Land Mines in Legislation

The Senate has approved 93-1 must-pass legislation that, among other things, would give the pharmaceutical and medical device industries the privilege of paying $393 million in user fees to the government next year to help get their new treatments to patients faster. But the bill, called the Food and Drug Administration Revitalization Act, in fact contains land mines that could actually delay getting new drugs and devices through the approval process and to patients.

Senator Ted Kennedy praised the bill, saying, ?It greatly improves the way the FDA oversees the safety of drugs.? Not so fast. The FDA’s job is to make sure drugs are safe and effective before they are introduced to the market. But the bill grants new powers to the FDA to throw up more regulatory hurdles. And even the user fees could backfire since, for the first time, they could be used not just to get drugs through the bureaucracy and to the market, but also to take drugs off the market. From the viewpoint of consumers, that isn’t good.

The House will take up the measure next, and since members there are even more hostile to the complex and enormously expensive process of private drug development, their version is likely to be even more problematic.

What the FDA needs is not more authority to tie the drug approval process in knots, but more resources to use modern information technologies to bring greater accuracy and efficiency to the approval process, as former FDA Commissioner Mark McClellan passionately argues.

The Wall Street Journal ran a chilling commentary by Dr. Richard Miller, president and CEO of Pharmacyclics, explaining how the FDA’s ?outdated statistical standards? keep life-saving medicines from desperate patients.

One example: The FDA rejected a drug, Xcytrin, developed by his company to treat lung cancers that have metastasized to the brain. ?The reason for the FDA’s refusal? The positive impact of the drug could be shown to be independent of chance at ‘only’ an 88% level of certainty,? instead of the 95% certainty the FDA requires.

People suffer and die waiting for FDA approval for drugs that collectively have cost billions of dollars to develop — drugs which patients with few, if any, other options are desperate to get.

The fault is not with the FDA but with the Congress that sets the rules under which the FDA must operate and which refuses to provide the new funding it needs to truly modernize its approval process.

On the margin, the bill gives more regulatory power to an already risk-averse FDA bureaucracy. Unless the legislation is stripped of these new provisions, it not only could make drugs more expensive by lengthening the approval process, but could also impede innovation in one of our most important industry sectors.


During my testimony before the Energy and Commerce Committee last month, I cited studies showing that expansions of government health care programs often crowd-out private insurance coverage. The Congressional Budget Office has produced a new study with further validation.

For every 100 children who enroll in the State Children’s Health Insurance Program, the CBO says ?there is a corresponding reduction in private coverage of between 25 and 50 children.? So the crowd-out of private coverage is between 25% and 50%. But it says the ?estimates probably understate the total reduction in private coverage associated with the introduction of SCHIP” if the number of parents dropping private coverage also were counted.

And CBO exonerates employers who are often accused of dropping private coverage if public programs are an option for their workers: The CBO says the evidence suggest that ?parents choose to forgo private coverage?rather than employers deciding to drop coverage for such children.?

And you will recall that Senator Clinton and others want to expand SCHIP to higher-income kids — $82,600 a year for a family of four. But the CBO says that ?expanding the program to children in higher-income families? will crowd-out private coverage even more since these kids are more likely to already be insured.

The bottom line: Congress should insist that states focus on covering lower-income kids who are eligible and not enrolled in SCHIP, not expand the program to ?children? up to the age of 25 and to kids in upper-middle-income families at taxpayer expense.

It is so important not to further undermine the market for private health insurance by expanding government programs. Taxpayers pay to fund government programs, and those with private insurance pay higher insurance premiums to make up for the cost-shift from public programs that underpay doctors and hospitals. A simple reauthorization of SCHIP would be a better course than massive expansion.


And some of you noticed that we skipped last week’s newsletter, purely a result of schedule overload. I had been on a non-stop speaking tour for a week and a half and returned to non-stop meetings in Washington. And then it all caught up with me with a cold. It’s the first time I can recall missing a newsletter unannounced, but we appreciate those of you who wrote and called looking for your weekly Health Policy Matters.

Also, we have switched to a new distribution system to get the newsletter to you faster, but it may require updating the address in your SPAM catcher. The address to clear is our general mailbox at This seems a little like a Catch 22 since you won’t get this message unless you are receiving the newsletter, but if it is forwarded to you by someone else or you are viewing it on our website, please make sure we are an authorized sender.


Grace-Marie Turner


  • Toward free-market health care
  • Medicare meltdown
  • Fixing SCHIP and expanding children’s health care coverage
  • As health plan falters, Maine explores changes
  • Paying for kidneys
  • Alegent Health sharing rebates with employees thanks to consumer-driven plan
  • Growth and innovation in medical devices: A conversation with Stryker chairman John Brown

Author: Grace-Marie Turner
Source: The Heritage Foundation, 05/04/07

At a speech before the Conservative Women’s Network in March, Grace-Marie said that surveys show that women ?believe that they, rather than a corporate human resources director, could make better decisions involving health coverage for their families if only they were given the chance.? She argued for portability of health insurance, giving people the option to buy policies across state lines, and equalizing the tax treatment of health insurance. She described the plan offered by President Bush that would allow people to ?buy health insurance that they can own and take with them from job to job? to gain ?more control over decisions involving their health insurance and health care.?
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Author: Thomas R. Saving
Source: The Wall Street Journal, 05/09/07

Medicare Trustee Tom Saving tries to get the attention of policymakers and the American people by underscoring the almost unfathomable future costs of Medicare and Social Security entitlements. ?By 2030, about the midpoint of the baby boomer retirement years, these two programs will require almost one out of every two federal income tax dollars?Eventually, the deficits in these two programs will absorb the entire federal budget.? He says that increasing taxes is equally untenable: ?We would need a 10% increase in all nonpayroll taxes by 2020 and a 50% increase by 2080? to fill the $30 trillion funding gap. Saving recommends putting decisions of health care cost rationing in the hands of beneficiaries through health savings accounts and replacing Medicare’s ?pay-as-you-go financing? with a system ?in which each generation saves and invests in order to pay for its own benefits.?
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Author: Nina Owcharenko
Source: The Heritage Foundation, 05/02/07

Rather than using SCHIP as a vehicle ?to establish a welfare program for middle-class or upper-middle-class families,? Owcharenko says that the program’s reauthorization is an opportunity to strengthen access to private health care coverage. ?SCHIP coverage options should reflect the broadest array of insurance products available? and promote private coverage alternatives such as subsidizing private coverage through premium assistance or health savings accounts, she writes. In addition, Congress should give priority funding to states that stay within their budgets and cover uninsured low-income children and eliminate redistribution of unspent funds among states, which essentially ?rewards states for overspending and encourages other states to follow suit.?
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The Heartland Institute has produced a valuable briefing package on SCHIP.
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Author: Pam Belluck
Source: The New York Times, 04/30/07

Since being enacted in 2005, Maine’s universal health care plan has suffered low enrollment, higher than expected costs, and controversy over its financing formula. The enrollment benchmark of 31,000 for the program’s first year still has not been met, with only 18,800 people signing up for the program so far, most of whom already had insurance. Further, the plans have proven costly for both enrollees and the state, with premiums rising by an average 13.4% this year, and more than half of enrollees unexpectedly qualifying for the highest subsidy of 80%. Finally, the financing formula has resulted in a lawsuit against the state that is currently under appeal by the state’s insurance industry and the chamber of commerce.
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Author: Sally Satel, M.D.
Source: The Washington Post, 04/28/07

AEI’s Sally Satel, who received a kidney transplant last Spring, argues that we need to alter the organ transplant process by creating a larger supply of organs through a safe, regulated system in which donors can receive compensation for their organs. She says that ?last year there were about 10,600 cadaver kidneys and 6,400 from living donors for roughly 70,000 potential recipients?By this time tomorrow, 18 people in need of an organ will be dead because they did not get one soon enough.? She encourages the creation of pilot projects that would give prospective organ donors ?valuable consideration,? such as lifelong Medicare coverage. ?We need to move beyond the idea that organs must be relinquished as gifts,? concludes Satel. ?The altruistic motive is deeply noble and loving. But relying upon it as the sole legitimate reason for giving an organ is causing too many unnecessary deaths.?
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Source: Alegent Health, 04/24/07

Employees at Alegent Health, a faith-based, not-for-profit health care system in Nebraska and Iowa, have experienced dramatic results with the company’s consumer-driven health care plan, accumulating nearly $2 million in their health accounts to cover future medical costs. Currently 88% of Alegent Health’s employees are enrolled in a consumer-driven health plan, which provides catastrophic coverage and covers 100% of the costs for preventive care. The Alegent Health plan also provides financial incentives to those who proactively manage their health:

  • Employees that completed e-checkups to help identify their health risks were each paid $100, totaling $292,100.
  • 670 plan participants enrolled in weight management programs, losing a combined total of 6,500 pounds and receiving $35,000 in incentives.
  • 398 plan participants finished smoking cessation programs, receiving $21,800 in incentives.
  • A health coaching option to help manage chronic conditions paid employees a total of $152,900.

According to Alegent Health’s first year results, employees with health savings accounts had balances totaling $971,500 and carryover savings in health reimbursement accounts totaled $915,500. The company used several tools to inform employees about the program, including a series of employee rallies, one-on-one appointments with benefit specialists, and an educational session featuring Harvard Professor and Manhattan Institute senior fellow Regina Herzlinger.
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Author: Lawton R. Burns
Source: Health Affairs Web Exclusive, 05/01/07

The chairman and former CEO of Stryker Corporation, a major manufacturer of medical products and services, says that consumerism is finding its way into the medical device area. With knowledge gained from the Internet, ?sophisticated patients and their families know who are the manufacturers, who are the leading surgeons, and they insist on getting the best surgeon and best product,? John Brown tells Health Affairs. ?We believe that the best situation is where a patient comes with information and then listens to the advice of their surgeon about which implant is best for them.? Brown also discusses the policy issues facing the medical device industry, including conflicts of interest, rising product prices, product safety, and direct-to-consumer advertising.
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Is there a role for markets in health care?

Galen Institute and International Policy Network Event
Thursday, June 14, 2007, 12:00 p.m. – 3:00 p.m.
Washington, DC

Which Way To Turn? Options for Rebuilding the Gulf Region’s Health Infrastructure
Alliance for Health Reform Briefing
Friday, May 11, 2007, 12:15 p.m. – 2:00 p.m. (Lunch available at noon)
Washington, DC

For additional details and registration information, go to:

Message to FDA: We Need New Drugs, Faster
Center for Medicine in the Public Interest Event
Monday, May 14, 2007, 12:00 p.m.
Washington, DC

For additional details and registration information, contact Nicholas Terzulli at 212-588-9148 or

Why America’s Health Insurance is Unraveling — And Why Even Universal Health Care Can’t Fix It
The California Endowment’s Center for Healthy Communities Event
Tuesday, May 15, 2007, 5:30 p.m.
Los Angeles, CA

For additional details and registration information, go to:

Health Savings Accounts: Not Entirely Consumer Directed (Yet)
Cato Institute Policy Forum
Thursday, May 24, 2007, 4:00 p.m. (Reception to Follow)
Washington, DC

For additional details and registration information, go to:

A Second Opinion: Rescuing America’s Health Care
Harvard University Countway Library of Medicine Lecture
Thursday, May 24, 2007, 5:30 p.m. – 6:30 p.m.
Boston, MA

For additional details and registration information, go to:

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at

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