I think the effort here is to continue the meme that Democrats are “ramming this down the throat of the American people.” Reconciliation is so easy to spin as “outside the normal process” that the uninformed might buy the argument that Democrats are not playing fair.

Ezra Klein had it right last night when he said (in a tweet and on MSNBC) that Republicans are using process-based arguments to confuse people into fear. Meanwhile Democrats are talking substance and policy, about what they want to fix and improve.

Well, that’s certainly an explanation that fits.  I think they are over-reaching here, though.  It will be too easy to spin their defiance as “protecting special deals” and “raising taxes” this time.  Won’t it?  Or will the Democrats not go there?

And since we’re on the subject of Austin, I want to second what he says here:

I know from my own experience working on much simpler policy-relevant analysis that such work is incredibly hard. To achieve even one arguably credible result that can withstand the scrutiny of public disclosure takes hundreds, if not thousands, of person-hours. Many people put their heart and soul, and no doubt many all-nighters, into getting health reform right and analyzing it properly, within the constraints of the political necessities dictated by their ultimate masters, our elected representatives.

Nancy Pelosi deserves Person of the Year status for her efforts and her mark on history. But it is the largely invisible and un-thanked analysts I want to recognize. They receive too little credit relative to the amount of work they do. Though convention and institutional objectivity prevent most of them from taking a deserved bow I applaud them anyway. If you contributed to health care policy analysis that shaped health reform and its debate, thank you. Excellent job. Stand proud. And then go get some rest.

He’s right.  In the coming weeks as all praise focuses on the people at the top, we should also acknowledge the many people behind the scenes whose work makes all policy possible.  Thank you!

I’ll say this again for everyone’s benefit.  I have no ulterior agenda other than discussing health care reform.  I’m not interested in how it advances political agendas.  I’m not interested in getting anyone elected.  I’m not trying to deceive you in order to achieve some “other goal”.  This is it.

I hope many of you notice, as well, that I don’t post any reader responses telling me how awesome I am, or how correct I am.  I get those, too, (thank goodness), but the purpose of the Reader Response isn’t to convince you I’m right.  It’s to provide another perspective, sometimes acknowledge my prior posts require a change, or to respond to a common meme that needs rebuttal.  This is one of those.

A reader responds:

This is in respose to your February 5th blog post “Reader question – Doesn’t Texas prove you wrong?” which includes a graph of Texas Doctors per 100,000 people which you copied from the Public Citizen web posting “Liability Limits in Texas Fail to Curb Medical Costs.” It is disappointing that you relied on incomplete data from one graph to conclude that “Since tort reform, the number of doctors remains stable. . .” which is NOT TRUE. That graph shows “Doctors per 100,000 people” which has trended up and then a bit down since tort reform, but you neglect to consider the explosive population growth in Texas. Actual new numbers of licensed physicians per year have increased tremendously since tort reform (I will append the data but cannot cut and paste it here); The TMB stats for new physicians licensed: FY2001=287, 2002=321 2003 (tort reform passed)=430, 2004=553, 2005 – 2009 = 622,652,687, 641,820 respectively. In my county we added 403 new physicians between 2003 and 2007. Without the physician increase following tort reform, we would be even further behind per capita. The U.S. Census Bureau statistics that I accessed show that from Aug 1, 2000 to July 1, 2008 Texas population increased 16.7% (20,851,811) which is over twice as much as the U.S. increase of 8% for the same time frame. So the ACTUAL NUMBER of doctors has INCREASED, which has kept our per capita number of doctors from declining.

I stand by my point.  The important statistic is the number of doctors per population, not the total number of doctors.  When the population increases, the total number of doctors should increase.  I don’t give anyone credit for that.  In the same way, I wouldn’t ding Texas if the population went down and the total number of doctors went down.  What is important is the number of doctors per population.  If Texas was a more desirable place to practice, then the number of doctors moving in should go up faster than the population, even if it were growing.  That’s not really happening.

Another way to put it.  I love when during an election, someone trots out the line that “there are more CT scanners in California than in all of Canada.”  Yes.  There are also more people in California than in all of Canada.  What’s important is not the total number, but the number per population.

Nevertheless, please do keep the emails coming. I really do learn from many of them.

In your Feb. 1 post, you claim that Rep. Price’s authored bill, H.R. 3400, is “the Republican proposal” for health care reform.  It’s one of several that has been sponsored by Republicans, and most importantly isn’t the one that made headlines this fall from such a “grim” CBO review. That bill was H.R. 4038.  Your post misleads your readers and implies that: there has only been one Republican proposal, and that this is it.  Maybe you made an honest mistake, but words are important and your biases rarely hide themselves. In your words, I look forward to you correcting the record.

First of all, I always love when someone tells me my “biases rarely hide themselves” – as if they’ve caught me trying to hide my preference for a single payer health care system.  Or my disdain for rhetoric.  Or my impatience with politics over policy.

Let me say it for the zillionth time.  It’s not hidden.  I think that the available data and evidence show that such a system would be much more cost-effective.  I think that the media (and others) have done a terrible job of describing the details of proposed policy.  I think that too many people want reform to succeed or fail only because they want Democrats or Republicans to “win” or “lose”.  Even worse, I think that some people want it to succeed or fail merely because of personal feelings for politicians, which is so petty it makes me sad.

If you think I’ve got some other “bias”, please do let me know.  I’ll address it here, in the open.  I’ve got nothing to hide.

As to the idea that HR3400 is not “the Republican proposal”, it’s the one that Rep. Price was talking about when he spoke to President Obama.  It’s the one he said had more co-sponsors than any other health care reform bill in the house.  It still doesn’t.

Although it does have more co-sponsors than HR4038, which has only 23.

But if it makes this reader feel good, then I will say – again – that there has been more than one proposal.  I have talked about them in a number of posts.

None of this changes the fact that the health care reform bill with the largest number of co-sponsors is HR676 – Medicare for all.

I just heard you make a point on Pete Dominick’s show, but I hope you’ll be a bit more precise in the future, because (I think) it’s important.

What you said, citing the example of the caller who is a vegetarian and runs 50 miles per day but still has a cholesterol count of 400, that “It’s just not true” that peoples’ personal habits (eating, exercise etc.) is a cause of high healthcare costs in the US (or anywhere else presumably).  You said that the caller makes this clear, because some people, like him, will get sick even if they do all the right things.

But to say “Some people will get sick no matter what, so therefore it’s not correct to argue that a solution to healthcare costs increases is to make people behave better”, which is what I heard you imply, is not accurate either.

There are of course two issues.  One is whether individuals are somehow responsible for their own illnesses.  The answer is USUALLY not, so we ALWAYS have to err on the side of treating people for illness regardless of what someone might say caused the illness.  This is I think what you were trying to say.

But the other issue is AS A SOCIETY, can we influence healthcare costs via lifestyle changes.  The answer most likely is YES, WE CAN.

I think you would do us all a service by not conflating these two issues and categorically saying “It’s not true that peoples’ bad habits are a cause of high healthcare costs”.  While it’s certainly true that if no one ever ate at McDonalds people would still get sick, it’s also true that if everyone ate at McDonalds all the time healthcare costs would  certainly increase.

I wish I could go back and listen, but that’s not possible right now.  If I said that “people’s personal habits are not a cause of high health care costs” then I apologize.  I meant to say that”people’s personal habits are not THE cause of high health care costs”.  I also don’t think that I said that “people will get sick no matter what, so there’s no reason to make people behave better”.

Look, the first part of what I was saying can be summed up here.  It’s a common argument, and I think a flawed one, to say that the high health care costs in the United States are the fault of the American people and their lifestyle.  I also think that there is plenty of evidence that most reasons for the high cost lie elsewhere.

Moreover, I don’t think getting people to behave better is a bad idea.  I made a strong case on the show for a better public health infrastructure.  I just don’t think that getting people to behave better will necessarily reduce costs for society.  There’s an argument to be made that getting people to behave better will make them live longer and therefore cost MORE over the long term.  Not necessarily, but it’s possible.  I think we should encourage people to be healthier because it’s an outcomes good (definite) not because it will save money (debatable).

Re: your post about “So I have a 26 year old daughter, poor college student with no insurance, no money to buy insurance and 3 pre-existing conditions. I had to drop herfrom Federal employees plan when she turned 23.”:

The Senate Bill allows those up to age 26 to stay on parents’ policies, while the House bill would allow dependent coverage up to age 27.

I haven’t heard any blowback on this provision for either bill, so she might find some relief in this way, as well, right?

Yep.  Good pickup.  My bad.  This is another way that reform would benefit some young people.

I can’t tell you how happy that makes me.  Too rarely people who do the actual research get to be the ones to talk about it.  As I (and others) have said, it’s important for the people who do the work to be able to defend it.  It’s also good because it’s only by hearing opposing arguments that I (and you) learn.

Here’s the truth about research: none of it is perfect.  All research has limitations, even the best.  And we have to judge how much those limitations can bias or affect the outcomes of our research.  The importance of peer-reviewed research isn’t just that it’s been graded adequate by others; that has its own flaws.  Even more critical is the importance of transparent methods so that we all can see how the study was done.

Yesterday, I channeled Dr. Angell and Public Citizen to critique Dr. DiMasi’s work.  Dr. DiMasi today directed me to some published defense of his work.  I offered him the chance to respond directly, but he is going to let me take a crack at it first and then respond again if he wants to.

Understand: this is my interpretation of his work.  You should go read it for yourself.  Assessing Claims About the Cost of New Drug Development: A Critique of the Public Citizen and TB Alliance Reports.

Since I stuck to the Public Citizen critique, that’s what we’ll discuss here.  Here are the top points from the Executive Summary.

1) Pharmaceutical R&D is an investment with expenditures made years before any potential returns are earned. Based on standard principles in economics and finance, these investments have opportunity costs that are real and highly relevant. The time costs associated with new drug development are inappropriately ignored in their entirety in the Public Citizen report.

Dr. DiMasi maintains that the opportunity costs are improperly removed by Public Citizen.  We’re not going to resolve this one.  I understand Dr. DiMasi’s argument, which is that since there is delayed time until the drug yields any reward it is inherently less valuable than an investment with immediate returns.  Perhaps my auto industry quip was to cute.  I still maintain that since research is not a choice – they have to do it – this is not an especially compelling argument.  However, people do come down on both sides of this.  I think I side with Public Citizen more on this point.  Even if that’s how economists do it in ledgers, it’s not convincing to me that we should double the actual cost of investment because pharmaceutical companies decided to research drugs, and it takes a long time.

2) The Public Citizen report, noting that R&D expenditures are deductible under the corporate income tax, maintains that R&D cost estimates should be reduced in percentage terms according to the corporate income tax rate. The estimates in our studies were meant to examine trends in private sector resource costs, and changing tax structures mean that after- tax costs can mask such trends. The Public Citizen perspective, however, also reflects a fundamental misunderstanding of the nature of the corporate income tax. Profits (i.e., net income) are the target of the tax, not gross income. Deducting business costs is just the mechanism by which the targeted tax base (profits) is determined.

Dr. DiMasi claims that public citizen, by adding 35% to all costs, simplifies the pre/post tax argument.  I think that’s fair.  It is likely that not all of the costs, if the were not research, would have gone to profits.  However, given the vast amounts they already spend on marketing, it’s likely that some of those costs would have become profits and not gross income.  Overall, though, this feels like Public Citizen is using an argument not totally dissimilar to what Dr. DiMasi was in his first point.  They are assuming pharmaceutical companies have a choice to do research or make money.  If we say they must do research, then we can’t say they’re getting a tax break for choosing to do so.  I side with Dr. DiMasi on this one.

3) Public Citizen used published annual data on industry R&D expenditures from the industry’s U.S. trade association and FDA data on the number of new drug application (NDA) approvals to measure pre-tax out-of-pocket R&D costs. However, they used incomplete and mismatched data to derive the ratios that resulted in their cost estimates. The numerators of their ratios exclude much relevant expenditure and the denominators are inflated by including approvals of firms that did not contribute expenditure data to their numerators. For these reasons, their estimates using published data are deeply flawed and substantially understate R&D costs.

This is actually a valid point by Dr. DiMasi, but I’m not sure it changes things as much as he says.  He is correctly pointing out that some of the drugs approved by the FDA were not made by PHRMA companies; not all companies belong to the trade association.  Therefore, since Public Citizen used PHRMA R&D numbers, the amount invested is underestimated for the number of drugs approved by the FDA.  However, most big companies making the major investments do belong to PHRMA.  He claims that 29% of drugs approved from 1994 to 2000 were non-PHRMA companies.  I’d need to see compelling data for 2000-2003, which I presented.  And even then, I’d want to see how much was spent on research by the non-PHRMA companies.  However, I concede the point.  Public Citizen’s numbers are biased towards a lower cost-per-drug.

4) Public Citizen also used the NDA as its unit of observation, as opposed to a new drug (i.e., a new active ingredient). This is both technically and conceptually inappropriate. Many of the NDA approvals are not for new molecular entities (NMEs). However, many of these approvals are also not for new product presentations and/or are obtained by firms that have no relationship with respect to the drug in question to the sponsor of the original NME approval. On a conceptual level, the costs of obtaining non-NME NDA approvals on line extensions are intimately related to the costs of the associated NME NDA approvals. The most appropriate perspective to take on the R&D process is to use a new drug (active ingredient) as the unit of observation and examine costs over the lifecycle of the drug.

Dr. DiMasi is arguing (correctly) that not all new approvals by the FDA are for new active ingredients.  I could not agree more.  As I previously discussed, too much of the time they are for me-too drugs.  Sometimes, they are for new indications of drugs, which require less research comparatively.  Dr. DiMasi argues that we shouldn’t count these drugs in the calculation since they aren’t really new drugs and lower the apparent cost-per-drug.

I’d be more sympathetic to this argument if the commercials said, “it costs $800 million to develop a completely new drug that does something no drug before it has done.”  But they don’t.  They say “it costs $800 million to develop a drug.”  Since they want the public to believe that every slight change to an old drug is a new and important drug that you “must discuss with your doctor”, then those drugs count too.  Some new indications for drugs even result in new names for drugs and different colored pills.  The companies pass these off as new drugs, and report sales on them differently, so I’m not totally disinclined to count them as separate in the denominator.

So where does this leave us?  I have to make a decision as to how to judge these different arguments.  Since I think most people think about the cost of  R&D as how much money companies have to shell out to make drugs, I’m not persuaded that opportunity costs should be fully counted.  I’m swayed, however, that adding 35% to it for avoided income tax is not warranted.  I believe that Public Citizen did underestimate the cost by including drugs from non-PHRMA members.  I’m not entirely convinced that we should ignore new formulations or new indications, though.  You can reach your own conclusion.

So Dr. DiMasi’s study said $802 million.  Public Citizen said $110 million.  I bet the real number is somewhere in between.

The truth of the matter is that this ignores the larger argument.  I have no problem believing that pharmaceutical companies spend a lot of money when they invest in novel research to lead to NME that do new things.  But that’s not the majority of their business.  Nor is it a majority expense.  So talking about only those types of drugs and talking about only that expense ignores the real issues.  If – tomorrow – pharmaceutical companies announced that they would no longer focus on me-too drugs and would invest massive money into the development of NME only, I’d be the first in line to defend them and argue for big breaks for them.  But they aren’t.

Moreover, if they want people to know the true average cost for development of a new drug, they could open their books, allow researchers to randomly select a number of drugs from them, and be transparent about the whole process.  They aren’t going to do that.  If they won’t, they can’t be surprised when people are skeptical of their claims.

P.S.  Evidently I said that Dr. DiMasi had a medical degree.  We can argue whether that is a compliment or an insult, but I was mistaken.  He has a PhD.  My apologies!

Anyway, I agree with your position w.r.t. MA (or what I’ve read of it). But one thing you wrote isn’t quite right. You wrote “So for every dollar we give extra to Medicare Advantage companies, they pocket 86% of it; only 14% goes to actual care.” This is an aggressive way to put it and I wouldn’t say it that way (and didn’t). The more accurate way to put this is that some of the dollar goes to provision of benefits, as opposed to profit (I can’t say how much), but beneficiaries only value it at 14 cents. That is, they would be indifferent to the choice between the benefits and 14 cents cash. See my most recent post on this: http://theincidentaleconomist.com/ma-cuts-now-with-economic-wonkery/

He’s right; in my exuberance I likely went a bit too far.  They don’t “pocket” 86 cents out of every dollar.  I didn’t mean to say they do.  I meant to say, as Austin points out, that only 14 cents of benefits come out of every extra dollar that goes in.

It’s a good lesson in choosing my words correctly, and I appreciate the input!

“Recent census data shows that the average American family spends over $13,000 a year for health care coverage.”

Which has led Politifact.org (whom I respect) to give him a false on the Truth-O-Meter.  People have taken this to mean that the statistic I quoted is wrong.  It’s not.

I said, “The average plan (not the gold-plated plan) costs over $13,000 a year.”  The difference is – and the whole point of the Politifact article – is that the average family isn’t paying this bill; the employer is.  They’re right.  That’s the cost of the average employer paid plan and employers are paying most of the premiums.  None of this changes the Kaiser Family Foundation report, or my analysis, which both say that the average cost of the plans are $13,375.  Politifact even says this, if you read the whole thing:

Braley would have been correct if he’d simply tweaked what he said. If he’d cited data showing that “the annual health care premiums for the average American family are greater than $13,000,” he would have been right.

This is part of my problem with the whole debate we’re having.  Yes, Braley was wrong.  But how wrong?  If the employer has to pay $10,000 a year for an insurance premium, surely that means an employee is going to make less money.  If health insurance was cheaper, couldn’t we expect that more money would go to the employee?  So isn’t this costing the employee potential earnings?  Braley’s lie is one of semantics.  It is not equivalent to the other lies on the Politifact site, lies that have no basis in truth and are way more than semantic.

More to the point – who cares?  The average employer based family insurance plan costs more than $13,000 a year, in just premiums!  Shouldn’t we be talking about that?

In response to directing some to your article on USA/CAN angle, I was referred to this article from late August:

Canadians visit U.S. to get care

Have you seen this?

Here’s my take.  What you are seeing is a system that spends far less than we do deciding it’s more cost-effective to send some people with specific needs (like bariatric surgery) to the US to get them met.  In other words, it’s cheaper to use scanners in the United States than buy their own. Seems smart to me.

Notice that this is specifically to reduce wait times.  Are we now demonizing them for that? Sounds like they are taking advantage of the fact that we have so much invested in technology that it’s sitting around waiting to be used.  If they choose to pay us for that, how is that bad?

Again, this is the SYSTEM in Canada compensating, not people forced to go to the US because of rationing.  I think we would applaud the ingenuity of this single-payer system to solve problems. Not to mention I fail to see how this points to the success of the insurance system in the United States.

Finally, this is a piece in an online business journal, not reproducible scientific research.  It’s just above anecdote; you know how I feel about anecdotes.

I encourage everyone to read the article.  Make your own judgement.

I am writing to disagree with a claim I’ve heard you make a few times, and have now seen on your blog, most recently in the “How about we start here?” entry.  In particular, I strongly disagree with:

“Anyone who tells you that they can increase the number of people with coverage, improve quality, and reduce cost is lying – or a politician… Do you want to improve access?  Then you need to admit that it’s going to cost money, and you have to discuss how we are going to raise that money.  You may also want to address how this will affect the quality of everyone’s care, because it might.”

and especially:

“Do you want to bring costs down?… It’s going to have to come in the form of either covering less people or spending less on health care.  That can negatively impact quality.”

Given that you yourself have often noted that many or even most developed countries have close to universal access and their overall health and health outcomes are generally superior to the US, yet they spend between one third and one half of what the US does, doesn’t it seem self-evident that the US could do so as well, if only it chose to?

I think the reader missed my P.S. at the bottom, where I say:

P.S.  Alternatively, we could scrap the whole system and start over, doing better in all three domains.  Pretty much every other comparable country in the world does so.  Seems pretty rational, so it’s ironic that not doing that is the one thing everyone in this fight seems to agree on.

This is an important point, so I’m going to say it again.  The iron triangle* of health care applies when we try and make incremental changes to the system.  I can’t take what we have – right now – and increase access without somehow affecting costs and/or quality.  Nor can I cut costs in the current system without somehow decreasing access or decreasing quality.  It’s common sense.  We could start over, but no one seems to be talking about that at all.  So if you are committed to “keeping what works and changing what doesn’t”, the rules of the iron triangle apply.

*My first exposure to the “iron triangle” came in a medical school class taught by William Kissick.  I’m embarrassed to say that the class was graded on attendance, so I might not have paid as close attention as I should have.  Especially given what I do now….