Obamacare

The Future of Health Care: "Huge taxes and fees are coming."

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As part of his ongoing "Ask a CEO" series, the OC Register's Brian Calle spoke with Allergan's David Pyott about how the Affordable Care Act would reshape the country's health care system:

Pyott started our discussion by saying the health care bill was "laudable" because "32 million more people will have access to health care." But Pyott quickly and astutely noted that "someone is going to have to pay for it." A lot of that burden has been placed deliberately upon companies in the pharmaceutical industry.

What that means for the industry, according to Pyott, is that doctors will see downward adjustments to their payments while drugmakers and device manufacturers will face higher taxes and lower sales.

"Huge taxes and fees are coming," Pyott says. The biggest tax will be on pharmaceutical manufacturers. It will cost the industry about $2.3 billion next year. In 2013 an additional excise tax on medical devices of 2.3 percent of sales will kick in.

As if that were not enough, the pharmaceutical industry will also be required to pay a 50 percent rebate to the government to help close the "doughnut hole," the gap in the Medicare prescription drug plan where recipients run out of coverage and must pay out-of-pocket costs before catastrophic care kicks in (the coverage gap falls between $3,000 and $6,000). Let us not forget where Medicare Part D came from.

But if you are not in the pharmaceutical industry why should you care?

Pyott explained, "When huge new taxes are levied, for people like me, who have a global perspective, other markets overseas just became relatively more interesting than the U.S. domestic market, quite clearly."

For a complete picture of the new taxes levied by the health care bill, see this handy timeline from the Tax Foundation.

Jacob Sullum looked at health care reform's tax hikes here.

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  1. Pyott quickly and astutely noted that “Someone is going to have to pay for it.”

    Wrong, wrong, wrong! Are you people retarded? What is it about “healthcare budget surplus” that you don’t understand? It pays for itself!

  2. If you thought losing your company sponsored healthcare was bad before, you ain’t seen nothin yet!

  3. “It will cost the industry about $2.3 billion next year. In 2013 an additional excise tax on medical devices of 2.3 percent of sales will kick in.”

    When will you people finally get it through your heads that businesses make economic decision in a vacuum and there are no unintended consequences?

    “When huge new taxes are levied, for people like me, who have a global perspective, other markets overseas just became relatively more interesting than the U.S. domestic market, quite clearly.”

    OMG, he’s talking about cost cutting, market exposure and maximizing profits…

    Somebody call InterPol, quick!

  4. The problem is that those 32 million people already have access to health care. They just don’t have insurance. Which means that somebody else was already paying for their health care outside of occasional doctor visits, which might not be the most efficient system ever, but sadly is still a lot better than this mess of a bill they call healthcare “reform.”

    1. oops, you beat me to it — see below —

    2. Also, I know that most people here understand this. I just get tired of hearing this lie over and over, especially from the “it’s not perfect, but at least now people will have health care” crowd.

    3. “The problem is that those 32 million people already have access to health care. They just don’t have insurance.”

      Well, if we’re already paying for it, then what’s the point of putting them on the government dole?

      …and please, please don’t say “to control costs”.

  5. I started to make a relevant, although so fucking obvious, comment (“lack of health insurance does not equate to lack of access to care) — but I’m just so sick and tired of correcting misunderstandings, misstatements, and outright lies, with relatives and just about everyone else I know, that I need a break from the health care discussion before I get sucked down for good. Or maybe I need new friends.

  6. “When huge new taxes are levied, for people like me, who have a global perspective, other markets overseas just became relatively more interesting than the U.S. domestic market, quite clearly.”

    What overseas markets? Canada, Europe? The regulate the heck out of pharma prices.

    India, China? They’ll be regulating the heck out of pharma prices once enough people there actually have money to buy them.

    1. Key word is “relative.” We’re at time T now and companies are considering where the U.S. is compared to other countries. At T+1, when the U.S. regulatory burden increases, all else equal, other jurisdictions become relatively better.

    2. “What overseas markets? Canada, Europe? The regulate the heck out of pharma prices.”

      One of my questions isn’t about the pharma prices, it’s about physical location, market availability…

      “The biggest tax will be on pharmaceutical manufacturers. It will cost the industry about $2.3 billion next year. In 2013 an additional excise tax on medical devices of 2.3 percent of sales will kick in.

      “As if that were not enough, the pharmaceutical industry will also be required to pay a 50 percent rebate to the government to help close the “doughnut hole,…”

      At what point does it become more profitable to move your research elsewhere and corporate structure elsewhere? That’s one question…

      At what point does it stop making sense to make devices and drugs available in certain markets? That’s another…

      Does it ever start making sense to delay making such things available in certain markets until after you’ve already recouped what you spent on R&D?

      Isn’t that a regular consideration in other technology driven industries? Why wouldn’t that come into play here?

  7. I have a hard enough time convincing people that the law of supply and demand actually governs real human behavior in real markets. Case in point: I explained in detail to my girlfriend last night how when you tax a good, it shifts the supply curve left/up, thereby decreasing quantity and increasing prices. For some reason, she believes that this actually happens if the tax on gasoline goes up, but refuses to believe that if the payroll taxes were eliminated workers would see any of the savings as additional pay. I started to go into reasons that employers are clearly not monopsonists, but I had already lost her 🙁

    It blows my mind that you can have a bachelors degree and not believe in supply and demand.

    1. I explained in detail to my girlfriend last night

      Yer doin’ it wrong . . .

      1. Boyfriends are too stupid to understand basic economics too. Well, at least the one I know is.

    2. One of the things that boggles me is the idea that the government is going to make health care cheaper by taxing medicine and medical devices. Brilliant!

  8. The doughnut hole was a cost control measure and the only thing that was good about Med D. Getting rid of that is a blank check for whatever drugs the person wants. Not surprising that the pharmacy company’s went along with this despite the taxes.

  9. I posted this last Friday in the thread about the “four million new fines” but everyone apparently was out drinking during that thread and this post is more apt anyways…

    -I’ve been having fun asking liberals to solve this conundrum in regards to new laws erasing pre-existing exclusions for Insurance policies:

    If insurance companies have to take me regardless of my pre-existing condition, why would I buy health insurance? Why don’t I just pay the fine and wait until I get sick? Technically I could show up to the counter at Aetna with AIDS, opena a new policy, pay my $200 a month premium and they would be forced to provide me with millions of dollars in healthcare, right?

    The answers I’ve received are hilarious.

    1. Any progress on getting yourself a lil digital recorder? Or you just gonna keep teasing us about how hilarious their responses are?

      1. Patience my friend, patience. I have some good stuff waiting on some video editing software.

  10. After the concessions the Obama administration made to the pharmaceutical companies (importation bans, no negotiations on medicare drug prices), I would just like to kick this guy in the nuts for playing the victim.

    If our biggest problem wasn’t exorbitant pharmaceutical prices (Allergan reported a 14% profit margin in 2009) and over-utilization of health care services, I might actually have a shred of concern for Mr. Pyott’s plight.

    1. Whoa there, big fella.

      You consider a 14% profit margin to be “exorbitant”?

      1. No, I said prices were exhorbitant. Drug prices in the US are far higher than anywhere else in the world.

        However, I do think that a 14% profit margin in a time of severe recession is rather high, and pharmaceuticals are routinely at the top of the stack in terms of industry profit margins.

        http://money.cnn.com/magazines…..s/profits/

        1. You do understand basic economics, right? You understand that when a company pioneers a medicine that is the first or most advanced of its type that they are investing millions of dollars into a product which may not even pan out, right? And when that first company does figure out the right product, they then have to wait costly years for the FDA to test it. And then they sell it at high prices because that way they can recompense all the money invested into those products. Is this a difficult concept for you to understand? I can draw pictures and graphs and charts to accompany this complicated process.

          1. That’s what you call basic economics?

  11. You consider a 14% profit margin to be “exorbitant”?

    Profitz is evul.

    Duh.

    1. No, government-backed cartel profits are evil.

  12. “After the concessions the Obama administration made to the pharmaceutical companies (importation bans, no negotiations on medicare drug prices), I would just like to kick this guy in the nuts for playing the victim.”

    Correct me if I’m wrong, but I don’t think they banned the importation of pharmaceuticals.

    What I understand they did was keep the status quo–which is that they didn’t expressly legalize importation.

    Americans buy billions of dollars in pharmaceuticals from Canadian and British pharmacies every year–and it’s all perfectly legal.

    To get it through customs, it has to be accompanied by a prescription from an American doctor, and you can’t import more than a three months’ dosage at one time.

    The costs are sometimes 20% of what you’d pay at any American pharmacy.

    1. …now with bacon!

      http://en.wikipedia.org/wiki/O…..d_U.S._law

    2. That’s some competition there Ken!

  13. Seriously?

    The idea that what Obama is doing is really in the best interests of medical research companies is up there with the suggestion that investment banks secretly want to be regulated heavily and that evolutionary biologists are all secretly creationists–they just won’t admit it!

    I can see how companies with little in the way of R&D might like a fixed price system, but a company like Allergan?

    R&D based companies have to tailor their R&D budgets based on what they can charge to cover their costs. If you’re a company that’s still making Tylenol or Aspirin after all these years, then I suppose getting more sales guaranteed through a government program is a good thing, but if you’re a cutting edge R&D driven biotech company?

    Having to limit your R&D budget to what the government will reimburse you or your partners for, rather than what the market will bear, means your P/E just took a haircut.

  14. First off, R&D investment makes up far less than advertising and administration (and likely lobbying costs) within the pharmaceutical industry. Generally R%D investment is right around the profit margin. Also, the vast majority of new drugs introduced to the market are “Me-Too” drugs that simply attempt to jump into an already established lucrative markets or slight alterations to existing medications.

    I also never said that Obama is acting on behalf of pharmaceuticals (although he did work hand-in-hand with pharma lobbyists, and the big banks would like to see regulation). I simply stated that I have no sympathy for Mr. Pyott.

    There seems to be a problem with some libertarians to see the status quo as being the model freedom, with further regulation as being a definitive bad.

    The fact of the matter is that the government has been seriously engaged in propping up pharmaceutical companies for decades, and acting like this particular reform bill is pushing a market pricing system out of whack is nonsense.

    I have no doubt that Mr. Pyott has been in the business of using government to steal from non-customers for most of his career, so I am not particularly concerned that his privileged position has slipped.

    1. “I also never said that Obama is acting on behalf of pharmaceuticals…”

      That wasn’t aimed at you specifically–if the shoe doesn’t fit, don’t wear it.

      But that is something I hear a lot. There are hundreds of little biotech companies sprinkled between San Diego and Palo Alto. They do the hard work of discovery, and then find a partner to do the heavy lifting of getting something through trials…

      It would be silly not to think that Obama’s scheme won’t put an upper limit on what they and their partners can get for their products at market. …and that their limited upside won’t have a dampening effect on the money they can raise for research.

      Yeah, “silly”.

    2. “There seems to be a problem with some libertarians to see the status quo as being the model freedom, with further regulation as being a definitive bad.”

      Umm…no. I think most Libertarians would agree that the once status-quo (Employer-provided Insurance incentivized by the tax structure) was not a desirable system, but it probably did produce better overall results than the horrid amalgamation they have foisted upon us. To the credit (::Barf::) of the hardcore social democracies that have single-payer, their systems might have better outcomes then whatever Obamacare (I hate calling it that, I wish we could just call it Bucket-O-LiesCare or something similar) will crap out. Ultimately, Obamacare will give us the worst of both worlds by keeping the majority of healthcare tied to employers while spreading responsibility (read: money) around like so much expired peanut butter, in the vain hope that some people will have healthcare that did not have it before. The status quo is no where near the “model freedom” but it’s a hell of lot better than the house of so-called fairness we get to live in now.

      1. That isn’t quite what I mean.

        Libertarians tend to vehemently oppose all regulation as being cost-ineffective, wasteful, a limitation on freedom or what-have-you.

        This seems to be an example of that trend.

        The problem is that there isn’t any reason to assume that prices are clearing anyways.

        Since the government already has mountains of regulation and incurs over half of all medical spending already, there is no way we can denounce the regulation based on the effects it has on businesses.

        Yes, if this person is indeed telling the truth, then we can expect R&D to fall. That does not mean that it is not a good thing.

        I find it very likely that the pharmaceutical industry is sucking far more resources than it would on an actual free market, so their loss is our gain.

    3. There seems to be a problem with some libertarians to see the status quo as being the model freedom, with further regulation as being a definitive bad.

      Find me a libertarian who thinks that the status quo of health care was a model of freedom.

      1. I won’t, but I can find you a lot of libertarians that think all regulation to be an inherently distorting and bad idea.

        1. Of course it’s inherently distorting. It’s a rule that dictates how businesses can act. That inherently distorts those actors’ choices. Not necessarily in a bad way, but most often in a bad way for a lot of different reasons, one being the legality of such measures.

          1. What is it distorting?

            What health care industry is operating on anything remotely resembling a market pricing system?

            Its like putting blinders on a wall-eyed horse.

  15. If you’re suggesting that limiting the pharma industry on the income side won’t necessarily have a bad effect on R&D, then there’s no point in discussing this or anything else with you further.

    1. Ken,

      If that is directed at me, I am agreeing that anything that lowers the quantity of income will lower the quantity of R&D investment (all things equal; most likely it would also lead to far more cost-effective R&D investment).

      My point, however, is that libertarians are often too quick to assume such effects are actually bad. Doing so would involve engaging in the same poor economic thinking that has lead us to subsidize health care in this country to the brink of collapse.

  16. I offered to draw this guy some charts and graphs and pictures.

    1. zoltan,

      You are more than welcome to graph out all you want.

  17. My point, however, is that libertarians are often too quick to assume such effects are actually bad.

    Silly us, thinking that the amount and type of R&D investment that comes from an application-focused profit-driven system will yield better results than one dictated from Washington.

    What are we thinking?

  18. R C Dean,

    We don’t have anything like that.

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