Medicare Frauds

What’s $320 billion among friends?

(Editorial from the March issue of my magazine)

Last March and April in this space I wrote about the scandal(s) behind the passage of the Medicare prescription drug bill. At the time, I was irate over the fact that the White House hid $134 billion in costs for the bill, conveniently capping the publicized cost at $400 billion in order to gain votes. It was transparent fraud, and it was compounded by the fact that the chief actuary at Medicare/Medicaid was threatened with firing if he revealed the “true costs” of the prescription drug benefit bill.

The former head of the agency, Thomas Scully, was recently fined $85,000–equal to seven months’ salary–for this action,* Fortunately, he’s now on the speaking/lobbying trail, discussing the intricacies of health care coverage. Why, “[f]rom Medicaid and Medicare to the future of U.S. public health services, Thomas Scully precisely understands the intricacies of health care & public policy,” according to his online biography. This job must’ve taken up a good deal of Mr. Scully’s time. After all, his busy travel schedule prevented him from testifying in front of Congress about Medicare costs last April.

But maybe I shouldn’t be so harsh on Mr. Scully. After all, it appears that his strongarm tactics only cost the American people $134 billion (minus the amount of his fine). As we learned in February 2005, the true extent of budget mendacity was actually a lot worse than we thought.

Revised estimates of the prescription benefit’s cost now range from $720 billion to $1.2 trillion over 10 years. The higher number’s skewed by ignoring cost-savings that the program is likely to generate, but it’s a big number that left-wing partisan hacks like to publicize. The problem is, that leaves the right-wing partisan hacks swallowing a $720 billion program, nearly double what was approved.

How on earth did the numbers jump from $400 billion to $534 billion to $720 billion? Mainly because the initial estimates of the cost included years when the program wouldn’t yet be in effect. That’s right: Congress voted on a bill for a Medicare prescription drug benefit that takes full effect on Jan. 1, 2006, but the initial (fraudulent) costs floated were for the 10-year stretch from 2004 to 2013, since the first phase-ins were to begin last year. But the cost of the program is negligible for 2004 and 2005, making the program look cheaper than it is. This administration has made a practice of that sort of cost-estimate trickery, a hinge of its 2001 and 2002 tax cuts.

So it’s the 2006-2015 costs that are now leaping up to bite us, just around the same time that the administration has a much more valid point to make about the long-term insolvency of Social Security. Virtually no one will treat this matter seriously, since the White House has made a practice of crying wolf, fiscally speaking.

Last June, in a Policy Forum on fiscal policy, Douglas Holtz-Eakin, the director of the Congressional Budget Office (and one of the few people to denounce the initial false numbers of the Medicare bill), remarked, “Two equally plausible scenarios for the future of healthcare costs yield Medicare and Medicaid being either 11% of GDP–half the size of the current federal government–or over 20% of GDP–larger than the current federal government. So there’s an enormous uncertainty out there, but the trends in the long term, I think, are the central issue. There’s no question about that.”

No question at all.

–Gil Roth

* Actually, the correct amount of the fine is $84,933. We want to be exact about our numbers.

Phase 0

Neat article in today’s NYTimes about changes in preclinical drug testing. That subject matter may not interest you too much, but it’s part of my day job, and I have a vested interest in seeing the pharma/biopharma industry come up with better methods of drug discovery & development.

The best part of the article is that it doesn’t politicize, mention Medicare reform or Canadian reimportation, or imply that the drug companies are venal corporations out to suck the life from the American populace. It just talks about the new developments, some of their ethical questions, and the necessity of improving the R&D return-on-investment.

This is a pleasant change from the last days of Howell Raines, when the paper actually ran an opinion piece by a man who complained that Iressa added several months to the life of his wife, who suffered from brain tumors. No, really.

(Speaking of my day job, if you follow through that link, you’ll see my magazine’s annual Top Companies report, in which my associate editor and I profiled the top 20 pharma companies and top 10 biopharmas. Y’know: if that sorta thing interests you.)

Cuban Launches Missiles

I’m a bit of a moron about finance and money matters, even though I’ve gained a good deal of expertise on the pharma business in the last 5 years. Mark Cuban is too easily goofed on as a self-promoting maniac, but it’s important to remember that he’s not just some internet bazillionaire; he’s also a pretty smart businessman and investor. Here’s his take on Microsoft’s plan to pay out a sizeable dividend and buy back a chunk of its stock.

Who Knew?

My From the Editor page in the July/August issue of my day job:

Who Knew?
Cancer drug prices explained! (and the Gell-Mann Amnesia effect, to boot!)

In June 2004, Robert Bazell, the chief science correspondent for NBC News, wrote an article called Strange Medicine on I’ve read Slate, which is owned by Microsoft, for a few years now. It has its partisan turns, which can drive me to distraction, but I find its articles pretty informative, in general.

In his article Mr. Bazell attempts to explain why cancer drugs are so expensive. He writes, �[T]he simplest answer is that drug companies can charge whatever price they want.� Who knew it was that simple? I certainly didn’t, so I kept reading, to find out why Pharma doesn’t charge $1 million per dose of every drug (a prospect which surely would’ve made this year’s Top 20 Pharma Companies Report even more entertaining).

Well, I discovered, it’s because Medicare has failed to rein in costs by setting fees for treatment. Since private insurers follow Medicare’s lead (until they don’t, in Mr. Bazell’s world), new MAbs for cancer like Erbitux and Avastin are ridiculously expensive because drug companies want to charge lots of money for them. He writes, “Like all pharmaceutical companies, [Bristol-Myers Squibb] and Genentech cite research costs and the huge risks involved in drug development (many drugs fail; clinical trials are expensive . . . but haven’t we heard it all?) as explanations for the high prices of their drugs. But the real reason is that market forces do not apply to drugs.” Who knew? Perhaps the $2 billion that B-MS committed to ImClone to co-market Erbitux simply grew on a tree, too.

Referring to manufacturing those same drugs, he writes, “True, these antibodies are more expensive to produce than most pills, but only slightly–the technology can be replicated in any college biology lab. Production costs amount to few dollars a dose at most.” (You can go back and read those lines again; I’ll wait.)

Again, who knew? All this time, I was under the impression that my readers and advertisers were manufacturing and purifying multi-step chemical and biological processes under cGMPs at large scale, then storing, packaging and distributing them, while educating doctors and other prescribers about the uses and benefits of their products (e-mail me to let me know what additional steps I missed, like formulation and validation). Now I realize that a bunch of college kids could make Erbitux to treat the 106,000 annual colon cancer diagnoses that Mr. Bazell cites, and there wouldn’t be any problems at all!

At this point I rapidly concluded that my AppleCare warranty likely wouldn’t cover damage to my nifty new laptop caused by hefting it across the room. Then I was reminded of something I read a few months ago. At the risk of turning this space into the �Michael Crichton page,� I’d like to A) note that I’ve never read a book of his, and B) cite another of the writer�s speeches (to the International Leadership Forum, in April 2002):

[T]he Gell-Mann Amnesia effect is as follows. You open the newspaper to an article on some subject you know well.

[. . .] You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward–reversing cause and effect. I call these the “wet streets cause rain” stories. The paper�s full of them.

[. . . .Y]ou read with exasperation or amusement the multiple errors in a story, and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine than the baloney you just read [about your field]. You turn the page, and forget what you know.

That is the Gell-Mann Amnesia effect. [. . . I]t does not operate in other arenas of life. In ordinary life, if somebody consistently exaggerates or lies to you, you soon discount everything they say. In court, there is the legal doctrine of falsus in uno, falsus in omnibus, which means untruthful in one part, untruthful in all. But when it comes to the media, we believe against evidence that it is probably worth our time to read other parts of the paper. When, in fact, it almost certainly isn’t. The only possible explanation for our behavior is amnesia.

Smart guy, this Crichton. If he applies himself, he may just amount to something in this world.

Gil Roth

Learn Something New Every Day

I’m writing up my profile of Aventis, going over the company’s late-stage drug pipeline to see what might be a good revenue source, when I come across a drug called Sculptra. What is it meant to treat, I wonder?

“Indication: Facial lipoatrophy”

Okay. I’m a smart guy. I guess it means “fat in the face is wearing out.” But I HAVE to look it up to see what it’s all about.

And now I know.


No blogging for me. I’m sick as a dog (summer colds suck), and have to put together the annual Top Companies report (top 20 pharma, top 10 biopharma) for my magazine.

Now if you’ll excuse me, I have to explain why last year’s optimism about Merck was misguided . . .

Velixollogy Day

Wow. I come across this take on the Iraqi flag during breakfast this morning, then I get an e-mail from new VM reader Nancy with a great link critiquing flags from all over the world (Angola: Machete on flag nicely depicted but not wise idea).


PS: Cut me some slack, okay? I don’t have a lot of blogging-time at present, as I’m busting ass on the Top 20 Pharma Companies report at my magazine. And it was either this or a rant about the report on how 10 million women continue to have pap smears after they’ve had hysterectomies. Which is to say, they’re getting tested for cancer in organs THEY NO LONGER HAVE. And people complain that drug companies are fucking up healthcare costs? Grumblegrumblegrumble . . .

Update: Both my girlfriend and my mom called to complain about this entry, because not every hysterectomy includes removal of the cervix. Now, notwithstanding the fucked-up freudian issues involved in those two people calling me to discuss this subject, I want to note that the NYTimes article on this subject indicates that the 10 million women in the study don’t include that sub-population. So, yeah, there are 10 million women getting checked for cancer in organs they don’t have. There are also 1.1 million who’ve had hysterectomies and retained their cervixes. They should still get pap smears. Right now.