The Folly Of Burying Great Insight
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
Last week I posted “Why The Wall Street Journal’s U.S. Drug Price Comparison Misses The Mark,” a criticism of health and science deputy bureau chief Jeanne Whalen’s Dec. 1, 2015 article titled, “U.S. Drug Prices Dwarf Other Nations.” What bothered me about this article was that I felt it skewed the facts, sensationalized the issue, and seemed intent on stirring up controversy. Worse, however, was the publication’s approach to lead with this on page A1, while concluding the opener with a tantalizing and unfinished sentence. Though the Journal might argue that the reader will feel compelled to continue on to page A16 to learn more, the reality is that most Americans read headlines, and not much else. And thus, the damage has been done, providing more fuel for Democratic presidential hopeful Hillary Clinton, who has honed her message to a mere sound bite that Americans willingly swallow, hook, line, and pill. But here’s a little secret — the best, most well thought out and balanced perspectives on the issue at hand do appear in the Wall Street Journal. Unfortunately, they often are on days and in places when and where most people don’t care to look.
Why Bury Insightful Research In The Back Of The Newspaper?
On Friday, Dec. 11, 2015, Michael Mandel, chief economic strategist at the Progressive Policy Institute and a senior fellow at Wharton’s Mack Institute for Innovation Management at the University of Pennsylvania, penned “The Folly of Targeting Big Pharma.” This is a cogent and well-researched article that points out that the biggest driver of rising healthcare spending is the cost of labor, not drugs.
Stop the presses.
Unfortunately, guess where Mr. Mandel’s article appeared in The Wall Street Journal — A13 — buried on the second to last page. But why?
Mandel points out that an unfortunate refrain from presidential candidates — namely, Democrats — is that “rapacious pharmaceutical and biotech companies are driving up the cost of essential medications, bankrupting the healthcare system, and depriving sick Americans of treatment.” However, he goes on to point out that a report released on Dec. 2 by the Centers for Medicare and Medicaid Services shows a 12.2 percent increase in spending on prescription drugs in 2014 after an average 2 percent increase for the previous six years. Mandel points out that this rapid growth in 2014 was due to increased spending for new medications (particularly for specialty drugs such as those for hepatitis C), and as a result, has many calling for full-blown government price controls. This would be a big mistake. “According to data from the Bureau of Economic Analysis (BEA) and estimates by the Progressive Policy Institute, total labor compensation at hospitals, doctors’ offices, ambulatory care facilities, and nursing homes has risen by roughly $270 billion since 2007, including the amount paid to doctors and dentists who own their own practices.” This is $210 billion more than the increase in the retail cost of prescription drugs. Mandel notes that the cost of labor amounts to more than 40 percent of the increase in the total cost of personal healthcare spending since 2007, while the cost of prescription drugs amounts to only 10 percent! In addition, the CMS report shows that out-of-pocket spending for prescription drugs is down by 14 percent since 2007.
Mandel goes on to argue that innovative medicines bring down long-term costs by reducing the amount of labor needed by the healthcare system. Further, he suggests that if policymakers want to make a dent in long-term healthcare costs, they need to make two important strategic decisions — encourage the development of medicines that are labor-saving over the long-run, and, figure out a way of subsidizing the private purchase of medicines that have long run economic benefits. His rationale is that the cost benefits of drugs developed and used today for some ailments (e.g., Hepatitis C) won’t be realized for 10 to 20 years, when fewer patients are requiring liver transplants. Another problem he notes is that employers, not surprisingly, who still foot the bill for health insurance, balk at paying for today’s innovative medicines as the financial savings may not accrue for many years. While Mandel has a number of great points, I have a theory as to why his work isn’t given the attention and position it deserves — his advocacy for reducing healthcare labor.
Big Pharma Is No Match For Healthcare
At last estimate, approximately 810,000 Americans work directly in the biopharmaceutical industry. While this number may seem significant, it is 15 times less than that of the over 12 million Americans who work in healthcare. In fact, in the United States nearly one out of every 10 workers is employed in the healthcare sector. For example, in New York City, home of The Wall Street Journal, three of the top 10 companies are healthcare systems. In fact, the second largest employer in the city has nearly 40,000 more employees than Pfizer has globally! Perhaps this is the problem with why Mandel’s article is relegated to the back of the paper —advocacy for reducing labor in one of our country’s biggest labor sectors. According to Mandel, in theory, the healthcare sector could reduce its labor needs by investing in software, info-tech equipment, and other productivity-enhancing assets. But for those who think only in the short-term (i.e., Democratic political candidates) this means fewer jobs. While Mandel’s ideas, if implemented, would most likely result in much better long-term outcomes for both the economy and patients, the reality is nobody ever won an election boasting how great things will be 20 years from now — Oh, and let’s cut jobs! When it comes to elections, politicians cater to the bullies, and Big Pharma is simply no match for the goliath of healthcare.