qotd: Edward Kleinbard provides a primer on tax and spending that the politicians need to read

We Are Better Than This
How Government Should Spend Our Money
By Edward D. Kleinbard

This book argues that the strand of contemporary American political
thought that defines itself through its hatred of taxation is
narcissistic self-pleading wrapped in a flimsy sheath of economic lingo.
Personal economic liberty, of course, is one foundational principle of
our country and our economy, but it is not the only principle that
defines us; and the emaciated government that this philosophy demands is
not the way to promote the happiness of society, if by that we actually
mean the society composed of all of us who identify ourselves as
Americans. Our fixation on taxation means that we have turned our
thinking upside down: instead of focusing on what government might
usefully do, and whether we can afford it, we obsess over the taxing
side of things, and ignore the purposes to which those tax revenues are
applied.

**

We do not pursue the path of of our society's happiness, including our
collective prosperity, by pursuing abstractions like the sanctity of
markets if by doing so we waste $1 trillion or so every year in
healthcare spending, and further leave tens of millions of Americans
without adequate healthcare coverage, thereby condemning them to worse
long-term health outcomes and to risks of bankruptcy. To the contrary,
the markets here are telling us something quite clearly, which is that
healthcare for all members of a society is a load that private markets
cannot lift alone. And what is true of healthcare of course is even more
apt for broader forms of insurance against the vicissitudes of life.

The alternative - a national single-payer system - is so obvious, and so
powerful in its logic, that it beggars belief that the Obama
administration abandoned it in the debate leading up to the Affordable
Care Act. There is a reason, after all, why virtually all other
developed countries rely on this solution (whether in those words, or
through combinations of policy instruments that have the same effect),
and why the United States itself relies on it for all its seniors
(through Medicare) and all its veterans (through the VA system, which
actually is a single-provider system). At one stroke, the fundamental
problem of adverse selection disappears, because all members of society
participate. Premiums are easily collected through the existing tax
administrative machinery. A patchwork of largely monopolistic local
sellers now faces a monopsonistic buyer. Operating administrative costs
are reduced, as we see today in Medicare administration. There is more
than enough value on the table here to compensate the medical community
fairly and still reap hundreds of billions of dollars of savings every year.

**

This book has examined how we are doing in investing in ourselves, and
in offering coherent social insurance programs. The answer is not very
well. We starve ourselves of investment in infrastructure, and we
underinsure ourselves in many respects. The result is a less happy
society, to return to Adam Smith's injunction to us, and also a less
prosperous one. Well-designed social insurance programs increase our
appetite for economic risk, rather than depress it, and public
infrastructure investments yield positive economic returns, just as
private investments do. These are the functions that our government is
good at and to which this book has been addressed. Once one moves beyond
police powers and the like, what we call government spending and taxing
in many respects is really investing and insuring, with those
investments and insurance premiums collected through the mechanism of
taxation.

This book has further considered whether we have reached some natural
limit in our ability to finance collective investment and insurance
through the intermediation of government. The answer is no. We face
budget deficit issues today because we have chosen systematically to
undertax ourselves since 2001, not because the engine of our economy
cannot supply any more revenues than those we currently collect.

In short, for the last decade or more we have allowed the existence of
deficits to determine the contours of our government spending - the uses
to which we put our government. This is backward. What this book has
urged is that the right way to think about things is to ask this
question: What investment and insurance opportunities are there for all
of us, acting together, to advance the happiness of our society? In
answering this question, we need to be mindful of a great many dynamics
- the frustration and unhappiness that comes with paying taxes, the
deadweight loss of taxation, the estimated positive economic and social
returns on that collective spending, the limited competencies of
government agencies, and so on. But the starting point in every case
should not be determined by establishing an arbitrarily small amount of
tax to collect, and then treating the government like an institutional
Procrustes, whose only responsibility is to amputate the welfare of our
fellow citizens to suit that amount.


(Edward Kleinbard is the Johnson Professor of Law and Business at the
University of Southern California's Gould School of Law and a Fellow at
the Century Foundation. He previously served as Chief of Staff of the
U.S. Congress's Joint Committee on Taxation, the nonpartisan tax
resource to Congress.)

http://kleinbard.usc.edu/book/

***


Comment by Don McCanne

This book is a particularly valuable resource during this political
season. As one of the nation's most astute authorities on taxing and
spending, Edward Kleinbard provides us with a solid basis for
understanding what we intuitively find to be lacking in the tax and
spending rhetoric being thrown around by the politicians.

By obtaining a good grasp on the complexities of taxing and spending we
can better advocate for what is really a simple concept: we can have
broad agreement on where the government should be spending our money,
such as on public infrastructure and social insurance programs, and then
decide on the most equitable methods of taxation to fund the programs.

A prime example of logically applying the complexities of tax and
spending policies is the way that we should be paying for health care.
As Kleinbard states, "a national single-payer system is so obvious, and
so powerful in its logic, that it beggars belief that the Obama
administration abandoned it in the debate leading up to the Affordable
Care Act."

qotd: Senate investigation exposes Gilead’s greed while KFF report shows Part D impact

Senator Ron Wyden
Press Release
December 1, 2015

Wyden-Grassley Sovaldi Investigation Finds Revenue-Driven Pricing
Strategy Behind $84,000 Hepatitis Drug

18-Month Investigation Reveals a Pricing and Marketing Strategy Designed
to Maximize Revenue with Little Concern for Access or Affordability

Senate Finance Committee Ranking Member Ron Wyden, D-Ore., and senior
committee member Chuck Grassley, R-Iowa, today released the results of
an 18-month investigation into the pricing and marketing of Gilead
Sciences' Hepatitis C drug Sovaldi and its second-wave successor,
Harvoni. Drawing from 20,000 pages of internal company documents, dozens
of interviews with health care experts, and a trove of data from
Medicaid programs in 50 states and the District of Columbia, the
investigation found that the company pursued a marketing strategy and
final wholesale price of Sovaldi – $1,000 per pill, or $84,000 for a
single course of treatment – that it believed would maximize revenue.
Building on that price, Harvoni was later introduced at $94,500.
Fostering broad, affordable access was not a key consideration in the
process of setting the wholesale prices.

"Gilead pursued a calculated scheme for pricing and marketing its
Hepatitis C drug based on one primary goal, maximizing revenue,
regardless of the human consequences. There was no concrete evidence in
emails, meeting minutes or presentations that basic financial matters
such as R&D costs or the multi-billion dollar acquisition of Pharmasset,
the drug's first developer, factored into how Gilead set the price.
Gilead knew these prices would put treatment out of the reach of
millions and cause extraordinary problems for Medicare and Medicaid, but
still the company went ahead. If Gilead's approach to pricing is the
future of how blockbuster drugs are launched, it will cost billions and
billions of dollars to treat just a fraction of patients," Senator Wyden
said.

"The Finance Committee has tremendous responsibility in overseeing the
federal programs paying for prescription drug coverage," Senator
Grassley said. "With that responsibility, the committee should know how
the costs to the public programs and private insurance companies of a
single innovative drug entering the market without competition can have
major effects on which patients get the new drug and when. This report
sheds light on one example of the pricing decisions made by one company
with a new prescription medicine that entered the market without
competition in high demand."

Additional major findings from the investigation include:

* Gilead justified Sovaldi's high price point based on price-per-cure

* Gilead set a high price for Sovaldi with an eye toward ensuring a
future high price for Harvoni

* Gilead underestimated the degree of access restrictions that it
expected would result from its pricing decision

* Despite significant access restrictions, Gilead refused to
significantly lower the net price

* The burdens on Medicare, Medicaid, and the Bureau of Prisons were
significant

The press release includes links to the Executive Summary and 144 page
report:
https://www.wyden.senate.gov/news/press-releases/wyden-grassley-sovaldi-investigation-finds-revenue-driven-pricing-strategy-behind-84000-hepatitis-drug

***

Kaiser Family Foundation
December 2, 2015
It Pays to Shop: Variation in Out-of-Pocket Costs for Medicare Part D
Enrollees in 2016
By Jack Hoadley, Juliette Cubanski, and Tricia Neuman

Medicare Part D drug plans differ considerably in the drugs they list on
their formularies, their use of formulary tiers, and the level and
structure of cost sharing applied to those tiers. Plan premiums and the
use of deductibles also vary widely. Plan decisions affect different
beneficiaries in different ways, depending on the drugs they use. The
financial consequences for Part D plan enrollees can be substantial. In
this brief, we focus on out-of-pocket drug costs for Part D enrollees in
2016 for specialty, brand, and generic drugs.

Part D enrollees can expect to pay thousands of dollars out of pocket
for a single specialty drug in 2016, even after their drug costs exceed
the catastrophic coverage threshold

From Figure 1:

Median on-formulary out-of-pocket costs in 2016:

Sovaldi $6,608

Harvoni $7,153

Part D enrollees' out-of-pocket costs for many specialty drugs are
substantial at the start of the year, and continue even after spending
exceeds the catastrophic coverage threshold

Out-of-pocket costs are substantially higher—often ten times higher or
more—for specialty drugs when they are not listed on formulary by a Part
D plan

http://kff.org/medicare/issue-brief/it-pays-to-shop-variation-in-out-of-pocket-costs-for-medicare-part-d-enrollees-in-2016/

***


Comment by Don McCanne

Gilead's heartless strategy in deciding to price their hepatitis C drugs
well above what any reasonable market would tolerate demonstrates yet
another detrimental consequence of our health care financing model,
perpetuated and expanded by the Affordable Care Act. Gilead assumed that
they could get away with it since they figured that most of the costs
would be covered by the drug plans in the various public and private
insurance programs. Well, they pushed too hard.

The extensive investigation by the staffs of the Senator Ron Wyden and
Senator Charles Grassley confirmed that the pricing of Sovaldi and
Harvoni was based on pure greed, ignoring completely the human consequences.

The other report released today by the Kaiser Family Foundation
demonstrates the consequences that these egregious pricing behaviors
have on Medicare beneficiaries enrolled in the Part D drug program - a
program supposedly designed to improve value by leveraging market
forces. Even when the preferred drug - Harvoni - is included in the Part
D formulary, the median out-of-pocket cost for the Medicare beneficiary
is $7,153! There goes the food and the rent and a whole lot more.

The Kaiser Foundation report is particularly helpful in demonstrating
how deficient the Medicare Part D program is. They suggest shopping, but
who knows what outrageously priced drugs will be prescribed next year?
How can you shop drug formularies for drugs you have not yet been
prescribed?

Single payer advocates understand that none of this would be tolerated
in a well designed national health program. You would simply receive the
drugs you need, when you needed them. Gilead would be compensated fairly
for their products. It's just too bad that their current executives will
not end up in jail, where they belong.

qotd: STAT-Harvard poll shows OUTRAGE over drug pricing

STAT
December 1, 2015
STAT-Harvard poll: Dismayed by drug prices, public supports Democrats' ideas
By David Nather

Most Americans believe that the prices of brand-name prescription drugs
have become unreasonable, and their dismay is leading to wide support
for government action to keep costs down, including letting Medicare
negotiate prices with drug companies, according to a new poll by STAT
and the Harvard T.H. Chan School of Public Health.

About 7 out of 10 Americans, including two-thirds of Republicans, said
Medicare, the federal health insurance program for older and disabled
Americans, should be able to negotiate lower prices for all prescription
drugs.

The poll found that the pharmaceutical industry's reputation has
suffered substantial damage. Barely half of all Americans now say drug
companies are doing a good job for their customers, compared with the
nearly 8 out of 10 who expressed that kind of confidence in a 1997
Harris Poll.

And they soundly rejected the industry's argument that government action
against rising drug costs would slow the development of new drugs.
Sixty-four percent said they did not believe that would happen if
Medicare negotiated lower prices, while 26 percent said they believed it
could.

It also matters how potential government action on drug costs is framed.
When it's described as "price controls" under Medicare rather than
"negotiating prices," there's a sharp drop-off in support among
Republicans and senior citizens.

When given a choice of different options for dealing with extreme price
hikes and the most expensive new drugs, Americans were divided between
letting the government negotiate lower prices and approaches intended to
promote competition.

Government negotiations was the most popular option and importing drugs
came in second. Reducing regulations was the least preferred option,
with the support of 1 out of 5 Americans.

In follow-up interviews, people who participated in the poll expressed a
common theme: They're not sure what the best solution is — they just
want the government to do something.

The fact that the support for Medicare negotiations is so high, even
though few people are personally experiencing high drug costs, suggests
that their reactions are being driven by the perception that drug prices
have become "just unreasonable" for others, according to Robert Blendon,
a professor of health policy and political analysis at Harvard who
directed the poll.

"It's not people's experience. It's people's outrage," said Blendon.

http://www.statnews.com/2015/12/01/stat-harvard-drug-prices-poll/

Poll results:
https://cdn1.sph.harvard.edu/wp-content/uploads/sites/94/2015/11/STAT-Harvard-Poll-Nov-2015-Controversy-Over-Rising-Drug-Prices.pdf

***


Comment by Don McCanne

There is an important lesson here for single payer advocates. The public
now wants the government to do something about the large increases in
drug prices. It is not because of personal experience with these high
prices but rather it is due to the OUTRAGE over the injustice of
patients in need unnecessarily facing egregiously high drug pricing.

Much worse than the drug pricing crisis is the financial hardship,
outrageous physical suffering and even loss of life that is due to our
highly dysfunctional method of financing health care, even though we are
spending about twice as much per capita as the average of other wealthy
nations.

Our nation needs to understand that merely switching to a single payer
system would correct the injustices of the financing system that the
Affordable Care Act failed to rectify. With a well designed single payer
system we would not only get the pricing of pharmaceuticals right, we
would price correctly the rest of the system as well while improving
access and free choice of health care - all without spending any more
than we do already, yet spending it more equitably so as to eliminate
for everyone the prospect of financial hardship due to health care.

If it takes outrage to create a demand for government action, then let's
work on our framing so that people understand that they should be
outraged by the profound but remediable injustices that characterize our
health care financing system. Start with intensified efforts to educate
the media, since it has been the media that aroused the nation on
outrageous drug pricing.