Monday, July 27, 2009

Healthcare: Time, Money, and Details

Capitol Hill is filled with buzz about Obama’s rushed health care proposal, intended to overhaul the current system. But as politicians portray healthcare with broad rhetorical brushstrokes, they continue to overlook a plethora of details that unnecessarily inflate its cost. A less publicized news item from last week was the annannouncement that the FDA will delay their final decision on Ampligen – the leading drug for the treatment of Chronic Fatigue Syndrome (CFS) – until this fall. The FDA announced that the delay was due to staffing problems.

Submitting Ampligen’s application is Hemispherx, a small biotech company that has researched the drug for nearly 3 decades. Like a handful of similar companies, their future solely depends on the FDA’s forthcoming decision. All of the clinical trials are complete. The drug’s application was accepted for review just over a year ago, which would make the FDA’s turnaround time over a year and a half. Judging from Hemispherx’s annual operating costs, the FDA’s delay by itself will cost them a total of approximately $15 million.

The FDA’s mission is largely to protect the public from harmful drugs, however critics demonstrate that their overcautious ways do more harm to the public than good. Their delays have cost the public thousands of more lives than they have saved, along with making them unpopular among most practicing physicians.

Even if you believe in the FDA’s mission, then it is hard to overlook the sheer inefficiency and waste that they introduce to healthcare. Clinical trials for new drugs take about 10 years, but even after all the data is in – as is the case with Ampligen – it often takes up to 1 more year for them to make a final decision. FDA delays are not-too-unexpected, but they have still hit Hemispherx hard.

Following each FDA delay, Hemispherx announced new efforts to raise more cash. Currently they are operating like a bear in hibernation, placed on life-support.

Given the millions of dollars lost due to FDA "staffing issues", one strategy might be to give them more staff. They might have applicants pay directly for these staffing issues, but the FDA already receives hundred of millions of dollars worth of fees; supplemented with more money by Congress, fees from private companies consist of half of their drug approval budget. Why these fees aren't enough to reduce the decision time to under 12-months isn't clear.

But the real problem, as discussed above, is with the structure of the FDA and the responsibilities placed on them. As drugs like Vioxx prove to be more dangerous than people could have guessed, the FDA has taken part of the blame; in response they have received more money and power, but this hasn’t led to marked improvement, accuracy, or efficiency.

Determining the safety of drugs can be particularly tricky, but there is only so much that you can ask for: Did the clinical trials meet their endpoints? Were there side-effects? Is there any reason to believe that there might be additional risks? Even if it takes 10 years of research to answer these quesitons, it should not take an additional year to intrepret the results: Either the end points were met or they weren't; there are side-effects or there aren't; there are reasons to consider additional risks or there aren't. These questions are not black-and-white, but following 10 years of required research (and often more), an additional year to make the decision - supposedly filled with heated internal regulatory debate - is not likely to find anything new.

As with most jobs, the problem lies not so much with the staffing, but with the structure of the organization. The main question is whether their mission – to approve and oversee every single drug (and many foods) on the marketplace – would be feasible, even if they had a large army of scientists at their disposal.

Science, like anything in life, obeys laws of diminishing returns: Beyond a certain threshold, the more you study one particular thing, like a drug, the less return in greater knowledge you'll receive for your efforts. Going back to the Voixx example, how many more years of clinical trials, and how much more power and money granted to the FDA, would have better assured its safety?

The assumption being placed on the FDA is that more research and regulation is better, regardless of the specific types of research and regulation being carried out. This is the same mistake that has been applied to the SEC for years, whose added regulations over the years tends to favor red tape, paper work, and superfluous committee-creating over investigatory manpower.

Currently drugs like Ampligen wander through a maze like patients lost in the healthcare system, knowing where they want to go but not being able to get there. And likewise they incur quite a cost – in the case of Ampligen, an added 18 months and about $15 million, assuming, of course, that the drug is even accepted. On top of decades of research and piles of paperwork, does it really take an additional 18 months and $15 million to judge a drug? The frustrating part is that much of this could be avoided either by cutting back on new drug requirements; somehow lowering the cost to big pharma of drug approval; or at least greasing the FDA's wheels in any manner that would make them more - not less - efficient. As it is, patients along their way are forced to pay for these costs, which are often more attributable to regulatory stuckiness than to added value.

Any improvement in healthcare requires us to look at the factors driving up its cost, rather than further re-distributing costs that already exist. In this environment, small companies like Hemispherx - who can survive 30 years researching just one drug - exist not because of the current healthcare system, but in spite of it. Indeed, in what other private industries is it common for a company to go decades without a product? Such gargantuan human efforts are testament to our need for better healthcare, not for better government intervention.

-KJ

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Note: Long position held in HEB.

Media (in order of appearance)

Photo: (1)Day 20, 1/20/2009, Richard; (2)Ampligen PR; (3)Healthcare, hospital, doctor, 04/22/2009, Anoto Group; (4) corridor, 04/10/2005, sumit.
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Sunday, July 12, 2009

The Future of News

So much for Objective Journalism. Don’t bother to look for it here - not under any byline of mine; or anyone else I can think of. With the possible exception of things like box scores, race results, and stock market tabulations, there is no such thing as Objective Journalism. The phrase itself is a pompous contradiction in terms.

-Hunter S. Thompson, Fear & Loathing on the Campaign Trail

I recently started getting magazines again. Specifically, The Economist and Consumer Reports. Both have proved to be surprisingly insightful.

Leading up to this decision, I had been on a 10 year magazine-hiatus since my teens, when I received Reason and Sports Illustrated. I never read the issues with any regularity, and this left me with a trifle of guilt upon their arrival. When I started college I left behind magazines for good (along with TV) and I completely lost touch with current events. It was embarrassing at times. Like when I wondered why Jim Carey was challenging incumbent president George Bush.

But my real beef with magazines was that I didn’t care about the news. What I craved was insight.

News is temporal, it changes with the scenery. I was reminded of this whenever we visited my grandparents at their Floridian retirement community. The poor residents of that community were barraged with reports of murder and petty crimes. Local news channels invariably resembled Cops, with scenes of police car lights burring at night. Undoubtedly this all appealed to the worn out memory and attention of the elderly, who might as well have been watching reruns of the same broadcast over and over again.

After I decided to return to magazines, it took me months to make my first decision. I ended up going with The Economist, and then Consumer Reports, and I couldn’t be happier with them.

The 2 magazines reflect upon each other in a unique manner. Whenever I go from reading one to the other I feel a nice dissonance.

The Economist is filled with 15-page world and topical surveys. Articles regularly include sweeping statements like this one:
De Tocqueville, in his optimistic phase, said that “the greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.” America has succeeded brilliantly in repairing the ancestral fault of racism. Thirty-six years after Richard Nixon casually remarked that “there are times when an abortion is necessary…when you have a black and a white,” America elected the child of a black father and a white mother to the presidency. The new administration is trying to correct some of the excesses of the Bush years, much as Ronald Reagan corrected the excesses of the Carter years. (Lexington, July 09)
As noted in a recent Atlantic article, the genius behind The Economist lies in synthesizing, interpreting, and digesting current events, rather than barraging the reader with breaking news or unique scoops.
The Economist prides itself on cleverly distilling the world into a reasonably compact survey….As a result, although its self-marketing subtly sells a kind of sleek, mid-last-century Concorde-flying sangfroid, The Economist has reached its current level of influence and importance because it is, in every sense of the word, a true global digest for an age when the amount of undigested, undigestible information online continues to metastasize. And that’s a very good place to be in 2009.
Such a style of non-objective journalism is certainly prone to pitfalls, but at its best it can be truly enlightening. In The Economist, news is not simply reported for the sake of being news. The best stories link news items to grander constructs and themes. World leaders and CEOs are portrayed as human characters on the world stage. Modern themes playing out are tied to their semi-distant historical roots. Overall trends are elucidated, regardless of whether they are obvious or not. Sometimes the best things to point out are those which are obvious. A friend of mine once commented that what he loved about John Madden’s style of football broadcasting is that he’s not afraid to hark on the obvious. The Economist often excels at doing just that.

Permeating its writing is a supra-macroeconomic perspective (laid out imperfectly in their publication, Making Sense of the Modern Economy). For a while this approach struck me as too unfocused and general. Unlike magazines that are topical, niche, or partisan, it’s difficult to describe. But over time it began to click. The effect is similar to the historian who cries that history repeats itself, only it pulls not from history, but from disparate areas of the world, discussing the sorts of trends, similarities, and contrasts that you might expect to hear from a small group of smart and well-experienced travelers. One example was their insight, critical of America’s drug war, that Mexican drug violence is largely caused by Clinton-era success against Colombian drug czars (On the trail of the traffickers, 05/05/2009)

Consumer Reports in contrast is an expose of detail. Issues feature 20-page specials on kitchen appliances and cars. The advice is so concrete that you can taste its utility: “Stainless [steel refrigerators] might look inviting at the store. But it smudges easily and requires frequent wipe-downs. Clear-coated stainless or faux-stainless vinyl coatings are easier to keep clean.” (p. 27, August 2009 issue). Or “Toto’s Ultra Max II [water-efficient toilet], $510, is among those that use just 1.28 gallons per flush. But clearing the blue dye in our liquid test took two flushes, or a whopping 2.6 gallons.” (p. 47, same issue).



The magazine is geared towards that shopping maven side of you who is looking to make the wisest consumer decision. But its real value comes in teaching you how to think on a very basic level.

The death of news media - many fear - will lead to the end of the well-informed American citizen, who is now more likely to get free news on the internet that to tune into a TV station or buy a newspaper. Following Iran's election protests, The Economist declared, "Twitter 1, CNN 0". Yet we are not witnessing the death of the news industry, so much as its reformation. Gone is the demand for late-breaking news at ones fingertips or on the TV screen. In its place, however, is the need for a more interpretive spin on the news - one which doesn't tell us everything that is happening in the world, but rather is more selective by telling consumers only those news items that they need to know, and perhaps why they need to know it.

For now the media industry - particularly newspapers - is running scared, and no doubt many journalists will lose their job due to lessening demand for such broad coverage. But taking their place are slimmer media outlets that have the capability to not only inform their customers, but to sharpen their wit while they're at it. The mind of the average American news junkie won't so much be an encyclopedia of miscellaneous facts - ranging from local carjackings and rape trials to state elections and abortion debates - but rather it will need to become more discerning, organized and fluid in its abilities. In response to the current adrenaline pocked ADHD news industry, this change will be for the better.

-KJ

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Media (in order of appearance)

Photo: (1)magainze pile, 05/30/2007, quietjenn; (2)Clocked at 67 mph/124km, 07/23/2006, runswithscissors; (3)Blue Marble, 11/28/2007, acbo; (4)Hard drive clock, 02/16/2009, Jack AZ; (5)Consumer Reports Testing Facility, 01/22/2009, ZRec.

Video: (1)Toilet Paper Testing from Consumer Reports, 03/30/2009, Consumer Reports channel.
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Friday, July 3, 2009

The Future of the Economy

The untold story of the financial crisis is the transition from manufacturing to services. This won’t mean the death of the economy – as some skeptics proclaim - and it shouldn’t even come as a surprise.

Historical View

To gain some perspective, the Great Depression had a similar underlying theme as the country transitioned from farming to manufacturing. Agricultural products were considered tangible necessitates; the rugged American farmer was seen as a cornerstone of the economy; and, it was argued, the country’s best interest lay in keeping the farmer alive. Supporting the farmer was considered patriotic – the same sort of pathos which, ironically, we currently see in the manufacturing sector.

The sequence of events was remarkably similar to that of America’s car companies – a former leading industry begins to falter during an economic boom, depression hits, and it suddenly implodes.

Looking back, we can at least feel some comfort that, as useless as our current attempts to bail out the Big 3 have been, they pale in comparison to the damage caused by trying to salvage the farming industry. Leading the way was the Federal Farm Board (FFB), which was setup before the crash.

The FFB began with $500 million dollars dedicated for loans to farmers. After the Great Crash, prices for agricultural products, like most consumer goods, took a nose-dive. Farmers complained that they couldn’t turn a profit. The FFB was then placed in the awkward position of trying to keep farmers alive while raising the prices of their goods. In order to accomplish the latter, they tried to limit farmers’ output by buying and storing huge quantities of agriculture goods, encouraging farmers not to farm, and going so far as to encourage the destruction of farmland. In 1930 it even tried to raise cotton prices by seizing 1.25 million bales of cotton for 1 year; this had no effect on the price.

Tangibility of Services

I imagine that before the Great Depression, one could make the same argument against the foreseeable manufacturing revolution as one can make today against the upcoming service-based economy: Services are non-essential and an economy cannot be built on such intangibles.

On the contrary, the only tangibles in any economy are supply and demand. This holds regardless of how concrete a given product is.

Part of the confusion has to do with what, exactly, we mean by services. At times its distinction from manufacturing is blurry. People are also quick to point to failing service sectors – advertising can be lucrative, but its success is strongly tied to that of the overall economy; journalism, another quintessentially American industry, has received a heavy blow; and IT support is overly prone to outsourcing.

These smaller service sectors may reveal some clues, but the central veins of a service-based economy – as key today as auto making became after the Great Depression – are healthcare and education. As intangible as services may seem, the modern American cannot live without these 2 services. They are the bread-and-butter of a service economy.

Healthcare & Education

The rising cost of healthcare and education is heavily debated. Regardless of where you side, it can be agreed upon that a large portion of the cost resides in systematic inefficiencies linked to public policy. At the same time, the mere fact that Americans continue to pay such high costs for healthcare and education is testament to their growing importance.

The importance of these services is forgotten when pundits speak only of the rising “costs” of healthcare and education, although it is forgotten for a good reason. In the final quarter of 2007, for instance, Apple reported revenues of $3.4 billion from iPod sales; and yet you wouldn’t say that during those 3 months the iPod cost the nation $3.4 billion. Yet by means of contrast, what remains alarming about healthcare and education is that, however you look at it, we haven't found a way to let them thrive. Some sectors do flourish, but on the whole the industries really do “cost” the economy quite a lot of money.

Our current problem is that we haven’t figured out a way to integrate these areas into the economy. The question is not “how do we minimize the costs health care and education upon the economy?”, it’s “how do we make them a part of the economy?” Lots of government regulation and subsidies, I suspect, aren’t the answer. But either way the debate is too focused on minimizing their negative impact.

The success of the automobile industry hinged on not only better cars, but on cheaper cars as well – this was the famous recipe to Ford’s success, that he was able to tap an economy of scale. In contrast, healthcare and education in the US are, by any measure, diseconomies of scale. And yet as national employment continues to decline - with manufacturing taking the biggest hit - service-based employment is growing substantially, and projections suggest that it will continue to accelerate with healthcare and education leading the way. Looking forward, it’s hard to imagine a successful future economy without these 2 industries on board.

-KJ

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Media (in order of appearance)

Photos: (1)CROP CIRCLE MAKER - Matthew Williams, 06/07/2007, Mark Berry; (2)USA 2005 (October 1st) Nevada, Reno, National Automobile Museum, 02/25/2008, by Paraflyer; (3)The Causes of the Great Depression/FDR Memorial Site, 09/15/2008, Tony the Misfit; (4)2008AUG121654, 08/12/2009, bootload; (5)Gesundheit, 04/01/2009, by Gunnar Ries; (6)iPod Family, 02/09/2007, by CokeeOrg; (7)Class, 12/04/2007, by Nik Lee.
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