October 17, 2004

Uwe Reinhardt Is a Real Health Economist

I'm not a real health economist--although I have occasionally played the part of one in venues like the White House's Roosevelt Room or Capitol Hill. Uwe Reinhardt is a real health economist. And he has written a very good Primer for Journalists (and others who want to understand what the issues are) willing to think at a level higher than Bush-speak.

Posted by DeLong at October 17, 2004 11:52 AM | TrackBack
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http://www.nytimes.com/2004/10/17/politics/17drug.html

A.M.A. Says Government Should Negotiate on Drugs
By ROBERT PEAR

WASHINGTON - The American Medical Association says the government should negotiate directly with drug manufacturers to secure lower prices on prescription medicines for the nation's elderly.

Under the new Medicare law, signed by President Bush last December, 41 million elderly and disabled people will have access to drug benefits in 2006. Medicare will rely on private health plans to deliver the benefits. The law says the government 'may not interfere' in negotiations with drug companies.

Authors of the law included that provision out of fear that government involvement could overwhelm the free market, leading to federal regulation of drug prices - 'price-fixing'' by federal bureaucrats, in the words of Senator Charles E. Grassley, Republican of Iowa.

The American Medical Association lobbied last year for the Medicare law, which makes hundreds of changes in the giant health insurance program.

The association now says Congress should pass legislation giving the secretary of health and human services authority to negotiate contracts with manufacturers of drugs that will be covered by Medicare.

The association, often viewed as a conservative voice for organized medicine, is influential on Capitol Hill. It strongly supports Republican efforts to limit damages that can be awarded in medical malpractice lawsuits.

But it is Democrats who have taken the lead in trying to repeal the ban on federal negotiations with drug manufacturers under Medicare.

In the presidential debate on Wednesday, Senator John Kerry, the Democratic nominee, said Medicare should be allowed to save money through 'bulk purchasing'' of drugs. But, Mr. Kerry said, 'rather than help seniors have less expensive drugs, the president made it illegal, illegal, for Medicare to actually go out and bargain for lower prices.'' As a result, he said, drug companies will receive a 'windfall profit.''

Posted by: anne at October 17, 2004 12:17 PM

http://www.nytimes.com/2004/10/17/health/17flu2.html?

With Few Suppliers of Flu Shots, Shortage Was Long in Making
By DENISE GRADY

Scene by disheartening scene, the spectacle of a severe shortage of flu vaccine is unfolding around the country.

Last week, elderly and chronically ill people waited in line for hours to get flu shots; some were turned away. One died, after hitting her head when she passed out or fell while waiting. Price gougers demanded $800 for $60 vials of vaccine. States threatened to fine or jail doctors and nurses who gave shots to anyone not in the high-risk groups. Congress, the Justice Department and the Securities and Exchange Commission began investigations into how the nation has been left, on the brink of flu season, with half the flu vaccine it needs.

The shortage caught many Americans by surprise, but it followed decades of warnings from health experts who said the nation's system for vaccine supply and distribution was growing increasingly fragile.

"We're in the middle of a crisis that could have been averted,'' said Dr. Irwin Redlener, associate dean of the Mailman School of Public Health at Columbia University and director of its national center for disaster preparedness.

In particular, public health experts have long cautioned against the country's dependence on a few vaccine makers, and yet this has become standard practice. There are now only two major manufacturers for the nation's supply of flu vaccine, and at least a half-dozen other vaccines are made by single suppliers. Britain, by contrast, has spread its order for flu vaccines among five suppliers, precisely to avoid the kind of predicament America now faces.

In recent years there have been many significant disruptions of vaccine supplies. Between November 2000 and May 2003, there were shortages of 8 of the 11 vaccines for childhood diseases in the United States, including those for tetanus, diphtheria, whooping cough, measles, mumps and chicken pox. There have been flu vaccine shortages or miscues for four consecutive years.

In recent decades, many drug companies in the United States abandoned the manufacture of vaccines, saying that they were expensive to make, underpriced and not profitable enough. Flu vaccine can be a particular gamble, because the demand for it varies from year to year and companies throw away what they do not sell because a new vaccine must be made each year to deal with changing strains of the virus. Some companies dropped out because of lawsuits, and others because they determined that it would not pay to retool aging vaccine plants to meet regulatory standards.

The government did little to stop companies from quitting the business, and in some cases may have created policies that made matters worse. A report last year by the Institute of Medicine, a unit of the National Academy of Sciences, noted that 30 years ago, 25 companies made vaccines for the United States, whereas today there are 5.

Dr. Jesse Goodman, director of the branch of the Food and Drug Administration that oversees vaccines, acknowledged that it was risky to have only one or two suppliers for products so essential for public health. "The more quality, licensed manufacturers we have, the more protected the system is if a problem occurs with one of them," he said.

The heart of the problem, experts say, may be that no one person or agency is in charge of making sure the United States has an adequate vaccine supply. The production, sale and distribution of vaccines, particularly those for flu, are handled almost entirely by pharmaceutical companies.

When companies began to leave the market, Dr. Redlener said, government health officials should have tried to find ways to keep them in it, in order to avoid shortages and dependence on too few suppliers.

Posted by: anne at October 17, 2004 12:31 PM




Way Off Topic:

Did anyone see Jon Stewart as a guest on CNN's Crossfire?

Stewart took aim at Crossfire and other media shows, saying (at first with a smile) that they "hurt America" by making politicians' lives easier by failing to "hold their feet to the fire."

He was goin' off! He was trying hard to stay in his comedic tone. But, whoa, it was harsh....

Transcript:
http://transcripts.cnn.com/TRANSCRIPTS/0410/15/cf.01.html

Video:
http://www.ifilm.com/filmdetail?ifilmid=2652831




Posted by: John Stewart on CNN Transcript at October 17, 2004 01:10 PM

While Brad DeLong and other economists worry about the dollar:

http://www.nytimes.com/2004/10/17/business/yourmoney/17port.html

The Dollar Is Defying Both Expectations and Gravity
By JONATHAN FUERBRINGER

THE dollar is confounding investors again and nibbling into their returns from abroad. And some forecasters say that the currency will continue to hold its own and even rally into next year, creating another headache for investors with a taste for foreign stocks and bonds.

The dollar's strength is surprising, given the record deficit in the country's trade and services with the rest of the world - known as the current account. That deficit could easily become a major drag on the dollar if foreigners curtail the hundreds of billions they invest in the United States each year.

So far, though, the unexpected rise of the dollar has hurt investors who bet it would fall for the third consecutive year. Instead, the dollar has gained 1.9 percent against the Japanese yen and 1 percent against the euro so far in 2004. It is also up 2.9 percent against the Australian dollar and 2 percent against the Mexican peso.

When euros are translated back into the stronger American dollar, the 3.2 percent climb in France's CAC 40-stock index this year becomes a gain of just 2.2 percent. Similarly, the 2.9 percent gain in the Nikkei 225 index becomes an increase of just 0.9 percent. Those performances are still better than that of Wall Street but not as good as what would have been expected with a weaker dollar.

(The big exception is Canada: There, a vibrant economy, a strong commodity base and a trade surplus with the United States has pushed the American dollar down 3.4 percent, turning a 6.9 percent return on the Toronto stock exchange into a 10.7 percent return.)

The current account deficit has to be covered by the inflow of funds from abroad into American assets, including Treasury securities, corporate bonds and stocks. Many economists suspected that this flow from abroad would begin to slow, setting off dollar selling as investors sought to beat a decline in the currency - and a climb in interest rates.

Posted by: anne at October 17, 2004 02:00 PM

Brad -- I just heard a drug company spokesperson on NPR respond to last week's interview with Marcia Angell. He said, triumphantly, that part of the REAL problem is that WE Americans (who of course hate and are suspicious of all foreigners) are PAYING the prices we pay because FOREIGNERS are benefitting from US pharmaceuticals' R&D. Get that?

And of course the folks who benefit most from the sales of new drugs (and franchises, presumably) overseas are... ta da... the drug companies themselves... Have I got that right?

Posted by: PW at October 17, 2004 02:28 PM

"The big exception is Canada: There, a vibrant economy, a strong commodity base and a trade surplus with the United States has pushed the American dollar down 3.4 percent, turning a 6.9 percent return on the Toronto stock exchange into a 10.7 percent return." anne, 10/17/04

And if you journey over the border into Canada, about the only difference you'd discern is the polite border guards and the smiling faces of her people. Hail Canada. Their health insurance is pre-paid and State-run, 100% free for both emergency and elective health-care, excepting cosmetic surgery and co-pay prescription meds.

That, and "FLU SHOTS HERE" signs everywhere.

Americans are taking it up the ass from the Fed. Our taxes are going to prop military-industrial-oiligopolists, when they could be going to make our lives better, healthier and more sane.

Instead, our FBI has 10x more agents sniffing out US "illegal" trips to Cuba and Canada, than they do to searching out bin Laden's financiers.
Oops, too shrill! Just speaking metaphorically, UberIntermentMinister Ashcroft!

Is this a great country, or what!?

Posted by: Lash Marks at October 17, 2004 02:40 PM

my impression has been that of late, the government has nearly always been on drugs when it negotiates, regardless of what the AMA might claim.

Posted by: David at October 17, 2004 03:44 PM

my impression has been that of late, the government has nearly always been on drugs when it negotiates, regardless of what the AMA might claim.

Posted by: David at October 17, 2004 03:45 PM

Lash Marks

And if you journey over the border into Canada, about the only difference you'd discern is the polite border guards and the smiling faces of her people. Hail Canada. Their health insurance is pre-paid and State-run, 100% free for both emergency and elective health-care, excepting cosmetic surgery and co-pay prescription meds.

That, and "FLU SHOTS HERE" signs everywhere.

Thanks!

Posted by: anne at October 17, 2004 04:58 PM

Uwe Reinhardt does his usual masterful analytical job...unfortunately wasted on a faith based President. Yet, as I read Uwe's latest comments, I couldn't help but muse that to a large extent, some of the best and brightest minds in our country have ignored them for years, seeking equally "faith based" "market" solutions where there is obvious market failure that has cost our nation enormously and goes essentially unchanged and unchallenged. (I make this statement as a former insurance company CEO and founding principal of a consulting firm heavily involved in various aspects of the health insurance industry.) Kerry's proposals are sane and a step in the right direction.

However, I am beginning to believe that future historians will look back at the elite social scientists of the late 20th and early 21st centuries as narrow pedagogues, unable to divorce themselves from the sacred market that in some idealistic world forms the basis for their equally sacred equations.

Brad is one of the broader thinkers for whom I have a great deal of respect (even as he was part of the crowd with respect to the invasion of Iraq.) Nevertheless, our country suffers because our best and brightest social scientists cannot bring themselves to deal with the "reality" that the purpose of markets is to serve the public good and when that doesn't work, there are other social solutions available. Unfortunately, there are no (I'm sure there are some) economists who can or will buck the faith to objectively propose and evaluate alternatives. Even Uwe must be cautious or he will be drummed out of the club.

Oh well, this is a longer term issue. In the interim, count me as part of the shrill...indeed as part of the very early shrill. I recall long ago calling posters attention to the Texas Republican Party platform.

Sam

Posted by: Sam Taylor at October 17, 2004 05:01 PM

Well... I can see how excessive faith in the market is damaging in some situations, Sam Taylor, such as environmental policy, our policy toward the operating-system market (i.e., Microsoft), electricity policy, and many other areas. I don't see how it applies to health care and pharmaceuticals, though. Our overall health care system is a messed up mix of private and public agencies, like private insurers, sCHIP, Medicare, Medicaid, etc, and has the distinctly non-market feature that everyone gets some sort of emergency treatment, and our pharmaceutical companies are given government-enforced monopolies to sell their drugs and have their research funded by NIH and other government agencies. Now, I think that government-funded universal health insurance would simplify matters greatly and solve a lot of problems, as well as being more stringent about transfer of publicly-funded research into the private domain, but these problems seem to me to be a variety of institutional and governmental failures that aren't really the result of excessive faith in free markets gone wrong.

Posted by: Julian Elson at October 17, 2004 05:28 PM

2 quick points.
"Medicare should be allowed to save money through 'bulk purchasing'' of drugs"
The bulk purchasing idea gets the point across, but in reality what CMS need is the ability to negotiate rebates from manufacturers tied to a CMS (open) formulary of approved drugs. This leverages CMS's administrative position forcing drug manufacturers to compete against one another for the limited positions within a therapeutic class of drug (therapeutically equivalent, if not chemically equivalent, drugs).

The ongoing vaccine shortages correlates with many companies deciding back in 1999/2000 to bail out of the market after preliminary studies suggesting that the aggregate effect of the mercury salts used as preservatives was more serious than initially believed (Autism?)

Jack

Posted by: JackNYC at October 17, 2004 05:55 PM

Oh, yeah. For my money, Reinhardt's spot on.

Posted by: JackNYC at October 17, 2004 06:02 PM

Note: I think free markets in health care are a bad idea too: just a bad idea in a different way than how our current system works.

Posted by: Julian Elson at October 17, 2004 07:33 PM

The best part of the essay was at the end, where he came close to telling the truth, a truth which cannot be told.

Health spending does not increase health. Modern technology does not increase health. Vaccinations do not increase health. Clean water and air do not increase health.

It sounds impossible, but statistically there is no evidence that any of these interventions increase healthy outcomes, decrease disease, or improve longevity. While of course health has improved over this century, and all of these measures have increased, correlation is not causation. When you look at the data in detail, to see how technology and spending vary from place to place, the expected correlations do not exist.

Reinhardt's Exhibit 1 illustrates a sharp NEGATIVE correlation between health spending and health outcomes! The more generous the health compensation, the less healthy are the patients. If we were rational we would conclude that the best way to improve health would be to cut health spending. But health is not a topic where people allow themselves to be rational.

Posted by: CP at October 17, 2004 08:25 PM

>>Health spending does not increase health. Modern technology does not increase health. Vaccinations do not increase health. Clean water and air do not increase health.<<

I believe most scholars of public health would disagree, CP, but your raw, uncorrected statements belie the simple fact that just having access to these things raise life expectancy - just saying 'spending' or 'technology' misses the overarching issue [access to the basics].

Life expectancy in the developed world is at an all-time high because of improved hygiene, access to health care, and regulatory action.

As you have not stated what improves health, I offer this, an easily accessible article outlining these concepts and available at a good library: de Hollander, A.E.M, Staatsen, B.A.M. 2003. Health, environment and quality of life: an epidemiological perspective on urban development. *Landscape and Urban Planning* 65:1-2 pp. 53-62.

Best,

D

Posted by: Dano at October 17, 2004 11:18 PM

Julian Elson wrote, "Now, I think that government-funded universal health insurance would simplify matters greatly and solve a lot of problems, as well as being more stringent about transfer of publicly-funded research into the private domain, but these problems seem to me to be a variety of institutional and governmental failures that aren't really the result of excessive faith in free markets gone wrong."

I respectfully disagree. Everyone always discusses health care financing and not health care provision.

There's an implicit claim that doctors and patients are capable of making rational health care choices. By "rational," I mean a rational cost/benefit analysis. I see no evidence whatsoever for this.

Even if health insurance were 100% "free market," meaning no issues of moral hazard surrounding insurance payments, etc, there would still be *huge* information problems involved.

Then there's the institutions of health care. I don't see any evidence that the current system, whereby most physicians are either self-employed or employed in small groups, is efficient. The alternative would be for them to be salaried employees of large organizations. I suspect the current institutions merely serve to increase economic rent collection by physicians.

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liberal, I don't quite see your objection to what I'm saying. Are you saying that the current system really is a free market system (in which case I disagree), or merely that a true free market in health care would be bad if it were the case in the U.S.? (in which case I agree)

Posted by: Julian Elson at October 18, 2004 07:28 PM

Just reading his "disclosure of potential bias" made my day.

At a health law conference I attended a few years ago, Uwe, master of the pithy statement that he is, offered up the best capsule summary of why political intervention is a necessary part of the health care economy: health care is not the same thing as jelly beans.

Thanks for linking this, Brad.

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