Unequal and Blue: Not Just Connecticut

I live in Connecticut which, on a per-capita income-basis, happens to be the wealthiest and most unequal of our 50 States.  This statistic makes my home an interesting object of policy musings, including the most recently published What on Earth is Wrong with Connecticut?, by The Atlantic's Derek Thompson. Upon publication it began showing up in my social media feeds as a "must read."  As an Atlantic subscriber, I was delighted to see the tiny Nutmeg State deemed worthy of analysis in one of my favorite Progressive magazines.  

I read the article.  It made me nuts.  So I read it again.  After all, this is an article in THE Atlantic, I must be missing something, right?

The article raised my ire not, in fact, for a lack of "factualness" but rather for its lack of deep analysis. 

More crazy-making, the author seemed to reduce the very complex and quite predictable experience in the Nutmeg State to a liberal/conservative tug-o-war.  How can Connecticut be so blue and so unequal? The article has generated a lively debate among my colleagues, all of whom have spent most of their adult lives working to reduce injustice and all are "blue enough" for walk-on roles in Avatar.

One particularly cogent note begins with this observation:

"Missing an analysis of how such “high” taxes were not able to fund the pension obligations which are crippling the state. More the case that the politicians and corporations conspired to postpone the pain until they were no longer around. Corporations play this game all of the time, shopping around for deals and leaving once they have milked it dry. CT’s citizens will swing from one extreme to the other with no clue about the real problems. Pension obligations of this magnitude did not grow overnight. More accurate to say they grew over decades and business and government and the unions have played kick the can for fifty years all over the country and certain states (Illinois, CT, etc.) have gotten left holding the pyramid scheme equivalent of the empty envelope. One other example is Detroit where companies and professionals are returning to gentrify after getting the debt of the city reorganized and real estate is now at bargain basement levels. Bottom line is CT (like other states and cities) got caught in the whipsaw of power brokers playing footsy with each other and caring little or not at all for the state or its residents. There is nothing wrong with CT that isn’t wrong elsewhere too. People forget the fiscal problems of other states over the last fifty years which always serves as a useful way to squeeze concessions from cities and states which had become too demanding to the poor defenseless plutocrats who control everything in America."

Having grown up in Detroit, I am particularly sensitive to the intentional hollowing out of once-great cities.  If I see one more article about Detroit’s comeback, without reference to the devastation that ensued since the mid-sixties I will spit. The policies and decisions that led to Detroit’s trouble began long before the 1967 uprising. Fast forward to now and one might ask “for whom the comeback bell tolls?’ and “what might Connecticut cities learn from the Detroit experience?" given our fascinating ability to cling to our liberal privilege and outrage while completely avoiding analysis.  Are we waiting for a Dave Gilbert (the Quicken founder) to come save us with the next round of mortgage profits?  Will the Hedge Fund managers save us? Will #45 make CT “great again"? 

Nah.

CT Voices for Children raised the tax policy alarm bell decades ago, warning about the multiple areas where we were disinvesting, not just in human capital, but mostly by Connecticut choosing to use tax expenditures via abatements and other mechanisms that wound up costing more than the revenues we ultimately received.  Do not even get me started regarding pensions.  Talk about a rigged system with the beneficiaries frequently at the losing end.  Pensions these days seem to have created a new legal category; contracts in which a promise isn’t actually a promise.

In my own very superficial analysis, our State’s situation (regardless of our bluish tint) is the ultimate endpoint of inequality and poor tax policy and Federalism.  I believe the parochialism of of “every town” for itself, which is particularly popular in Connecticut, is a mini-version of the interstate business arbitrage that occurs when States compete to attract businesses.  The arbitrage of regulations and tax policy seems to indicate we've long forgotten what “commonweal” or a core sense of common good might look like.  Perhaps the Calvinism at our roots, as well as our country’s history and practice of violent exploitation wrapped in the language of meritocracy is at fault?  After all, exploitation in the name of God allows us to avoid naming our complicity when we get in trouble, as we are now. I've spent enough time in interfaith circles to believe God is deeply anti-exploitation and pro-equality. The sacred texts of every great religious tradition thoroughly back me up here.

The article ends with this simple prescription, invoking our Calvinist core and reminding us the objective is staying rich:

"In the biggest picture, Connecticut is a victim of two huge trends—first, the revitalization of America’s great rich cities and second, the long-term rise of hot, cheap suburbs. But Connecticut’s cities are not rich or great; its weather is not hot year-round; and its cost-of-living is not low. The state once benefited from the migration of corporations and their employees from grim and dangerous nearby metros, but now that wave is receding. To get rich, Connecticut offered a leafy haven where America’s titans of finance could move. To stay rich, it will have to build cities where middle-class Americans actually want to stay."

I could go on and on and on.  I’ll stop ranting.

How about a do-over?  Next time, analysis by Ta-Nehisi Coates.

I’ll really stop here.  

Pharma at the Crossroads?

When pharmaceutical companies take out full page ads in national newspapers touting newly responsible approaches to drug pricing, even the most skeptical of activists sit up and take notice. After 15 years at the forefront of shareholder activism, I can’t help but ask myself if the pharmaceutical industry has finally come to a crossroads on sustainable pricing practices.

Since the early nineties, a wide range of stakeholders; patients, practitioners, health systems and investors have been pushing for drug pricing reform. It is possible the time has come. Does the reputational risk and public scrutiny of recent headlines at long last outweigh the corporate benefits of arbitrary and opaque pricing models?

Several recent signs make me wonder if a few companies are choosing a different path on pricing. I see real potential ahead as some leaders step forward with innovative ideas and models.

With much fanfare, Allergan, the specialty pharmaceutical company and maker of Botox, a revised “Social Contract with Patients.” The most refreshing revision – and the part that created recent headlines – was a pledge to limit price increases on medicines that Allergan sells, or will sell (presumably). In brief, Allergan said it would “not engage in price gouging or predatory price increases”; limit price increases to “single-digit percentage increases” once a year; and refrain from price increases on drugs about to go generic, unless cost increases dictate otherwise.

Five months earlier, KaloBios, a small biotech, announced its “Responsible Pricing Model.” This appears to be the first of its kind, and Allergan’s pledge mirrors many of the responsible pricing model’s main tenets.  Emerging from its own brush with reputational risk, KaloBios said it plans to price its products “at overall cost, plus a reasonable and transparent profit margin” – arrived at after seeking input from stakeholders on what “constitutes a reasonable return”. It will post the elements that make up its price publicly. And KaloBios said it will limit price increases to the rate of inflation or Consumer Price Index, once a year; and refrain from “aggressive or predatory pricing policies or ‘price gouging.’”

I’m betting that truly new thinking could unlock the industry’s vast potential, perhaps attracting new kinds of investors. Healthcare, like never before, is building an audience alongside education and climate change at the Mission Investors Exchange, a leading voice in impact investing. The reform-minded impact investing pool represents serious money, upwards of $60 billion according to the Global Impact Investing Network’s 2015 survey. The opportunity to build better links between social impact investing and the biopharmaceutical industry has never been greater. So what path should the drug industry choose at this crossroads to build sustainable pricing and deliver on the promises its social contract implies?

First, the industry must start at the original launch price for drugs. Attention to downstream price increases is necessary but not sufficient. Models which hover near the status quo ignore fundamental arithmetic. The sustainability of healthcare spending and its social impact depend on the base price, as much or more, than subsequent price hikes. It must seek models that clearly define a “responsible price.” In the KaloBios example, responsible price is defined as: “affordable for patients, transparent for stakeholders and delivers a reasonable return.” Furthermore, the model should quantify a reasonable profit margin, and be willing to disclose it.

Second, the industry must break free from the opacity of current drug pricing. This is increasingly a priority for many stakeholders, including recent calls for pricing transparency by US states, the United Nations, physician leaders and others. Transparency will be the foundation of any serious effort to truly lead to a better way. Responsible pricing models that pledge to make profit margins transparent by “publicly sharing the key elements” of the price of a drug could lead to a virtuous cycle of transparency; mitigating the public perception of this essential-yet-blemished industry.

Shareholder activists, including my former shop the Interfaith Center on Corporate Responsibility, have been focused on these issues for decades.  Recent events have proven that all stakeholders are engaged in these issues, issues with profound moral and economic implications.

At present the few companies leading the way are outliers thus full-page ads draw a lot of justifiable attention. I see momentum building from a coordinated coalition of bold companies willing to lead with maverick ideas on responsible pricing and transparency. Thus companies should not only seek to follow their own true North, but to align with each other to build concrete and sustainable improvements to drug pricing. This coalition would highlight the premier operational innovators in pharmaceuticals – which we sorely need to champion.

From my perspective, access to healthcare, medicines included, is a Human Right and never a privilege for the lucky few. Progress in responsible drug pricing will bring us closer to delivering on that promise. Together, all stakeholders need to look at the right model now to deliver on the social contract of this powerful industry. There is progress in pharmaceutical pricing, but there is more to do together.