Arnold Kling

Democracy's Vices

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What is Recycling?... Presenting Health Statistics...

Michael Munger writes,


On many kinds of policy, where one unique alternative must be selected from among many, and the legitimacy of that choice is at least as important as the choice itself, democracy has no equal. One defense budget, one speed limit on any one stretch of road, one standard width for railways, and one choice (left side or right side?) for driving automobiles.

But many choices aren't like that. There may not be a "we" that has to choose at all, imposing the median view on everyone. Instead, individuals can make their own choices. This is particularly true for innovations, or new ideas cooked up by some oddball.

...We have become too accepting of the views of the middle, in too many aspects of our lives. Worse, we have fallen victim to a soft but encroaching political paternalism.


People now talk about "universal health care" as though this is obviously a good thing. But it just means taking health care decisions out of the hands of individuals and out of the realm of markets. It means putting those decisions ultimately in the hand of politicians.


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CATEGORIES: Political Economy



COMMENTS (8 to date)
Bill McHenry writes:

If health care were really Adam Smith's laissez-faire "free Market" that people think it is there would not violate central tenants of it. There would:
1.) Be no patent protection. Laissez-faire economics assumes substitute goods. Patents are a societal construction. Why 7 years of protection? Who chose "7"?. Why can an FDA "orange book" filing for an unproven patent exemption delay generics providing gaming of the system for billions per month y banded drugs. [I.e. Bristol-Meyers trying to patent the chemical reaction for a drug's reaction with saliva. What's next, it's reaction with every other organ - even though that was not the original patent nor intended purpose?
2.) People would know there's similar drugs at FAR cheaper prices [see story below]. Laissez-faire economics assumes "perfect information". Far from it. People don't know what anything costs, there's no idea of "value", and the providers don't want the consumers to have any bargaining power [i.e they don't want risks in the pools, so of course they don't want universal coverage b/e they can't carve out risks and preserve bargaining power].
3.) "Price discrimination" [charging different consumers differing prices when they consume the same amounts, etc (so don't say it's volume or something that the Sherman Antitrust Act from the '30's was intended for)] is not an assumption of laissez-faire economics.

The systems is a polluted twist of special interests benefiting the status quo at the expense of the many. Basic, or at least emergency health care should be considered a "public good" - just like police and faire protection. We don't individually negotiate our own police and fire protection, nor should we for basic health care. Further, universal health care brings universal accountability so those that don't pay anything into the system can be made to follow "some" kind of universal contribution into the system - rather than the current backdoor cost shifting of major medical expenses by default.

Today's NY Times abuse of the system, and ho wit is not the free market people think it is example:


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October 1, 2006
Hope, at $4,200 a Dose
By ALEX BERENSON
CHARGING $4,200 a dose for a new version of an old cancer drug has helped make Dr. Patrick Soon-Shiong a billionaire.
The drug, Abraxane, does not help patients live longer than the older treatment, though it does shrink tumors in more patients, according to clinical trials. And the old and new medicines have similar side effects. An independent review of Abraxane published in December in a cancer research journal concluded that the drug was “old wine in a new bottle.”
Still, Dr. Soon-Shiong’s company, Abraxis BioScience, has promoted Abraxane as a major advance in treating late-stage breast cancer — that is, for patients who have not responded to other treatments and are now close to death — and is seeking approval for patients to use it earlier in their treatment. And, in at least one way, Abraxane is a breakthrough: it costs about 25 times as much as a generic version of the older medicine, which is best known by its brand name, Taxol.
Because of the odd economics of the cancer drug market, though, Abraxane’s price does not seem to be hurting its popularity.
About 20,000 people have now been treated with the drug, and Dr. Soon-Shiong expects its sales to approach $200 million this year. By 2010, Abraxane’s annual sales could reach $1 billion, analysts say.
Those rosy forecasts illustrate the pricing power that makers of cancer drugs wield. With patients often facing grim prognoses and desperate for new therapies, and insurers relatively powerless to negotiate prices or deny coverage, the cost of treatments seems to have little impact on demand.
The rise in cancer-drug prices is a microcosm of broader trends pushing up health care costs nationally. Despite decades of efforts by governments and insurers to restrain costs, patients continue to want the newest — and most expensive — drugs and medical devices. And doctors and the health care industry have little reason to keep costs in check, because insurers rarely deny coverage for new treatments on the basis of price.
As a result, health care costs continue to skyrocket. On Tuesday, the Kaiser Family Foundation reported that the cost of employee health insurance coverage rose 8 percent, according to a survey conducted from January to May this year. Businesses now spend about $8,500 a year for health insurance for the average family, the foundation said, with employees adding $3,000, not counting the cost of deductibles and other out-of-pocket payments.
Abraxane, and cancer drugs generally, are still a tiny part of total medical spending. But their costs are rising even faster than overall health care inflation. Worldwide, spending on cancer drugs is expected to more than double from 2004 to 2009, to $55 billion, with most of that in the United States.
LARGELY as a result of investor enthusiasm for Abraxane, the stock market value of Abraxis is $4.6 billion.The company, which also makes several generic drugs used in hospitals, had a profit of $86 million last year on sales of $519 million. Dr. Soon-Shiong, the company’s chairman, owns 84 percent of the stock, worth about $3.8 billion.
Dr. Soon-Shiong, a Los Angeles surgeon with a controversial history in the drug industry, says Abraxane’s price is justified because it causes fewer allergic reactions than Taxol, whose chemical name is paclitaxel. And his company is spending large sums on clinical trials to test Abraxane in new categories of cancer patients, he said.
“We have a breakthrough,” he said. “Look at the data.”
Dr. Soon-Shiong also noted that although Abraxane has not been proved to prolong survival, it does appear to cause tumors to shrink more often than does Taxol. In the clinical trial that led to Abraxane’s approval, about 24 percent of patients showed some response to Abraxane, compared with 11 percent for Taxol.
Independent oncologists agree that reducing the risk of allergic reactions is an advantage — and perhaps reason enough for doctors to choose Abraxane, costs aside. Still, in clinical trials, Abraxane’s overall side-effect profile was similar to that of paclitaxel, which was approved as a chemotherapy treatment in 1992 and is still widely used. Both Abraxane and Taxol can kill white blood cells, leaving patients open to infection, as well as damage nerves in the hands and feet. Taxol causes more damage to white blood cells, while Abraxane causes more nerve damage.
Drug industry experts say Abraxane’s price reflects the fact that makers of cancer drugs can charge high prices for new medicines even if they are only marginally better than their older counterparts. That pricing dynamic is enabled by insurance, which shields patients from the full price of drugs. Without pressure from their insurers, patients have little reason to choose older treatments over expensive new therapies.
Doctors, who ultimately decide what drugs to prescribe, also do not have to worry about paying for the treatments they choose.
“When I’m with a patient, my job is to be a patient advocate, not to try to save society money on chemotherapy,” said Dr. Barbara L. McAneny, the chief executive of New Mexico Oncology/Hematology Consultants, in Albuquerque.
The Food and Drug Administration, meanwhile, does not regulate drug prices but considers only whether new medicines are safe and effective. Medicare, which pays for Abraxane, is also forbidden by law from considering cost in deciding what treatments to cover.
While insurers have tried to save money in other drug categories by encouraging patients to use cheaper generic drugs, they face public pressure not to restrict access to new cancer treatments. At least since 1971, when President Richard M. Nixon declared a “war on cancer” and vowed to eliminate it, cancer has been viewed as a uniquely frightening disease that deserves the highest priority for research and treatment.
At the same time, most cancer drugs cannot be easily substituted for one another, preventing insurers from playing one drug maker against a rival to achieve lower prices. Abraxis, despite having a close generic competitor for its drug, appears to be benefiting from the insurance industry’s acquired habit of paying for whatever the cancer doctor prescribes.
“Everyone is well aware that prices keep going up,” said Dr. Steven B. Miller, the chief medical officer at CuraScript, a division of Express Scripts, which helps companies manage their drug insurance plans. But employers are reluctant to tell Express Scripts to refuse to pay for costly new cancer drugs, Dr. Miller said.
“Do you want your employees calling and saying, ‘You’re denying my family the latest cancer care?’ ” Dr. Miller said. “Until the payor community” — that is, companies that provide health insurance — “develops the appetite to be more aggressive, it would be irresponsible for us to press them on it,” he added.
But Dr. John C. Hornberger, a senior research associate at the Sphere Institute, a nonprofit health and public policy group in Burlingame, Calif., says employers are wary of interfering in medical decision-making by their employees. “They want to control costs,” he said, “but they don’t want to be involved.”
Carol Austin-Fink, who learned last year that she had cancer in her right breast, insisted on taking Abraxane after she received the diagnosis because the chemotherapy she received in 1996 for a different cancer in her left breast had caused severe side effects. The earlier treatment did not include Taxol, so she had no idea whether Taxol would cause problems for her, but she did not want to take the chance.
Ms. Austin-Fink, a 59-year-old writer who lives in Las Vegas, said she received six doses of Abraxane over four months, a standard course of treatment. The cost of the drug did not concern her because she has excellent insurance coverage, she said.
“My insurance company just paid it, because my doctors said they needed it, and the insurance company doesn’t argue with stuff like that,” Ms. Austin-Fink said.
The Abraxane had few side effects and caused her tumor to shrink almost immediately. Her cancer has remained under control since her final treatment a year ago, she said. She said she believes that Abraxane worked better for her than Taxol would have, though she acknowledged that she could not be sure.
Drug companies have sharply increased prices for new cancer drugs in the last decade. Since 1998, for example, Celgene, a biotechnology company based in Summit, N.J., has raised the price of Thalomid, a drug for a cancer called multiple myeloma, to more than $35,000 a year from $4,000.
Celgene is not alone. New treatments now routinely cost several thousand dollars a month. Worldwide spending on cancer medicines, which was $24 billion in 2004, is expected to rise to $55 billion in 2009, making oncology treatments the biggest drug category, according to IMS Health, which provides data on drug sales.
The higher prices are beginning to strain the system, said Carolina Hinestrosa, executive vice president at the National Breast Cancer Coalition, an advocacy group.
Even if they have insurance, many patients face co-payments of 20 percent for their cancer drugs, an expense that can become ruinous for patients receiving combination therapy with several new drugs. For example, Abraxane is being tested along with Avastin, a treatment from Genentech that costs $8,000 a month for some patients.
Drug costs are rising so fast that some patients cannot afford the newest treatments, and access to some therapies “is beginning to be eroded,” Ms. Hinestrosa said.
ORIGINALLY, Taxol itself was considered expensive. When the F.D.A. approved it in December 1992, its price of $986 a dose led to Congressional hearings. Since 2000, when Bristol-Myers Squibb’s patent on Taxol expired, the drug has been available both as nonbranded generic paclitaxel and as branded Taxol, at a cost of about $150 a dose for the generic and $1,000 for the branded version, which is now sold mostly outside the United States.
These days, though, high prices rarely draw public protests, in part because most patients are still receiving their medicines. That is accomplished through a mix of insurance coverage and programs sponsored by charities and drug makers, including Abraxis, that provide free supplies to the indigent.
“There isn’t an effort in terms of public policy to keep prices under control,” Ms. Hinestrosa said.
Megan Murphy, an analyst at Lazard Capital Markets who follows Abraxis, agrees. While doctors and patients have begun to complain, drug makers still have substantial pricing power, she said. “At some point, something will change here,” she said. “But there doesn’t seem to be any real resistance right now.”
Dr. Soon-Shiong said in an interview that he, too, worried about the cost of cancer treatment. But Abraxane is fairly priced, he said, because it is based on a scientific breakthrough that the company refers to as “nanoparticle technology.”
This is not the first time that Dr. Soon-Shiong has aggressively promoted a new disease treatment. In the mid-1990’s, he won attention for transplanting pancreatic cells into two diabetic patients. Eventually, the transplants failed.
At about the same time that Dr. Soon-Shiong was researching both diabetes treatments and Abraxane, he created a company called American Pharmaceutical Partners to market generic drugs to hospitals. American Pharmaceutical generated controversy by giving stock options to executives at a company responsible for buying drugs on behalf of hospitals nationwide. Some doctors said the stock options created a serious conflict of interest by giving the executives — who were supposed to represent the hospitals — a financial interest in American Pharmaceutical’s success. American Pharmaceutical denied any wrongdoing and said all the arrangements were properly disclosed.
Dr. Soon-Shiong created Abraxis BioScience earlier this year by merging American Pharmaceutical Partners with another company he controlled, American BioScience. Shareholders in American Pharmaceutical Partners have sued him over the merger, contending that it benefited him at their expense. Dr. Soon-Shiong says that he has done nothing wrong and that the lawsuits are irrelevant to Abraxane’s promise.
ABRAXANE is a reformulated version of paclitaxel, a chemical found in the Pacific yew tree that destroys cancer cells. But paclitaxel, which is given intravenously, is difficult to use. Because it does not dissolve in water, the drug must be mixed in Cremophor, a combination of castor oil and alcohol that can cause severe allergic reactions. To reduce that risk, patients who receive Cremophor first receive a steroid and an antihistamine.
Working with University of Illinois researchers in the 1990’s, Dr. Soon-Shiong found a way to give Taxol without Cremophor by coating paclitaxel in fragments of albumin, a protein found in human blood. He named the new treatment Abraxane.
Abraxane patients do not need antihistamines or steroids. The drug can also be given at slightly higher doses and injected more quickly than traditional paclitaxel, which requires a three hour-infusion.
A third drug, called Taxotere, works similarly to paclitaxel but is a different chemical compound; it competes with both Abraxane and Taxol. Made by Sanofi-Aventis, Taxotere costs $2,500 a dose. It increases survival slightly in breast cancer patients, compared with Taxol. But because Taxotere has even more severe side effects, many patients and doctors prefer Taxol. Both drugs are widely used. There is no published data comparing Abraxane and Taxotere.
In the largest clinical trial comparing Abraxane and Taxol, covering 454 patients, the two drugs produced similar side effects — although Taxol caused more patients to have low white blood cell counts.
The trial also showed that Abraxane delayed the growth of tumors for 23 weeks in the average patient, compared with 17 weeks for Taxol. That difference was statistically significant, meaning that it probably did not occur by chance. But the trial did not show that Abraxane extended patients’ lives longer than Taxol did, and that is the most important measure of effectiveness. After two years, roughly 75 percent of patients in the study had died, whether they received Abraxane or Taxol.
Over all, Abraxane may be slightly more effective than Taxol, and the lack of Cremophor is an advantage, said Dr. Andrew D. Seidman, a breast cancer specialist at Memorial Sloan-Kettering Cancer Center in Manhattan who has studied Taxol and Taxotere since the early 1990’s. But the two drugs are similar, he said. “Is this a breakthrough in terms of the notion that this is a new class of drug with a new mechanism of action?” he asked rhetorically. “No.”
Dr. Ramaswamy Govindan, a Washington University professor who was co-author of a December article in the Annals of Oncology about Abraxane and other, as-yet- unapproved Cremophor-free versions of Taxol, said that none of the new drugs had shown significant advantages over the older medicine.
“In general, the novel formulations so far have not stood out as distinctly superior,” Dr. Govindan said.
The F.D.A. approved Abraxane as a last-ditch treatment for late-stage breast cancer in January 2005. Now Abraxis is asking the F.D.A. to allow the use of Abraxane as a treatment for early-stage breast cancer, a larger market than that for late-stage treatments. In an unusual move, the company asked the agency earlier this year to waive its typical requirement that the drug be tested in those patients before allowing the expanded use.
On Sept. 7, the F.D.A. convened a panel of experts in Silver Spring, Md., to discuss Abraxis’s request.
Committee members voted against the company’s proposal 13 to 1, saying that Abraxis needed more data. The company expects to begin discussions soon with the F.D.A. about designing a clinical trial to test Abraxane in early-stage patients.
At the Sept. 7 hearing, though, Dr. Michael Hawkins, Abraxis’s top medical officer, made a remarkable observation about how the company’s $4,200-a-dose drug compared with $150 generic paclitaxel.
Dr. Hawkins said the F.D.A. should approve Abraxane in early-stage patients without a clinical trial because such testing would probably not prove that his company’s drug was different than the conventional treatment. “These are just two forms of paclitaxel,” he said. ""


To which I would say:
Really, just "two forms of paclitaxel"? Than why can they charge 28 times more money??

TGGP writes:

Yes, we should ditch patents. And the rest of intellectual property. But when did Adam Smith assume perfect information?

Looking at Lasik surgery and comparing it to the areas of medicine with more government interference certainly makes it seem to me like it's like a regular good better handled by the market.

Lancelot Finn writes:

A belief in individual rights is a helpful check on untrammeled democracy. To some extent, the practice of individual rights, inherited from long-forgotten theories of medieval churchmen and channeled through John Locke and Thomas Jefferson, is embedded "genetically," so to speak, in our legal system. Unfortunately, hardly anyone today thinks that individual rights have a plausible philosophical basis. How long can these metaphysical oddities survive? A worrisome question.

Ramon Leon writes:

Universal health care doesn't mean a lack of private health care, it simply means a minimum for everyone. It is quite obviously a good thing. If you can afford better coverage than the minimum, universal care won't affect you at all.

Ramon Leon
http://onsmalltalk.com

Matt writes:

Mr. Munger talks about "one defense budget" falling for the same fallacy that Arnold complains about with "universal health care". Why should things be universal in either case? And how is it that Mr. Munger fell into his deception?

Those who talk about universal health care really mean universal health insurance in most cases. So, fix that semantic fallacy first.

Then talk, first about a universal health insurance standard for simple, acute conditions. Ask the AMA to define a basic universal health insurance that gets someone to a medical clinic for cuts, abrasions, simple fractures, common colds and flus, vaccines, and physicals.

Do this, then you can probably make a good chunk of the medical services industry more efficient and do it with a simple health insurance policy eveyone can afford out out their own pocket. (This is like the "standard rail width" that Mr. Munger talks about.

Treat the rest of the medical services industry different and kick that can down the road.

While we are at it, break up the "one defense" budget concept into a basic defense and forward defense. The basic defense is what we use for the homeland. The forward projection of military force is different, charged differently, taxed differently and serves a different purpose.

Everyone fakes the semantics. We take different concepts and combine them into one semantic. Then we get the simple concept to share its funding sources with the complex concept.

Question everything, nothing is as it seems.

Omer K writes:
Universal health care doesn't mean a lack of private health care, it simply means a minimum for everyone. It is quite obviously a good thing. If you can afford better coverage than the minimum, universal care won't affect you at all.

Yes yes... lets have regulation and big government through the back-door...

Over time the public and government will conspire to raise whatever is considered "minimum". Read some history and get a clue.

TGGP writes:

If it doesn't affect people who can afford more at all, who is going to pay for it?

Dean writes:

The problem with "universal health care" is that the taxpayers will end up paying for it, increasing the cost of health care overall. Politicians would most likely go overboard with the health care. I prefer to make my own decisions on health care rather then the government forcing us to use one. Universal health care would benefit some but not everyone.

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