Moneybox
A blog about business and economics.

Sept. 6 2016 12:26 PM

Are Amtrak’s New High-Speed Trains Too Good for Amtrak?

Last month, Amtrak announced the purchase of 28 new high-speed trains from the French manufacturer Alstom. The model is called the Avelia Liberty, and it will run the Acela routes, from Washington, D.C., to New York to Boston, starting in 2021 with room for 35 percent more passengers than today's trains. Watch it glide into the station like a damn Shinkansen in this video:

It’s the train of a future Amtrak, and not just because the glassy Penn Station it arrives to is a distant dream. The train is also built to run at speeds that Amtrak’s current Northeast Corridor infrastructure can’t yet accommodate at any point. It’s an ambitious purchase, and one that will only pay off if Amtrak can commit to serious track improvements during the trains’ 30-year lifespan.

The Avelia Liberty has a top speed above 185 miles per hour, though Amtrak’s Northeast Corridor has a max speed of 160 mph, and trains only reach that speed for very short periods. It can be upgraded to reach 220 mph, which is faster than the French TGV trains—and totally incompatible with the Northeast Corridor’s current track. In that sense, Amtrak has essentially bought a fleet of Ferraris for a road full of potholes. It will have to upgrade the network to make the best possible use of the trains’ power.

Sept. 2 2016 2:12 PM

Hillary Clinton Has a Quietly Bold Idea to Stop Drug Price Spikes

Hillary Clinton already had a plan to lower prescription drug costs. In fact, it was one of the first pieces of her agenda that she rolled out. But following the furor over Mylan's decision to increase EpiPen prices by some 500 percent, her campaign has released a new proposal specifically aimed at stopping “unjustified” price spikes on pharmaceuticals. And it's surprisingly bold.

Here's the major idea: As president, Clinton would create a task force of regulators with the power to decide whether price increases on old, essential medicines and devices were reasonable given product improvements and the amount of competition in the market. If not, the task force would have the power to mete out punishments to companies that were trying to profiteer, potentially with fines. As the fact sheet states:

In cases where there is a price spike and a lack of competition for a lifesaving treatment that has long been on the market, Hillary’s plan will enable the ability to fine or increase rebates from drug companies who are excessively raising prices. Revenue or savings from these penalties could be used to support the aforementioned new programs to make lowercost, effective alternatives available, and speed up approvals that will lead to greater competition.

This might not sound particularly dramatic at first, but it would represent a serious shift in Washington's relationship with the pharmaceutical business. The United States is basically alone among developed countries in that it largely lets drugmakers charge whatever the market will bear. Democrats, including Clinton, have long wanted to allow Medicare to negotiate pharma prices, which it currently can't. (Donald Trump is in favor of this, as well.) But it sounds like the committee Clinton is imagining would have power over what companies can charge anybody. The body wouldn't officially be able to set prices on long-available drugs, but its ability to slap a financial penalty on the next company that jacks up the cost of a 20-year-old medical implement or pill would come pretty darn close.

The ability to impose fines would require an act of Congress, so all the usual caveats about conservative legislative obstruction apply. Still, Clinton is subtly sending the message that she's comfortable moving toward a more European system in which regulators have a direct say not just in what drug companies can charge the government, but what they can charge the rest of the public, too.

Sept. 2 2016 11:59 AM

California Is Making Denim Its State Fabric. Too Bad Denim Is Barely Californian.

California has more than its share of official symbols: Its state mineral is gold, its state animal the California grizzly bear, and its state fossil the saber-toothed cat.

On Wednesday, the California State Assembly added one more item to that list when it overwhelmingly passed a bill declaring denim its new state fabric. Sponsored by Democratic assembly member Marc Levine (who did not respond to a request for comment), the bill lays out a clear rationale for the declaration, starting with a definition of denim itself: “Denim is a sturdy cotton twill fabric [whose] history is interwoven with California history from the 1850s through today,” it reads. In what follows, the bill suggests that it’s designed to celebrate the state’s cotton farmers, its textile producers, and its garment manufacturers.

But the bill’s number, A.B. 501, betrays its true honoree: Levi Strauss. Indeed, if California wants to be honest, it should just drop the charade and admit it’s not really interested in fabric at all. Instead, it’s effectively declaring Levi’s its state company. But Levi’s, while one of California’s iconic institutions, no longer makes clothes in the Golden State—and it never sourced its denim from there.

However important Levi’s may be to the state, it’s a little gauche to lean in to the legacy of a company that has mostly bolted. California’s history with denim is very real, but the fabric isn’t really a part of the state’s present, despite its burgeoning micro-industry of high-end jeans brands. To pretend otherwise is to let a pleasing myth supplant the complex realities of manufacturing and production. There’s nothing wrong with celebrating denim, of course, but focusing on its rich past may blind us to the facts of American production. As politicians often do when they fetishize the legacy of American Heritage brands, Levine bows to the work of marketing executives rather than actual laborers.

As it happens, Levine’s bill doesn’t even really get its history right, slipping up in ways that suggest he really wants to celebrate jeans, not the fabric from which they’re made. By way of evidence for California’s deep connection to the history of denim, for example, the bill follows Levi Strauss’ lead and references the 1873 U.S. patent 139,121, claiming that it was awarded “for the invention of jeans.” In practice, however, that patent has nothing to do with the “sturdy cotton twill fabric” from which so many jeans are made today: Levi Strauss actually requested it for rivets applied to pocket seams.

Significantly, that innovation wasn’t even Californian: Jacob Davis, the tailor listed on the patent, lived and worked in Reno, Nevada, at the time. What’s more, Davis initially employed his rivets on pants made from duck cloth, not from denim. Here we see how muddled the bill really is: Letting synecdoche run amuck, it keeps shifting from the fabric it’s supposedly applauding to the pants sometimes made from them back to the most famous purveyor of those garments.

Levi’s itself may not even deserve Levine’s admiration: While it remains a Californian company, headquartered in San Francisco, it’s been decades since it produced the majority of its garments domestically, let alone in California. As James Sullivan explains in his book Jeans, the company—which once had manufacturing facilities throughout the country—began shifting its production abroad in the 1980s, a process that continued into the early 21st century. Today, the effects of that shift are clear: On a nine-page list of its suppliers, Levi’s (which is, to its great credit, uncommonly transparent about these matters) names only five Californian partners, none of whom appear to be involved in production of denim fabric itself. To contrary, its fabric mills mostly appear to be international: It works with textile manufacturers in Mexico, India, China, and elsewhere, but not in California. Even in its golden age, the company looked out of state for its fabrics, relying most heavily on the now defunct Amoskeag Mills in New Hampshire.

While many upscale fashion brands do produce denim garments in California today—that is, they cut and sew jeans out of denim—that relatively small luxury industry can’t possibly account for the 200,000 jobs A.B. 501 attributes to it. To the contrary, even the California Fashion Association only associates 191,635 “direct and indirect jobs” with the state’s apparel industry as a whole. And just as Levi’s once did, most brands that do produce locally source their actual fabrics from mills based elsewhere. The San Francisco-based Gustin, for example, draws heavily on Japanese and Italian textiles for its premium jeans. Like many other high-end brands, including Los Angeles’ Buck Mason, it also buys from North Carolina’s Cone Mills. Californian companies that I’ve spoken to in the past have told me that while they’d like to source their fabrics locally, they haven’t been able to acquire samples that fit their needs.

Still, if you follow A.B. 501’s logic, you might think there was an even more basic contemporary connection between California and denim, one found in the cotton itself. In 2015, the bill claims, “29 California gins ginned over 700,000 bales of cotton.” Those are impressive numbers, sure, but there’s a reason that cotton isn’t California’s state fiber: According to the Department of Agriculture, the United States produced 12.9 million bales of cotton in 2015 alone, with states like Alabama and Georgia dwarfing California’s annual output. What’s more, though A.B. 501 claims that each bale “can generate 325 pairs of denim jeans,” there’s no evidence in the bill to indicate that any of California’s cotton serves that purpose.

States are, of course, under no obligation to nod to present realities when selecting their symbols. Much as the gold rush is a thing of the past and saber-toothed cats are long extinct, denim arguably is part of California’s larger iconography, and therefore deserves recognition. In that regard, there’s nothing wrong with the assembly’s decision to honor a fabric deeply woven into regional mythology. As I’ve argued before, however, denim’s own mythology is often a fantasy of labor, allowing us to pretend that we respect and admire hard work without actually working. But if California wants to celebrate its own past toils, it could probably stand to put in a little more effort, too.

Aug. 30 2016 5:55 PM

If Uber Is Airbnb for Cars, Google Just Introduced Couchsurfing

Things used to be so simple in Silcon Valley: Uber ran a taxi service. Google owned maps and built driverless cars.

Over the past two weeks, Uber has acquired a driverless truck start-up run by ex-Googlers, purchased and deployed a fleet of self-driving Volvos in Pittsburgh, and announced a $500-million investment in maps.

Today, the Wall Street Journal reports that Google will expand its Bay Area carpool pilot to all users of Waze, the Israeli navigation app that Google purchased in 2013. It's a move that cements Google's ambitions to compete on Uber's turf. The days of Alphabet and Uber sharing a board member are over, the Journal reports.

The Waze Carpool pilot has been underway around San Francisco since this spring, but limited to 25,000 employees of Bay Area employers like Wal-Mart and Adobe. It's truly a ride-sharing program, in the sense that there are no professional drivers—as a driver, you're limited to two rides per day. "Waze Carpool focuses on covering costs, not generating income," the company writes. "It is not designed to allow a driver to make a profit or earn a salary."

Aug. 29 2016 10:51 AM

The Maker of EpiPen Will Now Sell a Generic for Half the Price. (That’s Still $300!)

After a week of thorough public shaming, it looks like Mylan is kind of, sort of, throwing in the towel. The EpiPen maker announced Monday that it will begin selling a new generic version of its device, which is used to stop potentially deadly allergic reactions, for about half the current list price.

Mylan has been lambasted recently for raising the EpiPen's price to more than $600 for a two-pack, up from around $100 when it purchased the product in 2007. The new generic version will cost $300 and “be identical to the branded product, including device functionality and drug formulation,” according to the pharmaceutical maker, which said in a statement it “expects to launch the product in several weeks.” Mylan had previously tried to calm the controversy over its price hikes by offering low- and middle-income customers a $300 rebate coupon to cover the out-of-pocket cost of an EpiPen.

Three quick observations about this news:

1) The $300 list price is still, you know, a tad expensive, given that the device retailed for one-third as much less than a decade ago. Keep in mind: This is also a product that expires after about one year and customers are unlikely to actually use. It's essentially an insurance policy buyers have to renew.

2) Offering a generic EpiPen is a vast improvement over a coupon, since it means insurers (or schools that weren't receiving them for free) will also get a price break. Whatever insurers are paying for drugs eventually makes its way down to customers through premiums.

3) Releasing a generic EpiPen will probably be more profitable for Mylan than just cutting the price of the branded product outright. The New York Times explains it nicely:

Introducing a generic might have less effect on Mylan’s finances than simply cutting the price of the existing EpiPen. The term EpiPen is so familiar that many doctors write prescriptions for it rather than for a generic epinephrine auto-injector. Pharmacists in many states will be able to substitute the generic version but in some cases they may not, leaving Mylan with higher revenue than if it had cut the price across the board.

That is, of course, not the company's official line. In press release, CEO Heather Bresch said, "Because of the complexity and opaqueness of today's branded pharmaceutical supply chain and the increased shifting of costs to patients as a result of high deductible health plans, we determined that bypassing the brand system in this case and offering an additional alternative was the best option.” Which ... all right.

Mylan may also be taking this opportunity to get a jump on potential generic competition. The Food and Drug Administration rejected an application by the drugmaker Teva Generics to sell its own version of the EpiPen this year. But after all the outrage, and the congressional scrutiny its generated, it seems a tad unlikely the agency is going to delay the entrance of a rival device much longer if another application comes through. Hopefully we can look forward to more price cuts in the years to come.

Aug. 26 2016 7:01 PM

The Odd Conservative Argument That Food Stamps and Medicaid Saved the Poor From Welfare Reform

This week marked the 20th anniversary of welfare reform, the landmark legislation signed into law by Bill Clinton that many on the left, myself included, have accused of eviscerating a key part of the safety net that protected the poorest of America's poor—namely, penniless single mothers. In honor of the occasion, Scott Winship of the conservative Manhattan Institute has come out with a new report defending reform's legacy, while attempting to debunk many of the statistics liberals typically wield against it (Republicans have long argued that the bill was a rousing success). It's a lengthy, careful piece of work, but I doubt it will change many minds on this issue. It also implicitly makes the argument that welfare reform was harmless in part because Medicaid and food stamps saved the most vulnerable from deep deprivation—which is a tad awkward to hear coming from the right.

Clinton made good on his promise to “end welfare as we know it” by dismantling Aid to Families With Dependent Children, the old entitlement program that had sent cash to needy households largely headed by single mothers. He replaced it with a new system called Temporary Assistance to Needy Families, or TANF, which among other things attached work requirements and time limits to cash benefits, and turned welfare's funding into a fixed block grant that states had the de facto power to spend however they pleased. The idea was to put more emphasis on efforts that would move jobless mothers into work. To simplify a bit, the rap against TANF is that it turned welfare into a slush fund that states have used to plug random budget holes, and that while the reforms may have actually helped reduce the poverty rate overall by convincing some women to find work rather than apply for monthly benefits, it exacerbated the worst kinds of poverty by cutting off cash aid to the truly desperate.

This is, admittedly, a somewhat tricky argument to illustrate, because no single data source does a perfect job tracking the incomes of the very, very poor. When they're asked to fill out government surveys, Americans notoriously under-report their earnings as well as the benefits they receive from programs like food stamps. Poor families with unstable housing situations can also be hard to track down, especially if they're living in homeless shelters. So rather than tout a single big number, experts in this field have tended to rely on a constellation of data points that suggest Americans at the absolute bottom of the income distribution suffered in the post–welfare reform era.

Early research, for instance, found that the number of so-called disconnected mothers who were neither working nor in school nor receiving welfare benefits rose after 1996. More recently, Johns Hopkins University's Kathryn Edin and the University of Michigan's Luke Shaefer made serious waves when they reported that “the number of households living on $2 or less in cash income per person per day in a given month increased from about 636,000 in 1996 to about 1.65 million in mid-2011, a growth of 159.1 percent.” In the same vein, the Center on Budget and Policy Priorities found that, after including safety net benefits like food stamps and adjusting for under-reporting, the percentage of children living in so-called deep poverty, meaning their family income amounted to less than half the poverty line, rose from 2.1 percent in 1995 to 3 percent in 2005. Using a different data set, a group of researchers including Johns Hopkins' Robert Moffitt found that, after taxes and transfers, the percentage of families in deep poverty rose from 4.5 percent in 1993 to 6.6 percent in 2004.* The number of food stamp recipients reporting no income has also gone up.

Winship attempts to pick these findings apart one by one. But while he does an excellent job raising questions and demonstrating why it's dangerous to rest your argument on a single stat, I don't think he succeeds in his main goal of casting doubt on the idea that, more likely than not, severe poverty has been rising.

Winship's report starts off by making a basically uncontroversial but important point: Child poverty is lower today than it was in 1996, including among families headed by single mothers. The trend looks even better once you start adding the value of various safety net benefits like food stamps, housing assistance, and Medicaid into the mix. The important thing to keep in mind here, however, is that the 1996 welfare reform law is at best responsible for only some of these improvements. Prior to TANF, states had already begun reforming their welfare programs through a federal waiver program that required them to test their approaches and demonstrate positive outcomes (TANF imposed no such demands). And in 1993, Clinton expanded the earned income tax credit, which boosts after-tax incomes for low-wage workers and drew an enormous number of single mothers into the labor force. “Indeed, the sizable expansions of this particular anti-poverty tool appear to be the most important single factor in explaining why female family heads increased their employment over the 1993-1999 period,” University of Chicago economist Jeffrey Grogger wrote in one often-cited study. As for TANF itself? Economists Robert Schoeni and Rebecca Blank estimated that its creation led to a roughly 2 percentage point decline in the poverty rate for women with less than a high school degree (similar to the effect of the waivers).

Point being: TANF may have had some positive effects on the headline poverty rate, but it didn't single-handedly work miracles.

Winship's arguments about the poorest of the poor are interesting but less sturdy. Take his analysis of deep poverty, which, again, is the fraction of children living below half of the poverty threshold. Just like the Center on Budget and Policy Priorities, his results show that once you've accounted for the way households tend to under-report the benefits they receive from the government, deep poverty among children rose after welfare reform. He finds the rate is lower overall, because, among other things, he adjusts his numbers using a nonstandard measure of inflation called the Personal Consumption Expenditure Deflator, and includes Medicaid benefits as income. (The latter move is a debatable, but not entirely ridiculous, choice. The value of health insurance partly just reflects the absurd escalation of medical costs in this country, but it's also obviously valuable). But the same basic pattern remains, as you can see from the green and purple lines below.

winship_2

Winship argues that these changes are too small, and the data too imprecise, to make any judgments about it. When the CBPP looked at the issue, however, it found the rise in deep poverty after welfare reform to be statistically significant. Winship also suggests that the whole issue could be an artifact of bad data collection. Families receiving fewer welfare cash benefits, he argues, may just be under-reporting their incomes more severely than before:

Imagine a family where earnings are completely unreported—and large enough that, if reported, they would be enough to escape deep poverty. Imagine, too, that welfare income is reported fully and also amounts to over half the poverty line. Now imagine that welfare income disappears over time, so that those earnings eventually become the only income received by the family. The family will, at some point, appear to fall into deep poverty, even though it remains above the deep poverty threshold the whole time, thanks to its (unreported, unchanging) earnings.

This is an elegant theory. But in practical terms, it's also not very reassuring, at least if you're concerned about the well-being of America's children. Winship is essentially saying that while it's entirely possible  welfare's demise left a substantial number of needy families a bit poorer, they may nonetheless have enough secret income to keep them above the somewhat arbitrary mark of 50 percent of the poverty threshold. I am not sure how many people are going to comforted by this speculation. Which is, I repeat, just speculation.

Winship's attempt to debunk Shaefer and Edin's now-famous $2-a-day statistic is equally shaky. The point of the pair's research is that a slice of America is living largely without access to ready cash income, which leaves their lives especially prone to hardship and disaster. Food stamps and Medicaid are wonderful, but unless you illegally sell your SNAP benefits (which some people of course do), they don't let you pay a phone or electricity bill. They don't let you fill up your car to get to work or fix a leak that's destroying your house. Even if you do include the value of certain benefits as income, the researchers find that the number of Americans living below the $2-per-person-per-day mark still rose in the wake of welfare reform.

edin_shaefer

Winship's response is to mimic Shaefer and Edin's analysis using a different data set. (They rely on the Survey of Income and Program Participation, while he chooses census figures. You can argue about which is superior for these purposes. I won't bore you.) His graphs show that, in fact, the number of children living below the $2-per-day mark began its current upward trend prior to welfare reform. This suggests that Clinton's legislation may have merely exacerbated an old trend rather than singlehandedly caused it. That's an interesting point, but not necessarily helpful to his cause.

winship_1

Winship then attempts to make the trend disappear by adding in Medicaid and other noncash benefits and tweaking his inflation measure before finally doing away with the conceit of measuring dollars, per-person. As he puts it:

Rather than dividing income by the number of household members to determine whether income is above $2 a day, Line 7 divides income using an “equivalence scale” that better accounts for the needs of households with different numbers of adults and children. I used an adjustment based on the recommendation of an expert panel convened in the mid-1990s. This adjustment lowers extreme child poverty rates even further.

Suffice to say, Winship is no longer measuring the same thing as Edin and Shaefer at all. Instead he's gone and created his own measure of extreme hardship that, among other things, illustrates how government benefits—especially Medicaid and food stamps—have helped prevent a good deal of desperate need in this country in the years after cash welfare was eviscerated. This is encouraging, but a bit odd coming from a Republican, given that the party's congressional delegation has spent the last six years vowing to shred those programs.

Winship's paper is long and detailed, and I can't possibly do it justice by addressing all of its arguments, point by point. But his main ones, again, do little in my mind to dispel the idea that something has gone wrong for the very poor in the two decades after welfare reform. He points out that that data on consumption tend to suggest lower levels of poverty than data on income. Of course, part of that may have to do with the ready availability of predatory credit in this country. Moreover, research has shown that the Consumer Expenditure Survey (which Winship's favored researchers rely on) is a bit of an outlier when it comes to poverty trends, and doesn't track well with other indicators like unemployment or consumption figures from the Panel Survey of Income Dynamics. He suggests that the rise of food stamp applicants with no income may be a product of the same under-reporting that he thinks influences deep poverty. This is, again, mostly speculative. But he does marshall some evidence. For instance, he cites a government study that interviewed 50 food stamp recipients and found a little more than half made money they didn't report by doing things like odd jobs for friends and family, like mowing lawns. Of course, were their part-time lawncare businesses properly accounted for, I'm guessing most of those people would still qualify as dirt poor—to use a technical term.

Winship's study is a valuable demonstration of just how much freedom researchers have when it comes to crafting poverty data. Add in some Medicaid benefits here, impute some food stamps there, and you can totally change a trend line. But while it raises questions about the stats underlying the case against welfare reform, it hardly disproves them.

Still, I do hope people read this paper. It's not often a conservative mounts this kind of a defense of what remains of our safety net.

*Correction, Aug. 26, 2016: This post originally misspelled Robert Moffitt’s last name.  

Aug. 26 2016 9:26 AM

Nextdoor, a Social Network for Neighborhoods, Has a Racial Profiling Problem. Will This Change Fix It?

This post originally appeared on Inc.

This is something any company that maintains an online community will want to pay attention to.

Neighborhood social network Nextdoor found itself facing intense criticism last year over instances of racial profiling on its platform. The issues reached a point where officials in Oakland, California debated whether to ban use of the platform by city departments.

Users were reporting everyday activities of members of minority groups in their neighborhoods as “suspicious.” Some users allegedly threatened to report others who raised concerns about racist posts. One user who had raised concerns was said to be removed from her neighborhood group.

Aug. 25 2016 11:38 AM

The CEO Who Hiked EpiPen Prices Actually Just Said, “No One’s More Frustrated Than Me”

After drawing public wrath and congressional scrutiny over its decision to raise the price of life-saving EpiPens to about $600 a pack, Mylan is trying to save its image. On Thursday the pharmaceutical company announced it would give a $300 coupon to lower- and middle-income customers who have to pay for the device out of pocket because they lack health coverage or have a high-deductible insurance plan (previously, it offered a $100 discount card). Meanwhile, CEO Heather Bresch appeared on CNBC's Squawk Box to try to quell some of the outrage by laying blame for the price hike at the feet of our “broken” health care system.

It was not an especially convincing performance.

Before we get into Bresch's interview, a word about the coupon. Even at half price, EpiPens—which stop allergic reactions by injecting epinephrine into users—are still far more costly today than a few years ago. (Full disclosure: I carry one myself). When Mylan purchased the device in 2007, a pack cost about $100. Giving patients a 50 percent break after increasing prices 500 percent is not exactly a sweeping act of charity, even if it does help some families erase their entire co-pays. It's also worth noting that this latest move is very much in Mylan's own self-interest. Pharmaceutical companies don't typically make their profits off of middle-income patients who have to choose between gas money and their kids' allergy meds; rather, they count on big payments from insurers, who pass it on to consumers in the form of higher premiums. Obscuring the true cost of drugs from the public through discounts and donations is part of the game pharma manufacturers play to avoid accidentally causing an uproar of the sort Mylan has witlessly stumbled into—which is to say, Bresch and her fellow executives were negligent in not offering that coupon sooner.

And now about that CNBC spot. Mylan's main talking point seems to be that journalists have erred by focusing on the EpiPen's list price of $608 per pack. In reality, few patients actually pay that cost, the company notes, because they are either insured or receive a discount. Meanwhile, Mylan itself only makes about $274 on each sale—the rest goes to other companies in the drug supply chain, including wholesalers, pharmacies, and pharmacy benefit managers. It even put together a handy flow chart for PR purposes.

mylan_pr_graphic

Mylan Pharmaceuticals

Bresch echoed this point in her interview with CNBC's Brian Sullivan. But then things got a bit weird, as the CEO declared that she too was outraged by the high cost of America's prescription drugs.

Brian Sullivan: But surely you must understand the outrage. Somebody I talked to last night said people are outraged because it seems outrageous. That the American Medical Association has said this is basically the same product it was in 2009. And yet the price has gone up 3 or 400 fold.
Heather Bresch: Look, no one’s more frustrated than me. I’ve been in this business for 25 years…
Sullivan: But you’re the one raising the price, how can you be frustrated?
Bresch: My frustration is there’s a list price of $608. There is a system. I laid out that there are four or five hands that the product touches and companies that it goes through before it ever gets to that patient at the counter. No one, everybody should be frustrated, I am hoping that this is an inflection point for this country. Our health care is in a crisis. It’s no different than the mortgage and financial crisis back in 2007. This bubble is going to burst.

This would all make more sense—and feel less hollow—if Mylan were not actually profiting from its price increases. In that case, it could fairly argue that leechlike middlemen were pushing up costs while allowing manufacturers to take the blame. And, to be sure, there is some of that going on. As the New York Times notes, Mylan upped EpiPen list prices by about 30 percent in 2015, yet didn't record any additional revenue. That suggests pharmacy benefit managers—which deal with prescription drugs for insurers and other clients—managed to negotiate some fairly large discounts. But make no mistake, Mylan has cashed in. Per the Times:

In other years, though, sales of EpiPen rose by larger amounts and Mylan seemed to have retained about half the extra revenue that would be expected from its list price increases and prescription growth, according to Umer Raffat, an analyst at Evercore ISI. Even in 2015, he said, the rebates were kept by insurers and pharmacy benefit managers, and were not seen in lower prices paid by consumers.
“Someone definitely got that,” Mr. Raffat said of the rebates. “Who is that? It wasn’t passed on to customers.”

If you want to boil it down even further, think of it this way: Mylan is crying that it only gets to keep $274 each time someone buys an EpiPen pack. That's still nearly three times the list price when it acquired the product.

So, I am sure Bresch truly is frustrated by the fact that Mylan is taking most of the heat for price increases when other companies are profiting from them, too. But that doesn't excuse her company's own role. As the Times reports, the manufacturer appeared to be increasing the EpiPen's price to squeeze a few last inflated profits from the product before a generic competitor landed on the market. In a twist, though, the Food and Drug Administration rejected the generic, and the EpiPen's one major alternative was pulled from pharmacies due to reliability issues, leaving Mylan with an unexpected monopoly that it is now profiting from. Is it the company’s fault the government nixed its big new competitor? No. But nobody forced Mylan to jack up prices for one last big sales push.

It all almost makes you miss Martin Shkreli; at least he was happy to own his villainy.

Aug. 24 2016 2:26 PM

Good Lord. Even the Price of Insulin Is Skyrocketing.

At this point, it’s getting hard to keep track of all the stories of drug companies jacking up the prices of prescription medications to nauseating heights for little identifiable reason other than the fact that, unlike in other developed countries, the U.S. government lets them. At the moment, Congress is getting exercised over EpiPens, the fast-acting epinephrine injectors made by Mylan that are used to stop potentially deadly allergy attacks. (I carry one myself, because bees.) Mylan has upped EpiPen prices by 400 percent since it bought the decades-old device from Merck in 2007. The company says the moves are justified by “product improvements,” a line that presumably even they couldn’t possibly believe. Sen. Chuck Grassley has some questions.

On Wednesday I noticed yet another disturbing story about drug prices—one that, despite some coverage in the New York Times and elsewhere, hasn’t become a national scandal quite on the order of the EpiPen or the adventures of Martin Shkreli. It turns out that the cost of insulin, which diabetics rely on to stabilize their blood sugar, has been going through the roof. A study published by the Journal of the American Medical Association in April found that between 2002 and 2013, insulin's cost had leapt by more than 200 percent, from $231 to $736 per patient annually.

“Insulin is a life-saving medication,” William Herman, one of the study's authors and a professor of medicine and epidemiology at the University of Michigan School of Public Health, told Stat at the time. “There are people with type 1 diabetes who will die without insulin. And while there have been incremental benefits in insulin products, prices have been rising. So there are people who can’t afford them. It’s a real problem.”

Drugmakers have a few go-to excuses when reporters query them about price hikes. The drugs are typically covered by insurance, so patients don't really feel the pain. They offer big discounts, so list prices don't necessarily reflect what people and companies are paying on the market, etc.

What makes the insulin story so disturbing is that it specifically affects patients who are likely to have trouble affording meds. Diabetics tend to be older—the JAMA study found the average user was 60—and many rely on Medicare Part D's prescription drug benefit to cover their prescriptions. Unfortunately, Part D has a coverage gap, sometimes called the “doughnut hole,” that can force seniors with high drug expenses to pay thousands of dollars out of pocket.

Faced with high costs, many patients seem to be skipping or rationing shots of a hormone they are required to take multiple times a day in order to stay alive, keep from going blind, or lose a foot to amputation. At least, that's what seems to be happening if you believe the front-line reports from doctors in clinical practice. Take these stories from a recent article in the Missoulian (it got a write-up at Consumerist, which is how I came across it):

Hirsch and many of his colleagues are not subtle when they describe what “price gouging of a medication required for survival” is doing to their patients.
“I had a patient tell me her insulin bill is suddenly costing her as much as her mortgage,” Hirsch said.
Dr. Claresa Levetan, chief of endocrinology at Chestnut Hill Hospital, said “just about 100 percent of them are having problems affording the higher cost of insulin.
“I see people every day in the hospital because they can’t get their required doses of insulin. Many are in the ICU with what is called diabetic ketoacidosis, a life-threatening condition. This lack of insulin brings the patients to a critical juncture, where they will become extraordinarily sick, go into a coma and could ultimately die.
“I have patients who tell me that they have to make a decision between food and insulin, and their rent and insulin.“I mean, seriously, food, rent or insulin,’’ she said.

Why is the price of insulin, a hormone we've known about since the 1920s, spiking? There seem to be a few major reasons, all of which speak to the fundamental dysfunctions in the pharmaceutical market. Rather than compete against one another, the three major drug companies that produce insulin in the U.S.—Sanofi, Eli Lilly, and Novo Nordisk—seem to have raised their prices in tandem. As Bloomberg explains, this follow-the-leader approach is called “shadow pricing,” and it’s fairly common in pharma. At the same time, there is no generic insulin on the U.S. market, in part because the branded makers have found ways to extend their patents by making small improvements to the product. There may be more competition on the horizon, as Eli Lilly is expected to start selling a biosimilar version of Sanofi's Lantus. But experts only expect that to shave 20 or 30 percent off the cost. Pharmacy benefit managers, which handle prescriptions and negotiate with drugmakers on behalf of insurers, are another likely culprit. These companies often receive commissionlike “rebates” from drug producers that may be encouraging them to buy more expensive products for their clients, as Kasia Lipska noted in the New York Times in February.

As always, though, the overriding issue is that unlike most developed nations, the U.S. government doesn't cap what drugmakers can charge. Instead, we have a semifree market that lets essentially monopolistic drugmakers set prices for essential drugs, with the frequently misplaced assumption that generic competition will lower costs somewhere down the line. In the case of insulin, we're starting to see the human casualties the system leaves behind.

Aug. 23 2016 6:01 PM

The U.S. Government Is Buying 11 Million Pounds of Cheese

Behold: cheese mountains. No longer mere tasty figments of your most sumptuous daydreams, giant stockpiles of cheese have been amassing all over the country for months. And now, the U.S. government is going to buy them.

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