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National Health Plan and Prescription Drugs

About every 4 years when the presidential election evokes strong emotions in the people on the right and the left, the issue of the imperfect healthcare system in this country leaps into the news, and literally every politician has a plan to solve the problem. After the election is over, the issue is again buried back in the sand until the next election. But it’s important that we understand the problem we are trying to solve so when some nut or hopefully some guru comes forth with his or her wondrous solution, we can either call that person a charlatan and reject that idea or saint some clever individual who has a realistic vision.

 

This is without a doubt one of the most complex issues ever faced by the people of this country. The United States is one of the few countries in the modern world that does not have some form of national healthcare for its citizens.  But let’s be clear about one thought. Medical care is not guaranteed under our Constitution. Freedom of speech, freedom of religion and freedom of the press are guaranteed under the Constitution. So for all of the citizens who demand that it is the government’s responsibility to ensure the health of the people, you are misinterpreting the Constitution.

Current Healthcare Status in the U. S.

Let’s examine some facts about this crucial issue.

1.     The majority of Americans are covered by employer-paid healthcare.

2.     The costs of healthcare are rising annually at a pace that greatly exceeds inflation. In the last two years, healthcare costs have increased by 11.2 and 13.9 percent, respectively.

3.     It is estimated that 45 million Americans have no healthcare coverage, with most between the ages of 18 and 44, the least vulnerable age group.

4.     According to the Census Bureau, there were 20.6 million uninsured full-time workers.

5.     In a given year, 90 percent of healthcare spending goes to 30 percent of the population, while more than 50 percent of the spending goes to treat 5 percent of the population, with much of it spent on patients with chronic illnesses like heart disease and diabetes.

6.     Healthcare coverage was offered with 5 million less jobs than in 2001 because of the steep increase in costs.

7.     The average cost of healthcare for a family of four enrolled in a Healthcare Maintenance Organization (HMO) is $9,504, and for a single person its $3,458, or $792 and $288 per month, respectively.

8.     The average cost of healthcare for a family of four enrolled in an Preferred Provider Organizations (PPO) is $10,217, and for a single person its $3,808, or $851 and $317 monthly, respectively.

9.     The government’s efforts to ensure the health of its citizens consist of a hodgepodge of thousands of pages of hideously complex Medicare and Medicaid rules.

Horror stories abound of many self-employed individuals seeking reasonable health insurance find the monthly costs ranging from $600 to $1,800 per month. Many of these people, who tend to be younger, skip the insurance and premiums and pray that they only incur an occasional cold.

In essence, the problem in America is that we want the best possible healthcare for all citizens at the lowest possible cost – an impossible situation. The problem in healthcare does not lie with insurance companies, trial lawyers, excessive doctor fees, and insurance companies or government bureaucrats dictating which doctors, hospitals or treatments we can have, but in the fact that our expectations are unrealistic. Therefore, we can satisfy some but not all of our goals, and regardless of our choice there will be a price to pay. If you throw enough money at any situation, theoretically you can offer the consumer the best possible service, but if we literally have to bankrupt the treasury to do so, then it’s a nonsensical solution.

 

People can blame inflation-busting healthcare costs on any combination of inefficiencies, waste, fraud and excessive insurance company profits, but that’s just blowing smoke. The real problem is we are an aging population requiring more treatment, plus the availability and associated costs of new drugs; diagnostic procedures and treatments are the real culprit.

What Health Plans Are Available From the Government?

As a part of the Federal Social Security network, the government offers Medicare and Medicaid. The following briefly describes these programs.

 

Medicare – Medicare is a Health Insurance Program for people 65 years of age and older, some disabled people under 65 years of age, and people with End-Stage Renal Disease (permanent kidney failure treated with dialysis or a transplant). If you were born in 1929 or later, you need to have worked for at least 10 years to be eligible for retirement benefits. If you’re eligible for retirement benefits, some members of your family also can receive benefits.

 

There are three types of plans available under Medicare:

 

  1. You can only go to any doctor, specialist or hospital that accept Medicare. Medicare pays part and you pay part.
  2. Plans are available in some parts of the country that are similar to Health Maintenance Organizations (HMOs). You may only go to doctors, specialists or hospitals that are identified within the plan.  Some plans also include prescription medications.
  3. Private fee-for-service plans are available in some parts of the country where you decide on the payment sharing. You may go to any doctor, specialist or hospital. Some plans include extra days in the hospital.

When a taxpayer turns 65, Medicare Hospital benefits start automatically. Newly enacted legislation, the Medicare Rx law, includes a provision for Americans to open Health Savings Accounts (HSAs).  See the discussion on HSAs that follows for more information.

 

Medicaid – Medicaid is a medical assistance program that pays medical bills for needy people who meet certain eligibility requirements (such as income, age, or disability) that are based on Federal regulations and state law. It is a program directly primarily to the poor and not necessarily to the elderly. Medical benefits may be authorized for services such as hospitalizations, physician services, medications and various levels of care in nursing and residential facilities. 

 

Medicaid can be obtained either from Supplementary Security Income (SSI) or from Medicaid Spend-down provided that you are 65, blind or disabled.

 

Medicare-Approved Drug Discount Cards – Medicare has arranged through a number of private companies to offer a drug discount card starting in 2005 for an annual enrollment fee of $30.

 

If your income is below the following limits, you may be eligible for a $600 credit on the Medicare-approved drug discount card:

Almost anyone who is currently covered by Medicare is eligible for the card. The only people who are not eligible are people who already have outpatient prescription drug coverage through Medicaid. If you don’t use the $600 limit in one year, you can carry it over to the following year.

Medicare and Medicaid Costs

Medicare’s premium for doctors’ services increased 13.5 percent this year and will increase by 17.4 percent next year, while Social Security benefits went up only 2.1 percent. Medicare expenditures are projected to increase at an average annual rate of 7.5 percent during 2004-2013, except in 2006 when the addition of the new Medicare prescription drug benefit will substantially increase program costs. History has proven that the costs of any government-mandated service rise faster than inflation. In 2003 health care costs accounted for 23% of Federal spending up from 7 percent in 1970. Projections are that these costs will reach 29 percent in 2014.

Do Any of the States Have Medical Coverage?

Medical coverage and prescription drug plans vary from state to state.  Major plans are in place in states like New York and California. The state of Tennessee enacted TennCare to both replace and augment Medicaid in 1994. In its inaugural year, 1995, TennCare cost the state $2.5 billion. The program covers 1.3 million people, nearly a quarter of the state’s population. In 2004, with the rising costs of medical care, prescription drugs and the inherent inefficiencies of government programs, the program will cost $8 billion out of the total state budget of $25 billion, nearly a third of the budget. The $8 billion will come from the Federal government ($5 billion), state tax revenue ($2.5 billion) and various sources including premiums from people who can afford to pay for medical care (less than $1 million). It is estimated that the deficit this year alone will approach three-quarters of a billion dollars.

 

In order to cut costs, the legislature plans to overhaul the plan to limit citizens to between 10 and 12 physician visits per year and prescription medications to 4 to 6 per month. Advocates of TennCare recommend that the state introduce a state income tax to cover the deficit. The state income tax approach to solve budget problems has been soundly defeated in previous attempts. A startling new feature of TennCare is that the state or its medical contractor, as opposed to the patient’s doctor, would dictate the use of TennCare services, and that the state would only be required to pay for the least expensive “adequate” care, however that may eventually be defined. This is one of the major features of HMO policy that has many members up in arms, in that a bureaucrat can literally decide life or death issues. Under this revised plan, about 430,000 residents will be removed from the rolls.

 

Opponents of the elaborate existing TennCare program point to the rapidly rising cost of any government-mandated program as evidence of what can be expected in a national healthcare program of similar depth.

The Various Types of Private Healthcare Plans

There are a number of health plans that are available for corporations and individuals, or plans offered by the Federal government through the Federal Employees Health Benefits Program (FEHBE). A brief description of the most common types of plans that offer services at different fee rates and deductibles are explained below:

HMO (Health Maintenance Organization)

These include prepaid health plans in which you pay a monthly premium and the HMO covers your cost of care to see doctors within their network at pre-negotiated rates. You must choose a primary care physician who coordinates all of your care and makes referrals to any specialists you might need. If you are an HMO member and you do not use the doctors, hospitals and clinics that participate in your plan’s network, you will usually bear the cost of those (outside) medical services.

 

PPO (Preferred Provider Organization)

A PPO is a network of health care providers that have agreed to provide medical services to a health plan’s members at discounted costs. PPO members typically make their own decisions about their health care rather than going through a primary care physician like HMO member. The cost to use physicians within the PPO network is less than using a non-network provider.

 

POS (Point-of-Service)

POS is a type of managed care plan combining features of health maintenance organizations (HMOs) and preferred provider organizations (PPOs). You decide whether to go to a network provider and pay a flat dollar or to an out-of-network provider and pay a deductible and/or a coinsurance charge.

 

HMOs Offering Point of Service (POS)

In an HMO, the POS product lets you use providers who are not part of the HMO network. However, you pay more for using these out-of-network providers. You usually pay higher deductibles and coinsurances than you pay with a plan provider. You will also need to file a claim for reimbursement, like in a FFS plan. The HMO plan wants you to use its network of providers, but recognizes that sometimes enrollees want to choose their own provider.

 

Fee-For-Service (FFS) for non-PPO

A traditional type of insurance in which the health plan will either pay the medical provider directly or reimburse you after you have filed an insurance claim for each covered medical expense. When you need medical attention, you visit the doctor or hospital of your choice. This approach may be more expensive for you and require extra paperwork.

 

Fee-For-Service with a Preferred Provider Organizations (PPOs)

The FFS option allows you to see medical providers who reduce their charges to the plan; you pay less money out-of-pocket when you use a PPO provider. When you visit a PPO you usually don’t have to file claims or paperwork. However, going to a PPO hospital does not guarantee PPO benefits for all services received within that hospital. For instance, lab work and radiology services from independent practitioners within the hospital may not be covered by the PPO agreement.  Most networks are quite wide, but they may not have signed up all the doctors or hospitals you want. This approach usually will save you money.

A Few Words About Health Maintenance Organizations (HMOs)

One of the largest health maintenance organizations is Kaiser Permenente based in Oakland, California.

 

According to experts, what makes Kaiser Permanente different from other HMOs is their emphasis on preventive care and the management of chronic illnesses, which reduces the need for hospitalization and saves money. Kaiser employs over 11,000 physicians and 135,000 other employees to serve 8 million people in 30 hospitals and hundreds of clinics in nine states and the District of Columbia. Interestingly, it is a non-profit company in which members pay a yearly fixed fee regardless of the treatment required. Kaiser has been criticized for practicing an impersonal style of medicine with limited patient choices, but it seems to work quite well.

 

Kaiser has invested heavily in information technology. Its clinical information system includes electronic patient records, prescription writing and preventive health features.

 

The World Health Organization did a study comparing Kaiser with the United Kingdom’s National Heath Service. The findings concluded that Kaiser delivered better care for less money and managed to keep people with chronic conditions out of hospitals, including shorter stays when patients were admitted to hospitals.

 

A recent study by Hewitt Associates in 15 metropolitan areas found that healthcare costs were the lowest in San Francisco (Kaiser’s backyard) at $5,515 per employee and $6,818 per employee in New York, where Kaiser does not operate.

Comparison of Plan Types

The irony is that HMOs have been losing ground over the years, even though they generally offer the lowest prices, but there are two negative factors with HMOs: 1) HMOs are visualized as barebones healthcare wherein in is difficult to get specialized care for critical illnesses, although this  is often not true, and 2) patients want to be able to choose their own doctors.

 

The largest growth has been in the area of PPOs. With these plans patients can use an out-of-network doctor if desired. The use of these “outside” doctors is not as prevalent as one might think, but it is comforting to patients to know this option is offered.

 

In recent years, the acceptance of POS plans has declined as out-of-network costs can be prohibitive.

Other Countries National Healthcare Plans

As of 2004, throughout the world 28 countries have a national healthcare or universal access healthcare system in place. Among those countries are the United Kingdom (England), Canada, Germany, South Korea, Japan, Iceland, and virtually all of the European countries that belong to the European Union.

 

The healthcare plans vary in coverage and type. A small percentage of the countries, like Canada, use a system that is free to all citizens regardless of the required medical procedure. The majority of the countries invoke at least a small user fee to keep the system honest to some degree. Canada even outlaws privately funded core medical services, an extreme course of action without parallel in the other 27 countries. The main complaint about the totally free approach is that the system is inundated with hypochondriacs with relatively minor problems while the major medical caseloads endure long delays before treatment can be obtained. Stories of housewives bringing in their kids for petty reasons on a daily basis abound.

 

According to the Office of the Inspector General, about 6% of the monies, or $192 billion, spent on healthcare in the United States are lost to fraud. In the European Union, about $1.23 trillion is spent on healthcare and it estimated that between $40 and $125 billion is lost to fraud, but it is likely much higher.

 

Soviet Union’s Healthcare System - One of the most appealing virtues of communism is that free education and healthcare are guaranteed in the country’s constitution. When examining this great benefit we must remember that although education was free, as a citizen you must obtain your education at whatever school and location as dictated by party bureaucrats. You had no choice in the matter.  Healthcare was a two-tier system: one for the ruling class and one for ordinary citizens. In Moscow, doctors were divided into two medical systems: one providing reasonable quality through specialty clinics for the party elite, representing 5% of the population, and one poor quality system of hospitals for the balance of the population.

 

Canadian Healthcare System - The Canadians have developed a single-payer healthcare system for its citizens. This is a perfect example of socialized medicine with very strong highs and lows.

 

The Canadian system serves all of the people as opposed to America wherein 45 million have none or very limited access to healthcare institutions. In Canada, the government pays the medical bills, whether treatment is administered by private physicians or by independent hospitals.

 

The Canadian Medical Association (CMA) conducted a poll and found that 40% of the populace rated their system as C or worse. The president of CMA stated that, “Year after year, Canadians have identified that their confidence in their healthcare system is eroding.”  Now we must also remember that the CMA may have a vested interest in finding many faults in the system as they likely have lost significant income under this socialist system.

 

Comparing statistics from 1993 to 2003, the average wait to see a general practitioner jumped from 9.3 weeks to 17.7 weeks. The waiting time for oncology treatment jumped from 2.5 weeks to 6.1 weeks, and the waiting time for radiation oncology jumped from 5.3 weeks to 8.1 weeks. Rarely do you see these statistics mentioned in the U.S. press.  Whenever a monopoly on service exists as with the Canadian system, the system becomes more and more inefficient.  This scenario has been documented in thousands of similar cases.

 

One of the major problems with the system is the extended wait times between each phase of medical treatment from the initial meeting with a general practitioner to accessibility to diagnostic equipment to execution of the medical procedure. Citizens constantly complain about excessive waiting times for treatments. Officials in one town, Whitby, of 100,000 people, estimate that 22,000 people have no doctor. These people must endure lines of up to 4 hours to fill a prescription, obtain a doctor’s note, or get care for their flu symptoms or hangnail.

 

But we’re thankful that not all citizens endure the lengthy waiting period for treatment. Perhaps learning from the Soviet Union model, a system of private clinics is available for officials and bureaucrats, the Canadian Mounted Police, injured workers and prison inmates.

 

So where do the problems lie in Canadian health care? According to the Fraser Institute, a Canadian nonpartisan think tank supported by its members, here are some facts about the system that Americans may want to scrutinize closely:

Sweden’s Healthcare System - Sweden, with a population of about 8.8 million people, is one of the most socialist countries on the planet, where taxpayers literally cough up close to 65% of their income to support the state. The healthcare system covers 2 million of the residents, with most of the funding coming from the government, but they also charge user fees.

Since the mid 1990s, Sweden has been experimenting with market style reforms of their national healthcare system to improve efficiency. The reason they are reverting back to the private sector for solutions is 1) to control the spiraling costs of the public-financed system, 2) to reduce the excessive waiting lists for services at hospitals and to improve quality of care, and 3) most importantly, to remove the monopoly on the delivery of healthcare services by introducing incentives to improve service.

 

Ironically, one of the primary reasons Sweden was more or less forced into this market reforms was that as a member of the European Union, regulations were set stipulating the amount of public taxation that was permissible.

 

Initially, 150 private contractors were permitted to compete for health service contracts, resulting in a system of private healthcare providers within the public-financed system. After 5 years, all 150 contractors were flourishing with performance improvements across the board.  The City of Stockholm commissioned a study to compare the costs of private vs. public healthcare costs. With private healthcare, the savings ranged from 13 to 28% for ophthalmology, ear, eye, nose and throat, and general surgery. In addition, private nursing home costs have fallen 30% while the most dramatic savings were made in the hospital sector. The average wait for heart surgery has fallen from 15-25 weeks to 2 weeks, and the wait for hip replacement surgery from more than a year to 10 weeks.

The projections for the future indicate that Sweden will rely more on higher user fees and private insurance and a voucher system to permit patients to choose their own physicians.

What Are the Options for America?

The current population of the United States is 290 million people. It seems at times that there are 290 million proposals floating around in the news media that are being offered by academics, healthcare professionals, newspaper columnists, political parties, everyday citizens and lots of crackpots and poorly informed citizens who want to throw in their two cents worth.

 

Proposals to resolve the inadequacy of the country’s healthcare coverage range from “leave it the way it is,” on one hand to have the government provide a full-fledged national healthcare system for everybody regardless of income. The answer obviously lies somewhere in between.

 

Let’s examine some of the proposals that have been offered by the politicians to solve the problem over the last 10 years. Proposals have included a plan advanced under Bill Clinton’s presidency, which was named Hillarycare after Hillary Clinton, who was instrumental in developing the plan. Conservatives and liberals rejected it outright as the plan would have consumed 15% of our gross national product, plus it contained provisions that were totally unacceptable to most people. One example is that the government would choose your doctor; totally unacceptable to most Americans. As another example, if doctors provided “unauthorized” treatment on a fee-for-service basis, they could be subjected to fines up to $50,000, forfeiture of their property and possible life imprisonment. Defining the term “Unauthorized” opens a gigantic Pandora’s box of potential conflict between the doctor’s Hippocratic oath and government regulations, with any imagined or actual abuse punishable by life imprisonment.  It’s no wonder this plan died a quick death.

Healthcare Plans From A to Z

During the 2004 elections, both the Democrats and the Republicans offered their own flavors of healthcare plans.  Healthcare options may range from no government or insurance company involvement on up through total government control. On one side of the coin, conservatives tend to support plans that let the consumer get involved in plan selection and use the free enterprise marketplace to solve problems, while liberals tend to want government-mandated healthcare.  Lets examine the pros and cons of each option.

 

 

One of the ironies of the FEHBE program is that as of 2005 U.S. Federal employees will have the ability to own an individual, portable tax-free health account that covers expensive procedures and unexpected expenses, while emphasizing high deductible insurance.

There are many pitfalls to federally mandated healthcare for American business, especially small businesses.  The profit enjoyed by many of these small businesses is often marginal at best with the owner(s) not drawing the lucrative paychecks enjoyed by the CEOs of large companies. There is very little “fat” in the budget. Enforcing mandatory healthcare would drive many small businesses with less than 50 employees into bankruptcy or into reducing the payroll, which would drive up the unemployment rate, so it’s a terrible idea.

Let us not forget that millions and millions of people are self-employed running convenience stores, antique shops, gas stations, and other small enterprises. Unless a way can be found to drastically lower annual healthcare premiums or enable government-provided care, these people will inevitably be excluded from first class healthcare.

·          Healthcare Savings Accounts (HSAs) – The basic premise of HSAs is to get the consumer involved in the decision-making process. To avoid the horrendous waste that normally characterizes free medical care or even HMOs, let the taxpayer manage his or her own account.

Under this plan, taxpayers – either individuals or families – would set up tax-free “health accounts” to which employers may optionally contribute. Using this account, taxpayers can choose their own healthcare provider, whether the choice is an HMO, PPO or whatever. Since the account belongs to the consumer, he or she has a vested interest in spending the money wisely,. To sweeten the pot, monies deposited in the account would be tax deductible in much the same way as a 401(k) plan. If employees change jobs, they can take the accounts with them. This plan is in direct opposition to a government pay-all program wherein the consumer could demand Rolls-Royce care regardless of cost.

Critics of this plan argue that this type of plan will only appeal to the healthy or wealthy. Advocates of the plan argue that the poor will welcome the chance to manage their own healthcare.

On the plus side, when consumers spend their own money, they tend to be much thriftier than a government bureaucrat.  Since they will paying for it out of their own pocket, it will place demands on the medical establishment to provide the best quality care at the lowest prices. In a real-world situation, consumers will emphasize generic drugs as opposed to brand names when the quality is the same, thereby lowering costs. On the minus side, HSAs directly tie the consumer to Internal Revenue Service (IRS) regulations, as they will be the watchdogs over monies.

What potentially is the worst that can happen using HSAs?  Lets’ assume you are one healthy devil and you spend very little of your HAS on medical care. You are left with a sizable nut at retirement and you decide to spend the money on non-medical expenses. You will then be forced to pay taxes on that money, but probably no more than 10% of the balance if you are over 65.

·          Medicare Medical Savings Accounts (MSAs) – Similar to HSAs for all Americans, seniors would place tax-free monies in savings accounts to buy prescription drugs, visit their doctor, or purchase medical services such as mammograms. The advantage of this program is it eliminates the time-consuming and costly government middleman.

 

·          Single-Payer System – Its simplicity is overwhelming but its cost to provide universal healthcare for all Americans, based on much historical precedence, may indeed be prohibitive. A single Federal agency will handle medical fees and make payments accordingly.

The appeal of this approach is that it solves the problem of the disproportionate application of healthcare in the country, wherein the wealthiest get the best healthcare and the poorest get none. The disadvantages of this concept is that, as with the Canadian system, there will likely be long waits for services, insufficient incentive to adopt new life-saving technologies, and the creation of a monstrous bureaucracy of administrators and doctors who will make clinical decisions.

Zealots of the single-payer system argue that it would likely be an extension of Medicare. Participants would pay into one national fund, in similar fashion to payments to Medicare, and that by paying into a national fund, double digits increases will be a thing of the past. Proponents argue that administrative costs of Medicare are about 2% of the total, while private insurance companies spend about 16% on administration, and the cost savings per year will be at least $200 billion per year. However, since Medicare premiums are predicted to rise anywhere between 7% and 16% over the next 10 years, the ballyhooed cost savings don’t appear to be valid.

There is one major problem that should keep this concept from advancing beyond the “thinking stage.”  Once Congress commits the American people to this universal plan, we are stuck with all of its ramifications. There is no going back.  Insurance companies, as we know them, will disappear from the landscape. When the numbers start coming back and we find out that the expenses are 50% more than the government told us they would be and waiting periods for treatment unacceptably high, Congress has little option except to raise taxes to cover the problems. We’ll be caught in an endless loop of backbreaking costs.  We’ll likely wind up, in a similar manner to the Swedes and the Canadians, slowly reintroducing free market solutions to improve service and lower costs.  It can safely be predicted that we will go full circle from the single-payer system and then revert back to the free enterprise system to recover from the problems of government control.

·          Reinsurance – The idea for reinsurance is that when an employee’s medical bills rise above a certain threshold, the government will cover a certain percentage above that threshold. The thresholds being considered are 75% of the costs above $30,000 for 2006 and 75% above $50,000 for 2007. The first year costs to the government are estimated to be about $35 billion. But the major benefit of this plan is that health insurance premiums should fall by 10% or more.  States like New York that have adopted similar plans for low-income residents have seen the premiums decline. Hopefully, lower premiums would permit millions of Americans without insurance to acquire it.

Proponents of the plan suggest that rolling back the Bush tax cuts can pay for this plan. I suggest that the plan can be paid for by eliminating just one of the grossly over budgeted weapons systems.

National Healthcare Conclusions

Any program that is adopted must fully involve the consumer to hold down the costs and to simultaneously satisfy the consumer. Without direct consumer involvement, any venture is doomed to failure.

 

When Medicare was formulated in 1965, some economists predicted that costs would spiral out of control.  Single-Payer advocates disputed that contention but the proof is in the pudding. In 1965, government budget planners estimated that by 1990 Medicare would cost $9 billion. In actuality, it cost $66 billion, and the costs have risen dramatically since that time. This scenario has seemingly befallen just about every other major program Congress has enacted.  There are two possible reasons:  1) the budget planners deliberately underestimated the costs to get the legislation passed, or 2) there are so many factors involved in the calculations, therefore it is difficult to estimate meaningful numbers. In either case, it is indicative of the difficulty of cost estimating large programs that historically overrun by not just 10% or 20% but by 500% or even 1000%.

 

The best of all worlds suggests the following combination of options:

·          Offer taxpayers a tax-deductible health savings account

·          Open government-sponsored clinics throughout America to serve low-income patients including children who do not qualify for other forms of government aid such as Medicaid or Medicare to assist millions of the uninsured in obtaining medical care

·          Offer higher deductibles in the form of drug prescription cards for seniors

·          Offer the self-employed government-sponsored health insurance at one-half the cost of normal premiums.

One of the major factors that is overlooked by almost every discussion you may read on the uninsured in America is that hospitals and clinics are required by law to provide treatment to these people regardless of their income level and ability to pay.  Although universal healthcare advocates trumpet lack of insurance as a major problem, let us remember that people rarely die on the streets. The major drawback for the uninsured is that people with insurance or government coverage, such as Medicare, hopefully treat their bodies as temples and practice preventive maintenance. These people are more likely to get routine physical exams so the medical profession can diagnose and treat catastrophic or fatal illnesses before they have advanced to the point of no return. This is generally not true for the uninsured. They only see a doctor when the symptoms have become so obvious or painful that they have no choice but to visit the emergency room, resulting in lengthy and very expensive treatment where the costs are either absorbed by the hospital or in some cases paid by the government.

With all of the press about outlandish jury awards in malpractice cases, malpractice settlements only account for 2% of the total costs. The major difficulty is with malpractice insurance, which is driving many doctors out of business.

 

Unfortunately, there is not one “fit all” plan that can readily resolve this crisis unless the government and the people agree to universal healthcare paid by the government. The major problem with any form of government-sponsored universal healthcare is that once the pendulum swings whereby the government is responsible for providing the country’s healthcare, there will be no way to go back to private medical practices if insurmountable problems arise, such as out-of-control costs as the Swedes and Canadians are experiencing. As the costs and inefficiencies rise, there will be little the people can do to alter that course except to dig deeper in their pockets to pay more taxes.

In reality, however, no matter how we all bemoan the fact that a percentage of Americans have no healthcare insurance, universal healthcare is not the answer as the historical negatives that are evidenced in this approach rule it out as a viable solution.

Prescription Drug Pricing

Trying to determine wherein the blame lies for the extremely high cost of drugs is often quite difficult as we tend to blame the drug manufacturer, but there are many factors that come into play. Is the high price attributable to the drug manufacturer, the Food and Drug Administration (FDA), the pharmacy chain, or a combination of all three?

Cost of Active Ingredients

There are many costs that add up to the final price you pay at the counter. But let’s examine the manufacturing starting point, purchasing of the drug ingredients. How much does the cost of the ingredients factor into the overall price for 100 tablets? 

 

 

Drug Name

 

Final Selling Price

Cost of Active Ingredients

Percent (%) Markup

Celebrex 100 mg

$130.27

$0.60

21,712%

Claritin 10 mg

$215.17

$0.71

30,306%

Lipitor 20 mg

$272.37

$5.80

4,696%

Norvasec 10 mg

$188.29

$0.14

134,493%

Prilosec 20 mg

$360.97

$0.52

69,417%

Prozac 20 mg

$247.47

$0.11

224,973%

Xanax 1 mg

$136.79

$0.02

569,958%

Zoloft 50 mg

$206.87

$1.75

11,821%

Now as outlandish as the Percent (%) Markup may seem, it is very important to point out that the major costs that go into the manufacture of any drug are NOT the costs of the raw materials but the research and development costs, the clinical trials, the labor and packaging to produce the actual drug, and then the costs to accomplish distribution to the drug store chains.

Drug Manufacturing and Distribution

Let’s take a look at the cycle from when a drug is first discovered to when you buy it.

 

·         Most drug manufacturers spend billions of dollars on research and development to find new drugs to treat hypertension, cancer, ulcers, and any sort of ailments. Out of 5,000 drugs tested in the research and development phase, only five make it to the stage of human testing, and only one gets the FDA’s seal of approval.  On average, it costs $900 million and consumes 8-9 years to bring one successful drug to market.

·         Once a promising drug is found, it must be tested in preclinical trials generally on animals to see how the drug behaves. If initial test results are satisfactory, clinical trials are conducted using limited quantities of patients (generally from 25 to a few thousand) who are willing to test the drug for their specific condition. The testing process is not only evaluated on how well the drug performed but on potential side effects that can be catastrophic or even fatal. Because of U. S. Food and Drug Administration (FDA) requirements, this very expensive process may take up to 7 years. Note that the period of time to qualify new drugs in Europe is considerably shorter, but an analysis of the complex reasons for that could be the subject of another book, so I won’t delve into that process herein.

·         If clinical trials are successful, then the documentation of the entire process is submitted to the FDA for drug approval. This documentation, which may number over 100,000 pages, contains all of the scientific data down to the most excruciating detail.

·         The FDA assigns clinical researchers, generally doctors, who conduct a rigorous review of the evidence over a period of from 12 to 18 months. There are two different processes: 1) The standard process and 2) the “fast track,” which is used for critical drugs used in treating cancer and HIV/AIDS. The “fast track” approval method permits preliminary drug approval after a period of from 6 to 10 months.

·         If the FDA approves the drug, the manufacturer produces the drug in mass quantities by purchasing the raw ingredients from around the world. They also set up manufacturing assembly lines for distribution to wholesalers and major outlets such as CVS and Rite-Aid Pharmacy. FDA representatives are present during this entire process. Note that manufacturers do not sell directly to the public.

·         The manufacturers negotiate the wholesale price with the distributors or retail outlets. Fifty years ago, most manufacturers sold pills in a bottle of 1,000. Previously, the retail outlet would always use the suggested retail price offered by the manufacturer. This has changed – the outlet now can negotiate lower pricing from the manufacturer based on quantity purchases. The larger the chain the better the purchase price and therefore, theoretically the lower the price to the consumer, but this rarely happens.

·         If the patent has expired on a drug (generally 7 years), then another manufacturer can produce a generic version of the drug, which should be cheaper as the costs of research and development and clinical trials is unnecessary, since the drug has already been proven to be effective.

Various horror stories have been published suggesting that generic drugs often do not have the efficacy of the drugs they were based on, so convincing your doctor to prescribe the generic drug is not always the smartest move.

·         The manufacturer (whether the original developer or the generic brand) incurs the costs of shipping the drugs to the retail outlet warehouses.

·         The retailer adds on their cost of doing business and their profit before placing the item on the shelves in their pharmacies. The costs incurred by the retailer include store maintenance and equipment, the people (labor), overhead, insurance, heating, lighting, and especially costly advertising on TV, radio, newspapers and flyers.

·         Recently, drug manufacturers too have been promoting their drugs via TV, radio and newspapers so in essence you will ask your doctor to prescribe their drug instead of the one he or she would likely have prescribed. Not only does that seem unethical on the manufacturer’s part, but you are also endangering your own health by overriding your doctor’s own recommendation, so be careful what you ask for because you may get more than you bargained for.

In addition to the above process, there is strong evidence that the drug manufacturers pay doctors to promote their new drugs among colleagues with fees ranging from a few hundred to a few thousand dollars for each promotion.  In addition, In order to maintain high profits, drug manufacturers tune and tweak their existing drugs and then announce to the world through expensive advertising the wondrous benefits of their slightly altered concoction.  Although the price billed to the pharmacy chains is about the same, their profits are consummately higher as the experimentation and clinical trials are unnecessary.

Can Prices Be Lowered?

As with national healthcare plans, there are many alternative plans floating about to correct the high cost of drugs. Various people, including scholars, drug experts, government officials and a few deranged individuals have offered opinions. Among a few of the mechanisms/proposals are:

 

If drug prices were lowered, experience has indicated that sales may boom because competition with foreign sources and generics may become more equitable.

 

The major point of all of this rhetoric is that the drug industry has a huge force of lobbyists on Capitol Hill; so enforcing legislature or price controls is a remote possibility.

 

One idea that I have not seen discussed in the news is why not have the drug companies set up retail wholesale outlets whereby organizations such as AARP can negotiate their own prices with these companies and then pass on the drugs at greatly reduced prices to their members.  If it is true that some retail outlets mark up these drugs from 2,000 to 3,000 percent, then very substantial savings could be realized by this approach.

Investigating Generic Drug Pricing

At least someone had done some digging into why these costs as so high. Channel 7 News in Detroit, Michigan, assigned an investigative reporter to dig into generic drug price gouging.

 

The investigator found that some generic drugs were marked up by 3,000% or more from the manufacturer’s price to the retail outlet. By 3,000% that means if the drug manufacturer sold it to the pharmacy for $1.00, the pharmacy charged the consumer $30.00.

 

The benefit of selling you generic drugs is that the pharmacy often makes significantly higher profits.  If the prescription drug that cost $10.00 to the pharmacy can be resold to the consumer for $100.00, the pharmacy can often sell the generic version to you for $80.00 even though it cost them $1.00 to purchase. Naturally, you feel good thinking that you’ve saved $20.00, but we must recognize that the pharmacy made a higher profit, too.

 

The reporter asked a pharmacist if gouging is practiced by all major chains. He stated that Costco reportedly only marked up their generic drugs with very little margin of profit.  To prove this point, the following chart demonstrates the difference in price for one generic drug, Compazine.

 

Drug Name

CVS Pharmacy Price

Costco Price

Compazine 60 pills

$54.99

$19.89

How can this huge price difference happen based upon the manufacturer’s price?  Well, one thing is obvious.  Since Costco and CVS Pharmacy are both large companies, they should both be able to negotiate substantial discounts from the drug manufacturer. Therefore, it can only be assumed that CVS Pharmacy is making a tidy profit on at least this one drug. However, the profit markup varies considerably on each drug, so you must carefully assess the prices at all retailers before making your purchase.

Importing Drugs From Other Countries

Many people believe that importing drugs from other countries will help alleviate the problem of the high cost of drugs. Canada has been mentioned as one of the possibilities but unfortunately that’s not the answer.  Canada is a much smaller country (in population) than the United States.  Canada accounts for about 3% of the $400 billion in worldwide sales while the United States accounts for over 50%. One drug, Lipitor, is prescribed to over 16 million Americans, where 16 million dosages per day would be the equivalent of providing just this one medication to one-half the population of Canada.

 

Why are drug prices cheaper in Canada?  The reason is that the Canadian government negotiates lower prices from the drug manufacturers. Canada is a much more socialistic country than America with price controls on certain commodities. Don’t be mislead by this price disparity. There are numerous problems with government intervention in setting prices. Price controls have previously been tried in America with disastrous results. Since prices are lower in Canada, this means that the drug manufacturers make far less profit on those sales.  It all boils down to the fact that the drug companies make their maximum profits on sales in United States. Their profit margin in foreign countries is substantially lower.

 

If Congress elects to pass legislation permitting the import of drugs from Canada or any other country, you don’t think the drug manufacturers are going to take that lying down, do you?  They just won’t increase the volume of sales to Canada or any other country. If Canadian distributors attempt to vastly increase their sales to America, there will be a shortage of drugs in Canada that will necessitate the end of that practice as fast as a speeding bullet.  If Congress foresaw this possibility and passed legislation that prohibited a limit on the quantity of exports to countries that re-export to other countries, I’m sure the drug manufacturers will be able to work around that little problem. We must remember that the drug companies spend gargantuan sums of money for their Washington lobby.

 

Even if there was some degree of success in importing drugs from countries with lower prices, the drug manufacturers are sure as hell not going to eat the loss of profits – they will claim they will just stop spending as much money on research and development (whether this is realistic or not), which will choke the potential for developing new life-saving drugs.

 

As of the fall of 2004, there is a movement in Canada amongst seniors, pharmacies and patients to outlaw exporting drugs to other countries, so it’s likely a dead issue anyway.

So Who’s To Blame For High Drug Costs?

Your guess is as good as mine, since the numbers necessary to evaluate where the greatest profit is made are generally not made available to the public. But it can safely be said that the drug manufacturers, distributors and retail outlets all prosper; however, the heaviest markup occurs at the retail level just prior to the sale to the consumer.

 

Regardless of all of the problems that have been identified, a workable solution must be found very soon as it is predicted that the bill for prescription drugs will reach over $500 billion by the year 2013.

Therefore, this is a very difficult problem to solve regardless of what Congress or the American people have to say about high drug prices.

 

 

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