Vivid Proof

The news last Saturday provided vivid, painful proof that drug innovation is indeed a very risky business.

Pfizer was in the final stages of testing a new drug for heart disease that would not just lower bad cholesterol, as its Lipitor does, but also increase good, artery-clearing cholesterol. The drug, torcetrapib, would have been a blockbuster, offering huge promise of actually reversing heart disease — the nation's number one killer.

The independent researchers monitoring the trial alerted Pfizer that the late stage trials showed a higher death rate among participants. The company quickly pulled the plug after investing close to $1 billion and 15 years on the drug and taking a $20 billion hit on its market capitalization.

It would be wise for the incoming Congress to pay attention to the riskiness of this business.

Pfizer has other promising drugs in the pipeline, but if Congress decides to put price controls on the industry, it will certainly dry up the resources needed for new drug development and the capital to take risks like this to tackle heart disease, Parkinson's, Alzheimer's, obesity, and the many, many other killer diseases that could be treated and even cured.

For proof, they need only look at Europe's dying pharmaceutical research industry, decimated by short-sighted policies and price controls that dry up the resources for research. We don't want to go there.


The Senate is poised to approve several very positive improvements to Health Savings Accounts that would make them easier to use, more accessible, and more attractive.

The legislation already has cleared the House as part of a big tax bill, and Senate approval is the final hurdle before the legislation will be sent to President Bush. The Senate is debating interminably, but passage is expected, possibly later today.

Bear with us through the details, if you are following this, because they do provide some much needed fixes and new incentives.


  • The legislation would allow money from other tax-favored accounts to be rolled over into an HSA. This includes savings from your company's Health Reimbursement Arrangement, your IRA, and the health dollars in your Flexible Spending Account. (FSAs are the use-it-or-lose it accounts that motivate people to buy prescription sunglasses in December so they don't lose the money they had set aside in their company's cafeteria plan earlier in the year.)


    • This is good news because people who buy HSA-qualifying insurance don't necessarily create the accompanying savings account. This would let them shift money from another of these savings accounts into an HSA.


  • It would boost annual contributions limits for HSAs. Current law says you can't deposit more in a year than the amount of your health insurance policy's deductible. Now, as long as you have a qualifying HSA insurance policy, you could contribute the maximum amount, which would be $2700/individual and $5450/family this year.


  • The Treasury Department would be required to publish in March (instead of August) the cost-of-living adjustments for HSA contribution and deductible amounts. Employers need to know this earlier in the year so they can get their health insurance contracts and literature printed for the next benefit year.


  • You also would be able to make your full annual contribution to your HSA, even if you don't set up the account right away.


  • Employers would be allowed to contribute more to HSAs for their lesser-paid employees. (Many employers have said that they want to introduce the plans but can't subject their lower-wage employees to the full deductible without making a bigger deposit to an HSA than current law allows to help them with the routine expenses.)

The Tax Relief and Health Care Act of 2006 will be the major piece of health care legislation passed this year, likely in the last hour of the last day of the session.

A lot of people who believe in the promise of HSAs worked very hard to convince members of the wisdom of these fixes. Kudos to all!


And, finally, there are those who don't believe in the promise of HSAs and who seem to think that the whole concept of consumer-directed health care is wicked. So we have yet another study out purporting to show that consumer-directed health care is a failure. This is getting so tiresome!

The Employee Benefit Research Institute (EBRI) and The Commonwealth Fund have teamed up again this year for a study that compares traditional health insurance and consumer-directed plans.

They report that enrollment in CDHC plans is flat, more people with high-deductible plans missed getting needed care because of costs and are less satisfied with their plans, and there is no measurable increase in the number of uninsured signing up.

This year's study has the same problems as last year's, even though it was conducted by a different on-line survey firm. Click here for what we said last year that shows why the findings are skewed and out-of-line with the more reliable data produced by America's Health Insurance Plans.


Grace-Marie Turner



  • The movement toward consumerism will continue
  • The impact of consumer-directed health plans with integrated health improvement services on health care consumers
  • Why the new congress should not fix drug prices
  • The public's health care agenda for the new congress and presidential campaign
  • What's good for pharma is good for America
  • Five companies to launch electronic health files

Author: Grace-Marie Turner
Source: Galen Institute, 12/06/06

"The momentum toward giving consumers more power and authority over their health care decisions and spending will continue" in the coming year, writes Grace-Marie Turner of the Galen Institute. "Consumers have a taste of their power in the marketplace, with dramatic price cuts on generic drugs and with new, consumer-focused clinics that are springing up in retail stores and malls across the country," writes Turner. "Consumers also are seeking information to help them make decisions about their health insurance coverage, treatment options, and costs of care. And information technologies will spur the drive toward creation of digital health information records, further empowering consumers to be more engaged in their health care decisions."
Full text:

Author: Tom Lerche
Source: Aon Consulting, 11/28/06

People in consumer-driven health plans are positively motivated to modify their behavior when health promotion and wellness programs are incorporated, according to a new survey from Aon Consulting. Aon analyzed plan data from South-African based Discovery Health and its subsidiaries, including the U.S.-based Destiny Health, which together cover more than two million people. Both offer a voluntary wellness program that rewards members for managing their health; 62% of Discovery members have joined the program despite it not being mandatory, and more than 80% of Destiny members have started an exercise or nutrition program in the last 12 months. The survey also finds that people with these plans "consume less health care when paying from their HRAs/HSAs…but this does not result from avoiding necessary care." The study finds no long-term ill effects. "Members who have been in the plan the longest continue to exhibit lower claims and hospital admissions – a result that would not occur if savings were the result of skipping preventive care."
Full text:

Author: Greg D'Angelo
Source: The Heritage Foundation, 12/01/06

Allowing the government to negotiate prices directly with pharmaceutical companies on behalf of Medicare beneficiaries "would prove ineffective, inflexible, and unresponsive to the highly diverse personal needs of America's seniors," writes Greg D'Angelo of The Heritage Foundation. "Medicare's clout is not superior to today's private sector arrangements, and its administrative determinations cannot serve as a substitute for the efficient operation of real market forces," writes D'Angelo. "By allowing government to interfere, or supersede, existing private sector price negotiations, policymakers would be replacing already functional negotiations between private insurance plans, pharmacists, and drug companies with a more rigid interference system of government price fixing."
Full text:

Heritage's Bob Moffit argues in the Philadelphia Inquirer that in the new Medicare drug benefit, "Private health plans are securing serious discounts, benefits are generous (especially for poor seniors), and eight out of 10 seniors say they're satisfied." Additionally, "when government officials do 'negotiate' drug prices, it almost invariably means setting a price below the market level, which reduces the supply of drugs or restricts the choice of drugs patients can have."
Full text:

Source: The Kaiser Family Foundation and the Harvard School of Public Health, 12/08/06

A new poll conducted by the Kaiser Family Foundation and the Harvard School of Public Health "looks at the public's priorities and views on health issues as a new Democratic majority takes leadership of the Congress and as the 2008 presidential campaign begins to take shape." Key findings include:


  • 67% of those surveyed favor increased spending on medical research for treatment and cures of diseases like diabetes, cancer, and heart disease
  • 51% think that little or no changes are needed to the Medicare prescription drug program
  • Although the majority of survey respondents are in favor of allowing the government to negotiate with drug companies to get a lower price on drugs in Medicare, 60% believe it will also lead to price controls on prescription drugs.
  • 63% would like the 2008 presidential candidates to be equally focused on reducing health care costs and expanding coverage for the uninsured
  • 59% would prefer that Congress lower health care costs "by dealing directly with doctors, hospitals, and insurance companies and establishing limits on what they can charge"
  • 63% "strongly" or "somewhat" favor an individual coverage mandate that would require everyone have health insurance.

The survey also covers SCHIP reauthorization, drug importation, stem cell research, and FDA and drug safety.
Full text:

Author: Richard A. Epstein
Source: The Boston Globe, 12/03/06

"Critics of drug companies vastly overstate the industry's financial well-being – and overlook its indispensable contributions to the future of public health," writes Richard Epstein of the Hoover Institution. "The medical advances of the past 30 years are not just a matter of dumb luck. They are very heavily dependent on the patent law, pricing freedom, and marketing strategies that have allowed these firms to bring a wide variety of vital products to market," writes Epstein. But he says that a Democrat-controlled Congress promises a new round of regulations, including price controls, that will only prove harmful to the pharmaceutical industry. "As Adam Smith recognized long ago, the profit motive is the only constant and reliable spur to making the major investments on which the prosperity (and health) of any nation depends," concludes Epstein. "Today's pharmaceutical industry is not exempt from that enduring insight."
Full text:

Author: Ricardo Alonso-Zaldivar
Source: Los Angeles Times, 12/07/06

Wal-Mart, BP America, Intel, Pitney Bowes and Applied Materials "have joined forces to create a 'medical Internet' on which some 2.5 million people can compile their personal health records in one location, providing convenient access to everything from prescriptions and cholesterol readings to family medical histories," reports the Los Angeles Times. The system, called Dossia, "could reduce the chances of medical mistakes, improve treatment of chronic illnesses and eventually save billions of dollars by avoiding duplicative services." Participation in the program is voluntary and patients will determine who sees their medical information. "The electronic record would become an employee's lifelong property, traveling with the worker to a new job and, after retirement, the Medicare system," writes the Times.
Full text:

The Markle Foundation has just released Connecting Americans to Their Health Care: A Common Framework for Networked Personal Health Information. This white paper "describes a networked environment in which individuals could establish secure connections with multiple entities that hold personal health information about them."
Full text (pdf):


Grace-Marie Turner speaking on the Todd Feinburg Show
Westwood One Radio Network Broadcast
Sunday, December 10, 2006, 3:00 p.m. ET
For additional details, go to:

Consumer Directed Health Care Conference
Consumer Health World Event, co-chaired by Grace-Marie Turner
December 11 – 13, 2006
Washington, DC

For additional details and registration information, go to:

Emerging Vaccine Innovations and Health Insurance Benefit Design
America's Health Insurance Plans Audio Conference
Wednesday, December 13, 2006, 1:00 p.m. – 2:30 p.m. ET

For additional details and registration information, go to:

Pay for Performance in Physician Healthcare Reimbursements and Its Implications upon Future Value Decisions
National Association of Certified Valuation Analysts Webinar
Thursday, December 14, 2006, 2:00 p.m. – 4:00 p.m. ET

For additional details and registration information, go to: www.nacva.comm.

Evidence, Economics, and Politics: Australia's Experiment in Evidence-Based Medicine
Pacific Research Institute Event
Friday, December 15, 2006, 7:30 a.m. – 10:30 a.m.
San Francisco, CA

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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