Kevin Drum

Take Two: Just How Good Are Generic Meds Anyway?

| Tue Jul. 29, 2014 1:04 AM EDT

A few days ago I wrote a post about generic painkillers and the fact that doctors themselves—who should know better—often don't use them. "If physicians aren't really sold on generics in their own personal lives," I asked, "does this mean they're not really sold on them in their professional lives too?"

Well, perhaps I got it backwards. A friend sent me a link to a Forbes article from last year about the FDA retracting its approval of a generic version of Wellbutrin:

The episode is bringing momentum to a movement that has been quietly building among many doctors and medical societies that are increasingly willing to ask a question that borders on heresy: Are generics really identical to the branded products they are meant to replicate? To a surprising degree, they say, the answer is no.

If you’re a layperson, this is the way you probably think of generics: They’re the exact same products in different packaging; generics companies can sell such medications for a fraction of the cost of the originals because they don’t have to spend huge sums on drug development and marketing....But generic drugs diverge from the originals far more than most of us believe.

....The FDA’s rules effectively acknowledge that. The agency’s definition of bioequivalence is surprisingly broad: A generic’s maximum concentration of active ingredient in the blood must not fall more than 20% below or 25% above that of the brand name. This means a potential range of 45%, by that measure, among generics labeled as being the same.

In other words, physicians are becoming increasingly concerned about the reliability of prescription generics, so maybe they're a little bit skeptical about over-the-counter generics too.

Now, I doubt that anyone seriously thinks this applies to aspirin or ibuprofen. There's nothing proprietary about the formulas for these medications, and everyone knows how to make them just as well as the big guys. Still, I suppose it's possible that a generalized uncertainty about generic prescription meds could translate into a bit of uncertainty about OTC meds too. And that little bit might be enough to make lots of doctors shrug their shoulders and plunk down an extra dollar or two for a name brand.

I'm just guessing here, of course. Mostly I just thought it was an interesting article and wanted to pass it along.

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Medicare Actuaries Are Big Fans of Obamacare's Cost Reduction Programs

| Mon Jul. 28, 2014 8:42 PM EDT

As long as we're perusing the 2014 Medicare Trustees Report, here's another interesting chart. It shows just how much the Medicare actuaries expect to save thanks to all the cost-reduction measures included in Obamacare. It's a pretty speculative forecast, of course, but their estimate is that Obamacare will reduce federal spending a lot. By 2080, the savings add up to about 1.5 percent of GDP, which in today's dollars amounts to $250 billion per year.

Now, don't take this too seriously on a pure policy basis. Projections that are extended 70 years out are pretty worthless. Trend lines don't stay the same that long, and government policies change every decade anyway. Nor does this mean that Obamacare is a free lunch. It still has a high net cost since it's insuring a whole lot of people who never had insurance before.

Still, this shows that the Medicare actuaries take the efficiency measures in Obamacare pretty seriously. If we stick to them, they really are likely to cut the growth rate of Medicare spending. And remember: Medicare costs get reflected in overall health care costs too. If Republicans ever win their jihad against Obamacare, we lose not just the Medicare savings, but a lot of savings in private health care too. That's a lot to give up.

Chart of the Day: The Great Medicare Spending Mystery

| Mon Jul. 28, 2014 5:57 PM EDT

Here it is: the biggest question mark in the entire federal budget. The 2014 Medicare Trustees Report is out today, and it shows, rather remarkably, that the cost per person of Medicare in 2013 was absolutely flat compared to 2012. Even more remarkably, they expect the combined increase over the next two years to be zero as well. In other words, Medicare costs are growing considerably slower than the inflation rate.

And now for the trillion-dollar question: How long will this slowdown last? The historical data in the report, along with future projections, suggests that between 2006 (when the prescription drug benefit began) and 2018, Medicare costs will have grown, on average, at exactly the rate of inflation. In real terms, that means zero growth over a 12-year period. But Medicare's actuaries don't expect that to last. Starting in 2017 they expect high growth rates again, leading to Medicare spending outpacing inflation.

This is by far the biggest unknown going forward in the federal budget: Will Medicare spending continue to increase slowly, or will it revert to the higher growth rates of the early aughts? You can make a pretty good case either way. But no matter what anyone tells you—including me—don't be fooled. The real answer is that We. Just. Don't. Know.

House Republicans Pass Bill to Lower Taxes on the Rich and Raise Taxes on the Poor

| Mon Jul. 28, 2014 2:12 PM EDT

So what are Republicans in the House of Representatives up to these days? According to Danny Vinik, they just passed a bill that would reduce taxes on the rich and raise them on the poor.

I know, I know: you're shocked. But in a way, I think this whole episode is even worse than Vinik makes it sound.

Here's the background: The child tax credit reduces your income tax by $1,000 for each child you have. It phases out for upper middle-income folks, but—and this is the key point—it phases out differently for singles and couples. The way the numbers sort out, it treats singles better than couples. This is the dreaded "marriage penalty," which is bad because we want to encourage people to get married, not discourage them.

So what did House Republicans do? Naturally, they raised the phase-out threshold for married couples so that well-off couples would get a higher benefit. They didn't have to do this, of course. They could have lowered the benefit for singles instead. Or they could have jiggled the numbers so that everyone got equal benefits but the overall result was revenue neutral.

But they didn't. They chose the path that would increase the benefit—and thus lower taxes—for married couples making high incomes. The bill also indexes the credit to inflation, which helps only those with incomes high enough to claim the full credit. And it does nothing to make permanent a reduction in the earnings threshold that benefits poor working families. Here's the net result:

If the House legislation became law, the Center for Budget and Policy Priorities estimated that a couple making $160,000 a year would receive a new tax cut of $2,200. On the other hand, the expiring provisions of the CTC would cause a single mother with two kids making $14,500 to lose her full CTC, worth $1,725.

So inflation indexing, which is verboten when the subject is the minimum wage, is A-OK when it comes to high-income taxpayers. And eliminating the marriage penalty is also a good idea—but again, only for high-income couples. Which is crazy. I don't really have a firm opinion on whether the government should be in the business of encouraging marriage, but if it is, surely it should focus its attention on the people who need encouragement in the first place. And that is very decidedly not the upper middle class, which continues to get married at the same rate as ever.

So we have a deficit-busting tax cut. It's a cut only for the upper middle class. It's indexed for inflation, even though we're not allowed to index things like the minimum wage. And the poor are still scheduled for a tax increase in 2017 because this bill does nothing to stop it. It's a real quad-fecta. I wonder what Paul Ryan thinks of all this?

Why on Earth Are Argentine Bonds So Hot Right Now?

| Mon Jul. 28, 2014 1:11 PM EDT

What's the hottest ticket in the global bond market right now? That's right: Argentine bonds. They're on a tear. But why? Didn't Argentina just lose—once and for all—its court case against vulture funds who own old Argentine bonds and are refusing to accept partial payment of the kind that everyone else accepted after Argentina's default a decade ago?

Why yes, they did lose. Argentina now has to pay the vulture funds—which is politically unthinkable for any Argentine politician who wants to avoid being tarred and feathered—or else it has to default on all its bonds, including the restructured "exchange" bonds that it issued in 2005. So why are these exchange bonds becoming more valuable? Argentina has always been willing to pay those bonds, so it's not as if the court ruling has made default less likely. The risk of default was already close to nil. So what's up?

Felix Salmon, having gotten tired of financial journalists offering up bizarre theories to explain this, tells us today that it's probably all simpler than it seems. In fact, the odds of default have gotten higher, just as logic dictates, but this might actually be a good thing for bondholders. Normally, he points out, there's no upside to bonds: you get the coupon payment, but you never get anything more. In Argentina's case, however, that might not be true.

First off, there's something called a RUFO clause. This means that if Argentina does eventually settle with the vulture funds, it has to offer the same deal to all the other bondholders.

Obviously, Argentina doesn’t have the money to pay out the exchange bondholders in full according to that clause. But if Argentina is paying out billions of dollars to vultures who deserve much less than they’re getting, and if those payments create a massive parallel legal obligation to the bondholders who cooperated with the country and did everything they asked, then it’s not unreasonable to expect that Argentina might end up paying something to the exchange bondholders, if doing so would wipe out any RUFO obligations.

Then there are interest payments:

The second way that exchange bondholders could get more than 100 cents on the dollar is, paradoxically, if there is a default. The minute that Argentina goes into arrears on its coupon payments, the clock starts ticking. From that day onwards — and actually, that day has been and gone already — bondholders are owed not only those coupon payments but interest on those coupon payments. And the interest accrues at the standard statutory rate of 8% — a massive number, these days.

So there you have it: a paradoxical case in which bonds might be viewed as more valuable if the odds of default are higher. Salmon admits that he's just speculating here, since no one knows for sure why the market is so hot for Argentine bonds in the wake of Argentina losing its court case. But this is at least a reasonable guess. And a fascinating one.

Congress Might Actually Pass a Bill to Address VA Problems

| Mon Jul. 28, 2014 11:38 AM EDT

Since I've been griping for a long time about Congress being unable to pass so much as a Mother's Day resolution these days, it's only fair to highlight the possibility of actual progress on something:

House and Senate negotiators have reached a tentative agreement to deal with the long-term needs of the struggling Department of Veterans Affairs and plan to unveil their proposal Monday.

Sen. Bernie Sanders (I-Vt.) and Rep. Jeff Miller (R-Fla.), who lead the Senate and House Veterans' Affairs committees, continued negotiating over the weekend. Aides said they "made significant progress" on legislation to overhaul the VA and provide funding to hire more doctors, nurses and other health-care professionals. Sanders and Miller are scheduled to discuss their plan Monday afternoon.

We don't have all the details yet, and the bill hasn't actually passed or anything. There's still plenty of time for tea partiers to throw their usual tantrum. And there's also plenty of time for the House GOP leadership to respond to the tantrum by crawling back into its cave and killing the whole thing. It'll be President Obama's fault, of course, probably for attending a fundraiser, or maybe for sneezing at the wrong time.

But maybe not! Maybe they really will pass this thing. It would provide vets with more flexibility to see doctors outside the VA system, which is a bit of a Band-Aid—but probably a necessary one—and it provides additional funding for regions that have seen a big influx of veterans. On the flip side, I don't get the sense that the bill will really do much to fix the culture of the VA, which becomes a political cause célèbre every few years as we discover that all the same things we yelled about the time before are still true. But I guess that's inevitable in a political culture with the attention span of a newt.

All things considered, it would be a good sign if this bill passed. The VA, after all, isn't an inherently partisan issue. Just the opposite, since both parties support vets about equally and both should, in theory, be more interested in helping vets than in prolonging chaos for political reasons.

In other words, if there's anything that's amenable to a basically technocratic solution and bipartisan support, this is it. In a way, it's a test of whether our political system is completely broken or just mostly broken. "Mostly" would be something of a relief.

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Friday Cat Blogging - 25 July 2014

| Fri Jul. 25, 2014 2:50 PM EDT

Say hello to Mozart, the latest addition to the Drum family menagerie. One of my mother's neighbors found him wandering around, so naturally he ended up at my mother's house. He's a very sociable cat and appears to be very pleased with his choice of home. To celebrate his appearance, today you get two catblogging photos: one that shows his whole body and one that's a close-up of his face. Enjoy.

Doctors Aren't Really Very Smart About Buying Generics

| Fri Jul. 25, 2014 2:05 PM EDT

Sarah Kliff takes a look today at our use of generic drugs. Long story short, it's surprising how few of us save money by buying generic pain medicine instead of name brands (Advil, Tylenol, Bayer, etc.). Why? In most cases, I suppose it's just ignorance: people don't realize that the "store brand" is genuinely identical to the name brand. In other cases it might be something else. I buy generic ibuprofen, and it usually comes in the form of small brown pills. One day, however, I went to to a different drug store to stock up, and it turned out that their generic ibuprofen came in the form of small orange pills. Marian used these for a while, but really hated them. Eventually she cracked, and insisted on buying a new bottle from our usual drug store. Sometimes little things can make all the difference.

Anyway. The main point of Kliff's post is that generics are good, and as evidence of this she puts up a chart showing what doctors themselves buy. Here's an excerpt from the chart:

It's true that doctors mostly favor generics when it comes to basic pain relievers. But frankly, what's amazing to me is how little they prefer them. For chrissake, they prefer generic aspirin by only ten percentage points. That means they buy the name brand about 45 percent of the time. Why would a doctor do this? Granted, the extra few dollars is probably no big deal to them, but why waste it anyway? Certainly not because of ignorance. Are their spouses doing the buying? Or what?

And why the active preference for name-brand rubbing alcohol, of all things? It's hard to think of anything more generic than that. What's the deal here?

As for Alka-Seltzer, the dislike of generics is so huge that there just has to be some real difference here. But what?

In any case, I suspect this might have some real importance beyond the question of doctors spending a few dollars they don't have to. If physicians aren't really sold on generics in their own personal lives, does this mean they're not really sold on them in their professional lives too? Do they tend to prescribe name brands when they shouldn't? And how much does this cost all of us?

Republicans Maybe Not as Inept as We Think

| Fri Jul. 25, 2014 12:49 PM EDT

Paul Waldman thinks Republicans have become a bunch of bumblers and idiots:

Think about it this way: Has there been a single instance in the last few years when you said, "Wow, the Republicans really played that one brilliantly"?

In fact, before you'll find evidence of the ruthless Republican skillfulness so many of us had come to accept as the norm in a previous era, you'll need to go back an entire decade to the 2004 election. George W. Bush's second term was a disaster, Republicans lost both houses of Congress in 2006, they lost the White House in 2008, they decided to oppose health-care reform with everything they had and lost, they lost the 2012 election—and around it all they worked as hard as they could to alienate the fastest growing minority group in the country and make themselves seem utterly unfit to govern.

In fact, in the last ten years they've only had one major victory, the 2010 midterm election.

Hmmm. It's true that the GOP has had a rough decade in a lot of ways. The number of self-IDed Republicans has plummeted since 2004; their standing among the fast-growing Hispanic population has cratered; and their intellectual core is now centered in a wing of the party that believes we should return to the gold standard. This isn't a promising starting point for a conservative renaissance.

Still, let's not kid ourselves. If Republicans were really as woefully inept as Waldman says, then Democrats should be kicking some serious ass these days. I haven't especially noticed this. They won in the sixth year of Bush's presidency, when out parties always win, and then won in 2008, when an economic collapse pretty much guaranteed a victory for anyone with a D after their name. Then they had a single fairly good year—followed by an epic blunder that lost them a sure seat in Massachusetts, and with it control of the Senate. They got crushed in 2010. They won a squeaker in 2012 against an opponent who made a wedding cake figurine look good by comparison. For the last four years, they've basically gotten nothing done at all.

And what about those Republicans? Well, they have a hammerlock on the House, and they might very well control the Senate after the 2014 election. They've won several notable Supreme Court victories (Heller, Citizens United, Hobby Lobby, etc.). They control a large majority of the states, and have passed a ton of conservative legislation in areas like voter ID and abortion restrictions. Their "Just Say No" strategy toward President Obama has tied Democrats in knots. They won an all but total victory on spending and deficits.

Nor is it really true that today's GOP is notably more bumbling than it used to be. The myth of "ruthless Republican skillfulness" in the past is just that: a myth. George H.W. Bush screwed up on Supreme Court picks and tax hikes. Newt Gingrich—ahem—sure didn't turn out to be the world historical strategic genius everyone thought he was in 1994. George W. Bush—with the eager backing of every Republican in the country—figured that a war in Iraq would be just the ticket to party dominance for a decade. Ditto for Social Security reform. Republicans were just sure that would be a winner. By contrast, their simpleminded Obama-era strategy of obstructing Democrats at all times and on all things has actually worked out pretty well for them given the hand they were dealt.

Make no mistake: It's not as if Republicans have been strategic geniuses. There's no question that they have some long-term issues that they're unable to address thanks to their capitulation to tea party madness. But if they're really so inept, how is it that in the past 15 years Democrats haven't managed to cobble together anything more than about 18 months of modest success between 2009-10?

I dunno. Republicans keep getting crazier and crazier and more and more conservative, and liberals keep thinking that this time they've finally gone too far. I've thought this from time to time myself. And yet, moving steadily to the right has paid off pretty well for them over the past three decades, hasn't it?

Maybe it will all come to tears in the near future as the lunatic wing of the party becomes even more lunatic, but we liberals have been thinking this for a long time. We haven't been right yet.

Gruber: "It Was Just a Mistake"

| Fri Jul. 25, 2014 11:17 AM EDT

Why did Jonathan Gruber tell an audience in 2012 that states which failed to set up Obamacare exchanges would be depriving their residents of federal subsidies? Jonathan Cohn caught up with Gruber this morning and got an answer:

I honestly don’t remember why I said that. I was speaking off-the-cuff. It was just a mistake.

....There are few people who worked as closely with Obama administration and Congress as I did, and at no point was it ever even implied that there’d be differential tax credits based on whether the states set up their own exchange. And that was the basis of all the modeling I did, and that was the basis of any sensible analysis of this law that’s been done by any expert, left and right.

I didn’t assume every state would set up its own exchanges but I assumed that subsidies would be available in every state. It was never contemplated by anybody who modeled or worked on this law that availability of subsides would be conditional of who ran the exchanges.

So there you have it: Gruber screwed up. More importantly, as he points out, he's performed immense amounts of technical modeling of Obamacare, and all of his models assumed that everyone would get subsidies even though not every state would set up its own exchange. As Cohn says, this was pretty much the unanimous belief of everyone involved:

As I’ve written before, I had literally hundreds of conversations with the people writing health care legislation in 2009 and 2010, including quite a few with Gruber. Like other journalists who were following the process closely, I never heard any of them suggest subsidies would not be available in states where officials decided not to operate their own marketplaces—a big deal that, surely, would have come up in conversation.

Kudos to Peter Suderman and his sleuths for uncovering this and getting everyone to talk about it for a day. It's a news cycle win for conservatives. But restricting subsidies to state exchanges just flatly wasn't part of Congress's intent. There's simply no way to rewrite history to make it seem like it was.