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The Club PUBlication 01/28/2019

1/28/2019

Why are glasses so expensive? The eyewear industry would prefer keeping that blurry

Eyewear is a near-monopolistic, $100-billion industry dominated by a single company. That’s why 1,000 percent markups for frames and lenses are commonplace.

Prescription eyewear represents perhaps the single biggest mass-market consumer ripoff to be found.
By David Lazarus

JANUARY 26, 2019 — 3:33PM

It is a question I get asked frequently, most recently by a colleague who was shocked to find that his new pair of prescription eyeglasses cost about $800. Why are these things so expensive?

The answer: Because no one is doing anything to prevent a near-monopolistic, $100-billion industry from shamelessly abusing its market power.

Prescription eyewear represents perhaps the single biggest mass-market consumer ripoff to be found.

The Vision Council, an optical industry trade group, estimates that about three-quarters of U.S. adults use some sort of vision correction. About two-thirds of that number wear eyeglasses. The average cost of a pair of frames is $231, according to VSP, the leading provider of employer eye-care benefits. A pair of single-vision lenses averages about $112. Progressive, no-line lenses can run twice that amount.

The true cost of a pair of acetate frames — three pieces of plastic and some bits of metal — is as low as $10, according to some estimates. Check out the prices of Chinese designer knockoffs available online.

The bottom line: You are paying a markup on glasses that would make a luxury car dealer blush.

“At the very least,” said Carmen Balber, executive director of the advocacy group Consumer Watchdog, “there needs to be some transparency about how much things really cost.”
Good luck with that.

I reached out to the Vision Council for an industry perspective on pricing, but a spokeswoman said the group was unavailable for comment on pricing.

What the Vision Council probably didn’t want to get into is the fact that for years a single company, Luxottica, has controlled much of the eyewear market. If you wear designer glasses, there’s a very good chance you are wearing Luxottica frames.

Its owned and licensed brands include Armani, Brooks Brothers, Burberry, Chanel, Coach, DKNY, Dolce & Gabbana, Michael Kors, Oakley, Oliver Peoples, Persol, Polo Ralph Lauren, Ray-Ban, Tiffany, Valentino, Vogue and Versace.

Italy’s Luxottica also runs EyeMed Vision Care, LensCrafters, Pearle Vision, Sears Optical, Sunglass Hut and Target Optical.

Just pause to appreciate the lengthy shadow this one company casts over the vision-care market. You go into a LensCrafters retail outlet, where the salesperson shows you Luxottica frames under various names, and then the company pays itself when you use your EyeMed insurance.

A very sweet deal.

And Luxottica is even bigger after merging last fall with France’s Essilor, the world’s leading maker of prescription eyeglass lenses and contact lenses. Do you have Transitions lenses in your frames? You are an Essilor customer.

The combined entity is called EssilorLuxottica. I reached out to the parent company as well as the Luxottica and Essilor subsidiaries asking about how frames and lenses are priced. None of them got back to me.

I wasn’t able to make any headway even with Warby Parker, the New York-based eyewear company whose whole raison d’être is to offer fashionable specs at a fraction of the price of other retailers.

Dr. Ranjeet Bajwa, president of the California Optometric Association, suggested that consumers actually are getting good value for their money.

“We often see lowball retailers promise price savings but fail to deliver the quality patients expect in terms of fit, comfort, durability and, of critical importance, precision in vision, over one or two years of daily wear,” he said.

“Eyeglass sales are becoming a very competitive market, with frames and lenses available in a range of prices and quality levels,” Bajwa said. “Today’s glasses aren’t the glasses of 20 years ago, and the price can reflect these technological advances.”

Fair enough. But with about 126 million American adults wearing prescription glasses, and many replacing those glasses every few years, you have to assume it doesn’t take long for frame and lens makers to recover any research-and-development costs.

The high cost of frames reflects a market that is woefully lacking in meaningful competition. Warby Parker recognized this as a business opportunity. I’m surprised others haven’t jumped in as well with reasonably priced eyewear.

Lenses are a whole other matter. This is the “health care” component of vision correction and as such should be affordable to all. However, as with prescription drugs, government officials are content to pretend that “the market” will protect patients.

It won’t. And the more than 1,000 percent markup for most vision products proves that.
Why do glasses cost so much?

Because this industry has been getting away with fleecing people for decades. And you don’t have to look hard to see this won’t change any time soon.

David Lazarus writes for the Los Angeles Times.

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The Club PUBlication 01/21/2019

1/21/2019

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U examines weak links in medicine pipeline

Boosted by $5.4M gift, experts will suggest ways U.S. can avoid shortages
By JEREMY OLSON
jeremy.olson@startribune.com

A world where Michael Osterholm is right is a dangerous world.

And four years ago, during a conference at Mayo Clinic in Rochester, the renowned University of Minnesota infectious disease expert got one right. He warned that the fragility of the world’s pipeline for prescription medicines would be exposed by something as unsurprising as a hurricane steaming through Puerto Rico.

“It’s as predictable as could be,” he recalled saying.

Then, in the fall of 2017, Hurricane Maria ripped through Puerto Rico, damaging manufacturing plants responsible for producing much of the nation’s supply of medical saline solution, which is vital for diluting medications and keeping patients hydrated. Shortages occurred in hospitals throughout the country.

“Nothing was done to prepare for that,” he said.

Now Osterholm and the U’s Center for Infectious Disease Research and Policy are taking key initial steps to identify other potential medication shortage risks, and to suggest ways for the nation to avoid them.

The center this week announced a $5.4 million gift from the Walton Family Foundation — the charitable arm of the family behind the Walmart retail chain — to study weak links in the nation’s prescription drug pipeline.

“We don’t pretend we’re going to fix it yet,” Osterholm said in an interview . “We’ve just got to get people to understand the vulnerability.”

Inventories of certain drugs are thin, but there also are limited supplies of the equipment necessary for dispensing those drugs, he said. Those supply shortages shouldn’t be overlooked. “ It’s like buying a beautiful car but not having a steering wheel,” he said.

The first step by Osterholm’s center has been to identify 150 drugs that are essential or lifesaving in the medical system. Then researchers will examine the distribution process for each one and any vulnerabilities.

“What we are doing now is working backward, looking at the entire global supply chain for these products,” said Osterholm, who said the Walton gift came after a conversation with one of the family members.

People also need to understand the potential political vulnerabilities of the drug pipeline because so many medications and medical supplies are now manufactured in China, he noted.

“Frankly, if the Chinese want to go to war with us, they wouldn’t have to fire a single shot,” Osterholm said. “They would just shut down the drug distribution overnight.”

Jeremy Olson • 612-673-7744

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The CLUB PUBlication 01/14/2014

1/14/2019

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Why we pay more for biotech drugs

Susie Christoff has tried a number of medications to cope with her painful psoriatic arthritis. Although some medications would work for a short time, she eventually "just started swelling up" in her wrist, ankles and knee."I literally couldn't walk five minutes," Christoff says.

Why the U.S. remains the world's most expensive market for 'biologic' drugs Unlike in Europe, the medicines face little competition here, which is why Americans pay more.

By Sarah Jane Tribble Kaiser Health News
JANUARY 11, 2019 — 12:05AM

Europeans have found the secret to making some of the world’s costliest medicines more affordable, as much as 80 percent cheaper than in the U.S.

Governments in Europe have compelled drugmakers to bend on prices and have thrown open the market for so-called biosimilars, which are cheaper copies of biologic drugs made from living organisms. The brand-name products — ranging from Humira for rheumatoid arthritis to Avastin for cancer — are high-priced drugs that account for 40 percent of U.S. pharmaceutical sales.

European patients can choose from dozens of biosimilars, 50 in all, which have stoked competition and driven prices lower. However, the U.S. government stops short of negotiating and drugmakers with brand-name biologics have used a variety of strategies — from special contracting deals to overlapping patents — to block copycat versions from entering the United States or gaining market share.

As a result, only six biosimilars are available for U.S. consumers.

European countries don’t generally allow price increases after a drug launches and, in some cases, the national health authority requires patients to switch to less expensive biosimilars once the product is proven safe and effective, said Michael Kleinrock, research director for IQVIA Institute for Human Data Science.

If Susie Christoff, 59, who suffers from debilitating psoriatic arthritis, lived in Italy, the cost of her preferred medicine would be less than quarter of what it is in the U.S., said data gathered by GlobalData, a research firm.

Susie Christoff takes a biologic drug for crippling arthritis. The annual cost of her treatment runs about $65,000 in the United States. But in England, the National Health Service would pay less than $13,000.

Christoff tried a series of expensive biologics before discovering a once-a-month injection of Cosentyx, manufactured by Swiss drugmaker Novartis, worked the best. Without the medicine, Christoff said, “it’s 24/7 constant pain.”

At first, Christoff’s copay for Cosentyx was $50 a month. But when a disability led her to switch to a Medicare Advantage plan, her out-of-pocket costs ballooned to nearly $1,300 a month. “I’m not ready to stop trying. But I’m also not ready to go through my entire retirement fund to walk,” she said.

Novartis said it offers patient assistance programs. Christoff said she doesn’t qualify.

The annual cost of Christoff’s treatment runs about $65,000 in the U.S. In Italy, where competition and price negotiations play a bigger role, it would run about $15,000, GlobalData said.

And those price differences are true even though there is no biosimilar version of Cosentyx yet available in Europe.

Unlike Cosentyx, rival drugs — Humira, Enbrel and Remicade — all face biosimilar competition in Europe. Only Remicade has competition from a lower-cost biosimilar in the U.S., and Humira isn’t expected to have a copycat competitor in the U.S. market until 2023. Humira, made by AbbVie, is the world’s top-selling drug.

In late October, Wall Street analyst Ronny Gal noted that AbbVie agreed to drop Humira’s price by 80 percent in one Nordic country to combat biosimilar competition. AbbVie Chief Executive Richard Gonzalez said the discount was as low as 10 percent and as high as 80 percent across the continent. “These are markets where it’s ‘winner takes all’ ” he said.

Food and Drug Administration Commissioner Scott Gottlieb has expressed concerns about the cost of biologics. “The branded drug industry didn’t build its success by being business naive; they are smart competitors,” he said at the Brookings Institution in July. “But that doesn’t mean we need to embrace all of these business tactics.”

One such tactic involves so-called rebate traps, in which financial deals are cut to make sure patients can get only a biologic, not a biosimilar.

Johnson & Johnson’s wildly successful biologic Remicade, the brand-name version of infliximab, produced $6.3 billion in worldwide in 2017. Pfizer launched its copycat drug, Inflectra, in the U.S. in October 2016, noting that it would price the drug at a 15 percent discount to Remicade’s wholesale price.

Still, health systems such as Geisinger Health, based in Pennsylvania, say they have had difficulty switching to the less expensive alternative.

“J&J has done a really good job of entrenching themselves in the market,” said Jason Howay, a manager of formulary services at Geisinger.

The health system decided it wanted to switch all adults to Pfizer’s biosimilar, saying it provided the same quality of treatment. But Johnson & Johnson had “bundled” the prices of other drugs with Remicade. So if Geisinger stopped using Remicade, J&J could stop providing discounts on other drugs, such as those used for cardiology, Howay said. “It weaves a very tangled web.”

A spokeswoman for Janssen, Johnson & Johnson’s main pharmaceutical subsidiary, said the drugmaker does offer “more attractive contract terms” to buyers who use a wider range of J&J medicines.

“Our contracting approach has always prioritized access for patients and their providers,” Meredith Sharp said.

Another business tactic is creating patent thickets to block competitors. For example, Humira has more than 100 patents protecting it in the U.S.

And, unlike more chemical compound generics, like aspirin, a pharmacist cannot automatically replace a biologic with the biosimilar. More than 40 states have passed laws around how and when doctors and pharmacists can make such a substitution. Federal guidelines are still not established.

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The Club PUBlication 01/07/2018

1/7/2019

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RETIREMENT
LIZ WESTON
SOCIAL SECURITY’S TAX BURDEN
More than half of retirees receiving Social Security face federal income taxes on their benefits. Here is why that needs to change.

iStock In 1983, only one in 10 Social Security recipients had to pay any federal tax. Now, it is more than half.

When Congress made Social Security benefits taxable in 1983, lawmakers didn’t index the tax thresholds to inflation. They “forgot” inflation again when adding a second layer of taxation in 1993.

That means the proportion of recipients who have to pay federal income taxes on their benefits keeps increasing. Initially, only one in 10 Social Security recipients had to pay any federal tax. Now, it’s more than half.

Not indexing to inflation is a sneaky way of boosting taxes. Lawmakers can count on growing federal revenue without the politically uncomfortable act of repeatedly voting for those increases.

The taxes are based on combined income, which is a taxpayer’s adjusted gross income plus any tax-exempt interest (such as interest on mutual bonds) and half of her Social Security benefit. Based on that:

• Single people with combined income over $25,000 a year, or couples with over $32,000 a year, face taxes on up to 50 percent of Social Security benefits.

• Single retirees earning over $34,000 and couples earning over $44,000 may pay taxes on up to 85 percent of benefits.

‘Tax torpedo’
Because of the way Social Security benefits are taxed, many middle-income retirees face a “tax torpedo,” where their marginal tax rate can more than double. (If you will have retirement savings of roughly $200,000 or more, consider talking to a tax professional or financial planner about how and when to claim Social Security benefits to minimize the tax effects.)

In many cases, we’re punishing people who saved for retirement. That isn’t fair, and it isn’t smart.

So we should demand Congress index Social Security taxation to inflation, right? Based on the 1983 threshold numbers, that would ensure that only singles making over about $64,000 year, and couples making over $82,000 a year, would have to pay taxes on their Social Security income.

If only it were that simple.

The money collected from these taxes goes to two specific places: the Social Security and Medicare trust funds. Perhaps you are starting to see the problem.

Both trust funds are running short of cash and could be depleted in a few years.
That doesn’t mean they will be bankrupt. It does mean they won’t be able to pay 100 percent of promised benefits.

Social Security’s retirement trust fund is expected to run dry in 2034, after which it would be able to pay only 75 percent of the benefits that have been promised. Yanking away what amounts to 4 percent of its revenue, which is what’s generated by taxing up to 50 percent of benefits, would just hasten that day.

Broad fix is needed
Medicare’s Hospital Insurance Trust Fund is in worse shape. The fund, which pays for inpatient hospital visits, skilled nursing, home health care and hospice, is forecast to be depleted in 2026, just a few years from now. The money raised from taxing Social Security benefits makes up 8 percent of the revenue going into the fund.

So fixing the stealth tax will require fixing Social Security and Medicare as well.

Proposals to privatize or scrap these systems face strong political opposition. Plus, the proponents can’t guarantee that future generations would be better off.

Shoring up the current systems, by contrast, would ensure that today’s workers get the benefits they have been promised.

That almost certainly means those of us who are still working will pay in one way or another.

We could fix the problem virtually overnight by raising the Social Security tax rate by 1.415 percent to 7.615 percent and increasing the Medicare tax rate by 0.32 percent to 1.77 percent. (Employers would pay an equal amount, since payroll taxes are split between workers and employers.)

Beyond tax increases
More likely, tax increases would be phased in over time and combined with other changes, such as raising the full retirement age and lifting or eliminating the current cap on how much of our earnings are taxed. (The current 6.2 percent Social Security tax applies only to the first $128,700 of annual earnings in 2018, while the 1.45 percent Medicare tax applies to all earnings.) You can experiment with possible solutions using the American Academy of Actuaries’ Social Security Game.

Few of us are excited about paying more taxes, but shoving the burden onto retired people who have already paid their dues simply isn’t right. Making the system more fair could benefit all of us, now and in the future.

Liz Weston is a writer at NerdWallet. E-mail: lweston@nerdwallet.com.
Twitter: @lizweston.

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