Featuring Lutts’ Logic:
Healthcare Follow-up
Guns, Guns, Guns
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“If I were dictator,” I wrote on Monday, I’d emphasize proper nutrition, I’d tax junk food, I’d slash the budget of the FDA, I’d make the AMA reform, and I’d expect to see the drug industry, the medical device industry and above all the insurance industry shrink and lose power as my focus on proper nutrition took hold.
That column resulted in my heaviest email volume ever and I thank everyone who responded.
In total, 69% of respondents were supportive, 6% were critical, and the remainder addressed other items in the column, mainly American International Group (AIG), which I used as an object lesson of stocks to avoid.
But as several readers pointed out, I forgot one big thing, the need for tort reform! That alone is worth a whole column, and maybe I’ll do it someday. But today the words come from you. Here’s a sampling of the best.
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“Your article was good as far as it went but there was a glaring omission in both President Obama’s and your thoughts. Tort reform will also be necessary as it adds as much as 25% to the cost of medical care because of malpractice insurance.”
R.F.
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“Thank you Timothy. Yours is a sane voice among the madness. I hope you don’t mind but I am going to reprint this on the paper I use to send my tea bag to the White House on April 1.”
J.T.
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“As a medical doctor, I do not understand why allowing practitioners of alternative medicine would benefit the patients. Those who believe in alternative medicine are already seeing these practitioners, who usually have not had much training in science, pharmacology, physiology, immunology, or biology. I believe that inclusion of these groups would actually increase the overall cost since they may actually delay the proper diagnoses with potentially deadly and/or more costly results. The way to reduce cost is to encourage an intellectual instead of a procedural approach.
I agree that health maintenance is far more important and curtailing the obesity epidemic in America should be the first step. Perhaps insurance premiums should be based on one’s waistline. Reinstating mandatory physical education for all students (including college students) will likely encourage more to participate in physical exercise.”
J.T.C., Maryland
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“This is incredibly misinformed, categorically wrong information about the problems in the medical industry, and health care system. I’m sorry; I teach biology and have worked in hospitals for over 10 years. Yes, Americans do overeat--and eat junk food--but they are still the healthiest people in the world. Many people who exercise and eat fresh fruits and vegetables also get sick and need modern medicine, medical devices and advanced treatments. Too bad you showed your lack of intelligence by sending out such trash as this.”
M.G., Palo Alto, California
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“You are not a dictator and I do not believe that the political will exists to do what you suggest. As long as we are engaging in wishful thinking, why not try incentives? Why not require smokers, obese folks and others with abusive lifestyle issues to pay a higher rate for health insurance than those who are not so afflicted or give a discount for those who exercise regularly? Then the people who are acting responsibly will not get penalized for those who do not. There is some of this done in the case of individual coverage, but certainly not for large groups. The start of the new system could be deferred long enough to permit people to get their habits and lifestyle corrected. Incentives might work.”
T.A.H., Highland, Illinois
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“Seems to me health care was much, much better years ago when doctors made house calls and an office visit was less than $5.
“Solution: I’ll pay for my health care; you pay for yours.
“Remember, if someone else pays for it, people will use more of it.”
R.G., Rolling Meadows, Illinois
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“I have practiced medicine in the USA for over 30 years, but have a home in Canada where I go every summer. According to the local Canada paper, there is a six-to-nine month wait to have a fractured hip or arm fixed and this one-million people area, a suburb of Vancouver, does not have an orthopedic surgeon who accepts the government payment. First visit for all is $500. My friend paid $5,000 for a cataract operation, after professional discount. The stories could go on for days. “
“Remember, most of the Russians were “happy” with Communism. Our school system has prepared our young people well for this Obama treat. We should clean our present system here before throwing it away. I priced 30 Augmentin, an antibiotic, at our local drug store, last week, and it was $115. Then I phoned Costco and the exact same prescription was $45. If you want a workable, affordable system a Christian Medical Society member, who works for the government, has one. But, Obama makes no secret that he hates Christians.”
R.E., Saratoga, California
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“As a long term Cabot follower, I sometimes think you know not what you’re talking about, especially when you talk about medical procedures.”
F.S., Ocean, New Jersey
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“Send a copy to Barack. He needs to hear from the rest of us and he wants to do a good job of it. He is a bright man and has made himself accessible as well as having a transparent government. I for one believe in him. And thanks for all your good advice.”
D.R.
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“BRAVO! If you are ever in Montana please give us a call and stop by.”
M. & B.S., Gallatin Gateway, Montana
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“A great piece, it gives me cause to think, which in turn gives me desire to reply:
“1) You write, “Doctors are frustrated at being paid less than they are worth.” No sympathy here, last week my contact lens prescription expired, I had to pay $135 for a ten-minute eye exam. Also, here in the poorest State in the Union--Mississippi--a few years back we suffered through the malpractice insurance scare where we were literally told that if malpractice premiums did not go down then there would be a mass exodus of doctors fleeing the state leaving us to deliver our own babies, etc. During that time a surgeon friend was giving me his “woe is me” malpractice story all while he was closing on a lakefront piece of property that cost $250,000. No house, just dirt. That same Christmas I met a cardiologist who had just moved to Mississippi from Missouri. Of course I had to ask him if he was crazy moving into this wasp nest of malpractice hell called Mississippi, he just laughed and said that’s why he left Missouri, and things are great here as it concerns malpractice premiums. Eventually, we realized the malpractice scare was just political posturing for tort reform.
“2) A question regarding the FDA. We all know that the process of bringing a drug to market takes years and costs millions of dollars, all done under the eye of the FDA. So “Drug A” finally gets FDA approval and hits the market helping millions improve the quality of their life. A year later Joe Citizen has a heart attack and dies. His wife is lucky enough to find an attorney that really really cares about her and the fact that she lost her husband Bob, I mean Joe, and sues the drug maker. My question: How is it that the Government Agency that sets the approval process, and ultimately approves the drug, has no shared liability for the death?
“3) As dictator you must do one of two things to solve our healthcare crisis: Mandate that everyone exercise five days a week at a government-owned/run gym. A government employee/trainer would have to witness and sign off our workout sheets after each session. As technology improves we would all be issued heart monitors, like runners wear, that would keep track of how many calories we burn through the day. Depending on our age, height and weight we would be responsible for burning a certain amount of calories a week in order to receive credits in our healthcare accounts. Each evening would be responsible for downloading the info into a government-approved site.
“OR
“Mandate that everyone start smoking, drinking and eating junk food. This would work somewhat like social security, for instance; if I started smoking today the odds are that any health issues would not manifest for at least 10 to 15 years. During this time the extra tax that I pay when purchasing cigarettes would help pay health costs for those that are now having health problems. Fifteen years from now when I start having my own problem the cigarette tax revenue of the younger smokers would pay my way. However, the real genius of making people drink, smoke and eat badly is that average life spans would decrease thus eliminating the need for all that unnecessary treatment of chronic disease.”
“Please keep me in mind for any cabinet positions that would need filling should your dictatorship come to pass.”
A.L., Hattiesburg, Mississippi
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“Excellent column on healthcare!”
Quidnunc, France
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“Great, in 20 years we’ll have healthy kids ... health care costs are a NOW problem.
“How about ending “free” medical care to people who aren’t even supposed to be here? Yes I’m saying it; illegal immigrants get NO health care. GO HOME.
“How many BILLIONS do we save there?
“That alone would do more to solving this “health care cost crisis” than ANYTHING else, in the immediate sense.
“Cap lawsuit awards so doctors don’t have to spend millions on malpractice insurance.
“There .... half your costs reduced.
“No one has any guts to say what needs to be said.
“The country is being run by power-hungry idiots and morons.
“I don’t care anymore.”
A.P.
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“Re: Healthcare. True story that can be documented. My husband suddenly (age-related somewhat) could not walk. Put him first in hospital that INSISTED he get a heart stent. We refused because his heart was okay; he’d had a heart murmur all his life. Hospital would not let him see a neurologist under pretense that neurologists would not even want a patient with a weak heart. They kept him five days (insurance days) and released him on the spot.
“He could not walk. I frantically found a nursing home for him. Nursing home and six hospital visits later (over a period of eight months) ... they would whisk him to various hospitals during the night (his kidneys were weakening because he was flat on his back all the time) ... and each hospital would give him an MRI. But, no one ever read the MRIs, nor told me why he needed these every visit. No conclusions were ever drawn except that he had a walking problem. Long story short: He died from MRSA due to hospital putting tubes in him to urinate. I later learned that the reason for all these MRIs is that doctors do them routinely even if you had the same MRI last week. They are afraid of lawsuits.”
The Widow Goodman
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“Did you mention trial lawyers in your health care piece?? This is the only country with tort law that allows what is equivalent to extortion. We are the only country where you can be sued and the loser never pays.”
G.D., Everett, Washington
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“Your use of the word Osteopath is somewhat pejorative and dated. The proper use would be Osteopathic physician as all are fully licensed in all specialties. Just FYI.”
J.S., DO, South Charleston, Ohio
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“This is the FIRST VOICE OF REASON I’ve heard on how to fix our health-care system, beginning with what you’ve said about nutrition and preventative health care and through to the last about the health care insurance companies. Now please get Obama’s ear with these ideas.”
Dale
(Note, I did send the column to President Obama, but to do it electronically, I had to trim my 6,700 characters down to 5,000 to get it in his online submission box. No response yet.)
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“In my opinion, you missed the third leg in this vicious puzzle--lawsuits. The insurance industry, which never loses long haul; the doctor, who needs to accept pay cuts like the rest of us; and the attorneys, who drive up costs significantly. All need to be regulated to pull the system together ... and I hate regulation. Until this three-legged stool can be controlled, this is another American system that cannot render itself competitive.”
T.D.
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“Since I’m past my 80th birthday, my outlook on “health care” is drastically different from 80% of the world’s. As a youngster in the 1930s, there was no such thing as a belief that the government had an obligation to keep you alive. If you lived each day as though it was your last, you probably woke up the next day. If you abused your body in any manner, you probably learned to regret that. Some lived, some didn’t. For those who got sick, for whatever reason, they either went to the doctor or they didn’t. Some lived, some didn’t. If someone became ill enough, they either survived or they didn’t. Some lived, some didn’t.
“As it worked out, the fittest survived; the weak did not ... that’s known as improving the gene pool.
“The only reason employer subsidized health care came about is because during World War II, when wages were frozen, employers offered health care as an alternative to wage increases (one of the all-time big mistakes). This then became the battle cry for “health care for the masses.” While this is a great vote-getting scheme, while insuring a captive audience that is lead to the trough, who will then vote for the charlatans, the economics do not support the idea. One need only look at the scurrilous schemes promoted by LBJ, Carter, Bush (both of them), and now Obama. Not one of them had the interest of the voters in mind, only how to capture their votes. As long as they could still vote, it wouldn’t make any difference if they all died tomorrow (as proved by LBJ in Duvall County, Texas).”
“A pox on them all!”
E.D., Clayton, Georgia
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“As always, I enjoy your writings, and I appreciate your taking on the difficult issues.
“Regarding healthcare, here are a few other thoughts for you, as our Healthcare Dictator, that would yield more positive improvements in the near term:
“1. Health insurance in your state (Massachusetts), the last time I checked, is more than twice as expensive as in many other states. The reason--state legislatures lard up minimum coverage requirements on policies, thanks to state lobbyists. The solution --pass a Federal law that allows an individual to shop policies across state lines. The savings in this for families are huge. It won’t happen, because Obama believes in socialized medicine.
“2. A recent Supreme Court opinion, in a decision in your state, regarding a woman who lost an arm to gangrene, through an improperly administered injection, despite BOLD WARNING LABELS, ruled that these types of cases could be tried in state courts. Hello, tort lawyers--the avalanche of state lawsuits will now be wide open, with huge settlements to follow. Congress could bring these cases back to the Federal Courts, slowing down the jackpot justice tort system.
“3.Health Savings Accounts are an effective way for individuals to obtain disaster coverage at a low cost, and to accumulate reserve funds for future expenses. Most young people only want disaster coverage, as do many others, such as myself. Unfortunately, George Bush was not able to effectively explain the program, and thus it is a relatively small part of the total insurance market.
“4. In a study I read this past week, doctors are ordering 30% more testing than would be normal, because of fear of lawsuits (see #2 above). The 30% of additional testing would pay the costs of the uninsured today. Again, Congress could fix this, but don’t hold your breath.
“The above actions would significantly reduce the cost of health insurance today, before your proposed actions regarding behavior modifications and preventative actions had enough time to begin to take effect.
“Unfortunately, none of the above will be done. Rather, the move to socialized medicine will be relentless. Included in the stimulus package was a provision to create a new department to evaluate the effectiveness of various medical treatments, modeled on the U.K. system, which was recently recognized as the least effective health care system in the developed world. The new department was designed by Tom Daschle, before it was learned that he didn’t care to pay income taxes. This department will eventually determine whether or not you will receive the treatment you request.
“None of the current leaders in the Democratic Party have ever run a business. Rather, all are lawyers. My experience in 45 years of business teaches that lawyers make lousy businessmen. So, it’s very hard to be optimistic about the future of our country.
“But, keep up your good work.”
L.W., Austin, Texas
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“Your steps and ideas (as a dictator) to address the root of the health care problem are EXCELLENT with one very important exception. There are many saturated fats that are excellent and healthy such as coconut oil (omega 3s and omega 9s--very stable at cooking temperatures). Butter (unsalted) is healthier than margarine even without trans fats. The ratio of fats in the typical American diet contains 15 to 20 times too many omega 6 fats (many processed vegetable oils) and probably the worst fats are the engineered fats that do not occur naturally.”
Bob
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“Doctors get their money, and don’t you think not. The new twist for them is to bill the customer what the insurance company won’t pay. I got a bill from one last week for $1.64 from an insurance company “no pay” last November!!”
W.B.C., Winston-Salem, North Carolina
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Finally, to remind us all that it is not so simple, comes this well-written letter from an FDA insider.
“While I think many of the proposals under your proposed regime are positive - and achievable through democratic results I might add--your contention about the FDA is both ill-informed and dangerous.
“The FDA has seen its budget cut dramatically in the last eight years while the amount of data they are required to review has mushroomed. In the late 1980s, the submission for the approval of Fluoxitine, known commercially as Prozac, consisted of 100 bound books of over 1000 pages each. They were shipped to the FDA in a truck. Each page of those volumes had to be reviewed and checked for accuracy before it could be voted on for approval. Today, the data submitted consists of a small package of 50 to 100 DVDs--and the volume of data can be more than TEN TIMES that of a submission made 20 years ago.
“As it stands, the FDA has nowhere near the resources to conclusively check the arguments offered by every company, and this result has not proved positive for Americans. Pharmaceutical companies have long ago ceased to be run by scientists dedicated to serving doctors and patients. Though these noble individuals work by the thousands in pharma corporations, their leaders now come from business schools, not medical programs. Marketing and time-to-market against the competition are enormous forces that now overwhelmingly dictate research and development of medicines.
“The FDA stands as a necessary bulwark between the patient and the market-driven force of billions of dollars in profit that will ABSOLUTELY discount human life when factoring the risk of bringing a drug forward. This exact phenomenon was documented during the investigation into Merck’s deliberate suppression of safety data during their submission to the FDA for approval of the drug Vioxx.
“Merck’s own studies showed a FOURFOLD INCREASE in the risk of heart attacks while taking their compound but successfully buried the data in the blizzard of information submitted to the FDA. They also completely withheld this information when they submitted their main study (authored by Merck) to prove the safety and effectiveness of the drug to the New England Journal of Medicine. The journal article, of course, supported what seemed to be positive results. Unable to comprehensively review the material submitted to them, it’s very likely that the board of the FDA relied on the tradition of rigorous peer review and used the NEJM article as a measuring stick when they moved forward to approve the drug for use.
“Merck made 2.5 billion dollars in one year off of Vioxx. As many as 10,000 people are said to have died from cardiac events related to use of the drug.
“Now, it does not mean that Vioxx was poison. It was, in fact, a good and potent medicine for certain patients for whom the risk was appropriate given the extremity of their disease. But Merck’s sales and marketing unit sought to increase market share into populations for whom this drug was not the only answer--and by no means the safest choice--by misleading doctors into thinking the compound was much safer than it actually was.
“This happened because the people who determine what data gets pushed forth to the public are not the bench scientists or doctors within the company but the sales and marketing executives--a direct result of market forces driving human behavior in a large organization.
“Thanks to responsible doctors gathering their own data in the field, diligent investigation, and no doubt the help of some whistle-blowers, Merck was exposed and admitted publicly that its sales team had been “over-zealous” when informing the public about the drug.
“Use the term “over-zealous” to 10,000 families and see if they think that’s an appropriate term.
“I know about these things because I work extensively with marketing teams at pharmaceutical companies creating materials they use to speak to the community. Most executives I work with are bright, ethical people. But NONE of them are doctors and many of them don’t have the scientific education necessary to understand much of what they sell. And the pressure they face to boost market share is remarkable. I have watched people I liked personally stand up in front of rooms of doctors and say things like, “we’re going to crush the competition” when talking about drugs for arthritis. One executive told me his brand plan was to have his drug, a very potent agent for dilating blood vessels, “replace aspirin at every turn, even beyond cardiac cases” five minutes after doctors on his own team said that would never be in a patient’s interest.
“One of the saving graces of my job is that every single word and image has to be formally reviewed by an internal team at the pharma company consisting of at least one doctor, an expert in FDA regulations, and a pharmacist. What I told the guy who wanted to replace aspirin was, “I’m not sure we can get that one through review, but we’ll bring it forward and see what they say.” And then when I do go to review, I make sure the committee looks at everything. In the end, we arrive at a message that strives to communicate the true benefits of the miraculous compounds these companies make, ethically and accurately.
“The reason I have pride in my own work is because I am an ethical person, and I have the review committee to rely on and collaborate with. But Tim, not everyone thinks like me, and from that, we need protection. Period.
“The FDA is a slow and cumbersome organization. It is a bureaucracy in the truest sense. But it is also the last moment where science is given a chance to have its proper place in the process of approving drugs with accurate labels that will inform doctors and the public about what’s good for them. To speed its processes we should not weaken it further, but the opposite.
All the best and good luck in your future in theoretical society building.”
S.C., Jersey City, New Jersey
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Switching gears, we turn to the world of guns. Why? Because gun stocks are strong. You probably haven’t read about it in the news, and Lord knows it’s not a topic that gets much ink or airtime in our urban East Coast media. But I was looking at the list of stocks hitting new highs one day and there they were, like a shotgun blazing away with both barrels.
So why are gun stocks strong? The first reason, apparently, is that many Americans fear President Barack Obama and his associates will soon make guns more difficult to buy ... so they’re buying them now. The second reason is fear of burglary and robbery, and the other crimes that tend to increase during recessionary times.
Now, you can argue with one or both of these statements, but what you think doesn’t really matter. And what I think doesn’t really matter. What matters is that the stocks are strong, reflecting real buying power from investors backing up their thoughts and fears with real money.
Exhibit one is Sturm Ruger (RGR). Two weeks ago the company reported excellent fourth quarter results, blowing away analysts’ estimates. Revenues grew 72% to $58.5 million, while earnings per share jumped from a loss of a dime to a profit of 30 cents. In response, the stock zoomed from 6 to 11 over two weeks, and now it’s consolidating that gain. But I don’t think it’s gone too far, and apparently, neither does management. Last year, the company bought back 7.5% of its outstanding shares on the open market at an average price of $6.57 per share.
Exhibit two is Smith & Wesson (SWHC). The company reported fourth quarter earnings just last night. Revenues grew 25.9% to $83.2 million, while earnings grew 25% to 5 cents per share. The stock has climbed from below 2 to above 4 in the past five months. But the earnings report sparked fresh buying today, sending the stock up to 5.
Exhibit three is Cabela’s (CAB), the retailer of many of those two companies’ firearms as well as a wide variety of hunting and camping equipment and apparel. The company’s fourth quarter results, which came out on February 19, saw revenues shrink 1%, but that was better than analysts’ estimates and the biggest reason was firearms. CAB has climbed from 5 to nearly 9 in the past four months.
Now, none of these three stocks has been recommended in any of Cabot’s paid investment advisories yet. Sturm Ruger is rather lightly traded and the other two are somewhat low-priced. All three are sort of on the edge of “respectable” territory. You’re welcome to investigate further, and if you do decide to buy, I caution you to employ technical analysis in addition to fundamental analysis, remembering to buy on dips, never average down, let winners run and cut losses short.
Yours in pursuit of wisdom and wealth,
Timothy Lutts
Publisher
Cabot Wealth Advisory
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