Posted on 01/26/2016 9:18:54 AM PST by SeekAndFind
If people want some insight into the Donald Trump phenomenon, this issue might make for a good starting point. Trump’s positions on health care have not exactly hewn to Republican or conservative orthodoxy, to be sure, but the polling frontrunner has refused to back down from them. Last night in New Hampshire, Trump stuck to his government-as-arbiter guns, demanding that Medicare leverage its market presence to force pharmaceutical companies to negotiate on price — an option expressly prohibited in the 2003 Plan D program passed by Republicans.
Note how the Associated Press frames this, too:
Trump told an enthusiastic crowd of about 1,000 people packed into a high school gymnasium Monday night in Farmington, N.H., that Medicare could "save $300 billion" a year by getting discounts as the biggest buyer of prescription drugs.
Said Trump: "We don't do it. Why? Because of the drug companies."
Companies generally can set the prices for approved drugs because the US government doesn't regulate medicine prices, as other countries do. The powerful pharmaceutical lobby has repeatedly fended off such proposals that would cut into profits.
Conservative and Republican doctrine on this is that Medicare’s pressure will produce irrational results in a market where consumers already have aggregate power to push prices downward. Ten years ago, Heritage senior fellow Dr. Robert Moffit offered a good overview of this doctrine and an explanation of why consumers should worry about Medicare’s intervention:
When the program started, Medicare officials projected that the average monthly premium would be $37; in fact, it declined to less than $24. Private health plans are securing serious discounts, benefits are generous (especially for poor seniors), and eight out of 10 seniors say they’re satisfied. Private-sector negotiators are doing a good job, and the nonpartisan Congressional Budget Office doesn’t think the Medicare bureaucracy would do better.
Still, some members of Congress say that with 38 million beneficiaries enrolled, the government’s market “clout” as a pharmacy benefit manager would dwarf the private-sector managers already serving Medicare beneficiaries. That’s not the case, however. In 2004 alone, Advance PCS covered 75 million people; Medco Health Solutions covered 65 million, and Express Scripts covered 57 million.
There is, however, one big difference between the Medicare bureaucracy and the private-sector benefit managers: Medicare has no experience managing outpatient drug benefits. Moreover, when government officials do “negotiate” drug prices, it almost invariably means setting a price below the market level, which reduces the supply of drugs or restricts the choice of drugs patients can have. Medicaid routinely restricts access to pharmaceuticals, and the Veterans Administration, often touted as a model for federal drug pricing, also has a restrictive list of approved drugs.
In a recent study for the National Bureau of Economic Research, Joseph Golec and John Vernon, professors of economics at the University of Connecticut, estimate that European drug price controls over the last 19 years resulted in a loss of about $5 billion in forgone R&D spending and 46 fewer medicines. They project that adoption of similar policies in the United States, the world’s major producer of pharmaceuticals, would likewise result in much greater losses of R&D investment and new medicines.
On top of this, Trump’s claims are wildly exaggerated. In 2014, Medicare spent $121.5 billion on Part D prescriptions, and $21.5 billion on Part B (hospitalization coverage) for a total of $143 billion — less than half of what Trump claims he will save. The entire pharmaceutical industry’s sales in the US in 2014 was $377 billion. Trump appears to have little insight into the issue he’s flogging.
However, policy and data are perhaps no longer relevant for most voters. They see institutions as corrupt, and in need of serious and dramatic correctives. The deal on Medicare prescription coverage fits that worldview to a T, putting Big Pharma in the role of beneficiary of governmental inaction, forcing consumers to pay higher and higher prices for drugs. Trump promises to cut through the Gordian policy knots to deliver for the common man, a classic populist strategy, and it works in part because it seems counterintuitive that a major payer of drugs should have no bargaining power at all on price. Why not save a few billion a year, even if it doesn’t amount to $300 billion, especially if it means sticking it to Big Pharma? And who else has the power to fight for the common man, except someone at the top of an even bigger government?
Populism never relies on small-government conservatism. It relies on having the right person in charge of an activist government, benefiting the right people and plaguing all others. And thanks to a failure of institutions to address rising dissatisfaction and resentment (or even to discuss them), populism has become the fashion in both parties.
The super-PAC supporting Ted Cruz attempts to hit Trump from the conservative angle on government-run health care. It’s a good ad for conservatives who care about policy, but …
Ask your doctor about....blah, blah, blah................
Sound familiar? How many millions, if not billions, are spent every year on television, internet, magazine, and newspaper advertising by Big Pharma? Is all of this necessary? is it beneficial?
We are paying overstuffed prices because Big Pharma has to make Big Bucks and we have no say in the matter? Just cough up what is demanded and shut your trap about it! That’s what our legislators are telling us. Makes you wonder what other big items are not negotiated by the government. After all, it’s just the tax payers money.
When I was in business I as any other business person negotiated almost everything. Why are our medicines off limits? Doesn’t make sense to me.
Time to run our government more like a business instead of just like candyland for the elected hierarchy.
Come the summer I can see the slogan being: Trump - he will build a wall, cause ISIS to fall and provide health care to all.
So the supposition is that drug companies sell drugs to consumers (or governments) around the world at a loss, and US taxpayers provide the missing profit component.
Why?
A very simple question - why would any drug company go out and distribute in other countries at a loss? Generosity? If that was really the case, wouldn't it be far more efficient for them to create a charity to handle these donations and take advantage of US tax code deductions for those contributions? I mean, if you're going to be losing money anyway, why not actually benefit from it slightly.
Does that make the slightest bit of sense?
No? That's because it is profitable to sell in other countries for a dramatically lower price. Oh, but US consumers are paying a higher price as they benefit from quicker access to drugs that are developed from the research that is paid with the higher profits, right?
No, due to the extraordinary FDA drug approval process, you're far more likely to have access to newer drugs in emerging economies.
And that is where we find the germ of the answer: Drugs are more expensive in the US as companies spend more to get them approved, more to advertise them, more to settle lawsuits. You've got to pay for the army of pharmaceutical drug pushers providing free samples and information to doctors across the US. You've got to pay for all those television, magazine and other ads (and sponsorships.) You've got to pay for the industry created discount clubs. You've got to pay for the absolute unlimited ability of a court to take every last penny from a company without legislative oversight.
Is there room to reduce these prices dramatically? Sure, just look at the drug prices in Canada. The stockholder revolts that happen from a CEO going before the annual meeting and detailing the amount of money lost in their charity work in Canada by selling drugs at a loss...don't happen, as they don't sell at a loss.
There is much a president can do to fix this problem, quite a bit of it involves providing leadership to push for legislation in tort reform, limiting the power of the courts to confiscate money wholesale, and in return, secure company agreements to limit advertising expenses.
As to whether the government can leverage the power of Medicaid/Medicare subscribers into forcing lower drug prices: Medicare and Medicaid officials are appointed bureaucrats dependent on their sponsor, elected, official for their job. That official receives, on average, one lobbying visit a week from a pharmaceutical firm, and that's if there isn't a bill before Congress.
Asking Congress to use Medicare to leverage drug companies into lower prices is like asking the hens to seduce the foxes.
Oh, and it's also not Constitutional or very capitalistic.
Just have a panel of experts (specialist doctors, chemists) set proper prices, subject to court appeal, and levy a 100% income tax on the excess pricing.
Alternately, COST+BONUS+CONSUMER VALUE PRICING could be used.
The chemists on the panel would determine a manufacturing cost estimate, to be paid by Medicare.
The doctors on the panel would determine government-paid bonus amounts from 20% (only drug/bad side effects ; one of several good quality drugs of its type), 50% (only drug/minimal adverse side effects), also to be paid by Medicare.
Consumers would then top-up the Medicare amount by paying a manufacturer-set monthly percentage of their annual income of up to 1% (doubled for cancer drugs and antibiotics, which are normally only taken for short periods of time). If the consumer doesn’t think the drug is worth the percentage of income asked, then the consumer would not make the purchase.
If the manufacturer doesn’t care for this system, Medicare wouldn’t cover the manufacturer’s drug and American consumer of the out-of-system drug would have to pay the manufacturer’s asking price in the consumer’s country of purchase - pure market pricing.
Better yet, how about we hang anyone caught committing Medicare/Medicaid fraud?
Yea, I like that idea much better.
First of all the obvious: it's tremendously regulated, there are many effective monopolies (the number of doctors, the small number of pharmaceutical companies, etc.), and there is ALREADY tremendous rationing going on in terms of what insurance companies will pay for.
Second, demand for healthcare is and always will be inelastic: if I break a leg, it's not as though I'm going to postpone treatment so I can buy a TV. I have friend at MD Anderson getting cancer treatment-- he's already liquidated a lot of his assets at the worst time to make sure he can pay any additional costs for his treatment, including the costs of living in Houston.
Third, our patchwork quilt of insurance laws across 50 states plus Obamacare AND our lunatic malpractice liability laws are simply insane and create gross administrative and financial inefficiencies in every sector of the healthcare market.
My wife and I lived once in Germany in the mid-nineties-- comprehensive health insurance at the time (including dental, with deductibles like here, etc.) was $60 a month for both of us. Having been self-employed in the US at the time, more or less the same coverage was $600 per month.
What's the difference? Germany has a national insurance system (not single payer): every few years the government sits down with the healthecare industry, insurers, unions, and negotiates reimbursement rates and plan coverage. There's a great gnashing of teeth every time this is done, but everyone pays in: employers, employees and the gov picks up the tab for the unemployed, those in the public retirement system, etc. And there are, in effect, no malpractice lawsuits: a doctor cannot be sued for malpractice unless there is a finding of malpractice by a medical review board.
It is very fair, very efficient and very cost-effective: the exact opposite of what we have. Imposing such a plan here would violate a lot of "conservative" principles, but it would be highly effective. In fact, I would recommend hiring the Germans to administer it, since they already know what they're doing.
You are right. trump is a populist. I’ve been saying for years that the GOP should have become more of a populist/nationalist party in the 90s which means: lower taxes on the middle class. Less easy access to welfare. Low legal immigration. fair trade, not free trade. The GOP wold have had a ride like the dems did from the 1930s until Reagan.
Exactly. We need someone to go to DC and scourge the money changers out of the temple.
Medicare/Medicaid government fixed payment schedules have destroyed the free market medical system driving up prices across the board. They should have to pay what private insurance and individuals have to pay. Competition! But I don’t know if American big business knows what this is anymore considering the centralized government/business planned economy which is failing.
One thing that upsets me is my insurance EOB (explanation of benefits) that you get in the mail when you go through insurance company.
They read: Charges $2000 Negotiated Discount $1900 We paid $100.
Most of the time it’s not that huge a difference but I did have one with almost that much! And I think “How about I go to the doctor and say, ya know, you’re charging too much for that procedure, I’m only going to $200 - not the $800 you billed”. How would that work for the rest of us? The whole insurance system is screwy.
“But you’re really going to like it. It will be fantastic”
Good. These drug and health care companies helped push obamacare. Government subsidies are going to pay premiums. Disaster.
Exactly! The solution to the problems created by big government is to make government even bigger and more influential. Markets, where hundreds of millions of people make billions of decisions based on what’s in their best interest, don’t work. Only bureaucrats in a centralized government can make healthcare, or anything else for that matter, work.
In the case of multiple consumer value priced drugs, the manufacturer of each drug could offer a discount of say .25% of the other drug percentages, with say its own minimum percentage of say .6%.
A consumer taking three 1% consumer value drugs with .25%, .2% and .1 manufacturer multi-drug discounts would pay .6% (the minimum for the one with a minimum) , .6% and .8% (2%) of his annual income each month for the three consumer value-priced drugs, or 24% of his annual gross income.
I find it incredible that people are actually calling for less competition from foreign drug companies. Putting trade restrictions of foreign products. This is absurd.
Right on!
It is my understanding that the VA system is more government set than haggled over.
http://www.heritage.org/research/reports/2007/04/the-va-drug-pricing-model-what-senators-should-know
“And there is no better institution than government to determine what the reasonable price is or what constitutes a fair profit.”
Since long before I was born, electricity rates have been set under law.
The Medicare Part D plans already negotiate prices the best they can.
To expect $300 billion in savings is unrealistic.
What might be done is to require Medicare Part D plans negotiate jointly with a minimum market power of at least 20% (going to at least 30% after 2019) of the Part D market or suffer a financial penalty.
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