The wildly outrageous costs of pharmaceutical drug production

Drug companies – “Big Pharma,” as they are called – are targets in America. Especially with Mylan’s recent EpiPen pricing issue and earlier when Turing’s odious CEO Martin Shkreli raised the price of Daraprim by more than 55 times, from $13.50 per pill to $750 per, and his smug reaction to criticism over that questionable move. There are bad guys in all areas of life, of course, and pharmaceutical companies are no exception. Perhaps these two examples are evidence of bad players at work.

Without getting into the minutiae of either of these situations – and certainly not defending either Mylan or Turing – here is some badly needed and eye-opening information about the business of producing pharmaceuticals.

Making drugs is a business, and like other manufacturers drug producers find something people need or want and produce it. Life-saving drugs, or drugs that improve our health are valuable and needed. Drug companies spend billions of dollars over many years to develop useful, needed pharmaceutical products, improve them so that they will meet or surpass the FDA’s strict standards, and once approved market them.

In June of this year, the American Action Forum released research addressing the process of producing new drugs. The process “is extraordinarily expensive and time consuming,” the article stated. “A Tufts University study found that the average cost to bring just one drug to the market is about $2.6 billion. It takes an average of 15 years from the time a drug developer first begins testing a new formula until it is approved by the FDA. Only 1 in 1,000 drug formulas will ever enter pre-clinical testing, and of those, roughly 8 percent will ultimately receive FDA approval.”

Let’s say PharmX creates 100,000 drug formulas, but only one in a thousand, or 100 of them, gets to pre-clinical testing and only eight will receive FDA approval. PharmX will have invested on average $2.6 billion in each one of the eight. The company has to sell enough of each of those eight drugs to pay for its development, and to have enough left over to finance new research and development, and some profit.

Like other inventors, drug companies patent their products, or receive an exclusivity period. A patent is issued for 20 years from the date of filing, and drug makers usually file early in the development stage to prevent other companies from moving in on their idea. If it takes an average of 15 years to get a drug through approval and to market, the pharmaceutical company has on average only five years to sell enough of the drug to recoup the $2.6 billion in development, approval and marketing costs. At the end of the patent period and/or the exclusivity period, another drug maker might make a generic form of the drug, and sell it for a lot less.

So, when you do the math for a drug with development costs of $2.6 billion, you find that if PharmX charges a dollar a dose, it will have to sell 2.6 billion doses in five years just to break even. If PharmX charges $100 a dose, it will have to sell 26 million doses in five years, just to break even. John LaMattina, senior partner at PureTech venture capital, noted that drug development “is a high-risk, expensive, and long-term endeavor.” Classic understatement.

Another aspect of this issue is when drugs made by US companies cost more at home than they do in other countries, such as Canada. It doesn’t seem right that Canadians can buy American drugs cheaper than Americans can. But what is the drug company supposed to do when the Canadian government, or another government, wants to buy millions of dollars of its product at lower than market price when it is trying to recoup billions in costs? There are likely other drugs made by other companies that treat the same disease that these governments could buy instead, so should the drug company pass up that opportunity, leave the millions of dollars on the table, and perhaps suffer financially as a result, while a competitor sells millions of dollars of its product to these countries at a below-market price?

Another obstacle to manufacturers’ ability to recoup the cost of bringing a new drug to market is that regulations imposed by other countries, perhaps to protect one of their own companies, makes the potential market for sales smaller.

And, despite the rigorous development and testing process required to gain the FDA’s approval that the drug is safe for public use, the required warnings about potential side effects and such that go on product sheets, and the fact that drugs are prescribed by patient’s doctors, drug manufacturers still get sued by patients.

Doing business in the U.S. is a real challenge, with often burdensome and unreasonable regulations and other hurdles that must be negotiated that make producing needed and wanted products and services difficult and expensive.

The more expensive drug production is, the greater the need for high prices. While we would all like lower prices for drugs and healthcare in general, we also want to continue to have companies developing new and better drugs and medical devices.

Liberal legislation continues to disrupt our healthcare system

By the time you read this the physician reimbursement crisis may have been averted, yet again. But if not, doctors who still treat Medicare and Medicaid patients will see a reduction of 21.2 percent for Medicare patients and as much as 42.8 percent for Medicaid patients for services rendered on or before March 31, unless Congress enacts another “doc fix” before April 1

If the “doc fix” hasn’t yet been approved and isn’t approved today, both Medicare and Medicaid patients may have a far more difficult time getting medical care. And if it is fixed this time, what will happen when this fix expires?

This is yet another of the blessings of Obamacare, the Patient Protection and Affordable Care Act, enacted in 2010, and through tortured legal reasoning was ruled constitutional by the U.S. Supreme Court.

Obamacare is not the first government action to reduce reimbursements for Medicare and Medicaid patients, but because Obamacare put millions more people in the Medicaid system in order to increase the number of Americans who could then be counted as “insured,” it gets credit for the current crisis. And to keep down vocal physician opposition to adding millions more to an already broken system, Congressional Democrats who created Obamacare included a two-year increase in reimbursement rates that are now set to expire April 1, and that means the lower reimbursement rates will be back, if the “doc fix” isn’t passed.

Doctors generally get paid less for Medicaid and Medicare patients than their cost basis in treating them, and situations like this one magnify that problem. Consequently, some doctors limit the number of Medicaid and Medicare patients they see, and some do not treat them at all. Don’t be surprised if this situation causes more doctors to join those ranks every year until reimbursements for services to these patients are stabilized at a higher level so that doctors don’t lose money treating them.

On one hand we should support efforts to reign in absurdly high levels of government spending, which in 2014 was approximately 17 percent higher than revenue, meaning that for every dollar of tax revenue there’s 17 cents of deficit spending that the government has to borrow. But on the other hand, shortchanging physicians who treat America’s elderly and low-income or welfare-supported citizens is a foolish way to do that.

This is especially unfair to Medicare patients, who are not welfare recipients, and who, of all those who receive government benefits, are truly entitled to them. They receive essentially their own money, and that of their employers, both of whom had money taken from them by the government to fund Social Security, and later Medicare. These benefits are not the same as Medicaid, food stamps, child support and other welfare money.

The Social Security Act was passed in 1935 and is a promise government made to American workers and their employers that the money government took from them would be put in a trust fund and invested, and returned to them in their later years.

Predictably, the government then used that money for other purposes, not for the benefit of the people the Social Security Trust Fund exists to serve. The Trust Fund is now bankrupt, for all practicable purposes, being in the red approximately $300 billion.

And that raises the question: How is it possible that the Social Security Trust Fund, which was built by the monetary contributions of its recipients and their employers, can run out of money, but the “fund” that pays from $700 billion to $1 trillion annually for welfare in all its numerous forms, never runs out of money?

The “doc fix” that will help doctors who treat Medicare and Medicaid patients will also add to the deficit, and that obviously is bad. We need to spend less money, but we also need to not limit medical care to those who need it. The solution lies in repairing the Medicaid system, which provides care to millions, and many are perfectly capable of funding some or all of their own care. Welfare must be reserved for those who are truly needy and have no other solution.

And now, from centuries ago, here is a statement addressing the situation in which our once great nation now finds itself:

"A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself. For the traitor appears not a traitor; he speaks in accents familiar to his victims, and he wears their face and their arguments, he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist. A murderer is less to fear. The traitor is the plague." - Marcus Tullius Cicero (106-43 B.C.)

Ebola infected West Africa – Will it now infect the United States?

President Barack Obama said the following on September 16 at the Centers for Disease Control and Prevention in Atlanta: “First and foremost, I want the American people to know that our experts, here at the CDC and across our government, agree that the chances of an Ebola outbreak here in the United States are extremely low. We’ve been taking the necessary precautions, including working with countries in West Africa to increase screening at airports so that someone with the virus doesn’t get on a plane for the United States. In the unlikely event that someone with Ebola does reach our shores, we’ve taken new measures so that we’re prepared here at home. We’re working to help flight crews identify people who are sick, and more labs across our country now have the capacity to quickly test for the virus. We’re working with hospitals to make sure that they are prepared, and to ensure that our doctors, our nurses and our medical staff are trained, are ready, and are able to deal with a possible case safely.”

Four days later the “unlikely” occurred: the first person infected with Ebola arrived in the U.S. from Liberia, where he had assisted an infected woman, become contaminated, but did not tell anyone about it in order to get on a plane and travel to Dallas, Texas. It took three different flights for him to get here and no one along the way apparently knew he had been in Liberia, or was able to determine that he had been infected, since he was asymptomatic until after he got here.

After developing a fever, he visited Texas Health Presbyterian Hospital, was treated and sent home, despite having recently been in Liberia. He was staying with relatives in Dallas and as the disease progressed he got sicker and became contagious, and after that he returned to the hospital and was diagnosed with Ebola. Several days later, he passed away.

His relatives were exposed to Ebola, and the residence and outside areas were contaminated. Who knows how many others were exposed to the virus?

Mr. Obama said we can handle this, should the need arise. But the need arose, and a well-respected hospital didn’t handle the first infected person very well at all.

The first airport screenings began Saturday at New York’s John F. Kennedy International Airport in New York. Other airports were to begin screenings this week. Screenings at African airports and another screening at U.S. airports, the president said, would make it unlikely that someone infected with Ebola will get to the U.S.

Given the botched handling of the first Ebola patient in our country, can we believe Mr. Obama? “No matter how many of these procedures are put into place, we can’t get the risk to zero,” said the Centers for Disease Control and Prevention’s Martin Cetron, director of the Division of Global Migration and Quarantine. He told a news conference that these new measures wouldn’t necessarily have detected Ebola in the patient who traveled to Dallas.

Complicating an already unnerving situation, a second case of Ebola at the Dallas hospital has now been confirmed. A female nurse who had cared for the Ebola patient prior to his death was assessed on Friday, CDC Director Dr. Thomas Frieden said, and on Sunday it was confirmed that the nurse has Ebola.

The nurse’s infection is blamed on a breech of protocol. One report said that when removing the protective clothing she was wearing, the nurse inadvertently touched her cheek with her gloved hand, a glove that was contaminated with the virus. And now she has Ebola. And now, the disease has a small, but troubling presence in America.

This second error at this hospital has put other hospital personnel at risk, and may have infected one or more of them. Raise your hand if you believe the U.S. healthcare system really is prepared to deal with Ebola patients.

Even without these errors in handling Ebola in Dallas, it simply makes no sense either to bring potential or actual Ebola patients here, or allow people from countries where the disease exists to come here. Why take the chance of exposing Americans, particularly healthcare workers, to this vicious disease?

Columnist Thomas Sowell outlines the situation: “There was a time when an outbreak of a deadly disease overseas would bring virtually unanimous agreement that our top priority should be to keep it overseas. Yet Barack Obama has refused to bar entry to the United States by people from countries where the Ebola epidemic rages, as Britain has done. In other words, the safety of the American people takes second place to the goal of helping people overseas.”

President Obama has a giant blind spot when it comes to protecting the country from illegal entry of who knows who through the southern border, and now that blind spot extends to failing to stop people potentially infected with Ebola from coming into the U.S.

In situations like this one, we need to be smart, not compassionate. We can help the unfortunate West Africans by sending medical supplies and assistance without needlessly putting ourselves at risk. And we must.

Obamacare has been successful only in its ability to create chaos

Many people who have influence with President Barack Obama have gotten relief from the terrors of the Affordable Care Act we now know as Obamacare, but the great majority of the American people are still expected to follow the dictates of the healthcare “reform” law next month. 

The administration’s announcement July 2 delaying the employer mandate was the first in a series of goodies provided to favored constituencies. And, about 20 percent of waivers went to gourmet restaurants, nightclubs, and fancy hotels in Rep. Nancy Pelosi’s (D-Cal.) district. 

But as maddening as this discrimination is to us common folk, exempting Members of Congress and their staffs is far worse. 

Under heavy pressure from Democrat leaders, Mr. Obama agreed to ignore the terms of the law that he pushed so hard for and now requires taxpayers to subsidize coverage for representatives, senators, and their employees to lessen the financial burden of Obamacare.

What a hardship these taxpayer-supported elected officials and employees suffer: The Office of Personnel Management reported that as of September 2012, the average salary for a full-time, permanent, non-seasonal government position was $78,467, and rank and file members of Congress make $174,000. The average American in the private sector makes less than $50,000.

It is possible for others to receive subsidies, too, and the key is income level. But, typical of this law’s rampant failures, there is no mandate to verify eligibility for a subsidy, virtually guaranteeing extensive fraud, and an additional expense burden on taxpayers. 

Only about 36 percent of Americans have a positive opinion of the law, and now even Mr. Obama’s strong union supporters are calling for repeal or major repair of this debacle because it is decimating the 40-hour workweek that is the backbone of unionized labor.

Throughout the debate over Obamacare, a major claim was that it would cover the 30 million people that at the time did not have some sort of health insurance, ignoring the fact that a significant number chose not to have insurance. However, the Congressional Budget Office says that over the next decade there will never be a point where the number of Americans who remain uninsured will drop below 30 million. In other words, the main reason for ramming Obamacare down the throats of 270 million people who were happy with their health insurance is a falsehood.

Other of the President’s promises also have been broken:

Promise: “If you like your health care plan, you’ll be able to keep your health care plan, period."

Truth: As many as 30 percent of employers will stop providing their existing health care coverage, while many are reducing employee hours below the 30-hour/week full-time level, or are trimming total employees to fewer than 50 to escape the crushing costs imposed by Obamacare.

Promise: “I will not sign a plan that adds one dime to our deficits — either now or in the future."

Truth: We now know that health care “reform” will cost a trillion dollars.

Promise: “I will protect Medicare.”

Truth: Obamacare ends Medicare as we know it by imposing, among other things, severe reimbursement cuts that threaten access to care for seniors.

Promise: “I will sign a universal health care bill into law by the end of my first term as president that will cover every American and cut the cost of a typical family’s premium by up to $2,500 a year.”

Truth: There are at least 12 ways that Obamacare will increase premiums instead of reducing health care costs.

Promise: “Under my plan, no family making less than $250,000 a year will see any form of tax increase.”

Truth: Obamacare includes tons of new taxes and tax hikes. One that began this year is the 2.3 percent excise tax on manufacturers and importers of certain medical devices that will raise $20 billion by 2019.

It’s not that Barack Obama deliberately misleads; it’s just that so much of what he says isn’t true.

Few people now defend Obamacare besides the Congressional Democrats who participated in the dishonorable process of throwing it together, voting for a 2,700-page bill they had never read, and which had zero bi-partisan support.

Many believe that Barack Obama never really cared what was in the Affordable Care Act or if it ever makes it to implementation, and in fact wants it to fail miserably. And that’s because once it becomes law, replaces the prior system, and causes mass chaos, the stage would be set to move to a single payer, government healthcare system as the only way to fix the resulting mess.

In his worldview, socialistic/communistic systems are the solution to all the country’s problems, and that is how he wants to “fundamentally transform the United States of America.”

The best thing for the country is to repeal Obamacare and begin again to make the several relatively minor adjustments to the current system that should have been done several years ago. Short of that, delay implementation for everyone until the numerous problems can be addressed and repaired.

Neither is likely to happen, of course, because too many people can’t admit they made a mistake, or they truly want government controlled health care.

Obamacare’s serious weaknesses driving even strong supporters away

Although Sen. Max Baucus (D-Mont.) only recently acknowledged that the health care reform bill he helped create – the Patient Protection and Affordable Care Act (ACA), also known as Obamacare – is a “train wreck,” most Americans suspected that at its creation.

Things are so bad that President Barack Obama, trying to prevent some of the disastrous results, did something he is not allowed by the U.S. Constitution to do: postpone implementation of part of the law by suspending the employer mandate until 2015 and leaving the rest of the law intact. The Executive Branch of our government is obligated to enforce the laws – all of them, and all of each of them – and does not have the power to choose which ones, or parts thereof, it will enforce.

The House of Representatives passed two measures delaying the employer and individual mandates for one year, with 35 and 22 Democrats respectively joining in those efforts, which Mr. Obama has curiously threatened to veto.

And more recently, one of Obamacare’s most devoted groups of supporters has jumped ship. In a letter to Democrat Congressional leaders, Teamsters union president James Hoffa, and the presidents of two other unions, said this: “Right now, unless you and the Obama Administration enact an equitable fix, the ACA will shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.”

The law has already encouraged some employers to trim their staffs to fewer than 50 full-time employees to avoid the expense of the mandate, and in other cases to decide against providing insurance altogether, and pay a much cheaper fine.

Nevertheless, Mr. Obama declared last week that "the law is working the way it was supposed to for middle-class Americans,” and criticized House Republicans for trying to dismantle it.

Polling data from five different polling organizations from mid-May through July 13 shows continuing disfavor among Americans, with the disparity of opposition-to-support running from as little as 5 points to as much as 15 points, and the Real Clear Politics average of the five polls at 10.2 points.

According to the Gallup poll from late last month, 42 percent say that in the long run the law will make their family's healthcare situation worse, and only 22 percent say it will make it better. And 47 percent believe the law will make the healthcare situation in the U.S. worse, while only 34 percent say it will make it better.

Republicans also are criticized for offering no alternatives while trying to dismantle the measure. “Three years after campaigning on a vow to ‘repeal and replace’ President Barack Obama’s health care law, House Republicans have yet to advance an alternative for the system they have voted more than three dozen times to abolish in whole or in part,” Sunday’s editorial in The Washington Post complained. That ignores, however, H.R. 3400 - Empowering Patients First Act, introduced in 2009 before Republicans campaigned for and won control of the House.

And now there is another, H.R. 2300 – the Empowering Patients First Act of 2013. Its principal sponsor is Rep. Tom Price (R-Ga.), who sponsored H.R. 3400, and he has credentials for health care issues matched by few in the Congress. Rep. Price is also Dr. Price, a physician who actually delivered and understands patient care.

This measure allows patients, families and doctors to make medical decisions, not Washington, DC. That is an excellent place to begin improving health care. What a shame that wasn’t the driving factor behind the ACA.

“You can get folks covered, you can solve the insurance challenges, and you can save hundreds of billions of dollars in this health care system,” said the physician/Congressman, “all without putting Washington or health insurance companies in charge of those decisions that ought to be between patients, and families and doctors.”

How can H.R. 2300 – a bill of only 249 pages, less than a tenth the length of the monstrous Obamacare bill – accomplish this?

Rep. Price describes it as comprehensive legislation under which “every single American has the financial feasibility to purchase the coverage they want, either through tax deductions, or credits, or advanceable credits or refundable advanceable credits so that they can purchase the coverage they want for themselves or their families, not what the government forces them to buy.”

He says further that everyone owns their own coverage, like a 401k plan, so if they change their job or lose their job, they take their coverage with them, and it allows all of those with pre-existing conditions to pool together, giving them the purchasing power of millions so that no one person’s adverse health status will change the cost for anyone else, including that one person.

While H.R. 2300 has the great advantage of being properly focused on patients and physicians, trying to straighten out the voluminous failures of the ACA in one bill is a Herculean feat. Obamacare needs to be repealed in total, and as soon as possible, and then Congress must undertake a sensible approach to correcting the problems of the health care system without turning it over to the government.

Did you slip and fall into your garbage can? There’s a code for that!

The Affordable Care Act has forced insurance costs higher, encouraged many employers to bail out of providing health plans for their employees or cut employees or reduce hours to below the full-time threshold to avoid the higher costs, and has unleashed thousands of pages of new regulations. But intrepid federal bureaucrats charge ahead with even more requirements for providers, one of which is a revamping of the codes used to identify the medical services that providers use to bill insurers.

Currently, there about 18,000 such codes and one might be fooled into believing that is enough. But the devoted folks who get paid to generate new codes have been hard at work revamping the code system and the new list contains nearly 8 times the former number, checking in at 140,000 medical codes. The feds reason that more specific information is needed to adequately communicate what doctors and hospitals do for their patients, as well as what patients may have done to require a visit to a provider.

New codes describe precisely what bone was broken, or which eye was blackened, and tell insurers whether your injury occurred in, for example, an opera house, an art gallery, on a squash court, or in one of nine locations in and around a mobile home.

Some of them push the limits of propriety. Code R46.1 is for "bizarre personal appearance," while code R46.0 is for "very low level of personal hygiene." Others tell insurers whether an injury caused by walking into a lamppost was the "initial encounter," or a "subsequent encounter."

There is a group of codes that clarify whether you were injured while sewing, ironing, crocheting, doing handcrafts, knitting, or my personal favorite, playing a brass instrument. (Brass players are now churning out imaginative scenarios for how these injuries might have occurred.) There is also a code indicating that a patient's injury occurred in a chicken coup.

Speaking of birds, there are 72 codes for patients who have run afoul of these creatures, and being bitten by a parrot has a different code than if said parrot flies into you, or if you are bitten or flown into by a macaw or a goose. There are nine different codes for each of the six different species of bird.

The folks that developed the system—generally known as ICD-10, for International Classification of Diseases, 10th Revision—say "the codes will provide a more exact and up-to-date accounting of diagnoses and hospital inpatient procedures, which could improve payment strategies and care guidelines," and their use is scheduled to be required in two years. Pat Brooks, senior technical adviser at the Centers for Medicare and Medicaid Services explains that "It's for accuracy of data and quality of care."

As a side note, healthcare reform, known more commonly as Obamacare, is deemed so important that the furloughs that befell air traffic controllers did not extend to Obamacare regulators and code generators, according to Gary Cohen, director of the Center for Consumer Information and Insurance Oversight, who said that his office has not cut its workers’ hours and pay as a result of the automatic budget cuts that went into effect in March. This information should help convince doubters that the pain of the sequester is a conscious political choice of the administration, and not a requirement of the sequester.

While federal bureaucrats are busy, busy, busy improving the healthcare system with mountains of new regulations and charge codes, some of the people who actually provide care are taking different approaches, some of them good, and some not.

A recent Deloitte Center for Health Solutions survey of over 600 doctors reveals that 6 in 10 may retire earlier than they had planned, and will do so in the next three years, due to the effects of the Affordable Care Act on how they practice medicine.

Further, many providers will leave the private sector to work for hospitals or accountable care organizations, and others are fighting back against massive government interference in the doctor-patient relationship by reverting to an older direct primary care model that eschews health insurance in favor of fee-for-services, such as an office visit for $20 or a house call for $100. Some offer a membership plan where patients pay a set fee per month for physician services.

Getting away from health insurance, government regulations and other requirements reduces costs substantially, allowing doctors to provide services at affordable prices, and has the further advantage of allowing doctors to escape "assembly line medicine," all of which may benefit the relationship between providers and patients. In contrast to Obamacare, this is a real improvement in the system.

Finally, even supporters of this Rube Goldberg-like contrivance are starting to realize its boundless weaknesses. Senator Max Baucus, (D-Mon.), one of the Affordable Care Act’s designers and strong backers, told Health and Human Services Secretary Kathleen Sebelius during a Senate committee hearing that he sees "a huge train wreck coming down."

It's a shame Sen. Baucus and the other blind supporters didn't do their homework before the measure passed the Congress, and save the country much pain and suffering. But perhaps it’s not too late to reverse course.