Category: Regulations

Unintended Consequences Make “Government-Provided Health Care” a “Fiscal and Regulatory Nightmare”

(p. A17) The private plans participating in Medicare’s prescription-drug program, known as Part D, currently draw on three sources of revenue to finance prescriptions: out-of-pocket payments from patients, premium payments made by plan members, and subsidies from the federal government. In 2025, under the Inflation Reduction Act, both government subsidies and out-of-pocket payments by patients are scheduled to be cut sharply. The difference will have to be made up by premiums. But the statute inhibits this third revenue source, which is also subsidized, from increasing more than 6%. That’s hardly enough to cover inflation, let alone compensate for the other two revenue losses.

. . .

Existing plans have room to cut benefits, although the original Part D statute limits their ability to do so. As plans are under no obligation to take a loss, their other choice is to exit the market, which from the patient’s perspective means that all the benefits disappear. In essence, the Inflation Reduction Act statute may prohibit Part D plans from being economically viable, even if it doesn’t explicitly ban them.

. . .

Welcome to the fiscal and regulatory nightmare known as government-provided health care, where those writing the rules don’t understand the consequences of what they do. Democrats hate that Medicare Advantage has been available as a pseudo-private alternative to original Medicare’s single-payer arrangement. Yet they have (unwittingly?) passed a law that so thoroughly disrupts traditional Medicare as to render it the worst of the Medicare options.

For the full commentary, see:

Casey B. Mulligan and Tomas J. Philipson. “The Inflation Reduction Act Comes for Medicare.” The Wall Street Journal (Tuesday, November 22, 2022): A17.

(Note: ellipses added.)

(Note: the online version of the commentary has the date November 21, 2022, and has the same title as the print version.)

Project Entrepreneur Alex Oshmyansky Switched from Nonprofit to Profit to Raise Funds to Enable Project; Let Mark Cuban Take Credit for Project

(p. B1) DALLAS—When Mark Cuban got an email in 2018 from a stranger asking if he wanted to invest in a company dedicated to bringing down the cost of prescription drugs, he replied: “Tell me more.”

Today, the Dallas Mavericks owner and entrepreneur is helping steer the fledgling startup as it takes aim at high prescription drug prices and the industry middlemen who he says keeps them that way.

The Mark Cuban Cost Plus Drug Co. PBC, born from that brief email pitch from the company’s founder, Alex Oshmyansky, buys generic drugs from pharmaceutical manufacturers and sells them directly to patients online, rather than charging their insurance providers. By cutting out intermediaries and using a transparent pricing system, the pharmacy says it charges less than rivals for drugs: a 15% profit markup on a medicine’s cost, plus several dollars in fees for shipping and labor.

. . .

(p. B4) Several startups are attempting to reinvent parts of the pharmaceutical supply chain, removing costs by taking control of reimbursement, manufacturing and distribution.

Some firms, like ProvideGx and Civica Rx, are making drugs themselves so that they can control pricing and supply volumes. Others are selling directly to patients, bypassing the middleman known as pharmacy-benefit managers that traditionally handle drug coverage for health insurers.

A radiologist and former math prodigy, Dr. Oshmyansky received his undergraduate degree from the University of Colorado at Boulder at age 18, followed by an M.D. from Duke University and a Ph.D. in math from Oxford. He had the idea for a pharmacy after growing frustrated with pharmaceutical-industry pricing practices, such as companies hiking prices dramatically on decades-old drugs.

He planted the seed for the Cuban pharmacy in 2015 when he founded Osh’s Not-for-Profit Pharmaceuticals with a mission of manufacturing generic drugs and selling them to hospitals at a small markup on its costs.

He struggled to find investors to fund a nonprofit drug company, however, and eventually transitioned Osh’s into a for-profit entity. In 2018, he secured $1 million from investors through the Silicon Valley startup-incubator Y Combinator.

A few months later, in 2018, Dr. Oshmyansky emailed Mr. Cuban at his publicly available email address.

. . .

Eventually, Dr. Oshmyansky agreed to rename the company after Mr. Cuban in a bid to trade on his celebrity and attract free publicity.

For the full story, see:

Joseph Walker. “Mark Cuban Lands a Job at an Online Pharmacy.” The Wall Street Journal (Saturday, Dec. 10, 2022): B1 & B4.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the date December 9, 2022, and has the title “Mark Cuban Has New Job: Working at Online Discount Pharmacy.”)

Firms Nimbly Shift Shipping Away from Unionized and Bottlenecked California Ports

(p. B1) Sharpie maker Newell Brands Inc. is opening distribution centers in Pennsylvania and North Carolina to lessen dependence on seaports in California. Abercrombie & Fitch Co. is moving more merchandise through New York and New Jersey to avoid West Coast bottlenecks. Air-conditioning manufacturer Trane Technologies PLC is sending most of its cargo this year through ports in the South, instead of the Los Angeles area.

The hierarchy of U.S. ports is getting shaken up. Companies across many industries are rethinking how and where they ship goods after years of relying heavily on the western U.S. as an entry point, betting that ports in the East and the South can save them time and money while reducing risk.

Their reasons range from fears of a dockworkers strike along the West Coast and a repeat of the bottlenecks that roiled supply chains early in the pandemic to a reduced dependence on Chinese production and the need to get products to all parts of the country faster.

In August [2022], Los Angeles lost its title as busiest port in the nation to the Port of (p. B6) New York and New Jersey as measured by the number of imported containers. It trailed its East Coast rival again in that measure during September and October, according to the Pacific Merchant Shipping Association and ports data.

The share of all U.S. containerized cargo handled by Los Angeles and a neighboring port in Long Beach fell through the first 10 months of the year to a combined 25% as measured by weight, according to census data analyzed by Jason Miller, interim chair of Michigan State University’s supply chain management department. That was their lowest level in nearly two decades, down from a height of 33%.

Other ports benefiting from this shift include Savannah, Ga., Houston and Charleston, S.C.

For the full story, see:

Paul Berger. “New Routes for Big Business.” The Wall Street Journal (Saturday, Dec. 10, 2022): B1 & B6.

(Note: bracketed year added.)

(Note: the online version of the story was updated Dec. 14, 2022, and has the title “California Long Ruled Shipping in U.S. Importers Look to East.”)

Share of Insulin Revenues Going to Middlemen Pharmacy Benefit Managers (PBMs) Increased by 155%

(p. B12) Pharmacy-benefit managers, or PBMs, have captured a growing slice of America’s world-leading drug spending during the past decade. The spotlight could soon shift to them.

. . .

While the three largest manufacturers of insulin—Eli Lilly, Novo Nordisk and Sanofi—charge more for their products in the U.S. than they do elsewhere, their take of overall spending has been decreasing in recent years as the relative power of middlemen has grown. PBMs have steadily gained negotiating clout by consolidating and merging with large insurance companies. The three largest PBMs are owned by CVS Health Corp. (which owns insurer Aetna), UnitedHealth Group Inc. and Cigna Corp.

. . .

. . . increases in recent years have mostly been passed on to PBMs in the form of heavy discounts that are hidden from public view.

A recent study by University of Southern California scholars showed that, between 2014 and 2018, the share of a hypothetical $100 insulin expenditure accruing to manufacturers decreased by 33%. During that same period, total U.S. spending on insulin hasn’t budged, but the share of insulin expenditures retained by PBMs has increased by 155%.

. . .

“What’s happening in this market is that the middlemen are making more and more money,” said University of Southern California professor Neeraj Sood, one of the authors of the study who has previously done consulting work for drug companies.

Yet the drug-pricing provisions in the recently passed Inflation Reduction Act singularly focused on what manufacturers charge while ignoring other players that take a slice of profits farther down the chain.

For the full commentary, see:

David Wainer. “HEARD ON THE STREET; Sanders, Musk Miss the Mark on Insulin.” The Wall Street Journal (Tuesday, November 22, 2022): B12.

(Note: ellipses added.)

(Note: the online version of the commentary has the date November 21, 2022, and has the title “HEARD ON THE STREET; Elon Musk, Bernie Sanders and Others Miss the Mark Over Pricey Insulin.”)

The academic study co-authored by Sood, and mentioned above, is:

Van Nuys, Karen, Rocio Ribero, Martha Ryan, and Neeraj Sood. “Estimation of the Share of Net Expenditures on Insulin Captured by Us Manufacturers, Wholesalers, Pharmacy Benefit Managers, Pharmacies, and Health Plans from 2014 to 2018.” JAMA Health Forum 2, no. 11 (2021), doi:10.1001/jamahealthforum.2021.3409.

Collins and Fauci Did Not Seek Open Debate on the Great Barrington Declaration

(p. A15) The Trump Twitter ban almost pales in comparison with the speech limitations routinely enforced on discussion of climate and Covid. Instead of “hate” or “violence,” the elastic pretext for speech restriction here is “settled science.”

The essence of science was once open debate. But that’s no longer true. In a now-infamous 2020 email, National Institutes of Health Director Francis Collins wrote Anthony Fauci that the Great Barrington Declaration, a dissent from Covid-lockdown policy, needed “a quick and devastating published take down,” which soon appeared in the press.

For the full commentary, see:

Henninger, Daniel. “WONDER LAND; They Want to Shut You Up.” The Wall Street Journal (Thursday, December 15, 2022): A15.

(Note: the online version of the commentary has the date December 14, 2022, and has the title “WONDER LAND; They Want to Shut You (and 303 Creative) Up.”)

Regulations Block CRISPR Cures

(p. 6) Scientists like me can now visualize an ideal scenario for the future of CRISPR medicines: When a 3-month-old starts to develop antibiotic-resistant infections, her primary care doctor orders a DNA test, and 48 hours later, ‌‌the faulty gene that is preventing the development of a normal immune system is identified. “Not a problem. We will refer your child for corrective CRISPR therapy,” says the physician to the devastated parents.

. . .

(p. 7) ‌To make CRISPR cures a reality, the biomedical community needs to start with regulation. For treatments developed for genetic diseases that affect tens of thousands of people (or, say, if a company tries to take on heart disease, which affects millions), the Food and Drug Administration has a well-established, yearslong review process. But the F.D.A. needs to consider a new regulatory process that could create a more streamlined path for bringing much-needed CRISPR medicine tailored to patients with a one-of-a-kind genetic typo. There is precedent for this: Starting in the late 1990s, the F.D.A. facilitated regulatory pathways for innovation of a then-new class of genomic medicines for cancer — CAR-T therapy — which is now widely used clinically. The same can be done for CRISPR.

For the full commentary, see:

Fyodor Urnov. “We Can Edit A Person’s DNA. So Why Don’t We?” The New York Times, SundayOpinion Section (Sunday, December 11, 2022): 6-7.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Dec. 9, 2022, and has the title “We Can Cure Disease by Editing a Person’s DNA. Why Aren’t We?”)

An Economist with “Enough Steel” to Cut “the Tentacles of Restrictive Government Regulation”

(p. A9) When Elizabeth Bailey was appointed in 1977 as the first woman to serve on the Civil Aeronautics Board, or CAB, she saw her job as freeing the airline industry “from the tentacles of restrictive government regulation.”

During a confirmation hearing, Sen. Ted Stevens of Alaska asked Dr. Bailey, a Republican with a Ph.D. in economics, whether she had “enough steel” for the task.

“I hope so,” she said. “I’m tougher than I look.”

The Airline Deregulation Act of 1978, approved by Congress with strong bipartisan support, led to abolition of the CAB at the end of 1984 and freed airlines to set fares without government permission. During her six years on the board, Dr. Bailey proved one of the most ardent advocates for swift deregulation, a process that reduced fares, increased choice and doomed inefficient airlines.

. . .

One summer, she accepted an offer to join a group studying regulatory issues at Bell Labs. She gave a presentation on regulatory distortions to a panel of economic advisers to AT&T, including William Baumol and Alfred Kahn.

Dr. Baumol helped her gain admission to Princeton as a doctoral candidate in economics. She delved into business-competition issues and received her Ph.D. in 1972.

Those studies prepared her to oversee economic research at Bell Labs and advise AT&T on its impending breakup by regulatory authorities. “We said, ‘Look, if the government is going to bust you up, there are some ways that are going to be a lot less costly and a lot more efficient than others,’ ” she recalled.

Dr. Kahn, later chairman of the CAB, became her mentor and ally at the agency, where she rose to vice chairman.

For the full obituary, see:

James R. Hagerty. “Economist Helped Free Airlines From Red Tape.” The Wall Street Journal (Saturday, Sept. 3, 2022): A9.

(Note: ellipsis added.)

(Note: the online version of the obituary has the date September 1, 2022, and has the title “Elizabeth Bailey Helped Free Airlines to Cut Fares.”)

U.S. Chips+ Act Rewards Intel for Being Less Innovative Than TSMC


(p. A15) Intel, with huge profit margins on its Pentium microprocessors, could spend more than its competitors on state-of-the-art fabs, but innovation eventually was pushed aside for predictability. Intel would get one fab working and then “copy exactly” new cookie-cutter fabs. For smaller feature sizes, Intel looked at the new Extreme Ultraviolet technology from Dutch equipment company ASML and thought it too expensive and risky to use. TSMC embraced ExtremeUV and won, especially for lower-power chips for mobile devices. TSMC can now spend more than anyone else on fabs.

With the Chips+ Act chock full of $52 billion in subsidies and tax credits for chip makers, Congress is saying that real countries have fabs. The act also authorizes $1 billion for carbon removal—weird, because chips are made from silicon. Worse, the U.S. is rewarding Intel, which just announced a disastrous quarter, for coming in third place behind TSMC and Samsung.

Nothing is free. Even Commerce Secretary Gina Raimondo admitted “there’s a lot of strings attached” in the 1,054-page law. National Economic Council director Brian Deese endorsed command-and-control industrial policy: “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’ ” This is as wrong as Soviet or Chinese five-year plans. Industrial policy eventually leads to disaster. Japan’s Ministry of International Trade and Industry micromanaged the country’s domestic semiconductor industry and ended up presiding over its decline. Today no Japanese semiconductor company sits in the global top 10. Because China doesn’t have access to ASML ExtremeUV equipment, it has made little progress in advanced chips.

Yes, we need domestic supplies of advanced chips in case China invades Taiwan. But subsidies are the wrong approach.

. . .

Instead, the U.S. could enable suppliers to place large orders for chips for the military, intelligence agencies, whatever. They could even prepay. Silicon Valley was originally built on orders for transistors for intercontinental missiles and the space program.

For the full commentary, see:

Andy Kessler. “INSIDE VIEW; The Semiconductor Boondoggle.” The Wall Street Journal (Monday, Aug. 15, 2022): A15.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date August 14, 2022, and has the same title as the print version.)

So-Called “Inflation Reduction Act” Reduces Incentive for Pharma Firms to Seek Approval for New Uses of Drugs


(p. A17) It may take years before we can fully appreciate the impact of the Inflation Reduction Act on the pharmaceutical industry, but we’re already getting signs of the damage. While Democrats boast that they’ve given Medicare the power to “negotiate” drug prices, the effect has been to saddle manufacturers with a complex and ill-conceived price-setting scheme. In response, many have canceled drug-development programs, resulting in an unfortunate but predictable loss for patients nationwide.

One poorly crafted provision is driving companies away from research into treating rare diseases. In its Oct. 27 earnings statement, Alnylam announced it is suspending development of a treatment for Stargardt disease, a rare eye disorder, because of the company’s need “to evaluate impact of the Inflation Reduction Act.” Alnylam’s decision turns on a provision in the Democrats’ bill that exempts from price-setting negotiations drugs that treat only one rare disease. The company’s drug is currently marketed as treating only amyloidosis, and thus is exempt from Medicare’s price setting. If Alnylam proceeded with research into treating Stargardt, it would lose its exemption.

That disincentive might be most pronounced in cancer treatments. On Tuesday [Nov. 1, 2022], Eli Lilly announced it is canceling work on a drug that had been undergoing studies for certain blood cancers. “In light of the Inflation Reduction Act,” the company wrote to Endpoints News, “this program no longer met our threshold for continued investment.”

. . .

Nearly 60% of oncology medications approved a decade ago received additional approvals in later years. The new law eliminates the incentive to conduct additional research, because its price-setting mechanisms kick in after nine years for small-molecule drugs and 13 years for biologics, regardless of how much research companies conduct after the drug’s initial approval.

For the full commentary, see:

Joe Grogan. “The Inflation Reduction Act Is Already Killing Potential Cures.” The Wall Street Journal (Saturday, Nov. 4, 2022): A17.

(Note: ellipsis, and bracketed date, added.)

(Note: the online version of the commentary has the date November 3, 2022, and has the same title as the print version.)

To End Inflation, Fed Should Commit “To Good Policy Rules,” and Not Stray to Increase Jobs

(p. A9) Growing up in Glens Falls, N.Y., Edward C. Prescott got an insider’s view of business from chats with his father, an engineer and later comptroller for a global supplier of pigments. Those insights made the economics courses he took in college seem less theoretical and more relevant than they might have seemed to other students.

. . .

With Dr. Kydland, he published an influential 1977 paper called “Rules Rather Than Discretion: The Inconsistency of Optimal Plans,” concluding that policy makers could err by straying from long-term goals to address short-run problems. For instance, central bankers might be tempted to ease up on their commitments to contain inflation in the short run as a way to boost employment. If so, the professors argued, people might start assuming that prices were out of control, creating a psychology that led to faster inflation for long periods.

Sticking to a sound policy was far more effective than jolting the economy with frequent adjustments, they argued. “You should not think in terms of controlling the economy,” Dr. Prescott said. “That leads to bad outcomes. You should think in terms of committing to good policy rules.”

. . .

Though revered by many of his students and colleagues, Dr. Prescott sometimes baffled them. The problem, he once explained, was that he thought much faster than he could talk. He sometimes jumped from one topic to another with no transition.

“His brain did not work like other people’s,” said Timothy Kehoe, an economics professor at the University of Minnesota who worked with Dr. Prescott for four decades, “and in some ways that was a tremendous advantage.”

For the full obituary, see:

James R. Hagerty. “Economist’s Policy Advice: Stick to Long-Term Plan.” The Wall Street Journal (Saturday, November 12, 2022): A9.

(Note: ellipses added.)

(Note: the online version of the obituary was updated Nov. 8, 2022, and has the title “Nobel-Winning Economist Edward C. Prescott Dies at 81.”)

Forest Service Banned Private Logging to Thin Forests; Then Started an Uncontrolled “Controlled” Fire to Thin Same Forests

(p. A11) SEATTLE — In a high-altitude landscape parched by drought, U.S. Forest Service crews took advantage of some stable weather in eastern Oregon this month and prepared to burn off some thick underbrush and shrubbery at the edge of the Blue Mountains, part of an expanding strategy to remove forest fuel that can turn fires into conflagrations.

The target was a 300-acre tract of woodlands in the Malheur National Forest, adjacent to a private cattle ranch. But the controlled fire that the crew set on the afternoon of Oct. 19 [2022] jumped a containment line and charred through a portion of the nearby ranch. Two sisters from the family-owned Windy Point Cattle Company made their way through the smoke-filled landscape for a furious confrontation with the Forest Service’s “burn boss,” Ricky Snodgrass, and then dialed 911.

What happened next, federal officials say, was highly unusual in the modern history of the Forest Service and its programs for managing federal lands across the country. The Grant County sheriff arrived on scene, placed Mr. Snodgrass in handcuffs and sent him to jail.

. . .

With climate change driving an increase in the size, frequency and ferocity of wildfires, the Forest Service adopted a plan this year to step up those prescribed burns, and also more aggressively thin forest stands with strategic logging programs.

. . .

The Forest Service’s operations in this part of Oregon have long been the subject of contention in Grant County, where the U.S. government manages some 60 percent of the land.

Locals have long stewed over federal land management policies, including logging restrictions that have contributed to declines in timber production and the shuttering of the region’s sawmills.

For the full story, see:

Mike Baker. “A Strategy to Protect Forests Reopens Old Wounds in Oregon.” The New York Times (Saturday, October 29, 2022): A11.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the date Oct. 28, 2022, and has the title “Prescribed Burns Are Encouraged. Why Was a Federal Employee Arrested for One?”)