So much for "living with in our means".......

[Straydog]

Medicare price tag one-third higher

President Bush's new budget projects the program's overhaul will be more costly than the administration had estimated

01/30/04

ALAN FRAM

WASHINGTON -- President Bush's new budget projects the Medicare overhaul he just signed will be one-third more costly than estimated, and this year's federal deficit will surge past a half-trillion dollars for the first time, administration and congressional officials said Thursday.

The White House will estimate the cost of creating prescription drug benefits and revamping the mammoth health care program for the elderly and disabled at $534 billion for the decade that ends in 2013, the officials said. The number will be in the 2005 budget Bush will propose Monday.

Meanwhile, congressional officials said Bush's budget will project a federal deficit this year of about $520 billion. That would easily exceed the $375 billion total for 2003, a record in dollar terms.

The Congressional Budget Office projected this week that this year's shortfall would be $477 billion.

While muscling the Medicare package through Congress in November, Bush and Republican leaders won pivotal votes by reassuring conservatives that the cost over that period would track the nonpartisan Congressional Budget Office's estimate of $395 billion. The measure passed both chambers narrowly, giving the president one of his top legislative triumphs since taking office.

The new figures represent the first time the White House has released its projections of the bill's costs. They could deepen an election-year wedge between the White House and conservative Republicans upset over spending and budget deficits that they say have grown too high on Bush's watch.

The numbers raise questions about whether administration officials revealed everything they knew before the vote on Medicare, some conservatives complained privately. Bush signed the bill Dec. 8.

"No one vote has caused me more angst in my short political career," said Rep. Jeb Hensarling, R-Texas. "I hope this will embolden conservatives and others" to control spending.

Hensarling was among several conservatives who voted for the measure after being told by Bush, House Speaker Dennis Hastert, R-Ill., and others that the costs should fall within the Congressional Budget Office estimate.

Rep. John Shadegg, R-Ariz., a conservative who voted against the bill, said he never believed the $395 billion cost estimate because such long-term forecasts are "meaningless."

The White House is reluctant to antagonize conservatives, the base of the GOP, in an election year. Such internal party divisions could make it harder to push legislation through Congress, which Republicans control by narrow margins.

Nearly everyone expects the cost of the Medicare bill to increase over the years as the baby boom generation retires and medical costs grow. Douglas Holtz-Eakin, director of the Congressional Budget Office, has said the measure's costs in its second decade could exceed $1.5 trillion.

Administration officials said their Medicare cost estimate was not ready until now. Bush included a less detailed 10-year, $400 billion estimate for the bill's price tag in his budget last February.

White House spokesman Trent Duffy and other administration officials said the estimating difference with the Congressional Budget Office was understandable and relatively close, considering the millions of beneficiaries, hundreds of billions of dollars and time period involved.

"The president made a commitment to seniors and he kept it, and part of that was providing prescription drug coverage," Duffy said. "The president is committed to making sure cost controls continue in Medicare."

Democrats said the higher costs would benefit drug companies and managed health care plans that are among their favorite political targets.

"The ballooning cost of the program underlines the need to end the sweetheart deals and to provide the government the authority to negotiate reasonable prescription drug prices for senior citizens under Medicare," said Sen. Edward Kennedy, D-Mass.

Administration officials said they could not explain precisely why the projections differed.

Joe Antos, a health policy expert at the conservative American Enterprise Institute, said it was probably due to different estimates of the number of people expected to participate in federally subsidized health plans and health care tax breaks that the bill would create.

The higher estimate could hurt the White House with conservatives, but it also could help the administration. Higher projected Medicare spending means larger estimated deficits, which would make it easier for Bush to meet his goal of cutting budget shortfalls in half by 2009.


Copyright 2004 Oregon Live. All Rights Reserved.

[Cool Texan]

Originally posted by Straydog:
Joe Antos, a health policy expert at the conservative American Enterprise Institute, said it was probably due to different estimates of the number of people expected to participate in federally subsidized health plans and health care tax breaks that the bill would create.

<font size="2" face="verdana,arial,helvetica">At quick glance, it appears this is the only independent 3rd party comment in the article. From a "health policy expert"...the difference is due to estimates of the number of people. So what's the problem? This implies that the former estimates are still true, there are just more people anticipated to use it....therefore, if these new people do not start using it, the numbers wont be this high.

Guess I dont see the big deal yet.

[freespool]

I think what sticks in my craw is the fact that US manufactured drugs are cheaper in Canada. And now the Bush administration is trying to stop Americans from getting their perscription drugs from Canada.


salmon hugger

[CATCH AND EAT]

Yet you are for more taxes?

[Hoosier Daddy]

Living within your means isn't the American way anymore.....spend spend spend. Government, citizens, you name it.

[Thumper]

A little perspective. Wartime spending has always resulted in significant deficits. And we are indeed in a war, declared or otherwise. On a percentage of GDP this is a fairly typical wartime deficit situation.

The flip side is that with the deficit speeding the economy will boom, as it has been doing in the past several quarters. Most of the deficit spending is on goods and services purchased from ourselves. So we are borrowing from ourselves to spend on ourselves. Interesting.

As long as inflation is in check (and it is) and interest rates are low (as they are), the economy is likely to continue to be healthy.

[Straydog]

Yea, heck, no big deal. It's just a budget.
Our kids and grandkids can deal with it.....

"Meanwhile, congressional officials said Bush's budget will project a federal deficit this year of about $520 billion. That would easily exceed the $375 billion total for 2003, a record in dollar terms.

The Congressional Budget Office projected this week that this year's shortfall would be $477 billion."

Of course, if the State says it needs more money for Schools they are laggard and don't know how to balance a budget. But if GW builds the debt daily, it is no big deal.

I don't get it.......... :whazzup:

[lingslayer]

Originally posted by freespool:
I think what sticks in my craw is the fact that US manufactured drugs are cheaper in Canada. And now the Bush administration is trying to stop Americans from getting their perscription drugs from Canada.


salmon hugger

<font size="2" face="verdana,arial,helvetica">Canada should keep Americans from buying drugs there. They are cheaper because the drug wholesalers and retailers aren't allowed normal markup due to socialized medicine regulations.

If you pay Canadian taxes then I guess you should be able to,... That's what makes up the difference for the sellers.

Jamie

[Straydog]

And what dictates "normal markup"??

The drug industry in America is one of the most, if not the most profitable huge businesses there is.

Just what is "normal markup" and what dictates that? What is the price tag on one's life? What dictates how much is too much markup to see that a person dosen't die or can keep their mental illness under control?

[Cool Texan]

Stray...how do you argue on this thread to live within our means, and then argue on another thread to raise taxes? So are you in favor of raising your federal taxes to cover the medicare increases?

As for the pharmaceutical industry pricing...I see no big deal here. If you understand their industry, you understand a bit more of why they do what they do.

[Thumper]

Originally posted by Straydog:
Of course, if the State says it needs more money for Schools they are laggard and don't know how to balance a budget. But if GW builds the debt daily, it is no big deal.

I don't get it.......... :whazzup:

<font size="2" face="verdana,arial,helvetica">It's OK, Straydog. Some find it hard to see the difference between budgeting at the state and federal levels. You are in good company. :smile:

[Straydog]

Originally posted by Cool Texan:
Stray...how do you argue on this thread to live within our means, and then argue on another thread to raise taxes? So are you in favor of raising your federal taxes to cover the medicare increases?

<font size="2" face="verdana,arial,helvetica">I am in favor of measure 30 no voters explaining to me why they are not arguing for the balancing of our federal budget as they are for the balancing of our state budget.

I have read repeatidly (not from you) that people are sick of the freeloading of some citizens that make our costs higher. Does one not think there is Medicaid and Medicare fraud just as there is in the Oregon trail program? Does one think there is not waste in Federal auto pools? (Have you ever witnessed the SUV parade whenever the BLM has an 'in field' event?) Does one think there is not overspending by the Pentigon?

I am asking why there is not consistency in principals by some.

[corkyking]

"I'm living so far beyond my income that we may almost be said to be living apart."
- e e cummings (1894-1962)


"If you can count your money, you don't have a billion dollars."
- J. Paul Getty (1892-1976)

[Abalone]

"Meanwhile, congressional officials said Bush's budget will project a federal deficit this year of about $520 billion. That would easily exceed the $375 billion total for 2003, a record in dollar terms.

The Congressional Budget Office projected this week that this year's shortfall would be $477 billion."

The United States has the largest GDP in the world. 10 Trillion Dollars per annum.
As a percentage the 1/2 Trillion is a the lowest of any Industrialized country in the world.

Japan has the second lagest economy but their Deficets exceed ours.

So What ? $520 Billions seems large but as a percentage of GDP it is not.

The issue is ! How do they spend the money ?
Most of it goes back into our economy creating jobs and Business. As the economy grows our abitilty to service the debt will grow with it.

The Left side doesn't like it because they want to use that same money for other things.
Spending in itself isn't bad it's what they are spending it on. Depends on what side of the fence you are sitting on. Left or Right.

Why do the Dems like to balance the Budget.

Why is the economy recovering ? What happened that got the ball rolling ?

The war ! Military spending.

If we don't like it we get a chance to change things in November.

[TheRogue]

Originally posted by Abalone:

Why is the economy recovering ? What happened that got the ball rolling ?

The war ! Military spending.

<font size="2" face="verdana,arial,helvetica">Please show a couple of reliable sources that say this war has anything to do with the rising, jobless economy??

TR

[lingslayer]

Originally posted by Straydog:
And what dictates "normal markup"??

The drug industry in America is one of the most, if not the most profitable huge businesses there is.

Just what is "normal markup" and what dictates that? What is the price tag on one's life? What dictates how much is too much markup to see that a person dosen't die or can keep their mental illness under control?

<font size="2" face="verdana,arial,helvetica">When I was treated up there in the '90s (surgery, a 3 day hospital stay, and a 5 day recovery) I was told that drug prices from pharmacies were so low because the pharmacies were limited to a "cost plus 10%" price schedule by law.

Since that is calculated from the drug mfr's wholesale, it seems to me that the "greedy profiteers" we hear about (where drugs are concerned) are as much the retailers as anyone.

The SBA will tell you that 10% markup won't generate enough margin to pay the bills or the help. A bottle of (that famous brand of) acetaminophen was much cheaper with an Rx than over the counter.

Not to mention the anti-trust laws we have that prevent a wholesaler from dictating a retail selling price.

You're in the sales game right Stray? I'm sure you know what kind of margin it takes to keep a business afloat, and you also know a 10% markup won't generate it. I don't know what the acceptable margin is on the goods you wholesale, but I'd be willing to bet its somewhere in the 33%-50% range,... 50-100% markup!

I'd rather pay the price at the counter and have my sources around to buy from in the future,...

As for how much is too much? I don't know, because I don't know what their margin is,... Do you?

Jamie

[Straydog]

Ling,

I don't have the answer to what is an acceptable markup for drugs, either.

I do though, know that in our industry the wholesale markup is no where near the numbers you suggest. In very general terms, 18 to 20% is about the norm for wholesale dist. markup although the numbers vary greatly depending on the product.

Having said that, it seems to me we as a society need to decide if comparing the mark up on fish hooks and bullets to the markup on life saving or enhancing drugs are valid comparisons. Do we want to use the same standards of acceptable practice for both categories of goods?

[foxer]

Yet if you limit the amount of profit a company can make, there goes the motivation to come out with new drugs. Do you really think if they are limited in margin that they will put out the effort required for say a cancer cure? What needs to happen is like what they recently did with Claritin. Sure dropped the price of that stuff now that generics are available

[Cool Texan]

Originally posted by foxer:
Yet if you limit the amount of profit a company can make, there goes the motivation to come out with new drugs. Do you really think if they are limited in margin that they will put out the effort required for say a cancer cure? What needs to happen is like what they recently did with Claritin. Sure dropped the price of that stuff now that generics are available

<font size="2" face="verdana,arial,helvetica">Not really actually. The bigger variable in the equation for the drug makers is that while they just came out with new drug that does great things, they likely went through a few hundred trials and formulations trying to get it right. That doesnt happen for free.

In the early 90's these companies spent about $230-$360M for each new drug coming tot he market...and took about 14-15 years doing so (didnt take that long to put a man on the moon). Also, bear in mind that patents expire after 20 years for these. Further, 7 out of 10 new drugs failed to recoup the costs back to the company.

What that did was push the manufacturers to change the way they develop the drugs, and most switched over to combinational chemistry (wont go into details here on what that is...but if you really want to know, I can fill you in).

So it is largely without merit to assume that drug manufacturers are raking in huge dough because of these prices. Most of the times, they aren't. I'm sure they're getting better at it now, due to the combinational approach...which means they are likely wanting to build up some rainy day reserves so as to avoid financial crisis if the economy goes south. If only our state were so smart.

The moral of this is simple...drug manufacturers were getting killed by the process. So they had to reinvent themselves, find a new process, change the way they did the most fundamental activity they do. Its called adaptation.

Sounds like the state is just now starting to try some of the same concepts...however, they also want to raise prices to alleviate the pain and need to do anything too drastic. Sorry...I will vote NO on 30 because of this. Problems like this CAN be fixed...it happens every day.

Have a good weekend folks.

[Straydog]

Originally posted by Cool Texan:

So it is largely without merit to assume that drug manufacturers are raking in huge dough because of these prices.

<font size="2" face="verdana,arial,helvetica">That is why I formed my opinion after talking with those in the industry rather than making assumptions. I hear what the sales people make in commissions, perks and bonouses. No assumption used. Real life facts indicate that the profits of both the legal and illegal drug industry is huge.

Of course, playing on the fear and vulnerabilty of people's health and ego's through advertising helps them achieve their goals as well.

[lingslayer]

Originally posted by Silver Hilton:
The pharmacuetical industry is heavily protected and subsidized by the tax payers, through medicare. The new plan will mint money for these companies. They enjoy public/private partnerships with universities and hospitals that reduce their cost of development. They're necessary, vital parts of the equation, but they hardly need protection from seniors slipping north to buy heart medicine.

<font size="2" face="verdana,arial,helvetica">But the reduction in cost north of the border isn't going to hurt the drug companies anyway SH. Unless they are selling to the Canadian drugstores for less than the American drugstores. The difference in price in Canada is the markup to the consumer. Ie. regulated profit due to socialized meds. Its their law, and their taxes.

I'm sure the increased margin the stores up there are making selling to us looks pretty darned good!

As for the mfrs margin,... I'm sure the overhead for legals and licensing that affect the net are larger than most other industries too. Then there is attrition from shelf life etc,...

Gross margin can be grossly deceiving.

Jamie

[Straydog]

Ling,

Yes, I am talking markup from Mfg. to wholesale.

Retail enjoys markup of 20 to 40 percent depending on the item with the exception, in both cases of firearms.

There is a rediculously low markup on firearms.

And yes, volume is the name of the game.

[ 01-31-2004, 02:32 PM: Message edited by: Straydog ]

[Silver Hilton]

Texan, PFE has $33 billion in current assets, up from 24 billion a year ago. The short term investments are likely interest earning instruments of some sort or another. I don't think I'd call them cash starved. Their most significant use of cash was to buy $8 billion of stock back. That is not the act of a cash starved company, it's the act of a company that is rolling in money and is trying to lift it's stock price.

Ling, drug companies sell drugs at varying wholesale costs around the world. The lower costs in Canada are due in large part to lower wholesale costs. This is hugely obvious, simply by looking at the companies that have set up in Canada to resell back to the US. No way would these companies do this if the margin wasn't there. They'd just set up in the US. That means that they HAVE to be getting lower wholesale costs. But we don't have to infer this indirectly. The major pharmacueticals discus this price predation as they call it in the annual reports, and in recent testimony to congress. It's common knowledge among the analysts that follow the stocks.

[Cool Texan]

Some products give huge returns...most probably lose money for the company. Dont focus on the huge prices without realizing the huge sunk costs to produce them. They have to recoup those in order to stay in business. Recent revamping of their practices has likely allowed that be done more easily. They also know the game will change again some day, and hoards of cash will help them to survive through another revamping process that will be required to survive in the midst of controlled prices.

Then again...its free market dynamics. If they have a great product, then they will charge as much as the market bears. Need cheaper drugs? Now Uncle Sam will have to figure out how to be a major customer so as to negotiate big discounts, control the medications, and distribute to the needy/poor. Get ready for a tax increase though to pay for that.

However....we're somewhat getting off topic. Your "news" story is not really a story at all. There is no "real" cost increase per se right now...but rather, a difference in the set of underlying assumptions driving the financial model. Which is right...the higher or the lower? Probably neither. Medicare will cost what Medicare will cost given the new rules that are put in place. If you agree with the changes in Medicare, then that is the only real issue worth discussing.

[lingslayer]

Originally posted by Straydog:
Ling,
I do though, know that in our industry the wholesale markup is no where near the numbers you suggest. In very general terms, 18 to 20% is about the norm for wholesale dist. markup although the numbers vary greatly depending on the product.

Having said that, it seems to me we as a society need to decide if comparing the mark up on fish hooks and bullets to the markup on life saving or enhancing drugs are valid comparisons. Do we want to use the same standards of acceptable practice for both categories of goods?

<font size="2" face="verdana,arial,helvetica">Stray, I find it vey hard to believe that markup in your industry is 20% or less. That is a mere 16.67% margin or less. Are you talking the wholesaler's markup from the mfr? If so there must be massive volume involved and little or no handling and warehousing. A 20% average markup from wholesale to retail would be disastrous. A 20% margin wouldn't even be sustainable unless you are talking about internet storefronts.

In terms of drugs, I am sure (as CT pointed out) that the margin has to be respectable on the mfr's end, just to cover R&D, patents and FDA approval.

Good chemists and lawyers don't come cheap!

So with medicare we either supplement the retail purchasers, or subsidize the companies making the drugs,... I can hear the screams of "corporate welfare" from the left already :depressed: Even indirect corp subsidies like streamlining the testing processes and licensing would raise the hackles of watchdog groups and invite lawsuits.

Lets face it,... Good drugs and medical help don't come cheap either. If you are genuinely interested in dropping the cost of health care maybe you should take a harder look at tort reform.
And throw the ambulance chasing lawyers out too!

Jamie

[Silver Hilton]

At the risk of introducing facts into the discussion, may I suggest that you look at the income statements for some of these companies?

Here is Pfizer's (PFE) for an example. I note that their gross margin is about 87% in the most recent year. Their R&D expenditures seem to be about 15% of sales. Alpha Pharma (AAII) has a gross margin of about 69%. They sell generic drugs, so their R&D is about 7% of the sales. Genentech (DNA) has a gross margin of 85%, and their R&D runs about 20% of sales.

On all these companies, selling and administrative expenses run about twice what R&D does. While these companies correct note that drug development is expensive and tedious, they fail to tell you that they spend less than one dollar out of five of their income in such R&D. Further, much of the expense is in later stage trials, where the company has significant information about the likelyhood of success and approval. If they are wasting money in these trials on a drug that isn't approved, they have only themselves to blame.

These are not margins of companies that are suffering. These are margins comparable to those of Microsoft, who has essentially a monopolist hold on the marketplace. They are significantly better than Intel's and other chip companies, who have equally costly R&D processes, albeit without government approval.

I don't know what the answer is, but I don't think it starts with subsidizing the companies through medicare and preventing states from negotiating lower prices. In general, pharmacuetical companies are printing money. The numbers above show that they would print money even if we mandated that they cut their prices by 33%. I'm not recommending that. However, the current system of insurance and no price competition provides absolutely no incentive for the drug manufacturers to control their costs to us. That is great for the stockholders of the drug companies, of whom I am one. But it may not be great for the public or the taxpayers, who are funding these profits.

The pharmacuetical industry is heavily protected and subsidized by the tax payers, through medicare. The new plan will mint money for these companies. They enjoy public/private partnerships with universities and hospitals that reduce their cost of development. They're necessary, vital parts of the equation, but they hardly need protection from seniors slipping north to buy heart medicine.

[Cool Texan]

SH, you are correct. As you'll see, my discussion stated that during the 90's things were not quite as good. Combinational chemistry has allowed them to significantly reduce their costs and lead times. Now they are presumably churning a lot of cash...and I say good for them. The rules will change, and they know that. If they dont have cash, they wont survive the change of rules. Merck, Eli Lilly and a lot of others now have healthy P&L's thanks in large part to them recognizing the need to change how they operate.

(not changing original post...just adding new facts)

SH, also bear in mind that profits on the books does not necessarily mean increased cash balances. Pfizer and Merck both have diminished cash balances through the 3rd quarter. Short term investments are up...but no telling what is driving that.

[ 01-31-2004, 12:55 PM: Message edited by: Cool Texan ]

[Abalone]

Originally posted by TheRogue:
</font><blockquote><font size="1" face="verdana,arial,helvetica">quote:</font><hr /><font size="2" face="verdana,arial,helvetica">Originally posted by Abalone:

Why is the economy recovering ? What happened that got the ball rolling ?

The war ! Military spending.

<font size="2" face="verdana,arial,helvetica">Please show a couple of reliable sources that say this war has anything to do with the rising, jobless economy??


TR </font><hr /></blockquote><font size="2" face="verdana,arial,helvetica">Here is one source and I have others: http://www.parida.com/efpr12304.html
The U.S. recovery is both real and visible.
It is sparked by three major forces: the Bush zillion dollar tax cut, defense spending and soaring productivity.

I didn't mean to imply in total. But according to this guy purchases of replacement
equipment for the military had a significant effect on sparking the economy.

Remember when things got rolling Congress passed a 500 billion dollar budget for Iraq. Much of it went to the military. Tax Cut, Lower interests rates are part of it. Not tyring to stir up any heat just want to add some info to the discussion. Opinions are welcome.

[ 02-01-2004, 02:05 AM: Message edited by: Abalone ]