From the Fiscal Times: How Big Pharma Lobbyists Keep Medicare Drug Prices High

For our look at interest groups and iron triangles.

- Click here for the article.

For nearly a decade, veteran Democratic Rep. Peter Welch of Vermont has been waging a lonely battle to empower Medicare officials to negotiate the price of prescription drugs, just as Medicaid, the Veterans’ Administration and other government health care providers are entitled to do.

When Congress enacted the Medicare Part D subsidized prescription drug program for seniors in 2003, the drug industry secured an amendment that barred the federal government from negotiating rebates or lower drug prices for Medicare beneficiaries – a sweetheart deal that subsequently provided drug manufacturers with many billions of dollars in extra profits.

Welch, a liberal Democrat, condemned the restrictive policy as the ultimate in “crony capitalism” and sponsored or co-sponsored at least six bills to allow drug price negotiations.

But a well-financed drug industry thwarted Welch and his allies at every turn, and the proposed legislation repeatedly was bottled up in the House Energy and Commerce Committee, or simply ignored. He concluded that big-money lobbying efforts and generous campaign contributions to key Republican and Democratic lawmakers effectively blocked his legislation, even as many consumers and policy advocacy groups clamored for ways to control soaring prescription drug prices.

“It truly is exhibit A in the intersection between crony capitalism and big money in politics,” Welch said in an interview on Thursday. “The whole essence of a free market is that willing buyers and willing sellers can negotiate prices and reach a market price … How in the world can one explain that the government actually passed a law saying that you can’t negotiate prices?”

According to Welch and political watchdog groups, the answer is fairly simple. The pharmaceutical industry spent unprecedented sums on lobbying and campaign contributions to get the prohibition on price negotiations into the original legislation and to keep it there, despite the best efforts of Welch and others to eliminate the provision.

An analysis jointly published this week by the Center for Responsive Politics and FairWarning, a non-profit news organization, highlights the political clout exerted by the Pharmaceutical Research and Manufacturers of America (PhRMA), a major industry group, and some of the largest U.S. drug companies.

A TED talk on the impact of markets on civil life

A political philosopher argues that using market mechanisms for providing more and more services and good compounds the problem of inequality in society.

It's a good way to spend 15 minutes, give it a listen.

Some random items on the roll out of the health insurance exchanges.

The insurance exchanges roll out today though coverage won't take effect until January 1.

For class discussion:

- Insurance Exchange 101: Here's What you Need to Know.
- Timeline: Patient Protection and Affordable Care Act.
- Some Fear Impact of State Rules in Health Navigators.
- Quiz: What are my insurance options under Obamacare?
- Obamacare to open amid shutdown drama.
- Wikipedia: Health Insurance Marketplace.

The Energy Department approves liquid natural gas terminal in Freeport

Fracking has allowed the US to become an energy exporter. Japan - which is relying less on nuclear power due to problems associated with the tsunami - is expected to be a major consumer.

There's an interesting conflict over whether increasing natural gas exports is a good idea. Producers and free trade supporters are in favor of it, and environmentalists oppose it. But some petrochemical companies that use natural gas are concerned that increased exports will increase the cost of natural gas, a cost that will impact their business.

The story refers to the Energy Information Administration (see Wikipedia also) as a source for current gas prices and forecasts for natural gas production based on how many additional terminals are authorized. Wikipedia describes is as a member of the Federal Statistical System of the United States the "decentralized network of federal agencies which produce data about the people, economy, and infrastructure of the United States."

Their specific task of the EIA is the responsibility for " collecting, analyzing, and disseminating energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment."

- Here's information about the rulemaking process in the DOE.
- And here's the decision by the DOE to authorize the Freeport Terminal. They concluded that arguments that the LNG permit did not violate the public interest.

The story mentions the Senate Committee which oversees the Energy Department and offers this:

Senate Energy and Natural Resources Committee Chairman Ron Wyden (D-Ore.) said that the Energy Department “will be making export decisions on a case-by-case basis” in a way that is “consistent with my belief that a measured approach on exports will provide the greatest advantage for the U.S economy.” Wyden said the department should “assess the market impacts of each export decision after it is announced, to ensure American consumers are not harmed by large-scale exports.”

“This decision is a victory for those who believe free trade is good for the American economy,” said the committee’s ranking Republican member, Sen. Lisa Murkowski (Alaska).

Michael Lind on the federal government's ongoing involvement in the economy

A great extended interview in Salon. The author blows away some assumptions about what factors led to the development of the American economy.

Something to Ponder: What exactly of "free" about a free market?

I'll try to formulate a question around this theme at some point, probably for 2301 in terms of ideology. Freedom - and liberty in general - is an ongoing value in the American mindset, but its a slippery term and can mean different things to different people. This can impact how the term is used in elections.

The internal debate among Republican candidates about whether Romney's activities with Bain Capital is a case in point. Are his actions then beyond reproach now because what he did is work within the free market (or free enterprise) or are the consequence of those decisions - closed businesses, fired workers, raided pensions, etc . . - fair game?

What does it mean for a market to be free? Does it mean that business people can do whatever they want - freedom only applies to them? - or should rules be established and applied in order to ensure that the freedom of everyone is protected?

Most of the words we use to describe values get slippery after awhile. I want to dig into this at some point.  

Free Trade Bills Move Forward

The bill is H.R. 2832 - The Trade Adjustment Assistance Extension Act of 2011. It would extend free trade agreements with Columbia, South Korea and Panama.

Some related stories:
- Senate passes Trade Adjustment Assistance extension.
- Trade bills approved by House Ways and means Committee.

Government and the Free Market

From Esther Dyson, useful commentary on the relative roles of the public and private sectors in fostering new industries:

It is this free-market economy, which rewards useful innovation and purposeful risk-taking, that we should honor and recognize. The U.S. government (or European governments, for that matter) can't get us out of our current economic mess any better than they can get us to the moon at this point. In most areas of endeavor, the government should be a demanding customer rather than a provider (or subsidizer).

In the United States, government fostered the airline business—largely by buying cargo services from private airlines. It also built what became the Internet—and then sensibly left most of the development and day-to-day operations to the private sector.

Speaking of Innovation

While we are speaking of design innovation, here's a new wrinkle on manufacturing. NASA has apparently played a key role in spurring 3D printing technology, among many other technologies. One of the roles the federal government has played over its history has been to pump funding into the development of technology that has yet to prove itself in the marketplace yet. Here's the latest example. Could 3D manufacturing make factories obsolete?

Greenspan v the Regulatory State

Alan Greenspan reflects on the recent financial crisis and has second thoughts on the ability of the private sector to regulate itself.

The DARPA Arm

While putting notes together for this week's 2302 review of contemporary executive branch issues (I want to look at health care) I stumbled across a feature on the VA Health Administration's website about the "Darpa Arm," an advanced prosthetic arm funded and developed by the agency.

Prosthetic research has been spurred by an unexpected result of improved battlefield medical care. Previously, soldiers with severe injuries which did not cause immediate death would often die of blood loss or infections. This is less the case, but it means that more soldiers survive with lost limbs. This can obviously create problems with their ability to fit back into society. Advanced research in prosthetics could make this transition easier.

I thought it might be appropriate to mention this agency since many of the current technological items we enjoy today (including the internet) originally developed as DARPA projects. Current research, which in addition to prosthetics includes robotics, advanced batteries and alternative energy, will certainly provide the basis for future mass market products.

- Website: DARPA.
- Wikipedia: DARPA.
- Wikipedia: DARPA Grand Challenge.
- VA Research Currents.
- WAPO Story.

Fees v. Mortage Relief

Recent legislation designed to make it easier for homeowners at risk of defaulting on mortgages to stay in their homes has failed to make an impact because the existing fee structure makes it lucrative for mortgage companies to have loans go delinquent.

From the NYT:

This week, the Obama administration summoned mortgage company executives to Washington to demand they move faster to lower payments for homeowners sliding toward foreclosure. Treasury officials called on the companies to hire and train more people quickly to field applications for relief.

But industry insiders and legal experts say the limited capacity of mortgage companies is not the primary factor impeding the government’s $75 billion program to prevent foreclosures. Instead, it is that many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

Reregulation in Texas

First tuition, now electricity.

Bailout Vocabulary: Credit Default Swaps

Wikipedia defines a credit default swap like this:

Former staff member of the Commodity Futures Trading Commission, Michael Greenberger describes a credit swap in brief: "A credit default swap is a contract between two people, one of whom is giving insurance to the other that he will be paid in the event that a financial institution, or a financial instrument, fails. It is an insurance contract, but they've been very careful not to call it that because if it were insurance, it would be regulated. So they use a magic substitute word called a 'swap,' which by virtue of federal law is deregulated."
Some argue that these instruments, the fact that they have led to the development of an unregulated $50 trillion market, are the reason why a handful of mortgage foreclosures spun into a financial meltdown.

- Q and A from the AP.

Federal Agency Turf War

From the Washington Post, a lesson in how government grows:

The government is moving forward with its first significant effort to bring oversight to a vast, unregulated corner of Wall Street that has severely exacerbated the financial crisis.

But a turf war is brewing among three leading federal agencies that have contrasting visions for how the $55 trillion market for speculative financial instruments known as credit-default swaps should be regulated.

While the credit crisis has upended global financial markets and given a lift to advocates of heightened regulation, it has not resolved traditional disputes in Washington over how deeply the government should be involved in free markets.

Some regulators say the market can operate largely on its own but simply needs more transparency. Others say that the credit crisis has exposed wide gaps in oversight that require a much more direct role by the government.

The battle has mobilized the financial industry and lawmakers who are holding a hearing today on market regulation. Some industry players are lobbying sympathetic members of Congress for light oversight. Powerful financial firms, eyeing new fees, are campaigning to play a major role in running the market for swaps, which originated as a form of insurance against bond defaults but grew into a wildly popular vehicle for speculation.

Bailout Vocabulary: the TED Spread

Apparently its a better indicator of the poor economic shape we are in right now than measures of the stock market.

What is the TED Spread? Wikipedia tells us:

The TED spread is the difference between the interest rates on inter-bank loans and short-term U.S. government debt ("T-bills") . . . TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract. . . . The TED spread is an indicator of perceived credit risk in the general economy[1]. This is because T-bills are considered risk-free while LIBOR reflects the credit risk of lending to commercial banks. When the TED spread increases, that is a sign that lenders believe the risk of default on inter-bank loans (also known as counterparty risk) is increasing. Inter-bank lenders therefore demand a higher rate of interest, or accept lower returns on safe investments such as T-bills. When the risk of bank defaults is considered to be decreasing, the TED spread decreases[2].

So its an indicator of the risk associated with lending money. It is a graphic representation of the current unwillingness of banks, or anyone else, to lend anything to anybody.

The Bad News is that Gas Prices Went up to $4 a Gallon

The good news is that traffic fatalities haven't been this low in almost 50 years:

Experts who have studied motor vehicle fatality trends said one reason for the dramatic decline is that people are reducing their nonessential driving first, which is often leisure driving at night or on weekends. That also happens to be riskier than daylight commuting on congested highways at lower speeds.

Teenage and elderly drivers — who also have higher accident rates — are more likely to feel the pinch of higher gas prices, and thus may be cutting back more than other drivers. Federal data also shows that driving declines have been more dramatic on rural roads, which have higher accident rates than urban highways.

And, some drivers are simply trying to save on gas by slowing down, which also decreases risk. "It could be that the safety benefits of driving slower are proportionately greater than the fuel economy benefits," Sivak said.

The steepness of the fatality decline underscores a point several experts have made recently — that raising the price of gas is more effective than almost any other means of reducing fatalities.

So does this mean the rise has been worth it?

It's the Speculators Stupid

Students who responded to my online poll think the oil companies are primarily to blame for the increase in oil process, with the marker second, a single vote for the Republicans and no votes for the Democrats.

Recent attention has focused on the role oil speculators play in pushing prices up despite the apparent fact that there is plenty of of crude oil available on the world market. Nader.org tells us:

Last week the price of crude oil reached about $130 a barrel after spiking to $140 briefly. The immediate cause? Guesses by oil man T. Boone Pickens and Goldman Sachs that the price could go to $150 and $200 a barrel respectively in the near future. They were referring to what can be called the hoopla pricing party on the New York Mercantile Exchange. (NYMEX)

This is a classic bubble, prices are driven up by increased demand fueled by the expectation that prices will continue to go up. Bloomberg reports that the Senate is about to get involved:

Democrats and Republicans should work together in the U.S. Congress to attack oil and gas speculators as part of a strategy that includes increased production to bring down energy prices, North Dakota Senator Byron Dorgan said.

``We ought to get at this,'' Democrat Dorgan, a member of the Senate's energy committee, said on ``Fox News Sunday'' today. ``There's an orgy of speculation going on in the futures markets, an unbelievable amount of speculation by hedge funds, investment banks and others, that are driving up prices.''

Legislation designed to limit speculation in oil markets was introduced last week by Senators Dianne Feinstein, a Democrat from California, and Ted Stevens, a Republican from Alaska. The bill would require the Commodity Futures Trading Commission to review trading practices of institutional investors and impose limits on how much those investors can hold in a given market.

If this is in fact a bubble, we should expect to see a crash at some point. Hopefully before Labor Day. I still think, warts and all, $4 gas will have long term benefits by spurring renewable technologies.

The Market Speaks

The first casualty of the $4 gallon of gas appears to be the almost two decades long run of the Ford F-150 pickup truck as the top selling vehicle in the country.

"It's a sign of the times," said George Pipas, U.S. sales analysis manager for Ford. "I was convinced and several others of us were convinced that this would be a watershed month."

The F-series truck saw its monthly sales plummet 31 percent in May to 42,973.

Ford isn't the only manufacturer facing a grim future for its trucks. General Motors said Tuesday it was shifting from a truck and SUV-dominated product mix to more of a car-based mix. It also plans to close four truck plants and possibly sell the Hummer brand.

Toyota, which invested $1.3 billion in a Tundra plant and supplier park in San Antonio, saw sales of its full-size pickup truck fall 31.5 percent in May from a year earlier.

The winners?

Honda, riding the wave of customers seeking better fuel efficiency, said its sales rose 18 percent; a 36 percent increase in car sales made up for an 8 percent decline in truck and SUV sales.

Nissan said its sales rose 8 percent, with a 19 percent increase in car sales offsetting a 10 percent decline in trucks.

Are we surprised? If you've been laid off of your job at a truck plant--or perhaps an American who would like to see American companies at the forefront of industry, who do you blame?