Connect with us
[the_ad id="4069195"]

Business

Doctors Prescribe More of a Drug if They Receive Money From Pharma Company

Published

on

by Hannah Fresques for ProPublica

Doctors who receive money from drugmakers related to a specific drug prescribe that drug more heavily than doctors without such financial ties, a new ProPublica analysis found. The pattern is consistent for almost all of the most widely prescribed brand-name drugs in Medicare, including drugs that treat diabetes, asthma and more.

The financial interactions include payments for delivering promotional talks, consulting and receiving sponsored meals and travel.

The 50 drugs in our analysis include many popular and expensive ones. Thirty-eight of the drugs have yearly costs exceeding $1,000 per patient, and many topped the list that are most costly for the Medicare Part D drug program.

Pharmaceutical companies have paid doctors billions of dollars for consulting, promotional talks, meals and more. A new ProPublica analysis finds doctors who received payments linked to specific drugs prescribed more of those drugs.

Take Linzess, a drug to treat irritable bowel syndrome and severe constipation. From 2014 to 2018, the drug’s makers, Allergan and Ironwood, spent nearly $29 million on payments to doctors related to Linzess, mostly for meals and promotional speaking fees.

ProPublica’s analysis found that doctors who received payments related to Linzess in 2016 wrote 45% more prescriptions for the drug, on average, than doctors who received no payments.

Key Takeaways

We studied the 50 most-prescribed brand-name drugs in Medicare for which drugmakers had made payments to doctors in 2016. The drugs include treatments for diabetes, asthma, high cholesterol, hypertension, glaucoma and more. Among our findings:

  • Of those 50 drugs, 38 cost more than $1,000 per year.
  • For 32, at least 10% of doctors prescribing the drug received payments tied to the drug from the company that made it.
  • For 46 of the drugs in 2016, doctors who received payments for the drug prescribed more of it compared with doctors who did not.
  • On average, doctors who received payments prescribed 58% more of that drug than doctors who did not.

Read our methodology for more about the analysis.

Those findings were repeated for drug after drug. In 2016, doctors who received payments related to Myrbetriq, which treats overactive bladder, wrote 64% more prescriptions for the drug than those who did not. For Restasis, used to treat chronic dry eye, doctors who received payments wrote 141% more prescriptions. The pattern holds true for 46 of the 50 drugs.

On average, across all drugs, providers who received payments specifically tied to a drug prescribed it 58% more than providers who did not receive payments.

Other research, including our own, has found a correlation between payments and overall prescribing. This new analysis expands upon past work by looking individually at a variety of popular drugs. “What clearly jumps out is how consistent the association is across drugs,” said Aaron Mitchell, a medical oncologist at Memorial Sloan Kettering Cancer Center who has studied pharmaceutical payments for oncology drugs.

Our analysis looked at the relationship in two ways: whether those who received payments prescribed more of a drug, as well as whether those who prescribed a drug received higher payments than those who did not. We found that, on average, physicians who prescribed a drug received higher payments related to the drug that same year than those who didn’t prescribe it.

For Linzess, the value of payments was more than four times higher for providers who prescribed the drug than among those who did not. For Myrbetriq, it was three times higher, and for Restasis, it was twice as much.

Holly Campbell, a spokeswoman for the Pharmaceutical Research and Manufacturers of America, an industry trade group, said it stands to reason that doctors who have interactions with a company about a drug may prescribe more of it “because they have more information about the appropriate uses for the products.”

Through spokespeople, Allergan (maker of Linzess as well as Alphagan P, Bystolic, Combigan, Lumigan, Namenda and Restasis), Janssen (maker of Invega, Invokana, Xarelto and Zytiga) and Novo Nordisk (maker of Levemir, Novolog and Victoza) described their interactions with physicians as important for sharing medical information.

Novo Nordisk added that prescribing data is not used to target physicians for speaking or other promotional interactions. Eli Lilly said in a statement that meals can take place in many contexts, including in doctors’ offices, at speaker events and at conferences, but didn’t answer other questions. GlaxoSmithKline, Ironwood, Astellas and Purdue declined to comment.

For some drugs that are household names, it was more common for prescribers to receive a payment than not to. More than half of doctors who prescribed Breo, an expensive asthma drug, to Medicare patients received payments involving the drug in 2016. This was also true for Invokana and Victoza, both of which are diabetes medications. For Linzess, nearly half of doctors who prescribed the drug had interactions with its maker.

More than one in five doctors who prescribed OxyContin under Medicare in 2016 had a promotional interaction with the drug’s manufacturer, Purdue Pharma. The company did not respond to a request for comment.

“If there are physicians out there that deny that there is a relationship, they are starting to look more and more like climate deniers in the face of the growing evidence,” said Aaron Kesselheim, a professor of medicine at Harvard Medical School and an expert in pharmaceutical costs and regulation. “The association is consistent across the different types of payments. It’s also consistent across numerous drug specialties and drug types, across multiple different fields of medicine. And for small and large payments. It’s a remarkably durable effect. No specialty is immune from this phenomenon.”

Huey Nguyen, a gastroenterologist in southern Indiana, increased his prescribing of Linzess in recent years. From 2013 to 2015, Nguyen’s Medicare patients had fewer than 60 claims per year for Linzess. In 2016 and 2017, that jumped to over 110 claims per year.

Over that time, Nguyen was a promotional speaker for Linzess. Allergan paid him $1,000 in 2013, over $4,000 in both 2016 and 2017, and $2,000 in 2018 to speak about the drug.

Though Linzess has been on the market since 2012, Ironwood and Allergan made a big push to promote the drug in 2016 and 2017. Spending on doctors reached $10 million in 2016 and nearly $8 million the following year, up from under $4 million in both 2014 and 2015.

In total, Nguyen has earned $25,000 from 2014 to 2018 related to six drugs from four pharmaceutical companies, excluding meals. In 2018, he was paid by two companies to promote competing drugs that treat irritable bowel syndrome.

ProPublica’s analysis did not set out to examine, nor did it resolve, whether industry payments change doctors’ behavior, or if patients receive inferior care from doctors who receive payments. Many factors can influence doctors’ prescribing choices. Some patients, for instance, have conditions for which only brand-name treatments are available or for which other drugs have failed.

Nguyen said promotional speaking educates doctors about how a drug works, whether insurance covers it and when not to prescribe it.

“It’s a way for the primary care physicians to have access to a gastroenterologist where they can ask one-on-one questions,” Nguyen said. “I’m more educated towards the drug, because I have to be trained to speak on it, so I’m more comfortable prescribing it.”

Experts are skeptical that interactions between companies and doctors benefit patients. “If there really were innovations and real benefits that were accruing to patients for a new treatment, it shouldn’t take so much spending by the company to get the word out,” said Stacie B. Dusetzina, associate professor of health policy at Vanderbilt University Medical Center, who advised ProPublica on the design of its analysis. “I wonder if promotion is really to try to push products that have a much less substantial benefit because they’re not gaining the market share naturally.”

Nguyen said he takes many things into account when prescribing a drug, including its approved uses, cost and side effects. “In my day-to-day practice, my patients still come first,” Nguyen said. He said the speaking engagements do not influence his prescribing, “at least not consciously. Unconsciously, I don’t know.” He sees the public disclosure of industry payments to doctors as a way to help patients be active participants in their care.

Nguyen said he works with companies for the extra compensation but acknowledged that “it’s perfectly reasonable for people to question my motives.”

ProPublica’s analysis matched doctors’ prescribing in Medicare’s prescription drug program to the industry payments doctors received. Drug and medical device companies are required to report these payments annually through the federal Open Payments program, and they are made public on a government website. More than 600,000 doctors receive payments annually. (Companies also report research payments and ownership interests, but these were excluded from our analysis.)

Some providers were paid thousands of dollars, often for promotional speaking. But the typical doctor took in much less. Most only received meals, typically worth less than $100 per year.

In 2016, ProPublica found a relationship between the total dollar value of a doctor’s interactions with drug and device companies and the overall percentage of brand-name drugs he or she prescribed.

Other research has found correlations between industry interactions and prescribing for certain classes of drugs, including opioids, urology drugs, oncology treatments, inflammatory bowel disease treatments and heartburn medication. In one study, brand-name prescribing for certain classes of drugs was associated with receiving as little as a single pharmaceutical industry sponsored meal. A study of prostate cancer treatments did not find evidence of a connection.

Brand-name drugs are more expensive than generic options, both for patients and for Medicare. A recent report from the Department of Health and Human Services found that Medicare Part D and its beneficiaries could have saved almost $3 billion by switching from brand-name drugs to generics.

Linzess is an expensive drug, costing Medicare and patients an average of about $1,500 annually. A common alternative is the laxative Miralax, available over the counter as generic polyethylene glycol, which costs less than $200 annually if taken every day. Nguyen said he recommends Miralax to many patients, but that wouldn’t show up in Medicare’s data because Medicare doesn’t cover over-the-counter drugs. He said he often prescribes Linzess to patients who have tried Miralax and not seen the symptom relief they hoped for.

For brand-name drugs that have good generic alternatives, “every time a doctor prescribes one of these brand-name medications, it’s extra money transferred from the Medicare program to the manufacturer,” said Michael Barnett, assistant professor of health policy at Harvard T. H. Chan School of Public Health. “Medicare spending is out of control. And drug costs are one of the major reasons.”

Drug cost can have major consequences, not just for Medicare balance sheets but also for patients’ well-being. “The newest, latest drug is often not any better than the old drugs” that treat the same condition, Mitchell said. “But the new drugs are always more expensive. That really hurts patients’ pocketbooks. You’ve got physicians prescribing more expensive drugs and patients who aren’t taking them as a result. A generic medicine that’s cheaper that a patient does take is a whole lot more effective than an on-brand, expensive medicine that they don’t take.”

Summary: Pharmaceutical companies have paid doctors billions of dollars for consulting, promotional talks, meals and more. A new ProPublica analysis finds doctors who received payments linked to specific drugs prescribed more of those drugs.

ProPublica is a nonprofit newsroom that investigates abuses of power.

Advertisement
Click to comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Business

LA’s Original Farmers Market – Business Booming During Pandemic

Published

on

Photo by Iñigo De la Maza

LOS ANGELES (KABC) — The coronavirus pandemic has forced many Southern California businesses to shut down, but for many local grocery stores and farmers markets, business is booming.

Food deliveries are soaring as shopper demand goes through the roof. Vendors at the original Farmers Market say they’re coping by doing their best to keep shelves full.

“People are ordering three times as much, as soon as it hits the floor people grab it,” said delivery driver Jerry Portillo.

Eggs are in big demand and fresh produce is a welcome sight. LA County, city issue new ‘Safer at Home’ restrictions on businesses, activities “I live it, I just went vegan so this is good,” shopper Skip Mukes said.”It’s my secret, this is a […]

Continue reading at abc7.com

Continue Reading

Business

Trump Hotels Still Open Amid Coronavirus Despite President’s Remarks

Published

on

By

Trump Hotels Still Open Amid Coronavirus Despite President's Remarks

(TMZ) — President Trump said it’d be a good idea for hotels to start closing their doors — including his own — but the fact is … Trump Hotels in America are by and large open for business.

45 was asked about how the shutdowns and closures sweeping the nation’s businesses might be affecting his own — the guy lends his name to several different hotels and restaurants globally — and he said he was getting hurt like everyone else.

It almost seemed like he wasn’t sure — but took some big guesses, eventually deferring to his sons, who are in charge of the Trump empire while DT’s in office.

Still, Trump took a hard stance, telling the press he actually thought it would be a good idea if his hotels closed to deter people from congregating and cut down on the virus potentially spreading. TMZ called around … and it doesn’t sound like that memo’s gotten to his own staff quite yet. Fact is … some U.S.-based Trump Hotels are still taking bookings.

Of the stateside Trump Hotels where folks can rent a room for a night — according to the front desk clerks:

— Trump International Hotel Chicago … Open for business

— Trump International Hotel Waikiki — Open for business

— Trump Int’l D.C. — Open

— Trump Int’l Hotel and Tower Vancouver — Open

— Trump National Doral Miami — Open

Getty

Trump hotels in Nevada and New York — Closed

As for international properties, the hotel in Turnberry, Scotland is open. The hotel in Ireland is not.

Of the places that are still open, most of them are stepping up cleaning and have closed the restaurants, gyms and other amenities. In some cases, in-room dining seems to be the only option.

Tune in to TMZ on TV weekdays Monday through Friday (check syndicated/local listings)

Continue Reading

Business

With Coronavirus, CA’s Economy is in Uncharted Territory

Published

on

A sign on the door at Parkway Lounge in Oakland, California. Photo by Anne Wernikoff for CalMatters

by Ben Christopher for CalMatters

COVID-19 is almost certain to cause the first pandemic-induced recession of the postwar era. For millions of Californians and their families, that may mean less work, lower income and more financial stress.

Social distancing may be good for public health these days, but it isn’t good for the California economy. As the coronavirus pandemic forces millions of residents to cancel dates and travel plans, retreat from social life to shelter in place , key cogs of the state’s economic engine are grinding to a halt.

That’s an unprecedented shock for a modern economy, experts say — one that will test the resilience of California’s decade-long boom and the adequacy of its $18 billion cash reserve.

What we know so far: The coronavirus is almost certainly causing the first pandemic-induced recession of the postwar era. For millions of Californians and their families, that may mean less work, lower income and more financial stress, particularly for those least able to weather the shock: Californians living at or below the poverty line, those without savings or outside financial support and people living on the street.

What we still don’t know: how bad this will get. Never before in the state has so much business activity come to such an immediate and widespread stop at once, the experts say. Policymakers, businesses and regular Califorians are just beginning to grapple with what this all might look like.

“It’s so much larger than anything we’ve encountered before,” said Jesse Rothstein, professor of public policy at UC Berkeley. “I think this is going to be larger than the Great Recession. I hope it doesn’t last as long, but the magnitude of the shock is bigger.”

The state’s enormous, diversified economy — fifth largest in the world — isn’t reliant on any one industry. But sunny California’s tourism, hospitality and retailsectors — together providing about one in five jobs, according to state statistics —  are proportionately larger here. So are transportation, warehousing and other trade-related industries. All are taking the most immediate financial hit.

And while the tech sector that has driven so much of the state’s economic growth may very well be better equipped to handle — even prosper from — the new housebound economic order, such a dramatic slowdown is likely to leave few sectors unscathed. 

“A month ago California was in a situation where we still had one of the strongest economies we’ve ever had,” said Rob Lapsley, president of the California Business Roundtable, which represents major employers in the state. “Now, the underlying analysis on all of this is uncertainty. Nobody knows. We’re in uncharted territory.”

Will the coronavirus crisis cause a recession?

Earlier this week, President Trump said the U.S. economy may be headed for a recession. Some experts say we’re already there.

According to a team of economic forecasters at the UCLA Anderson School of Management, the countrylikely entered recession this month. California, said Jerry Nickelsburg, who directs the forecast, probably will get hit harder than the nation as a whole. 

“Over the last week … transportation in the U.S. has plummeted,” he said. “People are not going on vacation. Transatlantic flights have been canceled, which means less travel but also takes a lot of (air) cargo out of the system.” 

The forecasters project the state unemployment rate to go from just under 4% in January to 6.3% by the end of the year. 

A Flourish chart

Hitting bars, restaurants, gyms and hotels especially hard, the economic constriction, like the contagion that precipitated it, is likely to spread quickly as newly unemployed workers stop spending, shuttered businesses cut off their orders and lenders and landlords stop receiving their monthly checks. 

“You add it all up and who is holding up the economy? Health care,” said Nickelsburg. “That’s not enough.”

Who gets hit the hardest? 

During a public health emergency, when millions of people are being told to steer clear of restaurants, bars, hotels and airplanes, it doesn’t take a lot of imagination to surmise which industries will suffer the most.

Liz McAlpine was a bartender in Oakland before the restaurant where she works went take-out only, cut her schedule to four hours a week and put her on boxing and bagging duty for deliveries. She makes about $14 an hour and can no longer count on the tips that one made up a considerable portion of her earnings. She had side jobs that have fallen through. She said she has $17,000 in student loans to repay. Her three housemates are now out of jobs, too.

“I THINK THIS IS GOING TO BE LARGER THAN THE GREAT RECESSION. I HOPE IT DOESN’T LAST AS LONG, BUT THE MAGNITUDE OF THE SHOCK IS BIGGER.”

—Jesse Rothstein, UC Berkeley professor of public policy

“None of us have a Plan B or C or D,” she said. We have no idea what we’re going to do. I have a tent.”

The pandemic has hammered both the state’s neighborhood bars and bistros and its biggest tourism draws. This month, Disney shuttered the gates of the Magic Kingdom, and the Coachella music festival was postponed from April to October. The opening of a 466-room Marriott in Anaheim was canceled and has yet to be rescheduled while, nationwide, roughly 8 in 10 hotel rooms sit empty.

Retail, hospitality, food and travel are not just major employers in the state. They also hire a disproportionate number of California’s low-wage workers.

The top job categories for the state’s working poor, according to an analysis by the Public Policy Institute of California, include janitorial services, food preparation andjobs in the arts and entertainment industry. Another PPIC analysis estimates that 22% of food and accommodation workers in California are at or below the poverty line already. 

“Poverty in California is really about working poverty,” said Sarah Bohn, one of the authors of both analyses. “The social safety net plays an important role, but for the vast majority of low-income families, it’s really about their earnings.”

Many of these workers are “already vulnerable (to) becoming homeless or suffering other sorts of housing instability,” said Chris Hoene, executive director of the California Budget and Policy Center, a think tank that focuses on low-income Californians. “What will change in their hours or work schedule mean for them?”

Bartender Liz McAlpine, 31, worries about paying rent and her student loans after taking a massive reduction in hours at her restaurant job in Oakland following the shelter in place mandate in Alemeda and surrounding counties earlier this week. “I don’t know what any of us are going to do,” she said. Photo by Anne Wernikoff for CalMatters
Bartender Liz McAlpine worries about paying for rent and student loans. Photo by Anne Wernikoff for CalMatters

And when the public health emergency does end, many laid-off workers may not be able to count on getting their old jobs back, said UCLA’s Nickelsburg. One possible side effect of this downturn is that it will accelerate trends that were already developing before the pandemic.

”Brick-and-mortar retail was already contracting,” he said. “To the extent that (the epidemic) forces more contraction for brick-and-mortar, you might not expect all those businesses to come back.”

Meanwhile, Amazon announced that it would be hiring 100,000 workers to handle the flood of online delivery requests. A company spokesperson said 12,000 of those hires are expected to be in California.

Rachel Michelin, president of the California Retailers Association, which represents the state’s largest retailers, said consumers shifting to online sales may “might make a dent” in the financial landslide now burying the association’s members — but only a small one.

Even if the shelter-in-place order is lifted, she said, “you have people who aren’t working, consumers who are now wondering, ‘Am I going to have a job?’” she said. “I think people are going to think twice about buying things they don’t necessarily need until we get past this.”

A prolonged economic freeze would be particularly hard for smaller businesses that don’t have the cash reserves to cover overhead like payroll, rent, mortgages and taxes until things improve.

“How do you give restaurants, in this case, the ability to hibernate?” said Jot Condie, president of the California Restaurant Association. How do they “ramp down operations so that when the all-clear is given, they can hit the switch and their workers can start working again and get back into the game, and restaurants can be open for business?”

With slim margins and high overhead costs, Condie said, many restaurants won’t survive much longer than a month without outside help. 

“HOW DO YOU GIVE RESTAURANTS, IN THIS CASE, THE ABILITY TO HIBERNATE? [HOW DO THEY] RAMP DOWN OPERATIONS SO THAT WHEN THE ALL-CLEAR IS GIVEN, THEY CAN HIT THE SWITCH AND THEIR WORKERS CAN START WORKING AGAIN?”

—Jot Condie, California Restaurant Association

Ann Callahan owns and operates a bed-and-breakfast in San Diego’s Hillcrest neighborhood, a cozy getaway spot that has become a kind of pandemic boarding house. 

Although all of her typical conventioneer clients have cancelled, she still has four rooms booked. Three are occupied by out-of-towners who want to spend the crisis close to loved ones in the area, and a couple from London whose cross-county American holiday was abruptly cancelled. 

Callahan said she’s set up new protocols, making sure chairs are at least six feet apart and directing all guests to use hand sanitizer before using appliances. She said she’s lucky to have enough money saved up to weather a prolonged crisis. But no one knows how prolonged this one will be.

“It’s not like 9/11. When it hit us, everything closed. But then we knew the worst of it was over going forward,” she said. “We don’t know when we’ve hit the peak of the pandemic.”

The state is prepared to extend hundreds of millions of dollars in loans to small businesses through its infrastructure bank, the treasurer’s office and the office of the Small Business Advocate. The federal Small Business Administration also announced that it would make loans for post-disaster rebuilding available to small companies weathering the shutdowns. 

“The biggest thing we’ve been hearing from employers is (they’re) concerned about capital: How do they make payroll? How do they ensure that business can stay open if they’re seeing a massive decrease in demand for their goods and services?” said Mark Herbert, director of Small Business Majority, a group that lobbies on behalf of small businesses in Sacramento. 

And in a sign that the slowdown is sending business both small and large reeling, shipments in and out of California’s major ports have started to slow. That’s likely to affect the state’s trade, transportation, warehousing and manufacturing sectors.

In Los Angeles, cargo volumes last month were 23% lower than February 2019, and 41 vessels have already canceled their scheduled trans-Pacific voyages to and from the port through April. That’s up from a typical 17 cancellations over the same period.

In the Long Beach and Oakland, the state’s two next largest ports, volume is also down, with cancellations up.

That’s not an unprecedented dip, said Mike Zampa, spokesperson for the Port of Oakland. There is always a slump in Pacific Rim trade in February, as factories across Asia shutter for the Lunar New Year. 

“Once the factories come back online, the order of imports tends to come back up,” he said. “But there’s no question at all that the spread of the virus has affected imports throughout the U.S.”

Are there any economic winners in this pandemic?

As consumers stock up, stay home and try to take the edge off, supermarkets sales, online retailing and demand for cannabis and booze have been skyrocketing. 

All that online shopping ought to be good news for the Inland Empire’s burgeoning warehousing and logistics industry, said Rob Lapsley of the Business Roundtable. Amazon operates more than a dozen fulfillment centers in the region. 

Warehousing and logistics have been “the backbone of that region’s growing economy since the recession, a completely enhanced logistics economy down there that’s been replacing a lot of our manufacturing jobs,” he said.

But online shopping isn’t likely to make up for losses elsewhere. And the surge in spending on non-perishable groceries, toiletries and marijuana now may simply lead to less spending in the future. (Those who loaded their trunks with toilet paper this week may not need a re-up on new rolls anytime soon).

Thebiggest employer in the California private sector is certain to see a huge surge in spending throughout the pandemic: the health care industry. Hospitals, clinics and labs across the country are now scrambling to ramp up capacity to test, treat and contain those who are infected. Policymakers in Washington and Sacramento are scrambling too, which will likely mean billions more in government spending.

That could benefit workers in certain niche industries, like the country’s medical-device manufacturers, which are rushing to meet demand as hospitals and clinics run out of equipment. Roughly 17% of those workers are employed in California. 

But the surge in demand for medical services could bring its own disruptions.

“If there are a lot of cases in the ICU, hospitals are going to have to try to collect from either insurers or patients, and the question is whether anyone will have enough cash flow to service that while the hospitals are overflowing,” said Mathy, from American University. “This would be a very bad time for hospitals to start going bankrupt.” 

And the various jobs that fall into the “health care and social assistance” category created by federal economic analysts is broad. Most health care work is not related to the coronavirus. 

Supplies for testing of COVID-19 are ready for Kaiser Permanente clinicians at a drive up testing site at the Kaiser Permanente Fremont Medical Center in Fremont on March 11, 2020.
Supplies for testing of COVID-19. Photo by Doug Oakley, courtesy of Kaiser Permanente

Kate Schmidt, a retired Olympian javelin thrower, now runs her own rehabilitation service, helping her well-heeled clients at their homes. It’s a business that takes her from house to house, touching her clients, their belongings, their pets.

“I do all of the things we aren’t supposed to do now,” she said. And many of her clients are of an age that puts them at higher risk of lethal infection. 

If she were responsible for transmitting the virus to any of them, she said, “I would never be able to forgive myself, so I pulled the plug.”

She’s put her business on hold. Unlike many personal-care workers, she has enough money saved to make it through a few months without income. But she’s still trying to find a way to keep her business operating.

“I’m trying to figure out Zoom, to see who amongst my clients will take me on their phone in their house,” she said. 

A spokesperson for Zoom, the San Jose-based teleconferencing company, declined to share new usage numbers. But if any sector is equipped to deal with, and benefit from, California’s new work-from-home regimen, it would be the tech sector. 

The demand for remote-working options to keep housebound people productive could become a silver lining in what is otherwise a very dark economic cloud for the state. That’s to say nothing of the demand for productivity-diminishing entertainment options available at such online sites as Netflix, based in San Jose, and Burbank-based Disney, which recently debuted its wildly popular Disney+ streaming service. Neither company responded to requests for new subscription data.

But not all of Silicon Valley can serve consumers stuck in their living rooms, said Carl Guardino, CEO of the Silicon Valley Leadership Group. Apple is in the manufacturing and retail business. Square, the San Francisco company that helps businesses process credit-card purchases on smartphones and tablets, depends on the health of small businesses. AirBnB is in the hospitality industry. 

And electric-car maker Tesla “is obviously an innovation-economy company,” said Guardino. The firm, which employs roughly 10,000 people in the Bay Area, is suspending production at its Fremont factory as of March 23. 

Investors on the whole don’t seem to think that tech is all that much more insulated than the rest of the economy. Since the beginning of the year, the S&P 500 Index, which tracks the performance of stocks belonging to the country’s largest companies, has fallen by 26%. The NASDAQ Index, which includes tech giants like Apple, has plummeted by 21%.

What about the state budget?

Call it Jerry Brown’s “I told you so” moment. 

In the years after the Great Recession, Brown pushed the state to build a stockpile of cash that fiscal analysts say should weather a mild recession without necessitating serious cuts in funding for public schools, colleges or social-welfare programs. 

According to the Department of Finance, the state has roughly $21 billion in reserves, most of that in an $18-billion rainy day fund. And in case that starts to run low, the state controller reported having nearly $42.8 billion available as cash that could be shifted among various state agencies to keep things running.

With any recession, the state budget takes a hit from both ends. As economic activity slows, the flood of revenue destined for state coffers dries up. In the short term, as panicked investors cash out of the stock market, there may actually be an increase in capital-gains tax revenue, which is paid when stocks, bonds and other assets are sold. 

But in the longer term, “basically every source of state tax revenue that you can imagine is going to be down,” said Jeffrey Clemens, an economist at UC San Diego. That includes sales taxes, which depend on transactions in the now-paralyzed retail sector, and the state’s progressive income tax, which is particularly prone to whipsawing with each boom and bust. 

We may not know the extent of the damage for a while. 

Normally, budget bean counters rely on the bulk of filings during tax season to flesh out the state’s spending plan for the coming year. But the state and federal governments are extending tax deadlines, which will give budget officials an incomplete picture. 

On the other side of the equation, there’s now increased pressure on state spending. That would be true even during a typical downturn, as more Californians turn to state programs like unemployment insurance, CalFresh food stamp benefits and CalWORKS, the welfare program. 

Kaiser Permanente Registered Nurse Rosa Aceves discards her gloves after administering a COVID-19 test at a drive up testing location at the Kaiser Permanente Fremont Medical Center in Fremont on March 11, 2020.
Kaiser Permanente nurse Rosa Aceves discards her gloves after administering a COVID-19 test. Photo by Doug Oakley, courtesy of Kaiser Permanente

Add to that the unique costs of addressing a public health crisis.

State legislators passed a bill allowing Gov. Newsom to spend up to $1 billion “for any purpose,” with much of it likely to go toward expanding the capacities of hospitals to treat the severely ill and of public health authorities to set up testing and quarantine sites. In the months ahead, uninsured Californians may turn to Covered California, the state’s subsidized health insurance market, for coverage. And if infections ramp up as expected, low-income Californians are likely to increase their use of Medi-Cal, California’s Medicaid program.

State lawmakers will need to pass a budget by mid-June. Because California’s Constitution limits how much the state can borrow and for what purpose, the only way to patch a fiscal hole without cutting services or jacking up tax rates in the middle of a recession is to draw down the rainy day fund or turn to the feds for help. 

It’s not yet clear what kind of help Washington might offer. The Trump administration has proposed sending many American households some $500 billion over the next two months, with the bulk going to low earners. They’re also proposing another $300 billion in loans for small businesses. 

Unlike past recessions, when stimulus packages of tax cuts and new spending have been enacted to entice people to go spend money at restaurants, bars and shops, new public spending is likely to have a very different impact this time, said UC San Diego’s Clemens.

This time around, most of the financial support is likely to be directed at “making sure that people don’t default on mortgages or miss rent payments just because they were an hourly worker who had their hours massively cut back,” he said.

Allowing the private sector to wait out the crisis in suspended animation could soften, or least delay, stress on the state budget.

Beyond that, there’s the fiscal reserve.

“If there is any silver lining, it is found in the condition of California’s budget, which entered 2020 on strong footing,” Gabriel Petek, the state’s nonpartisan legislative analyst, wrote this week. Earlier this year, his office estimated that California’s nest egg is big enough to weather a recession “typical of the post‑World War II era,” with no need to find money elsewhere. 

NORMALLY, BUDGET BEAN COUNTERS RELY ON FILINGS DURING TAX SEASON TO BUILD NEXT YEAR’S SPENDING PLAN. BUT THE STATE AND FEDERAL GOVERNMENTS ARE EXTENDING TAX DEADLINES, GIVING OFFICIALS AN INCOMPLETE PICTURE. 

But nothing about the current situation is typical.

“While it’s a substantial amount of discretionary reserves, we are anticipating that we need to do everything that we can to meet this moment and not go small,” Newsom said at a recent press conference.

And once that moment passes, the state’s longer-term fiscal future may look a little more grim.

With the collapse in stock prices, the state’s public-employee pension systems — mainly California Public Employees’ Retirement System and the California State Teachers’ Retirement System — are taking a beating. The balance belonging to the public employee system dropped by $69 billion — or 17% —since last month, according to the Sacramento Bee.

At last count, the combined retirement liability for state workers and teachers topped $250 billion. And because the funds depend largely on investment earnings to keep up with pension checks, Wall Street’s rout will lead to bigger unfunded liabilities at CalPERS and CalSTRS.

“I don’t even want to think about the impact on the pension funds,” said Brad Williams, a veteran budget analyst and partner at Capitol Matrix Consulting. “We know that pensions were underfunded going into this, and…once you get behind, it’s hard to claw back, so we really need a bounce back in markets to avoid pretty dire circumstances.”

Just how bad will this downturn be?

The size of the economic hit will depend on the severity and duration of the public health emergency. On that question, uncertainty abounds. But most experts are projecting a range of outcomes that span from “very bad” to “very, very bad.”

The UCLA forecast projectsa recession that will last through the fall. That assumes the worst of the pandemic will be over by summer. 

“That’s based on very little data, but it looks like, in places like China and South Korea, that the number of new cases…is declining now,” said Nickelsburg. “So that’s what we’re basing it on.”

The best-case scenario, said Chris Thornberg, founding partner of the consulting firm Beacon Economics, is that social distancing measures will have their desired effect and slow the spread of the virus. In that relatively rosy picture, there is a sharp, but short-term, decline in retail and restaurant spending. But soon the public health emergency abates and economic activity revs back up within a few months. It’s what some analysts call a “V-Shaped” recession — down and then up again.

“If we have sufficient panic now” — meaning a coordinated pause of daily financial life — “it will be nothing more than a blip,” he said. “For once in my life, I’m espousing panic.”

But there are less rosy scenarios. If hundreds of thousands of people are sickened, if prolonged periods of isolation are mandated, if individuals and companies are pushed into bankruptcy in the meantime — or all of the above — “then swaths of people get laid off and that’s when it feeds back on itself.”

UCLA FORECASTS A RECESSION THAT WILL LAST THROUGH THE FALL. THAT ASSUMES THE WORST OF THE PANDEMIC WILL BE OVER BY SUMMER.

It’s not clear that a modern economy has ever experienced a disruption quite like this one. 

In virtually every downturn in American history — from the Great Depression through the Great Recession — contractions have started in large, but not particularly labor-intensive, industries like manufacturing and construction. In general, said Gabe Mathy, an economist and economic historian at American University in Washington, D.C., spending on day-to-day things like restaurants, bars, gyms and shopping trips continues apace, offering some stabilizing ballast to the economy at large. Even in bad times, people still need to get their hair cut.

“During the Great Recession, spending on services was higher at the (lowest point), in 2009, than it was after the recovery,” he said. “Obviously this recession is going to look very different than the Great Recession.”

Mathy calls what we’re seeing now is a services recession — “the first one we’ve seen in world history” — and it’s hitting the economy in a sector that employs 86% of all American workers. The California labor force is particularly concentrated in the service sector.

“I don’t want to be too catastrophic, but the job losses we’re likely to see might be kind of eye-popping,” he said.

In a national poll sponsored by NPR and PBS and conducted in mid-March, 18% of respondents said they or someone in their household had either been let go or had their work hours cut.

In the second week of March, there were 58,208 applications for state unemployment insurance, an indicator of how many Californians have lost their jobs since the beginning of the public health crisis. In a live-streamed address this weekend, the governor said that the total clocked in at 135,000 on a single day last week.

The typical daily figure in the previous months was less than 6,000.

Ben Christopher covers California politics and elections, Judy Lin, Jackie Botts and Anne Wernikoff contributed reporting to this article.

This article is produced as part of WeHo Daily’s partnership with CalMatters, a nonpartisan, nonprofit journalism venture committed to explaining how California’s state Capitol works and why it matters.

Continue Reading
Advertisement

This Just In…

Trending