Tag: "drugs"

Donald Trump on Drugs

Trump(A version of this Health Alert was published by Forbes.)

In last Thursday’s Republican presidential primary debate in Florida, Donald Trump made the curious assertion that Medicare does not “bid out” prescription drugs, before moving on to a similar assertion about military procurement. As with all thing related to whatever “Trumpcare” would look like if he were President, this statement requires some effort to decipher.

Medicare’s prescription drugs are very well “bid out.” Indeed, they are “bid out” twice – both directly and indirectly. Doctors and hospitals are not “bid out” at all. Instead, they are subject to Soviet-style price fixing by a central government authority. This is changing quickly, but the alternative payment methods are at a very early and unproven stage. Further, these alternative payment methods are not subject to competitive bidding, but to quality measures dictated by the central government (as I described last week).

Medicare spending on durable medical equipment (for example, walkers or oxygen equipment), prosthetics, and other supplies (for example, diabetic test strips) has been competitively bid since 2011. However, those competitive bids are delivered to the central government. Medicare prescription drugs are doubly bid, because drug-makers do not negotiate prices with the central government. Instead, health insurers compete to provide Medicare Part D drug plans, and the winning insurers negotiate with drug-makers for medicines. Consumers of prescription drugs enjoy two levels of protection from political interference.

PPI: Health Insurance Jumps, Deflation Returns

BLSDeflation returned to the Producer Price Index (PPI) last month, as the PPI for final demand dropped 0.2 percent from January. Prices for final demand goods, less volatile food and energy, increased 0.1 percent. Most prices for health goods for final demand were flat. The exception – again – was pharmaceutical preparations, for which prices increased 1.2 percent.

With respect to final demand services, for which inflation was flat (or up 0.3 percent less trade, transportation, and warehousing), the increase in the price of health insurance stands out at 0.9 percent. This is the first jump in health insurance for a while. (Home health prices also increased 1 percent, but such increases have been common.)

With respect to goods for intermediate demand, prices for chemicals (which go into pharmaceutical preparations) decreased, but not by nearly as much as prices for other intermediate goods declined. With respect to services for intermediate demand, prices for health insurance increased by 0.9 percent, significantly more than prices for other intermediate services.

Looking back over the 12-month period, the price increase of 10.1 percent in pharmaceutical preparations continues to stand out like a sore thumb. However prices for services delivered in residential settings have also increased more than other services.

What is new for February is the increase in health insurance. Increasing health costs are finally being passed on through premiums. (See Table I below the fold.)

Ten Percent of Cancer Drug Spending Wasted

BMJA remarkable study published in the BMJ concludes that $1.8 billion of the $18 billion spent on the 20 most expensive cancer drugs in the U.S. is wasted due to cunning marketing by drug-makers. Chemotherapeutic doses are often adjusted by body weight. However, the drugs are shipped in vials containing doses appropriate to bigger people. Once opened, the drug that remains after an oncologist selects the does appropriate for a smaller or average-sized person has to be discarded.


The authors allege the drug-makers do this deliberately, to increase profits. Their proposed solution is that the Food and Drug Administration should regulate the size of vials!

There is a better way.

First, the FDA is not concerned with the cost of medicines. The proposed solution has nothing to do with safety or efficacy, so is not within the FDA’s purview.

Will Drug Companies’ Price Firewall Melt?

Variety of Medicine in Pill BottlesA recent Kaiser Family Foundation Tracking Poll brings dire news for innovative drug companies: 83 percent of respondents favor a policy “allowing the federal government to negotiate drug prices for Medicare beneficiaries.” That includes 93 percent of Democrats and 74 percent of Republicans.

Despite dramatic headlines about pharmaceutical price increases, they have been in line with price increases for other health goods and services. Medicare payments to doctors and hospitals have been negotiated by government for over half a century, without containing costs.

Nevertheless, we are at a point in the polls where any careerist politician, Democrat or Republican, will likely follow Hillary Clinton’s lead demanding politically fixed drug prices. This teaches a lesson about inviting the government into your business.

Fast Track to Nowhere? Biologic Intellectual Property in the Trans-Pacific Partnership

TPPThe Trans-Pacific Partnership (TPP) trade agreement is in deep trouble. It has taken nine years to finalize this extremely important multilateral deal among the United States and 11 other countries committed to overcoming domestic political obstacles to expand the benefits of free trade.

The final text was released publicly November 5, 2015, starting a legally required 90-day countdown before the president could sign it. This waiting period ended with the U.S. delegation joining representatives of the other countries in New Zealand on February 4 to ink the deal.

The deal had bipartisan (but not unanimous) support in Congress. Unfortunately, President Obama did not insist on adequate protection of intellectual property in biologic medicines, alienating Congressional allies and likely dooming the deal to failure, according to an analysis published today by NCPA.

Read the two-page Brief Analysis here.

CPI: Health Insurance Premiums Jump

BLSThis morning’s Consumer Price Index showed a significant jump of 1.1 percent in health insurance premiums in January, versus a flat CPI for all items and a 0.3 percent rise in CPI for all items less food and energy. Prices for physician services increased only 0.1 percent, less than prices for other services.

This corroborates the Producer Price Index, which showed a slight decrease in physician prices. However, the divergence in price increases for prescription drugs in the CPI and PPI is continuing. Prescription prices in the CPI increased by only 0.5 percent, in line with medical care overall.

Over the last twelve months, prices for medical care still increased a little more than twice as fast as the CPI for all items, and 0.7 percentage points more than the CPI for all items less food and energy. Relatively speaking, medical inflation is not as tame as some others suggest.

Further, over the past twelve months, price increases for health insurance and hospital services stand out significantly more than price increases for prescription drugs. (See Table I below the fold.)

PPI: Physician Prices Pull Back

BLSDecember’s surprising jump in physician prices looks to have been idiosyncratic. January’s Producer Price Index for physician services declined 0.6 percent, versus a 0.5 percent rise in prices of final demand services. Prices for home health and hospice care increased 0.7 percent on the month. However, other prices for final demand health services were in line with other services inflation.

For final demand goods, prices for pharmaceutical preparations increased 1.6 percent, versus zero change for final demand goods less food and energy. (When the next Consumer Price Index is released on February 19, we will see whether the divergence between pharmaceutical prices in the PPI and CPI continues.) With respect to intermediate demand goods, prices of biologics, including diagnostics, increased 1.1 percent, versus a 1.3 percent decline in prices of processed goods, less foods and feeds.

It does not look like complaints about high and increasing prices for pharmaceuticals and biologics will be going away soon. (See Table I below the fold.)

CPI: Prescription Prices Finally Drop Amid General Deflation

BLSMedical prices grew 0.1 percent, versus a decrease of 0.1 percent for all other items, in December’s Consumer Price Index. Prices for prescription drugs actually decreased 0.3 percent, even better than the small price increase in the Producer Price Index (PPI).

Prices for physicians’ services were flat, however, whereas they had jumped in the PPI. Because CPI measures prices as observed by consumers and PPI prices as observed by producers, this suggests that prices paid to physicians by non-consumers (i.e., third parties) have increased more than prices paid by consumers. This supports the principle that when consumers face prices directly, prices go up less than when intermediated by third parties.

Overall, medical care inflation was tame in December. Longer term, it still significantly outpaced the CPI other than medical care, by two percent over the year (Table I).

Reciprocal Regulatory Approval To Reduce Drug Prices

prescription-drug-shortageSenators Ted Cruz (R-TX) and Mike Lee (R-UT) recently introduced the RESULT Act, which would allow drugs and medical devices approved in certain other countries to be allowed in the U.S. as well. The countries included are European Union members, Israel, Canada, Japan, and Australia.

The benefits of this act would be significant. Professor Daniel Klein of the Mercatus Institute at George Mason University and Professor William L. Davis of the University of Tennessee at Martin have surveyed economists on this policy, and a majority agree it would improve patients’ access to safe and effective drugs.

PPI: Physician Prices Jump Amidst Deflation

BLSThe stock market took a hit this morning, as the Producer Price Index turned back to deflation, dropping 0.2 percent in December and 0.1 percent in 2015 (Table I). Health prices are still growing faster than other prices. This is especially true for pharmaceuticals, for which prices increased 8.2 percent last year, versus a 3.7 percent decline in prices for final demand goods. Although political attacks on pharmaceutical prices are misguided, it is likely they will continue as long as this situation persists.

With respect to services, health price inflation is not as extreme. However, the jump of 1.3 percent for physician prices in December is remarkable.