Warren Buffett and Jeff Sessions; Can Big Pharma Ever Be Reined In?


The Out of Control Cost of Health

Amazon, Berkshire Hathaway and JP Morgan Chase join forces to tackle employees’ health care costs

To summarize, the cost of healthcare keeps growing and was described as a “hungry tapeworm” that is consuming everything.  The three employers plan a joint non-profit enterprise that will look for solutions to the problem.  This news has sent shockwaves through the healthcare industry, most notably the prescription drug industry.

Shares in Aetna dropped nearly 4%, and CVS and United Health dropped about 7%.  Why are companies involved with the distribution  of prescription drugs disproportionally impacted by the news, and why drug stores and not pharmaceutical companies?


Warren Buffet speaking on behalf of the joint enterprise said, “We share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”

Jaimie Dimon, CEO and Chairman of J.P.Morgan added, “Our goal is create solutions that benefit our U.S. employees, their families, and potentially, all Americans.”


You may recall that at the beginning of Obama’s first term several cost saving measures were considered in the development of what became the Affordable Care Act.  Never really considered was controlling the cost from the pharmaceutical industry.  Instead, focus was placed on the hospital industry.  The hospital industry needed to be curtailed, no doubt, but other sources of cost to Medicare and Medicaid were not addressed.

“Big Pharma” has a powerful lobby and neither Obama nor Congress really considered trying to wrestle that giant to the mat. 

As a measure of how broken our government is, and a testament to the belief of a certain segment of conservatives that the market is always right; that the market will fix what is broken, this is the solution that may actually accomplish what is needed.

Now, the market is at work.  Maybe, from the most improbable source, we will get at the real costs.  The concern is that this will only provide affordable care to the employees of certain companies, and the rest of America can roll over and die. 

There is another possibility; that the health insurance industry will see an opportunity for savings and force changes across the board for their customers in the way that they did when they applied government developed DRGs (Diagnosis Related Groups) to the population at large, and like Medicare, paid cents on the dollar for what was billed. 

These changes will still leave the uninsured – and probably the under-insured – without affordable care.

In some ways I am not optimistic.  Sometime in the 1970s complaints about the cost of healthcare created Health Maintenance Organizations (HMOs).  It was assumed that doctors and hospitals could control their costs from medical suppliers as the HMOs paid them less. They were supposed to bring market forces to bear on healthcare, forcing self-correction on the part of healthcare providers. 

That didn’t happen. 

Healthcare is not really amenable to such forces because patients don’t choose to get sick, and patients don’t like to be told what doctor they can see, or which hospital they must visit. 

Too, outcomes are hard to measure.  Everyone dies at some point, so death is not necessarily a poor outcome.  HMOs decided not to gauge care on outcomes, rather they judged it on cost, assuming that cheap care was as good as expensive care.

Finally, there is a host of regulations associated with medical supplies, and a limited number of vendors for supplies.  As an example, hospital pathology laboratory technicians, in order to reduce the time required to do a certain type of laboratory test heated the solutions in a microwave.  Microwaves are cheap.  Things seemed to work out fine, but some manufacture convinced some agency that the microwave ovens were not adequately controlled for a number of variables and the result of the “fix” was a microwave that cost hundreds of dollars and a written procedure for maintenance and quality assurance.  Were the results any better?  It seemed a fix in search of a problem.

The Opioid Epidemic

Five Minute Video About the Nature of the Opioid Epidemic.

On a related, but separate note, Jeff Sessions has doubled down on President Trump’s cry to do something about the opioid epidemic.  Hundreds of people die, daily, as a result of opioid overdoses.  There is a real problem, but why has this suddenly become a problem that the President and Attorney General think is of critical importance? 

Call me a cynic, but when people were dying of methamphetamines or crack cocaine we didn’t hear this sort of alarm.  Crack cocaine killed poor people, and predominantly poor black people.  Meth kills poor, rural white people.  As the textile industry left the Carolinas and headed overseas large numbers of poor textile workers were left with no jobs.  In some counties the unemployment number was in double digits when the rest of the country enjoyed a 4% unemployment rate.  Those textile workers turned to making and selling drugs.  A heroin or meth addict lasts about 5 years.

Opioids are a different type of drug with a different clientele.  By an large, affluent addicts stick with prescription drugs.  They make excuses to themselves about the nature of their addiction.  They are not addicts because addicts use “drugs” not medicine.  If a doctor ordered the medicine it must be safe. 

This viewpoint is large contributor to the opioid problem.  Most users started not as a heroin addict, but a person in pain.

Opioid addicts are often successful people who manage to hide their problem for a long time and then overdose catching everyone by surprise.  Opioid users then have a problem, not an addiction in their friends and relative eyes.

The difference creating the headlines lies with the suppliers and their power over government.

Opioids are made by pharmaceutical companies; not by some skinny meth head in a garage.  Pharmaceutical companies are making huge fortunes from opioid abuse.

The D.E.A. turned, under the Obama administration, from arresting and prosecuting opioid users, which they determined, quite correctly, did nothing to stop the problem, to prosecuting distributors where the amount of opioid distribution was orders of magnitude greater than in other areas with the same population.  The companies they went after were not the manufacturers; they were the distributors. 

Not surprisingly, these distributors who made a fortune not only for the pharmaceutical companies, but also for themselves, were not happy, and sought to get the DEA off their back through legal remedies.

Last year the Washington Post reported on the history behind Congressional actions to stop the DEA from prosecuting opioid distributors. Distributors persuaded lawmakers to change laws to protect them and went after members of the DEA who persisted in harassing them.

Previously, the DEA was able to fine distributors, now it is virtually impossible for the DEA to freeze the operations of distributors who are clearly distributing millions of pain pills to tiny communities.

“Political action committees representing the industry contributed at least $1.5 million to the 23 lawmakers who sponsored or co-sponsored four versions of the bill, including nearly $100,000 to Marino and $177,000 to Hatch. Overall, the drug industry spent $102 million lobbying Congress on the bill and other legislation between 2014 and 2016, according to lobbying reports.”  Rep. Marino had been picked as Trump’s drug czar until the Washington Post report came out.

According to the Chicago Tribune, AG Jeff Sessions and the Attorneys General of 44 states are seeking to change the law that Representative Tom Marino sponsored.  Morale within the DEA is reported to be at low as a result of the law tying the hands of DEA officials.  Sessions says that he was “dubious” about the law when it was passed.

Prescription medicine or “drugs”, everything from Epi-Pen, to “Mama’s little pill” seems to be at the center of a number of America’s most difficult problems.

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Comment by Rodney Roe on January 30, 2018 at 5:23pm

I wondered where everyone was and then remembered that El Presidnte is telling his version of the state of the union now.  I didn't watch the Grammy awards either.

Comment by Rodney Roe on January 30, 2018 at 5:30pm

El Presidente.

Comment by koshersalaami on January 30, 2018 at 5:46pm

I’m not watching it and I didn’t watch the Grammys. Not interested in watching the President lie for forty-five minutes. 

Comment by Rodney Roe on January 30, 2018 at 6:32pm

Those were almost exactly L's words.

Comment by moki ikom on January 30, 2018 at 6:52pm

What's out of control is this economy that is reigned in, choked to the point of benefiting the few by exploiting the many and answering to no god, no one, nothing

Comment by Rodney Roe on January 31, 2018 at 3:03am

Moki, that's a different, somewhat larger topic - and I assume the reigned was a play on words - that we might have.  How to fix capitalism so that it benefits everyone is a discussion I would love to have.

I will be traveling today, so this is the last comment for a day or two from me.

Have at it.

Comment by cheshyre on January 31, 2018 at 7:31am

Greed has run amok in healthcare and Obama only sought to institutionalize and subsidize that greed, not resolve it. The government supports the spiraling costs (such as passing laws that forbid drug price negotiations for government run programs) as they are paid off. Businesses don't like the cost escalation but they are part of the problem, not the solution. The idea of Jaimie Dimon having a positive solution to anything is a joke.

Comment by J.P. Hart on January 31, 2018 at 8:13am

Siriusly admire your mobility Rod.

You've earned it---drive cautiously. Do the triple A du-wicky (I see Oregon relaxed its 'Pump Jockey Law' which gives pause to my full-employment-why not essay) and it's a positive format what with the cost of air, that squat maneuver with the airline, those locusts on the windshield, all kinds of weather, that incessant salt-slicked spread eagle on the rear window.  Politically (gasp) I'd posited for the longest time  that there is something seriously WRONG with the phrase POTUS Trump and the world's largest supply of nerve gas.  Topically, your essay hereon is as adroit as Tom Cruise tramp-o-lining on Oprah's coach (exclamation point excluded as from time to time they mind me of billy clubs).  Keep going for it. Imaginary friend (IF) and me are working what remains of our tushes off on a 'impossible to sell' situation comedy.  Too broke now --- but HEY---tomorrow may rain!

Comment by Rodney Roe on January 31, 2018 at 6:58pm

Just a thought experiment I admit, but try to imagine the economic aftermath of nationalizing health care.  Suddenly, all of those vice-presidents and presidents and C.E.O.s of the large hospital chains and healthcare systems would go from six and seven figure incomes to 5 figures or none.  Pharmaceutical companies told that their prices would be regulated would cry foul and quit doing R&D.  Retirees would see a portion of their portfolio go flat.  That would probably cause a recession by itself.  However, that is the only solution that i can see that would really fix the problems of runaway costs.  Some doctors would complain about a drop in income, but I can guarantee you that most would welcome a system that eliminated all of the paperwork involved in trying to get an insurance company to pay for care allowing more time to do what they wanted to do; take care of people.

As an aside, a good part of the research that is done is associated with modifying an existing medication that is about to go off patent in order to have a prolonged period without competition.  

Comment by koshersalaami on January 31, 2018 at 8:38pm

No one is going to quit doing R&D if their profits will still come in part from new drugs. Even lesser profits are still profits and they need to stay competitive. 


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