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A tale of two timeframes

A tale of two timeframes

No data today Monday, so while we are waiting for new home sales tomorrow, let me step back a little and give you an updated overview of my thinking.

It boils down to: the short term forecast — over the next 4 to 8 months — looks flat at best, and could develop into an actual downturn. The longer term — over one year out — looks more positive.

Let me start with the positive long term forecast first.

Long term interest rates have gone down significantly. Most importantly, mortgage rates have declined from about 5% to 4%. As a result, overall housing permits and starts, new single family home sales (which will be updated tomorrow) and through last Friday’s release of existing home sales have all turned higher:

The last big holdout, single family permits, probably made a bottom in April.

 

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Supreme Court to hear cases over ACA risk-corridor funds

Supreme Court to hear cases over ACA risk-corridor funds

“The U.S. Supreme Court said Monday it will take up cases over whether the federal government must pay billions of dollars to health insurers that sold coverage on the Affordable Care Act exchanges.

Letter to The Editor – Modern Healthcare Alert

If you are going to report on this particular incident with the Cromnibus Act which passed December 11, 2014, why not give the complete history of how the Risk Corridor Program was stymied?

Initially, then Budget Committee Republican Ranking Member Senator Sessions wrote a letter to the GAO asking whether the Risk Corridor payments were being appropriated correctly. In a letter back to Sessions the GAO said Agencies can only appropriate funds at the discretion of Congress. Funding had not been properly secured for the Risk Corridor Program. This effectively stopped any new funding from being used for the Risk Corridor Program; however, funding could be transferred from other healthcare programs.

With the aid of House Energy and Commerce Chair Fred Upton and House Appropriations Chair Jack Kingston, Section 227 was inserted into the Cromnibus Act.

“None of the funds made available by this act from the Federal Hospital Insurance Trust Fund or the Federal Supplemental Medical Insurance Trust Fund, or transferred from other accounts funded by this act to the “Centers for Medicare and Medicaid Services – Program Management “ account may be used for payments under section 1342(b)(1) of Public Law 111-148 (relating to risk corridors).”

This was far more nefarious than Congress as a whole making this budget neutral and its hides what Republican Senator Sessions, and House Representatives Upton, and Kingston did to sabotage the ACA, drive up premiums, bankrupt Coops, cause companies to leave the healthcare exchanges, and cause constituents to lose coverage.

Yes indeed, Congress did vote for the Cromnibus Act in the waning day(s) left before a government shut down. Section 227 was inserted during those last few days and more than likely overlooked in the process of passing a budget bill so the government would not shut down.

run75441 (Bill H)

Should these companies win at SCOTUS review, the costs and blame should be assigned to these three as their motives were “solely” party politics over country thereby penalizing citizens.

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Ali Velshi Interviews Arthur Laffer

Ali Velshi Interviews Arthur Laffer

Today I endured listening to Arthur Laffer lie serially to Ali Velshi today. Skip the first 36 minutes of this Youtube as the interview begins there. Never mind the praise for Laffer’s cheerleading for Trump. Laffer actually claimed that the FED’s low interest rates after the Great Recession began was the cause of the Great Recession. OK! But then he pivots and advocates we should have low interest rates now that Trump is President. I know – WTF?! OK – don’t trust Laffer on monetary policy but the real fun was when he claimed that the Reagan tax cut of 1981 led to average annual growth rates of 8% during his first term. I think that is what Laffer is claiming but BEA data suggests much lower growth rates for real GDP. OK – we all know that Laffer lies a lot but why on earth does MSNBC bother to let Ali Velshi just sit there and thank him for such dishonesty.

Arthur Laffer lying to Ali Velshi on low Fed Rates after the Great Recession actually were the cause of it.

UpdatePaul Krugman explains Laffer’s bizarre monetary theory well before this interview:

The Trumpification of the Federal Reserve: In late 2015 then-candidate Donald Trump accused Janet Yellen, chair of the Federal Reserve, of being part of a political conspiracy. Yellen, he insisted, was keeping interest rates unjustifiably low in an attempt to help Hillary Clinton win the presidency. As it happens, there were very good reasons for the Fed to keep rates low at the time. Some measures of the job market, notably prime-age employment, were still well below precrisis levels, and business investment was going through a significant slump — a sort of mini-recession. Fast forward to the present. The employment picture is much stronger now than it was then. There are hints of an economic slowdown, partly because of the uncertainty created by Trump’s trade war, but they’re considerably fainter than those of 2015-16. And Trump himself keeps boasting about the economy’s strength.

But of course Trump insists we need to lower interest rate because??? And of course Art Laffer has to agree with his political master.

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Does President Trump Read “JAMA Network Open?”

It is doubtful Trump reads much beyond his own signature on Executive Orders and Twitter commentary. Someone is attempting to align him with current thinking creating a persona of his being a thoughtful and reasoning president as opposed to . . . ?

In “Again, Healthcare Cost Drivers Pharma, Doctors, and Hospitals ,” I had posted stats from a 2016 JAMA paper covering the period from 1996 to 2013. Healthcare costs had increased $1 trillion of which 50% was due solely to pricing. One significant factor in the JAMA report was the $66 billion increase in costs for diabetes treatment of which $44 billion was due to pharmaceuticals pricing. One impact to diabetes treatment was Eli Lilly’s increases for Humalog which was $21 per vial in 1996. By 2017, the price increased to $275 (700%) for a vial, a one-month supply. Humalog is a decades old drug and the manufacturing has not changed significantly.

“JAMA Network Open” has issued an end of May 2018 paper on pharmaceutical pricing trends covering the years from the period 2012 – 2017, “Trends in Prices of Popular Brand-Name Prescription Drugs in the United States.” The question it asks:

• What are the prices of top-selling brand-name prescription drugs in the United States and how have these prices changed in recent years?

answer:

• In this evaluation of 49 common top-selling brand-name drugs; 78% of the drugs have been available since 2012, have seen an increase in insurer and out-of-pocket costs by more than 50%, and 44% have more than doubled in price.

and concludes:

• Brand-name drug pricing associated with government-protected market exclusivity is likely to continue to increase and warrants greater price transparency.

Similar to what President Trump has proposed which “still” does not empower constituents to seek alternatives and typically the alternatives are just as costly.

Study Methodology

Data was obtained of 35 million individuals from the Blue Cross Shield Axis (data base) for the time period of January 2012 through December 2017. The researchers reviewed prescribed drugs exceeding $500 million in US sales or $1 billion in worldwide sales.

Within the identified parameters of 2012-2017 sales, 132 brand-name prescription drugs were identified. 49 of the 132 top-selling drugs exceeded 100 000 pharmacy claims, substantial cost increases among these drugs was experienced within the inclusion parameters with a 76% median cost increase, and 48 of the drugs had regular annual or biannual price increases.

36 of the 49 drugs were available since 2012. 28 had experienced an increase in insurer and out-of-pocket costs exceeding 50% and 16 more than doubled in price. Insulins such as Novolog, Humalog, and Lantus and tumor necrosis factor inhibitors such as Humira and Enbrel experienced highly correlated price increases coinciding with some of the largest growth in drug costs.

The results of the study revealed the median sum of out-of-pocket and insurance costs paid by patients or insurers for common prescriptions and presented both annually and monthly.
Pricing increases for new drugs (13) from January 2015 through December 2017) entering the market in the last 3 to 6 years price was not different than those (36) having been on the market longer, a 29% increase [median] from January 2015 through December 2017.

Nor did the study differentiate between drugs with or without a FDA approved therapeutic equivalent (number of drugs, 17 vs 32; median, 79% vs 73% price change).

Changes in prices paid were highly correlated with third-party estimates of changes in drug net prices (ρ = 0.55; P = 3.8 × 10−5), suggesting that the current rebate system incentivizes high list prices and greater reliance on rebates resulting in increased overall costs.

“The study concludes the growth of drug spending in the United States associated with government-protected market exclusivity is likely to continue. Greater price transparency is warranted.”

Interpretation? Pharmaceutical companies (and I will include companies such as Mylan [EpiPens]) are using the patent drug laws and resulting exclusivity time period to maximize profit margins ($14.50 for every $1 invested [WHO]) protecting their products from competition. A similar exclusivity holds true for generic products also (time periods for the introduction for a similar generic product). “Can You Patent The Sun (Jonas Salk)?

I sat over dinner with one Exec. VP from a major pharmaceutical company who confirmed what I had said in an earlier post (Can You Patent The Sun?) and here. A new pricing strategy is being used by pharmaceutical companies which maximizes return based upon benefits achieved in treatment, life, healthcare system, and in society. It is a well thought out reasoning being delivered by intelligent purveyors of healthcare supplies portraying a modicum of caring or concern for societal welfare while pursuing the profit motive. Novartis CEO Vas Narasimhan (not the one I talked to);

“Cell and gene therapies are bringing about a new era of cancer medicines going beyond ‘just improving lives and are saving them.’ The new therapies are challenging the traditional model for paying for medical treatment and the industry is divided on this approach. Pricing for these one-time usage therapies are to be based on four key measures of value – the improvements they offer to patients both clinically and in terms of their quality of life, and the resulting benefits to the health-care system and society.”

The pricing application is not limited to new drugs, cancer meds and gene/cell therapies; it is also being applied to older drugs and also generic replacements.

Findings:

Between 2012 – 2017, the study reveals an industry wide increase in costs for top-selling brand-name prescription drugs and less costly generic replacements. The increase in costs, biannual, and annually for 36 pharmaceuticals since 2012 can also be seen in newer drugs coming on the market after 2012. A pattern or practice of pricing determination based upon 4 values in the pharmaceutical market which will continue into the foreseeable future.

This particular chart depicts annual net price and annual paid price increases showing the percentage increases. This becomes more interesting where I cover “rebates” and whether the reduce costs.

Given median cost increases of 9.5% annually, the yearly increases will result in a doubling of costs for brand name drugs in this study every 7 to 8 years.

New and old brand-name competition does little to control rising costs of products which can be used interchangeably (hence this shoots transparency in the foot for constituents talking to pharmacists) such as Humira and Enbrel or diabetes drugs such as Humalog, Humulin, and Novolog. “Relative cost changes are highly synchronized” resulting in large increases over the last 6 years. As mentioned there appears to be a pattern or practice of pharmaceutical companies acting in concert.

There is little evidence of price changes associated with the existence of therapeutic equivalents such as generics, biosimilar drugs, or drugs entering the market later.

Legislated pricing transparency may lead patients to seek alternative drugs if available which may result in different pricing trends than what was observed over the six years of when the study was done. The impact of such is unknown as is the likelihood of those trends as they may already be in progress due to volume changes or speculation of volume changes due to expiration of exclusivity.

Neither was there evidence of products entering the market 3 to 6 years ago having different trends compared with other drugs in the first years of availability.

Transparency is need in the costing of drugs and the setting of prices by manufacturers. Only in the US, does the manufacturers of the product set the pricing. In Europe, pricing is influenced by governments.

Research and Development

There is a balancing act between reasonable pricing for consumers and the costs for bringing innovative drugs to market. The United States does provides strong patent laws globally. However, legal strategies by the pharmaceutical industry such as patenting the peripheral aspects of a drug (think EpiPen and its cap) extend protections beyond the original patent and delay generic and biosimilar versions. Furthermore, if a generic version brought to market by one company can not be used in the same manner by following the instructions of the brand name version; the company of the patented version can ask the FDA to block the generic version (again think Mylan’s Brand EpiPens and the TEVA generic [See; “Can You Patent The Sun?“]).

Healthcare and pharmaceutical companies can maintain exclusivity and pricing as set by the manufacturer much longer and well beyond the original patent limits with a range of new innovations. In similar countries as the US as found in western Europe, governments set pricing. The end result is a large discrepancy in pricing between the US and European countries for the same drug.

It is near impossible for private insurers to negotiate pharma pricing and Medicare is forbidden to do so. The Institute for Clinical and Economic Review’s value-based price benchmark is one approach to establish appropriate pricing. Using the four key measures the ICER assigned a cost effectiveness value of up to $1,688,000 for Kymriah for its use in children. This analysis takes into account all of the R&D cost in developing a drug, bringing it to market, and the cost save as measured against other therapies. Using the same ICER 4-point value-based analysis and understanding the range effectiveness determined by the ICER, Novartis set Kymriah list price for pediatric use at $475,000, well below the ICER’ cost effectiveness value, and $373,000 for adult cancers.

So, how is this drug paid for by the less financially endowed patients? Coupons by the manufacturer and rebates to the insurance payor set a net price for the patient which is price and profit neutral.

Rebates

Several points; Transparency of how rebates occur and affect net pricing is limited as to the impact of them on the pharmaceutical industry and healthcare insurance, rebates on list prices set by manufacturers are given by the manufacturers to commercial healthcare insurance and some government programs not including Medicare, and the rebates will vary by drug, by payer, and constitute “16% of all private insurer-branded drug spending returned as rebates in 2016.”

Whether rebates lower or increase costs is debated due to the lack of transparency of their application.

Due to the lack of data, this particular JAMA study used third party information or estimates of net price data on each drug. The observations did reveal a high correlation between increases in the rates of insurer and out-of-pocket costs paid for each drug and the net prices (ρ=0.55). The association suggests the offered industry supposition of higher list prices and greater reliance on rebates reducing costs may not be true.

Instead and a bit redundant by me, the paper offers an opposing supposition of increases in list prices, and the resulting increases in insurer and out-of-pocket costs paid, may coincide with increases in net prices, which in turn make these drugs more expensive overall. Seemingly biannual price increases should not be considered benign pricing strategies to offset paid against net price discrepancies in the current rebate system.

If true, this would be a façade making it appear rebates have an impact on final costs to the healthcare system and pricing to the patient. Rebates may only be a shuffling $dollars around.

Greater transparency of the process is needed to determine what is and what is not a cost save. The transparency is not for the purpose of patients deciding what to buy or pharmacists to recommend alternatives; although, it could be used by constituents to support healthcare proposals to bring prices down.

A healthcare system and its coverage without a foundation or mechanisms to control or account for costs is simply a blanket to pricing and hides its impact.

Run75441 (Bill H)

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Two articles to think about, one on opioids, the other billing for hospital care

Via Naked Capitalism:

Place based economic conditions and the geography of the opioid overdose crisis

By Shannon Monnat, Associate Professor, Syracuse University. Originally published at the Institute for New Economic Thinking website

Over 400,000 people in the U.S. have died from opioid overdoses since 2000. However, there is widespread geographic variation in fatal opioid overdose rates, and the contributions of prescription opioids, heroin, and synthetic opioids (e.g., fentanyl) to the crisis vary substantially across different parts of the U.S. In a studypublished today in the American Journal of Public Health, we classified U.S. counties into six different opioid classes, based on their overall rates and rates of growth in fatal overdoses from specific types of opioids between 2002-04 and 2014-16 (see Figure 1). We then examined how various economic, labor market, and demographic characteristics vary across these different opioid classes. We show that various economic factors, including concentrations of specific occupations and industries, are important to explaining the geography of the U.S. opioid overdose crisis.

 

1 in 6 hospital patients get a surprise bill for out of network care

By Rachel Bluth, Kaiser Health News reporter. Originally published at Kaiser Health News.

About 1 in 6 Americans were surprised by a medical bill after treatment in a hospital in 2017 despite having insurance, according to a study published Thursday.

On average, 16% of inpatient stays and 18% of emergency visits left a patient with at least one out-of-network charge. Most of those came from doctors offering treatment at the hospital, even when the patients chose an in-network hospital, according to researchers from the Kaiser Family Foundation. Its study was based on large employer insurance claims. (Kaiser Health News is an editorially independent program of the foundation.)

The research also found that when a patient is admitted to the hospital from the emergency room, there’s a higher likelihood of an out-of-network charge. As many as 26% of admissions from the emergency room resulted in a surprise medical bill.

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Social Security and the NYT

(Dan here….)  Via the New York Times comes an article on the Social Security shortfall.  No explanations given for what the shortfall context is, and not till the end was a fix suggested.  In comments calling SS a ponzi scheme (with no explanation) was common, or with the fix mostly was about lifting the cap.  Only one commenter referred readers to a Bruce Bartlett article from 2013 on the matter,

From an e-mail by Dale Coberly

Forgive me,  I have studied this problem and may actually know what I am talking about.
All we have to do is pay an extra dollar per week per person per year.  After next year It will be more like a dollar and ten cents.  And if we wait another year it will be about a dollar and twenty cents for the first few years,  then a great deal less than a dollar per week on average. This would keep Social Security solvent essentially forever.  The Deputy Chief Actuary at Social Security agrees that this is true.
This would mean people are paying more, but not a lot more, for their Social Security.  That is they would be setting aside enough money through Social Security to save enough to live on when they will no longer be able to work.  Don’t fool yourself:  working longer is not going to be possible for at least half the population.  And since they will have paid for it themselves, there is no reason they should not be able to retire if they want to even if they “could” work longer.
The Social Security Trustees Report says that about a one and a half percent (about fifteen dollars per week) one time “immediate and permanent” increase  would keep SS solvent for the next seventy five years.This would not be a real burden, or even noticeable once people got over their overreaction to the increase.  Even the about twenty dollars per week that would come in 2035 or so if we wait to the last minute will not be a real burden.  Wages will have risen by about two hundred dollars per week by then.  Again, no no one would think twice about it if it weren’t for the Big Liars making it sound like some kind of tragedy:  “You are going to have to put aside an extra twenty dollars per week, out of your two hundred dollar raise, in order to have enough to live on for the extra two to four years you will expect to live.” [Dollar amounts are in present terms.  SS pay as you go financing automatically takes care of inflation and real interest.]
The thing is they keep talking about it as if “we” — that is “the government”– can’t afford it.    But we — that is each of us — certainly can afford it.
But “they” want to talk about it as if “the government” was going to have to come up with trillions of dollars.  And they call it “socialism.”  Meanwhile the “progressives”  want to make it socialism by “making the rich pay” for it.
Social Security was carefully designed to NOT be welfare. It’s just the worker saving enough of his own money to pay for his own food and shelter when he will be too old to work, and insuring himself against the possibility that otherwise he might not be able to save enough. The government does not pay for any of this. The “rich” do not pay for more than they will get back with reasonable interest, including its insurance value.
Since you have been lied to intensively for at least the last thirty years,  you will not easily understand this or believe it. But it can be proven with attention to real math and real facts. There is no hope the people will understand it if no one tells them. The question is are you willing to do the work?

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Regional Fed indexes confirm that manufacturing is flat

Regional Fed indexes confirm that manufacturing is flat

[A reminder: this week I’m on vacation, so light posting is the rule.]

Earlier this week the Empire State Manufacturing Index went negative. This morning the Philly Index just barely avoided the same, reported at up +0.3 for June:

The more leading new orders index declined to +8.3.

This means the average of NY and Philly is a little below -1, while the average of all five regional Fed indexes as of their last reports is +0.8.

Last week I pointed out that the average manufacturing work week had fallen to a point consistent with an oncoming recession, and based on past patterns, I expect layoffs to follow. This week’s two regional indexes show that the leading manufacturing sector, as of the most recent readings, is not in decline, but on the other hand, it is almost exactly flat.

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Trucking suggests transport slowing, but has not rolled over

Trucking suggests transport slowing, but has not rolled over

 

I have been paying particular attention to the monthly report of the American Trucking Association, to compare its performance with rail, which has been sagging since the beginning of this year. A few other people are relying on the Cass Freight Index, but since that includes international shipping and air transport, it does not exclusively measure the US economy.

In April this index rose 7.7%, and was up 7.4% YoY as well. In May it gave almost all of that back:

According to the ATA, truck traffic declined 6.1% in May, and is now up only 0.9% YoY.

The trend remains neutral to slightly positive, in contrast to rail, suggesting that overall the economy, at least as measured by transport, has slowed down substantially but not yet rolled over.

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