June 2012 Archives


The future of medical innovation in the U.S. is a critical issue and at a critical crossroads. Still one of the 'crown jewels' in the U.S. economy the pharmaceutical, medical device and diagnostic sectors represent a significant component of GDP and a major source of good jobs...to say nothing about the value their products contribute to overall productivity as a function of improved health and functioning.

Globally, these segments are being pushed by stricter regulation and requirements for more robust evidence in order to bring products to market and once in-market, to remain viable. Post-market safety surveillance is just beginning to take hold in the device sector, and drugs are also challenged to demonstrate continued clinical safety once in the market...even while they're being compared to generics and other interventions, including watchful waiting. The 'Big' news (and threat) has always been comparative effectiveness research and the requirement to demonstrate economic and clinical value. As CER makes its way to delivery and new requirements for predictive care paths emerge alongside downward reimbursement pressure, having products "baked in" to these care paths will be essential to future success.

Thus, I have long argued that the SCOTUS decision on PPACA wouldn't change these market dynamics. Increasing interest in personalized medicine and treatment outside the hospital setting are forcing delivery organizations to rethink their business models in the face of declining reimbursement. In the treatment of cancer, for example, insurers will ultimately need to pay for diagnostics to identify which patients will respond to which chemo agents and which ones won't. Finally, like other countries, CMS and the FDA are in active conversation. CMS is unlikely to allow Medicare insolvency, so downward reimbursement pressure is only likely to continue.

Now that PPACA has been upheld, downward pressure on innovation will accelerate short-term as we see more consolidation in the marketplace and rapid belt-tightening to fund enormous bureaucratic costs. The passage of the PPACA imposes new costs on the industry that cannot be passed along in this cost-constrained environment, essentially reducing available margin. The risk-to return ratio was already being strained by the growing cost of regulation. PPACA will dampen the appetite for innovation and its associated risk.

But PPACA is only the tip of the iceberg. There would have been business model changes for manufacturers anyway. Diminished reimbursement is forcing a requirement for greater evidence, and thus, fewer me-too products. More consumer exposure is putting their voice front and center. Global reference pricing and regulatory harmonization are forcing more transparency. Pressures for demonstrated value will require a shift in investment from commercial channels to R&D.

Manufacturers must continue to innovate; significant unmet medical needs remain. Patent protection (outside the domain of PPACA) will be key to this as will more visible engagement with the patient community in the identification of real unmet need and ongoing monitoring in post-market safety and real world evidence (RWE).


It never stops.

Anyone who keeps up with pharmaceutical industry news knows that it is impossible to go very long without seeing another round of job cuts. Sometimes, just to break up the monotony you even get to read about a plant closing.

The monotony was certainly broken on Tuesday, when Roche dropped a bomb on 1,000 employees, as well as the township of Nutley, N.J., which has been their R&D home since 1932.

The employees were summoned to the cafeteria and auditorium, where they were given boxed lunches along with the news that the campus would be shut down and they would lose their jobs. One can only imagine how bad this would have been without the lunches.

And, of course there was the usual corporate-speak statement was issued by the company: Roche is committed to handling the designated job reductions in a respectful manner and to finding socially responsible solutions for the employees affected. This includes informing employees who will be affected as soon as possible and providing appropriate plans and programs to support them during this transition process.

Translation: Expect to be eating a lot more boxed lunches.

So now Roche scientists will join the tens of thousands of us who have already dropped through the trap door, further illustrating how far the pharmaceutical industry has fallen--and also how fast. Only ten years ago, ten thousand people were employed at the Nutley site. Another pharmaceutical ghost town in the making.

And this is not the only one. Not even close.

According to Ed Silverman, who has been writing the influential Pharmalot blog for over five years, in 2011 there were thirty eight plant closures. A horrifying number, yet in 2010 it was far worse--sixty five sites were shuttered.

This is hardly surprising, considering the mentality behind the "new paradigm" in drug discovery. GlaxoSmithKline's CEO Andrew Witty pretty much says it all--"We've got no interest in physical facilities. We've been reducing our own. The last thing we need is a big pile of bricks with air conditioning."

Good thing no scientist was holding one of those bricks when he made that statement.

So, what's it going to be, CEOs? Is it really a good idea to keep dismantling the drug industry, demolishing facilities and careers along the way?

One of the most widely-read pharmaceutical bloggers, Chemjobber, whose site is the place to go to look for employment, has his own thoughts on the matter:

"I hope the multiple sacrifices of productive research sites to the gods of quarterly profits are worth it, because we're putting a lot of good chemists and biologists out of work permanently. Where are future advances in pharmaceuticals going to come from? Neither Kalamazoo or Ann Arbor, Michigan, apparently. Nor New Haven, Connecticut. Nor Pearl River, New York or Sandwich in the UK. And now, not Nutley, New Jersey."

I couldn't have said it better myself.




Peter Suderman expands on a point that is making the rounds of the blogosphere: at least some Americans who were eligible for Medicaid coverage under under the ACA may recieve subsidies for private insurance on newly created state health insurance exchanges in states that decline to expand their Medicaid coverage to the ACA required 133 percent of the Federal Poverty Level.

But he also adds another interesting wrinkle: in addition, states that declined to set up their own helath insurance exchanges would force the federal government to operate exchanges on their behalf. But due to a flaw in the ACA, federal exchanges don't (clearly) have access to subsidies for coverage. Whoops.

Suderman writes:

The Supreme Court, in other words, has made it possible for states to decline to participate in a program that accounts for a huge portion of ObamaCare's coverage expansion: If the 26 states that challenged the law all opted out, the projected coverage expansion would decline by about 8.5 million individuals -- all near or below the poverty line. It's not clear whether they would then get private insurance subsidies, but they would presumably still be subject to the coverage mandate.

Given how much states are already spending on Medicaid, it seems likely that many will consider opting out: Although the federal government would pay for 100 percent of the coverage for the newly eligible for the first few years, the state obligation would gradually increase until the end of the decade, when states would have to pick up about 10 percent of the tab. That may not sound like much, but it would amount to billions in additional health care spending for some states. With Medicaid already wrecking state budgets, it's quite plausible that several will say no thanks to ObamaCare's Medicaid expansion.

Overall, this dramatically expands the choices for state governments. Already they had the option to decline to set up health insurance exchanges as called for the by the law. In theory, the federal government would then step in to create an exchange, but it's not at all clear that the federal government has the necessary funding or authority to get funding. If a state opts out of both exchange creation and the law's Medicaid expansion, it will be able to avoid many of the law's costs and consequences, and position itself largely beyond the reach of the law. Which may leave us with a fractured, quasi-federalist health care overhaul in which some states have exchanges and a beefed up, federally managed Medicaid program and other states avoid participation almost entirely.

In other words, states could play a massive game of chicken with the federal government, opting out of exchanges and Medicaid expansions, and daring HHS to try and pick up the slack.

It's not clear how many states would take this approach, and President Obama would no doubt strike back by attacking states that withheld Medicaid expansions for the poor and near poor.

States, on the other hand, could plausibly counter that Medicaid offers poor quality coverage to low-income Americans at enormous fiscal cost to both the states and the federal government.

Over at Forbes, my colleague Avik Roy also suggests that states with very high Medicaid coverage (like New York) could conceivably pull coverage back to 100 percent of FPL, and send the remainder (100-133 FPL) to the exchange - saving substantial sums along the way.

Given New York's uber-liberal political culture, I think this is somewhat unlikely...but even very "blue" states like NY might use the (subtle) threat of dumping people onto the exchange as another pressure point in their push for extensive Medicaid waivers from HHS to redesign their programs.

Finally, Avik also hints that CBO is likely to come out with revised cost and coverage estimates related to yesterday's SCOTUS ruling as well.

Ironically, while upholding the individual mandate, the Supreme Court's ruling has opened a number of questions related to the Medicaid program that could cause one enormous case of heartburn for the Obama Adminsitration in its second term. Assuming, of course, that it gets one.

Stay tuned.


So, now that the insurance purchase mandate and most of the PPACA's Medicaid provisions have survived a Supreme Court review, where does that leave us? Most critics have shifted course and are arguing that the next major front in the health care wars will be waged in November with the coming Presidential and Congressional elections.

Oh, there remain a few other skirmishes to consider. The House of Representatives voted earlier this month to repeal the ACA's tax on medical device manufacturers. And there is a movement afoot to repeal the provisions creating Medicare's Independent Payment Advisory Board. But with the Senate controlled by a Democratic majority, any significant movement on the legislative front is unlikely until after the 113th Congress convenes in January.

One major problem, as AEI scholar (and my former CEI colleague) Tom Miller points out in today's Los Angeles Times, is that "Conservatives should have used the time that the court was deliberating to formulate attractive legislative proposals to both repeal and replace this unpopular law. But they didn't. So where does this leave us?"

Our challenge now is to map out a course forward, even though:

"most of the healthcare industry is resigned to shrugging its shoulders and falling back into line with the political deals it cut with the Obama administration several years ago. The political case for repeal will become much stronger among grass-roots voters -- particularly independent ones -- outside the Beltway this fall if it is combined with a credible, attractive alternative that offers better solutions to chronic health policy problems. ...

The country needs a more competitive healthcare marketplace that encourages more entry and less command-and-control regulation. New insurance purchasing vehicles such as the exchanges called for under Obama's law should remain optional, not exclusive, and should welcome all willing buyers and sellers. By providing better and more usable information about the "value" of healthcare options -- including how different healthcare providers perform -- but without dictating decisions, the federal and state government could empower consumers to make more responsible choices on their own."

As I wrote two years ago, in an article published days after President Obama signed the ACA into law:

"Most of the problems in America's health care system - high and rising prices, lack of consistent and reliable access for millions, rampant cost shifting and an inability to distinguish between effective and ineffective services or between high and low quality, to name just a few - stem not from some supposed market failure but primarily from existing government interventions in the market for health care and health insurance.

The runaway entitlement spending of Medicare and Medicaid is bad enough. Worse still are the many government regulations on private-sector health programs that distort incentives and hide most of the costs within the system - what my former colleague Tom Miller, now at the American Enterprise Institute, once described as trying to have socialism's benefits without socialism's (overt) costs.

Entitlement programs and a tax system that forces Americans into employer-provided health insurance shield consumers from the true cost of their care. To promote affordable coverage, governments implemented benefit mandates, guaranteed coverage, and community rating laws that force healthy individuals to subsidize those with higher health care costs. But each of these have led, predictably, to spiraling health inflation and still more uninsured Americans."

It will be difficult, to say the least, to upend all of ObamaCare, even if Republicans are lucky enough to win the White House and both houses of Congress. It will be more difficult still to implement the kinds of major, structural reforms that could genuinely begin to address the cost, quality, and access problems that afflict American health care today.

Despite their tough talk, recall that even many Republican members of Congress support some of the most costly and distorting features of the ACA, such as "guaranteed issue" and community rating. On the other hand, even many Democrats and traditionally left-of-center constituencies have been critical of certain elements, such as IPAB.

"[The American Association of Retired Persons] said the board could "have a negative impact on [seniors'] access to care." Former House Minority Leader Dick Gephardt (D-Mo.) has written that IPAB actions "are likely to have devastating consequences for the seniors and disabled Americans who are Medicare's beneficiaries because, while technically forbidden from rationing care, the Board will be able to set payment rates for some treatments so low that no doctor or hospital or other healthcare professional would provide them."

Moving forward, then, our goal must be to think big AND small. That is, we must aim for a wholesale repeal of ObamaCare and do our best to substitute significant market-based reforms that would put greater purchasing power and decision-making responsibility into the hands of individuals. But we should not lose sight of the fact that reaching that goal will prove difficult. In the interim, there will still be many, arguably smaller but nevertheless significant targets of opportunity to reform the health care system we have today.



As my colleague Nicole Gelinas and I pointed out yesterday in City Journal, it may be possible for states that opt out of the Medicaid expansion in the Affordable Care Act (up to 133 percent of FPL) to send at least some of those recipients - everyone making between 100-133% of FPL - to the state insurance exchanges, where they will be eligible for tax credits and cost sharing subsidies for the purchase of private insurance.

Over at the American Action Forum Doug Holtz-Eakin suggests that this could have large fiscal implications for federal taxpayers:

Suppose that every state takes advantage of this opportunity, and that every individual who is either on Medicaid or would be eligible for the expansion actually moves to the exchanges. The federal government would save as much as $130 billion in Medicaid in 2014, but it would be on the hook for $230 billion in new insurance subsidies. The net bottom line: a $100 billion annual expansion in federal costs.

Of course, not all states may forego the expansion, without doubt fewer than 100 percent of those eligible will take up subsidies, and actual insurance choices are impossible to foresee perfectly. Accordingly, the net cost will be lower than the full $100 billion, but it seems safe to say that the ACA will leave the taxpayer on the hook for an additional $500 billion or so in federal costs over the first 10 years.

How does this work? The Supreme Court ruled that the federal government could not punish states that refused to expand Medicaid (to 133 percent of the federal poverty line) by yanking their existing Medicaid funding. They would not, of course, get any new federal Medicaid money.

But, states would be able to get piles of federal money. Specifically, beginning in 2014 they could pare their Medicaid program back to the federally-designated minimum (100 percent of poverty), saving the state a lot of money. Everybody between 100 percent and 133 percent would be eligible for insurance subsidies - with the federal government (read: taxpayer) picking up the entire tab.

For states, this is a clear winner - covering more individuals and saving budget dollars at the same time.

For the taxpayer this is a nightmare. The taxpayer would save some money on the Medicaid expansions that would not take place (where the feds pay 90 percent of the cost) but they will pick up the full cost of the additional and generous insurance, bearing an additional $500 billion over ten years.



There's a tremendous discussion of yesterday's Supreme Court ruling on our sister site, Point of Law. Over at PoL, leading scholars and attorneys parse the Court's decision and particularly Chief Justice Roberts decision to salvage the individual mandate as lawful under Congress' taxing power. Roberts ruling came despite the repeated and vehement denials of President Obama and other leading Democrats that mandate was not, in fact, a tax, but a penalty.

The phrase bait and switch comes to mind.

All of the entries are well worth reading, but I think my favorite is from Ted Frank:

One can be dismayed about the broad scope of the taxing power implicated by today's decision, but that is not anything new; for example, you've been paying extra taxes for failing to buy an electric car since at least the 2001 tax year, and extra taxes for not having a residential mortgage for even longer. (These are called tax credits, rather than penalties or taxes, but they're economically indistinguishable at the margin or otherwise, somewhat refuting Richard Epstein's complaint.)

The complaint is perhaps whether the "penalty" should be called a "tax" when Congress refused to call it a "tax"; the dissent would hold Congress to its language, while Roberts, alone, looks purely at the economics of the matter. Both arguments are colorable: after all, the Court has previously characterized "taxes" as "penalties" when they held the character of penalties, so why not vice versa? To which the Scalia dissent responds that this is the first time the Court has done so, and it is the finest of hair-splitting to say that a penalty isn't a tax for purposes of the Anti-Injunction Act, but is for purposes of the Taxing Power inquiry.

I've previously been unhappy with Roberts's tendencies to blue-line rewrite statutes to avoid tough constitutional questions; the canon of constitutional avoidance is one thing, but creating non-existent text to fix problems just seems to me outside the Article III power. We saw this in Free Enterprise Fund, NAMUDNO, and Wisconsin Right to Life. With it happening again today both in the construction of the penalty as a tax and the rewrite of the Medicaid penalties to the states, we can officially note an unhappy trend in the Chief Justice Roberts jurisprudence.


(This article originally appeared in the Washington Examiner on 6-29-12.)

In his decision yesterday, Chief Justice John Roberts wrote that "we do not consider whether the [Patient Protection and Affordable Care Act] embodies sound policies." That is, to put it mildly, an understatement.

While it may be constitutional, Obamacare remains fundamentally flawed legislation that creates a massive health care entitlement, slashes hundreds of billions of dollars from Medicare (endangering seniors' access to care) and imposes hundreds of billions in taxes on the economy -- hardly a recipe for escaping our current economic doldrums. Sooner or later, Congress will be forced to repeal and replace it.

Let's review what we know to date about the law. In his campaign to pass it, President Obama argued that the PPACA was critical to "bending the curve" of runaway U.S. health care spending. But just two months after the law passed, the director of the nonpartisan Congressional Budget Office noted that "rising health care costs will put tremendous pressure on the federal budget during the next few decades and beyond. In the CBO's judgment, the health legislation enacted earlier this year does not substantially diminish that pressure." Indeed, we have since learned that the PPACA will increase, not decrease, U.S. health care spending.

Passage of the law also involved new lows in Congress's perennial fiscal shell games. The law's initial budget estimate of $940 billion was heavily backloaded and included just six years of full implementation costs. The most recent CBO estimate -- which still only includes eight years of implementation -- puts the law's price tag at $1.76 trillion by 2022. That cost is simply unsustainable.

The law only avoids spending much more than that by slashing hundreds of billions of dollars from reimbursements to Medicare providers. Medicare's own actuaries predict that, by 2019, Medicare payment rates will fall below those paid by Medicaid, which are just a fraction of those offered by private insurers. Eventually, they estimate that reimbursements would fall to "one-third of the relative current private health insurance prices and half of those for Medicaid" -- leaving a full 40 percent of Medicare providers "unprofitable" by 2050. Obviously, seniors would lose access to services offered by those providers, leading to a full-blown crisis.

The law also includes new taxes on employers (with more than 50 employees) that don't offer "creditable" coverage, taxes on medical device manufacturers (that will slash jobs in that vital industry), and taxes on pharmaceutical and insurance companies that will be passed along to consumers in the form of higher prices and premiums. New insurance regulations will also sharply raise the costs of health insurance for young and healthy Americans. Rather than paring back or rationalizing the myriad regulations and tax incentives that make health care our least efficient industry, Obamacare will add new layers of complexity and confusion.

Finally, the individual mandate that commanded the Supreme Court's attention is unlikely to be the linchpin holding the law together in the long term. As Roberts wrote, "for most Americans the amount due [if they don't buy insurance] will be far less than the price of insurance. ... It may often be a reasonable financial decision to make the payment rather than purchase insurance."

Indeed, many young and healthy Americans will likely take the course Roberts outlines -- paying a small fine in the knowledge that insurance will be available at to them at subsidized rates if they ever become seriously ill. Under this turn of events, healthy people will flee insurance markets, leading to much higher taxpayer costs for the sick people left in state health exchanges. In short, the court's ruling may yet turn out to be a Pyrrhic victory for the president and Democrats.

Obamacare will be heading back to Congress. Conservatives must be prepared with a better, market-based alternative when it does.


In a move that seems to have surprised many observers, the Supreme Court today upheld nearly all of the Patient Protection and Affordable Care Act by a 4+1 to 4 majority (I'll explain the math below). Chief Justice John Roberts, who wrote the Court's opinion, joined with the four liberal justices in affirming the individual mandate and essentially all of the Medicaid provisions. The Court's three reliable conservatives, plus Justice Kennedy, wrote in dissent that the entire law should be ruled invalid. The opinions can be read in their entirety here.

Addressing the question of the individual mandate, Roberts, Breyer, Sotomayor, and Kagan agreed that the mandate was not a proper exercise of Congress's commerce power:

"The power to regulate commerce presupposes the existence of commercial activity to be regulated. ... As expansive as this Court's cases construing the scope of the commerce power have been, they uniformly describe the power as reaching "activity." ... The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce bypurchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority."

That's the good news. Eight [UDATE: A majority of the] Supreme Court Justices recognize that Congress's commerce power is not totally unbridled. Justice Ruth Bader Ginsburg wrote a concurring opinion expressing her belief that the mandate WAS in fact a constitutional exercise of the commerce power (explaining the 4+1 majority I mentioned above). [UPDATE: Although Justices Breyer, Sotomayor, and Kagan concurred with parts of Roberts's majority opinion, they concurred with Ginsburg on the extent of Congress's commerce power.]

The four-Justice majority also rejected the government's backup argument that the mandate could be justified under Article I, Section 8, Clause 18 (what grade schoolers are taught is the "elastic clause") as "necessary and proper" for effectuating the rest of the Affordable Care Act:

"The individual mandate ... vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power and draw within its regulatory scope those who would otherwise be outside of it. Even if the individual mandate is "necessary" to the Affordable Care Act's other reforms, such an expansion of federal power is not a "proper" means for making those reforms effective."

The majority nevertheless sustained the mandate as a legitimate exercise of Congress's tax power, even though the statute expressly describes the penalties for lack of coverage as "penalties" not a tax; even though the penalty is not included among the numerous other levies in the statute that ARE expressly identified as taxes; and even though President Obama and Democratic members of Congress repeatedly and vigorously denied accusations that the penalty was a tax:

"The most straightforward reading of the individual mandate is that it commands individuals to purchase insurance. But, for the reasons explained, the Commerce Clause does not give Congress that power. It is therefore necessary to turn to the Government's alternative argument: that the mandate may be upheld as within Congress's power to "lay and collect Taxes." Because "every reasonable construction must be resorted to, in order to save a statute from unconstitutionality," ... the question is whether it is "fairly possible" to interpret the mandate as imposing such a tax. ... In answering that constitutional question, this Court follows a functional approach,"[d]isregarding the designation of the exaction, and viewing its substance and application." "

Does this mean that any time Congress imposes a monetary penalty for failure to comply with some statutory requirement, the provision will automatically be considered constitutional? No. The majority does recognize that some regulatory restrictions that include a monetary penalty are not valid exercises of Congress's tax power. But how such provisions are drafted is important. It's relevant that the penalty is to collected by the IRS along with individual income taxes and that the penalty "is not so high that there is really no choice but to buy health insurance." Perhaps most important, "None of this is to say that payment is not intended to induce the purchase of health insurance. But the mandate need not be read to declare that failing to do so is unlawful. Neither the Affordable Care Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS."

Ironically, in order to even reach the legal question of whether the mandate constitutes a tax, the majority first had to find that it was not, in fact, a tax -- sort of. The federal Anti-Injunction Act (26 U. S. C. §7421(a)), forbids courts to adjudicate the validity of any tax measure unless the plaintiff has already paid the tax. (No lower court had held that the suit should be barred because of the Anti-Injunction Act, but DC Circuit Court of Appeals Judge Brett Kavanaugh did take that view in a concurrence in one case.) That arguably SHOULD have prevented the majority from even reaching the merits of the mandate's constitutionality once they agreed the mandate was a tax. But Chief Justice Roberts wiggled his way out of that one: "Congress did not intend the payment to be treated as a "tax" for purposes of the Anti-Injunction Act. The Affordable Care Act describes the payment as a "penalty," not a "tax." [But t]hat label cannot control whether the payment is a tax for purposes of the Constitution."

In my opinion, it often IS the role of courts to second guess Congress and other legisltors on the underlying meaning of statutory language. Legislators should not be free to evade constitutional limitations by claiming one thing when they really mean something else. But that is precisely why I find it so troubling that the Court upheld the mandate as a tax even as Congress and the President went to extreme measures to deny that was one. Chief Justice Roberts's explanation is that it does not matter what Congress calls the thing; a tax is a tax, and the Court knows one when it sees it. If the public doesn't want Congress to impose the tax, they can respond at the ballot box.

The trouble, though, is that Congress and the President explicitly misrepresented this tax as something else for the purpose of evading public accountability. If the Court is going to rely on voter preferences as a sufficient check on governmental power, it ought at the very least to insist that the elected branches not lie about what it is they're doing.

In many ways, today's decision compounds one of the biggest weaknesses in the Supreme Court's commerce clause jurisprudence. Under the so-called "Rational Basis Test," which applies to economic regulation, the Court has refused to question due process or equal protection violations when Congress's reason for enacting the law might be "rationally related" to a legitimate government interest. Under that test, however, Congress does not have to explain why the law was "rational" as long as the Supreme Court is willing to substitute its own rationale, however plausible.

Finally, the Court was willing to say there is some economic regulation that does not satisfy the Rational Basis Test. Instead, though, the Court deferred to Congress and rubber stamped its over-reach on new grounds. Today's decision not only says that Congress can regulate through the tax system. It says that Congress does not need to call a regulation a tax -- Congress and the President can even insist it is not a tax -- just so long as a majority of the Supreme Court are willing to rationalize it as one: the Rational Tax Test.



On Friday, we posted a podcast interview with Josh Archambault, director of healthcare policy at the Massachusetts-based Pioneer Institute, and a contributor to a new collected volume of essays called The Great Experiment: The States, The Feds, and your Healthcare.

The Great Experiment is a great read (at least for health care policy wonks). The core theme of the book, as you might expect, is that state experimentation in health care reform is essential if the U.S. is to successfully address the enormous access, cost, and quality challenges that bedevil the U.S. health care "system". Health care innovation today is shackled by numerous state and federal regulations that discourage consumer and patient-centered health care, encourage wasteful spending, and leave the uninsured with few and mostly expensive options in the individual insurance market.

No matter how the Supreme Court rules on Thursday, The Great Experiment will remain relevant - because Obamcare will worsen the core problems affecting American health care. The most successful domestic policy reform of the last 50 years, welfare reform, was developed from the ground up after years of state experimentation (with the encouragement of the federal government). Once basic consensus was found on "what works", it was passed into law by a Republican Congress (with strong support from Democrats) and signed by a Democratic President, Bill Clinton.

That is not, to say the least, how Obamacare was signed into law. The Patient Protection and Affordable Care Act was passed by a strictly partisan line vote and short-circuited state experimentation with health care reform before it even really began. The authors of The Great Experiment lament that loss, while offering practical suggestions for returning the states to their central role in policy development.


In anticipation of the Supreme Court ruling on Obamacare, the pro-Obamacare group Families USA released a report claiming that if Obamacare is overturned, thousands of Americans will die owing to a lack of health insurance. The Families USA report cites a few prior studies to conclude that roughly 26,000 Americans die every year because they lack access to health insurance. From this calculation, Families USA essentially argues that a ruling overturning Obamacare is tantamount to a death sentence for the thousands of Americans who have received insurance coverage under it. Their study concludes that "If the law is struck down...many Americans will die prematurely."

But as MPT contributor Avik Roy points out in an post on his Forbes blog, the key study supporting Families USA's assertion that 26,000 Americans a year die because they are uninsured is deeply flawed and has already been debunked by Richard Kronick, who, as it turns out, now serves in the Obama administration.

Roy's does a great job of illustrating how much of the data supporting Family USA's report relies upon the unjustified assumption that those among the uninsured who die prematurely died because they lacked health insurance. But many of those who lack health insurance have poor health or poor health habits, and once those factors are taken into account, the mortality rates for the insured and the uninsured become essentially the same.

You can read the whole op-ed here.



Senator Bernie Sanders (I-Vt.) proposed legislation (S. 1138, "Prize Fund for HIV/AIDS Act") to make AIDS drugs cheaper in the United States. He would eliminate patents for AIDS drugs but give prizes to the companies that discover and develop them. His bill aims "[t]o de-link research and development incentives from drug prices for new medicines to treat HIV/AIDS and to stimulate sharing of scientific knowledge." I commented on this proposal in a previous blog.

Under this legislation, the U.S. government would fund the so-called Prize Fund for HIV/AIDS by an annual amount equal to 0.02 percent of the gross domestic product, or approximately $3 billion per year. According to Sanders, the total market for HIV drugs in the U.S. is currently $9 billion. Sanders' bill would therefore cut the funds available to pharmaceutical companies by a factor of three. Of course, these companies would save on sales and marketing expenses--they would no long market these drugs--but sales and marketing expenses for HIV drugs are relatively small compared to other drugs and someone--the government--would need to pick up the slack for educating physicians about the availability and proper usage of HIV medicines.

So in one bold stroke, to solve the problem that HIV drugs are "too expensive," Sanders would cut revenues by 67 percent. Why stop there? Why not make the prize fund mere millions or even thousand of dollars? Look at how much money we would save. "Here's your prize of $873, Gilead Sciences, for developing a new nucleotide reverse transcriptase inhibitor. Thank you."


The Philadelphia Inquirer reports that the Pennsylvania-based insurer/health system Geisinger will be collaborating with Merck to improve patient compliance (i.e., helping patients take their meds as and when prescribed by their doctors).

Why does anyone care if John or Jane Doe - let's say a diabetic with high cholesterol and high blood pressure - remembers to take his or her medicines?

Patient non-compliance with prescribed treatments can lead to expensive and costly health care complications, driving up the nation's health care tab. A 2009 study by NEHI found that one third to one half of all patients in the United States do not adhere to the prescription drug regimens that their doctors prescribe for them. These figures are even higher for patients who suffer from chronic illnesses such as heart disease or diabetes; one Medco study suggested that for the least compliant patients with diabetes, $1 of spending on medications could save $7 in medical costs down the road.

Drug makers and insurance providers, of course, have their own reasons for attempting to improve patient compliance. Patients who adhere to their prescribed drug regimens will refill their prescriptions more often than those who don't, providing pharmaceutical companies like Merck increased revenues. And patients who take their prescribed medications on schedule impose fewer costs in the long run on insurance providers like Geisinger than those who don't.

If it pans out, the biggest winners from this collaboration will be patients. Drugs for chronic illnesses offer patients significant health benefits, but those benefits can only be realized if patients actually use them as prescribed.

Good health may be priceless, but from another perspective, it's actually pretty cheap. Or at least much cheaper than the alternative.


For years, the FDA, Congress, drug companies, and retail distributors have struggled to agree on a nationwide system to ensure that counterfeit drugs (like fake Avastin) don't enter the U.S. drug supply chain. In a nutshell, industry stakeholders and regulators want to guarantee the safe, uninterrupted delivery of drugs from manufacturers all the way down to local retailers. Such a system, generally called "track and trace," would substantially reduce the chances of consumers encountering dangerous or substandard fake drugs.

When Congress took up debate over the Prescription Drug User Fee Act (PDUFA) this year, legislators seemed to broadly agree that the U.S. needed a track and trace system, but the House and Senate differed on exactly how that system should operate. Unfortunately, Pharmalot reports today that conference committee negotiators reconciling the House and Senate user-fee agreements have failed to reach an agreement on track and trace language:

The failure reflects a long-standing lack of agreement among the many players - drugmakers, wholesalers and pharmacies - about a suitable approach. A key sticking point is cost. To implement a uniform system that would allow each player to follow each shipment in the supply chain requires an investment to purchase equipment. This would include scanners for warehouses, trucks, and pharmacies to read bar codes placed on every bottle in each lot that is shipped.

Despite Congress's failure to procure an agreement on establishing a national system to protect the integrity of the drug delivery supply chain during PDUFA negotiations, it should keep trying. Without a commonsense national system to ensure the safe delivery of drugs, stakeholders will have to cope with complex and inconsistent regulatory schemes established by many different states. If the rules regulating drug delivery vary from state to state, manufacturers and distributors will incur needless compliance costs, costs that will be passed on to consumers through increased drug prices.

While the issue seems to be stalled for the moment, Congress could still pass a standalone bill establishing track and trace later. For an in depth look at the issues involved, and where things might go from here, see the RxTrace blog.



Philip Betbeze, over at Health Leaders Media, wrote an interesting piece in early June entitled Disruptive Healthcare Innovations Trump Scotus Worries. First, he notes that several hospital and health system CEOs he spoke to recently believed that no matter how the Supreme Court rules on Obamacare in coming days, the industry is shifting to a different reimbursement philosophy, away from fee-for-service medicine because of demands from "commercial plans and local employers."

He also found that large hospitals/health systems are frightened for "what nontraditional competitors may do to their resource and capital-heavy healthcare delivery systems." He explains:

For instance, I wrote back in February about direct primary care, a concept that is helping primary care doctors go the direct-to-consumer route--that is, they don't take insurance. That in itself is not revolutionary, but in contrast to some of the few so-called "concierge clinics" that have sprung up over the past half decade or so, many of these practices are pretty affordable for the regular guy or gal, especially when considering the increasing burden many employers are placing upon their employees to fund a portion of their own healthcare costs.

In a short amount of time, those practices have made significant headway in certain markets. And now that the New York Times has noticed, it seems, it's news.

And it's unwelcome news for leaders of hospitals and health systems that are making an attempt to structure an accountable care strategy. ACOs require changes in reimbursement methodology and care protocols and those are big investments for hospitals, health systems, and others that have no choice but to continue to operate in the third-party payment system. ...

Those changes require huge capital investments that can only be recouped over time. In the case of disruptive innovation, by definition, time is not on the incumbent's side.

This is exactly the problem with third party reimbursements. Providers adopt their IT systems, personnel, and capital investments to chase and maximize reimbursements - not to maximize health care outcomes or minimize inefficiency. How much of those legacy costs are going to be figured into their new ACO reimbursement arrangements, supported by defensive consolidation?

Direct primary care suggests a different - and probably better - model is possible.

The direct primary care model isn't necessarily antithetical to the ACO concept, per se, but suggests that for many patients - who aren't high cost, high utilization patients - a direct primary care membership with a wrap-around catastrophic plan/HSA offers the right balance of cost and access. In fact, it increases access at lower cost because direct primary care has lower administrative costs and no need to maintain bloated infrastucture. And if it can manage even patients with chronic illnesses more effectively, keeping them out of acute care hospitals, then downstream costs can be lowered as well. (Which is also bad news for hospitals.)

And what about virtual ACOs? Networks of retail clinics and/or direct primary care practices don't have to be connected to hospitals or specialists by ownership, just by adherence to common metrics and a shared electronic health record. Their proximity to consumers where they live and work (as opposed to centralized hospital and health systems) and lower price point may make them more attractive to insurers, consumers, and employers. And their nimble footprint may allow them to adapt much faster to movements like telemedicine and home-based care. Meanwhile, companies like Best Doctors can help patients navigate the health care system when complex problems arise that require complex interventions.

A truly consumer-friendly, patient-centered health care system will have to be nimble, agile, and efficient. Just chasing the latest Washington fad won't cut it. Disruptive providers like retail clinics and direct primary care practices are showing us the future of health care today. They're not waiting for anyone - let alone Congress or the Supreme Court - to tell them where to find their cheese.


Medical Progress Today contributor Avik Roy has an excellent article out in Forbes today about how FDA director Margaret Hamburg's overzealous regulations, coupled with price controls in Medicare Part B, have together produced the devastating cancer drug shortage that the nation is currently enduring. Here's a critical excerpt from the article:

"Upon taking office, Hamburg promised an aggressive effort to enforce the FDA's stringent manufacturing standards. In 2010, Hamburg's officials issued 673 warning letters to drugmakers and other companies: a 42 percent increase from 2009. In 2011, the agency issued 1,720 warning letters: a further increase of 156 percent.

...The impact of Hamburg's enforcement actions was swift and dramatic. Of America's five largest manufacturers of generic injectable drugs--APP, Hospira, Teva, Bedford, and Sandoz--the latter four were effectively forced to simultaneously take significant production off-line in order to deal with FDA warnings. As a result, their production of generic injectables declined by 30 percent, contributing to a massive shortage."

The article also explains how this problem is exacerbated by Medicare's price controls, which prevent drug companies from correcting for excess demand by raising their prices:

"...the Medicare Modernization Act reformed the way in which the government paid doctors for injectable drugs. Today, Medicare uses a formula called "ASP plus 6," in which doctors are reimbursed at the actual reported average selling price of a drug, plus 6 percent. In addition, in order to limit drug-price inflation, the law limited increases in ASP to six percent every six months...In a normal market, whenever you have a shortage, manufacturers can raise prices, in order to restore their incentive to supply more product. But because of Medicare's 6 percent cap on price increases, suppliers had no ability to raise prices to respond to doctor and patient demand."

You can read the full article here.


Kudos to Dr. Tom Stossel for his concise and insightful piece outlining some of the underlying absurdities reflected in recent legislation. In a Wall Street Journal op-ed cleverly titled, Who Paid for Your Doctor's Bagel?, he lays out what happens when ideology masquerades as conflict-of-interest. The point he brings forward is the total lack of value (and abuse of taxpayer and private sector resources) in the scrupulous reporting of 'gifts' to physicians worth more than $10.

At the heart of the legislation is an overreaction to examples of real fraud and abuse engaged in by unscrupulous physicians and industry players. Unfortunately, every industry and walk of life have their unscrupulous characters, including the Church, the media, the government, the pharmaceutical and medical device industries, and yes, medicine.

Some physicians did exercise poor judgment, did falsify data, did prescribe drugs they knew were medically inappropriate -- and some industry folks did engage in professionally unethical and illegal behavior when it came to off-label promotion. These people and their companies have been (and continue to be) punished for such behavior.

But to generalize to all industry-physician relationships and suggest that they are inherently evil, is just a bit over the top and throws the proverbial baby out with the bath water. The attitude reflected by many Congressional leaders is one that positions physicians as easily swayed by personal contact with pharmaceutical reps who peddle their wares.

The presumption that physicians are such weak characters would generally be insulting. But to step back and put it in context, it is an absurd and outrageous suggestion. These are the very same physicians that we entrust with our lives. How can they be capable on the one hand of making life-and-death decisions on our behalf and not be able to withstand the influence of a manufacturer's rep on the other?

As we continue to look for opportunities to facilitate needed innovation across the industry, collaboration between manufacturers and the practice community will be essential. Let's hope that reason will, once again, prevail.



NIH Director Francis Collins has made a centerpiece of his tenure the National Center for Advancing Translational Science (NCATs), an effort to "repurpose" compounds under patent by drug companies that have passed early stage clinical trials, and thus have at least a baselline record of safety in humans. The purpose of the initiative to to look for additional uses for the drugs, and then launch them through final confirmatory (Phase III) trials if they look like promising treatments for other diseases.

Here's some detail from the NCATs mission page:

The Center strives to develop innovations to reduce, remove or bypass costly and time-consuming bottlenecks in the translational research pipeline in an effort to speed the delivery of new drugs, diagnostics and medical devices to patients.

Good luck, Godspeed, and amen. Overcoming bottlenecks and advancing translational research tools that can improve the productivity of the drug development pipeline are sorely needed. And NIH is arguably best positioned to drive this effort forward, since it works with all the key players involved, and has a much bigger budget than the FDA - and the FDA is also plagued by conflict of interest concerns from Congress about its nascent role in facilitating new drug development.

Today, the NIH released more details about its efforts, and announced new partners:

The National Institutes of Health (NIH) today unveiled the details of its $20 million program for finding new uses for abandoned drugs--along with five more participating companies. The program's expansion brings to 58 the number of shelved compounds that academic researchers can test for new uses.

Discovering New Therapeutic Uses for Existing Molecules, announced in early May, is the first major initiative from NIH's new National Center for Advancing Translational Science (NCATS). The idea is to give academic researchers access to compounds that made it through safety testing but were dropped by companies for business reasons or because they didn't work on a specific disease. Initially, three companies--Pfizer, AstraZeneca, and Eli Lilly--offered to share 24 compounds.

Now Abbott Laboratories, Bristol-Myers Squibb, GlaxoSmithKline, Sanofi, and Janssen Pharmaceuticals have signed on, bringing the number of compounds to 58. NIH has posted a table of the compounds that links to one-page fact sheets about the drugs that include the mechanism of action and summary clinical results. NIH is also taking preapplications (due 14 August) for the program's 2- to 3-year grants.

Again, I hope that this work succeeds. But I'm also curious: What tools is the NIH using, or proposing to use, to identify new targets for old compounds that industry doesn't have already? Assuming that new targets are identified, how will the NIH address remaining safety and efficacy concerns - after all, companies will still have to run Phase II and Phase III trials for FDA approval, with an awful lot of unknowns still unknown about how the drugs will perform in the clinic. These concerns are all tractable, and the sooner they become so the better off we'll all be.

But here's the final problem: patents. Assuming that these drugs have already been through significant preclinical and early stage clinical testing, how much time is still left on the patent clock to take them through to FDA approval?

I'm betting that NIH's industry partners carefully chose products with significant patent time left on the clock, but it's still a big problem if your intent is to re-use not just a few dozen, but the hundreds of promising compounds out there with little or no patent time left that have never advanced far into clinical testing.

Beyond the NIH, Congress could give a big jolt to repurposing old compounds with basic safety data by offering market exclusivity for any drug (not FDA approved for another indication) that didn't have enough patent time left to justify commercial development. The MODDERN Cures legislation developed by the National Health Council would be a significant help in this effort.

It would lead many more small and large companies alike diving into their compound libraries looking for therapies to rescue, and incentize additional investments in new diagnostics to spur the process along. This would be a synergistic approach that would leverage the NCATs approach across the entire industry - and lead to many more potential successes.



Over at Forbes, David Chase (CEO of Avado) has a terrrifc blog that is about - essentially - how much more rapidly markets can move than government regulators and legislators.

In a post entitled "The Irrelevance of the Supreme Court Decision on Obamacare", Chase writes that providers are much less worried about the SCOTUS decision than they are by faster, more nimble competitors who are reinventing the healthcare business model from the ground up, from concierge care for the masses to retail clinics.

The array of disruptive innovation activity is breathtaking. Much of this is taking place in what I call the DIY Health Reform at the behest of commercial plans and employers. Even the items that were key parts of the Obamacare such as Accountable Care Organizations (ACO) are unmatched by private sector efforts. For example, more than 80% of the newly formed ACOs are driven solely by private sector efforts.

The following are just a few examples of disruptive innovation in the DIY Health Reform movement:

•Venture-backed Iora Health has bent the proverbial healthcare cost curve working with some of the most challenging patients (i.e., costly) for casinos and other organizations as highlighted in DIY Health Reform from Massachusetts to Alaska. Working with employers or unions, they do the opposite of skimming the cream by identifying those that are highest cost and inviting them into a special program.

•DaVita (DVA) just announced a $4.4 Billion acquisition that is going to blow a hole in a facet of health insurance. See Health Insurance's $4.4 Billion Bunker Buster for more. Judging by calls and emails I have received in response to my piece, the ripple effects of this big move are large within physician groups -- a cohort that is particularly well positioned to offer fee-for-value (as opposed to strict fee-for-service) models that employers, unions, the government and individuals are pushing for.

•An array of startup organizations best described as "concierge medicine for the masses" backed by some of the most successful entrepreneurs of the last 15 years such as Jeff Bezos, Michael Dell and Rich Barton offer a service that is reducing healthcare costs 40% or more. They have proposed how their service could also be used to balance state budgets.

When an entire health system shifts from a reactive to a proactive model as has been the case with the highly successful examples cited above, the backbone of that system is primary care, not hospitals. For example, Denmark went from 157 to just 21 hospitals as detailed in "Primary Care Spring" unleashed by IBM. It's a more geographically concentrated country so the reduction won't be as dramatic in the U.S., however it's not inconceivable that we might have half the number of hospitals a decade from now.

I'm sure Chase is right in the long term (and more hopefully, in the short term), but I also wouldn't underestimate the ability of legacy providers to use regulatory capture to undercut new market entrants - as they traditionally have through control of scope of practice laws, state certificate of need regulations, and state monopolies on insurance regulation. (Or to put it another way, do you really think that powerful public sector healthcare unions like SEIU 1099 are ready to slash the number of hospitals in the U.S. by 50%, as Chase suggests is possible.)

And the massive concentration of health care power in Obamcare at the federal level, and the many more regulations loaded onto health insurance outside of the self-insured market, will provide myriad opportunities for strategic lobbying at the state and federal level to pre-empt, slow, or sabotage market competition.

Still, as Chase argues, the "fee for value train has left the train", most persuasively because the financial squeeze on government and employers has become so severe that the old model must give way, sooner or later. Demonstrating value, rather than just being paid based on fee-for-service (regardless of cost or quality) is clearly the wave of the future.

Creative destruction is finally coming to the health care sector. Moving the deck chairs around on the Titanic is no longer a viable option. But to accelerate change, we should also sweep away the outdated tax and regulatory structures that support the dysfunctional status quo.

And my preference would be to start with Obamacare and go from there.


No one has a crystal ball to predict the Court's ruling (expected within two weeks), but here are three helpful ways of thinking about the different possible outcomes, and what might (or should) happen next:

Leavitt Partners has published a version of its health care reform bracketology that plays out different Supreme Court scenarios in combination with different electoral outcomes (based on which party wins the White House and controls Congress).

The Leavitt analysis reminds readers that the next president and Congress will have an awful lot to say about how Obmacare is implemented (if upheld), repealed in part or in whole, or replaced in part or in whole. In short, we really won't understand the full implications of the Supreme Court's decision until well after the election is decided in November. Leavitt also includes legislative scenarios associated with each potential outcome.

Former CMS Administrator Thomas Scully also points out that the Supreme Court's decision isn't happening in a policy vacuum: an impending national debt and deficit crisis, bipartisan agreement on the need for tax reform, entitlement reform, and looming sequestration (i.e., massive defense cuts and discretionary spending cuts) all will impact the future of Obamacare.

Even if the law is upheld in its entirety, Scully believes that delaying implementation of Obamacare and shifting coverage on the exchanges down from 400% of FPL and towards catastrophic insurance coverage would lower government spending and allow Congress to make swallowing some other bitter policy pills a little easier. This argument should be helped by a recent CMS analysis showing that health care spending remains a crushing burden for the U.S. economy - and that Obamacare will only add to that burden, to the tune of nearly $500 billion by 2021.

James Capretta, a visiting fellow at AEI and director of ObamacareWatch, makes the case that no matter what happens after the SCOTUS decision conservatives need to respond by offering a detailed plan for replacing it that addresses the most serious shortcomings of the current system (including pre-Obamcare problems):

Here, the temptation among some conservatives will be to play "small ball" and offer up a series of micro-initiatives that would be beneficial but won't fundamentally solve the problem. That would be a mistake. ...

If ObamaCare is brought down, the GOP will have a once-in-a-generation opportunity to advance a credible and practical alternative that will fix the problems in American health care the right way instead of with government coercion and massive spending programs. That kind of reform plan will harness the power of a functioning marketplace to deliver better care at less cost. Such a reform plan will necessarily entail some controversy and political risk. But there will be no better time than in the aftermath of ObamaCare's demise to advance it. The country wants solutions in health care, and if the GOP is able to offer them, it will mark a historic shift in the perceptions of the major political parties.

Arguably, the historic shift is already occurring: budget constraints will force a realignment of the parties on health care policy, not matter what the Court rules in the coming days. Having a credible market alternative to concentrating more health care power in Washington will help accelerate the shift and ease concerns that conservatives want to tear up nation's social safety net - rather than fix it.



Dr. Thomas Stossel, an American Cancer Society Professor of Medicine at Harvard Medical School, has an op-ed article in the Scientist this week rebutting the argument that financial conflicts of interest are corrupting modern medicine.

Advances in medical and surgical care are hard-won. They require rigorous, carefully interpreted laboratory research. Equally important is the painstaking clinical work to translate basic discoveries into useful diagnostics, drugs, and devices. Despite the odds, the achievements made in the past half century are unmistakable: a 50 percent reduction in cardiovascular mortality despite an epidemic of obesity; a dramatically decreased cancer mortality rate; and the conversion of AIDS from a death sentence to survival with good life quality.

The key to such success has been the growing number and complexity of collaborations between academics, physicians, regulatory agencies, and--not least--industry. Unfortunately, over the past 20 years, a mania has taken hold that discounts the social value of collaboration and has mounted an inquisition against it, encapsulated by the epithet "financial conflict of interest (fCOI)." Critics' unwarranted allegations that such conflicts cause bias have limited the sources of intellect that can contribute to a given project.

Medical journals have taken a leading role in promoting this mania. A study recently published in the April issue of Nature Biotechnology documents its pervasiveness: a content analysis of 108 articles in four highly cited medical journals (The New England Journal of Medicine, JAMA, Lancet, and Lancet Neurology) found that 89 percent of the publications emphasized what they considered risky or problematic with industry collaborations.

But what is the basis for this assertion? Approximately half of these articles presented no evidence whatsoever for their conclusions. They merely postulated them as self-evident. When provided, the evidence was weak, and the interpretations one-sided: fewer than 15 percent even mentioned any alternative interpretations, and only 3 percent bothered to discuss them. In contrast, the comparatively few papers emphasizing benefits of collaboration all cited evidence, and recognized and attempted to rebut opposing viewpoints.

Stossel rightly points out the irony of ostensibly science-based medical journals advocating for sweeping changes in health care policy and medical education that are supported by little more than anecdote and assertion.

For another view of the value of industry-academic collaborations, see my recent post here.


In 1985 Michael Hovey, an organic chemist at du Pont in Wilmington cooked up a batch of 3-methylfentanyl, an illegal narcotic that is one hundred thousand times stronger than morphine, in his lab, ushering in the modern era of so-called "designer drugs".

After that, things started to go poorly. Getting rid of the stuff, which had a street value of $112 million, proved to be challenging, as evidenced by the fact that he tried to sell it to an undercover FBI agent. Later, out on bail and determined not to go back to prison, Hovey committed "suicide by police."

If this sounds crazy, things have gotten crazier since.

There have been many designer drugs made in the last 80 years, but several years ago, a new one started to become popular. It is called methylenedioxypyrovalerone (MDPV), also known as "bath salts."

If the name sounds familiar, it's because it has been in the news quite a bit lately. The consumption of "bath salts" has allegedly been responsible for a small group of maniacs going around chewing on people's faces, and other assorted violent attacks.

For example, a couple of weeks ago, Miami police shot and killed a naked man who was eating the face of another naked man on the MacArthur Causeway to Miami Beach. Had this happened a few miles further east, it could have possibly been called the South Beach Diet II. There have been at least two similar attacks--one more in Florida and one in Louisiana--all attributed to bath salts.

The name isn't remotely accurate, since bath salts have nothing to do with bathing, and they are not salts. They are synthetic drugs that have structural elements found in both ecstasy and crystal meth, giving them both hallucinogenic and stimulant properties. And in most places, they are perfectly legal--sold in convenience stores and gas stations. Sometimes they are sprayed on incense, which is then smoked.

So, how can something like this be so easily abused, dangerous, and legal? Perversely, the answer is innovation.

The designer drug industry has grown and flourished, and its chemists have gotten smarter. It is not difficult to make small changes in the structure of a psychotropic drug and create a different one. It might be better, or worse. One never knows in advance. "Safety" testing is done on the street, so if some of your customers start dropping dead from one drug, it's time to make another.

Law enforcement and designer drug chemists have been playing tag for years, but the chemists hold most of the cards.
This is because there are hypothetically an infinite number of structural changes that can be made to a given street drug.

Some of these substances have managed to skirt law enforcement by virtue of being new. How can you criminalize something that has never been seen before? Or something that hasn't even been made yet, existing only idea in a chemist's mind? This makes regulation of these drugs especially challenging. Countries where bath salts are legal are just now scrambling to add them to lists of banned substances.

Having witnessed (and been part of) the massive research cuts in the pharmaceutical industry, I wondered whether amongst the tens of thousand of unemployed organic chemists in the U.S., some of them might be desperate enough to "Break Bad."

But a call to the DEA revealed otherwise--these drugs are not coming from the United States--they are all coming from China.

As a big fan of irony, I can't help but find all of this somewhat amusing. Not only are we becoming reliant on China to discover and provide our legal drugs, but our street drugs as well. This leaves me speechless.

So, I'm going to stop. It's time to watch the Stanley Cup finals anyhow. I don't want to miss the face-off.



Over at Reason.com, Damon Root offers a concise and helpful reprise of the libertarian legal analysis of Commerce Cause jurisprudence and the individual mandate that led to the Supreme Court hearing Department of Health and Human Services v. Florida.

When then House Majority Leader Nancy Pelosi was first asked if the individual mandate was constitutional, she shot back "Are you serious?"

Subsequent court rulings - and oral argument before the Surpreme Court - have shown the question is serious enough to make President Obama, and the rest of the Affordable Care Act's supporters very, very nervous.

As they say, read the whole thing.

You can also hear my podcast interview with Randy Barnett, the architect of the libertarian legal challenge, here.



Former CMS administrator Thomas Scully offers his explanation for life after the Supreme Court rules on the Affordable Care Act, assuming the law is upheld, President Obama is re-elected, and Congress remains sharply divided.

In a nutshell, Scully assumes that a grand bargain on the deficit, tax reform, and entitlement reform will - at the very least - delay implementation of Obamacare and possibly pare back subsidies on the exchanges.

Courtesy of an interview with Kaiser Health News.


An article in the LA Times reports that the Austrian pharmaceutical company AFFiRiS A.G. has begun conducting clinical trials for a (first of its kind) therapeutic vaccine to treat Parkinson's disease.

The vaccine works by stimulating the production of antibodies that inhibit a protein called alpha-synuclein, which is thought to kill brain cells in the substantia nigra section of the brain. Developers hypothesize that an over-abundance of alpha-synuclein in the brain eventually results in the symptoms associated with the disease (impaired movement, tremors, and ultimately death).

The safety and effectiveness of the vaccine remains to be determined, but developing an effective vaccine for Parkinson's disease that slows or prevents disease progression would represent an enormous advance for Parkinson's patients, and it would validate a powerful new approach for treating expensive and debilitating chronic neurological diseases.

As we've discussed on the blog previously, the evolving paradigm in medicine rests on new treatments - including therapeutic vaccines, regenerative medicines, and gene therapy - that hold out the hope of not just slowing the progression of disease, but (eventually) restoring healthy function to patients by attacking disease at its molecular and genetic roots.

If successful - and there is no doubt that this research will be incredibly challenging, and proceed by fits and starts - it may be able to radically lower health care costs by reducing the enormous (and expensive) labor and infrastructure associated with caring for Americans with degenerative neurological diseases. (Just like Salk's polio vaccine made polio wards in hospitals and iron lungs obsolescent virtually overnight.)

All the more reason, then, to ensure that America remains the global leader in biotechnology, and that we develop and maintain regulatory, research, and reimbursement paradigms that encourage innovators to take the enormous scientific and financial risks required to validate and bring new therapies to market.


Douglas Holtz-Eakin, former director of the Congressional Budget Office and president of the American Action Forum, recently published an interesting report addressing the tax that the Patient Protection and Affordable Care Act (PPACA) imposes on health insurance providers. Holtz-Eakin compellingly argues that the structure of the tax will almost necessarily force some insurance providers to raise their premiums, leaving health insurance firms exempt from the premium tax with a competitive advantage that will distort price signals in the health care market.

Here's how the tax functions. PPACA establishes an annual "fee" that health insurance providers collectively will have to pay the federal government beginning in 2014. In its first year, the fee will amount to $8 billion, and it will rise to $14.3 billion by 2018, at which point the fee will be adjusted for inflation and modified accordingly in ensuing years. Insurance providers will have to calculate their share of the total premium dollars subject to the fee, and the fee will then be proportionately levied on each insurance provider according to the size of its share.

Non-profit insurers, which account for about half of the national insurance market, are (mostly) not subject to the fee. For-profit insurers will therefore bear the tax burden imposed by the fee, as would be normally expected. However, the fee deviates from standard tax policy in a very important respect: it is not tax deductible. Though the mandatory fee is unambiguously a cost of doing business for the health insurance providers subject to it, the tax code will not regard it as such, treating it instead as earned income. Thus, if a for-profit health insurance provider earns a dollar and puts that dollar towards paying the premium fee it owes the government, it will still owe 35 cents in corporate taxes on that dollar.

Holtz-Eakin points out that this unconventional tax structure will dramatically skew the health care market in favor of non-profit providers. Insurers subject to the free will have to make up for the expense it imposes on their business somehow, either by cutting their costs or by raising their premiums. Those not subject to the fee will obviously not face this dilemma, and hence they won't face any financial pressure to raise their premiums. However, the for-profit insurers subject to the fee will suffer the most, as their losses will be compounded by the fee's non-deductibility. Holtz-Eakin calculates that for-profit insurers subject to the tax will have to raise their premiums by $1.54 for every $1 imposed on them by the fee just to break even.

Consumers will naturally shift towards the firms charging lower premiums. The policy thus favors some providers over others according to how they structure their finances (for-profit vs. non-for-profit), rather than the quality of their services.


In an article published a few days ago in FuturePundit, Randall Parker made a very interesting observation concerning the increasing collaboration between pharmaceutical companies and academic researchers. Citing an analysis by the Fox Chase Cancer Center, Parker highlights that 48% of the research presented at the 2011 ASCO conference had some degree of industry involvement, a significant increase from the research presented at the 2006 meeting, at which only 39% of the presented research had any connection to the pharmaceutical industry.

Increasing constraints on federal research funding are undoubtedly responsible for the shift, and some may view the increasing levels of corporate involvement with academic research as a disconcerting trend, one that threatens to subordinate the future of public health to the interests of a handful of "profit-maximizing" enterprises.

But Parker's blog post suggests that profit-oriented research will accelerate cancer drug discovery, as companies seek out the investigational targets and compounds that are most likely to produce successful drugs. Interestingly, he also cites a study that found that "studies from authors with ties to industry also tended to receive higher scores from their peers."

Corporate sponsorship of academic research does raise some legitimate conflict of interest concerns, but these can be effectively managed, and certainly shouldn't imply that industry sponsored research is biased or of lesser quality.

Of course, recent scandals over the inability of companies to replicate academic pre-clinical cancer research published in peer reviewed journals (hat tip: Ronald Bailey) also raises the issue of how much the pursuit of "funding and fame" is undermining cancer research by drug companies.

Companies, at least, face stringent FDA requirements for drugs approval - and thus have much less incentive to waste scarce research dollars on scientific dead ends. Thus the incentives of companies to find and develop better cancer treatments are closely aligned with the interests of cancer patients.


Today the American Action Forum (AAF) released a eye-opening report demonstrating that the Department of Health and Human Services has serially failed to implement the Patient Protection and Affordable Care Act's (PPACA) numerous regulatory provisions on schedule.

PPACA's manifold regulations did not become effective law with President Obama's signature in in March of 2010; rather, the law establishes a time-table for the gradual implementation of its core provisions. However, the AAF's research shows that of the 42 regulations whose statutory deadlines have already passed, only 20 of them have actually become law.

The Obama administration's failure to implement almost half of the regulatory provisions mandated by its own law to date raises two challenges for trying to predict PPACA's effect on the health care market and the economy writ large.

First, and most obviously, it tells us that the regulatory scheme that PPACA imposes on the nation is complex and difficult to implement. Second, PPACA has increased and will continue to increase regulatory uncertainty in the economy. It will be very difficult for large and small businesses, insurance companies, and health care providers to adequately plan to adjust to the myriad demands that PPACA makes on them when critical details continue to be unknown.

Regulatory "uncertainty" may seem an abstract issue, but it can have a very real and harmful impact on the health care market and the economy as a whole.

Uncertainty in the state of health care regulation makes it difficult for health care providers and insurers to carry out their work in an efficient and cost-effective manner, simply because they don't know what rules they're operating under, and they don't know if or when those rules may change. Businesses likewise suffer, as regulatory uncertainty makes it difficult for them to predict their future costs, which provides a disincentive against making additional investments and hiring.

This, in fact, may be why a recent poll taken by the International Foundation of Employee Benefit Plans found that many businesses (and a majority of small businesses) believed that a Supreme Court decision overturning the entire Affordable Care Act would be the best outcome for them.



I'll be writing more about ASCO revelations in subsequent posts, but when it comes to cancer drug discovery we're living in an incredibly exciting time. Researchers are gaining an increasing understanding of the underlying "circuitry" that drives cancer cell growth and are coming up with many new targets to attack - particularly with monoclonal antibodies that bind to cancer cells and (for the most part) avoid collateral damage to other tissues and organs associated with traditional cancer chemotherapy and radiation treatments.

There's definitely a push-pull mechanism at work driving advances in both cancer research and clinical care. At the research end, decades of federal funding (through the NIH and NCI) have greatly improved our understanding of the basic biology of cancer, creating a "target rich environment" for biopharmaceutical developing innovative new medicines.

At the "pull" end, the FDA has been (generally) good at using regulatory tools like accelerated approval and Fast Track to get promising new cancer treatments to patients. New targeted biologics treatments for cancer also command premium pricing in the market, and face little or no generic competition (although with the FDA developing a new biosimilars pathway, that is likely to change over the next several years). And even where good generic cancer drugs are available, they are often used in combination therapy with newer medicines, which also helps to blunt pricing pressures for new drugs. (The situation is somewhat different in Europe, where "health technology assessment" and drug price negotiations can slow the uptake of innovative medicines. If the U.S. adopted similar strategies, incentives for cancer drug innovation would certainly weaken.)

Still it's not surprising to read that (hat tip: Pharmalot) cancer leads the way in biopharma deal making, with almost a quarter of all new deals in 2011, and that (according to PhRMA) there are almost 1,000 new compounds in development to treat cancer in the U.S.

That's all good news.

But if we're ever going to successfully transition from adding a few months or years to cancer patients' lives to effective long term control of complex cancers (akin to how we now treat HIV) we're going to have to re-think how we develop, test, and approve new cancer drugs.


An article recently published in Reuters underscores a trend that has been developing for some time: the increasing willingness of pharmaceutical companies to invest heavily in the development of new cancer drugs. Last year, 10 out of the 30 drugs approved by the FDA were new cancer treatments. And Reuters reports that this year, the FDA is on track to approve even more cancer drugs than it did last year; the agency is bracing itself to evaluate an expected total of 20 new treatments for cancer this year alone.

Why all of this innovation in the market for cancer drugs?

One answer is that the FDA has established "surrogate markers" for rapidly evaluating new cancer therapies through its "accelerated approval" pathway. Companies know that they can bring promising therapies to market faster, encouraging greater research into new therapies.

Since the 1990s, the FDA has acknowledged that measuring overall survival was a costly, long term process that could delay patient access to the most promising treatments. Today, drugs that achieve certain surrogate markers of effectiveness (i.e., that are reasonably likely to predict improvements in survival), such as a significant improvement in "progression-free survival" (the length of time a patient lives without their cancer getting worse) versus standard therapy are eligible for consideration through the accelerated approval pathway.

Drugs approved through accelerated approval must confirm their benefits in traditional trials that confirm the survival benefit. Drugs whose advantages don't pan out, like Avastin for breast cancer, can have their indications revoked by the FDA.

The FDA appears to be doing even more to expand access through the accelerated approval pathway. Last week, the agency issued a draft guidance that proposed granting accelerated approval to drugs that help eliminate early stage breast cancer in patients before surgery. Currently, new breast cancer drugs are tested only on patients whose cancer has spread and who have failed multiple prior rounds of therapy, ensuring that only gravely ill patients who desperately need treatment are exposed to the risks involved with taking experimental drugs. (However, these patients may also be less likely to respond to new treatments.)

But the FDA's draft guidance suggests that a new accelerated approval process for early-stage breast cancer treatments will help spur innovation and expedite patient access to the most promising therapies.

An article recently published in Pharmalot details how this process would work. Companies would be allowed to test experimental breast cancer drugs on patients with a particularly deadly form of the disease known as "triple negative" breast cancer. These drugs would be tested on patients in the early stages of cancer, before they have undergone surgery for cancer removal. Drugs that produce a "pathologic complete response" or pCR (i.e., drugs that successfully eradicate cancer from the breast and the lymph nodes) in these patients would then be granted "accelerated approval" and approved for marketing. Drugs that achieve a pCR and subsequently prove effective in extending survival in these populations would then be granted full approval.

The FDA draft guidance expresses hope that this accelerated approval process for high-risk patients (patients with "triple negative" breast cancer) will "encourage industry innovation and expedite the development of breakthrough therapies to treat high-risk early-stage breast cancer."

The FDA should be applauded for recognizing the life-saving potential of alternative pathways to drug approval and for creating new surrogate and clinical endpoints (like pCR).

But the success of the FDA's regulatory approach to cancer drugs also illustrates the need for the FDA to adopt a similar approach for other ailments besides cancer. Surrogate markers and accelerated approval have encouraged a remarkable drive for innovation in the development of new cancer drugs, and there's no reason why similar strategies can't be developed to help find better treatments for other diseases as well.


Researchers at the American Society of Clinical Oncology (ASCO) in Chicago this week have unveiled data on several promising new cancer treatments - and FDA regulators have offered some innovative thinking with respect to how the agency can offer faster approval for the most promising breast cancer treatments.

Bloomberg reports that Bayer's experimental cancer drug regorafenib has proven an effective treatment for patients with a rare type of stomach cancer (gastrointestinal stromal tumors or GIST) whose tumors have developed resistance to existing medications. There are only two drugs approved to treat this type of cancer, Sutent and Gleevec, and 85 percent or more of these cancers will eventually become resistant to those drugs. So adding another effective option for patients will (hopefully) both extend overall patient survival and buy time to come up with more powerful therapies that can slow the development of drug resistance.

Two other drugs discussed at ASCO appear to be promising new treatment options for metastatic melanoma, a deadly form of skin cancer. The targeted drugs, trametinib and dabrafenib, developed by GlaxoSmithKline, were both significantly more successful at sustaining life and preventing disease progression than standard chemotherapy treatment. And a smaller study of the drugs suggests that they be may be even more effective when used in combination, as they block two different cancer growth mechanisms (BRAF and MEK).

A new approach in cancer therapy is to use combinations of targeted therapies that attempt to shut down multiple cancer growth pathways at the same time, slowing cancer growth and (hopefully) making it harder for the cancer to develop drug resistance to targeted therapies.

Apart from targeted therapies, the Wall Street Journal also reports some promising data from the field of cancer immunotherapy, once considered a therapeutic dead end. Researchers have gained a much better understanding of how cancer shields itself from the body's immune system, escaping detection and destruction.

The biggest challenge in immunotherapy treatment has been to train the body's immune system to attack cancer cells while leaving normal, healthy tissue unharmed. Though much work remains to be done in terms of making immunotherapy widely effective, new research has shown that at least some late-stage cancer patients (across several different cancer sub-types) can enjoy significant sustained benefits from immunotherapy treatment with relatively limited side effects.

Thankfully, innovation is not only occurring in the development of new drugs and treatments for cancer. FDA regulators have announced a new approach to cancer drug testing. The Chicago Tribune reports that in an effort to "spur innovation and get more effective drugs to the patients who need them," the FDA will now allow drug companies to test their medications on women with "highly aggressive" breast cancers before their tumors fully develop and metastasize.

This breaks from the traditional FDA policy of testing new breast cancer drugs (which may have less well understood safety profiles) in patients suffering from very advanced, metastatic cancers, where the prognosis is extremely poor to begin with. According to a new FDA guidance targeted at breast cancer, any drug that is found to eradicate cancer in early stage patients will be granted "accelerated approval," providing companies a fast-track to market.

Finally, The Scientist recently noted a provocative article published in Nature by cancer researcher Patricia Steeg. Steeg argues that FDA regulators have forced drug companies to focus exclusively on combating cancer growth, rather than preventing metastasis, to the detriment of patient health. Steeg argues that any cancer drug that prevents metastasis should be regarded as life-prolonging and hence should meet the FDA's standards for drug effectiveness, even if those same drugs fail to reduce tumor size after metastasis has occurred. Steeg specifically believes that the FDA should create a new type of randomized clinical trial to test whether cancer drugs successfully prevent metastasis, and argues that those that do should be granted FDA approval and be rapidly offered to patients at high risk for metastasis.



With yesterday's vote (387-5) in the House of Representatives and last week's vote in the Senate (96-1), both chambers of Congress have now approved, with sweeping bipartisan support, their respective bills to reauthorize legislation for the FDA's various (new and old) user fee programs, i.e., drugs, biologics, biosmilars, generics, and medical devices).

But the Senate bill, "The Food and Drug Administration and Safety and Innovation Act," and the House bill, "The Food and Drug Administration Reform Act of 2012," are not identical, and so the versions will have to be reconciled (not to be confused with reconciliation) through a conference committee. The final legislation will then be passed by both chambers before it is presented to President Obama for his signature.

Here's a quick primer on just a few of the most interesting differences to keep an eye on:

Incentives for anti-infective drugs. The Senate and House bills differ somewhat on which drugs will qualify for exclusivity incentives contained in the Generating Antibiotic Incentives Now (GAIN) Act. The Senate bill limits its exclusivity provisions to new qualified infectious disease products that treat "serious or life threatening" infections, while the House bill applies extended exclusivity to all qualifying pathogens.

This may be a distinction without a difference, since the products in question will likely be targeted at hospital acquired infections (which are very serious) and not community acquired infections, where there are already many good generic antibiotics and little incentive for companies to try and compete with them.

Both the House and the Senate bills extend exclusivity for qualified products by 5 years, in addition to any other exclusivity provisions for which the products might otherwise qualify (for instance, FDA approval of NMEs gives companies 5 years of exclusivity under current law; under GAIN, they'd now have 10). While the exclusivity provisions are certainly welcome, they will mostly benefit small and medium sized companies (a good thing), or products that are "in-licensed" at larger companies that have less than 10 years of patent life remaining before FDA approval.

But for most patented antibiotics (which typically have 10+ years of patent life remaining), the exclusivity provisions won't do much to change the fundamental economics of antibiotic drug development (which are currently pretty miserable). In March, the Infectious Disease Society of America made this exact point in testimony to Congress:

The GAIN Act takes an important step in the right direction by providing a type of pull incentive--increased data exclusivity for new antibiotics. However, this incentive, while helpful, alone will not sufficiently raise the net present value (NPV) of antibiotics sufficiently to permit them to compete fairly against other drugs for companies' R&D investment resources.

Since products used in the hospital setting for drug resistant pathogens are usually products of last resort, it may take several years for them to become profitable - perhaps not until the tail end of their effective patent life.

In other words, there is still plenty of room for Congress (and the FDA) to improve incentives for large companies to devote more resources to antibiotic drug development. This could be accomplished in two ways: offer longer patent protection for qualified products, or substantially shorten the cost/time required to bring new products to market. For a terrific overview of where the FDA is on these issues, see David Shlaes' excellent blog, The Perfect Storm.

Medical device regulation. Under current law, the Secretary of HHS cannot change a medical device's risk classification except through regulation, which would then change requirements for performance standards and/or premarket approval. The House bill leaves current law unchanged. The Senate bill would allow the Secretary (or the FDA, if so delegated) to change device classification by administrative order, a much more streamlined process.

FDA regulation of lab-developed tests. The House bill would prohibit the FDA from issuing any draft or final guidance on regulating LDTs without first notifying the House Committee on Energy and Commerce and the Senate Committee on Health, Education, Labor, and Pensions. (Historically, the FDA hasn't exercised enforcement authority on LDTs - although it does regulate, for example, reagents used in such tests.) There is no such provision in the Senate bill.

External review of the drug development process. The Senate, but not the House bill, would require an external review of the FDA's pre-market drug review process by an independent private sector consulting firm, along with input from FDA and regulated industry.

Track and Trace. The Senate bill contains a provision for electronically identifying and tracking pharmaceutical products throughout the pharmaceutical supply chain (called RxTec). The House bill doesn't have this provision. Ideally, if we're going to create a system for identifying counterfeit drugs and biologics and preventing them from entering the U.S. drug supply chain, there should be one federal system, as opposed to fifty potentially conflicting state systems that would add significant compliance costs to manufacturers, wholesalers, distributors, and pharmacies.

There's plenty of other provisions worth commenting on, but let's save that for another day. For those who are interested, the Congressional Research Service has released a helpful 74 page long side-by-side comparison of the bills with each other and current law.

Congress is endeavoring to reconcile both bills by the first week of July, giving President Obama plenty of time to review the bill and sign it before the FDA's current user fee authorization expires on September 30th.


There has already been so much written about Mayor Bloomberg's latest bewildering attempt to protect us from our fat selves by banning "large" sodas that I don't even want to go there. Nanny state, overreaching government, blah blah blah.

Suffice it to say that New York is looking mighty stupid right now, and if the TV comedians are lining up to make fun of us, it is deserved.

Rather, I thought it might be interesting to examine the "logic" of the proposed law, and suggest a few additional measures that could be instituted.

If the mayor gets his way, you won't be able to buy cups of soda larger than 16 ounces. This is about 180 calories. But a 20 ounce from a supermarket bottle is OK. Without doing the math, I'm going to go out on a limb and predict that the bottle will have more calories. Perhaps the effort required to unscrew the cap offsets the extra calories.

Sixteen ounces of whole milk (300 calories) is fine.

But given the mayor's obsession with reducing obesity, it is clearly better to drink soda than milk since it has about half the calories per ounce. Any argument tossed in here about the nutritional value of milk is irrelevant and obfuscates the point. Calories are calories. When speaking of obesity, the term "empty" calories is empty of meaning.

And as long as we're going to have dumb laws, why not make some more that are even dumber? The possibilities for job creation are endless, and we are always in need of new revenue.

Considering that a hot dog on a bun contains about 350 calories, it is patently obvious that we need to restrict the length of hot dogs to 5 inches instead of 6. The Department of Wiener Compliance would be a welcome addition to our city government. One can only imagine a truckload of inspectors charging into Papaya King armed with measuring tapes. "Lady- step AWAY from the counter!"

Maybe we could borrow a few detectives from NYPD and create a Hamburglary Task Force. Those things are fattening and we'd better regulate them.

Reducing the size of the bottles of sugary drinks sold in supermarkets could be enforced by "Liter Maids," although I don't know if it makes sense to tow away the violators.

Too much cheese on pizza? Big problem, but nothing the "Mozzarella Mobile Unit" couldn't handle. And on Passover they could work overtime on the "Matzoh-rella Mobile Unit."

As the mayor said, "New York City is not about wringing your hands; it's about doing something. I think that's what the public wants the mayor to do."

With due respect, Mr. Mayor, no they don't. They would like to be left alone to enjoy their beverages in peace.


A bill to repeal a provision in the Patient Protection and Affordable Care Act (PPACA) that levies a 2.3% excise tax on medical device manufacturers was approved by the House Ways and Means Committee today, clearing the way for a House vote on the bill as early as next week. According to an article recently published in The Washington Post, the repeal effort is being led House Representative Erik Paulsen (R-Minn.), but he is not alone--the proposed repeal bill has 239 co-sponsors, including 11 Democrats, some of whom helped reduce the excise tax rate from a higher level while PPACA was being debated.

The bill will almost assuredly pass the Republican-dominated House, but it may face challenges in the Senate, where some lawmakers will be hesitant to forgo the projected revenue that the tax is expected to generate, which could amount to $30 billion in the first decade of its implementation (2013 to 2022).

Given the nation's poor fiscal health and the persistent disagreement in Congress over whether we have a "spending problem" or a "revenue problem," the repeal bill will not likely pass the Senate unless sponsors from both parties can locate some mutually acceptable means--either a new cut or a new tax--to neutralize its effect on the federal deficit. (Although this particular problem wouldn't exist had the Administration not used the device tax, along with new taxes on drugmakers and insurers, to make the Affordable Care Act seem deficit neutral.)

But regardless of how that agreement ultimately plays out, it is crucial that legislators on both sides of the aisle fully consider the potentially disastrous impact of this tax were it to become law.

A report published by Diana and Harold Furchtgott-Roth in September of 2011 meticulously details the effects that the excise tax would have on the medical device industry, health care innovation, and the economy writ large if implemented. Their findings are nothing short of startling.

According to the report, the tax could cause the medical device industry to shed roughly 10% of its employment in the United States, resulting in more than 43,000 layoffs and concomitant labor compensation losses in excess of $3.5 billion. The tax will make our foreign competitors even more financially appealing than they are now, leading American-based medical device manufacturers to pick up shop and move offshore, resulting in further job losses and diminished tax revenue.

But perhaps worst of all, the tax, if not repealed, would stifle critical, life-saving innovation in the medical device industry. Recall that this proposed tax is an excise tax. That means that the tax is levied on total sales, rather than profits. A medical device company making no profit or even losing money would therefore still be subject the tax, making its financial burdens even greater. And innovation in the medical device industry, as with innovation in the pharmaceutical industry, often requires that companies endure several years of losses to repay their investments in research and development before they can earn any profits. The tax, by cutting into sales revenue regardless of a firm's profitability, will substantially augment the risk of investing in medical device research and development, erecting additional barriers to innovation.

The tax may well produce a significant amount of revenue, but that revenue will come at a very grave expense: layoffs, offshoring, diminished innovation, and poorer patient health.


keep in touch     Follow Us on Twitter  Facebook  Facebook


Our Research

Rhetoric and Reality—The Obamacare Evaluation Project: Cost
by Paul Howard, Yevgeniy Feyman, March 2013


Warning: mysql_connect(): Unknown MySQL server host 'tmiweb52.vwh.net' (2) in /home/medicalp/public_html/incs/reports_home.php on line 17
Unknown MySQL server host 'tmiweb52.vwh.net' (2)
Archives

Blogroll

American Council on Science and Health
in the Pipeline
Drugwonks
Pharmalot
Reason – Peter Suderman
WSJ Health Blog
The Hill’s Healthwatch
Forbes ScienceBiz
The Apothecary
EyeOnFDA
KevinMD
Marginal Revolution
Megan McArdle
LifeSci VC
Critical Condition
EconLog
In Vivo Blog
PharmaGossip
Pharma Strategy Blog
Drug Discovery Opinion