|Selected news articles which highlight important policy issues.||
News: Weekly Archives
News for the week of 10-11-2004
Beating Back Cancer . . . Again: Ten Years Without Leukemia Meant Everything Was Supposed to Be OK; It Wasn't
This personal essay about a Journal writer's battle with leukemia is useful to remind us how far medical progress has come, and how far it can go if permitted. Some facts from the piece:
Health Savings Accounts, or HSAs for short, are a centerpiece of President Bush’s health care agenda, and as such are attracting attention from the health care policy community. This article uses the personal story of the first person in the country to buy an HSA, Pam Wimbish, to get into the pros and cons of HSAs.
So far in Pam’s life, HSAs are an unambiguous plus. As the article notes, when she needed foot surgery to re-insert a screw from a previous surgery, “she did exactly what the proponents of HSAs intended: She took charge of her situation and thought twice before buying suggested treatment and medication.” The article goes on to note in detail how she reduced her total bill by about 50% through careful forethought and negotiations with her providers.
HSA opponents ask whether everyone would be so conscientious and determined as Ms. Wimbish, but that standard of evaluation makes the perfect the enemy of the good. Every market offers people the opportunity to become as knowledgeable as they want, and not everyone takes up the challenge. But those who do - the car fanatics who know their overhead cams from their McPherson struts, the computer people who know about all about the hardware and software each machine carries – have a beneficial effect for all of us. Suppliers adjust their products for everyone on the basis of the actions of the knowledgeable minority, who shift their purchases on the basis of suppliers meeting their needs. And in order to attract these people, suppliers make information about their products readily available, allowing people with less-intense desires to control their purchases more information than they would otherwise have acquired. The result: a few geeks make a market produce better goods at a lower price.
Why wouldn’t this happen in health care, if moves toward first-party-payer systems took hold? The key to successful markets is the people who benefit from a purchase also finance it, making them keenly interested in the outcome and the price paid for it. And HSAs, which make people solely responsible for the first couple of thousand dollars for annual health care purchases, are the best way to bring these market benefits to a system that has been far too insulated for far too long.
Selling Prescription Drugs to the Consumer
Advertising has been a bogeyman for critics for most of the last century. Dorothy Sayers poked fun at it in her classic Lord Peter Wimsey novel Murder Must Advertise; Cary Grant took his stab at it in Mr. Blandings Builds His Dream House ("If you ain't eatin' Wham, you ain't eatin' ham!") and John Kenneth Galbraith and a host of liberal academics in the 1960s blamed advertising for a host of ills besetting capitalism. Basically the criticism goes as follows: we are sheep, the advertisers are clever, and if they put a product in front of us enough we'll go out and buy it whether we need it or not.
Today the song remains the same, but the words are slightly different. People really don't need all these wonder drugs being thrust upon them on television, and by the way they really aren't so wonderful after all. This article takes specific aim at Nexium, which the article alleges is really no better than the generic drug Prilosec, but the anti-direct-to-consumer-advertising movement is increasingly having its voice heard. In the current environment, it behooves one to take a step back and remember the decades-long critique of advertising and place the current blasts into context. After all, if advertising were really so powerful, wouldn’t we all be driving Edsels?
More seriously, the real problem with DTC advertising is that consumers do not have to spend their own money to indulge their fancies. If you see a great ad for a Mercedes, your limited pocketbook helps curb your appetite for luxurious speed. But if you see an ad for the blue or purple pill, you just head out the door, find a doctor who will write the prescription, and someone else picks up 80% of the tab. Before we move to ban advertising of legitimate and helpful products, perhaps we should think about reforming such a cockamamie financing system.
Brain-Imaging Study is Launched for Alzheimer’s
While political discourse is focused on how to redistribute existing medical technology, the quest for future cures goes on. This article notes that a long-awaited $60 million study of the brains of people with Alzheimer’s disease is being started. Alzheimer’s afflicts 4.5 million people, and is expected to surge to between 11.5 and 16 million people by 2050. Pharmaceutical companies will contribute one-third, or $20 million, of the cost in the expectation that the data will help provide information that will spur research into prospective Alzheimer’s cures.
Importing Less Expensive Drugs Not Seen as Cure for U.S. Woes
The hullabaloo over importing prescription drugs from Canada has always had an unreal quality about it. Canada in public discourse has become some sort of pharmaceutical El Dorado, where everything is always available at half the price. It’s kind of like a diet that promises you can lose weight by eating two quarts of ice cream each day – you want it to be true so badly that you may not look too closely at the facts.
But facts have an ugly way of reasserting themselves. You’ll gain weight if you replace broccoli with Ben & Jerry’s, and Canada is not the solution for high American drug prices. As this article points out, “there are not enough Canadians, or drugs in Canada, to make much of a dent in the United States. There are 16 million Americans on Lipitor, for instance – more than half the entire Canadian population.” So why does the importation myth persist?
The article goes on to state that it’s a political stalking horse for the real agenda, currently a non-starter in the U.S.: Canadian-style, governmentally imposed price controls. Canada’s drugs are cheaper because its government tells drug makers that they must offer a lower price or the Canadian federal and provincial governments, who buy the drugs in that country, “determine how much the drug maker can charge.”
So, are price controls a good idea? No, they aren’t. A good’s price always reflects the cost of developing it, the cost of producing it, and the wealth of the people buying it. In an efficient market, where competing suppliers are free to offer their products, the price of a good will tend to stabilize at the marginal cost of production and development, with enough of a profit margin to allow the producers to attract capital. Price controls can distort the nominal price, but since they cannot change human nature, firms with products subject to price controls will react in other, undesirable ways. Drug companies subject to price controls will cut costs, by outsourcing research to cheaper localities like India (which has a burgeoning pharmaceutical industry just waiting to become the back office to America’s pharma giants) or by reducing their research into less potentially profitable avenues. That’s what happened in Europe in the past decade as those nations have tightened price controls on drugs,and that will happen here if we import their policies.
A.M.A. Says Government Should Negotiate on Drugs
Price controls can come in many guises. They can be imposed directly by legislation, they can be imported indirectly through the approach discussed above, or they can come about de facto through direct government negotiation. Ultimately it doesn’t matter what clothes price controls are dressed up in: if government tries to set how much it pays for drugs, it will end up paying less than the market would pay and thereby reduce the amount of research and development that takes place.
The desire to repeal the laws of economics brings to mind the story of King Canute, whose courtiers in a frenzy of flattery told him his very word could command the tides to stop. It didn’t work for the King - as he knew; he had his throne brought to the sea to test their theory, and when the tides did not stop, he proclaimed, “Let all the world know that the power of monarchs is in vain.” If Americans want cheaper drugs, they can have them through price controls. But they cannot have cheaper drugs through this way AND have the level of medical progress they have come to expect AND have the growth in high-paying jobs which medical progress has created. Economic laws are grounded in human nature, and policymakers should not forget that they cannot repeal human nature, no matter how well the notion polls.
The FDA mandates that pharmaceutical companies use large, double-blind clinical trials to prove that new drugs are safe and efficacious. This is an effective strategy in many ways, but these trials are cumbersome, tremendously expensive, and offer physicians little evidence for what works in the real world – where patients often have multiple pathologies and are on multiple treatments simultaneously. Also, since these trials are very narrowly tailored to collect a very small subset of data, they don’t tell us anything about what potential uses a drug might have for treating other medical conditions.
As a result, physicians will often use a drug approved for one condition to treat another disease that it has not been approved for, generating new, "off-label" uses that manufacturers will then promote. This is, much of the time, all to the good. Drug manufacturers have powerful financial incentives to show that their drugs can treat as many conditions as possible, expanding the boundaries of medical science and giving patients and physicians valuable new treatment options.
Still, there are concerns that companies use selective research on off-label uses to push drugs on physicians and patients when there is dubious evidence of effectiveness. This has led some observers to call for companies to conduct new clinical trials before a drug can be prescribed for any new indication; however, this added cost would cripple off-label use and lead to less, not more, medical innovation.
The solution is to turn to newer and less expensive statistical technologies like Clinical Practice Improvement, or Delphi Panel analysis, that utilize a wide range of physician expertise and patient variables to extrapolate with remarkable accuracy how drugs can be used effectively off-label. The FDA and drug manufacturers could then use the results of statistical modeling to isolate small groups of "high responder" patients to test these drugs on, proving off-label efficacy and safety at a fraction of the cost of larger clinical trials. This approach would be a true win-win innovation: it encourages companies to find new uses for medicines already on market and ensures that when physicians are using drugs off-label they do so based on reliable evidence.
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