Archive for April, 2014

Will Big Pharma Cripple Healthcare Reform?

Thursday, April 24th, 2014

big-pharma-pills-and-moneyFor those of us who criticized the Affordable Care Act for not going far enough, a big part of the concern was the law’s reliance on the private insurance industry to handle much of the expanded coverage. That industry, with its history of denying coverage and inflated premiums, deserved to be phased out rather than being awarded a large new captive customer base.

It now looks like an even more serious problem for healthcare reform will be another industry with a checkered past: Big Pharma. The drugmakers are generating a growing crisis not only for Obamacare but also for more established programs such as Medicare and Medicaid.

When the federal government recently released data on Medicare billings by individual providers, many of the top amounts were linked to doctors who administer expensive drugs in their offices and thus include the cost of those treatments in their Medicare claims. For example, some 3,000 ophthalmologists billed an average of $1 million each (one billed $21 million by himself), reflecting heavy use of an expensive medication for macular degeneration injected into the eye.

Another challenge comes from Sovaldi, a new hepatitis C drug sold by Gilead Sciences with a list price of $1,000 per pill, or $84,000 for a typical course of treatment. The product is doing great things for Gilead, which recorded $2.3 billion in sales for the drug’s first full quarter on the market — a pharmaceutical industry record.

It is causing problems for those entities that have to pay for use of the drug, including state Medicaid programs, the Department of Veterans Affairs and private insurance companies. One of the largest of those companies, UnitedHealth Group, recently cited the cost of hepatitis C treatments such as Sovaldi as one of the reasons for a drop in its earnings in the first quarter of 2014.

Earlier, several members of Congress, including Rep. Henry Waxman of California, sent a letter to Gilead expressing concern about the price of Sovaldi, but it generated little concern on the part of the company or the rest of the industry. One pharma industry analyst was quoted as saying: “We just look at this letter as a little bit of noise.”

Unfortunately, the dismissive tone was justified. Congress has done little to rein in the cost of prescription drugs and even took the absurd step of barring the federal government from negotiating with pharmaceutical providers in the Medicare Part D program.

The cost problem will only get worse. Patents are expiring on many major drugs, and the industry is creating fewer new ones, prompting companies to squeeze everything they can out of their shrinking product lines.

That means higher prices and other shady practices such as promoting drugs for uses for which they have not been approved. Many of the industry’s largest companies have paid large amounts to settle illegal-marketing charges brought against them by the Justice Department, among them Eli Lilly ($1.4 billion relating to Zyprexa), GlaxoSmithKline ($3 billion relating to Paxil and Wellbutrin) and Pfizer ($2.3 billion relating to Bextra and other medications).

Illegal marketing is just one of the serious charges brought against Big Pharma in recent years. The $3 billion GlaxoSmithKline settlement also covered allegations that it withheld crucial safety data on its diabetes drug Avandia from the U.S. Food and Drug Administration. Merck paid the federal government more than $650 million to settle charges that it routinely overbilled Medicaid and other government programs and made illegal payments to healthcare professionals to induce them to prescribe its products. Eli Lilly paid $29 million to settle foreign bribery charges.

It remains to be seen whether these cases have prompted Big Pharma to clean up its act. I remain skeptical, especially in light of recent signs that the industry is engaged in more concentration designed to allow companies to narrow their focus and thus gain bigger market share in particular sectors.

More specialization will mean less competition, which in turn will mean fewer choices and rising prices. When it comes to drugs, the Affordable Care Act will have increasing difficulty living up to its name.

A Fair Game’s Wage: Athletes Confront the NCAA

Thursday, April 17th, 2014

cartel_branchGuest blog by Thomas Mattera

The biggest star of the 2014 Men’s NCAA Basketball Tournament was not a person, but a phrase. When the event’s nearly 103 million television viewers tuned in for the first time, they were less likely to be greeted visually by any one announcer, coach or player than they were by the term “student-athlete.” The fourteen-letter camera hog was plastered all over coverage of each game, including on the elongated screen next to the court, where it was featured in a constantly rotating stream of advertisements for some of the tournament’s largest corporate sponsors.

Any why not? It is a phrase worthy of a hundred One Shining Moment montages, a romantic notion in tantalizingly hyphenated form. But what of the origin of this phrase? Did it materialize from the mind of James Naismith alongside the idea for the peach basket? Or perhaps it was a serendipitous typewriter error on the essay portion of Knut Rockne’s SAT?

Of course, the correct answer is neither of these. Rather, the term was concocted out of thin air sixty years ago by the NCAA in an (successful) effort to avoid paying worker’s compensation to the wife of a player who died from a head injury sustained playing college football.

This historical footnote serves as a perfect example of the absurdity of college sports and audacity of its bloated beneficiary, the National Collegiate Athletic Association.  A term that is now the foundational marketing tool on the biggest stage of college athletics is merely another in a long line of creative NCAA solutions to continue the exploitation and deny the players a slice of the pie.

Deeming the question of whether to reconsider the status quo of collegiate athletics a “debate” is an insult to life’s real unsolvable quandaries. College athletes provide unpaid labor for a mammoth industry, often devoting nearly forty hours a week to their sport while risking serious permanent injury and operating on year-to-year scholarships that can be terminated at the school’s discretion. In many ways, it is like the American healthcare system: one of its kind, wildly unjust, and mired in stagnancy by those who benefit from the current reality. It is no wonder that Bill Maher found so many who agreed with this now famous tweet.

Of course, this is no new revelation. As the television contracts alone have grown into the tens of billions of dollars while many players remain unable to afford life’s basic necessities, the inequity has become even harder to hide and the drumbeat for change harder to silence.  Just the last five years have seen crucial developments in changing public perception on the issue, highlighted by a lawsuit led by former UCLA star Ed O’ Bannon regarding video game likenesses and Taylor Branch’s scathingly brilliant piece in The Atlantic.

To counter these well-articulated and pressing criticisms of their system, the NCAA has done what those in the way of societal progress always do: stuck their fingers in their ears and screamed “lalalalala.” Well, not exactly. They have clung to a pair of stale talking points in rationalizing the way things are: the monetary value of a scholarship and the impracticality of determining individual athletic benefits.

The former assertion, championed most recently by NCAA President Mark Emmert ($1.7 million annual salary), hinges on the idea that the free tuition many athletes receive is more than adequate compensation for their sporting efforts. This argument states that these young people are primarily students pursuing a degree and that athletics are only a secondary focus of their lives on campus.

The latter point states that even if one believes in the moral validity of monetary compensation and better benefits for college athletes, there is no practical way to administer these funds. How would we figure out how much each athlete should be paid? Should the members of the football team receive the same treatment as the star-studded fencing squad? Even if we should reward these athletes, there is no equitable way to do so. Therefore, it is a pointless endeavor.

Both arguments have obvious flaws in logic. While free tuition and board may be enough to reflect the value of many athletes, what of the superstars who singlehandedly prop up marketing campaigns and sell out campus merchandise stores?  What about those like Johnny Manziel, who by one estimate made more than $250 million for Texas A&M over two years? Clearly, a meal plan, stack of textbooks, and unlimited free entry to a few lecture halls is not a fair trade for his services.

Furthermore, the idea that we should not compensate athletes simply because it is too complicated to figure out the wage scale is the logical equivalent of not racially integrating a school district because it would be too hard to figure out the bus routes. Or not allowing women to vote because ordering new ballots would be inconvenient. Logistical challenges can be overcome given the proper strategy, much like injustice.

Despite these deficiencies, the arguments had mostly gotten the job done for the NCAA, allowing it to claim plausible deniability and stifle change for decades even as public perception shifted. It seemed we were headed for a world in which everyone thought the NCAA should change their ways but no one could do anything about it.

That is, until the introduction of former quarterback Kain Colter and the effort to unionize the Northwestern Football Team. Seeking primarily to address the issues of medical expenses, autonomy in transfer decisions, a post-graduation player trust fund, and better protocol for brain traumas, lawyers representing the players made the case to the National Labor Relations Board that they are, in fact, employees of the university with the right to organize and collectively bargain. Peter Ohr, regional director of the NLRB, concurred with this idea and ruled in favor of the players in a strongly worded twenty-two page decision released on March 26.

Nestled in the text of Ohr’s assertions are the perfect counterpoints for both of the two arguments the NCAA has come to rely upon. First, Ohr discusses the time commitment of participating in big-time college athletics, at one point producing a schedule from Northwestern training camp in which players were forced to allocate 16 hours a day exclusively to football. So much for the sanctity of academics and the overwhelming priority of schoolwork versus sports. These young people are already working like full-time employees, Ohr asserts, so they should be treated like it too.

As for the question of how to determine how much each player should be rewarded? Say hello to the idea of collective bargaining, the tried and true method for determining the wages and benefits of a myriad of workers for centuries. If it worked for the Samuel Gompers and Walter Reuther, it can work for Johnny Football and Shabazz Napier.

So what comes next? The decision has set up a vote on April 25 in which Northwestern’s players will decide whether to formally organize.  Less than gracious in defeat, Northwestern itself seems intent on confirming the veracity of Ohr’s argument, immediately assuming its role as the anti-union employer as head Coach Pat Fitzgerald does his best Bob Corker impersonation.

No matter the result of the vote or the endless string of appeals Ohr’s ruling is sure to generate, the argument of collegiate athletic compensation has been permanently altered. No longer can the proprietors of college sports hide their bounty in plain view behind canned responses and loaded phrases like “student athlete”. Colter and his allies have formulated a new game plan, executed it to perfection, and the once invincible NCAA bully may get sacked.

Comcast’s Other Sins

Thursday, April 10th, 2014

comcast centerComcast’s audacious proposal to acquire Time Warner Cable and thereby become a cable behemoth has been met with an appropriate degree of skepticism.

Both Republicans and Democrats on the Senate Judiciary Committee grilled a company executive at a hearing on the $45 billion acquisition.

There are good reasons to worry about the impact the merger would have on customers in an industry that already imposes inflated prices for what is often substandard service. As consumer advocate Gene Kimmelman put it in his prepared testimony for the hearing:

The merger will even more firmly entrench Comcast as the gatekeeper at the crossroads of Internet, television, and communications innovation. Because the merged company will have both the incentive and ability to thwart development of innovative Internet services that threaten Comcast’s excessively priced offerings across a much broader swath of the market than is true today, this merger must be rejected.

The impact on consumers is not the only cause for concern. The merger would give considerably more power to a company that has a long history of using its clout to mistreat workers and fight unions. Comcast has been forced to moderate its labor practices somewhat, but there is no evidence that it has changed its fundamental stance.

It’s significant that Comcast’s worst union-busting behavior emerged after its last giant cable acquisition — the purchase of AT&T Broadband in 2001. As Jonathan Tasini, then head of American Rights at Work, put it in an op-ed in the Los Angeles Times:

Comcast promised to abide by union contracts and bargain in good faith. Instead, it embarked on a carefully orchestrated campaign to destroy the unions. In Detroit, Comcast chopped off more than half the unionized workforce, moving dozens of jobs to a nonunion facility. During organizing drives, Comcast has shelled out large sums to high-priced union-busting law firms and has harshly disciplined union supporters — firing some outright. Numerous charges have been filed against Comcast before the National Labor Relations Board.

This track record prompted the Communications Workers of America to oppose Comcast’s 2004 (ultimately unsuccessful) effort to take over Walt Disney. In a press release the CWA wrote: “Comcast has earned a designation by the AFL-CIO as one of the most aggressively anti-union companies in America, for its intimidation and threats against workers who want union representation. A Comcast vice president in Beaverton, Ore., stated publicly that Comcast is ‘at war to decertify the CWA’ and the company has followed that strategy since it bought AT&T Broadband in 2002.”

That strategy led to decertification votes in more than a dozen cities. An April 2004 article in the Philadelphia Inquirer reported that the unionized portion of Comcast’s workforce had fallen to less than five percent. The paper quoted CWA official George Kohl as saying: “We believe Comcast is out to crush unions. It has to do with control and paternalism run amok.”

Also in 2004, American Rights at Work (which later merged with Jobs with Justice) published a report entitled No Bargain: Comcast and the Future of Workers’ Rights in Telecommunications. After documenting how Comcast abused workers and fought unions, the report called on the company to change its ways.

Under pressure from CWA, Comcast apparently did change a bit. The union was able to negotiate decent contracts in places such as Pittsburgh and Detroit. Nonetheless, the union was critical of Comcast’s 2010 move to take over NBC Universal. So far, the CWA has taken a cautious public stance on the Time Warner Cable deal, saying it should be scrutinized but not explicitly opposing or endorsing it.

As an outsider, I am not familiar with the details of Comcast’s current dealings with the CWA or its other major union, the International Brotherhood of Electrical Workers. Yet the company’s history on labor relations, especially in light of what happened after the AT&T Broadband acquisition, makes me worry about how it would behave after gaining control over an even larger portion of the cable industry.

It is telling that the Comcast official who represented the company in the recent Judiciary Committee hearing, Executive Vice President David L. Cohen, is the same person who led the anti-union campaign a decade ago. ”We take pride in providing a safe, enjoyable and productive work environment,” Cohen told the New York Times in 2005, adding that workers ”do not need to be represented by a union to gain all of the advantages.” Earlier, Cohen was quoted as dismissing critics of the company as “a few disgruntled employees that the union trots out.”

Many companies use the section on employees in their 10-K filings with the SEC to proclaim that they have good relations with their workers. Comcast does not bother to even address the issue in its 10-K. I suspect that Comcast is still at heart a unionbuster and worry that after swallowing Time Warner Cable it would feel freer to let that impulse come to the fore once again.

Congress’s Corporate Accountability Charades

Thursday, April 3rd, 2014

bosses_900In recent days we’ve seen reprises of that old stand-by from the Congressional repertoire: hearings in which members of the House and Senate express indignation at corporate misconduct. Like similar performances that have come before, these events provided some short-term gratification but in all likelihood will ultimately prove frustrating.

The designated whipping boys this week were General Motors and Caterpillar. Both are legitimate targets. GM is embroiled in one of the worst safety scandals in its history as a result of mounting evidence that for years it concealed evidence of an ignition-switch defect that has been tied to a large number of deadly accidents. Caterpillar is under the gun because of a new Senate report accusing it of using accounting gimmicks to avoid more than $2 billion in federal taxes.

At a hearing of the Senate Commerce committee, GM chief executive Mary Barra was confronted with statements such as “The public is very skeptical of GM,” “GM is not forthcoming” and “I think this goes beyond unacceptable. I believe this is criminal.”

The amazing thing is that these statements were coming from both Democrats and Republicans, who differed little in their critique of the automaker. The same can, for the most part, be said about Barra’s only slightly milder interrogation by the House Energy and Commerce investigative subcommittee. Several Republicans sought to score some political points by emphasizing GM’s previous status as a government-controlled corporation, and Tennessee Republican Marsha Blackburn asked Barra whether the company’s safety lapses were related to the federal bailout (Barra sidestepped the question). Yet they did not press too hard in that direction.

The transcripts of the two GM hearings (available via Nexis) paint a very different picture of Congress from what we usually see these days. As Rep. Peter Welch of Vermont stated in the House hearing: “I have to congratulate General Motors for doing the impossible. You’ve got Republicans and Democrats working together.”

There was a similar seriousness of purpose and absence of simple-minded partisanship in the Senate hearing on Caterpillar. Subcommittee chair Carl Levin, a Michigan Democrat who has done extensive work to highlight corporate tax dodging, was of course aggressive in grilling company executives about Caterpillar’s funneling of vast amounts of profit through a tiny Swiss subsidiary to take advantage of an artificially low tax rate.

Yet the company did not get much sympathy from the Republican members of the subcommittee either, though Wisconsin’s Ron Johnson did manage to interject a reference to “our uncompetitive tax system.”

The unfortunate truth is that hearings such as these end up being nothing but a charade in which members of Congress pretend for a while to be tough on an egregious case of corporate malfeasance before they go back to doing the bidding of the monied interests.

For example, New Hampshire Sen. Kelly Ayotte, who was the one calling GM’s behavior “unacceptable” and “criminal,” sought to weaken the Consumer Financial Protection Bureau last year. Nevada Sen. Dean Heller, who joined in the critical questioning of Barra, once introduced a bill to prevent the Environmental Protection Agency from introducing “job-crushing regulations.”

The problem extends to Democrats as well. Veteran Rep. John Dingell, who was awarded special deference at the House hearing, has long-standing ties to General Motors and the other big U.S. automakers, which have been among his strongest political supporters. His wife Debbie Dingell worked for GM for 30 years. When the 87-year-old Dingell announced earlier this year that he plans to retire from Congress, a GM spokesperson said:  “As a champion of the auto industry, John Dingell had no peer.”

If anything, the inclination of members of Congress to do the bidding of business will only increase, now that the Supreme Court has struck down limits on total amounts wealthy individuals can give to candidates, party committees and PACs. Chief Justice John Roberts wrote: “Money in politics may at times seen repugnant to some, but so too does much of what the First Amendment vigorously protects.”

By once again equating money with speech, Roberts is ensuring that those with the most of it, including giant corporations, are the ones to which Congress, apart from brief periods of public interest grandstanding, will bow.