In the wake of the Covid-19 pandemic, federal lawmakers poured money into transit systems across the country to make up for lost ridership. That temporary assistance is about to expire and the MBTA is not ready for the consequences.
The MBTA’s current budgetary surplus is not going to last. According to the MBTA’s FY2023 budget request that was released last week, the federal money propping up the struggling transit agency is about to dry up. That federal money currently accounts for 34.6 percent of the MBTA’s total revenue (see figure 1). It is about to drop to less than 2 percent in FY2023 (which started on July 1st). The loss of revenue could mean disaster for the MBTA if state government does not step in and help close the funding gap.
Figure 1: MBTA revenue by source for FY2019 – FY2023. The chart shows that federal funds made up a large portion of the MBTA revenue and will no longer be available in FY2023 (which starts July 1st 2022). This chart was created by the author using MBTA itemized budgets available at MBTA.com.
A major loss of fare revenue has caused the MBTA to become over-reliant on federal funds. Ridership has not returned to pre-pandemic levels (see figure 2). In 2020, ridership ground to a near-complete halt. In 2021 and 2022, it has improved significantly, but has only recovered to about half the level it was before the pandemic.
The failure of ridership to fully recover is concerning because many other facets of the economy have returned to normal. And it isn’t clear whether ridership will recover at all. In the meantime, the system desperately needs a stop-gap solution before their federal funds run out.
Figure 2: MBTA ridership by mode during the month of April for 2017-2022. The graph shows ridership for bus, subway, and commuter rail modes respectively. The chart was created by the author using data available from the Pioneer Institute’s MBTA Analysis website. The information is also accessible through the Massachusetts Department of Transportation’s MBTA Dashboard.
While no transit mode has fully recovered its pre-pandemic ridership numbers, buses have experienced a noticeably faster recovery than the other modes (see figure 2). Ridership numbers on the subway and commuter rail are at 48 and 52 percent of their April 2019 level. Bus trips have reached 67 percent of their pre-pandemic level. Bus trips now account for 39 percent of all trips on the MBTA, compared to 31 percent three years ago.
The most obvious solution to a loss of funding is to cut services. With the MBTA, however, cutting services is one of the least viable options. It would likely start a downward spiral of making the MBTA even less useful for whatever riders still choose to utilize the system. Additionally, cutting services would be a failure of the government to serve the people’s needs, especially low-income individuals who rely on public transit to get around.
Instead of cutting services, a large majority of Massachusetts residents say the state should make up the cost. A 2020 poll of Massachusetts residents showed that 66 percent support increasing state funding for transportation to prevent service reductions. It may be that, even if riders are using the T for fewer trips, they still want it to be convenient and accessible when they do need it. Additionally, as a public good, mass transit helps reduce carbon emissions and improve traffic flow by keeping many single-passenger vehicles off the road.
When it comes to making MBTA finances viable, the state has at least three options: takeover the MBTA’s debt load, increase the sales taxes for transportation, and contribute funds from this year’s surplus.
The MBTA’s debt is a major burden on its finances. Debt service in FY2022 accounted for about 20 percent of the MBTA budget. The state could take over the MBTA’s debt and incorporate it into the much larger pool of Massachusetts government debt.
The state could also increase sales taxes, including the gas tax, that directly subsidize transportation. This measure would certainly increase revenue for the transit system, but might place too much burden on consumers at a time of high inflation and sky-high gas prices.
Instead, the best option for the Commonwealth is to direct this year’s wellspring of income taxes towards the MBTA. This action would be responsive to the will of the voters and would direct funds towards a service that overwhelmingly benefits low- and middle-income Massachusetts residents.
About the Author: Joseph Staruski is a government transparency intern with the Pioneer Institute. He is currently a Master of Public Policy Student at the University of Massachusetts, Amherst. He was previously an opinions columnist with the Boston College student newspaper, The Heights, and an Intern with the Philadelphia Public School Notebook. He has a BA in Philosophy and the Growth and Structure of Cities from Haverford College. Feel free to reach out via email, LinkedIn, or write a letter to Pioneer’s Office in Boston.
Hubwonk host Joe Selvaggi talks with Dr. Hussain Lalani about his recently published research on the potential for more than $3 billion in savings were Medicare to use Mark Cuban’s new direct-to-consumer drug company to purchase generics.
Guest:
Dr. Hussain Lalani is a Primary Care Physician at Brigham and Women’s Hospital, Fellow at Harvard Medical School and the Program on Regulation, Therapeutics, and Law (PORTAL), and a part-time student in the Masters of Science in Health Policy and Management and the Harvard T.H. Chan School of Public Health. He is a first-generation American, born and raised in Dallas, and practices Internal Medicine at the Phyllis Jen Center providing comprehensive primary health care to adults managing chronic diseases, behavioral health, and preventive screenings. He is passionate about ensuring affordable access to equitable healthcare for all, with a current focus on prescription drug pricing policy as a lens into the complexities of health care delivery and policy. Dr. Lalani’s work has been published broadly in the JAMA Internal Medicine, JAMA Network Open, JAMA Cardiology, Annals of Internal Medicine, and the American Journal of Managed Care. He is the Co-Founder of This Is Our Shot and VacunateYa, a national grassroots social media organization that elevates the voices of trusted medical professionals to build healthier communities and combat health misinformation. Visit www.thisisourshot.info and www.vacunateya.com to learn more.
WATCH:
Recent Episodes
This week on JobMakers, host Denzil Mohammed talks with Mei Xu, immigrant from China and founder of Chesapeake Bay Candle, which was acquired by Yankee Candle parent company Newell Brands for $75 million. Mei describes the journey to entrepreneurship, and how she created opportunities for herself. Today, she seeks to empower women business owners around the world, to show them that they too can expand economies and horizons with a little guidance. As she says in her new book, Burn: How grit, innovation, and a dash of luck ignited a multi-million dollar success story, “I hope to convince you, the American Dream remains vital and accessible to all of us,” as you’ll discover in this week’s JobMakers.
Guest:
Mei Xu is a Chinese American entrepreneur, author and founder and CEO of three global companies, Yes She May, BlissLiving Home® and Chesapeake Bay Candle®. Xu successfully negotiated the sale of Chesapeake Bay Candle to Newell Brands in 2017, a conglomerate with a $14 billion portfolio of consumer goods. Mei is now focused on helping women-owned consumer product companies grow and prosper with e-commerce platform, Yes She May. In 2021, Mei launched her memoir, Burn: How Grit, Innovation, and a Dash of Luck Ignited a Multi-Million Dollar Success Story, that details her inspiring journey from coming to the United States as an immigrant to founding her own multi-million-dollar business. In addition to fostering women’s entrepreneurship, Ms. Xu also actively participates in impact investing, is a member of the Investment Committee of Halcyon Fund in Washington, DC, and serves as a trustee of the University of Maryland, Baltimore. Her business achievements have repeatedly been recognized by prominent organizations, such as Politico’s 2019 Woman of Impact Award; Smart CEO with the Brava Award; and the Asian American Chamber of Commerce with the Business Leader of the Year Award.
Recent Episodes:
“She’s a good girl. She helps me a lot. She has big, big dreams. I don’t have the money, but she has big dreams. I hope she’s going to get everything, but she works so hard. She works so hard in school.”
“Our family is needing to make some really big sacrifices because we believe this is important, and so, we’re basically going to do whatever it takes… Sometimes we look at each other and go ‘I don’t know if I can do it again another month…’”
“A lot of the families have to sacrifice and work multiple jobs… And just scraping together enough money to just make tuition, just the basics.”
“It is discriminatory, that parents who want to choose an alternative to public school for their children, would not in any way receive any compensation for that, whether it be tax credit, whether it be a voucher…”
In the 1840s, nativist movement leaders formed official political parties and local chapters of the national Native American Party (later the American Party), although they continued to be commonly known as the Know-Nothing Party. Politicians sought to insert provisions into state constitutions against Catholics who refused to renounce the pope. The Know-Nothing movement brought bigotry and hatred to a new level of violence and organization.
The party’s legacy endured in the post-Civil War era, with laws and constitutional amendments it supported, still today severely limiting parents’ educational choices. A federal constitutional amendment was proposed by Speaker of the House James Blaine prohibiting money raised by taxation in any State to be under the control of any religious sect; nor shall any money so raised or lands so devoted be divided between religious sects or denominations. These were then named the Blaine Amendments of 1875.
in recent decades, often in response to challenges to school choice programs, the U.S. Supreme Court has demonstrated great interest in examining the issues of educational alternatives and attempts limit parental options. Massachusetts plays a key role in this debate. The Bay State was a key center of the Know-Nothing movement and has the oldest version of Anti-Aid Amendments in the nation, as well as a second such amendment approved in 1917. Two-fifths of Massachusetts residents are Catholic, and its Catholic schools outperform the state’s public schools, which are the best in the nation.
In the wake of the Covid-19 pandemic, federal lawmakers poured money into transit systems across the country to make up for lost ridership. That temporary assistance is about to expire and the MBTA is not ready for the consequences.
The MBTA’s current budgetary surplus is not going to last. According to the MBTA’s FY2023 budget request that was released last week, the federal money propping up the struggling transit agency is about to dry up. That federal money currently accounts for 34.6 percent of the MBTA’s total revenue (see figure 1). It is about to drop to less than 2 percent in FY2023 (which started on July 1st). The loss of revenue could mean disaster for the MBTA if state government does not step in and help close the funding gap.
Figure 1: MBTA revenue by source for FY2019 – FY2023. The chart shows that federal funds made up a large portion of the MBTA revenue and will no longer be available in FY2023 (which starts July 1st 2022). This chart was created by the author using MBTA itemized budgets available at MBTA.com.
A major loss of fare revenue has caused the MBTA to become over-reliant on federal funds. Ridership has not returned to pre-pandemic levels (see figure 2). In 2020, ridership ground to a near-complete halt. In 2021 and 2022, it has improved significantly, but has only recovered to about half the level it was before the pandemic.
The failure of ridership to fully recover is concerning because many other facets of the economy have returned to normal. And it isn’t clear whether ridership will recover at all. In the meantime, the system desperately needs a stop-gap solution before their federal funds run out.
Figure 2: MBTA ridership by mode during the month of April for 2017-2022. The graph shows ridership for bus, subway, and commuter rail modes respectively. The chart was created by the author using data available from the Pioneer Institute’s MBTA Analysis website. The information is also accessible through the Massachusetts Department of Transportation’s MBTA Dashboard.
While no transit mode has fully recovered its pre-pandemic ridership numbers, buses have experienced a noticeably faster recovery than the other modes (see figure 2). Ridership numbers on the subway and commuter rail are at 48 and 52 percent of their April 2019 level. Bus trips have reached 67 percent of their pre-pandemic level. Bus trips now account for 39 percent of all trips on the MBTA, compared to 31 percent three years ago.
The most obvious solution to a loss of funding is to cut services. With the MBTA, however, cutting services is one of the least viable options. It would likely start a downward spiral of making the MBTA even less useful for whatever riders still choose to utilize the system. Additionally, cutting services would be a failure of the government to serve the people’s needs, especially low-income individuals who rely on public transit to get around.
Instead of cutting services, a large majority of Massachusetts residents say the state should make up the cost. A 2020 poll of Massachusetts residents showed that 66 percent support increasing state funding for transportation to prevent service reductions. It may be that, even if riders are using the T for fewer trips, they still want it to be convenient and accessible when they do need it. Additionally, as a public good, mass transit helps reduce carbon emissions and improve traffic flow by keeping many single-passenger vehicles off the road.
When it comes to making MBTA finances viable, the state has at least three options: takeover the MBTA’s debt load, increase the sales taxes for transportation, and contribute funds from this year’s surplus.
The MBTA’s debt is a major burden on its finances. Debt service in FY2022 accounted for about 20 percent of the MBTA budget. The state could take over the MBTA’s debt and incorporate it into the much larger pool of Massachusetts government debt.
The state could also increase sales taxes, including the gas tax, that directly subsidize transportation. This measure would certainly increase revenue for the transit system, but might place too much burden on consumers at a time of high inflation and sky-high gas prices.
Instead, the best option for the Commonwealth is to direct this year’s wellspring of income taxes towards the MBTA. This action would be responsive to the will of the voters and would direct funds towards a service that overwhelmingly benefits low- and middle-income Massachusetts residents.
About the Author: Joseph Staruski is a government transparency intern with the Pioneer Institute. He is currently a Master of Public Policy Student at the University of Massachusetts, Amherst. He was previously an opinions columnist with the Boston College student newspaper, The Heights, and an Intern with the Philadelphia Public School Notebook. He has a BA in Philosophy and the Growth and Structure of Cities from Haverford College. Feel free to reach out via email, LinkedIn, or write a letter to Pioneer’s Office in Boston.
Hubwonk host Joe Selvaggi talks with Dr. Hussain Lalani about his recently published research on the potential for more than $3 billion in savings were Medicare to use Mark Cuban’s new direct-to-consumer drug company to purchase generics.
Guest:
Dr. Hussain Lalani is a Primary Care Physician at Brigham and Women’s Hospital, Fellow at Harvard Medical School and the Program on Regulation, Therapeutics, and Law (PORTAL), and a part-time student in the Masters of Science in Health Policy and Management and the Harvard T.H. Chan School of Public Health. He is a first-generation American, born and raised in Dallas, and practices Internal Medicine at the Phyllis Jen Center providing comprehensive primary health care to adults managing chronic diseases, behavioral health, and preventive screenings. He is passionate about ensuring affordable access to equitable healthcare for all, with a current focus on prescription drug pricing policy as a lens into the complexities of health care delivery and policy. Dr. Lalani’s work has been published broadly in the JAMA Internal Medicine, JAMA Network Open, JAMA Cardiology, Annals of Internal Medicine, and the American Journal of Managed Care. He is the Co-Founder of This Is Our Shot and VacunateYa, a national grassroots social media organization that elevates the voices of trusted medical professionals to build healthier communities and combat health misinformation. Visit www.thisisourshot.info and www.vacunateya.com to learn more.
WATCH:
Recent Episodes
This week on JobMakers, host Denzil Mohammed talks with Mei Xu, immigrant from China and founder of Chesapeake Bay Candle, which was acquired by Yankee Candle parent company Newell Brands for $75 million. Mei describes the journey to entrepreneurship, and how she created opportunities for herself. Today, she seeks to empower women business owners around the world, to show them that they too can expand economies and horizons with a little guidance. As she says in her new book, Burn: How grit, innovation, and a dash of luck ignited a multi-million dollar success story, “I hope to convince you, the American Dream remains vital and accessible to all of us,” as you’ll discover in this week’s JobMakers.
Guest:
Mei Xu is a Chinese American entrepreneur, author and founder and CEO of three global companies, Yes She May, BlissLiving Home® and Chesapeake Bay Candle®. Xu successfully negotiated the sale of Chesapeake Bay Candle to Newell Brands in 2017, a conglomerate with a $14 billion portfolio of consumer goods. Mei is now focused on helping women-owned consumer product companies grow and prosper with e-commerce platform, Yes She May. In 2021, Mei launched her memoir, Burn: How Grit, Innovation, and a Dash of Luck Ignited a Multi-Million Dollar Success Story, that details her inspiring journey from coming to the United States as an immigrant to founding her own multi-million-dollar business. In addition to fostering women’s entrepreneurship, Ms. Xu also actively participates in impact investing, is a member of the Investment Committee of Halcyon Fund in Washington, DC, and serves as a trustee of the University of Maryland, Baltimore. Her business achievements have repeatedly been recognized by prominent organizations, such as Politico’s 2019 Woman of Impact Award; Smart CEO with the Brava Award; and the Asian American Chamber of Commerce with the Business Leader of the Year Award.
Recent Episodes:
Looming Budget Crisis Reveals MBTA’s Dependency on Federal Funds
/0 Comments/in Blog, Blog: Better Government, Blog: Economy, Blog: MBTA, Blog: Transparency, Blog: Transportation, Economic Opportunity, News, News: Transportation, Transparency /by Joseph StaruskiIn the wake of the Covid-19 pandemic, federal lawmakers poured money into transit systems across the country to make up for lost ridership. That temporary assistance is about to expire and the MBTA is not ready for the consequences.
Impending Financial Ruin
The MBTA’s current budgetary surplus is not going to last. According to the MBTA’s FY2023 budget request that was released last week, the federal money propping up the struggling transit agency is about to dry up. That federal money currently accounts for 34.6 percent of the MBTA’s total revenue (see figure 1). It is about to drop to less than 2 percent in FY2023 (which started on July 1st). The loss of revenue could mean disaster for the MBTA if state government does not step in and help close the funding gap.
Figure 1: MBTA revenue by source for FY2019 – FY2023. The chart shows that federal funds made up a large portion of the MBTA revenue and will no longer be available in FY2023 (which starts July 1st 2022). This chart was created by the author using MBTA itemized budgets available at MBTA.com.
A major loss of fare revenue has caused the MBTA to become over-reliant on federal funds. Ridership has not returned to pre-pandemic levels (see figure 2). In 2020, ridership ground to a near-complete halt. In 2021 and 2022, it has improved significantly, but has only recovered to about half the level it was before the pandemic.
The failure of ridership to fully recover is concerning because many other facets of the economy have returned to normal. And it isn’t clear whether ridership will recover at all. In the meantime, the system desperately needs a stop-gap solution before their federal funds run out.
Figure 2: MBTA ridership by mode during the month of April for 2017-2022. The graph shows ridership for bus, subway, and commuter rail modes respectively. The chart was created by the author using data available from the Pioneer Institute’s MBTA Analysis website. The information is also accessible through the Massachusetts Department of Transportation’s MBTA Dashboard.
While no transit mode has fully recovered its pre-pandemic ridership numbers, buses have experienced a noticeably faster recovery than the other modes (see figure 2). Ridership numbers on the subway and commuter rail are at 48 and 52 percent of their April 2019 level. Bus trips have reached 67 percent of their pre-pandemic level. Bus trips now account for 39 percent of all trips on the MBTA, compared to 31 percent three years ago.
State Intervention
The most obvious solution to a loss of funding is to cut services. With the MBTA, however, cutting services is one of the least viable options. It would likely start a downward spiral of making the MBTA even less useful for whatever riders still choose to utilize the system. Additionally, cutting services would be a failure of the government to serve the people’s needs, especially low-income individuals who rely on public transit to get around.
Instead of cutting services, a large majority of Massachusetts residents say the state should make up the cost. A 2020 poll of Massachusetts residents showed that 66 percent support increasing state funding for transportation to prevent service reductions. It may be that, even if riders are using the T for fewer trips, they still want it to be convenient and accessible when they do need it. Additionally, as a public good, mass transit helps reduce carbon emissions and improve traffic flow by keeping many single-passenger vehicles off the road.
Three Options
When it comes to making MBTA finances viable, the state has at least three options: takeover the MBTA’s debt load, increase the sales taxes for transportation, and contribute funds from this year’s surplus.
The MBTA’s debt is a major burden on its finances. Debt service in FY2022 accounted for about 20 percent of the MBTA budget. The state could take over the MBTA’s debt and incorporate it into the much larger pool of Massachusetts government debt.
The state could also increase sales taxes, including the gas tax, that directly subsidize transportation. This measure would certainly increase revenue for the transit system, but might place too much burden on consumers at a time of high inflation and sky-high gas prices.
Instead, the best option for the Commonwealth is to direct this year’s wellspring of income taxes towards the MBTA. This action would be responsive to the will of the voters and would direct funds towards a service that overwhelmingly benefits low- and middle-income Massachusetts residents.
About the Author: Joseph Staruski is a government transparency intern with the Pioneer Institute. He is currently a Master of Public Policy Student at the University of Massachusetts, Amherst. He was previously an opinions columnist with the Boston College student newspaper, The Heights, and an Intern with the Philadelphia Public School Notebook. He has a BA in Philosophy and the Growth and Structure of Cities from Haverford College. Feel free to reach out via email, LinkedIn, or write a letter to Pioneer’s Office in Boston.
Drug Cost Disruption: Direct Generic Access Can Save Consumers Billions
/in Featured, Healthcare, Podcast Hubwonk /by Editorial StaffHubwonk host Joe Selvaggi talks with Dr. Hussain Lalani about his recently published research on the potential for more than $3 billion in savings were Medicare to use Mark Cuban’s new direct-to-consumer drug company to purchase generics.
Guest:
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Read a Transcript of This Episode
Please excuse typos.
Joe Selvaggi:
This is Hubwonk. I’m Joe Selvaggi.
Joe Selvaggi:
Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. When trying to address the more than $4 trillion annual cost of us. Healthcare policymaker often target the nearly 600 billion cost of drugs. While drug manufacturers can point to the high cost of development and testing as justification for their prices, generic drugs, those that have gone off patent protection, seldom charge prices that substantially exceed production costs. Indeed, according to the government accountability office generics save the US healthcare system more than $1 trillion from 1999 to 2010 recently, however, price spikes, anti competitive practices and supply chain complexities have showcased weaknesses and inefficiencies in the generic market, such as the fact that one in five generic drugs doubled in priced between 2014 and 2017. Seeing this uptick in generic pricing as a business opportunity, billionaire and shark tank investor, Mark Cuban in January of this year launched the Mark Cuban cost plus drug company selling more than 100 generic prescription drugs online, some at substantially lower than average market prices.
Joe Selvaggi:
His direct to consumer model, if successful could substantially disrupt the generic market, saving billions and offering low income consumers access to once cost-prohibitive drugs. Why do the prices of many generic drugs still substantially exceed costs who stands to benefit from direct to consumer innovations and how can patients and policy makers work to ensure this new model is embraced by those most in need? My guest today is Dr. Hussain Lalani, a clinical research fellow and internist at Brigham and Womens hospital in a research piece recently published in the Annals of Internal Medicine, entitled potential Medicare part D savings on generic drugs from the Mark Cuban cost plus drug company, Dr. Lalani examined the potential $100 billion cost savings where Medicare to purchase drugs offered from mark Cuban’s company. We will discuss how the inner workings of our healthcare system created this opportunity for Mr. Cuban’s model, how far this model could go towards saving money for us drug consumers and what steps policy makers and individuals can take to encourage a robust uptake of this innovative model. When I return, I’ll be joined by Brigham & Women’s hospital Dr. Hussain Lalani.
Joe Selvaggi:
Okay. We’re back. This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by internist and researcher, Dr. Hussain Lalani. Welcome to Hubwonk, Hussain. Thanks so much for having me, Joe. All right. This is a fairly complex topic that deserves to be taken part a part for our listeners piece by piece. Many of them are not healthcare system experts. So let’s start at the beginning. We all agree that I think it’s roughly $600 billion a year that the us spends on drugs and, and and and medicine. So we’re not going to today focus in on new drugs and the research and development that goes into new drugs, but rather those for which the patent has expired or so called generic drugs. So let’s start at the beginning and talk about generic drugs. How does a drug go from being patent protected to generic?
Dr. Hussain Lalani:
Thanks, Joe. That’s, that’s a great question. You know, the, the Hatch Waxman Act in 1984 really established the kind of the modern system for generic drug regulation in the United States. So companies come forward with a brand name, product that patent eventually expires and generic companies are then required to prove that their drug is chemically bio equivalent to the original brand name drug. And it goes through an extensive process at the FDA that has been simplified that’s and known as the abbreviated new drug application or the “anda” process. And and that is the process that all drug companies generic drug companies that wanna bring a new drug to market have to go through. And once they’re able to prove that the drugs are bio equivalent and meet the standard, then they are able to market that drug. But there are some caveats that make it challenging to do that sometimes.
Joe Selvaggi:
Okay. So I just, yeah, one, one step at a time. So you know, for those of us who are more versed in economics than in medicine, a generic by that standard, and it seems like the government actually has tried to make it as easy as possible for others to produce this thing. It’s, it’s more or less a commodity. In other words, regardless of who produces it, it has the same efficacy and safety regardless of, of its origin. Is that fair to say,
Dr. Hussain Lalani:
Yeah, the there’s no formal requirement anymore to prove safety and efficacy for the generic drugs, but it is the same chemical ingredient. And they just ha there’s ways to prove that the the two drugs are bio equivalent or that they pretty much produce the same levels in the blood. And that often satisfies that requirement.
Joe Selvaggi:
So if we’re talking about somewhat generic commodity, and we have a clear path to get give producers the opportunity to make this drug in theory market forces would suggest that because of competition the cost of the drug would be relatively small given that the drugs are known to be relatively cheap to produce they’re expensive to develop, but relatively cheap produce. I, is it the case that generics in general are very, very, very cheap.
Dr. Hussain Lalani:
Yeah. You know, for the, for the vast, for the majority of generics the prices have come down and over time and they, they can be fairly inexpensive to produce, but there are some generic products that get, that can still have substantial manufacturing costs. So it, it it’s hard to generalize entirely, but in general, yeah, the, the the costs are relatively low for production and they have been dropping, we’ve seen over the last just two years as well.
Joe Selvaggi:
Okay. Let, let’s give our listeners a sense of how big the generic market is. You mentioned it. I think it was 1984. I don’t remember the name of the act, but it effectively described terms of drugs coming off patent and into generic. I mentioned 600 billion tab for, for drugs. How much of that in, in numbers and in dollars do generics represent, is it a big portion or a relatively small portion?
Dr. Hussain Lalani:
Yeah, it’s actually a pretty small portion. So the way I like to think about it is about 90% of all prescriptions that are filled are generics, but they only represent about 20% of the overall spending of the health system and O of sorry, of the overall health overall health spending. And that’s about on average, a dollar a day or less for those generic medicines. And when you contrast that to brand name medicines, brand name medicines are about 10% of all prescriptions. But they make up the vast majority about 80% of overall spending. And we know that they cost on average about $20 a day or so, or more
Joe Selvaggi:
So the effect of generics actually does work. But what we’re gonna talk about today is despite the fact that in theory generics should offer very little profit motive for for you know, price gouging there’s no, you know, competition would, would suggest it wouldn’t be one, wouldn’t be able to do this. And yet we’re gonna talk about today a innovation in generics whereby someone has entered the market and offered drugs potentially substantially less in the generic world. So let’s, let’s start with which drugs right now in the, that are generic, are commanding a large enough profit margin to justify mark. Well, we’ll get to it, mark Cuban’s entry. How are we, how is it that we’ve gotten here? How is it that there’s an opportunity to compete in the generic world?
Dr. Hussain Lalani:
So generic drugs are produced, as you mentioned by generic manufacturers, and then they must be delivered or distributed to the people. So somehow the drug is made and then it needs to make it to the patient. The consumer at the pharmacy, and there is a, over the years, there has been a complex distribution supply chain that has developed to distribute these drugs. And that includes a number of actors along the way. So there’s distributors or wholesalers that work with manufacturers there’s then the, the pharmacies that directly buy from those distributors. There’s the farm benefit managers that negotiate on behalf of insurance companies. And there are the insurance companies who, who pay some portion of these drugs the drug costs for their beneficiaries who have the plan. So, as you can see, there’s kind of a, a number of actors along the way in the current Mar in supply chain market, that all take a share of what the cost ends up being to patients.
Dr. Hussain Lalani:
So it’s not just the cost of producing the drug that, that we have to pay for. And so you know, that that’s part of in our, in our latest research paper, where we are able to somewhat isolate what happens when a new company like the mark Cuban cost plus drugs company comes in and purchases D drugs directly from manufacturers, and then sells them directly to the consumers without having all of the other actors in the middle of that process, in the supply chain. So you know, that, that is an important thing to, to be mindful of. And, you know, there, there are also some barriers that keep the generic costs high for certain drugs. Not every generic drug has a, a strong market. There is limited competition for a small number of drugs about 5% or so of, of drugs. And then there’s also ingredient shortages that can lead to price spikes that we have seen in recent time as well.
Joe Selvaggi:
So what you’re saying is it’s not a function of, of producers charging a premium for a generic, but rather it’s the process it’s getting from the producer to the consumer, this labyrinth of, of process we on this podcast have explored why or how PBMs contribute so much cost to the system, despite their promise to, to advocate for lower costs. Of course, insurance companies ours is an insurance driven healthcare system. So we’re familiar with that. So I think our audience is well acquainted with all the reasons why healthcare is so expensive. So let’s, let’s, let’s stipulate that it’s a very lengthy process from getting from producer to consumer. So let’s dive deeply into your, the research you’ve done into a mark Cuban’s disruption given that all these drugs are prescribed drugs and given that we’re now getting more and more comfortable with going from the consumer directly to producers I’ internet and Amazon, these sort of things has this direct to consumer model been tried before. And if it has, why hasn’t it failed? Why hasn’t it succeeded in the past? Why have we allowed so many intermediaries to drive up our costs?
Dr. Hussain Lalani:
Yeah. You know, there have been quite a few director, consumer companies that have offered low cost, generic, generic medicines. The most popular one that people may be familiar with is Walmart. Back in 2006, Walmart launched the $4 list which now includes about a hundred drugs that they sell at anywhere from four to $15. And director consumer, you can just go directly to the pharmacy and pick that up. And there are other chains, drug stores as well that have started to offer discounts for low cost generics. That includes Costco with their prescription drug savings program. I believe Kroger also has a program like this. And since then in 2011, we also saw the introduction of a slightly different market in a bit sort of, yeah, we saw the introduction of a new sort of model to have lower cost generics, which was through coupons.
Dr. Hussain Lalani:
And that was GoodRx in 2011, where you can get hundreds to thousands of different coupons for various different drugs at, at, at any number of pharmacies in your zip code to lower the costs of those of those drugs. The tricky thing is it, it depends on the zip code that you’re in and it can really, the prices can really vary by the, by the drug. So there have been a number of previous innovations to try and lower the cost for certain prescription drugs, generic drugs. But this, this company, the Mark Cuban company has started to gain a lot more attention in the media. In part, I think because of Mark Cuban and his stature, but also because they are, they are starting to cover what looks to be a larger number of generic drugs than what Walmart and Costco have at the moment.
Joe Selvaggi:
Well, we all know Mark Cuban he’s well known as both a billionaire and one of the panelists, I guess, on shark tank. So he’s a a wise investor, so he’s seen opportunity here. So if you’re saying there’s not a lot of money in, I think he’s his ambition is ultimately to produce these drugs. I think he’s building something down in is it Austin or, or Dallas, Texas, where the chemicals go in one door and the drugs come out, the other, so he’s, you know, total vertical integration. What is it unique and what do you see as the opportunity or the addressable market for his particular model? How is it so much different than the others? You mentioned
Dr. Hussain Lalani:
The main thing that’s different about the mark Cuban cost plus drugs company is the promise. And so far the delivery of complete price transparency for all their drugs. You can literally go to their website and type in the drug that you need as if they have it then you’ll be able to see what the cost is. And it very clearly breaks down the cost, which is the cost that they pay to purchase the drug, which they call the manufacturing cost. It’s really like the purchasing cost plus 15% of a margin that they, that they take and then $3 for a pharmacy fee, and then whatever price you see there, you can adjust it based on the quantity that you need and the dose that you need. And then don’t forget to add the $5 flat rate of shipping. And that is that’s the cost of the medicine. And it’s the first time that we have seen the costs of a specific generic drug broken down that simply. And so that, that in itself is something unique and it’s helping us to get a sense for how much certain generics drugs actually cost and the cost of distributing those drugs. And, and we’re starting to learn more as more drugs come out.
Joe Selvaggi:
So price transparency is a big part of our formula. Our prescription I’ll use a medical term for helping to reform the medical community price transparency, letting consumers understand where the money’s going and who’s producing what for what price so they can choose. So I, I want dive into where this, what the, let’s say, addressable market, where, what is, is it sky’s the limit could literally every drug be subject to this new model where ultimately we would know the price of everything.
Dr. Hussain Lalani:
Well, I wish that was the case for all drugs. That would be amazing. I like to say often that, you know, doc, as doctors, we prescribe medicines, but we don’t really know the cost of the drugs we prescribe often, unless they’re commonly used available drugs on some of these direct to consumer platforms that we talked about. And so it, but it is possible that if the company is able to negotiate with manufacturers for the vast majority of drugs, they may be able to have thousands of generic drugs, which I think is part of what it sounds like they’re trying to do. And, and so that if, if they were able to achieve that, we would then have a better sense of how much those generic drugs cost. It would be great to know how much the brand name, drugs cost, since those are the ones that are the most challenging for patients to afford. And so,
Joe Selvaggi:
Yeah, sure. Now, when you talk about brand name, you’re not talking about ones that are still on patent, are you?
Dr. Hussain Lalani:
I am, yeah.
Joe Selvaggi:
Okay. All right. So again, I don’t wanna go too deep into that, but I mean, sort of an economist might justify the fact that something on patent is not expensive because the price to produce, but rather you’re, you’re in a sense claw back the money it took to develop the drug in the first place, right? So it’s a, it is a different market dynamic. It’s sort of, you’re, you’re, you’re paying for past research rather than current production. I mean,
Dr. Hussain Lalani:
Well, I would say that, like the only, the only tricky part where this becomes relevant is that, you know there are, and this is really unfortunate, but it is a reality. We have seen brand name manufacturers, making it hard for generic manufacturers to come to market through what’s called pay for delay deals. If you may be familiar, it’s where
Joe Selvaggi:
We know we haven’t, we haven’t covered that. So let let’s, let’s, let’s go there.
Dr. Hussain Lalani:
Yeah. So this is actually it’s really messed up. But it, it, it has been investigated by the federal trade commission. And there has been a number of both accusations and convictions of drug companies that have paid generic companies to not come to market, essentially preserving their monopoly and to allowing them to continue selling their drug without any competition. Lipitor is a really good case to that. So Pfizer is, was, you know, the maker of Lipitor and they, they did admit to doing this where they essentially paid off their competition for a few years around 2008. And, and that allowed them to continue selling the drug for about, I think, close to two additional years without any competition. And that then, you know, kept the price high for consumers. But you know, there are a couple other sort of challenges to this process and one of them where it makes it hard for generics to come to market is what’s called these patent thickets.
Dr. Hussain Lalani:
And I’m not sure if you guys have covered that before, but it’s, it’s this idea where you, a drug company can patent a variety of different minor processes or MI aspects of drug development, but then extend the length of their monopoly protection. So you know, I would say that it, these sort of market forces it’s not really a free market <laugh> for those types of drugs, as we know, and, and sadly, you know, the thought always, I think that the thinking, at least in the theory of these policies was that yes, the drug will have ex exclusivity for some period of time for the innovation. And then after that the drug will become more affordable for patients. And, and while we have seen that in, in many cases, there are a number of cases where that gets delayed or is actually really hard to produce a competitor because of the, these, these kind of anti-competitive behaviors that, that, that have not been well addressed, unfortunately in our current market. And that then ends up leading patients to, to struggle and suffer with the cost.
Joe Selvaggi:
Well, in earlier shows, we have actually highlighted not necessarily the drug companies, but the intermediaries. And you mentioned them earlier in the show PBMs insurance companies, that sort of thing. Let’s talk about how they might thwart the effort to reduce the cost to consumers. As, as they say, 1, 1, 1 person’s waste is another person’s income. So I’m sure that cutting out and going direct obviates the need for insurance and P you know, if you’re going direct, you’re not using insurance. I I’ve got that. Right, right. If I’m going to mark Cuban, I’m not making an insurance claim. So describe for me, you know, how might these intermediaries defend their position as, as part, you know, part of the process between the consumer and the producer.
Dr. Hussain Lalani:
Yeah. You know, D delivering any kind of good has some basic costs. So, you know, whether it’s gasoline or t-shirts or food, you know, there is some costs that we as consumers, I think understand that that will be required to transport the drug from, you know, location a, to B, and to then, you know, make that accessible. But, but not withstanding, you know, the, there are, there are act a number of actors kind of in that, in the supply chain that, that have the ability to both deliver the drug, but also capitalize on it being on its production and its delivery process. So you know, I think that I’m not sure how they would necessarily defend themselves, but they may say that, you know you, they’re just, they’re paying for the cost of what it takes to get drug drug a, to drug B.
Dr. Hussain Lalani:
And the, the thing to keep in mind that is often discussed in kind of the, in the lay press and about pharmacy benefit managers and insurers is that, you know, this concept of, of rebates, but that isn’t really apply to generic drugs. And we, we restricted our sort of our analysis to really generic drugs. And so in this case there really are little to know of these transfers happening in terms of rebates between manufacturers and pharmacy benefit managers. So you know, it’s, it’s a little bit different than with brand name drugs.
Joe Selvaggi:
So let me ask you hypothetical, if, if I can go to mark Cuban and the, the drug is $20, right. And I can go through my insurance company then ultimately it’s on the PBMs formulary and it’s $50, but I get a $40 discount. You know, or I can take the dollar, the $10 I spend through my insurance company and apply it to my deductibles. Aren’t I incentivized then to avoid going to Mar Cuban and instead going through my insurance company, because ultimately the cost is lower to me, even though it’s higher to the system. That’s how I can imagine. The, I, I don’t say that I’m morally defending it, but they’re actually defending their position by forcing you or encouraging you through lower out of pocket fees to going through this elaborate labyrinth of payment systems rather than direct to the manufacturer. What, what would you say to that?
Dr. Hussain Lalani:
Yeah. You know, a number of drugs are act depending on the type of insurance you have. And the, the drug plan that you have, it can definitely be cheaper to just go through your insurance and buy the medicine. But for people that ha are underinsured with high deductible health plans or high out of pocket costs, which is, you know, about half of people that get their insurance from their job through their workplace. And if you’re uninsured, you don’t really have very many options. Sometimes now you can try coupons or patient assistance programs. But in those cases a company like mark Cuban’s cost plus drugs company could be helpful to you. But you know, there was an interesting analysis that was done of the Costco company of Costco’s prescription drug program back just a few years ago. And they looked at Medicare patients in particular, and they found that only about 11% of the time, was it cheaper for the Medicare patients in part D to pay out of pocket at Costco than it was to just use their insurance.
Dr. Hussain Lalani:
And so, you know, consumers are incentivized based on their cost, if it’s a low cost, they’re probably gonna go with that. I think the tricky part that is a little bit nuanced that we’re starting to learn more and more about. And, and that is something that I do think needs to be looked into is what’s the tiering of drugs, as you’re probably familiar. When you look at your insurance card, there’s often a different copay for a different tier of the drug. So there’s the first tier second tier third tier, and oftentimes a fourth and a fifth tier, but most people have at least three tiers or more. And usually historically generics have often been in tier one the lowest cost tier, which can often be, you know, free or $10 or less, but we’re starting to see that over the last few years pharmacy benefit managers and insurers have been, start, have started to place some generic drugs on higher tiers, which means that they cost more out of pocket.
Dr. Hussain Lalani:
And so that, you know, in those cases, it, it actually would cost the consumer more to pay for that higher copay than it would to go direct to consumer. So you know, I guess I would say check what you’re paying <laugh> for your drugs and just do a quick search. I would probably check good RX and I would check the mark Cuban company and see, you know, if you may be able to get a cheaper cheaper deal somewhere else. And if it’s, you know, if it’s a substantial amount, it may be worth it for you.
Joe Selvaggi:
Well, let’s talk about some of the the diseases and drugs that get a lot of attention as far as being very expensive and particularly for low income people, almost prohibitively expensive. I’m talking about the diseases of diabetes and, and cancer. We’ve had, we’ve known insulin it’s a familiar drug or molecule, I guess for a long time. And yet we hear stories about unfortunately people with diabetes who literally have to decide between food and, and insulin. How is it possible given our model of, of, of generic drugs? How is it possible and why is it that insulin costs so much to so many people?
Dr. Hussain Lalani:
Yeah, insulin is a great case of a lot of things going wrong in our drug, in our prescription drug system. It really is as you mentioned you know, it was discovered almost a hundred years ago. We celebrated the hundred year anniversary, I believe this year, actually. And it was intended to be the discoverers from Canada, wanted it to be available to everybody. And they didn’t even go about making money off of it in, in the, in very early days. But what we’ve seen with generic with with insulin is that there has been an evolution of the product that’s delivered where there have been small modifications over the years and monopolies and patents associated with those discoveries that have made it incredibly expensive to consumers. We just actually approved our first biosimilar which is kind of what, what is considered to be the competitor to a brand name insulin ever just recently for glargine or, or Atlantis the brand name insulin just very recently.
Dr. Hussain Lalani:
And before that there was no competition for this long acting insulin type. And so while there are some insulins that there’s, I believe at least one in particular, that’s available over the for a lower cost at Walmart. And that’s called rely on a lot of these insulin insulins are incredibly expensive as, because there is no competition and because it, it is a broken market. And so it’s really sad and, and frustrating to watch patients suffer with, with those high costs. And especially if they’re underinsured or uninsured, they’re in a really tough spot. And as you mentioned, having to choose between putting food on the table and, and paying for their, for their life saving medicines.
Joe Selvaggi:
Yeah. So again, I’m trying to tie it back to mark Cuban’s model. Is it possible then ultimately now that it is that you do have a biosimilar approved that could wind up on mark Cuban’s list of, of direct, would it be possible then ultimately to say, look I, you know, I can cut my insulin costs by 90% if I just go to a directly to manufacturer. Is there any barrier that you see now that it’s, you know, in a sense technically possible to, to disrupting that market profoundly with this model?
Dr. Hussain Lalani:
Yeah. So, you know, the tricky thing about insulin is that it is what’s called a biologic which is, which means that it’s a drug that’s made using human proteins, and it is more complicated than a traditional pill or tablet, which in jargon terms, we call small molecules. And so these biologics inherently have some additional complexities to production, which is part of what makes it challenging to produce. But the other part is also there are some differences in the way in which those drugs are approved by the FDA and the way in which they can be substituted for each other, all that withstanding, you know, there is actually an interesting disruptive model that is in the works from another company called Civica RX based out of Utah. And they’re, they have a similar sort of mindset, which their goal is.
Dr. Hussain Lalani:
They started, I think a couple years ago their concept is to bypass major drug makers and to manufacture or subcontract generic pharmaceuticals. And they do it mostly. They started off doing it for inpatient medicines, like medicines you would need in the hospital, antibiotics blood dinners, that type of injectable medicines. So they actually have some experience in doing this. And interestingly, they recently started a new subsidiary of this company in partnership with blue cross blue shield, it’s called Civica script RX. And they, they claim that they’re working on manufacturing and distributing insulin at a really low cost. So I do think it is possible that it could happen, but just keep in mind that not all the insulins are there, there are many, many types of insulin side. I’m not sure the exact number, but I’d say at least over 20 different types. And so they not only do you have to be able to make all those different types, but they also have to be you know, off patent in order for that to happen. So those are kind of some of the challenges that any company that tries to make insulin would, would have to, to face.
Joe Selvaggi:
So the technology is still not quite there, so, but watch this space, it, it, it, you know, it may be right. So we’re, we’re on I’m
Dr. Hussain Lalani:
Sure. Look, it looks like we’re on, we’re getting closer. And it can’t come soon enough.
Joe Selvaggi:
Sure. Let’s, let’s talk about another expensive and, and well well documented disease, which is cancer. I know there’s a big problem. I was just reading an article in the New England journal of medicine about the huge difference between whether you, depending on which kind of cancer you have, if you can get it, the medicine through a pill it’s one sort of compensation I’m talking about through Medicare. And if you have to go through to a doctor to get your medicine it’s a different kind of compensation. And it, it really, whether you, whether you go broke or, or, or, or, or you are covered by Medicare really depends on the, the type of cancer you have, which seems profoundly unfair. What can this model that we’re talking about have to do with either the, the pill you get through the mail or, or the one you go through the doctor?
Dr. Hussain Lalani:
Yeah. It’s a really interesting concept that you bring up, which really gets at the issue of Medicare part D as that reimburses outpatient prescriptions and Medicare part B as in boy which is the kind of reimbursement for infusions based therapies through clinics. And, you know, I, I wish there were more ways in which we could lower the prices for these cancer medicines, to my knowledge, the vast majority of them and there are actually ways to do it, but I don’t know that there’s a market solution right now, because the vast majority of the reasons these drugs are expensive is because they are still brand name and they’re patent protected and they have long, they have monopolies. And so the prices we’ve seen based on research that we just published recently as well, and a paper in the new England journal recently as well, the, the prices of these drugs are being are, are rising precipitously.
Dr. Hussain Lalani:
And not only is it rising over time, but it also the launch prices, which is the initial price that company sets can be in the tens of thousands of dollars. And so it, a new analysis actually showed that as you mentioned, patients would pay up to $10,000 out of pocket for certain cancer therapies. And I don’t really think, I’m not, I’m not aware of any ways in which the current you know, mark Cuban company or any of the direct to consumer companies would be able to lower those costs. It, it really illustrates the challenge that we have and in part, because those are brand name therapies, and they are really able to work mostly on generic medicines. And so I, that, that’s a really an area for policy makers to, to intervene and allow us to you know, negotiate the cost of the medicine or find other ways in which to lower those costs. And that would include preventing like annual increases in, in those, in those prices. So yeah, I, I don’t know that there’s much that we can do on, on the director consumer side in that, in that arena,
Joe Selvaggi:
How just, we didn’t cover it at the top of the show for perhaps we should have, how long does a drug company enjoy a patent on a, on a new drug? And I, I let let’s you described the tricks and the manipulations that are possible, but in theory, let’s just say they’re playing it straight. How long after you develop a drug, do you get to sell it as effectively as a monopoly?
Dr. Hussain Lalani:
Yeah, so you, you sub my understanding is you submit that new drug application or the NDA as you’re starting out in the discovery process, and it is that patent is valid for approximately 20 years. And then there are exclusivities that get added on on top of that. So it’s usually seven years for small molecules or pills of tablets, and up to 12 years for biologics. And so, you know, that depending on where you are how long it takes for your drug to be completed, go through clinical trials, be approved, you then have kind of that remaining amount of time to market it, which research shows is about about 12 years of patent protection before any exclusivities, as which would add more time to that.
Joe Selvaggi:
All right, well, again, you know, we, we, we like markets around here and I’ll say, whereas it’s unfortunate that new drugs cost so much a lot of that money is going to provide incentives to, to develop new drugs. So you know, there are some externalities that are, are favorable to the markets, we, but for those drug companies, those molecules, or those drugs wouldn’t exist, but let’s, let’s shift our conversation. Cause we getting close to the end of our time together to policy. You mentioned policy, what is it that you think we could do either to encourage the Mar Cuban model to, to grow into other spaces or to have policy makers, educate consumers, that they do have choices. You mentioned one should go online and perhaps explore alternatives. How can we foster better, let’s say understanding more transparency, more understanding that could accelerate the market forces to drive down the cost of drugs.
Dr. Hussain Lalani:
Yeah, that’s a great question. You know, I think we really need to redesign the incentives in our system to ensure that the pharmaceutical distribution system is focused on delivering accessible and affordable medicines to all Americans. You know, that, that is a challenge that has not really been addressed in especially for generic drugs specifically, and, you know, and that includes addressing the incentives along the way that, that companies that are entirely vertically integrated are able to capitalize on. And I’m talking about, you know, those companies that are insurers and pharmacy benefit managers and pharmacies and distributors, they really have a tremendous amount of power in the current market when it comes to delivering the drugs because they not only pay for them for their beneficiaries, but they also negotiate and then supply them through, through the distribution channel.
Dr. Hussain Lalani:
So I think, you know, there, there is a role there for policy in, in terms of, you know, limiting the amount of costs that are associated with distribution. I think we’re starting to see that what very early, what that could look like with the cost plus drugs or where there’s a limited amount of cost given on top of the production cost. But, you know, the tricky thing is, is this distribution is still, is still expensive in some ways. I mean, when you look at the analysis that we did, even when you buy those drugs directly from mark Cuban in our sample of about 77 drugs that we looked into more carefully it was still about 50% of the cost was, was to distribution even with the low cost that mark Cuban’s company offers. So I do think the, the price transparency is another area where we can learn more about the specific drugs and avenues where we are overpaying and where there’s an opportunity to, to lower costs for, for patients.
Dr. Hussain Lalani:
I mean, big picture, most patients are able to afford their generic medicines without too much trouble. It really is. Unfortunately, as we mentioned, the, the brand name drugs, and those aren’t really addressed by these current, you know, current types of companies they’re not really sold. So, and the, the policy solutions for those are a lot are different. Are the ones that, you know, you’ve probably heard are starting to heat up again. In Washington, when it comes to allowing Medicare to negotiate drug prices and preventing annual price increases and capping their out of pocket costs. So some of those, some of those reforms for the drugs that people are struggling to afford the most are really do need congressional sort of redesign and, and action spec, especially for Medicare part D which sadly is really broken and poorly designed for patients.
Joe Selvaggi:
So again, getting to the end of our show, do you think sort of I’m particularly fascinated by Mark Cuban’s transparency – transparency, you know, essentially gives consumers the information they need. Might he be creating his own market? Meaning might there be now other mark Cubans competing against each other, in a sense, providing consumers with all the data that they need so that each step of the process of the distribution process can now be competitive and, and, and, and theoretically compete each other out of excessive costs.
Dr. Hussain Lalani:
Yeah. You know, I guess it is I guess it is possible that other companies may pop up you may have to talk with him and his folks to figure out just how expensive it is to be able to, to do what they’re doing, because it does seem like a lot of work to negotiate all those prices directly with every single manufacturer and then to, you know, work on delivering all those drugs. Now they do use like an online pharmacy partner that helps part of that. But I think part of the, one of the barriers is, is just going through that entire process. And they have some of those competitors that we talked about early on in like, you know, Walmart and Costco. But so, you know, I guess, I guess we’ll have to see who, who decides to join the market here and pop up <laugh>
Joe Selvaggi:
Well, wonderful. Well that’s all the time we have I, where can our listeners read more about your work? I, I, I mentioned it in the intro before I had you on, but where can they read more about the, the two papers you wrote in the annals of internal medicine?
Dr. Hussain Lalani:
Yeah, I’m, I’m happy to share a copy of the paper with you, and perhaps you can distribute that as well. But on the, the, an, the annals of internal medicine has published these two papers and they have been covered thankfully in some detail in the lay press. But I, I do encourage you to take a look at the the actual text for yourself, so you can interpret it. And unfortunately it does seem to be behind a paywall. So I’ll I’ll share with you what I can, so that way you can distribute that for, to folks and that, and they can, you know learn more about it through there
Joe Selvaggi:
Indeed. Okay. I we’ll do what we can to sort of toward, to the those who are trying to collect from our listeners. So we’ll, we’ll, we’ll see if we can get it out there for free. Well, I appreciate you taking the time today to, to share with us your view. This is a, you know, not an easy problem to address but we’re, we’re chipping away at the edges. So thank you very much for your research and for your time today.
Dr. Hussain Lalani:
Thanks so much, Joe hope you guys have a great weekend.
Joe Selvaggi:
Thank you. You too.
Joe Selvaggi:
This has been another episode of Hubwonk, a podcast of Pioneer Institute. If you enjoyed today’s episode, there are several ways to support Hubwonk and Pioneer Institute. It’ll be easier for you and better for us if you subscribe to Hubwonk in your iTunes podcast, catcher, if you want to help make it easier for others to find Hubwonk, it would be great if you offer a five star rating or a favorable review, we’re always grateful if you want to help us by sharing Hubwonk with friends. If you have ideas or comments or suggestions for me, or future episode topics, you’re welcome to email me at hubwonk@pioneerinstitute.org. Please join me next week for a new episode of Hubwonk.
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Mei Xu on the Slow Burn to Success
/in Economic Opportunity, Featured, JobMakers /by Editorial StaffThis week on JobMakers, host Denzil Mohammed talks with Mei Xu, immigrant from China and founder of Chesapeake Bay Candle, which was acquired by Yankee Candle parent company Newell Brands for $75 million. Mei describes the journey to entrepreneurship, and how she created opportunities for herself. Today, she seeks to empower women business owners around the world, to show them that they too can expand economies and horizons with a little guidance. As she says in her new book, Burn: How grit, innovation, and a dash of luck ignited a multi-million dollar success story, “I hope to convince you, the American Dream remains vital and accessible to all of us,” as you’ll discover in this week’s JobMakers.
Guest:
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Read a Transcript of This Episode
Please excuse typos.
Denzil Mohammed:
I’m Denzil Mohammed. Welcome to Jobmakers.
Denzil Mohammed:
I was once given some interesting career advice, create your own job, bit of a daunting task. If you ask me yet from millions of immigrants to the us, that’s exactly what they do. They become entrepreneurs. For Mei Xu, immigrant from China and founder of Chesapeake Bay Candle, which was acquired by Yankee Candle parent company, Newell brands for $75 million, dashed dreams and miserable timing forced her to create opportunities for herself. She describes this journey to entrepreneurship and what it takes to be successful today. She seeks to empower women business owners around the world so that they too can expand economies and horizons with a little guidance. As she says in her new book burn how grit innovation at the dash of luck ignited a multimillion dollar success story. She’s come to convince you that the American dream remains vital and accessible to all of us. As you’ll discover in this week’s Jobmakers,
Denzil Mohammed:
Mei Xu, founder of Chesapeake Bay Candle, and “Yes She May,” and author of, “Burn: how grit innovation, and a dash of luck ignited a multimillion dollar success story.” Welcome to the Jobmakers podcast. How are you?
Mei Xu:
Very good. And thank you for inviting me, Denzil.
Denzil Mohammed:
We’re honored to have you So tell us who is Mei and what does your company stand for?
Mei Xu:
Mei is someone that’s passionate about creating a little bit better things that we use on a daily basis while doing so providing a better experience to consumers. That’s what I did with my first company Chesapeake bay candle. And what I’m trying to do is build on that. I also want to be able to help other women entrepreneurs.
Denzil Mohammed:
Could you just sort of give us, paint us a picture of what life was like back in China when you were growing up?
Mei Xu:
I actually moved here after Tianamen Square. After 1989, I moved January of 1991, when I was growing up. I was born in 1967. So you can see how old I am an era when China was completely blocked off from the rest of the world. The race of the country is, mostly there are 50 other minorities, but you listen to the way that people talk. You look at the way they dress. You look at everyone’s salary, you know, it’s all transparent. You see exactly how much everybody’s making, everybody’s living. Exactly the same style buildings. You used shared bathrooms and kitchens. So it’s a very interesting time when there’s not a lot of desires, but there’s also not a lot of sort of comparisons because everyone gets exactly the same. Remember it’s it is socialism after all
Denzil Mohammed:
Very interesting it’s, it’s a life that I can’t even begin to imagine what that was like, shared bathrooms and kitchens.
Mei Xu:
You know, I grew up – in my book. I mentioned I grew up until age eight sharing a room with my mom and dad and my sister one room and my sister and I squeeze into a little bed. And my mom and dad is on the other bed. And then we don’t even have much furniture. So there is a table for, for food. And that also serves as our desk. And we have one cabin for clothing because we don’t have that much clothing and one trunk that’s about everything I can remember.
Denzil Mohammed:
So when China opened up after President Nixon’s visit in 1972, you’ve said the government needed diplomats to all these countries that were suddenly going to do business with. Mei, you were one of those selected for the very first batch and you enrolled in a boarding school where you were taught English and all about American culture and ideology.
Denzil Mohammed:
That must have opened up a whole new world for you to learn about other cultures like that. Especially since growing up, it was so insular and, and parochial
Mei Xu:
Isolated.
Mei Xu:
Exactly,
Mei Xu:
Exactly.
Denzil Mohammed:
So therefore, what prompted you to start Chesapeake bay candle? It seems like a whole other world compared to diplomacy.
Mei Xu:
So I met a very interesting sociology professor who was teaching at that time in Beijing, but a visiting scholar from Dartmouth college. And she recommended me to work for her husband who is in charge of one of the offices affiliated with the World Bank mission in Beijing. So that’s when I started to work part-time for the bank as a translator in the beginning, but later on taking on more coordinating coordination roles. And I loved it and I wanna work for the bank after I graduat, but I graduated in 1989. If everybody remember the world witnessed in the summer of 1989, the brutal incident on the square, what the world didn’t know is that those of us who graduated that year got the worst bargain because we were all sent away from Beijing or Shanghai, so that students won’t gather immediately again.
Mei Xu:
And I was assigned to look after a warehouse of minerals for export to other countries, and it would not allow me to practice any foreign language, let alone diplomacy. So I resigned which in 1989 was unheard of, particularly with such a training and such a prospect of being a diplomat in the future. But I resigned because I just feel miserable and I felt I’m going to lose my 10 years of learning. And I always wanted to advance my degree anyway and, and United States is always my number one choice because I was majoring in American studies. That’s how I ended up in Maryland. University of Maryland saw me in the beginning of 1991 because I want to learn mass communication and journalism so that I can go back to help the world bank missions, where they work with the local community and the government to achieve their goals.
Mei Xu:
But again, I graduated with unfortunate events in 1992, when our country United States was fighting Iraq. And because us is the biggest donor for the world bank, they did not have enough money to make their pledge. So I indeed took myself to New York city, very exciting, but the job was not very exciting. And it, the salary is even worse, $19,000 to be an assistant export manager, helping a company export medical equipment to China. That’s when, although I wasn’t happy with my job, I was put next to an amazing place called Bloomingdale’s and Bloomingdale’s to me is like paradise. Imagine I grow up without much of a material indulgence. So Bloomingdale to me is like a fairy land. You look at the perfumes and the fashion, and I loved the fashion at that time because it already had a very strong point of view.
Mei Xu:
I don’t know if you remember, the, the shoulder pads were very in for the nineties, but then as I went up the floors on Bloomingdale’s escalator, I recognized that more floors. I, I went up the more ordinary, a mundane and unattractive the merchandise become until I went to the top floor. And it’s the worst, that’s the home product floor. And it just like you entered what on the movies would be some old, very antique, you know, home. So I just asked myself, I said, if someone was wearing this powerful Donna Karan power suit, why would she wanna go back to such a dark and old fashioned home? So I talked to my then husband, David, who’s working in DC and I was in New York during the week – so I was commuting – every night on the phone. And we also have a lot of friend in China at that time.
Mei Xu:
Who’s now dealing in foreign trade. So one day he just said, Mei, you’re so unhappy. I’m very unhappy that you’re not here with me. Why don’t you just quit? And I will quit too. We’ll just start a business. And we’ll maybe do something with home product because you seem to have a lot to say about what you don’t see and why is that the case? So that’s how we started because we don’t find any opportunities for ourselves. So we created opportunities. And that’s what I think going back your, to your immigrant story is probably what happened to be the decision. A lot of us made we’ll just have to risk it all because we don’t have a lot to lose. So as China become the factory of the world, what they really need is also a lot of people that can be in foreign trade.
Mei Xu:
So that’s what happened. A lot of my friends end up being foreign trade for the country. As a lot of those initial foreign trade organizations are government owned. And I asked them for help. I said, do you guys have any home-related products? So they sent me a lot of product. We resigned both in 1994, and I moved back from New York to Maryland. And we went back to China and we took with us a ton of samples ranging from silk flowers, you know, those fake trees and fake flowers so that people don’t have to water them to cushions for your car car seats, to musical dolls and decorative fence on the, you know, with the Chinese calligraphy to some very unassuming candles, you know, they’re shaped like a ball and they have patterns like stain glass, stainless steel, a stain glass.
Mei Xu:
So we didn’t know what to do with it. We just brought everything with us to a trade show. And until today, I still tell everyone who come to me and say, how can I validate an idea? If I have a great idea for product, how can I validate a service? I always say, stop asking your parents, stop asking your friends. They’re not gonna be as helpful as taking it to the market because the market is very efficient in this country. It will tell you whether they like it or not. So when I came back with all the samples, it was already in September. So I scrambled and I found one trade show is in North Carolina, in Charlotte, North Carolina. It’s a very, very small regional cash and carry, which means it’s so late that people will pay you and you ship them right away so they can make it to the product for holiday. It’s a cash carry trove. We drove all the way there with our borrowed van. And we put all the silk flowers, all the seat cushions, fans, music dolls, and the box of candles. And we arrived and set up a 10 by 10 booth, but we don’t really know how to set up. We just put small items in the front, bigger items in the back, and we just wait for orders. And guess how much orders did we get in five days of trade shows? Just take a guess
Denzil Mohammed:
A hundred,
Mei Xu:
A hundred orders. Yeah. Worth how much, take another guess the candles cost about $5 wholesale, the most expensive item, maybe $20 wholesale,
Denzil Mohammed:
A thousand dollars
Mei Xu:
Take a wild guess. No much more – $52,000. Probably you are right about a hundred orders. I would say probably a little bit more than that. That is a hundred small retail stores trusting us to provide them product before Christmas so they can sell them. Right. And that’s not a small change. Even after our business is much bigger. We went to New York, which is an international trade show, $52,000 for five days. It’s a, it’s a fantastic number. Not only did we get a lot of good feedback, but we know what we should focus on after that, because most of the orders were placed for the candles. And it was the least expected because it’s so small. And we just don’t know because we are from China, we don’t use candles to enhance the mood or to set a romantic dinner. We just use them when the light went out and guess how much we sold the first year from September to December,
Denzil Mohammed:
Given the 50, a hundred thousand dollars,
Mei Xu:
$550,000. So it’s an amazing, even for now, I can’t believe how fortunate we are. It just shows to you. If you have observations, if you see a gap, if you see an opportunity and you bring it out at the right moment, with the right pricing, you get rewarded. And that’s how good we got rewarded. First year, people love the candles. As a result, we learned that they buy those candles to give each other a gift, right? Everybody has 20, 30 people on their list, $10. It’s not a big gift, but it’s very special. You light it up. It is a topic for conversation.
Denzil Mohammed:
You know what I gave my boss for Christmas last year, I sent a candle. I can
Mei Xu:
<Laugh> <laugh> okay. Now, you know? Right.
Denzil Mohammed:
And one thing that, that really strikes me in just having this conversation with you is that you did not have a business background. You didn’t study business, you didn’t get an MBA, but all of this business savvy is just, is just flowing out of you right now. And that’s quite incredible.
Mei Xu:
Finance is always part of my, my, my work as well, because I’m very customer facing, right? I, I was the one that negotiated most of our first relationship with big companies. And when you deal with them, you have to understand your numbers. You have to understand how to ask questions. You have to be able to digest information in a way that you see trends. So one of the things I say I I’m very good at.
Denzil Mohammed:
But your latest endeavor, yes, she may is a very unique business. Why did you choose this particular kind of business and what makes it special?
Mei Xu:
I think I’m the only one that is doing a for-profit business for women. We have a lot of nonprofit that advocate women’s entrepreneurship that are investing in women-owned companies in funding, or help them in connecting with major buyers. There are, I can name a lot of them. What is different in what I’m trying to do is that I often see what their restraints are, right? So I have a very good friend in Elizabeth Vaser, who is the founder of reconnect. It’s an organization that promotes big companies like IBM or target or Walmart to buy from international women-owned businesses so that they can help them to grow their business savviness and their economic power that has implications, right? When women are more economically dependent, independent, they can send their kids to school and they can take those kids out of the streets. They can provide opportunity for them to become entrepreneurs or have a regular job.
Mei Xu:
That means they’re not fighting on the street. They provide stability and growth. So that’s why, you know, a lot of big corporations work with her to certify those companies and then train those women to work with bigger companies. The problem is even when they are making that connection, can a target really work with someone in Tanzania that is never even make $100,000 worth of product because the first order, most likely is gonna be a million dollars for a 1800 store chain. Can they figure out how to teach them? You know, all these things in, in, in a short, in a short period of time, so they can graduate, have the best practices and continually supply them. It’s very hard. So to make that leap frog of a development, they need people like me, people that are incubators that can train them to first work with smaller companies or smaller businesses that can be patient that can let them learn their ropes even translate their instructions into English, take good photos. And then gradually, if they continually have product that people want, then they get to the next level to work with bigger companies, such as a 10 store chain, okay. Or website that has more traffic. Eventually, if they get everything right, they may have a shot to work with a Macy. So to me, this is fundamentally an incubator
Denzil Mohammed:
From your writing. It is that the connection between being an immigrant and being an, an entrepreneur is something that is very, very real. Can you expand on this? And you know, what is the connection between being an immigrant and being an entrepreneur?
Mei Xu:
I would say, look at how many major companies started by immigrants, right? So if you look at Google, if you look at zoom DoorDash, sure. I can go on and on. And I think it’s not accidental it’s because I think they do have something they share in that they’re not afraid to abandon. What’s known what’s arranged for them, what everyone else is doing. They’re willing to take a risk to give their passion and their dream, a real shot. I do see the similarities between entrepreneurs and immigrants. And I do see that that’s one of the reason why they create companies because often they have nothing that is offered to them on a silver platter.
Denzil Mohammed:
One thing that has occurred to me in hosting this podcast is that that thing called the American dream appears to be stronger outside of all borders, that it is among its residents in your book burn, how great innovation and a dash of luck ignited a multimillion dollar success story. You know, it’s inspirational and optimistic, but you do write that the world has become more pessimistic, protectionist and insular. And that ultimately you hope to convince the reader that the American dream remains vital and accessible to all of us. How do you go from pessimistic, protectionist and insular to believing in the American dream?
Mei Xu:
When I was writing the book I had just came out of four years of being under this president who was very dramatic, not very democratic himself, but hope for the first time, really put into the very front, a national dialogue about the dislike of immigrants, the displeasure of other cultures, the judgment of other race, which is so to me. So blazant, you know, so just, I would not never imagine in when I came here in 1991, that this could happen. I know they existed. You know, we see the KK Ks demonstrations. We know the African Americans being lynched. The Asian Americans called names are Chinese Americans being called, you know, the chinks. These things didn’t happen to me. Fortunately, but I can relate to those. So to hear your own president talking like them is shocking to me.
Mei Xu:
It it’s a real wake up call that not only those sentiment exist, that it exists and it’s alive and it’s actually growing at that time. I’m very hopeful that our children, that’s where I find a hope is that my children and many other children that I’ve known since, you know, I have children. I think they do recognize that we cannot go back just like China cannot close its door and pretend that nothing will ever happen the way that it was for the last 40 years. People have tasted the power of freedom, the power of free speech, the power of free economy. And they have benefited. Why would they go back to an era where they can barely afford to have meat every day? They can barely afford to have new clothes when they really wanted it. So in innately, I feel we are always making progress as a race. We’re just taking two steps back, maybe three back three steps forward. And at the core of this nation is that fundamentally, we are a nation of immigrants.
Denzil Mohammed:
This was a really, really incredible and fascinating conversation. I, so thank you for making the time to do this. I know how busy you are. Me, she founder of Chesapeake bay candle, and yes, she may and author of burn how great innovation and the dash of luck ignited a multimillion dollar success story. Thank you so much for joining us on Jobmakers
Mei Xu:
Thank you. Denzil
Denzil Mohammed:
Jobmakers is a weekly podcast about immigrant entrepreneurship and contribution produced by Pioneer Institute, a think tank in Boston and at the Immigrant Learning Center in Malden, Massachusetts, a not-for-profit that gives immigrants a voice. Thank you for joining us for this week’s inspiring story of immigrant entrepreneurship. Remember, you can subscribe to Jobmakers on apple podcast, Spotify, or wherever you got your podcasts. And please leave us a review. I’m Denzil Mohammed. So your next Thursday at noon for another Jobmakers.
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