Drug Shortages Highlight Failures of For-Profit Health Care

Rick Ungar (via @Captain Clarion and @AggressiveProgresive) has a great catch and analysis at Forbes, "Proof of the Failure of Free Markets in Medicine." He discusses the shortage of the cancer drug methotrexate, which has an 80-90% success rate in treating the most common (and once always fatal) form of leukemia, acute lymphoblastic leukemia (ALL). The medication, now off patent, is apparently no longer profitable enough for the five U.S. makers of this drug, and methotrexate is one of a number of life-saving medicines in short supply. There are approximately 3000 new cases of ALL each year diagnosed in young children.

As Ungar argues, it is implausible that all five current manufacturers of methotrexate are simultaneously having production delays:

What are the odds that 100 percent of these companies are, somehow, each experiencing manufacturing delays?  Does anyone imagine that these manufacturing delays were occurring back when these companies were making big bucks on the product, achieved by the huge mark-ups that accompany receipt of the patent protection that bars others from competing?

The Huffington Post's Linda A. Johnson reports that the five companies are Ben Venue Laboratories Inc., APP Pharmaceuticals LLC, Hospira Inc., Sandoz Inc., and Mylan Inc. She also notes that Ben Venue was the sole U.S. producer of the breast cancer drug doxil, which with methotrexate was affected by a November shutdown of a company plant in Ohio after regulators found recurrent drug safety problems.

When production of these drugs falters, people die. As Ungar puts it, "This means that kids are dying —and will continue dying— because the money just isn’t what it used to be for the five manufacturers who have long supplied the critical medicine."

If we think that's wrong, it's necessary to address the problems of the patent system, which leads to high profits (and medicines unaffordable in developing countries, according to Susan Sell) during the patent's life but abandonment of vital medications after the end of the patent. Instead, we are at present having to fight off attempts to expand protection of patents and other intellectual property: the for-now neutralized SOPA and PIPA, as well as the Anti Counterfeiting Trade Agreement and the Trans-Pacific Partnership. Ungar suggests that the patent system be modified to take into account whether companies stopped making needed drugs after previous patents expired. This could be helpful, but the deeper question is whether patent protections are too strong already and need to reduced.

Basics: U.S. Students Score About Average in OECD Testing Program

Every three years, the Organization for Economic Cooperation and Development carries out its Program for International Student Assessment, PISA. The 2009 edition covered 65 countries and focused on reading, but included test results for math and science as well. PISA tests students who are 15 years, 3 months old to 16 years, two months old to

assess the extent to which students near the end of compulsory education have acquired some of the knowledge and skills that are essential for full participation in modern societies (PISA Results, Volume I, p. 19)

 In addition to the 34 OECD member nations, a further 31 "partner countries" take part. Some of these partners, such as Shanghai, were among the top performers, despite lower education budgets than in the OECD and wide socioeconomic disparities within them. In fact, Shanghai topped the list in all three categories (see below).

The U.S. scores on the high end of average in reading and science, and just below average in math. As the table below shows, America scores better than a few countries often thought of as more "socially advanced," such as Sweden. Though there is obviously room for improvement (and the PISA report discusses improved scores in countries as diverse as South Korea, Poland, Germany, and Brazil), the sky is not falling on U.S. education just yet.

In future posts, I plan to take up more education-related issues. Here, I wanted to show that the U.S. is not starting from as bad a baseline as it does, for example, in health care. Without further ado, here are the PISA scores for the top 50 countries:

Country		Reading	Math	Science
Shanghai-China		556	600	575
Korea		539	546	538
Finland		536	541	554
Hong Kong-China		533	555	549
Singapore		526	562	542
Canada		524	527	529
New Zealand		521	519	532
Japan		520	529	539
Australia		515	514	527
Netherlands		508	526	522
Belgium		506	515	507
Norway		503	498	500
Estonia		501	512	528
Switzerland		501	534	517
Poland		500	495	508
Iceland		500	507	496
United States		500	487	502
Liechtenstein		499	536	520
Sweden		497	494	495
Germany		497	513	520
Ireland		496	487	508
France		496	497	498
Chinese Taipei		495	543	520
Denmark		495	503	499
United Kingdom		494	492	514
Hungary		494	490	503
Portugal		489	487	493
Macao-China		487	525	511
Italy		486	483	489
Latvia		484	482	494
Slovenia		483	501	512
Greece		483	466	470
Spain		481	483	488
Czech Republic		478	493	500
Slovak Republic		477	497	490
Croatia		476	460	486
Israel		474	447	455
Luxembourg		472	489	484
Austria		470	496	494
Lithuania		468	477	491
Turkey		464	445	454
Dubai (UAE)		459	453	466
Russian Federation		459	468	478
Chile		449	421	447
Serbia		442	442	443
Bulgaria		429	428	439
Uruguay		426	427	427
Mexico		425	419	416
Romania		424	427	428
Thailand		421	419	425
Source: OECD, PISA 2009 Database
http://dx.doi.org/10.1787/888932343342

Conservatives Refute Butler/Heritage Revisionism

@gregvarner points me to a new article at Forbes where Avik Roy tries in vain to find a reference to the individual mandate before the Heritage Foundation, specifically Stuart Butler, started publishing research on it in 1989. Citing the same 1989 lecture I did (and Krugman before me) in my last post, Roy concludes:

Based on my research, I see no contravening evidence to the claim that Stuart Butler and Heritage were the first people to advocate the individual mandate, in the context of a private-sector health-care system.

Roy is at pains to say that Heritage and Butler are now right to oppose the individual mandate, but nowhere does he give any evidence that they changed their minds on it prior to President Obama's election. Unless he (or Butler) give such evidence, it will be hard to take seriously the claim that the "change of heart" isn't merely political opportunism.

As I mentioned in my last post, you can't give a lecture on something without previously researching it, and Roy gives an update linking to James Taranto at the Wall Street Journal, who also isn't buying "Butler's claim of unoriginality," and who finds the research piece that preceded the lecture. "A National Health System for America," edited by Butler and Edmund Haislmaier, is a major 140-page research document. Although it is dated on the Heritage website as January 2, 1989, as Taranto says the Washington Post news story about the book states it was released June 1 of that year (which I verified using the Nexis subscription service). What Taranto does not notice is that this document is clearly labeled on its cover "Revised Edition." This could well push the original version and the original research back into 1988 or earlier.

Not only that, Taranto finds multiple elements of the Affordable Care Act in the research monograph, including its enforcement mechanism.

To Heritage's credit, it has not scrubbed its website of either the lecture or the research document, but the fact remains that these documents appear to be the ultimate source of the individual mandate. Butler has yet to cite another source or acknowledge that he was working on it in the 1980s, not just the 1990s. As Taranto concludes in Butler's case, "Acknowledging error is a sign of integrity, but you have to be truthful about it." Amen to that.

Heritage Doubles Down on Individual Mandate Denialism

As I reported in July, the Heritage Foundation has been bellowing against the Affordable Care Act despite the fact that the critical elements (individual mandate, community rating, and subsidies so everyone can afford insurance) were first proposed by -- the Heritage Foundation!

In USA Today (via Don Taylor) Stuart Butler, author of the Heritage lecture linked above, says "Don't Blame Heritage for ObamaCare Mandate." He writes:

The confusion arises from the fact that 20 years ago, I held the view that as a technical matter, some form of requirement to purchase insurance was needed in a near-universal insurance market to avoid massive instability through "adverse selection" (insurers avoiding bad risks and healthy people declining coverage). At that time, President Clinton was proposing a universal health care plan, and Heritage and I devised a viable alternative.

My view was shared at the time by many conservative experts, including American Enterprise Institute (AEI) scholars, as well as most non-conservative analysts. Even libertarian-conservative icon Milton Friedman, in a 1991 Wall Street Journal article, advocated replacing Medicare and Medicaid "with a requirement that every U.S. family unit have a major medical insurance policy."

My idea was hardly new. Heritage did not invent the individual mandate.

  What this self-serving narrative omits, as Taylor points out, is any mention of Butler's original proposal, linked above, from October 1989. This is more than three years prior to the Clinton health care legislation he claimed to be opposing. Butler's entire article puts his support of the mandate in "the 1990s," despite the fact that he had to have been conducting research on it prior to lecturing on it in 1989. Indeed, he cites no publication prior to his own where an individual mandate was proposed. That doesn't mean one isn't out there, but he gives us no reason to think there is.

He continues:

Additionally, the meaning of the individual mandate we are said to have "invented" has changed over time. Today it means the government makes people buy comprehensive benefits for their own good, rather than our original emphasis on protecting society from the heavy medical costs of free riders.

 This is a very strained distinction. I'm not aware of the President or any other supporter of the mandate (I myself would prefer single payer) claiming people are to be forced to buy insurance "for their own good." Just as with Governor Romney's health care reform in Massachusetts, the idea behind the individual mandate remains preventing free riders from not getting insurance until they are sick. That is crucial in making it possible to require insurance companies to insure anyone regardless of pre-existing conditions.

Taylor's colleague at The Incidental Economist, Aaron Carroll, is even more skeptical than Taylor. Carroll argues that nothing in Butler's article supports the view that the mandate in unconstitutional, least of all the claim that the mandate is "for their own good." He also rejects Butler's claim that the Heritage mandate used carrots while the ACA's uses sticks as "just semantics." Whether you raise taxes and give a credit to those who buy insurance, or don't raise taxes and penalize those who don't buy insurance, the bottom line, Carroll points out, is the same.

While I guess it is in some way intellectually appealing to see Butler try to explicitly defend his changed position, the fact of the matter is that his defense is entirely bogus. You don't craft a policy in 1989 to defend against a proposal in 1993 by a President who hasn't been elected yet. No, the truth of the matter is that the individual mandate was the conservative approach to expanding health care access right up until the time President Obama advanced it as his own. Then it became both bad policy and unconstitutional, to boot.

And at night all cats are gray.

California, Birthplace of TIF, Axes It

One of the many innovations California has given the country is that it was the first to adopt tax increment financing, or TIF. TIF is an extremely popular local subsidy tool that is funded through the anticipated increase in tax revenues (the "tax increment") resulting from a development project. TIF projects sometimes issue revenue bonds against this expected revenue to finance the project, and in some cases projects are financed on a pay-as-you-go basis as the anticipated revenue materialize over the life of a project.

On February 1, however, TIF came to an end in California, 60 years after its introduction there, as legislation abolishing the redevelopment agencies that used TIF came into effect. By 2010, there were approximately 425 redevelopment agencies statewide overseeing about $8 billion of tax increment per year. As far as I know, this exceeds TIF in the rest of the country put together.

How did this happen? When Governor Jerry Brown was elected in 2010, he inherited a state budget deficit of over $20 billion. He decided, as I had recommended for Missouri in 2009, that the huge amount of money going to subsidies and debt service should be returned to state and local governments instead, as a way of paring down the state's deficit. As KABC reported, over $1 billion a year would be returned to school districts, and $500 million annually to local governments.

The abolition of redevelopment agencies was passed primarily with Democratic votes (Contra Costa Times 3/16/11, via Nexis subscription service), but it had the support of Republican assemblyman Chris Norby of Fullerton, who had been an early critic of the agencies in the 1990s (the 2006 version of his publication, "Redevelopment:  The Unknown Government" is here).

While other states have been spurred by the budget crisis to cut some of their subsidies to business, California has gone the farthest by eliminating tax increment financing. I have argued before that subsidy cuts could offset a large part of state and local budget deficits, and it's heartening to see it happen in the birthplace of TIF. Let's hope we see more of this before the year is out.

Tax Justice Network Inaugurates Podcast Series, TaxCast

The Tax Justice Network has just begun making podcasts on issues of tax havens, tax evasion, and so forth. Called TaxCast, the first podcast contains the following:

In our inaugural TaxCast, we discuss the implications of the Vodafone vs India landmark tax case, compare Bill Gates and Mitt Romney’s attitudes to taxation and visit the Occupy camp outside St Paul’s Cathedral in London.

 You can subscribe to the TaxCast RSS feed at http://taxcast.libsyn.com/rss 

Expensive Subsidies Help State and Local Governments Drag Down Recovery

The release of gross domestic product data on Friday highlighted how the contraction of state and local governments has been a drag on economic recovery since the end of the official recession. As Nicholas Johnson of the Center on Budget and Policy Priorities explains, 2011 was the third straight year that state and local government output has fallen, reaching -2.3% in 2011, the worst since 1944, as shown in the chart below.




Paul Krugman amplifies this point, noting that investment in physical capital by state and local governments has fallen from over $290 billion (constant 2005 dollars) in 2008 to a little over $250 billion today, well over 13%. He further emphasizes that a lot of the cuts on current spending by governments has fallen on education. State and local governments, constrained by balanced budget requirements, are not doing their part to "win the future." This is precisely what Krugman predicted in December 2008 when he said that "50 state governors who are slashing spending in a time of recession" would counteract the stimulus that would be enacted at the federal level in 2009.

As readers of this blog know, a big chunk of state and local deficits could be offset by cutting corporate subsidies rather than cutting programs. My estimate of these subsidies comes to as much as $70 billion per year, more than enough to pay for the 656,000 state and local jobs Johnson reports have been lost since their peak employment in 2008.

It's important to emphasize that from a national point of view, this spending actually creates very few new jobs. While a multi-hundred-million incentive may appear to attract a new automobile assembly plant in one state, this will be offset by reduced sales from existing plants, which eventually leads to one closing (James Rubenstein, in 1992, indeed found a one-to-one relationship of auto plants opening and closing in North America). Similarly, local governments in the St. Louis metropolitan area poured over $2 billion in subsidies to retail between 1990 and 2007, with the net increase in jobs, 5400 ($370,370 per job!) not exceeding the percentage increase in local income, according to a report by the regional planning organization, the East-West Gateway Council of Governments. In other words, no jobs were actually created by these incentives, as the growth in retail would have occurred anyway due to income growth.

While it would not offset the entire state/local budget deficit, cutting subsidies would go a long way toward that goal, allowing the "Fifty Herbert Hoovers" to rehire workers and cut less from their budgets. Moreover, it would reduce income inequality slightly by ending these transfers from average taxpayers to subsidy recipients who are richer on average.