue Cross and Blue Shield Association, Scott Serota, said Wednesday at a meeting of health care professionals at Washington University’s School of Medicine.

“We have a window of opportunity,” Serota said. “We have to step through it” or else face a system where consumers have to line up and wait for care as they do under single-payer systems in Canada and Britain.

The association he heads is an umbrella group for health care insurers who
use the Blue Cross and Blue Shield brand.

Business groups stand ready to help the health care industry control costs…, said Tom Irwin, senior vice president of public policy for the St. Louis Regional Chamber and Growth Association.

“We don’t have any solutions,” Irwin said. “But we can help you.”

http://www.stltoday.com/stltoday/business/stories.nsf/0/03880FF5F9A9C98886256F1F000B12F8?OpenDocument&Headline=Blue+Cross+chief+warns+of+impending+peril

Comment:
When the president and chief executive of the national Blue Cross
and Blue Shield Association believes that it is necessary to attack the
single payer model of reform, it is clear that the rationale of single payer
poses a very real threat to their industry. He realizes that private plans
have failed to adequately address the failures that a single payer system
would rectify. It is also interesting that a representative of the business
community offers help, but no solutions.

We have a solution: single payer. And Scott Serota confirms that our message
is being delivered. You can be proud that your efforts to educate the public
have been effective. Keep up the good work; more of the nation still needs
to hear from us.

Don

Let's Change Medicare into a Plan for the Ages

by Saul Friedman
October 2, 2004

It’s time Gray Matters put up or shut up, instead of merely complaining about what passes for the American health care system. And if one day we get a responsive president and Congress, what is a realistic alternative to the nation’s dependence for its health care on the private health insurance business?

I say “realistic” because presidents at least as far back as Harry S. Truman in 1948 have sought universal health care – but he had to settle for Medicare about 20 years later. In 1992 the Clintons tried with a proposal that sought to satisfy everyone, but it collapsed under its own weight and was killed by the insurance industry.

But the polls and the deepening crisis in health care, including the loss of insurance for millions of workers and retirees, seem to be reviving the imperative for change. And if we can stop the Bush administration from killing our only national health insurance program, Medicare, it could become the vehicle for a politically feasible alternative – a universal, “single-payer” system.

Despite the assaults from the right, Medicare remains the nation’s most popular and efficient health insurance program: 90 percent of eligible beneficiaries participate, and 98 percent of non- pediatric physicians accept Medicare; so do most hospitals. According to polls, younger workers hope to join one day, but doubt there will be enough funds left for them.

Nevertheless, Medicare coverage is incomplete, without a real prescription drug benefit and too many limits to save money. And it pays too much money to private contractors that administer the benefits in each state. More important, Medicare will die of old age or be killed by HMOs unless the program is opened, perhaps gradually, to all Americans. That way, the Medicare risk pool could be strengthened by the young, and the program for the elderly would become the U.S. version of Canada’s single-payer system.

Single-payer is not socialized medicine or anything like the British model, but it is not widely understood in the United States. The best and clearest explanation can be found in a narrative or an animation by Graham Walker, a Stanford University medical student and former staff member of Physicians for a National Health Program. (Look for it at www.grahamazon.com/sp)

Briefly, Walker says, “Socialized medicine is the system in the U.K. – the government owns the hospitals, employs the doctors.” Single-payer is more like the Canadian system, where “the government pays the hospital and pays the doctor, but hospitals and doctors are still part of the private sector…. Everyone cares who their doctor is, but do you really care who pays your doctor?”

If you’re worried that the government can’t do anything right, Medicare, backed by 35 years of expertise, is far more efficient and responsive than your average insurance company. Yet its coverage reaches everywhere. Ask anyone who’s been on Medicare for years whether it works. Ask any caring physician whether he or she has more trouble dealing with Medicare or the HMOs, which doctors and hospitals have had to sue.

“Right now,” Walker says, “we ration care by the ability to pay….Single-payer rations care by health care need. There would be no more pre-existing conditions, no more hassles to see a doctor.”

Medicare, which covers more than 40 million older and disabled Americans, is dependent on congressional appropriations and is running into financial trouble; its premiums and fees are getting too expensive. How can the United States pay for a similar single-payer system to cover 300 million? “Money would come from employers and employees,” Walker says, “but most of the money is already in the system – it’s just currently going to HMOs [and other private insurers] instead of to a single payer.” He noted that several studies estimated that a single-payer system would save enough money on administration to cover the 45 million Americans who are uninsured.

An estimated $285 billion is spent on administrative and middlemen services that provide not a single aspirin. Says Walker: “The U.S. spends double what most other countries spend on health care, and Americans have shorter life spans and millions go uninsured. Many financing schemes exist…. Put most simply, the money that most businesses currently pay for health care would go to single-payer; this would make up most of the money needed.”

As Sen. Hillary Rodham Clinton (D-N.Y.) pointed out, businesses in Canada and other nations with similar health systems have the edge over the United States. Employers, including government, face increasing costs to cover their workers, as well as retirees. With single-payer, no more would a worker or retiree be left without health coverage by a bankruptcy or budget problems.

A new poll for the nonpartisan Civil Society Institute reports that 67 percent of Americans would support guaranteed health insurance, through a government program or a nonprofit source. Even when called “national health insurance,” it’s supported by 52 percent.

I’m sure any single-payer system will have its glitches and frustrations, and some for-profit hospitals and health care corporations may not survive. Nevertheless, single-payer is worth considering.

Write to Saul Friedman, Newsday, 235 Pinelawn Rd., Melville, NY, 11747-4250, or by e-mail at saulfriedman@comcast.net.

Copyright (c) 2004, Newsday, Inc.
This article originally appeared at:
http://www.newsday.com/news/health/ny-saul3991259oct02,0,6607503.column?coll=ny-health-headlines

Let’s Change Medicare into a Plan for the Ages

by Saul Friedman
October 2, 2004

It’s time Gray Matters put up or shut up, instead of merely complaining about what passes for the American health care system. And if one day we get a responsive president and Congress, what is a realistic alternative to the nation’s dependence for its health care on the private health insurance business?

I say “realistic” because presidents at least as far back as Harry S. Truman in 1948 have sought universal health care – but he had to settle for Medicare about 20 years later. In 1992 the Clintons tried with a proposal that sought to satisfy everyone, but it collapsed under its own weight and was killed by the insurance industry.

But the polls and the deepening crisis in health care, including the loss of insurance for millions of workers and retirees, seem to be reviving the imperative for change. And if we can stop the Bush administration from killing our only national health insurance program, Medicare, it could become the vehicle for a politically feasible alternative – a universal, “single-payer” system.

Despite the assaults from the right, Medicare remains the nation’s most popular and efficient health insurance program: 90 percent of eligible beneficiaries participate, and 98 percent of non- pediatric physicians accept Medicare; so do most hospitals. According to polls, younger workers hope to join one day, but doubt there will be enough funds left for them.

Nevertheless, Medicare coverage is incomplete, without a real prescription drug benefit and too many limits to save money. And it pays too much money to private contractors that administer the benefits in each state. More important, Medicare will die of old age or be killed by HMOs unless the program is opened, perhaps gradually, to all Americans. That way, the Medicare risk pool could be strengthened by the young, and the program for the elderly would become the U.S. version of Canada’s single-payer system.

Single-payer is not socialized medicine or anything like the British model, but it is not widely understood in the United States. The best and clearest explanation can be found in a narrative or an animation by Graham Walker, a Stanford University medical student and former staff member of Physicians for a National Health Program. (Look for it at www.grahamazon.com/sp)

Briefly, Walker says, “Socialized medicine is the system in the U.K. – the government owns the hospitals, employs the doctors.” Single-payer is more like the Canadian system, where “the government pays the hospital and pays the doctor, but hospitals and doctors are still part of the private sector…. Everyone cares who their doctor is, but do you really care who pays your doctor?”

If you’re worried that the government can’t do anything right, Medicare, backed by 35 years of expertise, is far more efficient and responsive than your average insurance company. Yet its coverage reaches everywhere. Ask anyone who’s been on Medicare for years whether it works. Ask any caring physician whether he or she has more trouble dealing with Medicare or the HMOs, which doctors and hospitals have had to sue.

“Right now,” Walker says, “we ration care by the ability to pay….Single-payer rations care by health care need. There would be no more pre-existing conditions, no more hassles to see a doctor.”

Medicare, which covers more than 40 million older and disabled Americans, is dependent on congressional appropriations and is running into financial trouble; its premiums and fees are getting too expensive. How can the United States pay for a similar single-payer system to cover 300 million? “Money would come from employers and employees,” Walker says, “but most of the money is already in the system – it’s just currently going to HMOs [and other private insurers] instead of to a single payer.” He noted that several studies estimated that a single-payer system would save enough money on administration to cover the 45 million Americans who are uninsured.

An estimated $285 billion is spent on administrative and middlemen services that provide not a single aspirin. Says Walker: “The U.S. spends double what most other countries spend on health care, and Americans have shorter life spans and millions go uninsured. Many financing schemes exist…. Put most simply, the money that most businesses currently pay for health care would go to single-payer; this would make up most of the money needed.”

As Sen. Hillary Rodham Clinton (D-N.Y.) pointed out, businesses in Canada and other nations with similar health systems have the edge over the United States. Employers, including government, face increasing costs to cover their workers, as well as retirees. With single-payer, no more would a worker or retiree be left without health coverage by a bankruptcy or budget problems.

A new poll for the nonpartisan Civil Society Institute reports that 67 percent of Americans would support guaranteed health insurance, through a government program or a nonprofit source. Even when called “national health insurance,” it’s supported by 52 percent.

I’m sure any single-payer system will have its glitches and frustrations, and some for-profit hospitals and health care corporations may not survive. Nevertheless, single-payer is worth considering.

Write to Saul Friedman, Newsday, 235 Pinelawn Rd., Melville, NY, 11747-4250, or by e-mail at saulfriedman@comcast.net.

Copyright (c) 2004, Newsday, Inc.
This article originally appeared at:
http://www.newsday.com/news/health/ny-saul3991259oct02,0,6607503.column?coll=ny-health-headlines

Kucinich wants government to oversee drug research

In follow-up to today’s message on drug patent monopolies:

By Susan Jaffe
The Plain Dealer
September 29, 2004

U.S. Rep. Dennis Kucinich proposed a new federal law Wednesday that would allow the government to take over private drug research and eliminate drug companies’ monopoly on high-priced, brand-name drugs.

His “Free Market Drug Act” would create a federal Institute for Biomedical Research and Development within the National Institutes of Health that would oversee pharmaceutical research by government labs, and universities and private companies working under government contracts.

Their research would be public, and the formulas they develop for new drugs would be available to any manufacturer approved by the U.S. Food and Drug Administration to make them.

http://www.cleveland.com/news/plaindealer/index.ssf?/base/news/109645024237250.xml

Comment:
One of the four proposals described in Dean Baker’s report is the Kucinich proposal.

http://www.cepr.net/publications/patents_what_are_the_issues.htm

Europe's Drug Import Example

Letter to the Editor
The Washington Post
September 30, 2004

Last year I led researchers at the London School of Economics in testing whether the practice of reimporting prescription drugs in Europe saved consumers billions in drug costs…

Reimporting prescription medicines has flourished in the European Union because national health policies in some member countries, such as Greece, Italy and Portugal, have led to declines in the local prices of patent-protected prescription medicines — as much as 70 percent in some northern E.U. member states. Those countries include two of the five largest pharmaceutical markets in the world, Germany and Britain. This is similar to the pricing imbalance between the United States and Canada.

We looked at 19 top-selling drugs in six Northern European “destination countries” of imports — Denmark, Germany, the Netherlands, Norway, Sweden and Britain. The 19 drugs — which treat heart, gastrointestinal and mental health ailments — account for almost a quarter of all prescription drug sales in Europe.

Our study found combined sales of reimported versions of these drugs saved health care payers in Northern Europe a minuscule 0.3 percent to 3.6 percent of their annual drug budgets, or slightly more than $100 million. Moreover, these savings were not passed on to consumers, and drug prices in Northern and Southern Europe did not become more similar.

The biggest gains from selling imported drugs — more than $650 million, or 46 percent of the sales of all products studied — went straight to the repackagers.

Panos Kanavos
London

http://www.washingtonpost.com/wp-dyn/articles/A60984-2004Sep29.html

And…

Prescription-Drug Prices
By Richard G. Frank, Ph.D.
The New England Journal of Medicine
September 30, 2004

A key feature of the pharmaceutical industry is that drugs can be manufactured at a variable cost of pennies per pill, but drug companies incur high fixed research-and-development costs to bring new drugs to market. If manufacturers were paid prices that reflected their variable costs, as other industries are, the average cost of a drug would not be covered, and the companies would lose money. The implication is that with lower prices, drug-company profits will diminish and research-and-development efforts may be reduced, resulting in a diminished flow of new drugs. There is therefore a constant tension between drug policies that control today’s prices and those that promote tomorrow’s innovative products.

Prices for brand-name prescription drugs are 35 to 55 percent lower in other industrialized countries than in the United States. The central reason for these price differentials is that Canada and most European countries (13 of the 15 countries in Western Europe) directly regulate the prices of prescription drugs. High U.S. prices are said to be necessary to cover the costs of research and development for new and better drugs…

http://content.nejm.org/cgi/content/full/351/14/1375

And…

Financing Drug Research: What Are the Issues?
Center for Policy and Economic Research
By Dean Baker
September 21, 2004

The immediate cause of high drug prices is government granted patent monopolies, which allow drug companies to charge prices that are often 400 percent, or more, above competitive market prices.

Patent monopolies are one possible mechanism for financing prescription drug research. Rapidly increasing drug costs, and the economic distortions they imply, have led researchers to consider alternative mechanisms for financing drug research. This paper outlines some of the key issues in evaluating patents and other mechanisms for financing prescription drug research.

As economic theory predicts, government granted patent monopolies lead not only to deadweight efficiency losses due to the gap between the patent protected price and the competitive market price, but also to a variety of other distortions. Among these distortions are:

1) excessive marketing expenses, as firms seek to pursue the monopoly profits associated with patent protection – data from the industry suggests that marketing costs are currently comparable to the amount of money spent on research;

2) wasted research spending into duplicative drugs – industry data indicates that roughly two thirds of research spending goes to developing duplicative drugs rather than drugs that represent qualitative breakthroughs over existing drugs;

3) the neglect of research that is not likely to lead to patentable drugs;

4) concealing research findings in ways that impede the progress of research, and prevent the medical profession and the public from becoming aware of evidence that some drugs may not be effective, or could even be harmful.

This paper examines four alternatives to the patent system… All four of these proposals finance prescription drugs in ways that allow most drugs to be sold in a competitive market, without patent monopolies. These proposals also would eliminate many of the economic distortions created by the patent system.

These proposals, along with other plausible alternatives to the patent system, deserve serious consideration. Current projections for drug spending imply that patent supported prescription drug research will lead to ever larger distortions through time. For this reason, it is important to consciously select the best system for financing prescription drug research, not to just accept the patent system due to inertia.

http://www.cepr.net/publications/patents_what_are_the_issues.htm

Comment:
As I’ve said before, “We don’t need to reimport drugs from Canada; we need to import Canadian drug prices.”

The greatest contributor to perverse drug pricing in the United States is patent monopolies. Dean Baker explains the reasons that the pharmaceutical industry is providing sometimes questionable quality at unacceptably high prices. He then discusses alternatives to the patent monopolies that would significantly improve pricing and quality while still enabling most drugs to be sold in a competitive market.

Baker provides us with a starting point on the path towards attaining greater value in prescription drugs through more rational financing of drug research. Let’s start down that path… ASAP!

CEPR Releases Report on Prescription Drug Research

CEPR Releases Report on Prescription Drug Research Economist Dean Baker examines alternatives to the drug patent system

CONTACT: Patrick McElwee, 202-387-5084

In a new report entitled, ā€œFinancing Drug Research: What Are the Issues?ā€ Center for Economic and Policy Research (CEPR) Co-Director Dean Baker contributes to a growing public debate on alternatives to the current patent system as a mechanism to fund pharmaceutical research. Given the increasing burden on families and the economy of U.S. prescription drug prices, whose growth has been fueled in large part by government-granted monopolies to patent holders, several alternative mechanisms for funding bio-medical research have been proposed. Dr. Baker examines and rates four such proposals, and in the process articulates criteria by which any proposed mechanism should be evaluated.

Without some form of intervention in the market, such as granting and enforcing exclusive patent rights, economists agree that there would not be enough money to support pharmaceutical innovation.

However, Dr. Baker points out that, while the patent system is one method of intervention capable of generating funds for research and development, it also creates large economic distortions and inefficiency. Patent protection pushes drug prices far above the cost of production, often by 400 percent or more. Other distortions of the patent system include: unnecessary marketing expenses; a tendency to research duplicative, rather than breakthrough, drugs; neglect of fundamental bio-medical research unlikely to produce patentable products in the near future; and a perverse incentive for researchers to keep their research private, even preventing the public from becoming aware of potentially harmful side effects.

The four alternatives Dr. Baker examines include a proposal to require employers to contribute funds to drug researchers, a proposal to compensate patent holders based on the quality and extent of use of their drug, a proposal under which the government would purchase most drug patents and place them in the public domain, and a legislative proposal to establish a group of publicly supported pharmaceutical research centers, which would develop patents for public use.

Dr. Baker evaluates each of these alternatives, as well as the current patent system, based on ability to finance research, effect on the price of drugs, potential for political interference in research priorities, impact on international coordination, and incentives for excessive marketing, copycat research, and keeping research findings secret. Dr. Baker concludes that all proposed alternatives ā€œhold clear advantages over the patent system,ā€ in part because each would allow drugs to be sold in a competitive market unhindered by government-granted monopoly rights.

See the report: http://www.cepr.net/publications/patents_what_are_the_issues.htm
Or in PDF: http://www.cepr.net/publications/patents_what_are_the_issues_9-20.pdf

The Center for Economic and Policy Research is an independent, non-partisan think tank that was established to promote democratic debate on the most important economic and social issues that affect peopleā€™s lives.

Europe’s Drug Import Example

Letter to the Editor
The Washington Post
September 30, 2004

Last year I led researchers at the London School of Economics in testing whether the practice of reimporting prescription drugs in Europe saved consumers billions in drug costs…

Reimporting prescription medicines has flourished in the European Union because national health policies in some member countries, such as Greece, Italy and Portugal, have led to declines in the local prices of patent-protected prescription medicines — as much as 70 percent in some northern E.U. member states. Those countries include two of the five largest pharmaceutical markets in the world, Germany and Britain. This is similar to the pricing imbalance between the United States and Canada.

We looked at 19 top-selling drugs in six Northern European “destination countries” of imports — Denmark, Germany, the Netherlands, Norway, Sweden and Britain. The 19 drugs — which treat heart, gastrointestinal and mental health ailments — account for almost a quarter of all prescription drug sales in Europe.

Our study found combined sales of reimported versions of these drugs saved health care payers in Northern Europe a minuscule 0.3 percent to 3.6 percent of their annual drug budgets, or slightly more than $100 million. Moreover, these savings were not passed on to consumers, and drug prices in Northern and Southern Europe did not become more similar.

The biggest gains from selling imported drugs — more than $650 million, or 46 percent of the sales of all products studied — went straight to the repackagers.

Panos Kanavos
London

http://www.washingtonpost.com/wp-dyn/articles/A60984-2004Sep29.html

And…

Prescription-Drug Prices
By Richard G. Frank, Ph.D.
The New England Journal of Medicine
September 30, 2004

A key feature of the pharmaceutical industry is that drugs can be manufactured at a variable cost of pennies per pill, but drug companies incur high fixed research-and-development costs to bring new drugs to market. If manufacturers were paid prices that reflected their variable costs, as other industries are, the average cost of a drug would not be covered, and the companies would lose money. The implication is that with lower prices, drug-company profits will diminish and research-and-development efforts may be reduced, resulting in a diminished flow of new drugs. There is therefore a constant tension between drug policies that control today’s prices and those that promote tomorrow’s innovative products.

Prices for brand-name prescription drugs are 35 to 55 percent lower in other industrialized countries than in the United States. The central reason for these price differentials is that Canada and most European countries (13 of the 15 countries in Western Europe) directly regulate the prices of prescription drugs. High U.S. prices are said to be necessary to cover the costs of research and development for new and better drugs…

http://content.nejm.org/cgi/content/full/351/14/1375

And…

Financing Drug Research: What Are the Issues?
Center for Policy and Economic Research
By Dean Baker
September 21, 2004

The immediate cause of high drug prices is government granted patent monopolies, which allow drug companies to charge prices that are often 400 percent, or more, above competitive market prices.

Patent monopolies are one possible mechanism for financing prescription drug research. Rapidly increasing drug costs, and the economic distortions they imply, have led researchers to consider alternative mechanisms for financing drug research. This paper outlines some of the key issues in evaluating patents and other mechanisms for financing prescription drug research.

As economic theory predicts, government granted patent monopolies lead not only to deadweight efficiency losses due to the gap between the patent protected price and the competitive market price, but also to a variety of other distortions. Among these distortions are:

1) excessive marketing expenses, as firms seek to pursue the monopoly profits associated with patent protection – data from the industry suggests that marketing costs are currently comparable to the amount of money spent on research;

2) wasted research spending into duplicative drugs – industry data indicates that roughly two thirds of research spending goes to developing duplicative drugs rather than drugs that represent qualitative breakthroughs over existing drugs;

3) the neglect of research that is not likely to lead to patentable drugs;

4) concealing research findings in ways that impede the progress of research, and prevent the medical profession and the public from becoming aware of evidence that some drugs may not be effective, or could even be harmful.

This paper examines four alternatives to the patent system… All four of these proposals finance prescription drugs in ways that allow most drugs to be sold in a competitive market, without patent monopolies. These proposals also would eliminate many of the economic distortions created by the patent system.

These proposals, along with other plausible alternatives to the patent system, deserve serious consideration. Current projections for drug spending imply that patent supported prescription drug research will lead to ever larger distortions through time. For this reason, it is important to consciously select the best system for financing prescription drug research, not to just accept the patent system due to inertia.

http://www.cepr.net/publications/patents_what_are_the_issues.htm

Comment:
As I’ve said before, “We don’t need to reimport drugs from Canada; we need to import Canadian drug prices.”

The greatest contributor to perverse drug pricing in the United States is patent monopolies. Dean Baker explains the reasons that the pharmaceutical industry is providing sometimes questionable quality at unacceptably high prices. He then discusses alternatives to the patent monopolies that would significantly improve pricing and quality while still enabling most drugs to be sold in a competitive market.

Baker provides us with a starting point on the path towards attaining greater value in prescription drugs through more rational financing of drug research. Let’s start down that path… ASAP!

HSAs Save Millions, But Only For the Healthy

Business Wire
September 29, 2004

Golden Rule Customers Exceed $110 Million Saved in Health Savings Accounts; HSA Sales Reflect Growing Popularity of Lower-Cost Health Insurance

Golden Rule Insurance Company today announced that its customers have exceeded more than $110 million saved in tax-advantaged Health Savings Accounts (HSAs).

“On average, we find Golden Rule’s customers saving 45-55 percent on annual insurance premiums alone,” Andy Grim, Golden Rule vice president of marketing, said. “Our customers are getting the coverage they need without paying for coverage they don’t.”

http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20040929005426&newsLang=en

Comment:
Step back and look at the broad picture. Imagine everyone having a health savings account (HSA) and a low cost, high deductible insurance plan. Now let’s fund our entire health care system, currently at $1.8 trillion, with the HSAs and high deductible plans. Keep in mind that 80% of health care costs are used by the 20% of individuals with serious acute and chronic disorders.

Current contributions for HSAs are capped at $2600 for individuals and $5150 for families. For illustrative purposes only, let’s assume that each individual has $2000 in an HSA. That means that the 294 million U.S. citizens would have $588 billion in HSAs. For the 20% with significant needs, their $117 billion would be rapidly depleted, having been spent of health care. The healthy 80% might use an average of $300 per person in incidental health care costs, depleting their accounts of $70 billion. The “beauty” of HSAs is that the $401 billion remaining in the HSAs of the 80% who are healthy will be converted into retirement pensions. That’s a great deal for the majority of individuals who remain healthy. But that removes about $400 billion from the $1.8 trillion that we are already spending.

HSAs will have funded $187 billion of the $1.8 trillion, leaving costs of $1.61 trillion for the catastrophic care of the 20% of individuals with greater needs. But after the HSA funds are removed from the equation, there is only $1.21 trillion left to pay for care that currently costs $1.61 trillion.

Where will the $400 billion shortfall come from? Not from most of those with greater needs since current health plans already fail to provide adequate financial security, and this would add an average additional burden of $6800 per person. The only practical solution would be to increase the premiums for the high deductible coverage to a level that would fund the full balance of the $1.8 trillion that we are spending.

There are two significant consequences of this. First, the low cost, high deductible plans would no longer be low cost. Second, there is a perversity of the fundamental principle of health insurance, in which funds of the healthy normally help to pay for care for the sick, in that, with HSAs, the funds of the sick help to pay for the retirement accounts of the healthy.

And that’s sick health policy!