Pharma Shares Melt Down, But Consumers Might See Relief

Effects of competition after government cracks down on price fixing?

Shares of Teva (TEVA), the largest generic drug manufacturer in the world, plunged 13% on Friday, to $20.60, after having already plunged 24% on Thursday, after having reported that second quarter revenue and profits had been beaten down by a 6% decline in generic drug prices. Since July 2015, shares have plunged 70%.

Though revenues rose, Teva booked a net loss of $6.0 billion in the quarter. It listed a slew of special items, including a $6.1 billion write-off “related to the US generics reporting unit.”

It announced that it would slash its dividend by 75%, lay off 7,000 employees globally, including in Israel where it is headquartered, pull out from 45 countries, and close 15 plants. It is grappling with a generics market where competition started to push down prices in 2015. “Negative net pricing” is what the company calls this.

During the earnings call, Dipankar Bhattacharjee, head of Teva’s Generic Medicines Group, explained that their customers – wholesalers and buying groups – were consolidating and pushing for price reductions, and that Teva cut prices “to secure additional business.”

These pricing pressures would accelerate this fiscal year, the company said. That’s good for consumers who’ve been bludgeoned over the past many years by soaring pharmaceutical prices. But it appears to be a tough pill to swallow for the stock market.

AmerisourceBergen Corp., the second-largest of the three big US drug wholesalers, reported on Thursday a 8.7% decline in operating profit in its pharmaceutical distribution unit. It expects generic prices to skid by a range of 7% to 9% in its current fiscal year.

Its shares (ABC) plunged 10.5% on Thursday and skidded 1% on Friday, to $80.83. They’re down 13.8% over the past four trading days and down 23% since July 2015.

CEO Steve Collis told The Wall Street Journal: “There’s no doubt that when you have a key product category with a 9% deflation rate, that’s a headwind you’re getting.”

The three primary drug wholesalers in the US account for $400 billion of pharmaceutical sales per year. Drugs – the legal variety – are a disproportionate part of the US economy. According to the Commerce Department, drugs account for about 12% of total US wholesales.

Fed Chair Janet Yellen had cited the drop in prescription drug prices as one of the factors that pushed down inflation. Considering this price drop transitory, she brushed off the dip in inflation.

In 2015, unexpected competition began to set in where wholesalers try to gain market share among independently owned pharmacies by cutting their pricing on generics. And in order to be able to cut prices, wholesalers are pushing drugmakers for better deals.

Mylan, which is big into generics, saw its shares (MYL) drop 5% on Friday, to $32.92 after having dropped 6% on Thursday. They’re down 15.6% over the past four days. Back in June 2015, they were still trading at $74, when the EpiPen price gouging blew into the open. Since then shares have dropped by half.

Perrigo makes a variety of products including generic drugs. Its shares (PRGO) dropped 10% over the past four days, to $67.43, and are down 64% over the past two years.

Endo International (ENDP), which makes generic drugs and specialty branded pharmaceutical products, has plunged 15% over the past four days to $9.38. Shares are down about 90% from July 2015.

Last November, it emerged that Endo, Mylan, and more than a dozen other drugmakers have been under antitrust investigation by the Justice Department for two years. During a government crackdown on price fixing, these cushy clubs just aren’t quite the same anymore.

Why did share prices of these companies begin to sag in mid-2015? Here’s a theory: People in the know of the government crack-down on price fixing could figure out that this would unleash competition, and they could figure out what competition would do to drug prices, and to the performance of these stocks. And they started selling. But that’s just a guess.

“There was this egregious pricing, and it was a windfall” for some generic drugmakers and wholesalers, John Ransom, a Raymond James analyst, told The Journal. “These guys were over-earning with the pharma pricing bubble.”

McKesson, the largest drug distributor, reported a week ago that its quarterly net income from continuing operations before taxes had plunged 50%. It cited the price deflation of generic drugs. CEO John H. Hammergren, in a interview, specifically blamed “more competition” for this price fiasco.

McKesson’s shares (MCK) dropped 4.5% over the past four days and are down 34% since July 2015.

Shares of Cardinal Health (CAH), the third-largest drug distributor, dropped 8% on Wednesday, and edged down on Thursday and Friday, for a three-day loss of 10.6%.

Cardinal CEO George Barrett blamed a relatively small number of generic drugs for the surging prices over the past few years and told The Journal that the sudden reversal came as a surprise: “We’ve returned to more normal patterns, [but] the shift was rather rapid, which was jarring to the system.”

Novartis – whose shares have dropped 20% since July 2015 – warned during its July 16 earnings call that prices of generic drugs had fallen 8% in its second quarter, contributing to a 15% plunge in US generics sales. The head of the generics division, Richard Francis, told analysts: “The whole sector in generics is feeling pricing pressure in the US.”

Outrageous price surges baffled rational minds over the past few years and cleaned out wallets and bank accounts of consumers or their employers while transferring wealth to the pharmaceutical industry. But finally, generic drug prices are easing back down, which allows consumers or their employers to spend their money on other things. This form of “deflation” – the result of reintroducing a modicum of price competition – is healthy for the economy and a godsend for consumers.

Given the vast amounts of money spent on drugs in the US, these price declines helped push down overall inflation, but Yellen rightfully brushed it off. Drug prices should have never soared to these levels in the first place. The best thing that could happen would be a continuation of the “negative net pricing,” as Teva called it, for an unexpectedly long time.

Procter & Gamble got tired of feeding an opaque, slimy industry of bots and fake clicks. Read… P&G Slashed Digital Ad Spending. This is What Happened Next

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  59 comments for “Pharma Shares Melt Down, But Consumers Might See Relief

  1. justme says:

    Lack of competition in generic (patent expired) drugs is one thing, but what about the problem of price gouging in branded (patent still valid) drugs?

    • Kevin says:

      Meh. Prescription drugs account for ~10% of “healthcare” spending. I’d like to see more dialog about where the other 90% goes.

      • AC says:

        That’s anti-CEOitism!!1! What do you have against all those poor CEOs.

        Some of them aren’t even billionaires, yet. Yet.

    • MC says:

      Well, listen to the NPR discussion on antibiotics and the struggle to develop new ones. Pharmas are for profit companies.

    • justme says:

      Kevin, agree. Pharma is just a softer target than nurses and doctors and hospital CEOs.

      MC, if we didn’t feed livestock antibiotics by the truckload, we would not need to develop new ones.

      • R Davis says:

        gENDER bENDER kIDS:
        It is believed that Gender Bender Kids – young persons suffering identity crises –
        30 years on –
        are victims of the Oestrogen based Contraceptive Pill.
        The known carcinogen advertised as God’s Gift to women’s emancipation.
        How many BILLIONS or should we talk in TRILLIONS – do you think the compensation payouts will be.
        Does the US government have the ready financial where with all to cover that bill ?

      • Paulo says:

        R Davis

        You need to do a little reading on disease transfer and hosts (Vectors). It isn’t all a conspiracy, my friend. My Dad’s best friend died over 30 years ago from Lyme disease complications….he didn’t get those anti-biotics until too late. Another friend of mine suffers from malaria contracted decades ago. New disease vectors are emerging with climate change…of course a few readers on this site will also tell me not to believe my lyin’ eyes about this coastal heat wave I am trying to work in this summer building a house by myself. (Yesterday, I went through 4 shirts on the normally cool and windy wet coast.) This year we also have an insane outbreak of the mouse population in BC….deer and field mice. I have 8 traps set every night under the house. Sometimes all 8 are filled, a slow night is 2. This is going on all over Vancouver Island. Mice often carry disease and do not work for the pharma industry, either. This has been going on for 4 months and we have netted an estimate of 300-400 mice trapped thus far. In the past we might have trapped 20 all year. That is just one example of how disease spreads. When ‘bird flu’ spreads from migrating wild birds to lower mainland poultry farms requiring the cull of millions of poultry and driving up the costs of grocery store chicken, I suppose that’s is just another Monsanto plot? Zika is just another virus, only it is spread by flying insects rather than birds. Sharing the knowledge of the disease expansion isn’t a lie or plot to spread fear; just ask my friend who gets malaria fevers a couple times per year.

      • MC says:

        Not true, there will always be resistant strain of bacteria, I am not sure how much livestock has to do with it. But human use alone will be enough to generate resistant strains.

        • alex in san jose says:

          Yep antibios for everything. Got a sniffle? Oh, I need an antibiotic!

          I don’t believe in using them any more than absolutely necessary. I don’t even use them on wounds – I’ll use Bactine, povidone-iodine, alcohol, etc.

          Growing up in Hawaii, with no doctor within miles, I learned a lot of basic wound care that I’ve seen people these days not know, and let a small cut etc. become something major. Basically clean and dry are what you want. If there’s pus, squeeze that stuff out and keep doing so. Use alcohol, which draws off moisture. Something called “tincture of green soap” is good, if you can still get it. Any sort of tincture is going to be good because it’s a tincture – a solution of mainly alcohol.

  2. Willy2 says:

    – Perhaps these companies are already feeling the impact of the upcoming repeal of Obamacare ???

  3. R Davis says:

    They feel within themselves – that they are Dr. Frankenstein’s Monsters.

  4. David R says:

    Kind of funny to hear that the head of the FED says that the drug price drop, (and restoration of some degree of competition) ‘is temporary’.
    How could we expect, after all, the Chair of the most powerful (and unconstitutional ), Cartel on the planet to take such things as Anti Trust Law into consideration.
    Wasn t the AntiTrust legislation passed to reign in banking and energy interests (like JP Morgan and Standard Oil) in the first place?
    And aren t we way past there again?
    And doesn t wealth distribution look again the same as it did back in Teddy Roosevelt’s time?

    • Wolf Richter says:

      I think she meant that the impact on inflation would be temporary – not the competition itself. At some point, drug prices hit a low and stop dropping, and then they stop pushing down inflation (just like oil did).

  5. Mugsy says:

    All of the rot in the financial system gets back to the rot in the political system….asset inflation, price fixing, price gouging, wasteful spending, medical fraud, insurance fraud, banking fraud, auto fraud, pension insolvency, non-performing loans carried at face value, central bank hegemony, trillion dollar wars to nowhere, the rape of the middle class, the never ending war on drugs that enrich drug cartels and the penal system, no prosecution of criminal bankers and taxpayer bailouts,etc.,etc., etc. bribery and collusion in the name of lobbying is ultimately behind it all.

    • ASP says:

      I would add the rot in education.

      A student can go through the entire system and not have the slightest clue how to fill out a tax return.

      If the system was trying to create “citizens” that would be the least they could do. But instead they don’t want young people to think about how much money gets taken out in taxes and then where does the money go.

    • chip javert says:

      Gee, Mugsy.

      About everything that could go wrong in your world has gone wrong.

      You need a safe space.

      • Randolf says:

        I’d say you’re lucky that bad stuff doesn’t happen in your world.

    • ch says:

      we have met the enemy and he is us.

  6. ASP says:

    The Republicans made a huge mistaking calling the reform “Obamacare.”

    Because it still has the word “care.”

    It wasn’t a healthcare bill. It was a gift to the insurance companies bill.

    Should have called it OBAMASURANCE.

    Last year was the first year I made any decent money, and I had to pay $2k in Obamsurance taxes. I’ve barely spent that amount on any kind of healthcare the last ten years combined.

    My folks finally are at the age they can be under MediCare. When I asked how much it would cost them to be covered by private insurance, it sounded ridiculous.

    • Wilbur58 says:

      Love to see some actual facts on this.

      If you’re single, this means you made at least $420K or so last year. If married, upwards of $470K. Two things:

      1) You’re seriously crying about $2K to help your fellow man at this level?

      2) “I’ve barely spent that amount on any kind of healthcare the last ten years combined.” I see. In other words, your insurance premiums have been below $17/mo for 10 years. $2000 / (10 yrs x 12 mo’s) = $17/mo. Seriously?

      • ASP says:

        No. I made something like 88k before taxes.

        I sure as hell would not care if I had made 400k.

        …I broke a rib early this year which is very painful. I didn’t go to a doctor. Almost did. After 2 months I got worried that it still hurt. I then ordered about $50 in vitamins especially Calcium-Magnesium and some other stuff.

        The personal tax returns were done by the business accountant we’ve had for years.

      • ASP says:

        THERE IS NO FELLOW MAN IN AMERICA.

        The politicians knew they could get away with this type of legislation because about half the population is insured via government, military, and corporate and they are already happy with their coverage.

        I haven’t had health insurance since about 2002 when I was in college.

        My sister is a university administrator who last year made more than twice than me. She has university insurance. She didn’t pay an extra dime in tax besides making more than twice than me.

        So…you don’t know what you are talking about.

        THIS IS A TAX ON MIDDLE AMERICA WHO IS NOT CORPORATE, GOVERNMENT, UNIVERSITY, OR MILITARY.

        • ASP says:

          …those that already had good insurance in America (who were likelier better off anyway) were the LEAST likely people to pay extra taxes that would hypothetically contribute a single dollar to “their fellow man.”

          All I’ve paid in healthcare the last decade has been out-of-pocket.

          I’m just glad my broken healed after 4 months. I think the calcium-magnesium and cissus extract helped because even at the the 3 month mark I was uncertain that anything would fully heal. But it did.

        • Wilbur58 says:

          You’re yet another libertarian who’s terribly confused between “all government is bad” and “financial capitalism has wrought a system wherein corporate oligarchs own our government so it isn’t by and for the people.” Since reality is the latter, I suggest you consider what possible remedy exists? Let me help. A government by and for the people as our founding fathers envisioned it. But the more you scream for ‘free markets’ and deregulation, the more you’re pleasing our corporate masters and abetting the system as it already is, free from regulation and oversight.

          Please explain the $2k. Are you claiming that this is what you’re being forced to pay because you didn’t have health insurance in 2016? I was under the impression that this tax isn’t even legally enforceable. And by the way, who would pay if you had a serious injury that required immediate surgery?

          What employer is paying you $88k, but offers no health benefits? I’m not looking for a name, but rather an industry and number of employees.

        • Lee says:

          As usual the US government has screwed over the military.

          When I was on AD there was an incentive to stay in, get your 20 years, and retire with full medical benefits at no cost.

          Well, there was a cost: low wages over 20 years, excessive work, and the constant knowledge that you could be passed over promotion or have a RIF along with the unknown of being in combat. Plus those who leave often find that they are years behind others in terms of pay and required experience that they can never make up over their working lives.

          Today you have to pay – there is no free medical care and the program TRICARE seems to very complicated with this and that co-pay and all sorts of rules.

          So don’t start complaining about some poor private or corporal getting ‘free’ medical care while on active duty. They more than earned it and pay for in ways that no civilians can understand.

      • ASP says:

        The IRS can still go after you if you don’t pay.

        Trump made a promise early on but it’s not guaranteed.

        And I’m not a libertarian. Whatever is efficient is my mantra.

  7. michael Engel says:

    Take a BIS, not drugs – and make some money out of them.
    The best way to avoid the drug penalty is to reduce the consumption
    of protein : beef, chicken, fish, eggs, dairy products..
    Excess protein is dump in your blood pipeline system, or in the space
    between your cells.
    It start in the capillary and move on to artery & veins.
    That’s Waste Management co of your body on strike : it rot !
    When areas become toxic the body put a band aid to cover it : a plaque.
    When the liver capillaries are clogged, LDL cannot go through and
    is stuck in the blood system. You get high cholesterol.
    When you get a chronic disease, your Dr. , a drug co rep – and the government love you, because you increase the GDP.
    Excess protein for the elderly is almost 100% of protein consumption,
    especially if you get it at dinner time.

    • Gary says:

      Can you cite any proof that protein causes plaque in the circulatory system?

      • ASP says:

        …just a comment….and I haven’t read about protein.

        But there was a disciple who worked with Linus Pauling and both of them swore that vitamin C cleared out plaques. It sound like quackery almost but Linus does have two Nobels for chemistry and peace….and the other guy seems to have followed the research with way more modern tech than Pauling had access to.

        Pauling took those pills for decades. But he thought intravenous was always better.

        unrelated:I read “The Last Well Person” by a NC doctor who went to Harvard Medical School who cited how a lot of modern cholesterol and Type 2 diabetes medications do not increase life expectancy.

    • Dan Romig says:

      While I am not a physician or ‘nutritionist’, I believe that the human body does work better when it has access to the nine essential amino acids. Amino acids are organic compounds that combine to form proteins (medlineplus.gov).

      My advice is to avoid sugars, high-fructose corn syrup and artificial sweeteners. If one reads the ingredients on the packaged foods in the grocery store, it is pretty eye-opening.

      But, I will put a bit of maple syrup on squash when baking; that’s not too much of a vice to indulge in occasionally.

  8. DanR says:

    I like the use of “tough pill to swallow” in the context of the article.

  9. Gershon says:

    Karl Denninger has put a lot of thought into the kinds of fundamental reforms that are desperately need to break the stranglehold of the medical cartels and Big Pharma on American healthcare.

    https://market-ticker.org/akcs-www?post=231959

    • Petunia says:

      KD’s rants about the medical industry are my least favorite thing about his website. He thinks all his opinions are the right ones. Of course, I’m banned, it only took less than a handful of comments too.

      • VegasBob says:

        Don’t feel bad, Petunia.

        KD banned me over 2 years ago for suggesting that people prefer to be slaves to the system and that meaningful change was highly unlikely to happen.

        Of course over the past two years, according to his current ruminations, he has more or less concluded that I was right.

        But I’m not holding my breath waiting for an apology.

        • Thunderstruck says:

          Ha!
          I was tossed off Zero Hedge, of all places. The slightest disagreement with some of the most vocal out there can get you “censored”.

          I like some of Karl’s articles, but like you, his tirades against the “Healthcare Machine” can become tiring and drawn out.

          I agree, we need to make changes, but I am not nearly qualified to determine how or where to start.

          I DO like the idea of abolishing all health insurance as I feel it has underwritten the large price increases we’ve seen – similar to the cost rising to attend a major private University due to the glut of student loans.

    • Max Power says:

      Denninger is convinced that a market-based approach to healthcare would solve all the problems of the system. However, it probably isn’t a panacea ;-) I think if that was a viable solution it would have been tried somewhere else successfully on a national level but it hasn’t. The fact is that all advanced countries have realized that the only effective solution to healthcare requires some system which mandates universal coverage (although one can argue as to the extent of the optimal amount government involvement in such schemes). That’s the only thing that has shown to work in other first-world countries and as such we should build on that as the basis of the solution. I’d rather see a model composed of the best ideas from other places where there is efficient, effective and accessible delivery of healthcare than try something which might, but probably won’t work. We don’t have time to waste on this issue as there is one thing I do agree on with Denninger… if something isn’t done, healthcare will eventually bankrupt this nation.

  10. Hkan says:

    Free online medical advise, regular exercise and healthy food would make phenomenal drug cost reduction.

    Not to mention increased quality of life.

    Really its not that hard to make changes…great changes….if the political will excists.

    We will keep suffering as long as corrupted politicians, drugindustry and foodindustry is in control.

  11. JimTan says:

    Another issue which may impact future profits for drug companies are lawsuits related to past outrageous price hikes. A class action lawsuit was filed earlier this year accusing Sanofi, Novo Nordisk and Eli Lilly of unreasonable price hikes, and collusive price fixing of insulin, a fairly generic drug.

    http://www.fiercepharma.com/pharma/insulin-makers-targeted-class-action-suit-over-astounding-and-inexplicable-price-hikes

    The lawsuit alleges violations of multi state consumer protection laws, and
    the Racketeer Influenced and Corrupt Organizations Act ( which apparently allows for triple damages ). According to this articles description of the lawsuit “Unable to afford the meds, patients have resorted to under-dosing, using expired insulin, avoiding doctors, starving themselves to control blood sugar, taking out loans and slipping into Diabetic Ketoacidosis to get insulin from emergency rooms”. I have a feeling there will be many more of these in the near future.

  12. Kay says:

    I think a lot of these pharmaceutical companies have seen the writing on the wall. Especially since Trump passed this new FDA fee which will help drive down drug costs and that will further hurt the drug industry. What I think is so ironic is that a lot of the things Trump is doing is really democratic policies and really not republican ideas but no one is really talking about that. Oh yah that’s because the media doesn’t do their jobs. I think that some of the policies that Trump is looking to do will be really be interesting if the democrats don’t vote for them when they are democratic ideas. Could really destroy the Democratic Party further. Let the implosion begin.

  13. Petunia says:

    I was prescribed Flonaz about 20 years ago for allergies. It works really well but I had to go to the doctor to get a prescription for snot spray. It took 20 years for them to allow it to be sold over the counter. It should never have been a controlled substance in the first place. The entire drug industry is like this, over regulated. In most Latin countries you can go to the pharmacist to get a remedy for any minor illness.

    • walter map says:

      “It took 20 years for them to allow it to be sold over the counter. It should never have been a controlled substance in the first place. The entire drug industry is like this, over regulated.”

      That’s monopolization, not regulation. And it was allowed to become a monopoly as a corrupt gift to a campaign contributor. No free market there, eh? It’s standard practice, and makes it all the more obvious that the US is run to enrich the wealthy at the expense of the general population.

      There are many extreme examples which clearly show the US drug biz has largely become an extortion racket:

      As Medicare is banned by law from negotiating drug prices, and must accept whatever pharmaceutical companies charge, it is no wonder that companies are announcing prices in excess of $400,000 for one year’s treatment.

      The most expensive drug in the U.S. is Soliris, from Alexion (ALXN). It costs $409,500 a year, and treats a rare disorder in which the immune system destroys red blood cells at night.

      Many of the most expensive drugs — such as Soliris — treat rare diseases that only a few hundred people suffer from. Those drugs aren’t the real problem. Rather, it’s the drugs in the $20,000 to $100,000 range, which mainly treat cancer and multiple sclerosis. Those diseases are very common in the elderly population

      http://www.cbsnews.com/news/20-expensive-drugs-that-could-bankrupt-medicare/

      4 Pharma CEOs Admit They Jack Up Drug Prices for the Hell of It

      http://www.bnet.com/blog/drug-business/4-pharma-ceos-admit-they-jack-up-drug-prices-for-the-hell-of-it/8378

      10 Reasons Drug Prices Always Go Up — and What We Can Do About It

      http://www.bnet.com/blog/drug-business/10-reasons-drug-prices-always-go-up-8212-and-what-we-can-do-about-it/7621

      We could get into how corporate US drug pushers get American addicted and overdosed for fun and profit, but that is another story and shall be told another time.

      • MC says:

        Pharmas are simply not charities. It takes far too much costs to get a viable drug into the market. The simple truth is, the rest of the world is free riding off the US.

        How many pharmas actually make drugs for diseases specific to countries outside of US? The short answer is none. Oh, there is that famous case of Merck giving away its river blindness drug for free, but that’s because there was no market for it outside of Africa.

      • VegasBob says:

        I’m now on Medicare and will be interested to see what prices Part B pays for my chemotherapy treatments compared to what the Obamacare insurance was paying. (chemotherapy is generally covered by Part B, not Part D).

        The Republican law to prevent Medicare from negotiating drug prices strikes me as especially stupid.

    • Kent says:

      Agreed. I tend to believe it’s driven by the AMA to force you to pay the doctor first to get a prescription.

  14. Frederick says:

    Don’t know about pharma shares but we do know about ” pharma bro He’s going to jail we hope anyway

  15. ASP says:

    Only 1 of the 3 people I have known to get a very difficult pH D degree in organic university in a very reputable public university degree get a job in the industry. The best one is an industrial chemist in California.

    Most of the chemical plants have been offshored to India or China now.

    The other two were adjuncts for low pay after getting their pH D. They left that job for one in which the guy had industrial clout in family.

    So all of that training was for nothing…except for 1 out of the 3 still in the same field.

    • MC says:

      Well, formulation is a really competitive business, the chemists at the major biotechs and pharmas are really good. The selection process is nuts. If they just want to work in a chemical plant, it’s no wonder that their job gets off shores. Getting into a lab at a pharma and staying there is tough.

  16. raxadian says:

    It was about darn time. The rest of the world looks at how expensive and bad; for the money paid, health care is in the US and think “That’s the true Mafia, right?”

    The price of drugs lowering close to their real price is a good step in the right direction.

    • MC says:

      Rest of the world = free riders (or free loaders) as far as pharmas are concerned, look at the annual report of any of the pharma and you can see that if the ROW disappeared it wouldn’t matter much.

      Take for example Gilead’s miracle HCV cure, listed at $84k per full course in the US, and something like $100 per course in Egypt. Does anyone think Gilead’s cares one whit about the Egyptian market?

      And I like to know what the real price of anything is. Is it just the bill of material plus labor? What’s a reasonable margin?

      And what about those whiny scientists who came up with the stuff, in the grand scheme of things, they are just unnecessary overhead right? The ones who should be fired the second the drug is approved. After all, they don’t need to eat, they have their science. Right?

  17. Lee says:

    Here is Oz we are lucky in one respect: our medical insurance system is much better and generally cheaper than in the USA. We have a combination of public and private coverage.

    Last year when I hurt myself and end up having complications from the injury, I was put on a relatively new drug.

    The cost to me for a month of pills was A$38.80. I had to pay the ‘full price’ on the schedule – the max anyone has to pay if the medicine is on the approved list as I wasn’t one of the categories here that gets a subsidy.

    If I was one of those I would have had to only pay around A$6.00 for it. The ‘full cost’ to the government for that medicine was around $80.00 which is what it would have cost me if the medicine wasn’t on the approved list.

    I took the medicine for a period of six months and it worked, but unfortunately I was one of the ‘lucky’ ones to
    have other complications form the injury not related to the medicine.

    So to be curious to see how much that medicine would have cost me in the USA I looked it up on various drug store web sites…….

    The cost was US$500 or so per month for the cheapest supplier. IIRC Canada was around the US$200 equivalent cost or so for the cheapest price there.

    By the way there is a big lawsuit going on in the USA because of supposed side effects of the drug which I was warned about and scared the you know what out of me for those six months.

    One thing here in Oz about private health insurance is that it is relatively expensive, but gets you treatment right away for what are termed ‘non life threatening injuries’.

    You are also penalized with higher insurance premiums for every year you don’t have insurance after you are 30 (???) years old or so.

    Here is how the system works:

    Years ago I had an injury to my knee which eventually required surgery to fix. Here is how it is done here with the private/public sector.

    First you go to your GP and then get a referred to a Specialist. You can go directly to the Specialist, but then the government won’t pay any of the cost.

    As Specialists are “special” they can charge whatever they want and most do so quite happily. If you have private health insurance that will cover most of the cost. If you don’t, well you pay the cost and the government gives you back the basic service rate for that type of specialist.

    If it costs A$200 for the appointment and the government rebate is $A80 you are out of pocket A$120 which, if you have private health insurance it may cover it all.

    Next as Specialists are in high demand you’ll most likely have to wait to see one. In my case if I went public the wait was, and I am not kidding, TWO YEARS. So I went the private route which was only a three month wait. This was just to see a Specialist the first time.

    Then after seeing the Specialist I was told I needed an MRI. I could go either public or private. At that time there were only two machines in public hospitals here and the wait was another three or four months and I had to go in at night as the machine was too busy during the day. Now there are MRI machine all over and the cost is covered 100% by the government under the bulk bill public system.

    I could have gone private and got it done in a week or so , but didn’t want to fork out over A$750 for it – why?

    Then after getting the MRI I had to back to the see the Specialist which only took a month this time as I was a returning patient, to be told I needed surgery. I could have told him that without the appointments and the MRI!!!

    So again, question: public or private? No private health insurance, but I could get the surgery done in a week or so if I forked out A$10,000. Sorry, but no extra $10,000.

    So on to the public waiting list – how long you ask? Well at that time the guess was about two years, but I checked the little box that said I could do a surgery at short term notice.

    Being employed at a decent job, I had built up well over three months of sick leave so I figured I could use it when my time came for surgery.

    Well the place I worked at got rid of the department and me along with it and goodbye to my built up sick leave.

    So one Friday at my new job I had a call from the public hospital: “Can you come in for surgery on Wednesday – we had a cancellation?”. Yep, went in had it done and guess who did the surgery?

    The specialist that I went to see who would have charged me around A$10,000 for the operation. The total cost to me was around A$20 for some pain pills.

    Had the surgery on Wednesday and back back at work on Friday. I worked from home as the boss I has was an Ass.

    (When he shut the company down he closed the office here in Melbourne via email right after Christmas. How about that for notice? Just above getting a text.)

  18. R2D2 says:

    I’ve posted this before, but I think people should see this. Take a look at how much hospitals charge patients for ordinary stuff. They charge $53 for non-sterile pair of latex gloves which costs me 5 cents, and it probably costs them only 1 cents; that’s like selling something at 5300 times the price; not even a great gold mine will give you that kind of returns.

    Tylenol
    Charge to patient: $15 per individual pill, for a total of $345 during average patient stay

    Patient belonging bag
    istock/stocksnapper
    Like a grocery bag, to hold your personal items Charge to patient: $8

    Box of tissues
    Sometimes listed as “mucus recovery system” Charge to patient: $8

    Gloves
    Charge to patient: $53 per non-sterile pair (sterile are higher), for a total of $5,141 during average patient stay

    Cup medicine
    Cost is for the plastic cup used to administer medicine, not the actual medicine inside it Charge to patient, per cup: $10, for a total of $440 during average patient stay

    Marking pen
    To mark the body for surgery Charge to patient: $17.50

    Cuff, BP Adult
    Use of blood pressure cuff Charge to patient: $20

    Oral admin. fee
    Charge for nurse to hand you medicine taken by mouth Charge to patient: $6.25 per instance, for a total of $87.50 during average patient stay

    Headlight
    Cost of use of overhead light in operating room Charge to patient: $93.50

    Swabs, alcohol
    Charge to patient: $23 per swab, for a total of $322 during average patient stay

  19. PrototypeGirl1 says:

    I see an average of two medical nightmares every week. The medications and procedures are horrific. This week I got a message from a client that she was home sick. She was diagnosed diverticulitis, this home is pristine, with a perfectly manicured lawn too. She told me about two months ago we’re having a fly problem, I guess they are coming in the doggie door, sorry it’s gross just sweep them up. So she’s very sick, been on strong antibiotics for a week still sick
    I’m taking out the trash and look inside the outdoor trash can, it’s empty and totally reeks, I look inside it’s like nasty vomit in there, flys everywhere, there is no doubt in my mind this is the reason she’s sick, so I clean it out and bleach it. Her husband comes home and she’s so sick they rush off to the emergency room. She has no clue why she’s sick, all the while she’s growing a third world country 20 ft from her back door. All the antibiotics in the world aren’t going to kill the fly problem.
    There’s another one this person has been drinking diet coke for years, at first she has these horrible rashes all over her legs, I say you’re poisoning yourself with diet coke, now 15 yrs layer she can hardly walk across the room without falling down, and her bones have become so brittle they crush when she falls. She’s had a shoulder replacement, and back surgery in the last 8 wks. I believe a lot of our health problems are environmental, but people think I’m crazy for saying such things. Antibiotics, steroids, statins, are all very dangerous drugs, people need to wake up.

  20. Thunderstruck says:

    Hey Wolf, how does the medical care system in Japan work? Not just how well it odes or doesn’t work, but *how* does it work? Is it a single-payer (or payor) system? I read somewhere a while back that the average Japanese doctor makes little more than the typical salaryman.

    I was curious after reading the above description of the Australian medical care system with its jumble of private and public insurance coverage.

    • Wolf Richter says:

      All Japanese who come to live in the US are completely aghast at the healthcare system they find here. The costs, the ads, the high-pressure sales pitches when you go to the doctor (about getting a million tests, MRIs, etc. done in labs where the doctor owns a stake) and you don’t know what is really needed and what is not.

      In Japan, health insurance is public (single payer). Healthcare costs you relatively little when you come in contact with it. Obviously, it costs plenty of money, but it’s paid for with taxes and government borrowing. But overall, healthcare costs a fraction of what it costs in the US:

      Total healthcare costs as percent of GDP:
      http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS

      Japan: 10.5%
      US: 17.1% (highest in the world)

      The overall results are also not so good for the US. Average life expectancy:
      Japan: 83.7 years
      US: 79.3

      So yes, consumers in the US are getting ripped off by our healthcare system.

      We know a couple of doctors in Japan (former class mates of my wife). They make good money. But they’re not immensely rich. I would compare their income to that of a GP or internist in the US. Specialists make more, but they don’t get immensely rich either. And they’re working long hours and are doing a good job.

      • Thunderstruck says:

        Thanks for that in-depth comparison. I like to get real info on how other countries handle this issue.

      • Lee says:

        RE: Japan

        One thing about Japan is that you see a lot families with doctors in them.

        A friend of mine was a doctor, his dad was a doctor, and one of his sons was a doctor and the other a dentist. The daughter was dumber than a bag of rocks and I don’t what she did………..probably married a doctor……………

        Private doctors in Japan with their own clinics can make a fortune as they not only do the ‘doctoring’, but fill prescriptions as well.

        That is where the money used to be until the government cracked down. Get sick – take some pills – doesn’t matter what is wrong with you.

        I used to get ‘free’ medical care from my doctor friend until that change went into effect regarding drugs and then had to pay a few hundred yen for them when needed.

        The Japanese system of health insurance is basically two types of systems:

        1. National Health Insurance

        2. Employee Health insurance

        The first is for people who are self employed or not covered by any other system.

        The second is for people who are employed by an entity. Under this system are various other schemes depending on where one works.

        Most foreigners employed as ‘English teachers’ working for a burn ’em and churn ’em would be covered by the employee scheme or should have been.

        Those lucky enough to be employed by a private university on a full time basis would be covered by the “Shigaku Kyosai” system which covers people employed at private universities.

        When i was in Japan the National Health insurance fee I paid for the first year was around 3000 yen (+/- US$30 a month) and then it increased as my income went up to whatever the maximum payment was. The amount was capped once you reach a certain level of income so the incentive is there to make as much as you can – the insurance is quite regressive as a % of income for those on low incomes.

        I can’t remember the co-pays for this scheme, but they weren’t as good as the employee scheme.

        Those on this system were also enrolled in the National Pension scheme and it was set up in a similar basis.

        That doctor friend of mine and I were paying the same premiums under the system once we both topped out our income even though he was making multiples of what I was!!!

        Once I was employed on a full time basis at a university I moved to the “Shigaku Kyosai” scheme which was again based on your income.

        At that time the different types of income were charged different rates. Monthly salaries were hit highest with bonuses at much lower levels. (At my school the foreigners were paid at the same salary rates as Japanese, but had higher monthly income and lower bonuses so we paid more for health and pensions!!)

        At that time part time income from being an adjunct was not subject to the health or pension levy so it was like getting a 10% plus boost in your income.

        Co-pays at that time were 10% of the cost for the primary holder and 20% for the others under the policy.

        I think the co-pays under that system are now 20% for the primary holder and 30% for others.

        The benefit of the Employee system is that if your spouse didn’t work they were covered under the scheme and no extra payment was required.

        If covered under the National Health Insurance system there was a charge for the non-working spouse for the pension system. I can’t remember if they also had to pay for health insurance.

        Under both systems once you reached a certain amount of co-pays during a calendar month the government would then also pay a certain amount of the co-pay.

        So what you would have to do is have the whole family go to the dentist and get any teeth fixed in a one month period to get part of the co-pay refunded!!!

        And while Japan seems to have high tax rates, the amount you paid for health insurance and pensions regardless of which system you were under are deductions from income right off the top.

        If you paid US$12,000 for health and pension costs that came right off your gross income at tax time.

        This is unlike the USA where you pay Social Security and then have to pay income tax on that aspect of your income.

        Prices?

        Generally pretty cheap once covered – an MRI will set you back around A$20 to $30 after insurance.

        I’m not sure about other costs, but I think that the co-pays can get pretty expensive if you have something really wrong with you such as cancer and that is why many people in Japan also carry private health insurance.

  21. raxadian says:

    If the whole EpiPen®  case proved something is thar the drug and heath care industry in US is out of control has been whatever it wants for decades. Of course in that particular case their lost to the competition so even the investors said they had went too far in their greed.

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