Topic: Health Care

Should the Government Manufacture Generic Drugs?

Senator Elizabeth Warren says yes, because patent protection gives drug companies monopoly power that they exploit. Her suggestion raises several issues.

First, Warren is right that while patents might incentivize innovation, they also keep prices elevated while new drugs are under patent, thereby reducing utilization. Patent policy should seek to balance these two effects, and current policy might not be the right balance.

Second, Warren’s suggested policy - more government, rather than reduction or elimination of existing patent protection - fits the standard progressive approach: assume the fix to imperfect government is more government, rather than less. 

Third, libertarians are divided over government patent protection. On the one hand, libertarians endorse a government role in defining and enforcing property rights generally, so why should intellectual property be any different? (And as a bonus, intellectual property protection is an enumerated power). Further, standard economics suggests that private investment in new ideas might be insufficient without patents.

On the other hand, the current patent system generates a non-trivial frictions: patent trolls try to “hold up” firms that might use patents for new products. This causes no ineffiiciency if Coasian bargaining costs are zero, but that seems unlikely. 

Existing research, moreover, provides little evidence that patent protection spurs innovation (although pharma may be an exception).

So, Warren raises a valid concern over patents. But rather than having government manufacture generic drugs (what could possibly go wrong?), why not just scale back existing patent protections?

Ruling Striking Down Obamacare Comes Six Years Late and a Dollar Short

Late Friday afternoon, a federal judge in Fort Worth ruled that, because the individual mandate could no longer be upheld as a tax (because Congress in 2017 eliminated the monetary assessment for noncompliance), it was unconstitutional – and that it couldn’t be severed from the rest of the Affordable Care Act, so all of Obamacare is invalid. Fantastic, right? This is what I and many others have been working for since the law was signed in March 2010 and, while it took a while, we finally reached to the mountaintop – a second bite at the apple to undo John Roberts’s betrayal, right?

Well, not quite. Much as Judge Reed O’Connor’s ruling seemed to parallel the ruling by Judge Roger Vinson nearly eight years ago, in the litigation that culminated NFIB v. Sebelius in 2012 – Josh Blackman even evoked that early decision in a clever allusion to Groundhog Day – this time around there are different statutory facts being evaluated and so a different legal posture. 

Mind you, it’s absolutely correct that a “shared responsibility payment” that is $0 can no longer be justified as a tax, even under Chief Justice Roberts’s twistification. That is, a bare command to buy insurance is unconstitutional because it goes beyond federal power under the Commerce Clause and Necessary and Proper Clause (so ruled a majority of the Supreme Court, including Roberts).

But that’s not the end of the ball game because the question of whether the individual mandate can be severed from some or all of the rest of the ACA is a different one than whether the mandate itself is constitutionally kosher. Judicial doctrines of severability are somewhat complicated and call for judgment rather than bright lines, but they boil down to two questions: (1) Is the remainder of the statute “fully operative as a law”? and (2) Would Congress have passed the remainder? In Cato’s severability brief in NFIB, we argued that (1) “The individual mandate was essential to the Act’s scheme for achieving near-universal health care coverage at an acceptable cost” and (2) “Severing the individual mandate from its related provisions in Titles I and II will produce new comprehensive health care legislation that Congress did not enact and would never have enacted.”

But this time around, the Tax Cuts and Jobs Act of 2017 reduced the tax-penalty to $0 without eliminating so much as the guaranteed-issue and community-rating provisions (the parts most closely tied to the mandate), so (1) either the rest of the law would seem to be working (or not) irrespective of the individual mandate, and (2) we now have the scheme that Congress actually passed. In other words, Congress had the opportunity to sever as much of Obamacare as it wanted – legally speaking; there was only so much Republicans could do practically through “reconciliation” given the Democrats’ ability to filibuster more substantive legislation – and it effectively ratified the entirety of Obamacare with a $0 mandate.

So I’m quite skeptical that the severability ruling will be upheld on appeal, even by the conservative-friendly Fifth Circuit. There are also potential issues of standing, given that it’s based on compulsion to follow a law that has a $0 enforcement mechanism and no other legal consequences.

The case might not even get to the Supreme Court. And if it does, remember that the five justices who ultimately upheld the ACA are still on the Court. Plus Justice Brett Kavanaugh twice rejected challenges to the law when he was on the D.C. Circuit – albeit on technical grounds, and without engaging in severability analysis – which is why attacks on him from the left for wanting to gut Obamacare were so misguided.

In short, Friday’s ruling gave me a wistful thought about what might have been, but this case just isn’t the silver bullet that will finally kill the monster that has so damaged our health care system, economy, and rule of law. Indeed, I imagine that at a certain point we’ll stop talking about Obamacare – that point may have come when Senator John McCain voted against its “skinny repeal” last year – and just debate how best to reform “the health care system.”

For more analysis of Friday’s ruling in Texas v. United States, see Volokh Conspirators Jon AdlerIlya Somin, and special guest star Josh Blackman in two posts (with more to follow). It’s telling that I haven’t yet seen Randy Barnett, the intellectual godfather of the original individual-mandate challenge, opine on the ruling. I think he knows, as well as the rest of us, that this case isn’t the blockbuster some have made it out to be.

Today’s Drug Abusers Did Not Derive From Yesterday’s Patients

We learned last week that the 2017 drug overdose numbers reported by the US Centers for Disease Control and Prevention clearly show most opioid-related deaths are due to illicit fentanyl and heroin, while deaths due to prescription opioids have stabilized, continuing a steady trend for the past several years. I’ve encouraged using the term “Fentanyl Crisis” rather than “Opioid Crisis” to describe the situation, because it more accurately points to its cause—nonmedical users accessing drugs in the dangerous black market fueled by drug prohibition—hoping this will redirect attention and lead to reforms that are more likely to succeed. But the media and policymakers remain unshakably committed to the idea that the overdose crisis is the product of greedy pharmaceutical companies manipulating gullible and poorly-trained doctors into over-prescribing opioids for patients in pain and ensnaring them in the nightmare of addiction.

As a result, most of the focus has been on pressing health care practitioners to decrease their prescribing, imposing guidelines and ceilings on daily dosages that may be prescribed, and creating surveillance boards to enforce these parameters. These guidelines are not evidence-based, as Food and Drug Administration Commissioner Scott Gottlieb seems to realize, and have led to the abrupt tapering of chronic pain patients off of their medication, making many suffer desperately. An open letter by distinguished pain management experts appeared last week in the journal Pain Medicine criticizing current policies for lacking a basis in scientific evidence and generating a “large-scale humanitarian issue.” 

Current policy has brought high-dose prescriptions down 41 percent between 2010 and 2016, another 16.1 percent in 2017, and another 12 percent this year. Yet overdose deaths continue to mount year after year, up another 9.6 percent in 2017.

One might expect the obvious prevalence of heroin and illicit fentanyl among overdose deaths would make policymakers reconsider the relationship between opioid prescribing, nonmedical use, and overdose deaths. The data certainly support viewing the overdose crisis as an unintended consequence of drug prohibition: nonmedical users preferred to use diverted prescription opioids and, as supplies became tougher to come by in recent years, the efficient black market responded by filling the void with cheaper and more dangerous heroin and fentanyl.

Callous Ideologues: Illinois Legislators Pass Law to Punish Patients with Preexisting Conditions

The Illinois legislature has enacted a law, over the veto of Gov. Bruce Rauner (R), that will strip consumer protections from patients with preexisting conditions, throw them out of their health plans, deny them health care, and expose them to bankruptcy. Naturally, it did so in the name of…helping patients with preexisting conditions. 

The new law imposes limits on so-called “short-term” health plans. Federal law exempts short-term plans from ObamaCare’s costly and punitive health insurance regulations. As a result, short-term plans allow enrollees to purchase only the coverage they value, frequently cost half as much as ObamaCare plans, and offer broader choice of providers than ObamaCare plans. Thanks to new federal rules, short-term plans can last up to 12 months, be renewed for up to 36 months, and can enable enrollees who fall ill to keep paying low, healthy-person premiums indefinitely, making access to care more secure for the sick. Critics acknowledge the new rules could extend health insurance to 2 million previously uninsured Americans.

Consumers appear to value the broader choices that the new rules offer. The web site eHealth reports that the share of unsubsidized insurance purchasers who chose a short-term plan over an ObamaCare plan rose from 56 percent during the last enrollment period to 70 percent during this enrollment period. (See graph.)

Voters appear to believe the benefits of these new rules outweigh the costs. Polling shows voters support the new rules by nearly a two-to-one ratio–even if purchasers choose less coverage than ObamaCare requires, and even if ObamaCare premiums rise as a result. (See chart nearby.) There is reason to believe the new rules will reduce ObamaCare premiums. (See below.)

Illinois legislators, responding to critics who complain short-term plans are “junk” insurance, have decreed that short-term plans can last no longer than six months and that enrollees whose short-term plans expire must wait 60 days before purchasing a subsequent plan. The Sargent Shriver National Center on Poverty Law tweeted about the new law, “GREAT NEWS! SB1737 is law, and Illinois will now protect healthcare consumers with pre-existing conditions.”

That is exactly backward. The new Illinois law does not protect patients with preexisting conditions. It does not outlaw “junk” insurance. It creates junk insurance by taking protections away from short-term plan enrollees and exposing patients with preexisting conditions to denied care and bankruptcy.

Under prior law, short-term plans could provide many Illinois residents with seamless coverage. Residents could purchase short-term plans that could cover them indefinitely, but at least until the next ObamaCare open-enrollment period, at which point they could enroll in an ObamaCare plan without facing medical underwriting or denials of coverage. 

The new law outlaws short-term plans that last more than six months. Now, by law, short-term plan enrollees who develop cancer or other expensive illnesses will lose that coverage when their plan reaches the six-month limit. This ban will not affect healthy consumers. When their six-month plans expire, healthy consumers can just wait the required 60 days and purchase a new six-month plan. The ban will instead hurt patients with preexisting conditions–specifically, those who fall ill while enrolled in a short-term plan or during the 60-day waiting period. The new law will throw those patients out of their plans, leaving them with preexisting conditions and no health insurance at all for up to 12 months. 

As a direct result of the new law:

  • Any Illinois resident who purchases a short-term plan on January 1, 2019 and subsequently gets a cancer diagnosis will lose that coverage on June 29 and face six months of expensive medical bills with no coverage. She will not be able to obtain a new short-term plan, because her cancer will be a preexisting condition. She also will not be able to get coverage through ObamaCare for six months–i.e., until January 1, 2020. Yes, ObamaCare prohibits insurers from denying coverage on the basis of preexisting conditions, but it also generally denies coverage to everyone outside of a six-week open-enrollment period at the end of each year.
  • The same fate will befall any Illinois resident who gets a cancer diagnosis during the 60-day waiting period. By law, they will face months and months of expensive medical bills with no coverage. They will be unable to purchase another short-term plan, and they will be locked out of ObamaCare. 

This is exactly what happened to Jeanne Balvin. Similar rules imposed by the Obama administration threw Balvin out of her short-term plan, leaving her with $95,000 in medical bills and no insurance to help pay them. (The new federal rules supersede the Obama-era rules.) 

Had Illinois legislators just done nothing, or even just upheld Rauner’s veto, short-term plans could have covered Illinois residents throughout ObamaCare’s entire coverage-denial period. Instead, Illinoisans with preexisting conditions will face months and months of expensive medical bills with no coverage at all.

This is perverse. Illinois legislators knew that canceling short-term plans hurts patients with preexisting conditions. We know they knew, because they included a provision in the new law that forbids insurers from canceling short-term plans  “before the expiration date in the policy, except in cases of nonpayment of premiums, fraud,” or at the option of the enrollee. And yet the legislature will now rescind short-term plans from patients with preexisting conditions within six months of their diagnosis, no matter how much human suffering it may cause.

Supporters claim that crippling short-term plans is necessary to protect patients with preexisting conditions. If short-term plans offer lower-cost coverage to healthy consumers, they argue, healthy consumers will flee ObamaCare plans. ObamaCare premiums would then rise to the point of threatening ObamaCare’s economic and/or political viability, thereby threatening access to care for patients with preexisting conditions currently enrolled in ObamaCare plans. Among the many flaws in this argument is the fact that short-term plans can actually reduce ObamaCare premiums by keeping expensive patients out of ObamaCare’s risk pools. The new federal rules allow short-term plan enrollees to purchase “renewal guarantees” that give them the right to keep purchasing short-term plans at low, healthy-person premiums even after they develop expensive medical conditions. Short-term plans can thus reduce ObamaCare premiums by keeping expensive patients out of those risk pools, just as the pre-ObamaCare individual market kept many expensive patients out of state high-risk pools. The presumed harms that more flexible short-term plans could inflict on patients with preexising conditions in ObamaCare plans are attenuated and uncertain. The harms that the Illinois law will inflict on patients with preexisting conditions who are enrolled in short-term plans are definite, immediate, and concrete.

There is no way to dress up laws restricting short-term plans as anything other than government rationing of care to the sick. The activists and politicians who supported this law are not patient advocates. They are callous ideologues who are willing to deny care to sick patients for the sake of protecting ObamaCare.

U.S. Attorney for Massachusetts Doubles Down on Misguided Prescription Opioid Policy

Conventional wisdom argues that the opioid epidemic has resulted from excessive opioid prescribing, but the evidence shows just the opposite. Restrictions on opioid prescribing have pushed opioid users into the black market, where they overdose on illicit fentanyl, not prescription opioids (mainly because they cannot assess potency).   Reason’s Jacob Sullum has a nice recent piece on this point.

Yet policymakers keep doubling down on the conventional wisdom.  The U.S. Attorney for Massachusetts, Andrew Lelling, has just anounced new scrutiny of doctors who prescribe opioids:

US Attorney Andrew E. Lelling has sent letters to “a number of medical professionals” alerting them that their opioid prescribing practices “have been identified as a source of concern.”

In a statement released Thursday, Lelling said that the professionals who received the warning had prescribed opioids to a patient within 60 days of that patient’s death or to a patient who subsequently died from an opioid overdose.

The letters inform the professionals that it’s illegal to prescribe opioids “without a legitimate medical purpose, substantially in excess of the needs of the patient, or outside the usual course of professional practice.” It acknowledges that the prescriptions may have been medically appropriate, however.

Such actions will scare medicial professionals into even less prescribing, force more patients into the black market, and increase the frequency of opioids overdoses.

Why Is There So Little Price Competition among Prescription Drugs? Call It “Erectile Pricing.”

The latest article in the Kaiser Health News/NPR “Bill of the Month” series tells the story of Shereese Hickson, a 39-year-old disabled Medicare Advantage enrollee whose hospital charged $123,019 for two infusions of a multiple sclerosis drug:

Even in a world of soaring drug prices, multiple sclerosis medicines stand out. Over two decades ending in 2013, costs for MS medicines rose at annual rates five to seven times higher than those for prescription drugs generally, found a study by researchers at Oregon Health & Science University.

“There was no competition on price that was occurring,” said Daniel Hartung, the OHSU and Oregon State University professor who led the study. “It appeared to be the opposite. As newer drugs were brought to market, it promoted increased escalation in drug prices.”

That’s not how it’s supposed to work. New market entrants should bring more competition on price. Drug manufacturers have an incentive to capture market share by reducing their prices. But that seems to be the exception, not the rule. 

In the new Cato Institute book Overcharged: Why Americans Pay Too Much for Health Care, law professors Charles Silver and David Hyman (M.D.) show that this phenomenon occurs because government interference has eliminated incentives for pharmaceutal companies to compete on price:

Why does competition exert less influence in drug markets than it does elsewhere? One likely explanation is “parallel pricing,” which occurs when supposed competitors maintain or raise prices in lockstep. We call it “erectile pricing,” rather than parallel pricing, because we observed it when studying Viagra and other erectile dysfunction (ED) drugs…

Erectile pricing occurs with other medicines too. Insulin is a drug used by millions of Americans afflicted with diabetes. It is off-patent and made by three companies, so it should be reasonably priced. It is not. The past two decades have seen stunning price increases. Short-acting insulin, which cost about $21 in 1996, went for about $275 in 2017. And, just as with ED drugs, the prices went up in lockstep, even though there were two companies making short-acting insulin. Prices for long-acting insulins, which also had two makers, rose in tandem too.

Why does erectile pricing happen in drug markets? Many medicines are made by only a few companies, all of which are repeat players in pricing games and have learned to employ a strategy known as “tit for tat.” Whatever one company does, the others do in turn. When one raises prices, the others follow suit, knowing that if they play follow the leader, they will all get rich. The incentive to steal the market by charging less disappears because every manufacturer knows that other makers will cut their prices too, if it does. An outbreak of price competition would leave all manufacturers poorer—so they all raise prices instead of reducing them.

Ideally, tit-for-tat pricing would be unsustainable, and efforts to keep prices high would collapse, because individual producers could increase their profits by reducing their prices and stealing market share from their competitors. That appears to happen in the pharmaceutical market sector less often than it should.

Third-party payment contributes to this failure of competition. Heavily insured patients who fork over the same copays regardless of which drugs they use will not respond to rising prices by switching to lower-cost alternatives. They will buy what their doctors recommend, and their doctors will not care much about price, knowing that their patients are insured. Third-party payment may weaken drug makers’ incentive to compete for market share.

To purchase Overcharged, click here.

No Let Up On The Bad News About Overdose Deaths

The National Center for Health Statistics (NCHS) just issued Data Brief Number 329, entitled “Drug Overdose Deaths in the United States, 1999-2017.” Drug overdose deaths reached a new record high, exceeding 70,000 deaths in 2017, a 9.6 percent increase over 2016. That figure includes all drug overdoses, including those due to cocaine, methamphetamines, and benzodiazepines. The actual breakdown according to drug category will be reported in mid-December. However, estimates are opioid-related deaths will account for roughly 49,000 of the total overdose deaths. 

The big takeaways, quoting the report:

- The rate of drug overdose deaths involving synthetic opioids other than methadone, which include drugs such as fentanyl, fentanyl analogs, and tramadol, increased from 0.3 per 100,000 in 1999 to 1.0 in 2013, 1.8 in 2014, 3.1 in 2015, 6.2 in 2016, and 9.0 in 2017.The rate increased on average by 8% per year from 1999 through 2013 and by 71% per year from 2013 through 2017.

-The rate of drug overdose deaths involving heroin increased from 0.7 in 1999 to 1.0 in 2008 to 4.9 in 2016. The rate in 2017 was the same as in 2016 (4.9).

-The rate of drug overdose deaths involving natural and semisynthetic opioids, which include drugs such as oxycodone and hydrocodone, increased from 1.0 in 1999 to 4.4 in 2016. The rate in 2017 was the same as in 2016 (4.4).

-The rate of drug overdose deaths involving methadone increased from 0.3 in 1999 to 1.8 in 2006, then declined to 1.0 in 2016. The rate in 2017 was the same as in 2016 (1.0).

Despite the fact that overdose deaths from prescription opioids—and even heroin—have stabilized, the overdose rate continues to climb due to the surge in fentanyl deaths. 

This has happened despite policies in place aimed at curtailing doctors from prescribing opioids to their patients in pain. Prescription surveillance boards and government-mandated prescribing limits have pushed prescribing down dramatically. High-dose prescriptions were down 41 percent between 2010 and 2016, another 16.1 percent in 2017, and another 12 percent this year.

Policies aimed at curbing prescribing are based on the false narrative that the overdose crisis is primarily the result of greedy drug makers manipulating gullible doctors into overtreating patients in pain and hooking them on drugs. But as I have written in the past, , the overdose crisis has always been primarily the result of non-medical users accessing drugs in the dangerous black market that results from prohibition. As the supply of prescription opioids diverted to the underground gets harder to come by, the efficient black market fills the void with other, more dangerous drugs. Lately, the synthetic opioid fentanyl has emerged as the number one killer.

In a New York Times report on the matter today, Josh Katz and Margot Sanger-Katz hint that policymakers are aiming at the wrong target by stating, “Recent federal public policy responses to the opioid epidemic have focused on opioid prescriptions. But several public health researchers say that the rise of fentanyls requires different tools. Opioid prescriptions have been falling, even as the death rates from overdoses are rising.”

Prescription opioids are not the cause of the overdose death crisis. Neither is fentanyl, despite the fact that it is now the primary driver of the rising death rate. The ultimate cause of the drug overdose crisis is prohibition. US policymakers should drop the false narrative and face reality, like Portuguese health authorities did 17 years ago.

Portugal, in 2001, recognized that prohibition was driving the death rate. At the time it had the highest overdose rate in Western Europe. It decriminalized all drugs and redirected efforts towards treatment and harm reduction. Portugal saw its population of heroin addicts drop 75 percent, and now has the lowest overdose rate in Europe. It has been so successful that Norway is about to take the same route.

At a minimum, policymakers in the U.S. should turn to harm reduction. They should expand syringe exchange and supervised injection facilities, lighten the regulatory burden on health care practitioners wishing to treat addicts with medication-assisted treatments such as methadoneand buprenorphine, and reschedule the overdose antidote naloxone to a truly over-the-counter drug.

Unless this happens, we should expect more discouraging news from the NCHS in the years ahead.