The question has come up again and again in our discussions on health care in the US and around the world, why does it cost so much more in the US when we get so much less?

The drug companies and their lobbyists are already out in force trying to make sure their pocketbooks aren’t hit by the inevitable reforms that are coming. In particular they insist drugs aren’t the problem in the US, it’s administrative costs! I would tend to disagree.

Based upon my experience working in the sytem, the main causes of excess costs I would hypothesize are the following (in order of importance):

  1. An excess of cost in administration far out of line with most countries around the world.

  2. Pharmaceutical costs – especially due to the effects of direct to consumer advertising (DTCA) encouraging use of more expensive, newer drugs (which is only allowed in the US), Medicare part D which forbids collective bargaining for lower drug prices, and a broken patent system that allows drug makers to patent and charge more for non-novel medications.
  3. The absence of a universal system that prevents risk-sharing, and causes the uninsured to avoid treatment until problems are more critical, and more expensive.
  4. Excessive reimbursement of physicians for procedural skills, rather than cost-saving physician roles such as primary care and family practice that emphasize early diagnosis and proper management of disease.
  5. Excesses of cost caused by “defensive medicine”. While torts themselves don’t cause a great deal of monetary damage, the culture they create is one of paranoia in physicians who make decisions with lawsuits in mind, rather than the interests of patients and society
  6. The excessive costs in ICU care, especially at the end of life, which may also be reduced by better EMRs with recording of living wills, and public information campaigns designed to inform people about the pain, invasiveness and futility of “doing everything” in the elderly.
  7. The absence of an electronic medical record that is universal which causes redundancy in testing as patients see new doctors who then order redundant tests because sharing of information is so inefficient.

But these may just be my biased views based on my own limited experience. Let’s see what the data show. The McKinsey Global Institute has generated a report on this, and has broken down the data according to the individual costs in our system, while comparing it to that of other countries.


The report available here is an up-to-date assessment of US health care costs and looks at many of the factors that I believe are involved in our excess costs. It is extremely detailed and goes into far many more topics than can be covered here, but we’ll hit the high points.

Now, let’s talk about why the US is so far above any other country in terms of our health spending:

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First on my list, excess costs of administration. The McKinsey report has this figure showing where the excess administrative costs appear to be in our system.
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The McKinsey report estimates these costs at 91 billion more than would be expected. The US spends ~16% of our 14 trillion GDP on healthcare, or about 2.25 trillion dollars. So 91 billion would account for about 4% of total spending, and if we should be spending about half as much per capita, maybe about 8% of the total waste is in this category. The McKinsey report, using a different calculation, described waste in administrative costs as 14% of our health care excess.

Costs in medicare administration have begun to shoot up too, concurrent with Bush administration efforts to subcontract administration to the private sector – an act despised by many physicians who find their non-reimbursement tactics to be dishonest scams. Administrative costs from 2003-2006 more than doubled, largely due to these practices.

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Medicare used to be one of the most efficiently-administered systems in government until the Bush administration got its hands on it. By subcontracting administrative work to private contractors, suddenly 30% of the costs just go to profit, and payments to physicians for reimbursement have decreased accordingly. Most physicians I know under this regime have complained that they create barriers to registration, barriers to reimbursement, have very little recourse for rejected reimbursement, and then finally when everyone gets fed up with one of these subcontractors the government jumps to a new one. Then you have to start the process over again, learn the quirks of the new company, start a complaint file with them, and by the time you’re used to them, a new company gets the contract. This is the lie of the private system being better than government no matter what. I’m sure private contractors can do something better than public servants, but it certainly isn’t healthcare administration, and the data shows it, as costs ramped exponentially under this system despite relatively stable numbers of medicare subscribers.

The argument for public administration of health care is strengthened by these numbers, and based upon historically medicare administration costing only about 10% as much as private insurers’ administrative costs. One may also look at other public systems like the VA, in which administrative costs are a fraction of those with private insurers. Or, one may point out that in health care systems with public and private payers in competition, or highly regulated private payers, these costs are also substantially reduced, as should be clear from the first figure – most the comparison countries have private insurers, they are just better regulated.

Onto the second offender, pharmaceutical prices. The McKinsey report found that in the US we pay twice as much for drugs

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Why? A few reasons. One is, we can afford to pay more so the drug companies know they can charge us more in the US. Thus, we subsidize health care around the world by paying higher for pharmaceuticals than other countries have bargained for. Another is direct to consumer advertising, which drives consumers to use drugs unnecessarily, and to use more expensive and newer drugs rather than generics. Finally, the largest problem is that our government, hijacked by these companies during the last legislation over health care, was forbidden from collectively bargaining for lower drug prices under medicare part D. A decision no other country in the world would be so stupid as to make as they didn’t have a political parties hugely corrupted by pharmaceutical interests like we do.

From the WSJ article, drug company execs are terrified at the prospect of collective bargaining.

Meanwhile, drug-industry executives worry that an overhaul of the health-care system could lead to too much government intervention. In addition to possibly establishing a government-sponsored insurance plan, lawmakers might give Medicare — the existing public program for the elderly and disabled — the authority to negotiate the prices for drugs dispensed through its Part D benefit. That could limit the prices pharmaceutical companies can charge.

Pharmaceutical executives argue that such steps would hamper drug makers’ ability to pay for costly research into new treatments. “It would knock our legs out,” says Lilly’s Dr. Lechleiter.

This, I’m sorry to say, is a bald-faced lie.

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Most drug company R&D is on the creation of sibling, or “me too” drugs that mimic existing mechanisms and enjoy equal patent protection to novel classes of drugs. Novel drug mechanisms are usually a product of the public R&D through institutions like the NIH. As long as our patent system rewards the creation of “me too” drugs, that is what we’re going to get and what drug companies will invest in. If we restructure the patent system to again encourage innovation, by shortening the patent protection of sibling drugs, or calling them what they usually are, generic equivalents, then we would not only have cheaper drugs but more novel drugs. See the work of Marcia Angell for more on this topic. When she examined the idea that drug company research produces new treatments what she instead found was the overwhelming majority (85%) of novel drugs resulted from government-funded research.

If we were to eliminate drug company R&D, the outcome would be less of these drugs that allow them to finagle their way past patent laws by making scibling drugs. If we eliminated direct to consumer advertising, their marketing budgets (far larger than their R&D) could instead go to research on drugs. If we reform the patent system so they no longer enjoy equal protection for non-novel substances, then maybe they’ll spend all of their R&D on new treatments for diseases rather than the shortcut to wealth that sibling drugs represent.

So, what is the overall cost of the pharmaceutical excess? The McKinsey report suggests about 98 billion dollars of excess costs comes from our use of more expensive drugs, non-generics, and our paying of higher prices for the same drugs relative to other countries. That would be about 4.5% of our total health care expenditure is on this excess, about 9% of waste according my simple half-is-waste calculation, or about 15% of total excess costs according to the McKinsey calculation.

My third hypothesis about excess cost was the “hidden tax” of lacking universal health care costs and an excess of cost from acute treatment of chronic disorders of the uninsured. An organization named Families USA has just made the news for their report on the hidden premiums and taxes created by the uninsured. As I’ve pointed out before, we already have a kind of universal health care, because doctors are ethically obligated to treat people whether they can pay or not. The government covers indigent patients, and the hospitals redistribute these costs onto other patients so they can run money-losing departments like ERs and mental health facilities. Families USA have estimated these costs of covering the uninsured to be $1000 on an average family’s health care premiums or about $368 for each individual. So, as you can see we are already “taxed” to cover some form of universal health care. Only this tax is non-transparent, it encourages poor use of health care resources like those of ERs and inpatient critical care, and it’s not justly distributed as it’s levied on all families independent of income. This cost represents tens of billions of dollars being spent invisibly, on inefficient care, and levied without a progressive structure. I’m not sure how much of it can be categorized as “waste”, but it is certainly a more wasteful way to provide care. The McKinsey report indicates outpatient care and especially same-day outpatient care (emergent visits) is the largest portion of the 650 billion dollars in excess spending (about two-thirds of this cost) and much of this is due to ER visits, imaging, and costs of acute care. The absence of universality, therefore, may be the most expensive source of waste in our system.

Fourth, we have the issue of physician compensation. In the US people can often chose to self-refer to specialists, who tend to be more expensive. We also have more specialists, more highly paid specialists, and more use of specialists.
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As you can see from the figure, specialists account for much of this excess cost. When studied, GP use tends to save money, because they manage care better, prevent critical problems from becoming worse, etc. Also the specialists tend to be procedurally-oriented, and make a great deal of money relative to time spend whenever they perform procedures. This is another area which should be addressed by reform. GPs, because they save money should be rewarded more for their time. Specialists, since they cost so much money, should probably have their reimbursement brought more in line with reality. Yes, I’m arguing against my future salary here. Overall, excess spending on physicians is about 60 billion dollars or about 2.7% of health care expenditure and 5.4% of waste based on my “half-waste” scheme. The McKinsey report doesn’t give a percentage of this factor, but based on their scale I suspect it’s under 10% of total waste. I would also ask people to give US physicians a little bit of slack on this topic, as for most physicians, medical education costs about 200-250 thousand dollars and generates huge amounts of debt. Other medical systems that educate physicians for free will have lower physician compensation at least in part due to the absence of student debt.

Last we have the factors of “defensive medicine”, end-of-life care, and absence of efficient medical records to prevent redundant care. These are going to be harder to quantify. For instance, take defensive medicine. If I had a patient who presented for, say, alcohol withdrawal, but it comes out in their history that two weeks ago they struck their head losing consciousness while drunk, they will likely end up in the CT scanner despite an absence of neurological findings. We could likely avoid such scanning if we had a conversation with the patient talking about the risks of avoiding the procedure, charting that the patient agreed to refuse the CT, and performing a thorough neurologic exam. However, I’ve found that in practice the tendency is to provide excessive care to avoid missing anything. Now, in such a case of an old head injury (and I’ve run into this many times) it is unlikely that even a positive CT-finding of an old intracerebral hemorrhage would change the care plan, but we’ll still do it, because it’s the kind of diligence required by defensive medicine. I’ve had this exact scenario occur, and in a patient with financial problems that a CT could put them into financial trouble being uninsured, but with just enough assets they would be expected to pay for their care. Examples of this behavior are rife in the system, and while I am generally opposed to tort reform, one can not deny that much of physician behavior is driven by fear of being sued. And while defensive medicine isn’t necessarily bad care (one could argue about the excessive use of radiological imaging as increasing cancer risks), it is certainly excessive care. From a societal perspective it could stand to be curtailed. Surveys of whether defensive medicine is practice indicate it is fairly prevalent especially among high-risk specialties.

Nearly all (93%) reported practicing defensive medicine. “Assurance behavior” such as ordering tests, performing diagnostic procedures, and referring patients for consultation, was very common (92%). Among practitioners of defensive medicine who detailed their most recent defensive act, 43% reported using imaging technology in clinically unnecessary circumstances. Avoidance of procedures and patients that were perceived to elevate the probability of litigation was also widespread. Forty-two percent of respondents reported that they had taken steps to restrict their practice in the previous 3 years, including eliminating procedures prone to complications, such as trauma surgery, and avoiding patients who had complex medical problems or were perceived as litigious. Defensive practice correlated strongly with respondents’ lack of confidence in their liability insurance and perceived burden of insurance premiums.

I can not find good data on the cost of such behaviors, and I’m concerned there is considerable ideological agendas influencing much of the writing (if someone has a good study please share it). Tort reform should not be about making physicians immune to societal correction, but at the same time physicians are unfairly penalized for expected complications and the adversarial system does not justly compensate those who have suffered from such complications. Tort reform should therefore emphasize “victim compensation” which would hopefully eliminate the need for physicians to practice cover-your-ass medicine and avoid adversarial relationships between physicians and patients who have had bad outcomes. Physicians should want their patients with bad outcomes to benefit from compensation, and receive additional care and benefits needed to address medical complications, but because lawsuits are the mechanism, physicians and patients instead end up in adversarial and hostile relationships when complications occur. This also negatively affects physician compensation as insurance premiums are quite expensive and an unfortunately large portion of your bill is going to yet more insurance premiums. Worse, in the tort system, patients and doctors both lose, only the lawyers win.

End-of-life care has long been recognized as devastatingly expensive, often futile and worse, my experience with it makes me concerned that patients’ families often don’t understand how invasive and painful ICU care can be. Their natural desire to want to “do everything” for their loved ones does not seem to be adequately balanced with an understanding of the invasiveness and unpleasentness of ICU care and some 22% of all deaths occur in the ICU. Bodily functions are one-by-one replaced by machines from ventilators in the throat, tubes into the stomach for feeding, dialysis for failing kidneys, and urinary and rectal catheterization for waste control. Blood is drawn daily, sometimes multiple times a day, not to mention finger sticks. Central lines are placed into major veins. Sepsis almost invariably ensues in these fragile patients and nosocomial infection is a constant threat. The more experience I have with ICUs the more I have become convinced that the ICU is not the place to die. But how do we know when medical care has become futile? How do we know when the ICU won’t lead to a miraculous turn-around? The answer is that we don’t. And while exceptions are rare, there are those elderly patients who walk out of the ICU (or are transferred to the floor) all the better for the aggressive interventions that critical care entails. However, locations that have reduced intervention towards the end of life appear to reduce costs from use of doctors and ICUs without a loss of quality of life.

It has been estimated that much of your total lifetime healthcare expenditure will occur in the last year of life. Some 30% of yearly medicare costs go to patients in their last year of life according to the Dartmouth Atlas Study but there is a great amount of regional variation in this spending. And without a crystal ball to give us data on when people are going to die, the default is to treat an 80-year-old in the ICU the same as we would a 20-year-old, despite the vanishingly small chance they will benefit with advancing age. We simply lack the data to have a good idea about who will benefit from ICU treatment and who will just have their inevitable death extended and made more expensive, undignified and painful.

Will the electronic medical record (EMR) come to the rescue? I think it might, and there are reports that having discussions with your doctor prevents aggressive end-of-life care without actually shortening life-span or worsening quality of life. In fact, aggressive care appears to result in worse quality of life. Having living wills and advance directives part of every medical record could go a long way towards less invasive and less expensive care end of life. Much of the redundancy in care we have is that every hospital has a different record system, and most primary care providers don’t have electronic records. If someone at an outside hospital gets a CT and is then transferred to another, more acute-care hospital, we at the level 1 trauma centers often have to repeat tests because we can’t wait for the data transfer which may take a day. That’s extra CT scans, extra MRIs, extra blood tests, and repeats of invasive and unpleasant testing. Further the EMR allows us to learn more about our patient populations and collect data which can be mined to figure out things like the probabilities of survival in an ICU. One of the unexpected benefits of the universal systems in other countries has been access to incredible data pools which allow us to more scientifically measure and administer care. It is clear though, without it, waste, inefficiency, redundancy and other problems ensue.

So, to sum up, the major cost drivers in our system stem from inefficient use. Possibly the most expensive are same-day and outpatient use of services which may be a reflection of our absence of universal coverage and acute treatment of problems better served by cost-saving GPs. Pharmaceutical costs come next with US citizens paying twice as much for drugs as our counterparts in other countries, largely due to our use of more expensive pharmaceuticals and our inability to collectively bargain with pharmaceutical companies. Administrative costs are also expensive, and privatization has increased costs even in the historically-efficient medicare system, these services need to either be centralized or regulated to prevent excessive profit-taking, and inefficiency. Physician compensation is higher in our country than in others, and may benefit from victim compensation funds, increased use of cost-saving GPs rather than specialist care, government subsidy of medical education, and reductions in specialist salaries through more even payment structure for procedures compared to office visits. The unknowns of defensive medicine likely contribute to our overuse of testing and imaging services as we also pay more than other countries for diagnostics, and I suspect this is a large portion of the cause. Finally, we could stand to address systemic inefficiencies through better information technology and the EMR which would reduce inefficiencies and redundant care as well as reduce the expense of end-of-life care through better data collection and collection of final directives and living wills.

Comments

  1. #1 Jos
    May 28, 2009

    I guess it would be easy (and very interesting) to compare the difference in prices for certain types of commonly recommended medical tests in different countries.

    In all cases, and provided that the technology used is the same, the same test costs **a lot** more in the US.

    So there might not be other reason for the cost of healthcare to be so high other than the fact that people expect it to be high – something like charging 100 dollars for a fancy brand of water.

  2. #2 sam
    May 28, 2009

    Very interesting article!
    I’m curious as to defining me-too drugs. I agree that it’s ridiculous for copycat drugs to get the same protection as drugs that require a lot of real innovation to develop, but there’s no doubt that me-too drugs can still do a lot of good. I think most people would consider Lyrica a me-too drug of Neurontin, but in my peripheral neuropathy group, maybe half of the people got no relief from Neurontin + a large percentage of them love love love that Lyrica. There’s nothing particularly innovative about some of the new protease inhibitors, like Prezista, but they’re still a godsend to a lot of people.

    I think it would be nice if the patent protection for all drugs were shortened a bit, and then truly innovative drugs got some sort of “bonus” – either bonus time to enjoy patent protection, or some sort of cash reward. I’m leaning a bit towards cash rewards for two reasons. If the drugs are really innovative, really helpful, really expensive, and no similar drugs follow, extended patent protection just makes them really hard to access for even longer. If the drugs are really expensive and helpful but equivalent me-too drugs are developed, it’s hard to see how extended patent protection helps much (e.g. if Anzemet went generic while Zofran was still ridiculously expensive, the insurance companies would only give you Zofran if Anzemet didn’t work, and so many people would switch that it would be hard to see what benefit Zofran’s getting from the extended protection).

    I would REALLY like to see the ending of patent protection for old drugs in new packaging. Normally, you can only get patent protection if your innovation is “non-obvious”. It seems like this doesn’t apply to drugs in any meaningful way. Sticking fentanyl into lollypops seems pretty damn obvious to me – certainly not worth two grand for a box of 30 to come up with that brilliant concept. Plus, they’ve been promising for YEARS to make sugar-free Actiq. Now, they’re refusing to do so because they’d rather promote Fentora, which is also a pretty obvious innovation IMO. I would’ve rather seen a scenario where the person who originally synthesized something like fentanyl + demonstrated its safety + efficacy could get some sort of protection for the compound, and then inventing a new delivery system, or a different-tasting lollypop, or adding an enteric coating (like they did with ddI) would get NO protection, or maybe very minimal protection. I would hope that this would incentivize the production of new medicines, instead of encouraging the drug cos to engage in all sorts of shenanigans to get easy patent protections off of drugs that have been around for a while.

    Given how much public money goes into drug development, it would be nice if there were some way to discount that from drug co profits and/or protection times.

    If drug companies bitch that they’re losing money on patent protection or collective bargaining or anything else, we can make it easy for them: “OK, we’ve just outlawed direct-to-consumer advertising! The government just saved you billions!”

  3. #3 Whitecoat Tales
    May 28, 2009

    Great article, I’ve seen alot of this data kind of scattered around before. This is one of the few places I’ve seen it presented together, as a coherant whole.

    I’m curious what you think about Atul Gawande’s recent article in the New Yorker, here.

    He makes an argument for wasteful physician decision making, distinct from defensive medicine.

    From my experience in med school so far, I feel that there is some truth to this as at least part of the problem.

  4. #4 Mike
    May 28, 2009

    I have to take issue with the copycat drug thing. Copycat durgs are a good thing. More copycat drugs mean more competition and more choice. Imagine applying that argument to any other item in a free market. You could say the government should stop certain cars from being made by other companies because they are too expensive and just copycats. Eventually what you get is one lousy type of car that can’t do anything because the government has prevented all competition (communism). More competition drives reduction in prices and incentivizes innovation.

    Also think if you stopped companies from marketing their cars on television. This would reduce the profits of the company overall because they would sell less cars. The amount of money invested in advertisement doesn’t take away from research and development. The advertisement generates more profits for the specific company. Without advertising there are no profits or they are reduced. So advertising expands the overall wealth pie. Capitalism isn’t a zero sum game. Wealth is generated especially in a more capitalistic system. Many advertisements are for lifestyle improvement drugs anyway (viagra), I don’t see as many cancer drug ads on TV.

    The market determines if there is room for more copycats. If the market is already saturated than a company would lose money if they tried to create another copycat. Just like as with any other other product. If you only had one type of drug, then the company could charge whatever they wanted to, all the time.

    Most of these countries with universal healthcare do not get nearly as many drugs or medical devices to market as the US does. The universal healthcare significantly reduces innovation in the private sector in those countries.

    Maybe a lot of people and doctors are uninformed about how generics are basically the same as the more expensive brain names. However, most insurance companies require a person to use generics when they can. I don’t have insurance for my medication and have to pay out of pocket. You bet I buy the generics instead of the brand labels. People who use the more expensive brand medications are doing so because they are either ignorant, or because they choose to do so. Unless you are going to magically increase the IQ of the average US citizen, bad decisions will still be prevalent no matter what system you have.

    Also, the other systems get a ride on the back of american innovation when it comes to brand name prescription drugs. However, remember that generic drugs are cheaper in the US than europe and canada as a result of more competition.

  5. #5 Whitecoat Tales
    May 28, 2009

    I beg to differ Mike, on a number of points.

    More copycat drugs mean more competition and more choice.

    Except when I precsribe a drug, I’m not thinking “well drug X costs slightly less than drug Y. The only place I make that decision is different tiers on an insurance plan, or one drug is generic. Turns out you don’t need a ton of Me Too drugs to do that.”

    And most patients pay a copay thats the same for each drug, rather than the full drug price, so they generally only care if a drug is generic as well.

    Also think if you stopped companies from marketing their cars on television

    Except, you decide what car you buy, not your doctor. A doctor who lets the patient decide what drug is the right drug is a crappy doctor. My understanding from our lectures on health economics, advertising doesn’t change the rate of prescription of a class of drugs, only the prescription of specific agents with SMOA

    The market determines if there is room for more copycats

    I’m no economist, but doesn’t any claim that the free market is a good solution for a given problem require the following core assumptions (among others)?

    -No externalities: As in, all the costs and benefits to society are encompassed by the transaction. But this isn’t true. Your getting treated for an infectious disease benefits me, despite my not being involved in the transaction. Your being vaccinated benefits me similarly. Your being treated with preventative medicine for heart disease affects my premium if you don’t have a heart attack because of our insurance systems. The entire medical system is riddled with externalities.

    -Perfect information: In some cases, the information literally doesn’t exist. Large portions of medical research exist only to determine the efficacy of treatments.
    Even when it does exist, the assumption is that the CONSUMER has perfect information. But thats not true, the consumer is BUYING the doctor’s expertise, and there is no way for the consumer to have perfect information about various doctors expertise. Furthermore, no insurance plan allows free competition among providers, they all pick chosen and preferred providers to cover.

    -consumers create demand: Not true here, here some of the demand is created by consumers lifestyles, and much of the rest by things outside the control of the consumer. Noone says “you know what I want, I want to have high blood pressure, and then to get a beta blocker.”

    -self interested, rational behavior: In medicine we generally see the opposite of this. The cost benefit ratio of exercise and diet changes vs medical or surgical management almost always come up in favor of exercise and diet. yet this is rarely sufficiecnt for patients to change their lifestyles to favor diet and exercise. Much of what i do day to day is compensate for patients’ self destructive, and irrational behavior.

    Even if you say “well seeking healthcare is self interested and rational”, you’ll find the most common issue in treating a patient is finding a regimen the patient will be compliant with, which means we aren’t choosing the objectively best regimen for a patient’s health, but the best regimen the patient will actually use. That’s generally not the rational decision.

    So when free market people just suggest “freer markets will obviously solve everything”, they don’t know what they’re talking about.

    When the healthcare economists and MBA, and health administrators came to lecture us, they said for the most part healthcare economics works by pilot programs and trial and error… WHy? Because their assumptions are never met, so most of their theory is useless.

  6. #6 Whitecoat Tales
    May 28, 2009

    Also, the other systems get a ride on the back of american innovation when it comes to brand name prescription drugs. However, remember that generic drugs are cheaper in the US than europe and canada as a result of more competition.

    Yes, american PUBLIC FUNDED RESEARCH, for the majority of drugs, as is written above.

    Please recall, that the generic drug market is not representative of patented drug market, it’s a subset of this market, and cannot be looked at in isolation. Much of the 4 dollar prescription market exists as “Loss leaders” for the companies involved. Certain pharmacies offering antibiotics for free (a stupid idea for medical reasons), that’s not becuase “improved competition” is allowing them to do so cheaply, it’s because they accept a loss on antibiotics in hopes of gaining profit elsewhere.

  7. #7 MarkH
    May 28, 2009

    I have to take issue with the copycat drug thing. Copycat durgs are a good thing. More copycat drugs mean more competition and more choice. Imagine applying that argument to any other item in a free market. You could say the government should stop certain cars from being made by other companies because they are too expensive and just copycats. Eventually what you get is one lousy type of car that can’t do anything because the government has prevented all competition (communism). More competition drives reduction in prices and incentivizes innovation.

    I get what you’re saying here, but the issue isn’t whether such drugs can’t be sold, but whether they can be patented as “novel” drugs. To extend your metaphor, if you invented a car part that is novel and makes a more efficient engine, great. If someone else comes along and instead of using stainless steel uses a slightly different alloy, but uses the exact same mechanism is that novel? Is that good?

    It’s not about multiple versions of products being available, which is great. It’s about how we should define novel or “non-obvious”. There are clear examples of when having multiple sibling drugs has been helpful because we don’t really understand the function and the drugs operatie in different ways – Lyrica and Neurontin, SSRIs, SNRIs etc. But more frequently what we see is the exact same mechanism like omeprazole vs lansoprazole. There is no difference in functions between these drugs. Worse, omeprazole vs nexium or esomeprazole, which is a purification of the functional enantiomer in omeprazole. There is room to argue in this. Sometimes the scibling drugs truly add something new. Usually, however, they do not.

    Also there is the issue of patenting a new form of a drug by making it long-release, or combining two existing drugs to make a new drug. This is simply unacceptable as a “novel” innovation.

    Patent novelty should be just that, novel. It must add something. Sadly, right now, many sibling drugs add nothing. We can find examples like the SSRIs or frequently many neurologic agents that siblings are helpful, but that is the exception, not the rule.

  8. #8 MarkH
    May 28, 2009

    The market determines if there is room for more copycats. If the market is already saturated than a company would lose money if they tried to create another copycat. Just like as with any other other product. If you only had one type of drug, then the company could charge whatever they wanted to, all the time.

    You have to prove this assertion. The market determines nothing. The market is retarded. It does not create efficiency. The belief that markets do anything rationally is an irrational, ideological belief. If it were true, we wouldn’t be paying twice as much for healthcare, because we have far more market influences than other systems, with nothing but negative effects.

    These assertions about the market must not be asserted, they must be proven. The are ideological assertions. They have no data to back them up.

  9. #9 MarkH
    May 28, 2009

    Last comment for now to WhiteCoatTales,
    Atul Gawande’s article uses the Mayo clinic for a comparison and this is highly problematic. The Mayo clinic is a geographically isolated clinic which treats rich, educated, mostly white people with insurance. This is an inexpensive population to treat. They can’t be compared to the general population. It also can’t be compared to many of our public hospitals, like my very own UVA, because we run ERs, mental health wards, and other services which are not cost effective which represent a community service. You can’t just walk into the Mayo clinic from the streets of LA. You don’t get airlifted there like to your public hospitals with a level I trauma center.

    It’s simply not comparable to other systems that are forced to take all comers in major cities, that take those without insurance, that are in other less homogeneous locations. You can not generalize the Mayo clinic to the US as a whole. That is the problem. It’s just not a good comparison and why I think Gawande’s comparisons are of little utility.

  10. #10 Whitecoat Tales
    May 28, 2009

    I guess I’m less asking about Gawande’s specific comparision, than I am about the possibility the problem he brings up is a real one.

    I realise Mayo and the other system in Colorado he mentions are exceptions, rather than the rule. I also realise that even if the systems were more comprable, these aren’t statistically significant numbers. It’s always going to be impossible to generalize one or two situations to the

    The quesition is more “Is inappropriate physician stewardship of healthcare resources, as distinct from defensive medical practices legitimately a source of excess healthcare expenditure?”

    I realise there may not be data to answer that, and that the answer could very well be no. My google and pubmed fu was just too weak to find the data that may or may not be out there.

  11. #11 EH
    May 28, 2009

    -The notion of me too drugs strikes me as rather simplistic. Mechanism of action is merely one aspect of a drug. Pharmacokinetics, side effect profile, etc. Metformin, phenformin, and buformin presumably have a similar mechanism of action, yet only one is sufficiently non-toxic to be used in clinic. Similarly, the various forms of valium all hit the same GABA receptors, but profoundly different pharmacokinetics. I guess the point I’m thrusting towards is that mechanism of action is oftentimes the least important aspect of drug design. Indeed, there are numerous effective drugs with unclear mechanisms of action (lithium). Unfortunately, predicting things like off-target effects, PK, etc can only be found through fairly extensive clinical testing. My belief is that, while broad suppression of me-too drugs might result in fewer redundant drugs (such as PPI’s), there would be significant costs in terms of valuable alternative drugs for a given (or not given) mechanism of action.

  12. #12 Miss Cellania
    May 28, 2009

    Health care costs in the US are so high because it is a profit-driven business. If costs weren’t so high, there wouldn’t be as much profit. Hospitals, pharmas, clinics, and insurance companies not only have employees (necessary) to pay, but also administrators (who are often compensated according to profits instead of effectiveness), and stockholders (who just want a profit) to please.

  13. #13 mike
    May 28, 2009

    “Yes, american PUBLIC FUNDED RESEARCH, for the majority of drugs, as is written above.”

    Yes, europe also does a ton of research too. They do research until it bleeds out of their ears, which is all fine and good. However, it cost money to go through clinical trials. Private companies are the ones who actually fund this. Does any european government go to the trouble of actually trying to get something approved because it would beneficially impact society? I would have to say most of the time no. Profits incentivize companies to take risks and attempt to get things approved. Collectivist governments are much less apt to take these risk and are more likely to play it safe like putting price controls on existing drugs/medical profits. Communistic systems can obviously reduce costs doing this, but this comes at the expense of innovation.

    “Please recall, that the generic drug market is not representative of patented drug market, it’s a subset of this market, and cannot be looked at in isolation. Much of the 4 dollar prescription market exists as “Loss leaders” for the companies involved. Certain pharmacies offering antibiotics for free (a stupid idea for medical reasons), that’s not becuase “improved competition” is allowing them to do so cheaply, it’s because they accept a loss on antibiotics in hopes of gaining profit elsewhere.”

    I think this is a stretch. I kind of doubt this happens that much. The type of stuff you mention could happen in Europe too. Also one of the things you mentioned is pharmacies as opposed to drug companies which is something different. Do you have some study showing that our generics in the US are cheaper because they are subsidized by higher priced brand name drugs? Here’s a study indicating that US generic drugs are cheaper than Canada as a result of more competition.
    http://www.fraserinstitute.org/commerce.web/product_files/Generic_Drugopoly.pdf
    Generics compromise 69% of the market too. Don’t get blinded into what the US does right. We DO have cheaper generics.

    “I get what you’re saying here, but the issue isn’t whether such drugs can’t be sold, but whether they can be patented as “novel” drugs. To extend your metaphor, if you invented a car part that is novel and makes a more efficient engine, great. If someone else comes along and instead of using stainless steel uses a slightly different alloy, but uses the exact same mechanism is that novel? Is that good?”

    Your definition “novel” can quickly become ideological based on whatever your arbitrary whims are. Sure there are enantiomers that are exactly like the original drug, but these are a fairly small percentage of overall drugs. The SSRI’s technically have the same mechanism, but each has slightly different properties. Many drugs have different half-lifes or CYP enzyme interactions. I don’t see what the problem of making something a long-release. The combining pills occurs less frequently, so is it really that much of an issue? Long release drugs are usually more convenient for a person. I’ve known people who have taken long release drugs because they chose them over the regular kind. If a person doesn’t want the long release then they don’t have to buy it.

    At the extreme, In a very communistic economy like the soviet union the government does things based on ideological whims (think lysenkoism). So they might balk at creating new drugs or cars or whatever else that they thought weren’t “novel” enough. Maybe you think that different types of cereals are unnecessary and everyone should only eat corn flakes. So the government could ban the production of any other cereal and put price controls on corn flakes to enable it to be very cheap. Doing this would technically reduce costs by a specific measured outcome, but it would reduce the overall wealth pie as well (like in most communistic governments) and also any future innovation. Many grocery stores also carry “copy-cat” corn flakes too. They look and taste almost exactly the same as the brand name. But it would be a silly argument for someone to say that this copy-cat cornflakes takes away from the production of more worthwhile cereals. I will remind you that Europe and Canada get far fewer drugs to market than the US. Overall I have given a few extreme examples, but I hope you at least get the general point. I’ll try to give you a contrarian opinion but not be a denialist.

    “You have to prove this assertion. The market determines nothing. The market is retarded. It does not create efficiency. The belief that markets do anything rationally is an irrational, ideological belief. If it were true, we wouldn’t be paying twice as much for healthcare, because we have far more market influences than other systems, with nothing but negative effects.”

    Well for one thing, people most people don’t really understand why the market works and why it doesn’t. Remember that our gdp per capita is considerably higher than most of european countries maybe because we are less socialistic. Capitalism generates wealth so in some part, the higher costs may be due to the fact that our country has an expanded wealth pie overall. Remember that america has been the driver for medical device innovation. So in some respects it’s no surprise that we spend more than other countries on some things. Europe can immediately benefit from American drugs/technology because they price control stuff. We could obviously end the patents on all medical devices and pharmaceutical drugs right now. This would save us a bundle. However, it would come at the expense of creating any new products in the future.

    I’m not saying there aren’t ways to improve US healthcare or make it cheaper and our system is certainly not ideal. However I think people idealize these more socialistic systems far too much and tend to completely ignore any bad aspects. I just wish there was more of an understanding of the trade offs in medical innovation between ours and these systems. Also, there is a big missing piece of the puzzle that blinders most people. Demographically european countries and quite a bit different than the US. So cross comparisons are not always apt when measuring certain healthcare and expense outcomes. That’s all I have time for right now.

  14. #14 Johnmayer
    May 29, 2009

    If you are uninsured and does not have insurance, you should check out the website http://UninsuredAmerica.blogspot.com – John Mayer, California

  15. #15 llewelly
    May 29, 2009

    Most of these countries with universal healthcare do not get nearly as many drugs or medical devices to market as the US does.

    The fact that most of these countries are much healthier implies that the additional drugs and medical devices are, well, garbage.

  16. #16 MarkH
    May 29, 2009

    Mike, we’ve spent the last week discussing these systems all over the world. Consider breaking out and look at some of the other articles. For one, none of these other systems is particularly socialistic. Most of the universal systems have a mix of public and private payers, and we went into detail about their structure, function and flaws. We also enjoyed a large international discussion on their relative benefits.

    We talked about European systems, but also Canada Australia and New Zealand. They are diverse as all hell, and the last word I’d use to describe all but UK and Canada is “socialized”. Regulated might be a better word.

    Second, you fail to see that these data are normalized to GDP. We spend far more than would be expected based on our GDP. You can’t argue out of it that we’re more wealthy so we pay more. We pay way more, largely due to these reasons cited above and this is normalized to GDP.

    Finally, I don’t understand how my patent law ideas are ideological. Currently non-novel medications get through. Nexium isn’t some blip on the radar, it was the top selling drug in the US a few years back. It generates about 8 billion dollars in revenue a year. It is identical to omeprazole, which is generic and costs 1/10th as much. That’s 8 billion wasted dollars, on one drug!

    This is not ideology it is fact. Drugs that are simply non-novel are getting through a patent process that should be only awarding new patents based on novelty and non-obvious innovations. If drugs with the same mechanisms come along they should be licensed under the original patent, and their generic status should begin when the drug with the original drug loses its patent. As it stands the drug companies violate the spirit and the letter of the law by expanding their patent protection through minor tweaks of the drugs. Or, as in the case of Nexium, the inexcusable submission of a purification of the active compound. This is abuse of the system that is just ignored because the pharmaceutical companies make bank. Your average schmo could never get such patents through (The year before Nexium was approved under a new patent Astra Zeneca paid more for lobbying than any other company – including the defense contractors).

    I’m not saying me-too drugs shouldn’t be made, or that they shouldn’t be sold. But as non-novel innovations they should be licensed under the original drug’s mechanism of action patent, and companies should pay a licensing fee to the patent-holder until their patent runs out, at which point they all become generics. Alternatively, we could create a patent that covers sibling drug innovation as separate from novel innovations that has a shorter life span. Give truly novel drug classes 20 years of patent protection and sibling drugs based on an existing mechanism of action 10 years.

    The point is we want to incentivise novelty, not copycats. This isn’t ideology, it’s just sound science and fair practice for patents to be awarded for novelty.

  17. #17 Thinker
    May 29, 2009

    When a pharma company considers its portfolio of research projects, they will do the same thing as most other companies do and evaluate potential projects based on “risk and reward”, i.e., how likely it is that the product will reach the market and succeed there, and what is the potential profit if it does. Projects with a higher risk or lower potential profit are less likely to get funded.

    At least the larger companies will attempt to have a mix of some “high risk – high reward” projects others which are “low risk – low reward”. Completely novel active ingredients, mechanisms or delivery methods can be seen as belonging in the first group, while the other may include things like SMOA, minor modifications to improve pharmacokinetics or slightly extended indications for an existing compound, and then there is the whole scale between the two. (Low risk – high reward opportunities are typically the stuff of dreams, and High risk – low reward projects are of course discarded outright.)

    If risk is increased or reward is decreased, for example by changes to patent protection times, this will not only shift what projects get chosen for funding, but also how willing investors are to fund pharma development at all. If you were to decrease the potential reward of “sibling drugs”, as this post says, I would hypothesize that that investment would not go to higher risk projects unless their risk-reward was improved at the same time. Instead, the money would be invested in other sectors than pharma.

  18. #18 MarkH
    May 29, 2009

    Thinker,
    that is based on the assumption that the drug companies are responsible for the R&D that comes up with novel mechanisms. They generally do not engage in this type of research and the majority (about 85%) comes from government funding. NIH researchers take these risks because they are rewarded for finding novel mechanisms without having to make money on the final product to receive funding. They are the ones doing the low-reward, high-risk basic research. When they come up with a good idea, they patent it, drug companies buy the patent (or they often create a startup biotech company), and the pharmaceutical is subjected to clinical trials. Many of these trials are also run by the government but with the drug companies contributing the pharmaceuticals.

    The goal of reforming the patent system should be to incentivize the discovery of new classes of drugs. This is the original purpose of patents and shouldn’t be a radical concept. Instead the focus of their research is to tweak drugs so they can get away with extending patents on previous discoveries. I think this is an abuse of the patent system, and while they may be innovations, they are not non-obvious or novel. Extended release, while convenient, is not non-obvious or novel. Changing a group or creating an enantiomeric compound is not non-obvious or novel. Coming up with a new MOA is novelty, that’s non-obvious, and that is what patents should reward.

    In the end this is only part of the problem. By far the biggest problem is that our public healthcare system is forbidden from bargaining for drugs. What’s up with that? That and DTCA advertising which encourages irrational patterns of pharmaceutical use.

  19. #19 Luna_the_cat
    May 29, 2009

    mike:
    Does any european government go to the trouble of actually trying to get something approved because it would beneficially impact society? I would have to say most of the time no.

    Bullshit.

    Just to give an example, the Scandinavian countries were pushing development of an HPV vaccine hard in 1998-1999, long before Phase II trials were running in the US and before either Merck or or GSK had decided what to do with it. Their push was one of the reasons GSK picked it up.

  20. #20 T roberts
    May 29, 2009

    To control the pain we must attend to the specialist because we can give him what is appropriate and what we need, for example I take hydrocodone, vicodin which is medicine used to counter the chronic pain that I have for years, but I rioja prescribing doctor, I take it in moderation because I read in findrxonline which is a medicine that causes anxiety, and we must control it as it can affect your nervous system, so do not take medicines without consultation because it really can be dangerous.

  21. #21 John Mishasek
    May 29, 2009

    Relative to the use of prescription drugs like Neurotin or Lyrica for peripheral neuropathy, consideration should be given to a non-pharmacological modality, electrostimulation. Many patients have estim used at physical therapy clinics. While having estim done for 15-30 minutes 2-3 times a week can show a reduction in symptoms, home use by the patient could be a more effective way of reducing symptoms. A small study from the University of Texas San Antonio Orthopedic and Podiatry Department used the Prizm device which has an 8 hour treatment protocol option so that use during sleep is possible. Using their conductive garment to disperse the high volt pulsed current stimulation throughout the limb means all nerves and muscles in the leg are treated. No guessing where to place the standard electrode. Within 30 days the participants in the study showed a significant reduction in symptoms. Thirty days after discontinuing treatment, there was a slight increase in the symptoms. Many other studies on estim show the use of this type of estim in wound healing, tissue healing, edema reduction, muscle atrophy reversal. While the reason that estim can help treat these conditions is not always understood, the results can be measured. At one point, the NIH/NIDDK monograph on peripheral neuropathy had TENS listed as a modality for symptomatic relief. HVPC is a waveform that unlike TENS does reduce edema, tone muscles, show tissue healing, etc. HVPC is not just a TENS that blocks pain. The FDA has approved the Prizm unit for OTC purchase, but individuals can submit to their insurance with a Rx and may get reimbursed for the cost of the conductive garment and estim unit. Our pedorthic facility does a lot of diabetic footwear so we see quite a few peripheral neuropathy patients. Over the years we have had over 100 individuals use the home estim unit with good results in diabetic PN. Swelling in legs has improved, hypersensitivity has been reduced, numbness or loss of protective sensation has been reversed, and gait issues due to muscle atrophy have been improved over time. So even though we are not physical therapists, as pedorthists we believe that HVPC with an 8 hour treatment protocol for home use during sleep is a valid alternative when prescription drug side effects prevent a patient from getting relief of the PN symptoms. The technology costs $395 but over a year’s treatment time can be less than the copay on some PN drugs. Adverse effects are minimal and reversible. Many physicians’ patients are already having estim used for their PN but in a clinic setting where the sporadic use (2-3 times a week) may not deliver the therapy in a consistent method to do actual benefit.

  22. #22 Welk
    May 29, 2009

    Mark what a wonderful blog. Having spent the last 14 years in ICU (nursing), It is really refreshing to hear someone talk frankly about futile end of life care. I have worked with doctors from other countries and they look around our unit and declare that many of these patients would’nt be given such aggressive treatment back home. My experience with patients and their families is that they often believe that they are the exceptions to the rule.. That this disease won’t kill me…I have information that I found on the internet….I knew someone who beat this cancer…there will be a new drug developed just in time… and so on. Our hands are tied. We intubate, start pressors, sedate them for weeks…until finally the families wear down from sitting at the bedside for so long and ask us to withdraw. Every now and then I have seen a pt refuse everything and the spouse,children convince them otherwise. My coworkers and I struggle with this everyday. The one really good point you raised was how to know when the care is futile. What will we base our decisions on, statistics? Too many comorbidities?

  23. #23 Nick Johnson
    May 29, 2009

    Actually, DTCA is permitted in New Zealand, to our shame.

  24. #24 Kristjan Wager
    May 30, 2009

    There was a survey by the PNC Financial Group in 2007, which showed that one third of the health care costs in the US was due to administrative costs, according to the hospitals and insurance companies.

    I wrote a post about it back then, but to sum it up, a lot of the administrative cost is actually overhead due to the insurance companies trying to avoid paying the bills.

  25. #25 daedalus2u
    May 31, 2009

    Another administrative cost for the insurance companies is trying to figure out which patients are high risk so they can refuse to insure them.

    Another expense is making the plans so complex that they are difficult to understand so that people make mistakes in picking the right one, and so end up paying more and getting less which ends up benefiting the insurance company.

    The lobbying the insurance companies do to politicians is an expense too.

  26. #26 Tye
    June 1, 2009

    I will back up what Mark said about drug development being mainly funded by government backed grants (Mainly NIH, but we did push a few through DoD in relation to special military situations). In fact, the company I worked for received 3 patents which were all licensed out to 2 of the large pharma companies so they could do the clinical trials, and we only had 35 employees and had worked for over 12 years on one of the compounds.

    Granted the pharma co’s do a huge amount of spending and research to get the drugs up to clinical requirements but a ton of the innovation comes from publicly funded money.

  27. #27 trrll
    June 1, 2009

    I get what you’re saying here, but the issue isn’t whether such drugs can’t be sold, but whether they can be patented as “novel” drugs. To extend your metaphor, if you invented a car part that is novel and makes a more efficient engine, great. If someone else comes along and instead of using stainless steel uses a slightly different alloy, but uses the exact same mechanism is that novel? Is that good?

    This might make sense if copycat drugs were exempt from FDA-mandated clinical testing requirements, which constitute the bulk of the costs of drug development. But of course, they aren’t, and nobody seriously believes that they should be. Because it turns out that copycat drugs can and do do different things to the body. Yet somehow we are willing to believe that in terms of the therapeutic effect, they are all the same. Yet it happens all the time that a patient will be unable to tolerate one drug, or receives little benefit from it, yet does much better on another drug that, based upon what we currently know about its pharmacology, should be “essentially the same.” The fact is that we still have very limited understanding of the factors that dictate individual variability in therapeutic or adverse effects.

    But if drug companies do have to do full safety and efficacy testing on so-called “copycat” drugs, then denying patent protection means no more copycats. Which means no more options for the patient who for no fault of his own, is not like the “average” patient who responds to and benefits from the “standard” drug in its family.

    This is not to deny that there are plenty of examples of drugs for which the sole benefit seems to be extended patent protection for the manufacturer. But I don’t think that manipulating the patent system offers a cure for what really is a problem of physician ignorance and refusal to take responsibility for the financial impact of prescribing practices on patients. Very many physicians seem to have little awareness of what a medication costs, and are likely to start a patient on the “latest and greatest” version of a drug family without even trying out the well-validated medication with decades of safety and efficacy experience.

    NIH researchers take these risks because they are rewarded for finding novel mechanisms without having to make money on the final product to receive funding. They are the ones doing the low-reward, high-risk basic research. When they come up with a good idea, they patent it, drug companies buy the patent (or they often create a startup biotech company), and the pharmaceutical is subjected to clinical trials. Many of these trials are also run by the government but with the drug companies contributing the pharmaceuticals.

    NIH investigators (of which I am one) are indeed the ones who undertake basic research with a high risk of failure. But in business, risk does not mean likelihood of failure but likelihood of financial disaster. By this standard, most academic research is very low risk. Maybe a few hundred thousand dollars of NIH might go into the research that identifies a new drug target, and the risk is even lower for the researcher, who will probably learn something worth publishing along the way, whether or not the work results in a viable drug. But a pharmaceutical company must risk hundreds of millions in the pre-clinical and clinical research to identify compounds that actually work on that target, have reasonable bioavailability, and reasonable pharmacokinetics, and don’t have unexpected off-target organ toxicity. There is a reason why the pharmaceutical industry is a hot bed of mergers and acquisitions. I know people who have worked for 3 different Pharm companies over the past decade or so–and yet they are still working in the same place. If copycat drug development and marketing were really the royal road to riches, you would expect the business of industrial drug discovery to be a lot more stable, wouldn’t you?

  28. #28 Scrabcake
    June 2, 2009

    trrll,
    The video game industry makes bank and has a turnover of about 3 years per person if that much. You’d expect it to be more stable, but it’s not and there’s a reason…it’s run by morons and manchildren who wouldn’t be able to weigh a long term benefit if it laid down on a scale.

  29. #29 trrll
    June 2, 2009

    The video game industry makes bank and has a turnover of about 3 years per person if that much. You’d expect it to be more stable, but it’s not and there’s a reason…it’s run by morons and manchildren who wouldn’t be able to weigh a long term benefit if it laid down on a scale.

    I wouldn’t. Videogame companies operate on a smaller financial scale than Pharm companies, but they are similar in that they tend to be basically hit-driven. That is, there is a large (relative to company resources) investment in each project, and it is difficult to predict at the outset how likely a product is to attain commercial success. A very successful game can make a great deal of money, but a project that dies in development or that is released but fails to sell, can be financially catastrophic. The greater the degree of originality, the greater the risk, because sales become harder to predict. For a game industry, there is a solution of sorts–aggregation of small game companies into a small number of large mega-companies, with enough resources so that the successes pay for the failures (e.g. Electronic Arts). Of course, the unavoidable consequence of this is loss of diversity. This is not such a big deal for games. It may be unfortunate if gamers have only one or two choices of football games–nobody’s health is riding on whether the latest NFL video game is good. Moreover, in the case of drug development, with development costs of new drugs approaching a billion dollars, it is doubtful whether any Pharm company can ever get big enough to be insulate itself from the risk of being brought down by bad luck in its choice of drug targets. Even a good idea, based on solid basic science, can fail to be profitable. Think of all the money invested in developing COX-2 inhibitors. But it turned out that understanding of COX-2 function wasn’t quite as good as they thought. Is now the time to be bet the farm on being able to develop an effective treatment for Alzheimer’s Disease? If the prevailing A-beta theory is correct, it ought to be possible. But what if the theory is wrong?

    It’s very easy to criticize from outside, and say that “they’re all morons.” And any large business is going to have a few examples of those to point the finger of blame at. But if that were really the problem, one would expect some bright people to enter the business and make a killing. So why doesn’t it happen? Maybe the people who aren’t “morons” are smart enough to realize that it isn’t as easy as it looks?

  30. #30 Scrabcake
    June 3, 2009

    Actually, I brought up the video game industry because I used to work in it and I can honestly say that the hit to fail ratio would be much more on the side of the hits if management and marketing were more in touch with development. Usually, the guys on the ground, who in my experience tend to be the best and the brightest, have no decision making power, but can usually tell you which games are going to be good and which are not. This disconnect usually results in a lot of investments that could have succeeded going belly-up because they had no marketing budget. Other projects which depend on big brands to sell a product that is poorly designed and rushed out the door, have enormous marketing budgets and fall flat on their face, and everyone in management scratches their head and wonders why.
    I will bet that the guys actually developing the drugs can spot the hits, too. I’d bet that Bob the bottom of the corporate totem-pole scientist is among the best and the brightest… the guys in management and marketing, maybe not so much.

  31. #31 trrll
    June 3, 2009

    Usually, the guys on the ground, who in my experience tend to be the best and the brightest, have no decision making power, but can usually tell you which games are going to be good and which are not.

    I have no doubt that this is what the “guys on the ground” like to tell themselves. Nor do I have any doubt that there are companies with idiots in management and marketing. But there have been plenty of game companies started by game developers, yet somehow the game development business remains risky, particularly for novel game designs. There is a long list of games that almost everybody thought were brilliant, that received top reviews, and yet somehow they never managed to find much of a market.

    I will bet that the guys actually developing the drugs can spot the hits, too.

    Not really. Biology is complicated. IF the A-beta hypothesis is correct, THEN a drug that reduces production of A-beta will be therapeutic in Alzheimer’s Disease. From talking to the guys on the ground, I’d say most of them believe in the A-beta hypothesis. But they aren’t absolutely sure. What would make them sure? Well, showing that a drug that reduces A-beta production is therapeutic in Alzheimer’s Disease. But of course, that requires an investment of hundreds of millions of dollars, and therein lies the rub.

  32. #32 Deen
    June 4, 2009

    When you mentioned the higher prices of drugs in the US, I had to think about this:

    In the Netherlands, just last year, another source of unnecessary healthcare expenses was removed. When doctor here prescribes some medicine, and you go to the pharmacy to pick it up, the pharmacy is free to pick the alternative that appears the most suitable for the patient. For years, pharmacies had been receiving bonuses and kickbacks from the pharmaceutical industry to prescribe their brands, instead of cheaper no-brand alternatives. The healthcare insurance covered both anyway, so patients didn’t mind either way. However, it did of course unnecessarily increase the overall cost of healthcare, with the extra money going straight into the pockets of pharmacists and the big pharmaceutical companies.

    This practice has now been banned by the government: insurance now only covers the cheapest alternative. Under loud protests from the pharmacies, of course. It turned out that these kickbacks actually formed a considerable part of their income. The didn’t get much public sympathy though…

    Is it possible that similar practices are going on in the US as well, and that they are at least partly responsible for the more expensive “drug mix” that the US appears to have?

  33. #33 trrll
    June 4, 2009

    Is it possible that similar practices are going on in the US as well, and that they are at least partly responsible for the more expensive “drug mix” that the US appears to have?

    No, US pharmacies have long been required to provide the cheapest generic version of the prescribed drug unless the doctor specifies no substitutions.

  34. #34 Deen
    June 4, 2009

    @trrll: thanks, good to know.

  35. #35 daveguy1
    June 24, 2009

    Regarding patent protection for copy-cat, same MOA drugs I disagree that their patent protection should be limited. As state previously, this protection has allowed for the development of a fentanyl lolly-pop and fentora. 2 treatment options that benefit patients that would not have been developed if patent protection didn’t exist and there wasn’t a medical need for them.

    Prices of drugs are lower in other western countries because the governments impose price controls or won’t reimburse them if they feel the price is to high (NICE). Only the US allows complete pricing freedom and then doesn’t give sufficient power to medicare to either negotiate a lower price or have a formulary of “preferred” or 1st tier drugs per indication to bargain with. Other countries require that pharmacoeconomic evidence be provided to prove that the cost of the medication is justified.

  36. #36 john harris
    August 26, 2009

    Hello. As far as tort reform. You cite the JAMA polls which seem to take doctors at their word. You haven’t talked about the studies from the CBO, GAO or the now defunct OTA.

    The CBO report in particular discusses the effect of tort reform on defensive medicine. Although they admit that their studies are not conclusive, the evidence points to no or very little impact. The “little impact” is about 8% of the total defensive medicine expenditures, according to the OTA. Since it’s estimated that defensive medicine is about 10% of overall health care costs, that means tort reform would reduce overall healthcare cost by .8% at most.

    Malpractice insurance premiums are supposed to claim less than 1% of overall cost and liability wins claim about 1.5% to 2% of overall costs. So, at the highend this whole area of malpractice insurance and tort reform would save at most less than 4% of overall medical costs. Personally I don’t think restricting access to the judicial redress is worth less than 4% of that cost.

    The following are links to the reports I’ve mentioned:

    http://www.cbo.gov/ftpdocs/49xx/doc4968/01-08-MedicalMalpractice.pdf

    http://www.gao.gov/new.items/he00005.pdf

    http://biotech.law.lsu.edu/policy/9405.pdf

    Also of interest, (and what led me to these reports),

    http://www.factcheck.org/president_uses_dubious_statistics_on_costs_of.html

  37. #37 john harris
    August 26, 2009

    Sorry. I wrote:

    “that means tort reform would reduce overall healthcare cost by .8% at most.”

    I meant to say tort reform would reduce defensive medicine costs by .8% at most.

    As I said, the overall healthcare cost from tort reform and and reduced malpractice insurance premiums – this whole area – would be less than 4%

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