Yves here. We are delighted to feature this post from Roy Poses, who with his colleagues at Health Care Renewal, have been providing consistently high quality analysis of the often dubious practices and economics of the health care system.
By Roy Poses, MD, Clinical Associate Professor of Medicine at Brown University, and the President of FIRM – the Foundation for Integrity and Responsibility in Medicine. Cross posted from the Health Care Renewal website
The New York Times published another article in its series on the high cost of US health care. This one, focused on the care of type 1 diabetes mellitus and other chronic diseases, shines some light on the business management practices that now determine how our health care system functions, or not, and implies who benefits the most from them.
Planned Obsolescence Disguised as Innovation
The article first discussed the brave new world of type 1 diabetes treatment. The introductory theme was:
Today, the routine care costs of many chronic illnesses eclipse that of acute care because new treatments that keep patients well have become a multibillion-dollar business opportunity for device and drug makers and medical providers.
Much of modern diabetes treatment seems to depend on medical devices and disposable medical supplies:
That captive audience of Type 1 diabetics has spawned lines of high-priced gadgets and disposable accouterments, borrowing business models from technology companies like Apple: Each pump and monitor requires the separate purchase of an array of items that are often brand and model specific.
A steady stream of new models and updates often offer dubious improvement: colored pumps; talking, bilingual meters; sensors reporting minute-by-minute sugar readouts. [Diabetes patient] Ms. Hayley’s new pump will cost $7,350 (she will pay $2,500 under the terms of her insurance). But she will also need to pay her part for supplies, including $100 monitor probes that must be replaced every week, disposable tubing that she must change every three days and 10 or so test strips every day.
Of course, the device and supply manufacturers claim that the high prices reflect the value of the wondrous new innovations:
Companies that produce the treatments say the higher costs reflect medical advances and the need to recoup money spent on research.
Yet now the Times reporter was able to find physicians who claim the “innovations” are really just the latest version of planned obsolescence:
Diabetes experts say a good part of what companies label as innovation amounts to planned obsolescence. Just as Apple customers can no longer buy an iPhone 3 even if they were content with it, diabetics are nudged to keep up with the latest model.
For example,
Those companies spend millions of dollars recruiting patients at health fairs, through physicians’ offices and with aggressive advertising — often urging them to get devices and treatments that are not necessary, doctors say. ‘They may be better in some abstract sense, but the clinical relevance is minor,’ said Dr. Joel Zonszein, director of the Clinical Diabetes Center at Montefiore Medical Center.‘People don’t need a meter that talks to them,’ he added. ‘There’s an incredible waste of money.’
Pharmaceutical companies have also discovered this model.
insulin … has been produced with genetic engineering and protected by patents, so that a medicine that cost a few dollars when Ms. Hayley was a child now often sells for more than $200 a vial, meaning some patients must pay more than $4,000 a year.
In particular,
Synthetic human insulin is safer for patients, who sometimes developed reactions
to animal insulin. But it is made by only three companies: Eli Lilly, Sanofi and Novo Nordisk. Manufactured in microbes, each one’s product has minor dissimilarities that reflect the type of cell in which it was made. Since the companies owned the cell lines, it is nearly impossible for other companies to make exact copies or even similar versions that would be cheaper, even once the patents expire. And the pharmaceutical companies defend the patents ferociously.What’s more, the three companies continued to refine their product, adding chemical groups that made the insulin absorb somewhat more quickly or evenly, for example. They are called insulin analogues, and their benefits are promoted tirelessly to doctors and patients.
Of course, the pharmaceutical companies also claim that it’s all about innnovation,
Dr. Todd Hobbs, chief medical officer of Novo Nordisk, defended the rising prices of insulin, linking them to medical benefits. ‘The cost to develop these new insulin products has been enormous, and the cost of the insulin to the consumer in developed countries has risen to enable these and future advancements to occur,’ he wrote in an email.
Not everyone is convinced,
‘The insulins are tweaked for minor benefits that may help a small number of patients with difficult-to-control diabetes, and result in major price increases for all,’ [Kings College, London, UK Professor] Dr. Pickup said. Because of analogues, he added, Britain’s National Health Service has had to spend 130 percent more on insulin in the past five years.
In the United States, said Dr. Zonszein at Montefiore, the price of Humalog, Lilly’s analogue insulin, was typically two to four times that of its older human insulin line, called Humulin. ‘There is not a lot of difference between Humulin and analogues,’ he said, but he noted that Humulin was getting ‘hard to find.’ Sanofi Aventis has stopped selling its older product in the United States, and Mr. Kliff, the financial analyst, said other companies were likely to follow suit, effectively forcing patients to use the costlier versions.
The arguments about valuable innovation also do not explain why the prognosis of diabetes in the US does not seem to reflect all the money we spend on the disease,
Complication rates from diabetes in the United States are generally higher than in other developed countries. That is true even though the United States spends more per patient and per capita treating diabetes than elsewhere, said Ping Zhang, an economist at the Centers for Disease Control and Prevention.The high costs are taking their toll on public coffers, since 62 percent of that treatment money comes from government insurers. The cumulative outlays for treating Type 1 and Type 2 diabetes reached nearly $200 billion in 2012, or about 7 percent of America’s health care bill.
So to summarize, there is considerable evidence that companies that make drugs and devices to manage type 1 diabetes constantly provide “innovations,” yet most are minor changes that encourage obsolescence of previous products, but do not provide important increases in benefits or reductions in harm for patients.
Oligopoly Disguised as a Free Market
Many in the US sing the praises of our supposed free-market health care system. As noted above however, the insulin market is an oligopoly, dominated by three companies. The diabetes device market is also dominated by a few companies, and in particular, the insulin pump market is dominated by a single company,
Medtronic is the dominant insulin pump manufacturer, serving 65 percent of American patients and the majority of those worldwide. Though smaller companies sell cheaper pumps, it is hard to make inroads: Once familiar with the Medtronic system and its extensive support network for troubleshooting problems, patients are reluctant to switch. Doctors are leery of prescribing equipment from a new company that may be out of business in a year; their office computer may not sync with the new software anyway.
Of course, Medtronic public relations will justify it all again based on innovation,
Medtronic declined to talk about specific prices, but said a core tenet was to make only ‘a fair profit.’ Amanda Sheldon, a spokeswoman, added: ‘We are committed to reinvesting in research and development of new technologies to improve the lives of people with diabetes, and our current pricing structure ensures that we can bring new products to market.’
The article also discussed the prices of treating chronic diseases other than diabetes. For example, see how a nominally non-profit hospital priced treatments for chronic diseases,
Dr. Kivi was on high doses of steroids for debilitating joint pain that left him unable to walk at times.
But when his last three-hour infusion at NYU Langone Medical Center’s outpatient clinic generated a bill of $133,000 — and his insurer paid $99,593 — Dr. Kivi was so outraged that he decided to risk switching to another drug that he could inject by himself at home.
However, this pricing appears to have been facilitated by the hospital’s increasing market domination generated by its purchase of physician practices,
He had moved his care to NYU Langone to follow his longtime doctor, who had moved her practice from a nearby hospital where the same infusion had been billed at $19,000. The average price that hospitals paid for Dr. Kivi’s dose of Remicade late last year was about $1,200, according to Medicare data.
So in summary, a few companies now dominate the production of drugs and devices for the management of diabetes, and a few large hospitals may increasingly dominate the treatment of particular chronic diseases. Such oligopolists are able to increase prices without improving treatment to or outcomes of patients.
Enrichment of the Oligarchs
This example shows how the current US health care system is dominated by huge organizations, mostly for-profit corporations but including some nominally non-profit corporations that act similarly. They loudly proclaim innovation, but much of that innovation seems to provide few benefits to patients, and actually appears to be planned obsolescence. The result is high and ever-rising prices. So if patients do not benefit from this, who does?
It does not appear to be the health care professionals,
Meanwhile, as the price of supplies rises, endocrinologists remain among the lowest-paid specialists in American medicine, meaning severe physician shortages in many areas and long waits to see a doctor.
We have seen other examples of how leaders of the big health care organizations have become as rich as royalty. Therefore, let us consider the pay of the leaders of the organizations mentioned above. I will focus on the two US based corporations, Eli Lilly and Medtronic, and the New York hospital, NYU Langone Medical Center.
Eli Lilly
According to the company’s 2014 proxy statement, the 2013 total compensation of its five highest paid hired executives was
– John C Lechleiter PhD, CEO $11,217,000
– Derica W Rice, CFO $5,176,822
– Jan M Lundberg, PhD, EVP, Science and Technology $4,774,535
– Michael J Harrington, General Counsel $3,174,222
– Erico A Conterno, President Lilly Diabetes $3,009,041
Note that all of these executives save Mr Harrington have also amassed more than 100,000 shares of company stock, and Dr Lechleiter has amassed more than 1,000,000.
It should be no surprise, given our recent discussion (e.g., here) of the currently symbiotic relationship among top health care corporations and academic medicine, that several of the members of the Lilly board of directors that has exercised stewardship over the company, and is thus responsible for these gargantuan compensation packages and the business practices discussed above are top academic leaders. These include,
– Alfred G Gilman, MD, PhD, Regental Professor Emeritus, recent (until 2009) executive vice presdient, provost, and dean of medicine, University of Texas Southwestern
– William G Kaelin Jr, MD, Professor of Medicine, Associate Director of Basic Science, Dana-Farber Cancer Center, Harvard University
– Marschall S Runge MD, Executive Dean and Chair of the Department of Medicine, University of North Carolina Medical School
– Katherine Baicker PhD, Professor of Health Economics, Harvard University School of Public Health (I must note that Prof Baicker is also – amazingly – on the Medicare Payment Advisory Committee, MEDPAC).
– Ellen R Marram, Trustee, New York-Presbyterian Hospital
– Ralph Alvarez, President’s Council, University of Miami
– R David Hooper, Trustee, Children’s Hospital of Colorado
– Franklyn G Pendergast MD PhD, Professor, Mayo Medical School
All but the newest directors were paid at least $250,000 a year by the company (and thus by the executives the directors are supposed to supervise), and all but the newest directors had accumulated tens of thousands of shares of stock or the equivalent as pay for their services.
Medtronic
Similarly, according to the company’s 2013 proxy (the latest now available), CEO Omar Ishrak made $8,975,866 in 2013, and the next four highest paid executives all made over $2,500,000 each. Mr Ishrak owned or could acquire the equivalent of more than 500,000 shares of stock, and the other top paid executives owned of could acquire from over 100,000 to over 1,000,000 shares of stock.
Again, the executives were nominally supervised by a board of directors that included an academic and non-profit leader, Dr Victor J Dzau, MD former chancellor for health affairs at Duke University, and president-elect of the Institute of Medicine (note that we discussed Dr Dzau’s conflicts of interest most recently here). It also included a former government leader, Michael O Leavitt, former US Secretary of Health and Human Services; and a hospital leader, Preetha Reddy, Managing Director of Apollo Hospitals Enterprise Limited (India).
NYU Langone Medical Center
The Medical Center’s 2011 US form 990 is old, but the latest available, and is remarkably obscure, omitting, for example, mentioning the titles of any of the people listed as highest paid officers and employees. The current CEO, was listed as receiving total compensation of just over $2.000,000. Four individuals then received over $1,000,000. The 990 form also mentioned that the Medical Center provided some individuals with first class travel, tax gross-up payments, housing allowances, and reimbursement for personal services. Neither the 990, nor the center’s web-site makes all the possible conflicts of interest of its trustees obvious.
So in summary, the large organizations, for-profit and non-profit, that are able to greatly increase their prices through planned obsolescence disguised as innovation, and oligopoly disguised as free markets, are able to make their top executives very rich, and also enrich those who are supposed to exercise stewardship over them.
Summary
An extensive journalistic investigation revealed how certain aspects of chronic care in the US health care system are dominated by a few large organizations. These organizations are able to charge very high prices, mainly through market domination, and with the aid of marketing and public relations that tout planned obsolescence as valuable innovation. The leaders of these organizations have become wealthy, often fabulously so. This state of affairs has not been challenged by those who are supposed to provide stewardship, including many prominent academics.
The US health care system is the most expensive, on a per capita basis, in the world, and far more expensive than that in any other developed country. Yet there is no evidence that its results are superior to those of other countries. What evidence there is suggests in fact that our results are mediocre at best.
The current example suggests how the US system differs from those of other countries. It has an ostensible free market focus. Yet the system appears more to be an oligopoly, with most of its market components dominated by a few large organizations, run as an oligarchy, by a small, overlapping in-group of managers, executives and their cronies, with elements of corporatism, that is with the cooperation of, rather than regulation by government entities and leaders
A real free market health care system would include a level playing field. This could only be achieved by the government acting as a fair umpire, not a crony. Anti-competitive practices would have to end. Oligopolies would have to be broken. Deceptive marketing and public relations would have to be exposed. Leaders would have to be made accountable, especially for putting patients’ and the public’s health ahead of their own enrichment. All this would be horribly difficult, as the oligarchs have amassed much money and control, and would oppose, possibly violently, any effort to challenge them. If we do not challenge them in the US, however, not only will our health care continue to become ever more expensive, less accessible, and less beneficial to patients, but we will all cease to be citizens of one of the first real democracies, and end up serfs instead.
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Health sector should not be treated with terms of costs-profits and competitiveness.
Similar stories everywhere:
http://failedevolution.blogspot.gr/p/p-margin-bottom-0_14.html
The key to doing well in life?
“glutathione”
The rate limiting precursor for gluathione is this stuff called cysteine, which you should get from “n-acetyl cysteine” or NAC. (not plain cysteine)
Everybody should take it every day. It helps your body keep itself healthy in hundreds of ways. Its probably the closest thing we have to an antidote for many poisons.
Why not just double US health spending? Politicians would positively wallow in the “recovery”. Don’t worry folks, McKinsey is on the job, and it’ll be fixed in no time. Just send large donations here – http://www.mckinsey.com/insights/health_systems_and_services
‘ Supply chains now account for nearly 25 percent of pharmaceutical costs and more than 40 percent of medical-device costs. The annual spending is so vast—about $230 billion on pharmaceuticals and $122 billion on devices—that even minor efficiency gains could free up billions of dollars for investments elsewhere. In fact, if the sector adopted straightforward advances well established in other industries, we estimate that total costs (from the supply chain and external areas, such as patient care) could fall by $130 billion.’
The answers can be found in any undergraduate text on strategy.
1. better segmentation of products, markets, and customers
2. greater agility, to reduce costs and increase flexibility
3. measurement and benchmarking
4. alignment with global standards
5. collaboration across the health-care value chain
Translation – get health care running like Walmart or an Asian laptop
The McKinsey article essentially fails to ask or suggest answers to what might happen to the $130 billion in cost reductions. Just once — part of the article that mentions $15 to $30 billion in savings — do the authors suggest ‘reinvesting the savings in “further improvements to patient care”.
That, though, is but one of several options. Others include paying executives higher salaries, bonuses and stock options, etc. And, the $130 billion of savings, of course, do not emerge exclusively through reductions in materials. They would also include job losses that are not likely to include top executives. The $130 billion could also be used for increasing patent protection, mass advertising in support of oligopoly positions, sponsoring and endowing doctors, kick back schemes to hospital purchasing agents, making ‘charitable’ donations to ‘free marketeer’ nonprofits, lobbying congress, buying back stock, and so on.
At a more conceptual level, the $130 billion is an economic ‘surplus’. Key question is, “who gets the surplus?” Do customers get in form of lower prices and/or actually better products? Do workers get it in terms of higher wages and/or benefits? Do executives get it? Do shareholders get it?
While the past is no certain predictor of the future… we probably can make an educated guess here:-)
Spot on Doug. I view McKinsey as behind attempts to rip open European health services for private sector discipline. That they can do this in the simulacrum of management theory is part of the problem. What better planned obsolescence than to rehash a 1984 report over 30 years based on a 1950s text on running sweet shops?
There’s no free market for health care: All of the key factors that define a “free market” are simply absent. Many diseases and conditions have only one or two “standard-of-care” treatments. Medical practitioners (docs, nurses, technicians) require extensive training and experience, which creates a high barrier of entry into the market for care givers. Making safe drugs requires huge investments in scientific and technical expertise and large capital outlays for production facilities. You can’t make this stuff in your garage or basement (and hope to live very long). And the research itself takes years and years of work by highly skilled and trained scientists.
If you want cheap and fast, find a shaman—and pray!
David Lentini,
Did you know that there are literally thousands of excellent, affordable tretments for diseases that are basically ignored by the US medical establishment for no reason whatsoever. As to what they are, typically they are simple things, and they have solid science or large, often very large bodies of research pointing to them. But we ignore them. I would give examples here but for the sake of brevity I wont, there are too many. Also, I wanted to comment that what you say is both right in some ways and wrong in others. And to especially point to the first part of your last line which is not a bad idea at all. The easiest way to find some amazing things is to get back to medicine’s roots. And other plants.
Literally.
And finally, Lets all pray that they will never find a way to block discovery and block research on affordable plant and food medicines although I am sure they would very much like to.
manufacturer. Yahoo! Send crates of USD to me for a 500 page report I have freshly minted on this new problem. Ignore feeble leftie claims this is a rehash of the ‘Griffith Report 1984’ written to make the NHS more like Sainsburys.
I do wonder just what kind of journalism we have if we have to go looking for case studies on this obvious looting and rotten treatment of people that is the norm and has been for 30 years. Are you so far gone in the US that you couldn’t cope with a national health service and would curl up an die in anaphylactic ideology shock? This story lacks a pitch-fork and torches ending, as you twig where the vampires are and what they’ve been doing. McKinsey and various other consultancies arrived with the vampires. Some say they are in with the League of Looters …
It’s important to note that a lot of the technology that’s come into common use in the last 10-30 years for treating Type 1 diabetes has very real advantages for diabetics. The electronic glucometers are far more accurate, fast, and easier to use, and have given diabetics the ability to track their blood sugars far better than before. The shift from humulin insulins to humalog and lantus is about more than just new formulations — the absorption rates are completely different, meaning diabetics inject these insulins at different times, to better track carbohydrate consumption and more tightly control their sugars (maybe because of the information that’s been gleaned from the glucometers.)
It’s important to acknowledge the real, important benefits of this technology, not just to a small fraction of diabetics, but to the state of the art in treatment, if only because it makes the profiteering so offensive when it impairs treatment. Humalog is a great step forward for some people, but pork and cattle derived insulins were better for other patients, who had reactions to the human insulins, or who stopped responding to them as well over time. Those pork and cattle insulins are so old now that (as I understand from talking to my doctors) the patents have expired. Coincidentally (well, maybe not!), they’re no longer available in the US. That sucks if you’re one of the people for whom that was the best treatment, and that’s where the profit mongering at the expense of diabetics makes me really mad.
I think it’s important in trying to analyze the costs not to conflate those for Type 1 and Type 2 diabetes. The causes and treatments are completely different (Type 1 seems to have a big genetic component, and is always treated with insulin; Type 2 is generally related to activity, body mass, and diet, and treatment varies), and, last I knew, the US had far higher incidence of Type 2 than Europe, for example.
Finally, an anecdote: nine years ago, my husband and I took a vacation to Vancouver. I miscalculated the number of glucometer test strips I needed, and ended up running out a couple days before we were due to head back. We were worried, but went into a pharmacy to see whether I could get some over the counter (you usually can in the States, if you’re willing to pay the outrageous retail price — over a dollar a strip. I use these about 8-10 times a day.) The pharmacist was very sympathetic, but said that, since we weren’t covered by Canada’s health care, we’d have to pay full price, which he implied would be a fortune. First he opened a box and had me use one of the strips to make sure it worked with my glucometer, since the packaging and branding was slightly different. Then he checked us out. It came to $5 Canadian. I think my co-pay at home at the time was $15. I find it hard to believe that Medtronic was selling these products at a loss in Canada, which, for me, begs the question: what the @#%$ is wrong with health care regulations in the US that we let insurers and drug and equipment manufacturers charge many multiples of the total retail price in other markets for their offerings here?
Here (UK) I get my meter free. As a diabetic I get prescriptions free. The stuff is being paid for of course (national insurance). Hard to compare with the US, but even McKinsey admit prices are generally cheaper across the EU’s nationalised systems.
Can the ‘free’ market do anything other than produce increasingly powerful oligopolies and monopolies that merge with state/govt. power? Or: Has there ever been a ‘free’ market, and can there ever be a ‘free’ market?
As I have come to understand it, only perfect competition can prevent corrupting power accumulation. Sadly, perfect competition is utterly impossible.
Ergo, the market system is one of society’s main problem(s).
“Free markets” are only free in the sense of free to be captured. We’ve completely lost touch with the realities of market power and its connection to political power that had become well understood in the ’30s. There’s no free lunch and no free markets (for very long). We need to abandon our free market religion and get back to focusing on actually doing things of real value, like taking care of the sick.
I agree David, but the problem is how to measure value. When we say “real value”, how do we go about coming to an agreement on what that actually means in practice? You and I may agree about caring for others, but how do we go about ‘objectively’ measuring (or enshrining in systems and institutions) the value of this to society generally? Right now we have the clumsy money system with its linear numbers (price / market system). I’d like to think we can do better than that, but to begin that work in earnest we first need a revolution in consciousness. These things take time of course, but time is something humanity has less and less of.
Let’s trace one chain of causality: (1) To protect sugar growers in Louisiana and Florida who can’t compete with global prices, the U.S. imposes import quotas to keep sugar prices jacked up; (2) food and beverage manufacturers respond to the artificially high price of sugar by substituting HFCS (high fructose corn syrup) and artificial sweeteners such as aspartame; (3) a quarter century goes by, and diabetes and obesity rates explode.
Smashing the sugar lobby’s cozy gov-biz partnership would be a more effective diabetes treatment than all of these technological interventions combined. Senator Bill Bradley tried, nearly thirty years ago. But the Depublicrat party doesn’t do reform.
The politics of sugar has been a shameful mess for more than a century. In 1895, the Supreme Court limited the ability of the federal government to use the Sherman Anti-Trust Act against the sugar monopoly:
http://en.wikipedia.org/wiki/Sugar_Trust_Case
Good point on the sugar lobby. The epidemiology also suggests strong links with anti-biotics.
Has there ever been a ‘free’ market, and can there ever be a ‘free’ market?
Computers and consumer electronics – here is your free market. Prices fall constantly while products improve rapidly. The difference? You know price in advance and electronics stores cannot charge people different prices for the same product based on whether you have insurance etc. – they would be sued out of existence if they tried. Also if they sell the same product overseas 10 times cheaper, you can bet somebody would reimport it to US and that would be perfectly legal either.
It is absolutely not a free market. Your purchases depend on truth in advertising laws, among other things.
Pray tell how would you verify that a computer was what it was billed as being if you were to buy one in a Middle Eastern bazaar? You’d have to hire an expert. But how would you verify that the expert wasn’t bullshitting you about his skills? Or that he wasn’t secretly in business with the seller and would go along with whatever bogus claims he made about the computer?
We obviously have different definitions of free market. Yours apparently is “no rules, anything goes”. Mine is fair rules, enforced equally for all participants. I don’t think anybody in their right mind would advocate free market under your definition. It’s obvious that there cannot be capitalism without government regulation and law enforcement.
“Fair rules, enforced for all participants” is a heavily regulated market.
And please read Chapters 4 and 5 of ECONNED. My characterization of a “free market” is in fact that promoted by most “free market” advocates, starting with Milton Friedman.
“Fair rules, enforced for all participants” is a heavily regulated market.
Well, OK, it does not matter what we call it. My point was how much better “computers and consumer electronics market” functions then “healthcare market”, because it has some very basic properties: price is known in advance, different people are charged the same price for the same commodity, products can move freely to satisfy demand.
Keep this article in mind the next time you are tempted to open your checkbook to one of those star-studded, heart-wrenching telethons to “cure” diabetes, or races for a “cure” for cancer.
Nobody that has the power to do so wants these chronic, expensive-to-treat diseases CURED. They are money in the bank.
Kind of gives new meaning to the word “serf.” Now serfs don’t only have to WORK for their masters, they have to get sick, stay sick and DIE for them too.
I think they’re calling it “wealth” creation these days.
Spot on. The money in healthcare is in treatment and service provision, not prevention (ie, healthy living) and cures.
Katniss is right. There is a general economic point on these specifics. Economics stops us doing what is sensible.
And you will do as you are told,
until the rights to you are sold.
-Frank Zappa (“I’m the slime”)
Great article. Having been a patent attorney in several small- and medium-sized bio-pharmaceutical companies, I see a lot of truth in the descriptions of the authors.
Sadly, the pharmaceutical business is still in thrall with the “blockbuster” business model that swept in the industry back in the ’90s. Prior to then, businesses were guided more by promising research than maximizing revenues; that allowed businesses, especially start-ups, to look at unmet needs that had smaller markets. But after several big stories, the mantra became finding a disease treated by “a pill a day for the rest of your life.” In short, the pharmas, following the management consultants and Wall Street, became fixated on cash flows instead of cures.
For the C-level management and physician consultants, this was a bonanza, especially when it came to stock options. For everyone else, the money was good, but not great, and the pressure was intense. Playing the “Street needs to see profits” game meant slashing R&D budgets and relying more on marketing and lobbying. Since the “cash before cures” game implicitly requires focusing on metabolic disorders like diabetes and obesity, research moved to diseases that are hugely complex basic research questions and difficult to study in the clinic. On top of that, the industry adopted a “fail-as-fast-as-possible” philosophy for research funding. So, most efforts at finding truly new drugs were doomed to fail at the outset. It was like shooting yourself in the foot before starting a race: Cramped budgets and time frames only guaranteed failures in the labs and in the clinics (and in some cases after FDA approval).
Since the companies demanded revenues while they flailed away at research, the only game it town was to tweak the existing products to get more patents, new marketing exclusivity from the FDA, and push with marketing. This has now become the addiction of the industry.
Interesting David. Even fixing things with pills that work is obsessive, set against what Katniss points to above Why are we not focusing more on living healthy lives? I don’t mean that peculiar moralistic stuff they do in the newsrooms of the smiling brotherhood. More sharing out the physical work sort of stuff.
This is a good article for some details of a scam that that has been going on for years in every segment of “American Industry”.
This in particular has probably touched just about every American family in the country, mine included. I had a brother die a couple of years ago, diabetic, successfully self-employed for years, and unable to get health insurance due to the diabetes. His costs rose to the point where we believe he just gave up. When we found him there was maybe one hit of insulin in the refrigerator, 3 months of mortgage and other bills unpaid, and about $100.00 in his checking account. In all other regards you would never know he was diabetic, a healthy looking, strong and thin 50 year old male who, 5 years earlier, was probably the most financially successful member of the 7 children in our family.
The U.S. as a whole is in big trouble. From the crappy food pushed on us by the Oligopic (is this a word? :) Food Industry that does it’s part to make sure the Oligopic Medical Industry gets serious amounts of new customers, and the Energy Industry, Wall St. Industry, etc., I just do not see how all this can be undone. Working/Acting locally helps a little, but it seems overwhelming to me and I don’t see how all this can last.
But what will be the results as all this inevitably collapses? The more I “Tune In” the more I want to “Drop Out”. Is there any answer to all this that is realistic and sustainable in our lifetimes?
Oligopic Medical Industry
I think Oligarchical Medical Industry is the proper way to use it.
Thanks AltoBerto :) … I knew better! My only excuse is that it was 5:30AM and no coffee yet.
What a surprise, yet another way to bilk the public, wring every dollar of profit they can from every aspect of human life.
Of course it’s rationalized by claims that the high prices reflect the value of the wondrous new innovations…just like obscenely high salaries and bonuses reflect the value of the wondrous criminals, er CEOs, of various corporations.
And the calculated planned obsolescence in so much of the stuff in our grossly disposable society wreaks utter havoc on the planet, its inhabitants (ie estrogens in plastics) but has channeled massive profits into the pockets of the elite, and that’s all that matters, isn’t it?
As for not not appearing to benefit the health care professionals, not sure that’s wholly true…endocrinologists perhaps not, but cardiac, orthopedic surgeons, for example? And many have investments in private companies along with practicing…profiting not to the extent of the the corporations, but…
“Planned Obsolescence Disguised as Innovation”
Isn’t that the very definition of the “smart” phone industry?
Why yes, yes it is.
Anything defined by software, really.
It’s quite a painful article. Other branches of the economy probably follow the same patterns resulting in huge transfer of money from all of us to the 1%. Although, health care costs in other developed countries dwarf our cost, other parts of the market aren’t that different.
No matter what we call it, this stage of our capitalistic system has stop serving the larger good. One wonders whether solutions that bring back the economy its middle of the 20th century tamer state exist.
The FIRE is the greatest threat to survival that we face in common. Whether Energy or Medicine comes next is not important. Communications and mass transportation follow the top three terrors.
What we want and need in common we must do in common on a non profit basis if the human race is to survive the capitalist threat.
How Ag? I think this possible, but we see little of the how.
I agree healthcare management specifically, and public health policy generally, is royally messed up in our country. The whole point of public policy is for the hospital franchises, drug dealers, medical equipment suppliers, health non-insurers, and others to extract rent from hapless citizens – and of course, to create complacency and acceptance of the authoritarian state which uses the medical community for more nefarious purposes as well.
“…borrowing business models from technology companies like Apple…”
So I don’t understand bringing Apple into this. Apple makes devices that meet user needs. That’s pretty much the opposite of public policy. Yes, Apple is a Big Corporation that doesn’t always act in the public interest and is subject to pressure to comply with the US national security state. But come on, the difference between the business model of Apple and the business model of the healthcare cartel couldn’t be more dissimilar.
Apple, Google, Microsoft they are no different than big pharma. Their goals are all the same Achieve a monopoly or oligopoly position in a product or service and then try to preserve that position and extend it to other products or services. Just because the big tech companies are newer doesn’t mean they have different motivations. Every company rationalizes what they are doing by telling themselves that they are the best at what they do therefore they deserve their market position. In some cases it may be true that protecting an emerging market leader enhances innovation, but in general most follow-on “innovation” is just rent preservation.
The author talks about business models. That’s why I specifically quoted the line. Apple, Google, and Microsoft do not have similar business models, nevermind the three of them compared to the pharmaceutical industry. Which isn’t even the worst actor in the healthcare industry! That prize goes to the hospital franchises. But all of this is caused by public policy. It is government that creates corporations and government that creates the laws by which corporations function. IP law alone is responsible for terrible outcomes in everything from healthcare to IT to agribusiness.
Anyway, more philosophically, what system do you advocate? What you are describing is a fundamental critique of the concept of private property. Plus, what’s even funnier, is that companies like Apple, Google, and Microsoft are widely owned by public pension funds – the very state itself holding property!
You got me on “business model”. I always skip the paragraph when I see that term as it means something different to everyone. I’m a fan of smaller scale capitalism, active anti-trust regulation and limited ip protection. Why tolerate Google’s monopoly of search advertising? Basic search on the web should be an organized public utility with small firms competing to serve niche results and advertisements. The fact that Google got there first is not a reason Google should forever privately benefit from cataloging the websites created by the public. We didn’t let Standard Oil completely control the US oil industry we shouldn’t let Google control completely control search advertising. Why allow Apple and other behemoths to file zillions of ridiculously simple patents to thwart competitors? Apple’s phones look good but that is not a reason to prevent people from copying them. Market power that doesn’t serve the public interest should be curtailed. Giving a insurgent firm a time limited patent a new product or process seems reasonable. But giving the a firm with market power the same patent is not in the public interest. I know that is not how IP system is set up, but it definitely needs a restart.
Yeah, it sounds like we agree on the active anti-trust and limited IP.
What I find interesting is the size component. I don’t think size in and of itself distorts markets enough to worry about*. Rather, for me, it’s a question of what power an organization can bring to bear due to its size. For Apple, other than the minor market for MP3 players, it isn’t dominant in anything it does. The Mac + iPad is a small fraction of the overall PC market, the iPhone is a small fraction of the overall cell phone market, and the iTunes and App Stores are each a small fraction of the overall retail market. For example, the problem I have with Google is not that Search is enormous, but rather, that they have been allowed to buy Android and YouTube and Doubleclick and so forth.
*As a side note, the size that worries me most isn’t a private organization at all. It’s the Federal government, which is so big that basically no private citizen can stand up to it when the government really brings the full pressure at its disposal to bear. Most people don’t receive a trial of their peers, because the government makes it quite clear that they will sign a plea deal or have the book thrown at them. Even entire organizations, like local public school districts, are being destroyed through programs like No Child Left Behind and Race to the Top.
I don’t agree, Apple/mac is no longer user friendly… it’s a consumer kettler. Constant updates, constant attention required with alerts automatically presented that I cannot turn off…only delay for a maximum of 24 hours. My screen is not my own even when I’m disconnected from the net. I feel like I serve my computer rather than it serves me with ever increasing attention required. An extraordinary amount of software which I will never use yet I cannot delete and I have to update it all forever in order for what i do use to remain operable. Software updates where the beginning of the fine print suggest improvements are involved… rarely is this the case in my experience for over a decade. If I don’t like said ‘improvements’ I cannot go back.
Aside from a larger hard drive today I would much rather have 98 plus percent of the basic mac setup on a new powerbook purchased in 2003/2004 than the setup on my newest mini purchased a few weeks ago. Bring back Claris Works is my motto nowadays!
I was about to get rid of a few thousand CD’s since hard drive memory space would now hold it all in a decent file size… not the audio/fidelity insulting mp3. … but the one lesson I’ve learned from all of this is we are all one apple/mac update/improvement from never being able to access that which we wanted to save for a very long time. Certainly not in a timely manner.
Don’t get me started on how multitudes of very friendly managers on the phone could never help me with what should be the most basic tasks a new owner in need of transferring playlists, photos and bookmarks from iTunes, iPhoto and Safari (their own software on their own systems) from one notebook to a new hard drive. The first thing they did was render 150 gigs on the new hard drive useless/gone forever… it just went downhill from there with over a dozen calls and at least 30 hours entirely lost/worthless. Because my time and phone bill is seemingly worthless to apple. Leaving me no choice but to spend a couple hundred hours trying to sort/transfer these things manually.
My iPhone 3 alone wants me to dedicate over 35 hours of internet time (which would cripple everything else) for updates right now. Aside from that constant demand there is nothing wrong with it as is.
From the way the big boys play whether apple or NSA or the health industrial mafia… we seriously need to redefine – reclaim a modern interpretation of papers and effects. Our hard drives our phones our fingerprints, retinas and DNA must be sacred. After we establish a rule of law that is.
I’ve had for sizable lymph lumps in my neck and ear area for several years… a doctor, my G.P. who spent more time on his iPad than me told me to go spend thousands on insurance then he would refer me to a specialist which of course would cost potentially thousands more before insurance sort of kicked in…. finally I’ve found “alternate” medicine who will likely have them eliminated in four weeks… four hundred bucks total cost… He’s treating my entire body/lymph system ta boot. I know how much everything will cost before I arrive. I feel fantastic. Of course no insurance would pay for his services at all. So insurance costs alone, if I purchased insurance, would make it impossible for me to afford this remarkable treatment.
A friend took a fall a few weeks back… went to ER with a few small facial cuts requiring no tests or ex-ray, just cleanup and a total of 15 stitches. Total bill Dr. and hospital was over 3500.00. About two and a half hours in the hospital… more than half that waiting for the Doc while bleeding. He of course removed stitches himself a couple weeks later… no follow-up, no completion. Maybe apple i-md will offer an ap for this some day. 399.99 and your fingerprint before you know if it helps no doubt.
I’m sympathetic to specific problems/complaints about Apple – what long-term Apple user isn’t frustrated by something? – but in general, I’m reminded of the song ‘if you don’t want an iphone 4, don’t buy one…’
The comparison was made with respect to product development. It’s really a two part issue.
1) Why can’t I get an iPhone 3 anymore? It was fine for my needs (compare to “why can’t I get the insulin that I used for the last 25 years anymore? The new one is 5x the cost of the old one”).
2) When Apple brings out a new product, the “accessories” no longer work. As a trivial example (I think, don’t know) that the power cord for an iPhone 5 is different from an iPhone 4. So I have to purchase X number of new cords (retail price – only $19.00). The point in the article was that none of the accessories for old insulin pump work with the “new, improved” pump.
As a reflection of how skewed our education and media is what is striking is that most of you are oblivious to all of the benefits and major differences in cost in using alternative medicines. If up to 80% of the medicines are based on plants and herbs wouldn’t it be logical to assume that it would be far cheaper to use the plants and herbs that have little to no side effects rather than the synthetic versions that have multiple side effects? There are inventors such as Antoine Priore, Georges Lakhovsky and Royal Raymond Rife whose inventions for healing people using including eliminating cancers, arthritis and all other manner of diseases were suppressed but are never talked about or even considered in the debate. Above and beyond anything else what is needed in COMPETITION across all forms of medicine!!! If we had that, prices for all manner of treatments would be a mere fraction of what they are now. That’s the true reality!!!
Erwin, of course the answer is that any treatment which is safe, effective and inexpensive is seen as a threat to drug companies that want to maximize their profits, at any cost. They even devote a substantial amount of energy to lobbying for free trade agreements that block cost saving price negotiating strategies, which they frame inaccurately as blocking innovation.
See http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1261198/
(which cites http://www.fda.gov/NewsEvents/Speeches/SpeechArchives/ucm053614.htm )
States letter to Ambassador Kirk on blowback from US FTAs which increase prices for medicines here: http://www.citizen.org/documents/States-Letter-to-Kirk.pdf
Recent set of letter about provisions of the TPP that would substantially increase drug costs here in the USA:
http://citizen.typepad.com/eyesontrade/2013/11/38-million-retirees-say-no-to-a-trade-deal-that-would-make-medicine-more-expensive.html
Also, they are trying to block generic drugs in foreign countries
Chris, Spot on. I would add that the best means of approaching this is by eliminating the health and food related regulatory bodies (i.e. FDA and USDA) and passing legislation that requires the company selling health related products to get insurance against possible harm that the product could cause. Then the onus is on the insurance company to properly evaluate the risk reward ratio of the particular product or service. Right now, these decisions are political which is one of the reasons that big pharma is able to dominate. If there was competition across all forms of health treatment, their patents would be worth substantially less since in a large number of cases, there are alternative safe treatments that would render their patents worthless since they could compete on price or safety given their expense in producing a synthetic version of a natural product in many cases.
3 letters
A I G
But how can you keep captive dependents that way? People start fixing themselves, what do they need authority for?
We probably disagree here Wash. Apple has never produced anything which met my needs and I suspect its business model is revolting – cheap labour, tax dodging (no doubt legal), loads of mystique advertising. My grandson thinks their products neat – more or less says it all. And mobile phones annoy me. I’d prefer a world without them.
Are you parroting things you’ve read somewhere specifically, or do you have a lot of thinking behind these individual claims?
“Apple has never produced anything which met my needs”
What does that have to do with people who buy Apple products? And are you sure helping to commercialize and popularize personal computing developments like the graphical user interface and webkit hasn’t helped you?
“cheap labour”
Compared to what? I thought the party line on Apple was exporting good jobs out of the US of A :)
“tax dodging (no doubt legal)”
Apple is one of the largest payers of corporate tax in the US. And the parenthesis says it all. The issue is public policy, not Apple. Apple has one of the smallest lobbying budgets of any big company in any industry. And anyway, MMTers tell us that taxes are Evil Austerity… (sorry, couldn’t resist on OT joke)
“loads of mystique advertising”
Compared to what? Apple has one of the smallest advertising budgets of any large company. Look at how much a company like Samsung or Coca Cola spend on promotional activities. Plus, Apple advertising is generally of better quality than most, to the extent advertising can possess quality.
“My grandson thinks their products neat – more or less says it all.”
The specific accessibility of iOS to children is one of the most impressive ways Apple has created value recently. It has put computing into the hands of people who had never been using computers before.
“And mobile phones annoy me. I’d prefer a world without them.”
That’s absurd, unless you’re making a deep philosophical critique about the role of all technology. Yeah, mobile phones are obnoxious. I personally held out as long as I could before getting one. But a world without them? Really, you’re not just joking here? A late April Fools prank?
Moreover, what does that have to do with Apple? Apple didn’t invent the use of radio waves for communication. Rather, they made a crappy product a bit less crappy. I know that’s not God’s Work, but it’s actually quite valuable to some people.
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?_r=2&pagewanted=1
Quite a lot of Apple tax seems to have been avoided and in Europe they have been doing a ‘double Irish’. Lots more on ZH.
Gotcha. The tax issue is interesting as Apple has become so large. (I mean, who cared what Apple paid in taxes when they were near bankruptcy, right?).
To me, the simple point is that what Apple does is legal. The issue, especially in the US context which is what this article is talking about, is that the bipartisan love fest for complicated tax cuts (i.e., loopholes) and increasingly silly accounting standards (like mark to make believe) as public policy leads to exactly this kind of scenario. This is what government leaders want. Why? Because the educated technocratic elite in academia, banking, law, and so forth make their living in the legalese. And because the more a business depends on a special loophole just for them, the easier it is to shake them down for political donations/lobbying.
That’s why there’s been so much focus on Apple recently in the US about this issue. Apple spends much less on lobbying than many other major companies. Politicians intend to change that, hoping Apple takes its rightful place on this list:
https://www.opensecrets.org/lobby/top.php?indexType=s&showYear=2013
One point where the article is fundamentally wrong, though, is in saying it makes no sense for Apple’s profits to be mostly overseas. Less than 5% of the world’s population is in the US. When a US corporate media outlet expresses shock that the rest of the world exists, that’s an indictment of the US corporate media, not an observation about the rest of the world.
wow, this is depressing
A few years ago a doctor gave me a sample pack of and old favorite sleeping pill. When I went to refill the insurance company would not pay for it. The 10 mg version would have cost only $10 a month, but my 5 mg prescription cost $200. Seems the company had done a study showing that half the prescription worked better for some people (surprise!) and turned that into a new patent: 20X the price for half the dose.
* * * * * *
There is only one ultimate answer to this — and I should cut and paste it anywhere I comment on anything — matter of fact, I am (partially) cutting and pasting here:
As usual, no reform will take place without reforming the labor market with legally mandated, CENTRALIZED COLLECTIVE BARGAINING (all employees doing the same job in the same locale work under one unified contract) — automatically balancing middle class political (and think tank — did someone say hack tank in the Repub case?) financing against ownership — plus — most all the votes.
Don’t forget confiscatory taxation. Think of profit the same way we think of patent incentive. Jack Welch would work just as hard to “win” at $20 million a year as $200 million. Would be oligarchs will work just as hard if their children are only going to get half and theirs half, etc. And efficiency is all we should care about — no need to identify emotionally with winners.
Unionized truck drivers earn much more (than double?) what um-unionized _regional_ airline pilots earn. The latter pay as much as $100,000 to train (some much more renting planes to build up necessary airtime — recently raised to 1500 hours) — all in the hope of moving up to the majors some day. A couple or three years back, major Northwest squeezed a billion dollars a year in givebacks out of its unionized flight crews — following year gave a billion dollars in bonuses to a thousand execs. Centralized bargaining only _mechanically_ viable answer.
Germany which is the world’s envy of centralized bargaining has some of the worst inequality of accumulated wealth — which always leads to unwanted power concentration. Really need to do confiscatory taxation too.
My doctor prescribes the 10mg sleeping pill. Until recently, I used a pill cutter to cut it in half.
Economic War
You don’t have to impoverish others to enrich your self.
The computers, embedded with the win/lose game assumption of the bots developing them, are on the other side of every trade, shorting out due process, rendering the law and all its subjects to arbitrary, capricious and malicious outcomes. If you are trading in this environment, you’re in a queue to nowhere, being fed whatever numbers keep you in the stupid game.
Keep chasing debt, with lost purchasing power, and expect a different outcome (adjust trade for purchasing power to net out the misdirection), or teach your children to teach themselves. Breeding real estate inflation in public housing, with law enforcement and public education as parents, and embedding the result in automation, is not the answer, unless you want to win a stupid game at any cost, in which case you still lose, but don’t realize the losses, until it’s way too late.
Putin is simply exploiting a weakness, which he cannot ignore and maintain his own position. Alternative energies from the past was a really, really stupid move. The only exit the proprietary systems can see is real estate inflation, which is not an exit.
Work is not the enemy; it is the only path to the future, and the percentage of the remaining population that can distinguish work from make-work is quite small. Life is not a game. Don’t waste your time feeding morons that are going to kill themselves in any case.
HAL is a sideshow; government is nothing more than what you make of it. The Fidels of the world just fight stupid with stupid. They are all firefighters setting fires to keep themselves busy. Pot is just a repeat of tobacco, on a much faster timeline. The Cuban Cigar Index is much more revealing than the Big Mac Index.
Wages less than 4x rent can only result in slums and vacuous global cities, which Chimerica has been building by example globally. There are an infinite number of ways to meet the DNA threshold, but exponentializing stupid is not one of them. The date tells you that 24 hrs/wk is more than sufficient, if both sexes want to participate, to maintain the necessary gravity to do whatever you want to do.
If you want the elevator to work, get out of the way. Empire domestication is self-adjusting.
Read about the push back the Times got over this article when industry rallied their support groups:
http://publiceditor.blogs.nytimes.com/2014/04/11/an-uproar-over-a-diabetes-article-with-a-back-story/
Are we allowed to talk about vaccines?
There has been an explosion of vaccines over the past 20 years, and we are all supposed to shut up and get them for the “greater good.” Do we really need them all, or are they just bogus insurance?
Take Tetanus for example. Tetanus is really hard to get. Tetanus is an anaerobic bacteria. That means that it will not survive in any wound with oxygen exposure. That is only possible in a deep puncture wound that is not cared for. You need a deep puncture, improper care, and, there has to be Tetanus bacteria present to get Tetanus.
Suppose all that happens though, then you get lockjaw and die a horrible death right? No. There is a medical treatment for Tetanus – Tetanus Immune Globulin. So why do we need to give millions of Tetanus vaccinations every year? They are not “free” – they are paid for with our tax dollars and insurance premiums.
Look at HPV vaccines. At close to $500 for a full three injection package that prevents a very minor STD, and doesn’t obviate the need for PAP smears to check for cervical cancer we have a vax that doesn’t deliver a lot of benefit for the price. Again vaxxes are not free, they are paid for in the public health budget or in increased insurance premiums. The money spent on HPV vaxxes could save a lot more lives in other places.
I see that you’re trying to deflect attention from why these “innovations” cost so much by changing the subject so as not to question the prices. Who are you working for?
This is yet another example that elucidates the need for heterodox economics. Despite the attempts by the “best and the brightest” of capitalist theory to “humanize” the system it consistently fails to deliver seemingly rational social needs in a purposeful way (i.e. not by an accident of supply glut from over-production or the “market” eventually “dealing” with it). Healthcare, agriculture, and energy have been allocated via market mechanisms almost universally in America for generations, and it should be obvious by now that absent external coordinates (human well-being/health, stability of ecosystems) this method works disastrously. As examples,
healthcare: byzantine fee collecting healthcare system (USA), chronic diseases good for profits, etc.
agriculture: subsidized ethanol farming displacing consumable produce, cash crop agriculture in general, ecocide
energy: over-consumption, energy waste, pollution, fuel depletion, ecocide (again), too many to name
The problem with these “products” is that they are not optional for our survival, they are essential, and putting them up to chance in the market is extremely irresponsible and irrational. The inability to discuss potential solutions outside the profit model is not for a lack of ideas but a lack of initiative and will.
Why all the concern for why we really have a “free market”? Oligopoly is the RESULT of “free-market economics.” More competition merely means more rich oligarchs. Nationalize healthcare, and make it affordable by law.
Leading the mainstream by the nose would be a generous interpretation.
Resveratrol and a number of other phytonutrients substantially improve outcomes for diabetics. And literally hundreds of other common ailments. Things like disc disease, glaucoma, arthritis, they help prevent many cancers, and so on.
They don’t cure these conditions, generally, they just help improve the situation. In many cases substantially. But, they are cheap and effective. No money there.
Have I ever seen that mentioned in the New York Times?
No, and additionally, when it comes to NYT articles on the medical benefits (or more often they take pains to say there is no benefit) of various supplements, they are quite often wrong, often they are very badly wrong. I think this problem comes from the expert syndrome. A reporter sees some substance in the news so he calls his “go to guy” and the go to guy issues a pontification but the fact is, that go to guy might be an expert in some related area of medicine but often they don’t really know what they are talking about on whatever they have been asked. They might say to the reporter, “Ill call you back in 15 minutes” but then go to PubMed.gov and search on the wrong things, find the wrong information. And make the wrong statement.
While on the other hand, if they had taken the time to be a little more thorough about it, we all could have learned something and carried away from that article something we could use.
However, with all the concern about patient retention, etc, I think we should consider that we are building an extremely dysfunctional system that is sowing its own self-destruction.
This problems with this insane situation are becoming increasingly apparent.
Several years ago, the local (Spokane) paper reported that at least 20 executives at a non-profit that runs the largest local healthcare provider system make in excess of $1 million per year. And folks thought that Elizabeth Dole was overpaid! It will come to an end one way or the other…