Cartoon of the day

Special mention

Cartoon of the day

Special mention

 

Cartoon of the day

Special mention

Cartoon of the day

Special mention

Cartoon of the day

Special mention

 

Unhealthy healthcare: Big Pharma

As I’ve been discussing over the course of the past week, the U.S. healthcare system is a nightmare, at least for workers and their families. It costs more and provides less than in other countries. Employees are being forced to pay higher and higher fees (in the form of premiums, deductibles, and other charges). And it relies on a private health-insurance industry, which is increasingly concentrated and profitable.

What about the other part of the system, the actual provision of health care? I’m thinking, in particular, of the pharmaceutical industry (which I focus on in this post) and hospitals (which I’ll take up in a future post).

According to a recent study by the Wall Street Journal, consumers in the United States nearly always pay more for branded drugs than their counterparts in England (39 higher and 1 lower), Norway (37 higher and 3 lower), and Ontario, Canada (28 higher and 2 lower). Thus, for example, Lucentis (which is used for the treatment of patients with wet age-related macular degeneration and other conditions) costs $1936 in the United States but only $894 in Norway, $1159 in England, and $1254 in Ontario. The same is true for many other drugs, from Abraxane (for treating cancer) to Yervoy (for treating skin cancer).

Part of the reason is that, in other countries, public healthcare systems have substantial negotiating power and are able to bargain with pharmaceutical companies for lower prices (or, in the case of Canada’s federal regulatory body, to set maximum prices). The U.S. market, however, “is highly fragmented, with bill payers ranging from employers to insurance companies to federal and state governments.” In particular, Medicare, the largest single U.S. payer for prescription drugs, is legally prohibited from negotiating drug prices.

On the other side of the market, the U.S. pharmaceutical industry has become increasingly concentrated through a wave of numerous and increasingly large merger-and-acquisition deals. According to Capgemni Consulting, since 2010, approximately 200 pharmaceutical and biotech deals have taken place per year in the United States. 2014 saw several of the largest deals in the pharmaceutical industry to date, including the $66-billion purchase of Allergan by Actavis, Merck unloading its consumer health unit to Bayer, GSK and Novartis’s multibillion-dollar asset swap, as well as Novartis’s animal health unit sale to Eli Lilly.

Although high-profile, major acquisitions outweigh other deals by value, over 90 percent of deals were relatively small in size (less than $5 billion). Clearly, the motivation in these smaller deals is different.

Failure of bigger pharmaceutical companies to consistently develop new drugs and pressure from shareholders to deliver returns have forced large pharmaceutical companies to look outside for innovative drugs. This has resulted in new drug approvals emerging as a major trigger for acquisitions.

The fragmented, unregulated system of drug purchases in the United States, combined with growing concentration of the pharmaceutical industry, means that health technology—with a 20.9 percent net profit margin—is now the most profitable industry in the country.

High drug prices are one of the key factors behind rising U.S. healthcare costs, and one of the main reasons why American workers pay more and yet receive poorer healthcare than in other rich countries.

Addendum

As if to confirm my analysis of the role of the pharmaceutical industry in creating a nightmarish U.S. healthcare system, we now have the examples of the Epipen and Pfizer.

As Aaron E. Caroll explains, the story of EpiPens is not just about how expensive they’ve become; it also reveals “so much of what’s wrong with our health care system.”

Epinephrine isn’t an elective medication. It doesn’t last, so people need to purchase the drug repeatedly. There’s little competition, but there are huge hurdles to enter the market, so a company can raise the price again and again with little pushback. The government encourages the product’s use, but makes no effort to control its cost. Insurance coverage shields some from the expense, allowing higher prices, but leaves those most at-risk most exposed to extreme out-of-pocket outlays. The poor are the most likely to consider going without because they can’t afford it.

EpiPens are a perfect example of a health care nightmare. They’re also just a typical example of the dysfunction of the American health care system.

And then we have Pfizer’s purchase of part of AstraZeneca’s antibiotics business, which doesn’t involve the development of any new drugs but (for $550 million upfront plus an unconditional $175 million in January 2019, and possibly a further $850 million plus royalties), Pfizer will have the right to sell three approved antibiotics and two drugs in clinical trials in most markets outside the U.S. and Canada, plus an additional drug (Merem) in North America.

Guaranteed income for all?

Sure, Swiss voters rejected a proposal to guarantee an income to all residents, whether or not they are employed.

But 23 percent did vote in favor of the idea, which itself is a victory given the full-scale campaign against the proposal—by mainstream economists and many others.

Critics have called the initiative “a Marxist dream”, warning of sky-high costs and people quitting their jobs in droves, to the detriment of the economy. “If you pay people to do nothing, they will do nothing,” said Charles Wyplosz, economics professor at the Geneva Graduate Institute.

And then there was the anti-immigrant argument by the right-wing Swiss People’s Party (SVP):

SVP spokeswoman Luis Stamm told the BBC: “Theoretically, if Switzerland were an island [basic income] would be possible.

“You could cut down on existing social payments and instead pay a certain amount of money to every individual.

“But with open borders it’s a total impossibility. If you would offer every individual a Swiss amount of money you would have billions of people who would try to move into Switzerland.”

Still, the idea of a guaranteed basic income continues to grow, with trials planned for the Canadian province of Ontario, Finland, and the Dutch city of Utrecht.

Interest in the United States is also increasing, although a proposal by the likes of Charles Murray is going to undermine what support the idea currently has among people who actually work for a living. That’s because Murray wants to use a guaranteed income not only to replace existing anti-poverty and corporate-welfare programs, but also to eliminate Social Security and Medicare.

The whole idea behind a guaranteed income is to decommodify areas of economic and social life, building on Social Security and Medicare, which are based on the idea that the larger community uses a portion of the surplus to take care of some of its members, outside commodity exchange. Murray (along with other conservatives who support a basic income) wants to do exactly the opposite: force people to use their basic income to purchase additional commodities, even after retirement.

That’s not a guaranteed basic income. That’s just more freedom to choose private commodities.

Cartoon of the day

Special mention

 

“The poor die young”

In Time, as you can see in the official trailer, is set in the “near future.”

But economic inequality has caught up with us sooner than expected. Right now, according to the New York Times,

Despite big advances in medicine, technology and education, the longevity gap between high-income and low-income Americans has been widening sharply.

The poor are losing ground not only in income, but also in years of life, the most basic measure of well-being. In the early 1970s, a 60-year-old man in the top half of the earnings ladder could expect to live 1.2 years longer than a man of the same age in the bottom half, according to an analysis by the Social Security Administration. Fast-forward to 2001, and he could expect to live 5.8 years longer than his poorer counterpart.

And it gets worse.

According to a new study by Barry Bosworth, Gary Burtless, and Kan Zhang (pdf), not only is there a large gap in life expectancy between those at the top and bottom of the economic scale. It’s actually been growing.

The authors find, for example, that the average life expectancy of a man born in 1920 in the top 10 percent of the mid-career income distribution is 79.3 years. The same man in the bottom 10 percent of the distribution has an average life expectancy 5 years lower. However, for men born 20 years later (in 1940), the difference in average life expectancy is 12 years.

The large and growing gap in life expectancy in the United States is even more grotesque when compared to our neighbors to the north. Again, according to the New York Times,

The experience of other countries suggests that disparities do not necessarily get worse in contemporary times. Consider Canada, where men in the poorest urban neighborhoods experienced the biggest declines in mortality from heart disease from 1971 to 1996, according to a 2002 study. Over all, the gap in life expectancy at birth between income groups declined in Canada during that period. And a study comparing cancer survival rates found that low-income residents of Toronto had greater survival rates than their counterparts in Detroit. There was no difference for middle- and high-income residents in the two cities.

“There are large swaths of the population that are not enjoying the pretty impressive gains the rest of us are having in life spans,” said Christopher J. L. Murray, director of the Institute for Health Metrics and Evaluation in Seattle. “Not everybody is sharing in the same prosperity and progress.”

A lot of liberals are complaining these days about focusing too much on the causes and consequences of economic inequality.

They’re just wasting our time.

Academic unfreedom in economics

We forget, at our peril, the extent to which academic unfreedom is enforced in departments of economics across North America.

Most departments of economics offer—in the classroom and in terms of research and policy advice—only mainstream economics. By that I mean they hire economists who only teach, conduct research, and offer policy advice defined by one or another version of mainstream (neoclassical and Keynesian) economics. Other approaches to economics—generally, these days, referred to as heterodox economics—simply aren’t recognized by or represented within those departments. That was true in the decades leading up to the crash of 2007-08 and, perhaps even more startling, it has continued to be the case in the years since.

That’s particularly true in departments that have doctoral programs in economics. While heterodox economists are often hired by undergraduate departments (such as, most famously, the University of Southern Maine), you simply won’t find heterodox economics or heterodox economists at Harvard, MIT, Princeton, Yale, and Chicago.

Now, there have been a few departments of economics over the years that have been defined in terms of a significant presence (although generally still a minority view) of heterodox economics. The University of Massachusetts Amherst was certainly one of them (which, to offer the appropriate disclosure, is where I did my doctoral work). The list also includes the New School for Social Research, the University of California-Riverside, American University, and, more recently, the University of Missouri-Kansas City.

I was in fact hired by another of those departments, at the University of Notre Dame, which as readers of this blog know was first split off as a separate department (in 2003) and then (in 2010) simply dissolved by the administration of the university.

What was extraordinary about that episode was the length mainstream economists (and their allies within the university administration) were willing to go to stamp out any and all forms of nonmainstream economics. Not, to be clear, because there was any kind of financial crisis, but simply to first marginalize and then remove entirely the existence of heterodox economics from the curriculum, research profile, and policy recommendations of the department.

I note that history because it was invoked in the extensive investigation of academic freedom in the Department of Economics at the University of Manitoba by the Canadian Association of University Teachers (pdf).* The department at Manitoba is the only place in Canada where doctoral students can receive significant training in nonmainstream or heterodox economics. According to the report,

Prior to 2006, the Department of Economics approached hiring, curriculum and pedagogical issues with an approach that made room for heterodox, as well as mainstream views, although the heterodox group remained a minority of the department. This was achieved through a solid degree of good will that permeated the Department.

After that, the “solid degree of good will that permeated the Department” was undermined by the orthodox or mainstream members of the department who, in various ways, sought to “to change the direction of the Economics Department by moving to a more mainstream/orthodox emphasis.” The problem of academic freedom within the department, according to the student newspaper, has still not been resolved.

What is extraordinary in all of this is how few departments there are in all of North America where doctoral students can be exposed to and learn—not to mention, after they complete their degrees and then find a job, teach, conduct research, offer policy advice associated with—heterodox approaches to economics. And, on top of that, in the few departments where both mainstream and heterodox approaches are in fact represented, the length to which mainstream economists (and, as I wrote above, their allies within university administrations) will go to marginalize or eliminate heterodox approaches to economics.

The University of Manitoba is just the latest example in the long line of attempts to define, impose, and police the rules of academic unfreedom in the discipline of economics in North America.

*Just to correct the historical record, though, the 2003 decision to split the Department of Economics at the University of Notre Dame was opposed by 11 of the 16 members of the department, a group that included both mainstream and heterodox economists. Because they were opposed to the split, they were not invited to join the new Department of Economics and Econometrics, which defined itself from the beginning as a purely neoclassical program.