The United States and New Zealand are the only two countries that allow television commercials promoting medication. Advertising has increased from $1.3 billion in 1998 to roughly $5.6 billion in 2016. But at what price to ordinary citizens?

The pharmaceutical industry’s great technical prowess, backed by corporate lobbyists and naked capitalism, has helped create an American modality to relieve pain: inexpensive, highly addictive pain pills. A simple metric used by pharmaceuticals and drug manufacturers seems to be: The more pain, the more we gain. How are socially responsible investors reacting to these industries, and why are pain-treating alternatives not hitting the market fast enough?

Pain is one of nature’s strongest forces. Pain makes the hand recoil from a flame and provides the instinct to duck when a rock is heading your way. Pain is also one of the most bedeviling forces in nature. Ancient people understood pain when they could see a gash or crooked finger. If pain was internal, they often assigned mythical or spiritual causes to explain it. They also went to great lengths to expunge it. Some even speculate the Incas went as far as drilling holes in the skull to relieve pain. Others used “pain pipes” or leeches to extract it, injected gold salts into the body to mute it, or induced pain elsewhere in the body to offset it. Some just used  unconsciousness to deal with it.

In the fog of time, it’s difficult to know with certainty which of the early remedies were most effective. Given that pre-modern surgeons were mostly valued for being fast and able to endure the screams of their patients, it’s safe to say none were entirely effective.

However, before those early efforts to ease pain are dismissed as crude and primitive attempts by less advanced cultures, keep this in mind: None of the pain treatments employed by early humans led to a drain on the civilization’s coffers or caused more than 60,000 collateral deaths a year. Neither were any tied to massive profits for the players involved either. This is where America comes in.

As America joined the atavistic quest to relieve pain, the nation veered down a path influenced by market forces as well as empathy. The pharmaceutical industry’s great technical prowess, backed by corporate lobbyists and naked capitalism, helped create an American modality to relieve pain: inexpensive, highly addictive pain pills. America found pain relief behind names like Vioxx, OxyContin and Percocet, among others. The side effects, however, were not just confined to the patient. America itself is now in pain – economically and emotionally. The prescription opioid formula for pain has led to a national opioid epidemic. How bad is it? President Donald Trump declared the opioid epidemic a public health emergency in October of 2017. By most estimates, the opioid epidemic costs the United States over $500 billion per year and leads to well over 90 deaths per day. The U.S. Department of Health and Human Services estimated that by 2015, nearly 13 million Americans were abusing prescription opioids.

The Seeds of Destruction

Today’s opioid crisis has its roots –literally – in the soil of ancient history. Since the time of the Sumerians and Mesopotamians, compounds derived from the opium poppy have been used to manage pain or been used for recreational and religious ceremonies. Over the millennium, opium has left a trail of addiction, from the Silk Road in the Far East to Main Street, United States. We  should not feel too special. Opium has always had a major economic impact on society and has ensnared virtually all world powers one way or another. In fact, England smuggled so much opium into China to balance Britain’s tea trade during its Imperial apex that the subsequent epidemic of addiction in China led to the Opium Wars in the mid-1800s. More recently, the Taliban’s war against Soviet occupation in Afghanistan in the 1980s (and now against America) has been largely funded by the poppy-derived heroin trade. The United Nation estimates opium nets the Taliban $3 billion per year and pays the salaries of 25,000 to 30,000 soldiers.

The deadly American epidemic we are battling today, however, is home-grown and rooted in changes in medical practices and the related response from insurers. Opioids like morphine, heroin and other synthetic opioids became commonplace for treating acute post-operative pain and terminally ill patients during most of the 20th century. Opioids then became a common tool in fighting chronic pain such as backaches and headaches in the 1990s. Prescriptions for opioids skyrocketed over this period. The number of prescriptions for opioids surged from 76 million in 1991 to well over 200 million by 2013. During this time the United States became the biggest consumer of opioids globally, using nearly 100% of the world’s total production for hydrocodone (e.g., Vicodin) and 81% for oxycodone (e.g., Percocet).

Opioid prescriptions peaked in 2012 with over 255 million nationwide, drifting down to 214 million by 2016. Despite the overall decline, the 2016 total was still three times as high as 1999, and today prescriptions remain high (or rising) in 23% of the country’s counties.


SOLUTION: Cannabis as an Alternative? 

Cannabis, in varying compounds, is one alternative treatment for pain that has become more common in recent years, particularly in lieu of its increased legalization in the United States. Numerous studies over the past few decades have presented the medical benefits of marijuana to treat conditions such as multiple sclerosis, arthritis, epilepsy, glaucoma, HIV, cancer, anxiety and the elusive chronic pain. In January 2017, The National Academies of Sciences, Engineering, and Medicine released a comprehensive review of scientific research published since 1999 on the subject. The committee came to almost 100 research conclusions on the health effects of cannabis and cannabinoids, including evidence which showed that “patients who were treated with cannabis or cannabinoids were more likely to experience a significant reduction in pain symptoms”. It should be noted that not all of the conclusions imply positive health effects of cannabis.

Other recent studies have found an association between states legalizing medical marijuana and a reduction in opioid overdoses. A major roadblock to medical research on marijuana is that under the Controlled Substances Act, the drug is still deemed a Schedule I substance, defined as having high potential for abuse and no currently accepted medical use. It cannot be used or tested safely, even under medical supervision. Most opioids are a Schedule II substance and neither alcohol nor tobacco are controlled substances. For reference, in the United States there were over 30,000 opioid overdose deaths in 2015 and approximately 88,000 alcohol-related deaths each year — of which roughly 21,000 were from liver disease. There are roughly 480,000 deaths yearly attributed to cigarette smoking. There have been zero reported deaths from marijuana overdose and as of yet, no publicly-available research on other marijuana-related deaths. Although still illegal at the federal level, 29 states have now legalized medical marijuana and eight states, including Washington, D.C., have legalized it for recreational use. More extensive research is still needed to prove the medical efficacy of cannabis.

One of the more high profile conversations about marijuana’s benefit for pain relief is happening between the National Football League (NFL) and its Players Association (NFLPA). The NFL has long been criticized for “pushing” pain pills on their athletes and being insensitive to the longterm overall health of players. In 1970, St. Louis Cardinals linebacker Dave Meggysey published his seminal book Out of Their League, which first exposed the world to the widespread abuse of pain killers, racism and brutality in the NFL. The game has only grown in stature, economics and violence since then, and the NFL has a reported level of opioid abuse three times as high as the general population. As an offshoot of the NFLPA subcommittee on brain trauma, the NFL and NFLPA are looking to liberalize the use of medical marijuana for NFL players.

In many ways, the NFL is a microcosm of the country’s conflicted position on controlled substances: On the one hand, players are tested for marijuana and penalized based on the current collective bargaining agreement, and on the other hand, they are being administered highly addictive pain medication from team doctors. The amount of marijuana in the bloodstream was liberalized in the current collective bargaining agreement in 2014. The current review is set to liberalize it further, at least in part because of the player’s belief that oils and ointments from marijuana are preferable to opioids in treating pain.


Anatomy of The Crisis: The “Fifth Vital Sign”

Pain “management” gained visibility within the medical community in the 1980s, as a handful of researchers and physicians argued pain was vastly undertreated. Pharmaceutical companies seized on this market opportunity to profit from opioid sales, marketing pain as the “fifth vital sign” while downplaying the addictive risk factors. In 1996 after OxyContin was released, specialized sales representatives, called “detailers,” used a variety of sales tactics to market the drug to doctors. They were so successful that the number of detailers marketing OxyContin grew from 318 in 1996 to 767 in 2002. The detailers focused on primary care physicians, despite these doctors having adequate training in pain management. They also promoted the fact that only 1% of patients who used narcotics were at risk of addiction.

The marketing tactics paid off. OxyContin sales skyrocketed, rising from $45 million in 1996 to $1.5 billion by 2002, to $3.1 billion in 2010. The consequences of addiction and opioid abuse have been on the rise ever since. In 2015 alone, 33,000 Americans died from overdosing on opioids – more than double the number of homicides. To add insult to injury, despite the explosive growth in the sale of prescription opioids since the 1990s to treat chronic pain, studies indicate the incidence of pain in the U.S. has actually nominally increased.  In February 2018, the manufacturer of OxyContin cut its marketing staff in half and stopped marketing opioids to doctors.

Stuck in The Middle With You

Although it’s easy to point fingers at “Big Pharma” and doctors in fueling the opioid crisis, insurance companies and the pharmacy benefit managers (PBMs) have both played critical roles. The insurers and PBMs systematically favored cheaper, yet more addictive opioid medications, at the expense of higher cost, yet less addictive, opioid options. Why? It was more profitable since less addictive options often came with a higher price tag. This greatly influenced the use of less addictive options because patients with chronic pain were required to shoulder high out-of-pocket expenses and go through lengthy approval processes with their insurance companies just to use them. As much as patients were getting hooked on opioids, insurance companies and PBMs were hooked on the profit margins of the low cost, highly addictive pills. Less addictive options were avoided because the economics were not as favorable.

The rapid escalation in the number of prescriptions was widespread across the country, but there was a clear regional disparity in the numbers. According to the Centers for Disease Control and Prevention (CDC), in about a quarter of U.S. counties, there was the equivalent of one opioid prescription per county resident. In addition, while the overall opioid prescribing rate in 2016 was 66.5 prescriptions per 100 people, some counties had rates that were seven times higher.

Why is that significant? From a political standpoint, the opioid epidemic heavily affected the rural, white communities in places like West Virginia, Ohio and Pennsylvania. These are areas that served as a political base for Donald Trump in the 2016 election. For a host of reasons, the pain that the opioid epidemic has inflicted on large cities and Blue states hasn’t garnered the same political attention among urban voters. The three largest U.S. cities by population went Democratic in 2016 (New York, Chicago and Los Angeles). Yet when the Pew Research Center released its polls of the issues important to those voters in the pre-election, the opioid epidemic did not register as significant enough to even be on the list.

That is not to say the Trump administration response has assuaged all critics. According to Stanford University addiction specialist Keith Humphries, “the Trump administration’s latest proposed budget cuts the Substance Abuse and Mental Health Services Administration by $400 million and the tax bill is projected to lead to 13 million people losing health insurance, and any coverage for addiction treatment along with it.”

It remains to be seen how cuts to social services and policy changes will affect the opioid epidemic, but the areas with the highest prescription rates will likely continue to have the highest death rates from opioid overdoses. The disparity of both prescription levels and deaths by region begs some very serious questions about the causes of the epidemic. Researchers have shown that the variance is due to different medical practices, not the actual health condition of the patient. The implication is that pharmaceutical companies were more successful selling opioid medication in places where physicians lacked formal pain management training and that pharmaceutical companies marketed opioid medication while understating the risks of addiction.

A recent study from Princeton University further elucidates the disparity in prescription practices among doctors, as researchers found that doctors from lower ranked schools prescribe three times more opioid prescriptions per year than doctors from the highest ranked schools. Some doctors also fueled the addiction frenzy by writing prescriptions for a standard 30-day supply, despite most post-operative acute pain requiring only 3-5 day prescriptions. Given the increased public outcry on addiction, some pharmacies have added policies to engage and challenge doctors who they believe over-prescribe pills. The over-prescription practices range from ill-informed doctors with outdated prescription practices to knowing pharmacy accomplices (often known as “pill mills”), looking to flood the market in the quest for profit.

Necessity is The Mother of Invention (For Better or Worse)

It stands to reason that the opioid epidemic would be worse in areas with higher levels of prescriptions for opioid medications. This created a volatile situation which quickly became a conflagration because of three additional elements: the selling of fraudulent prescriptions, modifying the ingestion methods of the medications to increase the potency and the availability of heroin.

As addiction spread, so did fraudulent prescriptions to meet the growing and lucrative demand of addicts. Thousands of illegal prescriptions for various opioid derivatives, such as hydrocodone, oxycodone, fentanyl and morphine continue to make their way to the public via fraudulent means, with medical professionals looking to cash in on the black market by writing prescriptions under the names of family and friends. Additionally, patients known as “Doctor Shoppers” take advantage of unknowing (or sometimes knowing) physicians to obtain multiple prescriptions for personal use or resale. The U.S. Department of Justice announced in July 2017 it was bringing charges against 412 individuals from various institutions for their alleged participation in schemes involving approximately $1.3 billion in false billings. The accused range from doctors who profited from reselling fraudulent prescriptions to a fake Florida rehab facility that solicited addicts for treatment using gift cards and then billed their insurance companies.

Once addiction took root, addicts then sought to deviate from the standard oral intake to increase the feelings of euphoria and the “high”. Addicts turned to alternative intake methods such as intravenous injection (“shooting up”), nasal ingestion and rectal delivery to ingest the drug as quickly as possible, maximize the dosage and increase the high. Unfortunately, deviating from the standard oral intake only made drugs more addictive. Standard oral intake was designed to make the drugs dissolve slowly in the system, lessening the high and the addictive qualities.

Another clear and present danger of the opioid epidemic is the rise in illegal drug use. Many addicts have responded to the crackdown on opioid prescriptions by turning to heroin – a black market opioid derivative. The United Nations Office on Drugs and Crime denotes heroin as the deadliest drug in the world and draws particular concern to its rise in the U.S., with nearly one million heroin users as of 2014. In addition, heroin-related deaths are five times more than those seen in 2000. Many posit the heroin rise is a waterfall effect from the acceptance of opioid prescriptions. There was a corresponding increase in heroin use in the United States during the timeframe when prescriptions for opioids were skyrocketing. Heroin in this country has more than doubled since 2005.


SOLUTION: What Are Socially Responsible Investors Doing?

Socially responsible investors have long been an agent of change in corporate behavior and given the role corporations played in creating the opioid crisis, it should come as no surprise that they are pressing the drug and pharmaceutical industry to alter their practices.

1. Earlier this year, a coalition of investors representing roughly $1.4 trillion in managed assets was created to formalize the effort. The ‘Investors for Opioid Accountability’ (IOA) consists of thirty members, including the California State Teachers’ Retirement System, the International Brotherhood of Teamsters and Bailard, Inc. The typical “asks” are lobbying, political spending and independent reporting to flush out a company’s relation to
the opioid epidemic.

2. In July 2017, at the annual shareholder meeting of one of the largest drug distributors in the U.S., there were three important outcomes: Shareholders rejected the Board’s proposed executive pay package and demanded compensation be reviewed, the Board committed to enacting an independent Chairman going forward, and an independent investigation of opioid-related business practices was launched. A precedent was set for future engagements.

3. The IOA also engaged a large HMO in November of 2017 that launched a new ‘Opioid Action Program’ in four of the most affected states. This included the purchase of 80,000 doses of the overdose reversal drug, Narcan, for free distribution; a contribution of $3 million to grants that will support youth education; prevention and prescriber awareness; supporting drug take back events; and partnering with medical schools to boost training on opioid treatments. Similar proposals and engagements are on deck with 9 other distributors. This demonstrate the power of private and public-sector organizations working together to influence changes at an industry level.


Economics of The Epidemic

The correlation between rising opioid prescriptions and decreased labor participation, particularly among men, continues to grow and garner headlines across the U.S. Not surprisingly, studies have found that labor force participation is not only lower in areas of the U.S. with higher volumes of opioid prescriptions but actually fell in the 2000s.

Princeton economics professor Alan Krueger suggests that the increase in opioid prescriptions from 1999 to 2015 could account for nearly 20% of the observed decline in men’s labor force participation during that same period. For women, who are more likely than men to get an opioid medication prescribed (though less likely to overdose), the observed decline in women’s labor force participation is slightly higher at 25%. Krueger further flushes out the regional economic impact of the epidemic. Over the last 15 years, the labor force participation rate fell more in counties where more opioids were prescribed. This may very well have contributed to the perspective of voters in those areas that the status quo in Washington was not focusing on policies that were benefiting their communities.

Goldman Sachs economists say this may explain something that has been a puzzling question since the Great Recession: why labor participation has gone down, despite an economy creating more jobs.

However, some experts point to other factors for decreased labor participation such as an aging population or increased college enrollment.

Nonetheless, the epidemic continues to grow more expensive by the day given treatment needs, increased crime and lost earnings (the largest hit of all to the economy). Given the perpetuating cycle of addiction, areas already badly affected cannot stand a chance to recover without large scale intervention to assist with rehabilitation and treatment.

Conclusion

Aggressive pharmaceutical campaigns, lack of physician education on pain management and a healthcare marketplace that failed to promote less addictive alternatives fueled the perfect storm that America now battles. The opioid crisis shows no sign of abating soon. With respect to annual deaths, the CDC just released new statistics to show the epidemic has now surpassed the annual deaths caused by HIV/AIDS at its height. The CDC now estimates over 42,000 Americans died as a result of the opioid epidemic in 2016. As the death toll and financial impact mount, it appears that funding for social programs to combat addiction and substance abuse is going the opposite direction.

As a result, the most direct change in the epidemic likely has to come from changes in the practices of the pharmaceutical and insurance industries themselves and by a law enforcement effort to curb illegal prescriptions. The role of pharmaceutical and insurance companies in the epidemic will no doubt continue to play out in the courts and at annual meetings. The much anticipated mid-term elections in 2018 will provide another opportunity to shine light on policy choices that have either helped or hindered the reversal of this terrible epidemic.

By Blaine Townsend  www. bailard.com