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An Economic Rationale - Health Care Rx Panelists

An Economic Rationale

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The economic rationale for a mandate (individual, employer-based or a hybrid) is based on avoiding adverse selection: consumers will logically opt out of the system if they feel their personal health (past predicting future) is better than average and insurance companies will overprice the product, expecting only the highest-risk customers to enroll. In the absence of some mandate, the individual insurance market devolves to the current state: many individuals rationally choosing to be uninsured, not because they don't value health insurance, but because they refuse to overpay for the offered product.

But beyond the economics of this mandate, there is a cultural change that might follow. Perhaps if everyone knows that they will always need to be insured (rather than planning for that day in the future when they anticipate the "need"), they will become more informed consumers. Perhaps they will also take health preservation and illness prevention more seriously. Perhaps our health-care providers will find greater motivation to incorporate preventive measures in their day-to-day delivery of care. And with more healthy risks in the insurance pool, perhaps we will actually stand a better chance of truly preventing disease and/or detecting it at a stage when we can affect positive change.

While some of the narrative bears proof-of-concept, there is little risk and a huge potential reward. Mandates are a necessity if we can make this work.

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But why stick with a system that is fundamentally wrong?

Every other industrialized country in the world gets better health care as measured by all the bottom line public health statistics (there are 16), and they do it at less than half the cost per person as we spend? And they all have government run systems, mostly single payer.

We could give a super Medicare to everyone and it would not cost a penny more than we are now spending because of high overhead and enormous compliance costs of private insurance and high drug prices caused by vast expenditures on Marketing. A public option would not use these savings.

Why not support HR676?

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Coverage, Safety And Innovation Are Paramount - Health Care Rx Panelists

Coverage, Safety And Innovation Are Paramount


The fundamental belief that every American should have affordable health insurance, including prescription drug coverage, should be the top priority for Congress as it crafts health care reform legislation.

Additionally, the American health care system should focus more heavily on improving health outcomes, preventing chronic disease, preserving the patient-physician relationship and reducing health disparities among different patient populations.

To achieve these goals, AstraZeneca believes Congress should enact reform that:

1. Promotes market competition that leads to improved health outcomes, as market competition drives innovation that enhances patient health and lowers costs throughout the health care system.

2. Ensures patient safety is maintained and enhanced through a well-resourced Food and Drug Administration that has the necessary resources to bring medicines and devices from the laboratory to the patient in a consistent, systematic way.

3. Expands coverage for the uninsured through market-based programs and employer-sponsored insurance, supplemented by public programs.

4. Fosters and rewards innovation while providing protection for intellectual property to ensure the availability of future generations of prescription medicines.

Specifically, Congress also should include co-pay reform because the current standard insurance benefit clearly penalizes patients for the use of the more innovative medicines. We know that higher co-pays lead patients to not take their medicines as prescribed, which can lead to added health issues and costs.

Every one of us - government, industry, providers, insurers and individuals - has a role to play in strengthening the American health-care system. Each of us is critical to the equation if we are going to deliver health-care reform that both builds on the strengths of our current system and effectively addresses its weaknesses.

Working together, we can -- and I believe we will -- get the right health-care reform for patients. We can build an improved health-care system in which more people are diagnosed and treated, fewer people are hospitalize and medicines will be viewed as an investment, not a cost.


Jeff - Thank you! Thank you! Thank you! I have been goin nuts trying to find this.

A Voice - Thank you also for your careful analysis of Mr. Johnson's figures. I am surprised you did not mention the work of Alan Sager which is where I got most of my data.

I have sent material to my representatives many times. Recently I spent 45 min on the phone with my Congressman's health care LA.

do not side with big business and the insurance companies and pers drug companies.....side with the AMERICAN PEOPLE AND BARACK OBAMA .........THAT IS THE REASON HE WAS ELECTED...WHEN IT COMES TO HEALTHCARE IN OUR COUNTRY.

Part 2

The outcome of this issue could not be more important to the American public.

It deserves far greater vision, aspiration, and risk taking from a leading Pharmaceutical executive and better representation from a Sr. VP of PhRMA.

Mr/Dr Lensch - I encourage you to motivate your family/friends/colleagues to engage your congressman and senators to become part of the solution. Clearly you are passionate about this topic.

Mr. Johnson - If PhRMA sincerely wishes to “set the record straight”, it is important both PhRMA and pharmaceutical executives dramatically increase transparency when engaging the public.

My point is this - “the record” can vary dramatically depending on which statistics and research PhRMA chooses to present. If you choose to show only information favorable to PhRMA, you further fuel public perception (or worse, the reality) that pharmaceutical companies place profits and industry interests over patient interests.

For example, you quote a few statistics from IMS and select favorable quotes from a Congressional Budget Office (CBO) report.

IMS is a reputable data provider. However, IMS exists to serve the Pharmaceutical industry, making billions of dollars in the process. In that context, neither PhRMA nor pharmaceutical executives should be surprised if the general public suspects statistics provided by IMS (for use by PhRMA) are biased in favor of the pharmaceutical industry.

As for the CBO report, I believe you are referring to a 2006 report aptly named “A CBO Study - October 2006: Research and Development in the Pharmaceutical Industry”, prepared at the request of a Senate Majority Leader ( )

In the study, both PhRMA and the National Science Foundation measured R&D spending over 3+ decades. PhRMA consistently estimated higher R&D spend from 1986 to 2002. In 2002 PhRMA’s estimate was nearly 250% (i.e 2.46 times) higher than the NSF ($37B vs $15B). The greatest difference was PhRMA’s inclusion of spend outside the US.

Part 1

If the $63.2 billion IMS figure you quote is a global figure, then your comparison is unfair. US promotional regulations allow far greater spend than non-US countries. Therefore, the ratio of R&D to promotion will be skewed in favor of R&D when taken in the context of global spend. On the other hand, if the IMS reported $63.2 billion is US only, the number appears questionable. The CBO report shows PhRMA estimated global R&D spend was $40 billion in 2004. Using the 2002 ratio above (i.e. 2.46) against your 2007 IMS figure yields a $25B R&D spend. Still higher than $11.5B promotion, but by far less than you state.

The CBO report also examines R&D spend as a percent of sales revenue across several industries. While you make a point of highlighting the higher investment pharmaceutical companies make in R&D (i.e. 5 time) over general manufacturing, you neglect to share the finding: “continued growth in R&D spending has appeared to have little effect on the pace at which new drugs are developed”.

Although the CBO report reads fairly objectively, it’s Senate sponsorship raises the possibility of lobbying influence. Therefore, it would help the public if you shared information regarding the level of spend pharmaceutical companies make in lobbying. According to The Center for Public Integrity, the healthcare industry, including pharmaceutical companies, spent north of $189 Million lobbying congress in 2007 (

More disturbing is your casual dismissal of pharmaceutical practices that are now widely acknowledged as ethically dubious. What you call “yesterday’s news” was the norm for over 30 years. The public perceptions created by 30 years of ethically questionable practice will not be undone with snappy slogans or rhetoric. Particularly if the pharmaceutical industry is spending record amounts to lobby federal law makers to maintain or implement policies that favor industry needs over patients interests.

If PhRMA takes an open and transparent stand, then industry leaders can help blunt some of the criticism that is unfair as well as highlight practices of industry detractors.

The pharmaceutical industry is one of America’s greatest and most important industries. It’s leaders must openly take responsibility for both the successes and failures of the past if they wish to win public support and practically implement the principles Mr. Brennan espouses in his editorial.

The article to which Lensch refers was by Daniel Carlat, MD in the Nov. 25, 2007 NY Times magazine. It can be read at

Hi Ken,

I'm sure the conference in Aspen was listed on the books as "providing scientific and educational information."

BTW the way, the story about the physician who lectured was within the last two years. I'll see if I can dig up the exact refernce.

Good afternoon: I read your latest comments with interest.

Please allow me to point out one key fact: Most of the memories that you recount were legitimate concerns but also yesterday’s news.

In fact, our companies revised our Code on Interactions With Healthcare Professionals – explained here – to prohibit the exact behavior you describe.

Interactions between company representatives and healthcare professionals should be focused on providing scientific and educational information, and supporting medical research.

Recreational benefits, like the trip you described, are strictly prohibited.

In the future, if you happen to bump into cardiologists on the ski slopes, trust me, we’re not paying for it.

Ken Johnson, Senior Vice President,
Pharmaceutical Research and Manufacturers of America (PhRMA)

I've been think about Mr Johnson's figure for "promotional activity." What I called "marketing" has roughly 3 pieces. The first is the odious ads we all are bombarded with on TV, radio, magazines, etc. I would guess he included that.

The second is the thousands of unqualified "pushers" that haunt doctors' offices to persuade them to use their companies products even in unapproved situations. One of my physicians forces them to give their spiel in the waiting room in front of patients. I would guess Mr Johnson puts their cost in a category he calls "educational activity."

Finally there are the payments to physicians. Again a lot of this is probably considered to be educational although I bet a lot is considered "research." Let me give a couple of examples.

Once, in my youth, I was skiing at Aspen and the slopes were covered with pediatric cardiologists. I met a few of these wonderful people who spend their lives saving children. I asked then how come so many were at Aspen? They said a drug company had invited them for an all expense paid conference for the week. I then asked how come they always seemed to be on the ski slopes? When did the conference meet? They replied they had one lecture at 8 PM and it was optional. Nice.

My second example is about a cover story in the Sunday magazine of the NY times or the Washington Post (can't remember which). It was written by a physician who was asked by a drug company to travel around and give lectures to groups of doctors about one of their drugs. The doctor would be well-paid. His audience would also have all their expenses paid, too. He did this for a while and thoroughly enjoyed it. Unfortunately, he discovered that the information given to him by the drug company was contradicted by other studies. He promptly told the company he would have to mention these other results. They replied that if he did so, they would no longer support him. He was at a loss. He loved traveling. He certainly could use the money, but he eventually told the drug company that his principles would not permit him to continue this charade.

I would like to write on exactly how drug companies spend their "research" money, but this is getting too long. Maybe later, but I cannot resist saying that while Prof Sager could be considered a "disinterested party", Mr. Johnson certainly cannot.

Mr Johnson can say what he wants. I would advise anyone who wants the correct figures to google Alan Sager. He is a professor at BU who has devoted his career to studying Big Pharma and he has quite different ones.

Hi, there. I spotted today’s posts and just wanted to set the record straight: America’s pharmaceutical research and biotechnology companies spend considerably more on research and development of medicines than they do on promotion.

In 2007, they invested $63.2 billion on R&D. That same year, they spent $11.5 billion on promotional activity directed to physicians, journal advertising and consumer advertising, according to IMS Health. And in 2008, against a backdrop of sobering economic challenges, a record $65.2 billion was invested in R&D.

Research is the backbone of America’s biopharmaceutical industry. The nonpartisan Congressional Budget Office recently noted that the “pharmaceutical industry is one of the most research-intensive industries in the United States.”

Pharmaceutical firms invest as much as five times more in research and development, relative to sales, than the average U.S. manufacturing firm.

That investment benefits patients, public health and the healthcare system that we all seek to reform.

Ken Johnson, Senior Vice President
Pharmaceutical Research and Manufacturers of America (PhRMA)

Totally agree with lensch.

Well, Mr. Brennen, if you are so much in favor of innovation, why does your company and others like it spend twice as much on profit and three times as much on "marketing" as you spend on R & D? Isn't the purpose of "marketing" to get us to use drugs we do not need or to get physicians to prescribe new and expensive drugs when older, cheaper drugs would do as well if not better? Isn't is true that we could cut drug prices by at least a thid and not impact research at all?

I am surprised you were ask to comment since you are part of the problem, not someone who can point to a solution.

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About this Archive

This page is a archive of recent entries in the market competition category.

Employer health plans is the previous category.

Health costs is the next category.

Find recent content on the main index or look in the archives to find all content.

About this Archive

This page is a archive of recent entries in the market competition category.

Malpractice is the previous category.

Medicare is the next category.

Find recent content on the main index or look in the archives to find all content.