Yesterday, in "Wrong Again, Naturally," I refocused attention on the question of whether there are truly any recession-proof industries at a time when an economic tsunami is swamping Wall Street and Main Street.
In my opinion, if such industries exist at all, they are more likely to be -- like the outerwear that can prevent rain from seeping through to clothing but wouldn't necessarily keep you from getting soaked if you jumped into a lake fully dressed -- somewhat "resistant" to hard times, rather than immune to them.
As it happens, even a sector that many delusional Wall Street types thought would remain largely unaffected by stormy economic weather has turned out to be as exposed as most others at a time when consumer spending habits are undergoing a sea change.
In a report just out, "In Sour Economy, Some Scale Back on Medications," the New York Times details how deteriorating circumstances and a burgeoning fear of the unknown are causing people to cut back on what was supposed to be a critical necessity.
For the first time in at least a decade, the nation’s consumers are trying to get by on fewer prescription drugs.
As people around the country respond to financial and economic hard times by juggling the cost of necessities like groceries and housing, drugs are sometimes having to wait.
“People are having to choose between gas, meals and medication,” said Dr. James King, the chairman of the American Academy of Family Physicians, a national professional group. He also runs his own family practice in rural Selmer, Tenn.
“I’ve seen patients today who said they stopped taking their Lipitor, their cholesterol-lowering medicine, because they can’t afford it,” Dr. King said one recent morning.
“I have patients who have stopped taking their osteoporosis medication.”
On Tuesday, the drug giant Pfizer, which makes Lipitor, the world’s top-selling prescription medicine, said United States sales of that drug were down 13 percent in the third quarter of this year.
Through August of this year, the number of all prescriptions dispensed in the United States was lower than in the first eight months of last year, according to a recent analysis of data from IMS Health, a research firm that tracks prescriptions.
Although other forces are also in play, like safety concerns over some previously popular drugs and the transition of some prescription medications to over-the-counter sales, many doctors and other experts say consumer belt-tightening is a big factor in the prescription downturn.
The trend, if it continues, could have potentially profound implications.
If enough people try to save money by forgoing drugs, controllable conditions could escalate into major medical problems. That could eventually raise the nation’s total health care bill and lower the nation’s standard of living.
Martin Schwarzenberger, a 56-year-old accounting manager for the Boys and Girls Clubs of Greater Kansas City, is stretching out his prescriptions. Mr. Schwarzenberger, who has Type 1 diabetes, is not cutting his insulin, but has started scrimping on a variety of other medications he takes, including Lipitor.
“Don’t tell my wife, but if I have 30 days’ worth of pills, I’ll usually stretch those out to 35 or 40 days,” he said. “You’re trying to keep a house over your head and use your money to pay all your bills.”
Although the overall decline in prescriptions in the IMS Health data was less than 1 percent, it was the first downturn after more than a decade of steady increases in prescriptions, as new drugs came on the market and the population aged.
From 1997 to 2007, the number of prescriptions filled had increased 72 percent, to 3.8 billion last year. In the same period, the average number of prescriptions filled by each person in this country increased from 8.9 a year in 1997 to 12.6 in 2007.
Dr. Timothy Anderson, a Sanford C. Bernstein & Company pharmaceutical analyst who analyzed the IMS data and first reported the prescription downturn last week, said the declining volume was “most likely tied to a worsening economic environment.”
In some cases, the cutbacks might not hurt, according to Gerard F. Anderson, a health policy expert at Johns Hopkins Bloomberg School of Public Health. “A lot of people think there there’s probably over-prescribing in the United States,” Mr. Anderson said.
But for other patients, he said, “the prescription drug is a lifesaver, and they really can’t afford to stop it.”
Dr. Thomas J. Weida, a family physician in Hershey, Pa., said one of his patients ended up in the hospital because he was unable to afford insulin.
Not everyone simply stops taking their drugs.
“They’ll split pills, take their pills every other day, do a lot of things without conferring with their doctors,” said Jack Hoadley, a health policy analyst at Georgetown University.
“We’ve had focus groups with various populations,” Mr. Hoadley said. “They’ll look at four or five prescriptions and say, ‘This is the one I can do without.’ They’re not going to stop their pain medication because they’ll feel bad if they don’t take that. They’ll stop their statin for cholesterol because they don’t feel any different whether they take that or not.”
Overall spending in the United States for prescription drugs is still the highest in the world, an estimated $286.5 billion last year. But that number makes up only about 10 percent of this country’s total health expenditures of $2.26 trillion.
Pharmaceutical companies have long been among those arguing that drugs are a cost-effective way to stave off other, higher medical costs.
The recent prescription cutbacks come even as the drug industry was already heading toward the “generic cliff,” as it is known — an approaching period when a number of blockbuster drugs are scheduled to lose patent protection. That will be 2011 for Lipitor.
Already, a migration to generic drugs means that 60 percent of prescriptions over all are filled by off-brand versions of drugs. But with money tight, even cheaper generic drugs may not always be affordable drugs.
Factors other than the economy that may also be at play in the prescription downturn include adverse publicity about some big-selling medications — like the cholesterol medications Zetia and Vytorin, marketed jointly by Merck and Schering-Plough. And sales of Zyrtec, a popular allergy medication, moved out of the prescription category earlier this year when Johnson & Johnson began selling it as an over-the-counter medication.
Diane M. Conmy, the director of market insights for IMS Health, said the drop in prescriptions might also be partly related to the higher out-of-pocket drug co-payments that insurers are asking consumers to pay.
“Some consumers are making decisions based on the fact that they are bearing more of the cost of medicines than they have in the past,” Ms. Conmy said.
The average co-payment for drugs on insurers’ “preferred” lists rose to $25 in 2007, from $15 in 2000, according to the Kaiser Family Foundation, a nonprofit health care research organization. And, of course, lots of people have no drug insurance at all. That includes the estimated 47 million people in the United States with no form of health coverage, but it is also true for some people who have medical insurance that does not include drug coverage — a number for which no good data may exist.
For older Americans, the addition of Medicare drug coverage in 2006 through the Part D program has meant that 90 percent of Medicare-age people now have drug insurance. And in the early going, Part D had helped stimulate growth in the nation’s overall number of prescriptions, as patients who previously had no coverage flocked to Part D.
But a potential coverage gap in each recipient’s benefit each year — the so-called Part D doughnut hole — means that many Medicare patients are without coverage for part of the year.
The recent IMS Health figures reveal that prescription volume declined in June, in July and again in August, mirroring studies from last year suggesting that prescription use begins dropping at about the time more Medicare beneficiaries begin entering the doughnut hole.
Under this year’s rules, the doughnut hole opens when a patient’s total drug costs have reached $2,510, which counts the portion paid by Medicare as well as the patient’s own out-of-pocket deductibles and co-payments.
The beneficiary must then absorb 100 percent of the costs for the next $3,216, until total drug costs for the year have reached $5,726, when Medicare coverage resumes.
Gloria Wofford, 76, of Pittsburgh, said she recently stopped taking Provigil, prescribed for her problem of falling asleep during the day, because she could no longer afford it after she entered the Medicare doughnut hole.
Her Provigil had been costing $1,695 every three months. “I have no idea who could do it,” she said. “There’s no way I could handle that.”
Without the medication, Ms. Wofford said, she falls asleep while sitting at her computer during the day but then cannot sleep during the night. Because she feels she has no choice, Ms. Wofford is paying out of pocket to continue taking an expensive diabetes medication that costs more than $500 every three months.
For some other people, the boundaries of when and where to cut back are less distinct.
Lori Stewart of Champaign, Ill., is trying to decide whether to discontinue her mother’s Alzheimer’s medications, which seem to have only marginal benefit.
“The medication is $182 a month,” said Ms. Stewart, who recently wrote about the dilemma on her personal blog.
“It’s been a very agonizing decision for me. It is literally one-fifth of her income.”
76 year old Ms Wofford takes a drug because she falls asleep in front of her computer during the day? Gimme a break, we're doomed.
Posted by: fatsacca | October 22, 2008 at 11:20 PM
Gosh, nothing's guaranteed when it comes to equities during a recession? Shocking!
Well, not really.
That's why those of us -- at least, most of us -- who write about the markets and investing for a mass retail audience do so with an explicit awareness of risk and use terms like "recession-resistant dividends" (instead of "recession-proof") while making clear that no company is safe from mistakes, margin deterioration, etc. Is PFE a better bet for *some* dividends over the next 2-3 years than, say, PHM? Seems likely. Is it a guaranteed thing? Of course not.
I know it's important to you, and to your book-marketing efforts, to be the only kid on the block who saw this coming and who understands the gravity of the current situation. But really, you weren't, and you aren't, and your book and site would be a lot more appealing (and probably find a larger audience) if you were to lose the insecure-sounding "everyone's stupid but me" tone. Cheers.
Posted by: John from Concord | November 01, 2008 at 07:22 AM
John from Concord:
Perhaps you saw the worst financial crisis of this century -- and possibly of all time -- coming. Maybe you never said the subprime meltdown would remain "contained" (like Bernanke, Paulson, and other so-called experts); or, that other economies would somehow "decouple" from that of the United States (like the majority of Wall Street strategists); or, that certain industries and companies are "recession-proof" (like a great many institutional investors and sell side analysts); or, that the dollar would continue to fall as the crisis unfolded (like no small number of those who did foresee the financial house of cards falling apart). Maybe you are not one of those people who has repeatedly call "the bottom" all the way down (like a lot of "smart money" types). If so, congratulations.
Otherwise, based on the fact that I've listened to highly-paid "strategists," analysts, chief executives and other morons on the buy side and the sell side utter this crap for years now, your suggestion that more than a tiny minority of people saw this coming is laughable. That said, I take your point that it probably doesn't make sense to harp on about the incompetence running rampant on Wall Street. That's because the evidence speaks for itself.
Posted by: Michael Panzner | November 01, 2008 at 08:25 AM
...and good morning to you too, Michael, ........
Posted by: Black Star Ranch | November 01, 2008 at 08:45 AM