Bernstein's number one threat to the US

[jimmycarter]

From the latest issue of Money mag pg. 89

Bernstein - "We can't afford to pay for all the medical care baby boomers are going to need," says Bill Bernstein, a neurologist turned finance guru. A Medicare crisis he says, could be "the biggest threat to the republic since the Civil War."

The "X" factor for all of us

 

[wabmester]

Civil War? Bernstein needs to have his serotonin levels checked.

Japan and Europe are 10 years ahead of us in these demographic trends. They have high tax burdens, socialized medicine, and slow economies, but no civil war. Western Civilization is ready for the rocking chair. Happiness will trump economic growth (and stock market returns). Isn't that what ER is all about --- happiness over more wealth?

 

[Spanky]

Isn't that what ER is all about --- happiness over more wealth?

It would be nice to be both happy and wealthy.

 

[razztazz]

From the latest issue of Money mag pg. 89

Bernstein - "We can't afford to pay for all the medical care baby boomers are going to need," says Bill Bernstein, a neurologist turned finance guru. A Medicare crisis he says, could be "the biggest threat to the republic since the Civil War."

The "X" factor for all of us

What would you expect him to say? Neurosurgeons will have to live on lower salaries? "Market mechanisms" will find their equilibrium in these matters? We need to ration goods and services for people who aren't rich neurosurgeon/authors?

 

[Michael]

The other countries tend to have national health care, which allows their governments to control costs to some degree. US medical inflation is fantastic, and may bankrupt Medicare eventually, since our politicians continue to increase costs by catering to special interest groups.

They seem to figure that they can increase costs for those under 65, while mandating lower costs for those over 65 by limiting Medicare payments. It isn't working out that way.

 

[MasterBlaster]

Well Somethings gotta give

Bernstein has a point. If medicare stays the same then medical care at current levels for the boomer bubble is unaffordable. How much more taxes are the younguns willing to carry considering the other issues like social security and debt. From what I understand Medicare is a much larger problem than Social Security in it's financial outlook.

I suspect some combination of less medicare (meaning less available treatment), higher taxes, and income thresholding will be put in place.

Somethings gotta give cause the money's just not there.

 

[wabmester]

Somethings gotta give cause the money's just not there.

Agreed, but to say this problem is on par with the Civil War is simply alarmist. It is nowhere near that bad. We will have higher taxes -- I see no way around that. That's the way every other modern western country deals with it.

 

[MasterBlaster]

I took the Civil War retort as a figure of speech to stress the magnitude of the problem.

If it's not (a figure of speech) then I agree with you that  Bernstein is full of beans.

As an aside, this brings up the issue of - Can I count on Medicare?
Or How much can I count on medicare ?
Or how much extra should I set aside and budget to account for the medical care I need but won't get ?

 

[maddythebeagle]

How much more taxes are the younguns willing to carry

As much as AARP wants....

 

[mikew]

Problem is most of those other western countries have socialist programs that produce results for the entire population. America's government expansion in for example Medicare could be said to be socialist but it is a lousy substitute. Capitalist systems are supposed to to have low taxes so people can take care of themselves. Capitalist programs with socialist taxes would be the worst of both worlds.

 

[Michael]

Capitalist systems are supposed to to have low taxes so people can take care of themselves.

Then I guess that's not our system.

 

[SteveR]

The US is one of the few countries left that still has active R&D in drugs, biologics and medical devices. Several major US drug/medical device companies are (have) moving off shore for lower labor rates to compete in a global market.

The spread of generic drugs replacing inovator drugs is a huge cost savings for consumers but will eventually be seen in the reduction of new and inovative drugs. The easy ones have already been discovered and the costs to develp and manufacture new drugs is huge. A new drug (as opposed to a generic) requires over $800M and about 10 years of patent life to get to market. Only about 1 in 20 new drug compounds ever make it to market yet still require hundreds of millions of dollars in R&D costs.

Countries with price controls have very little if any money to do this kind of R&D. If price controls are put on US drugs the R&D efforts will move to India and China which is already becoming a major player in generic drugs. Medicare Part D will have an effect on drug prices in the generic sector with lower costs being forced through major contracts with wholesalers and pharma. companies. The low cost producers will be off-shore and the whole generic drug industry in the US will be effected. Prices will be contained through competition and through state and Fed. programs to control the "listing" of non-generic drugs. This will in effect prevent increases in prices and is already being seen with last year having the lowest increase in drug prices in decades. Once Medicare Part D take effect, the trend will be lower prices as the governement indirectly controls drug prices through this venue.

The last thing we want is the US government controlling prices. It won't work and the long term effects will be significant damage to the US economy and to the future of develpment of new drugs.

If AARP had its way, all drugs would be free but new drugs to cure everything would also be available. There is no way to do both without significant costs to the taxpayers. I doubt most would support a flat tax of 40-60% to fund health care for the future. What would that do to the economy?

 

[MasterBlaster]

SteveR:

Are you in drug company public relations ?

Generic versus branded drugs (and the whole issue of medical cost growth) is secondary compared to the demographic challenge of the Boomers in Medicare. Just look at the age distribution

The chart shows that the over 65 population is set to triple (or so) as the Boomers retire.

So generic drugs aside, the challenge is to find extra money to fund massive Medicare and Social Security deficits while keeping the economy growing. Keep in mind the state of the massive budget deficits and massive public indebtedness. Some people when examining this challenge argue that the status quo just won't work and that cutbacks are inevitable.

 

[SteveR]

MB,
No I am not in public relations, but I do live in the pharma. trenches everyday so I know the ins and outs of the business and what it takes to get a product from an idea to the final product and all the hoops we have to jump through to get there.

My post was intended to only address one aspect of the whole puzzle; manufacturing and R&D costs for new drugs and how Medicare Part D might affect new product development and long term costs.

The matter of how Medicare will be funded in the future to me is obvious; tax increases.

 

[mikew]

Steve
I see what you are saying but (and this maybe a dumb question) do we really need more new drugs? I mean are new drugs going to improve the population's overall health? It seems the really good ones are already out there. The drug companies seem to be developing drugs for narrower and narrower sections of the population.  

About damaging our economy by controling health care prices through controlling drug prices. It can be argued companies in countries where the govt takes care of medical have a production advantage over companies in the US. Look at GM vs Toyoda. Also Toyoda is locating its new factory in Canada partly because of medical costs.

Mike

 

[Jay_Gatsby]

The retirement of the Baby Boomers could lead to an increase in preventative medicine, thereby reducing dependency on more expensive and cutting-edge pharmaceutics. I've seen an increasing number of articles detailing this trend.

 

[MasterBlaster]

The drug companies seem to be developing drugs for narrower and narrower sections of the population.  

At ever increasing cost, I might add.

The question is not whether or not we need new drugs but whether or not we (as a nation) can afford them.

Per the issue of funding future Medicare and other deficits. Don't count on taxes alone to solve this issue. How much can you squeeze the younguns and the working class before they squeel ? How much can you squeeze the economy before it retracts ?

 

[brewer12345]

The retirement of the Baby Boomers could lead to an increase in preventative medicine, thereby reducing dependency on more expensive and cutting-edge pharmaceutics.  I've seen an increasing number of articles detailing this trend.

This is definately a trend that I think is very likely to continue.  For instance, the last Medicare giveaway bill included all kinds of provisions that encourage early detection and management/treatment of dread diseases.  One specific example is a test that helps detect diabetes is now covered and encouraged.  Diabetes is a massively expensive disease for Medicare that could be treated at a far lower cost if sufferers were identified earlier and had their disease aggressively managed.

 

[maddythebeagle]

The matter of how Medicare will be funded in the future to me is obvious; tax increases.

and I think shifts in costs to others as is going on now, but I guess that is a hidden tax. Isnt there already starting to be an issue of some doctors not taking medicare patients? due to low reimbursements? I guess that is just another form of rationing.

 

[SteveR]

One of the benefits of many new drugs is in avoidance of major health issues and long term hospitalization costs.  While some drugs appear to be "just like" another one that is already in production, the fact that gets missed is that subtle differences in formulation or the base molecular structure can be the difference in one drug working for you and another having no effect at all.  

Do we really need new drugs? Ask the person with MS or someone with cancer.  The quality of health in developed countries is partly due to modern drugs that mitigate or delay diseases that would have killed only a few years ago.  

Are drug prices too high?  I would agree that they are but a lot of this is due to high expectations for high profit margins in the industry.  These high margins are shrinking and will continue to do so in the foreseeable future.  

 

[brewer12345]

and I think shifts in costs to others as is going on now, but I guess that is a hidden tax. Isnt there already starting to be an issue of some doctors not taking medicare patients? due to low reimbursements? I guess that is just another form of rationing.

This is definately going on.  Look at the 10Q of any Medicare and Medicaid supplier (LNCR, PLMD, CURE to name a few) and you will see voluminous discussions of reimbursement rate cutting.  This is squeeezing some suppliers and putting others out of business.  I've no doubt the same thing is going on at Drs offices all over the place.

 

[maddythebeagle]

SteveR:

are you a long-term investor in pharma? what do you like?

 

[modhatter]

There was a WONDERFUL segment by 60 Minutes on Medicare several years back.  In fact  it was the best one they ever did, I think.  They actually got a face to face interviiew with the guy who runs Medicare and  approves pricing limits for what the government will  pay for items billed to Medicare.  It was the most outragous thing you ever saw.

A (one) bandaid  $3.65
Box of Kleanex    $27.00
Tung suppresser  2.90
Two Asprin        $18.00
Paper Toilet seat covers $19.00

As the items got more expensive, the cost was mind boggeling. I remember one.  A new toilet seat $396.00  Some items had 3000% markups.  The interviewer just kept asking WHY?  WHY?  WHY??

And we wonder why the system is going broke.  Why can't we as citizens do something? Why do we have to sit here helpless and continue to let this waist and greed go on.  I have always been proud to say I was an American, but the neglect in providing for basic health care in one way or another is absolutely shamefull.  It certainly takes priority over a lot of un-necessary spending today. No one in this country should be deprived of food or medical treatment, period.  That should take presidence over all else.

(Back to the interview - I got a little carried away) The guy just couldn't give him a straight answer.  He was sweating profusely, and looked like he was going to have a heart attact, if they didn't stop with the questions.

I just couldn't believe this guy agreed to be interviewed on camera.  I came away from that show so disgusted.  I sometimes think, that it is mostly Medicare paying for and supporting our Hospitols today.

How do other countries do it.  Many third world countries have wonderful medical hospitols and care for their people dispite their low standard of living.

 

[SteveR]

SteveR:

are you a long-term investor in pharma? what do you like?

Maddy,

I think the whole industry will be moving sideways for some time.  Look at India drug index funds (have not researched it yet) as that is where the growth will come from for a while since they are the current low cost producer.  The problem is US distribution.  Once they have a major player in the US these companies will be very competitive.  

Otherwise, this sector will stay pretty flat for a while as the market learns that 60% margins are a thing of the past.  Lower profits are a reality not a management failure.  It will take a while for the market to believe this.  

I have no insider information that I can share so you are on your own for the most part.  Research piplelines but be aware that even good drugs can cause major legal issues (i.e., Vioxx).  

 

[MasterBlaster]

Those Medicare prices are indeed outrageous.

$18 for two aspirin is not just the price for the two aspirin though. It's the price for someone to administer two aspirin to a patient in a hospital environment. There's a big difference. Consider what a high-end restaurant charges for a glass of Iced tea compared to it's cost. The tea is cheap but it's really great to have someone else bring it to you.

Still the $18 aspirin price strikes me as very high.

As someone else posted, it's just another form of unbudgeted cost shifting from the haves to the havenots.

Funny though how the hospitals are still going bankrupt even when they charge those high fees.