Questioning Health Care Cost/Budget Fearmongering: Consumer Revolt Against Prescription Drug Costs Already Underway

As we discussed last weekend, two Federal Reserve Board economists shot gaping holes the CBO’s health care cost increase assumptions in CBO’s long term fiscal forecasts. As technical as this sounds, these long-term cost increase assumptions are the big driver of the much ballyhooed deficit explosion. And as the Fed economists’ paper discussed in considerable detail, the CBO’s assumptions on the rate of increase look indefensibly aggressive, which in turn means the hysteria about entitlements eating the economy deserves far more scrutiny than it is getting.

Some evidence on the pressures against health care cost trees growing to the sky comes in a new post by Wolf Richter. If you aren’t on the pharma beat, it may be news to you that drug companies are in a funk these days, and it isn’t simply that they haven’t yet found a big new blockbuster category. It it that consumers, even those who have health insurance, are revolting against drug companies either by using fewer drugs (!) or using more generics. Bluntly, consumers are so financially stressed that many are cutting back on prescription drug use. Some of this may be wise (I’ve seen too many doctors hand out drugs like candy, for instance, prescribing antibiotics for winter flus, or prescribing pain meds for dental work, when I’ve found in the few instances I actually needed relief, frequent doses of aspirin or ibuprofen work as well as Vicodin, and are less nasty) but some of it clearly is taking a real health risk. And of course, this is partly due to the aggressive way drug companies have kept putting through price increases; I’ve been amazed at the rises on pretty garden variety stuff that I take from time to time. And on the other end of the spectrum, Sanofi has caved on extortionate pricing on one of its cancer drugs, dropping its +$11,000 a month pricing by 50% after top cancer hospital Sloan Kettering said it would not prescribe it due to its high cost.

Here is the guts of Wolf’s post:

It appears the toughest creature out there, the one that no one has been able to subdue yet, the ever wily and inexplicable American consumer, is having second thoughts about prescription drugs. And is fighting back…

[T]he direst indications came from Express Scripts, the largest pharmacy benefit manager in the US—and perhaps one of the best gauges of spending patterns for prescription drugs.

During the earnings call, CEO George Paz, who ominously was “not prepared to provide 2013 guidance,” embarked on a dark speech. The company’s clients had “unprecedented concerns about our country’s economic outlook,” he said. Unprecedented concerns! So even worse than 2008-2009. He went on:

Our health claim clients are expecting membership reductions in 2013. Large employers have pulled back on hiring plans, using contractors and part-time employees when necessary. Mid to small employers are cutting back or postponing health care coverage decisions while waiting for more clarity on Health Care Reform. And we continue to see low rates of drug utilization as individuals deal with uncertainty at the household level.

He lamented “the current weak business climate and the unemployment outlook” and was worried about the “challenging macroeconomic environment.” …

But beyond the company’s fate, he’d pointed at what ails the US economy, including a shift to part-time workers and contractors often without healthcare benefits, and smaller employers who, in their struggle to survive, are cutting back on healthcare benefits. As these workers—the inexplicable American consumers—are left to their own devices, they have to make their own decisions about what prescription drugs, if any, to blow their scarce money on.

Now I am sure some readers are thinking, “Ah, this is just a one year blip. Obamacare will come in and all these uninsured people will be covered.” Well, that’s not exactly the story. First, the ACA will still leave 30 million uninsured. Second, due to the failure to address health care costs generally and Big Pharma price gouging in particular (remember, basic drug research is heavily funded by the National Institutes of Health and other Federal bodies, with no qui pro quo re pricing in return) insured individuals are rationing their drug use. From Wolf again:

Express Scripts has seen this trend in another area. Its Drug Trend Report, which dissected prescription drugs sold to its members in 2010 and 2011, sketched the beginnings of the paradigm shift: in 2011, specialty drugs sales increased 17.1%, down from a 19.6% increase in 2010; traditional drugs only eked out a gain of 0.1%, the lowest increase since it began tracking the data; and spending on all prescription drugs combined rose only 2.7%, also a record low. That was for 2011.

But the report didn’t include insights into the buying behavior of the 48.6 million uninsured Americans who’re even more reluctant to spend money they don’t have on prescription drugs they can live without. And it didn’t include the trends of 2012, which as Paz phrased it, are cause for “unprecedented concerns.”

So get this: the increase in drug spending in insured patients in 2011 was 2.7%. That’s less than CPI inflation. And the gloom and doom from industry incumbents says the spending level was really bad in 2012, which means it might actually have fallen. No wonder Big Pharma stock prices rose as a result of the ACA. They desperately needed to get their teeth into a pool of new consumers, which will be the newly insured, to keep any sort of growth going if they continue to pan out in bringing major new drugs to market.

The other issue that ACA boosters fail to consider that a lot of insurance still leaves a lot of medical costs with the consumer, and there is every reason to expect the insurance industry to offer low coverage insurance to those who want or need lower premiums. Back to Wolf:

In 2012, plans with deductibles of $1,000 or more made up 19% of employee-sponsored health plans. Families covered by such plans, for better or worse, are cutting back medical spending … by 14%, according to a study last year. They’re making medical decisions where at least one part of the equation is their own money. And they’re accomplishing what no one has been able to accomplish so far, namely taming the untamable healthcare expense monster.

I wouldn’t be quite as chipper about this situation as Wolf is. The medical industrial complex is starting to recognize that they can’t extract blood from a turnip. But they have only just recognized that consumers are hitting the limit of what they are willing and able to pay. The ACA may give them a breather, which they could use to work though this transition. But given the priority they give to profits, as opposed to responsibility to the public, it’s more likely that they’ll continue their current aggressive pricing until the new reality of de facto spending limits is undeniable.

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  1. geoff gray

    I was prescribed Triplipix (135 milligrams) for cholesterol control at a cost of about $150/month. Turns out there is a generic which is identical except it is 134 milligrams. Price: $30/month. So I was paying about $1400/year for no medical benefit. No doctor ever told me about the lower cost virtually identical substitute. The corruption of the docs is also part of the problem as they are wittingly or unwittingly shills for big pharma.

    1. Yves Smith Post author

      Agreed. True is same even for low priced drugs. There’s an old thyroid med, Armour, made from pig thyroid. Most alternative med types prefer it. But MDs prefer synthroid, because it’s standardized. But I never had trouble getting my levels right with Armour, so most MDs would indulge me. Nevertheless, new doc would only prescribe synthroid, which costs nearly 4x what Armour costs, so I’m stuck with that.

      It’s also true with antibiotics. Admittedly, a bit of horses for courses there, since there are some (amoxycillin and clindamycin) that are good for penetrating bones, so you use them for certain type of infection risks, and Zithromax is good I think for pneumonia. But you’d be amazed how doctors will often put you on more expensive antibiotics unless you ask them why they aren’t using one of the tetracyclines (my personal faves, old, cheap, low in side effects and never bothered me). Even if tetrycycline isn’t right for some reason, mentioning it at least forces them to discuss cost v. feature tradeoffs.

      1. Greg R

        My story is Lotrel, a BP medication. It is a combination of 2 generic drugs: amlodipine & benazepril. It was running around $110/mo. Doctor write 2 scripts for the generics individually. Now less that $15/mo.

      2. HMSD

        My dermatologist said tetrycycline is no longer being manufactured because of price controls driving low margins on the product. (I guess that means the reimbursement rate is too low.) I have to use doxycycline now.

        Hard to believe that a medicine as effective as tetrycycline could be lost because you can’t produce it efficiently. I wonder if a utility type model for generics would work?

        1. bluntobj

          You need to think more creatively, which in the area of drugs most of us stick with what the doctor prescribes. But, as mentioned in other replies here, thinking creatively requires us to understand the product.

          In this case, tetracycline is available in a great many other forms. Taking a little leap will get you there.

          For instance, check out fish antibiotics. Look at the labels and common dosages. It’s the same stuff as human versions, available without a script, at a large discount.

          The fundamental lesson is that we’ll comparison shop, use reviews, check out brick n’ mortar vs. Amazon, etc. for any other product, but for some reason most people shy away from knowing about their medications.

          In fact, I’d be willing to wager you’ll begin to see a lot more informal medicine come into practice in the future, that is cash based, sidesteps the sickcare cartels, and is focused on repair & prevention rather than ongoing treatment.

        1. Yves Smith Post author

          You are missing my point. I said I was still referring to cheap meds. Armour costs 1/4 what synthroid costs. And it works. The premium of synthroid to Armour still runs to +$400 a year, which my insurance company will pretty much entirely pick up. Why should anyone be paying any unnecessary costs, even small ones? This “oh who cares” mentality is pervasive.

          1. Klassy!

            Strangely enough, I periodically get letters from the insurance company urging me to switch to generic when they don’t even get charged for the med!

          2. Yves Smith Post author

            Klassy they don’t make the generic in the dose I am taking, and those thyroid pills are so itty bitty that cutting one to get to my dosage is fraught, even with a good pill cutter they often shatter. So I’m stuck with synthroid. My doctor won’t prescribe a dose that requires me to use a pill cutter, and that isn’t completely crazy. With the Armour, the pills were big enough that you could do a reasonable job of cutting them.

      3. Lyle

        I had a physician prescribe Glumetza when it turns out that the same medicine is available as a generic for the $10 for 3 month plan at various places. I would note that for generics the copay for getting them from Medco is higher than the whole price at Wal-Mart. Why use insurance if it costs one more than not using it? This may be a piece of what is being seen that with the $10 plan at Costco, many grocery stores as well as Wal-Mart, the benefit manager never sees the prescriptions you take.

      4. joel3000

        Costco doesn’t require membership to use their pharmacy.

        If you’re hit with a costly prescription you should check their price.

        My wife once was prescribed a medicine that CVS wanted $600 to fill. We got it at Costco for $6.

        (I like Costco for the clothes. They’re not Target or Walmart cheap, but for not too much more they’re much more durable. I’ve had Target clothes practically unravel in the car on the way home.)

      5. ginnie nyc

        When the Armour thyroid manufacturer was temporarily shut down by the FDA a few years ago, I and millions of others were thrown into an absolute panic. That’s when I switched to the compounded equivalent.

        I get mine from a pharmacy in Delaware. It’s around $50 for 3 months supply. To have it made up here in NY is around $130 for one month. I guess the Madison Ave. storefront rent is the difference.

        1. Wells Fargo Must Die

          When your doctor will not Rx Armour, you get a new doctor or explain the situation to them so that they get religion.

          I had to switch to the synthetic because I no longer have insurance and buy from an illegal pharmacy out of India so that I am not enslaved to the annual doctor visit which has cost me $500 and $250 with my BCBS high deductible.

          The price is a little higher but it costs less thanks to forgoing the doctor visit.

          1. Klassy!

            It is annoying to have to go to the doctor for a renewal once a year– I try to stretch it out and can usually do it every two years by some begging (and non compliance with my regimen- ha!)

          2. bluntobj

            A perfect example of proactive informal self-medical treatment and out of the industry box thinking.

      6. Crazy Horse

        Prescription meds are only the tip of the iceberg called medical extortion that passes for health care in the USA.

        Here is my post from Wolf’s site:

        Returned to the US after three years working in Canada. “You are in Canada now, we don’t permit residents to go without access to health care. Here is your BC “Care Card.” Free.

        Went to the ER here in the states with minor pains in my chest last month. False alarm fortunately. The bill for an overnight stay in the hospital and 10 minutes of conference with a doctor? $11,000. I think I’m going to keep $10,000 of it and invest the other $ 1,000 in moving expenses to Cartegena, Colombia. Ranked in the top 10 worldwide for health care, and well south of the hurricane belt!The US? #37 behind every industrialized country and many developing ones as well.

        The Co-pay on insurance or Medicare in the US is as much as the total cost of treatment in Mexico or Colombia. Welcome to ObamaCare. Now you can be forced to carry insurance that doesn’t pay for your health care expenses!

        $750 dollars for ten minutes on a treadmill hooked to an EKG, followed by a quick glance at the chart by the doctor.

        $287 for a dozen pills that you can buy in Canada for $15.

        Did I mention the charge for paper napkins?

    2. TK21

      If you have a prescription to fill, try doing an internet search for coupons for that medicine. A week ago the pharmacist suggested I do this when I had a scrip I couldn’t afford and I found a huge discount from the manufacturer. I can only use one a year, but it still helped a great deal.

    3. Samantha

      When doctors became salesman I left and have never been back.

      Why would ANYONE listen to someone who forfeits their entire bedside manner, critical for any GOOD doctor, in order to pinch a couple coins in flip-back from the industry.

      Doctors, and their AMA boot on the medical school admissions racket, are much to blame for the costs. The rest is insurance.

      When going to a doctor, first talk cash upfront pricing. Not talk, walk. Next you will find most doctors are overcharging just because of insurance. Totally backwards, and once again the patient loses.

      Doctors are culpable for the deaths of many and need ethical reform badly.

      1. ginnie nyc

        Okay, Samantha. I lived like that for many years. But then I got the “flu”, which turned out to be encephalitis.

        Sometimes you don’t have a choice about ending up in the ER, or at the neurologist, or the brain injury physiatrist…

    4. Jeff N

      (sorry if I sound naiive, but) what benefits do doctors get when they do this? I know examples of doctors doing this. Are they getting rebates or something?

  2. fresno dan

    As you say, what can’t go on won’t go on.
    Odd that the link is named bioterorism when it is for generic drugs.

    Whether it is done by the government or by the individual, medicine charges too much and produces too little value. We were very rich, and this was OK for a while. But even we aren’t so rich that we can spend an infinite amount on medical care – especially when a substantial amount is counter productive. At some point, it just has to end.

    I applaud the doctors at Sloan Kettering – most cancer drugs are very, very marginal. No other industry could provide such incremental improvement (when in FACT there is ANY improvement) and charge such outrageous amounts (well, maybe Apple…and that seems to be ending)

    My geneal practiciner proscribes plavix, a dubious value propostion – I suspect kick backs. I don’t blame my doctor – compensation for general practiciioners is poor and I am sure he believes it has some value. But aspirin and fish oil would do the same for a fraction of the cost. But the pharmacy used to call me days in advance to tell me to renew my presciption for plavix – now that it is off patent? Not so much.

    1. LucyLulu

      How cute that the FDA is writing promotional literature for the US pharma industry. Is that part of the FDA’s mission statement?

    2. jake chase

      Odd that you would post this today. I decided yesterday, during an interminable wait in my doctor’s office, that I would discontinue my treatment for atril fib. I do not want to become another drug addled medical patient in the vain hope of living forever while coping with nasty side effects. While in the office, I read in one of the doctor’s books (he is a terrific doctor, incidentally, and I like him enormously) about the value of flax seed oil for my condition. I told him I would try that instead and explained my position: that while the drugs had lowered my heart rate and very nearly restored my rhythm, they left me sleepless and exhausted half the day. I told him I would drop at least one of them and he chose Flecanide. I agreed to continue Metroporol, for now. I left the office feeling quite victorious. Well see what happens.

      1. favedave

        I hope you will reconsider stopping that medication.
        Atril Fib is a very dangerous condition. If something goes wrong you will die suddenly. It’s called Sudden Cardiac Arrest (SCA). You will suddenly lose consciousness and drop like a stone. If no one is there to immediately start CPR and use an AED to revive you then you will be brain dead within seven minutes.
        Those are the facts.
        I won’t comment on the cost of drugs because that is a different issue. I just think you made a VERY bad decision.
        It was not a victory. It was an early death sentence.

      2. drpat

        You should reconsider your decision about flecainide. It is an incredibly well tolerated medication, in my experience. The fatigue you are experiencing is far more likely to be due to the beta blocker.

        You should also inquire about referral to an electrophysiologist for catheter ablation. Atrial fibrillation is curable these days, if you meet certain criteriae.

      3. ginnie nyc

        Yes, ablation kept an uncle of mine alive for an additional 20 years. You should see if it is an option for you.

      4. Bart Fargo

        Somehow I don’t think you’ve done much research into your condition or the available treatments if you’re unable to correctly spell any of the medications you’re taking.

    3. Howard Beale IV

      Try getting quotes to have a cat’s teeth cleaned. Seems that the pricing model for vets has now started to model human medicine.

  3. LucyLulu

    As employers choose to opt out of providing health coverage benefits, people are pushed out of the group market to be underwritten as an individual(or family) policy. Prices can easily double assuming coverage can be found at all. ACA is supposed to ensure coverage is available but has there been talk of price caps? Anybody can buy insurance if they’re willing to pay enough. I’ve heard some pretty outrageous quotes. And what if those people don’t live in poverty to qualify for subsidies? Is the idea that they soon will?

    Unfortunately, and I shudder to admit this to anybody, I have 6 different medications I must take for various reasons. All are generic. I’m on Medicare Part D and go into the donut hole around April. This year I won’t come back out. I’m just tickled pink to have Medicare. It’s a hell of a deal. There is another drug I’m prescribed, finally went generic this year after 13 years of “patent protection”. It’s been this company’s star drug, they bought the rights in 1999, following a european release in 1990. It’s a long and sordid story with no-compete payoffs to generic companies and well-intentioned government prosecutors (here and european union) but thus far the generic costs $3900 for three months. The company that has exclusive rights to the generic is the same company that makes the name brand. Seriously. Teva had already won the bid for the generic exclusivity period before they bought Cephalon (and which should be expiring soon).

    Anyhows, Medicare won’t pay for it, quelle surprise, though there are no substitutes (one person from appeals said they expected people like me could use amphetamines instead…… gee thanks). I don’t take it. Though the medicine does make me feel pretty damn good, almost human, paying $15,000/yr for a drug isn’t good for my health. The same drug sells in India for under $1/day, but can’t be marketed or imported into the US (hmmm…. wonder who wrote the law barring importation of pharmaceuticals?). Granted, India’s version of the FDA is less stringent and the quality control is not up to par with the US. But surely, all conservative rhetoric to the contrary aside, our “excessive” regulation can’t require a 40-50 fold markup.

    Poor BigPharma. It must be tough these days not being able to make fistfuls of money with little effort. Could you imagine if their own corporate executives couldn’t afford to buy their products?

    *In addition, many of those ‘contractor’ positions are being illegally claimed by employers to also avoid paying payroll taxes.

    1. Yves Smith Post author

      For $15K, why don’t you go to India with some sort of empty prescription bottle, get a year supply of your meds, and put it in the bottle????? No one is gonna go through your luggage, much the less test what you have to ascertain that it does not match the scrip label. And you can see the Taj Mahal or go to Goa if you like a plush vacation and come out at least $10K ahead.

      1. katiebird

        I know you were speaking ironically but, if it was me, I’d be hard pressed to afford the $5,000 for the trip to India. That’s still $416/mo for the prescription and the $130/mo I’m budgeting for our prescriptions is about as much as I can squeeze.

        1. Howard Beale IV

          I just priced a flight to Mumbai, and it was only $1,300 roundtrip in coach from a major midwest city.

          1. katiebird

            I’m assuming her (rough) estimate included such pain-in-the-ass items as time off work, boarding dogs, passports, shots, hotels, recovering from trip and other things that I (a non world traveler) can’t even imagine.

            Oh, and how do you estimate the cost of traveling to India to someone who needs such expensive medication? Even a trip to Canada could be too much!!

          2. tyaresun

            You might want to try calling an “Angadia” service, they might buy and deliver the drugs for you.

      2. jake chase

        You might consider calling India and hiring someone who is taking the drug to fly some over? In the immortal words of George Costanza, “is that wrong?”

    2. diptherio

      “*In addition, many of those ‘contractor’ positions are being illegally claimed by employers to also avoid paying payroll taxes.” –LucyLulu

      I work for a construction sub-contractor and I can vouch for the accuracy of that statement. I would guess that around 80% of the other construction laborers I work with are both without health insurance and are being reported as independent contractors to the IRS by their employers. Some high percentage of those folks don’t even file their own taxes with the IRS, as most subs get “cash on the barrel head” and don’t make enough to make it worth the IRS’s time to audit them. It will be interesting to see how the ACA plays out when all of a sudden it forces a lot of us working in the grey-market (i.e. under-the-table) out into the light (at least when we finally have to go to the hospital).

      In defense of employers reporting employees as contractors, for most construction subs (except electric and plumbing) it is a necessity of doing business. No one can afford to pay all the taxes/insurance that is required for employees, plus the additional bookkeeping, so most contractors make a deal with their employees: a higher wage as a “private contractor” or a lower one as an employee. Of course, everybody goes for $15/hour as a contractor instead of $10 as an employee. Most sub-contractors only have one or two employees (at least the ones I work with on mainly residential and small commercial jobs), so the marginal cost of making their workers official employees is higher than for larger firms. I don’t really blame any of the contractors for the system of questionable legality that most of us live with. For the most part, the employers trying to avoid paying payroll taxes are just as financially marginalized as their employees (these are not absentee owners we’re talking here).

      1. Susan the other

        This isn’t going to work. America’s health care needs are too acute to be playing around with Pharma and the rest of the Medical Industrial Complex. We just really do not have time to play around with this. As tax payers and as consumers need to demand Single Payer price-controlled health care now. I mean, who has $6,000 – let alone $11,000 a month – to blow on questionable cancer drugs? It is so absurd. And Pharma is looking at these grim stats and not facing reality. It is Pharma and the rest of the industry that must come forward and voluntarily stop bleeding us dry for meaningless little gains. Because we will survive. They won’t.

    3. Denise B

      “Medicare won’t pay for it”

      Is it Medicare that won’t pay for it, or is it your particular Part D plan that won’t?

      I don’t think people who are not on Medicare understand what’s involved in choosing a Part D plan. Every plan has its own formulary of hundreds to thousands of drugs. One year, I made the effort of simply making rough counts to compare two plans, and found that one had 5 times as many drugs as the other. Naturally, I have absolutely no way of knowing what these differences might mean to me or what risk I’m taking in choosing one over the other. How do I know what drugs I may need?

      How on earth is anyone who is not a pharmacist supposed to make a decision like this? I doubt if even a doctor could make a rational choice. It’s an insane thing to ask consumers to do. You pick a plan and you are rolling the dice about whether during the coming year you will need a drug that is not on the list.

  4. Thorstein

    And to underscore Yves’ point, recall that when ACA was passed there were 40 million uninsured Americans. Under the ACA, most of the remaining 10 or 20 million (allowing for population growth) will be buying (or “given”) high-deductible policies (as most working-class insured are today). Since they can’t afford the deductible, drug prescriptions will go unfilled, and internists will lose business to surgeons and undertakers.

  5. LAS

    Anecdotally, based on their market research departments, big pharma companies “re-org” staff annually, eliminating jobs constantly. They may be paying renewed attention to consumer products, OTC remedies and personal care/beauty, too. However, they are so cheap as they research these opportunities that it’s hard to believe they’re getting sufficient info to accurately identify a new potential consumer product success.

    Virtually all my market research across nearly all categories of product over the past 4 years says that consumers are not buying as much because they haven’t got the money to spend. About 10-15 in every 100 admits to eating poorly or missing meals on account of food insecurity. About 20-25 in every 100 are foregoing some kind of medical care because their family cannot afford it. Interviewers who ask these kind of questions report feeling upset by the end of their day at what they’re seeing/learning. I feel like an intruder, but we have to ask and validate.

    From median income households on down, there’s a real gap in spend. There could be a nice economic pop right across the whole economy if only the pressures were alleviated for the median income type households on down. But that does not seem to be a consideration among the power elite.

    Look. No one has better stats that the government, too. Only the politicians are often choosing not to see.

  6. Pokey

    Niaspan is an extended release vitamin prescribed for lipids. I should not be complaining as I have excellent health insurance, but a $50 co pay for a vitamin is offensive. The internets say that immediate relaese niacin is less toxic. It’s also $2.50 per month. Flushing is unpleasant at first, but it also reminds me that I am no longer being ripped off for a vitamin

    1. ziggy

      You can get inexpensive non-flush niacin. Try Now brand. I buy all my vitamins and supplements from They’ve got good prices.

      1. Susan the other

        Also coffee, tea, and nicotine (if you can find a source other than smoke), and substantial amounts of red wine – all are amazing health foods. Don’t forget to get good snax like walnuts and sardines packed in olive oil… and all these things are so much more enjoyable than those crappy, ulmost useless, pills.

  7. riverdaughter

    Yves, I don’t know where you got your information about how drug research is funded but it is simply not true that the NIH pays for most of it.
    What the NIH pays for is basic research but it’s in the very early stages. It’s merely a germ of an idea. It’s also the case that the research that comes out of academia doesn’t always stand up to scrutiny as further work on a target shows that the mechanism is still poorly understood.
    If it were the case that academia came up with a potential drug and the drug companies merely developed it, then your point might be valid. But such instances are extremely rare.
    What usually happens is researchers at pharmaceuticals read about an interesting target or mechanism or some very preliminary work in a paper and then we do 99% of the work to bring the drug to market. That means an extraordinary committment in terms of money from the companies themselves. Given that so few drugs make it to market these days after so many billions spent in research and clinical trials, the drug companies don’t want to do it anymore. So, the research is now starting to fall back into academia because labor is cheap. It didn’t start off that way. But that’s the way it is developing. In other words, you’ve got it backwards.
    email me if you want to hear the whole story. I’ve seen both sides of the coin now and can fill you in more completely on what’s really going on.
    It’s a very interesting story. It doesn’t absolve the pharmas at all in any way. But it also doesn’t make the NIH an innocent injured party.

    1. Susan the other

      Who’s on first? If the government takes the lead, as it should because the government is we the taxpayers, then things should run smoothly. Pharma is acting like it is in a PPP with the government and the bargaining chip, blackmailing chip, is American health. Give me a break, somebody please.

    2. Yves Smith Post author

      If you look at NIH and other federal agency spending v. total industry spending, which is exaggerated because they throw all sorts of overheads into their R&D bucket to make the #s look good (obvious but also confirmed by former Big Pharma employees), it’s about 35%. You are telling me that’s not substantial???? And that’s before you get to the value of the tax breaks.

      On top of that, a lot of what the drug companies call “R&D” is related to “new drug applications” which are merely minor reformations to allow them to extend patent protection. I saw somewhere (have been unable to find it again) that the % of NDAs that were merely minor product tweaks was 88% of the total.

      I have a colleague who is a former biomedical engineer, now an FDA attorney at one of the only 7 law firms in the US that is really good at this. Many of her partners are former NDA directors. I’m not uninformed on this issue. With all due respect, a lot of what you are saying is industry PR. The factoid that I’ve been unable to source (the 88% to minor product reformulations to preserve patent status) above is completely consistent with what my buddy and her partners in the trenches all day on this see, she says it is every bit that high.

      1. Riverdaughter

        Yves, I’m not an industry PR person. I’m a scientist with > 20 years of experience in the drug industry. I also happen to collaborate with a university doing drug research since my site was shut down and we were all laid off. I’m not sure a lawyer is the best person to explain how the drug industry works but having seen both sided of it now, I and some of my friends probably are.
        In any case, what is the harm in finding out from those if us who live it every day?
        You have my email. I will be totally straight with you and believe me, I’m the last person to tell you PR. There is more to the story than what you have heard and you’re not going to learn it from a lawyer.

        1. Yves Smith Post author

          The lawyer is a former biomedical engineer. She quit doing science because she was sick of being required to take trail results that were random and try to prove that they showed something positive re efficacy. Works almost exclusively for scientists because she understands the science. Also worked for Big Pharma so has seen the #s and the behaviors from the inside. And the former FDA folks she has at her firm also came to the law out of science. You also seem not to know that a lot of FDA attorneys have science backgrounds.

          You are awfully quick to dismiss the experience of people who actually understand the economics of pharma as a business, both the R&D and the marketing side, and have seen how much FROM THE INSIDE of corporate overhead gets attributed to R&D.

      2. Minor Heretic

        There are proposals out there to increase funding to the NIH and have it develop its own pharmaceuticals, all the way to market. Then the NIH could license the patents to drug companies on a non-exclusive basis and they would have to compete on price and quality.

        Overall the U.S. government would save tens of billions annually, as would we, the people. The U.S. government would eventually end up being the largest pharmaceutical patent holder in the world. In a sort of Gresham’s law, this would drive the expensive private label drugs from the market.

        Of course, we’d have to get campaign finance reform first.

  8. Jagger

    I know a 75 year old woman whose doctor told her to take osteoporosis medication. She is poor. Barely surviving if nothing goes wrong. She simply can’t afford to pay for it and she isn’t. I would not be surprised if we will see the results in the not too distant future. That is what happens to the old when they are poor and live in America.

    1. Klassy!

      From what I’ve read bisphosphanates aren’t particularly helpful in preventing fractures even if they do help to increase bone density. They’re probably helpful in increasing Pharma’s bottom line though.
      I kind of think money might be better spent on OT/PT for older adults- balance training, fall risk reduction in the home, etc.

      1. Susan the other

        I do agree. The body can only absorb 200mg of calcium at a time. But it isn’t deposited in bones unless there is enough piezo-electric friction to guide it there. So exercise is really important. Just a little walking every day really.

        1. Yves Smith Post author

          Everyone, and I mean everyone, should weight train 3X a week. And not wimpy weights, pretty heavy relative to your strength level (which for an old person still might not be all that heavy). All sorts of studies on people in their 80s showed they reduced their biological age hugely with 3X a week weight training. And that will build bone density if you have an adequate calcium and vitamin D intake.

  9. PQS

    So, coming soon to an America near you:
    Godzilla (Pharma) versus Mothra (Insurance Industry)?!?

    If Pharma can’t sell its products because the II isn’t providing enough subsidy via insurance, well, maybe prices will come down even apart from the poverty of the consumer….of course I am assuming a logical analysis by both Godzilla and Mothra. They haven’t shown these abilities yet…

  10. jim3981

    I just skimmed the article so forgive me if I missed something. Just want to point out I paid $65 including shipping for a name brand drug from a canadian pharmacy. The same drug costs $1300 at costco in the USA.

    On another note. Herbs and supplements can be a good way to avoid the side affects with prescription meds. People are realizing that not everything is psychiatric and are avoiding the depression meds that are not any better than a placebo.

    One hundred years ago, Sigmund Freud arrived in the United States on his first and only visit. As the George Washington pulled into New York Harbor, he supposedly remarked to Carl Jung, who accompanied him, “They don’t realize that we are bringing them the plague.” His more vociferous contemporary critics would probably agree.

  11. sk

    “The company’s clients had “unprecedented concerns…”

    The drug CEO is crying because the news/ outlook is very bad. Perhaps because people are living healthier and feeling better after realizing that they don’t need to put this expensive poison in their bodies.

  12. TK21

    I’m absolutely floored that Obamacare will leave so many people uninsured. I had thought that it was a shaky scheme to provide a little more coverage to people, but for some reason had not heard that so many people would be flat out left in the cold. Horrible. I shouldn’t be surprised after what I’ve seen from this administration.

    1. Susan the other

      I know. It’s weird how we keep giving Obama the benefit of the doubt. I do it too. At least he got the ball rolling. If we let him take a little nap now, it will not be a good thing. The health care crisis is as acute, and usurious, as ever. It is a disgrace that really has run out of time and excuses.

    2. Denise B

      In addition to the number of people who will still be uninsured, there will also still be many people who are under-insured and therefore forgoing treatment and/or at risk of bankruptcy.

    3. different clue

      Baucus-Obama RomneyCare is first and foremost a scheme to give Big Insura a TARP style bailout without calling it that, so as to avoid waves of public hatred.
      Secondly after that, it was about sucking the oxygen out of the coverage-reform room, and wasting so much time and energy as to prevent any attempt to get free-choice medicare, let aLONE a genuine Canada-style single payer coverage system, for several more decades.
      Thirdly, it is to create a black hole into which the destroyed wreckage of Medicare may be thrown, never to re-emerge. Obama’s long-game strategy is to reduce Medicare payments to doctors/hospitals/etc. deeply enough that Medicare patients are not worth accepting by any of these providers. When Medicare has been assassinated through such long-range poisoning-of-the-pot, all the little Obama 2.0 successors of the next couple of decades will legislate the Ryan-style voucherization of the Medicare money for spending on the BORomneyCare dogshit fuxchange coverage plans . . . because not one single solitary provider will accept a Medicare patient. Because Medicare will have been made too bankrupting for any provider to be able to afford to accept. That’s the Ryan-Obama plan for Medicare.

      And the passage of Baucus-Obama RomneyCare is what makes it all possible. Repeal BORomneCare, and Medicare may yet be saved.

  13. Jimmy

    OK – Insurance Companies are allowed to operate essentially as cost plus businesses. The compete only relative to their competition. They lobby for government regulation the forces the public to buy their products. They are fine with regulation that increases costs across the board. They lobby against any “standardization” of accounting and billing, or any other cost savings that would translate to across-the-board savings. If “costs” somehow were to drop by 50%, Insurance Company profits would drop by a similar amount. Insurance Companies do not want to see drug prices lowered.

    1. Susan the other

      The cost savings anticipated in new high tech drugs and medicines, from tailor-made genetic drugs to molecules that function as tiny manufacturers – all that great NOVA stuff – is going to change the landscape as decisively as climate change. How long it takes is the only question. But in between now and then we need to secure our national interests and the interests of every citizen. It is so truly bizarre that the House is so damn stupid.

  14. Don Levit

    I hope this article is correct, in that we have reached a tipping point.
    The average premium for a family groupp policy is around $14,000 per year, and median househild income is $50,000 a year.
    Looks to me like we have reached the tipping point.
    Of course, debts and subsidies can help allay the inevitable.
    According to a recent paper entitled “Financial Audit Bureau of the Public Debt’s Fiscal Years 2012 and 2011 Schedules of Federal Debt,” published by the GAO:
    Page 6 “The aging of the population and rising health care costs will continue to put upward pressure on spending, and absent action to address the growing imbalance beween spending and revenue, the federal government faces an unsustainable growth in debt.”
    Don Levit

  15. Flying Kiwi

    Here in New Zealand prescription drugs are controlled and supplied by a Crown Agency called Pharmac* which negotiates bulk supplies and prices with suppliers. If a pharamceutical is prescribed it costs the user the equivalent of US$4 regardless of its cost to Pharmac.

    Naturally Pharmac is hot on the substitution of generics wherever possible, and applies some pressure on GPs to be responsible in prescribing in order to save the pressure on the public purse.

    Equally naturally Big Pharma is leaning on the US Govt. to get NZ to dismantle Pharmac as part of the APEC negotiations.

    As an aside, my wife lost her hair during treatment for cancer – paying $2/time for drugs worth thousands – and received an annual grant of NZ$450 to assist with the purchase of wigs.

    I daily thank the god I don’t believe in that I wasn’t born in the USA.


  16. Kurt Sperry

    Is new drug research a luxury we can no longer rationally afford? Most new drugs are simply analogs of either naturally occurring substances or older drugs gone generic that no longer provide the desired profit potential. If we need research and trials continue at all in the foreseeable future why not have it done by public funding and have the resulting drugs go straight to generic– have them manufactureable by any qualified company that wants without paying added royalties or IP costs? There are so many more cost effective ways of getting to better health outcomes than spending untold billions on new drugs that are often little or no better than existing ones or natural alternatives.

    The low hanging fruit of pharmaceutical research was pretty much all picked decades ago. The overall cost/benefit of new medications has become dismal. Never mind the practical and moral implications of incentivizing profiting on sickness. The very idea of health care as a profit center is morally unhinged.

    1. Nathanael

      Yep. This is the only sane way forward; if the US doesn’t do it, other countries will and the US will eventually follow.

  17. Carol Sterritt

    I have no idea how employers will be able to insure people.

    I mean, large corporations like MicroSoft, sure. It just means Bill Gates won’t get to buy up all Of Hawai’i. But the corner food market, the corner gasoline station, all those places… I can foresee that if these small businesses have to insure people, they will close up. Then Safeway WalMart and the other big nasties will just get bigger. (Sigh)

    Those of us in the 20 K to 40 K bracket are out of luck as well. Using the Calif. Insurance “exchange,” it currently would cost me $ 17,000 a year to put up the money for health insurance, and the deductibles and the co-pays, for the two of us, before the health insurer would ever have to fork out a dime. And we remain a few years away from MediCare.

  18. Kurt Sperry

    You could go a long way to improving things just by making the major insurers and government insurance plans only pay for generic medications. Make the market for the latest overpriced wonder drugs essentially cease to exist. The upside in cost savings would well outweigh the downsides. No more BigPharma pushing overhyped drugs on doctors and patients, no more extorting dying cancer patients to vacuum out their bank accounts clean under threat of death. Fuck the pharmaceutical industry, it only exists to profit on the misery of the ill.

  19. Kurt Sperry

    One more thing: no more budgets for billions of health care dollars wasted on creepy television ads pushing drugs directly to patients.

    OK, two more things: public research could be directed toward treatments that actually cure ailments. In a profit driven system the last thing a pharma company wants is to cure a condition, that shuts off the revenue stream. The perfect drug from a business perspective is one the patient is convinced they have to take daily for years, preferably for the rest of their lives. So that’s essentially all pharmaceutical companies develop and market and all doctors push on their patients.

  20. Cleo Tasby

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