Anatomy of a regulatory healthcare smothering

A doctor in NYC has come up with a barebones pseudo-insurance package to reduce health costs:

Hi, America, is it too late to propose a new health care plan? Because Dr. John Muney has an idea. The AMG Medical Group, which he founded last year, offers a $79-a-month buffet of unlimited office visits. [...] For $79 a person, it’s almost unheard of in New York, though AMG’s plan should not be confused with insurance, and it does not cover hospitalization or specialists.

But of course the whole arrangement was a little too convenient for the government:

Such service is unusual enough to have attracted the attention of the New York State Insurance Department, which last year informed AMG that it could not continue to offer the $79 plan. It amounted to unlicensed insurance, the department said, but AMG’s profit margin was too narrow to prepare for unexpected situations (like 500 people showing up at once with the flu). As a compromise, Dr. Muney agreed to charge $33 extra for sick visits.

Axelrod's infamous "people will never know what's in that bill" quote

I've seen this quote by Obama adviser David Axelrod in a few places, but it still gets me every time:

...people will never know what's in that bill until we pass it...

To put it into context, he's saying that there's been so much disinformation about the bill by its opponents that the public doesn't realize what's in it, and they'll only understand once they experience life under Obamacare. He didn't mean that lawmakers and policy wonks don't know what's in the bill, but unfortunately, the quote is more true when you take it out of context than it is when you read it with everything else he was saying.

The surprising prevalence of medical euthanasia

The NYT has a fascinating article on the apparently quite common practice of physicians essentially euthanizing their patients, with a combination of opioids and benzodiazepines (the same combination that kills so many movie stars, and what Ohio now uses on death row inmates when their first lethal injection doesn't work). The article is interesting throughout, but here's the takeaway:

There is little information about how many patients are terminally sedated, and under what circumstances — estimates have ranged from 2 percent of terminal patients to more than 50 percent. (Doctors are often reluctant to discuss particular cases out of fear that their intentions will be misunderstood.)

Reminds me of this episode of House, where Wilson tells the nurse the override code for the morphine dispenser, but loudly enough so that the patient can hear the code. He then delivers to himself a lethal dose of morphine, and Wilson gives a speech (or at least tries to) at a medical conference about how all doctors do it, but few are brave enough to admit it.

Something else that I find interesting – and this is probably mostly for legal liability reasons – is that doctors and patients seem to be restricted in being blunt about what they're doing, instead cloaking it all in codewords:

Although throughout the half-hour meeting the staff had never explicitly asked to continue sedating Mr. Oltzik, his daughter now gave them tacit permission: “We understand that the inevitable is here, but we wish him to go in peace and to find solace in that,” Ms. Ladin said.

This might be nice for some people, who don't want to face the reality of what's happening, but for others – especially those who the article says "were surprised their loved ones died so quickly, and wondered if the drugs had played a role" – it seems like this euphemistic attitude is far from ideal.

Aspirin and the 1918 flu

The New York Times has an interesting article on a new paper that claims that some of the 50 million deaths worldwide attributed to the 1918 Spanish Flu pandemic may have actually been caused by aspirin overdoses, a common (but sometimes deadly) treatment at the time. But this passage stood out to me:

Aspirin packages were produced containing no warnings about toxicity and few instructions about use. In the fall of 1918, facing a widespread deadly disease with no known cure, the surgeon general and the United States Navy recommended aspirin as a symptomatic treatment, and the military bought large quantities of the drug.

I'll bet a lot of the New York Times' readers read that paragraph and come away thinking, "Thank god we have a government agency to make sure there are warnings on medicines." But personally, it was the second sentence that struck me – maybe if the government hadn't been in the business of giving out health advice, the use of high doses of aspirin in 1918 wouldn't have been so widespread.

The staggering costs of clinical trials

From a Wired article about a novel medical use for FD&C blue dye no. 1:

Nedergaard agrees that more research is necessary, and her group hopes to pursue a phase I clinical trial as soon they can get funding. Unfortunately, because blue food dye is so cheap, they’re not likely to find a drug company to sponsor the trials. “There’s no commercial interest because you can buy it by the pound,” Nedergaard said. “We’re planning a clinical trial here in Rochester, but we’ll have to wait for funding from the government.”

They're talking about common blue food dye – which cannot be brought to the medical market without these trials. They are mandated by the government, and drug companies routinely pay tens and hundreds of millions of dollars to put their drugs through them. I can't find a good source on this (other than an episode of EconTalk, where I heard it), but I remember hearing someone say that 80% of the cost of bringing new drugs to market is in the clinical trials.

There's been a lot of debate about healthcare recently, with Obama's reform package getting a lot of criticism, but I haven't yet heard someone mention the high cost of mandatory clinical trials as an area to look into.

How farm subsidies led to swine flu

Though scientists have not found the "smoking pig," as one person put it, Wired reports that at least some scientists seem reasonably sure that its fast mutation was the result of factory farming practices:

Scientists have traced the genetic lineage of the new H1N1 swine flu to a strain that emerged in 1998 in U.S. factory farms, where it spread and mutated at an alarming rate. Experts warned then that a pocket of the virus would someday evolve to infect humans, perhaps setting off a global pandemic.

The new findings challenge recent protests by pork industry leaders and U.S., Mexican and United Nations agriculture officials that industrial farms shouldn’t be implicated in the new swine flu, which has killed 176 people and on Thursday was formally declared a pandemic by the World Health Organization.

“Industrial farms are super-incubators for viruses,” said Bob Martin, former executive director of the Pew Commission on Industrial Animal Farm Production, and a long-time critic of the so-called “contained animal feeding operations.”

It's worth mentioning that factory farming gets a huge boost from US crop subsidies [pdf], since the largest input in raising animals is the food necessary to feed them. Obama has claimed to be against farm subsidies, but in reality his call to end $100 million worth of them is nothing compared to the tens of billions that the federal government spends every year to subsidize big agriculture, the meat industry, and fast food restaurants. When you think about it that way, swine flu is actually one of the more benign outcomes of farm subsidies.

The upside of being dirty

The NYT has a fascinating article on something that I've long suspected is true: we're too clean. Here's the gist:

When my young sons were exploring the streets of Brooklyn, I couldn’t help but wonder how good crushed rock or dried dog droppings could taste when delicious mashed potatoes were routinely rejected.

Since all instinctive behaviors have an evolutionary advantage or they would not have been retained for millions of years, chances are that this one too has helped us survive as a species. And, indeed, accumulating evidence strongly suggests that eating dirt is good for you.

In studies of what is called the hygiene hypothesis, researchers are concluding that organisms like the millions of bacteria, viruses and especially worms that enter the body along with “dirt” spur the development of a healthy immune system. Several continuing studies suggest that worms may help to redirect an immune system that has gone awry and resulted in autoimmune disorders, allergies and asthma.

These studies, along with epidemiological observations, seem to explain why immune system disorders like multiple sclerosis, Type 1 diabetes, inflammatory bowel disease, asthma and allergies have risen significantly in the United States and other developed countries.

Though the article isn't very rigorous or quantitative, it also hints at the fact that some development efforts aimed at "deworming" could possibly be counterproductive:

In studies in mice, Dr. Weinstock and Dr. Elliott have used worms to both prevent and reverse autoimmune disease. Dr. Elliott said that in Argentina, researchers found that patients with multiple sclerosis who were infected with the human whipworm had milder cases and fewer flare-ups of their disease over a period of four and a half years. At the University of Wisconsin, Madison, Dr. John Fleming, a neurologist, is testing whether the pig whipworm can temper the effects of multiple sclerosis.

In Gambia, the eradication of worms in some villages led to children’s having increased skin reactions to allergens, Dr. Elliott said. And pig whipworms, which reside only briefly in the human intestinal tract, have had “good effects” in treating the inflammatory bowel diseases, Crohn’s disease and ulcerative colitis, he said.

Pharmaceutical patents: not so necessary after all?

Intellectual property is topic on which it seems that the vast majority of people – economists, politicians, and laymen – agree: patents and copyrights are necessary for innovation, and without copyright or patent protection, people who have no reason to innovate because they could not charge more than the marginal cost of production (i.e., the cost of stamping a CD or producing a pill, as opposed to paying the artist to sing the song or the researchers to discover the drug). The copyright argument is being put to the test right now with the internet making enforcement impossible and forcing music artists, TV creators, and filmmakers to compete in a world with significantly weaker copyright protections out there for creators.

Patents, though, are still alive and kickin', and are even expanding their reach based on international agreements whereby rich countries foist IP laws on developing countries in exchange for access to Western markets. Probably the most beloved of all patents is the pharmaceutical patent. Everybody gets pharmaceutical patents, right?

Wrong. Michele Boldrin and David Levine, in his book entitled Against Intellectual Monopoly (free online!), make the case against pharmaceutical patents based on the historical case of Italy, which was the last major industrialized Western country to institute patents for medicine (here is that chapter). Long story short, not only did the pre-patent area have more innovation (not just imitation, but actual research innovation), but there were many more small firms competing before the institution of patents than after. Boldrin and Levine also make the argument that this diminishing level of competition among pharmaceutical companies is the reason for the steady rise of drug companies marketing to consumers and doctors ("marketing" being a very charitable way of putting it, in the case of doctors). They also cite a study towards the end that's pretty damning to the modern American drug industry's defense of patents, where they find that the costs of these patents in terms of cost and innovation far outweigh the protective benefits of giving the patent holder monopoly power of their invention.

I look forward to reading the whole book, but considering I just read the chapter dealing with the most difficult issue for IP opponents (pharmaceuticals), I expect good things from it.

Legalization: the only sane drug policy

The NYT has a great article on the "evidence gap" in drug and alcohol rehabilitation centers – namely, the US government ($15 billion) and private insurers ($5 billion) are paying for treatment centers that don't have proven track records. And the problem is likely to get worse due to recently passed legislation in Congress that mandates private insurers to "cover mental and physical ailments at equal levels." And people wonder why Americans spend so much on healthcare?

Megan McArdle says it best:

As a libertarian, of course, I just want to see drugs legalized. So I'm something of a bystander to the argument between liberals and conservatives over the relative benefits of spending money on treatment programs, and spending it on prisons.

[I]t's foolish to spend money on [on drug treatment programs that don't work.] On the other hand, prison doesn't really seem to do a good job of curing drug habits, and it also really screws up the lives of the people we sent there. It's almost . . . why, it's almost as if the libertarians were right all along!

I should add that this NYT story is part of their series called The Evidence Gap, which is essentially one long argument against government-funded healthcare, on the grounds that government agencies don't seem to be very good at making sure that the treatments they pay for actually work.

Subsidized corn = subsidized fast food

Wired has a front-page article that states something that I've long suspected: one of the main reasons fast food is so cheap is because of subsidized corn:

Chemical analysis from restaurants across the United States shows that nearly every cow or chicken used in fast food is raised on a diet of corn, prompting fresh criticism of the government's role in subsidizing poor eating habits. [...]

Corn is central to agriculture in the United States, where it is grown in greater volumes and receives more government subsidies than any other crop. Between 1995 and 2006 corn growers received $56 billion in federal subsidies, and the annual figure may soon hit $10 billion.

In addition to encouraging unhealthy fast food consumption beyond the free market equilibrium, cheap corn also contributes to fertilizer and antibiotic use, as well as food poisoning:

But in recent years, environmentalists have branded corn as an icon of unsustainable agriculture. It requires large amounts of fertilizer and pesticides, both of which require large amounts of fossil fuel to manufacture.

Most of the resulting corn is fed to livestock who didn't evolve to subsist entirely on corn. In cattle, eating corn increases flatulence emissions of methane — a potent greenhouse gas — and creates an intestinal environment rich in e. coli, a common cause of food poisoning. That necessitates mixing cow feed with antibiotics, in turn producing antibiotic-resistant disease strains.

Though Obama has paid lip service to reform, he still supported the most recent farm bill. His only misgivings about the bill, at least during the campaign season, came in the form of anti-agribusiness populism, though he never acknowledged that it's the fundamental distortionary effects of the farm bill that are the problem. McCain, for all his economic ignorance, agreed with the majority of economists in opposing the farm bill, though he didn't seem to care enough to show up to vote on it this time around (though neither did any of the other presidential candidates).

Unfortunately, the farm bill is only seriously renegotiated every five years, and the most recent one just passed a few months ago. So even if President Obama would have been more intelligent and sincere on agricultural policy than wannabe President Obama, it's really too late now to matter.

Open source hardware and the future of IP

Wired has an excellent, in depth article up about open source hardware. Open source software has changed the software business (the web has, in the last few decades, been very much run on open source software), but the leap from free intellectual property in terms of infinitely and freely replicable software to open source hardware (essentially, hardware without the patent) is a little too much for most people to make, conceptually speaking. But even though you've never heard of it, this article has convinced me that it's real, happening, and going to be a big deal. It seems that the catalyst is cheap, scalable, and increasingly nimble manufacturing operations in East Asia, who make going from plans to device a much easier task than it once was.

The idea has rammifications for the world of patents, especially on things (like hardware) that have traditionally had high R&D costs but relatively low per-unit costs – specifically, medicine. I think it's only a matter of time (and regulatory upheaval) before medicine is created using this decentralized, open source method, and finally developing countries won't have to choose between free trade and the ability to "pirate" Western medicine. The article does delve into the development issue, in discussing the transformative effects of low-cost, open source hardware for developing nations. Given that the world's very poor often spend very high percentages of their income on technology, easing its cost could be a highly effective development mechanism.

I'd quote from the article, but every word is so compelling that I couldn't choose a section to excerpt. Just read it, for your own good.

(Sorry about the drop-off in posts – I've been pretty sick since Sunday morning.)

Markets in everything: Bulgarian blood edition

Surely this would be a fine edition to the Markets in Everything series: in Bulgaria, apparently black market blood dealers stand outside of hospitals and vend their wares.

As in Russia and some other Balkan nations, corruption has seeped into the fabric of life. Sofia has a thriving black market for blood outside hospitals, where patients’ families haggle over purchases with dealers, according to Bulgarian news reports that track the prices.

Black market trade in human medical parts is not at all unique to Bulgaria. See here for a WSJ discussion of the ethics and economics of the human organ trade.

The NYT on food

The NYT Magazine's subject this week is food, a topic that's nice to see covered in the Times, since it's an issue around which liberals and libertarians have common cause. The main article is about government food policy as it relates to the environment, health, and energy, and while much of the article recognizes the anti-libertarian policies that exacerbate America's addiction to high-calorie, low-nutrition foods, I can't help but think that the author doesn't spend nearly enough space discussing them. While he mentions some government distortions that I didn't even know about – after WWII, the government "encouraged the conversion of the munitions industry to fertilizer" – his list of remedies is heavy on the feel-good liberal policies that don't seem like they'd really do much, or are kludges to a problem that could be fixed with outright legislative repeal. Included on this list are such symbolic measures as putting more importance on the White House chef and converting parts of the White House lawn to modern-day "victory gardens." Also, the author digs into the dark underbelly of land use policy, and advocates "agricultural enterprise zones" and wants developers to have to write "food-system impact statements." But couldn't his ultimate goal – more farmland – be achieved in a more libertarian way, by say limiting the amount of zoning- and parking regulation-inspired low density sprawl that encroaches on farmland?

It's as if in the first half of the article, the author lays the blame at the feet of government for interfering with energy, transportation, and food policy, but then in the second half of the article, he tries to redeem himself to the liberal NYT crowd with wishy-washy crowd-pleasers like locovorism and giving food stamp recipients half price access to farmers' markets.

Bargain price on genome sequencing

From Wired, apparently a founder of the Human Genome Project and his company have managed to sequence the human genome for only $5,000, a tremendous step down from its current price of $100,000. This is evidently tremendous news for genetic and biomedical research, as it will allow more people access to complete human genetic codes. Thank god that the government didn't step in earlier and decide that human genomes were too important to let cost be an option and that the government should subsidize them for use in research. Because otherwise, competition wouldn't have driven the price down to where it is today, and the taxpayers would still have to pay the $100,000, even if the user wouldn't.

Medical tourism and its benefits

The Economist this week has a pretty long article on medical tourism – its increasing popularity and quality, benefits for both rich and poor nations, and possible objections people have raised. The premise behind medical tourism is like that of all globally-traded goods: since poor nations can offer qualified doctors at lower prices than in Western nations, consumers should choose their services.

While in the past consumers of treatment overseas were the uninsured looking for bargains, nowadays institutes and insurance companies are getting in on the game. The Economist cites two companies – including one with 27,000 workers – that are starting to offer overseas treatment options to cut costs. And it also talks of two insurance companies – Aetna and Blue Cross and Blue Shield of South Carolina – that are offering customers the choice to go to first-class medical centers in Singapore and Thailand, respectively. And the growth for the industry is expected to be big: whereas last year 750,000 Americans traveled abroad for medical services, that number could reach 10 million by 2012.

And though some fear that this sort of medical segragation in poorer countries (wealthy capitalist trading city-state Singapore not withstanding) will lead to a sort of internal brain drain, the network benefits of having more skilled workers within the country are also worth taking into account. As is the possibility of native doctors returning from working in the West, and bringing their money and expertise back with them.

And then there are the benefits to Western countries seeing the flight of the "medical refugees." Western medical establishments will be more exposed to the sort of competition they lack at home, spurring them to lower prices and raise the quality of their service. That is, if government regulation of insurance providers doesn't overpower the desire of consumers and insurance companies to save money without necessarily sacrificing quality.

Overregulation in overdrive

Today, my brother went to the dermatologist for his acne, and my friend went to see a doctor for a urinary tract infection. He got the standard treatment (doxycycline), and she got the standard treatment (nitrofurantoin). Both had to pay more for the visit to the doctor than for the medications to cure the ailments, neither of which are under patent protection. However, both had diagnosed their own illnesses before seeing the doctors, and the standard treatments for both are relatively uncontroversial – surely in these cases, both of them could have correctly chosen what drug to take. And even if you think it's abhorrent that people can make their own decisions with regards to standard antibiotics, both conditions and cures could have been easily diagnosed by a nurse or pharmacist. Neither of the drugs were addictive or in any way pleasurable unless you needed them (I know from experience that doxycycline makes me nauseous if I take it before eating – and the doctor didn't even tell me that; I had to figure it out on my own!), and yet both require a visit to someone with an MD in order to acquire. A waste of time, a waste of money, and an obvious case of rent-seeking, in my opinion. And also a cause of spam and computer viruses, apparently. And yet, with all the hubbub this presidential campaign season about the soaring costs of healthcare, no one seems to be proposing loosening restrictions on consumers' access to prescription medications. (Unless, of course, you're a rural Alaskan, in which case you don't need a doctor to get a prescription.)

Spam and viruses: a symptom of drug prohibition?

Via Slashdot, evidence that computer viruses, spam, and prescription-less prescription drug sales are all intricately linked. Apparently, the Storm botnet – a network of computers infected with the Storm worm, whose spamming services are bought and sold on the black market – generates over $150 in revenue for its owners through online prescription drug sales. The Storm botnet is incredibly powerful, running on anywhere from 160,000 to 50 million infected computers (including, probably, your mom's), and is perhaps the origin of one-fifth of all the Internet's spam. The market for these drugs (mostly Viagra and similar drugs, with my own anecdotal evidence suggesting that painkillers and anti-anxiety meds are also advertised) through shady online operators exists only because of the restrictions placed on buying them in real life. So, next time you check your mail and you have more advertisements for c1a|is and \/1agra than real e-mails, blame the FDA.

Feds crack down on victimless rental crimes

This article from the Houston Chronicle highlights exactly the reason I don't have a problem with illegal immigration: it's entirely voluntary. People voluntarily come, people voluntarily rent out properties to immigrants, and people voluntary hire immigrants. People obviously also voluntarily sell food, clothing, and myriad other products to immigrants. The only thing involuntary that immigrants engage in is using the benefits of the welfare state (public schools and occasionally emergency rooms, mostly), but anyone who argues against [illegal] immigration on the basis of the welfare benefits they could receive ought to direct their ire at the welfare state itself, not the immigrants who are taking advantage of it. As Milton Friedman once said, "you can't have free immigration and a welfare state."

Florida legalizes cheap healthcare

Both houses of the Florida legislature have passed a bill allowing for the creation of bare-bones healthcare plans, which begs the question: why in the hell wasn't this allowed before?? The key provision in the bill is one that allows insurance providers to make available plans that don't cover the whole battery of possible ailments: "To make the policies affordable, Florida will allow insurers to offer policies that do not include many of the 52 services that standard policies must currently cover, like acupuncture and podiatry." The goal is that these plans will sell for under $150/month.

Of course, that doesn't mean regulators and legislators sat on their hands and are going to let these insurance companies sell any plan they want to anyone who's willing to buy it. The plans will still have to cover "preventive services, office visits, screenings, surgery, prescription drugs, durable medical equipment and diabetes supplies," and companies are not allowed to discriminate in their offerings with regards to health and age. In addition, the plans will only be available to Floridians who have been uninsured for six months and are not eligible for public insurance – because, God forbid, we wouldn't want poor people voluntarily going off the public dole and engaging in voluntary commerce!

According to the NYT article, this idea has been tried in a handful of states, but the plans haven't proven very popular with consumers. Sherry Glied at Columbia says that people "are only somewhat responsive to the price of health insurance," but I think a more accurate statement would be that people are only somewhat responsive to price under current conditions. Health insurance – especially for things other than accidents and uncommon health problems – might very well not even exist if medicine and healthcare were left up to the market, given that healthcare isn't something that one would normally expect to be paid for through insurance. It's rarely totally unexpected, it's often recurring (diabetes medication, for example), and most interactions with healthcare professionals are for rather mundane and easily diagnosable and treatable ailments.

It's a wonder that pundits still claim that America has a free-market healthcare system when the government serves 45% of the market, with the rest still heavily regulated.

Good Housekeeping against the FDA

From Amity Shlaes' The Forgotten Man, here's an excerpt on page 195 of the hardcover version about Rex Tugwell – an important Brain Truster – and the strengthening of the American regulatory state:

Tugwell had spent the year fighting, with FDR's support, for a radical updating of the old Food and Drug legislation, the idea being to regulate more thoroughly from Washington "the purveyors of doubtful nostrums and unregulated foods," as he put it later. Others however saw his effort as an outrageous theft of a function normally provided by the private sector – quality control. At one point Eleanor Roosevelt, who herself had a sense of humor, invited Rex to lunch. The lady seated next to him, Tugwell would later report, "turned out to be one of the editors of Good Housekeeping, a magazine that offered to approved products something known as the Good Housekeeping Seal of Approval." Tugwell commented that "the lady in question was very high and mighty." The guest from the magazine spoke angrily to Tugwell – probably more so than Mrs. Roosevelt had intended. But "the situation was saved," Tugwell concluded later, "in a most unexpected way: an awkward waiter spilled a bowl of tomato soup in my lap and I was able to withdraw without dishonor." Nonetheless, the event stuck with Tugwell: still an idealist, he could not see why the Good Housekeeping lady had been so angry.