Replies to post #40074 on Biotech Values

[DewDiligence]

Yesterday’s NY Times has a lengthy editorial-like article espousing a single-payer healthcare system with no middlemen:

http://www.nytimes.com/2006/12/31/business/yourmoney/31view.html

I’d be interested in your take on this. Regards, Dew

[DewDiligence]

Here’s a related op-ed piece from today’s NYT
by Paul Krugman. As a political conservative, I
rarely agree with Krugman (whose op-ed pieces
generally come across as gratuitous Bush-bashing
rather than economics). On the matter of healthcare,
however, I’m inclined to agree with Krugman and
those of his ilk: having multiple layers of middlemen
passing around paper to try to game the system just
doesn’t make sense.

http://select.nytimes.com/2007/01/01/opinion/01krugman.html

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A Healthy New Year

January 1, 2007
By PAUL KRUGMAN

The U.S. health care system is a scandal and a disgrace. But maybe, just maybe, 2007 will be the year we start the move toward universal coverage.

In 2005, almost 47 million Americans — including more than 8 million children — were uninsured, and many more had inadequate insurance.

Apologists for our system try to minimize the significance of these numbers. Many of the uninsured, asserted the 2004 Economic Report of the President, “remain uninsured as a matter of choice.”

And then you wake up. A scathing article in yesterday’s Los Angeles Times described how insurers refuse to cover anyone with even the slightest hint of a pre-existing condition. People have been denied insurance for reasons that range from childhood asthma to a “past bout of jock itch.”

Some say that we can’t afford universal health care, even though every year lack of insurance plunges millions of Americans into severe financial distress and sends thousands to an early grave. But every other advanced country somehow manages to provide all its citizens with essential care. The only reason universal coverage seems hard to achieve here is the spectacular inefficiency of the U.S. health care system.

Americans spend more on health care per person than anyone else — almost twice as much as the French, whose medical care is among the best in the world. Yet we have the highest infant mortality and close to the lowest life expectancy of any wealthy nation. How do we do it?

Part of the answer is that our fragmented system has much higher administrative costs than the straightforward government insurance systems prevalent in the rest of the advanced world. As Anna Bernasek pointed out in yesterday’s New York Times [#msg-15906141], besides the overhead of private insurance companies, “there’s an enormous amount of paperwork required of American doctors and hospitals that simply doesn’t exist in countries like Canada or Britain.”

In addition, insurers often refuse to pay for preventive care, even though such care saves a lot of money in the long run, because those long-run savings won’t necessarily redound to their benefit. And the fragmentation of the American system explains why we lag far behind other nations in the use of electronic medical records, which both reduce costs and save lives by preventing many medical errors.

The truth is that we can afford to cover the uninsured. What we can’t afford is to keep going without a universal health care system.

If it were up to me, we’d have a Medicare-like system for everyone, paid for by a dedicated tax that for most people would be less than they or their employers currently pay in insurance premiums. This would, at a stroke, cover the uninsured, greatly reduce administrative costs and make it much easier to work on preventive care.

Such a system would leave people with the right to choose their own doctors, and with other choices as well: Medicare currently lets people apply their benefits to H.M.O.’s run by private insurance companies, and there’s no reason why similar options shouldn’t be available in a system of Medicare for all. But everyone would be in the system, one way or another.

Can we get there from here? Health care reform is in the air. Democrats in Congress are talking about providing health insurance to all children. John Edwards began his presidential campaign with a call for universal health care.

And there’s real action at the state level. Inspired by the Massachusetts plan to cover all its uninsured residents [#msg-10657784], politicians in other states are talking about adopting similar plans. Senator Ron Wyden of Oregon has introduced a Massachusetts-type plan for the nation as a whole.

But now is the time to warn against plans that try to cover the uninsured without taking on the fundamental sources of our health system’s inefficiency. What’s wrong with both the Massachusetts plan and Senator Wyden’s plan is that they don’t operate like Medicare; instead, they funnel the money through private insurance companies.

Everyone knows why: would-be reformers are trying to avoid too strong a backlash from the insurance industry and other players who profit from our current system’s irrationality.

But look at what happened to Bill Clinton. He rejected a single-payer approach, even though he understood its merits, in favor of a complex plan that was supposed to co-opt private insurance companies by giving them a largely gratuitous role. And the reward for this “pragmatism” was that insurance companies went all-out against his plan anyway, with the notorious “Harry and Louise” ads that, yes, mocked the plan’s complexity.

Now we have another chance for fundamental health care reform. Let’s not blow that chance with a pre-emptive surrender to the special interests.
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[DewDiligence]

Medicaid Proposal Is Bitter Pill for Pharmacies

http://online.wsj.com/article/SB117504296706551164.html

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By AMY MERRICK and JANE ZHANG
March 28, 2007

John Mitchener, owner of Mitchener's Pharmacy in Edenton, N.C., is worried a new Medicaid reimbursement rule will force him to drop some of the customers who need him most -- a couple of truck drivers with diabetes, several people who can't read and a woman who always comes in near closing to avoid crowds because her multiple sclerosis has made her unsteady on her feet.

"These are real, live human beings," he says, referring to the 30% of his patients who get Medicaid. "I do not want to be put in the position where I have to say that I cannot fill your prescription anymore because the government pays so little."

Drugstores are fighting a proposal in the latest White House budget to slash reimbursements for generic drugs under the federal-state health program for the poor and disabled -- which they say would affect their ability to go on filling those prescriptions and ultimately force many small pharmacies to close their doors, hurting the neediest customers.

The government's proposal, mandated by the 2005 Deficit Reduction Act, is aimed at saving the joint federal-state Medicaid program $8.4 billion over five years. The savings would come mainly through changing how the government calculates reimbursement to pharmacies, including around 18,000 small pharmacies with $6.5 million or less in annual revenue. The federal Centers for Medicare and Medicaid Services, which administers Medicaid and put forth the proposal in December, is required by law to finalize the new rule on Medicaid reimbursements by July 1.

The plan already has sparked a firestorm in Washington. The agency has received more than 1,000 responses to the proposal. Many of them are objections from unusual allies: pharmacies, makers of generic drugs and pharmacy-benefit managers, whose interests often are at odds. Congress has jumped into the fray. Pharmacists question why they're being asked to bear those cuts -- which make up more than 90% of the proposed Medicaid cuts over the five-year period -- when pharmacy expenses are only 3% of the total Medicaid budget.

…The controversy over the new rule centers on the definition of an "average manufacturer price" used to calculate the reimbursements pharmacies receive for generic drugs. Under the new proposal, for the first time the reimbursement formula would include an average manufacturer price that takes into account mail-order prices and rebates to the big pharmacy-benefit managers, or PBMs, that administer drug benefits for large employers and health plans.

But retail and independent pharmacies, where most Medicaid beneficiaries buy their drugs, don't get those rebates and discounts.

Etc.
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[DewDiligence]

Paid to Control Drug Costs, Yet Pushing Some Prices Higher

[The business model of pharmacy-benefit managers, a.k.a. PBM’s, has a seamy side. Please see #msg-3765930, #msg-15882551, and #msg-28461053 for related stories.]

http://www.nytimes.com/2008/04/19/business/19specialty.html

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By Milt Freudenheim
April 19, 2008

Doctors treating children with a rare and severe form of epilepsy were stunned by the news. A crucial drug, HP Acthar Gel, that had been selling for $1,600 a vial would now cost $23,000.

The price increase, put in place over last Labor Day weekend, also jolted employers that provide health benefits to their workers and bear the brunt of drug costs.

As it turned out, the exclusive distributor of HP Acthar Gel is Express Scripts, a company whose core business is supposed to be helping employers manage their drug insurance programs and get medicines at the best available prices.

But in recent years, drug benefit managers like Express Scripts have built lucrative side businesses seemingly at odds with that best-price mission. A growing portion of their revenue comes from acting as exclusive or semi-exclusive distributors of expensive specialty drugs that can cost thousands of dollars. And the prices of such medicines are rising much faster than for the mainstream prescription drugs available through a wide variety of distributors.

Critics say that distributing specialty drugs with ever-higher prices runs counter to the best interests of the employers that hire companies like Express Scripts.

“We are headed right down into conflict alley with these exclusive arrangements,” said Gerry Purcell, an Atlanta-based health benefits consultant to big employers. As exclusive or semi-exclusive distributors of specialty drugs, the benefit managers “can raise the prices at will,” Mr. Purcell said, “and the employer will have little chance but to pay the bill.”

Express Scripts’ main competitors, CVS-Caremark and Medco Health Solutions, have also built lucrative side businesses in specialty drugs. So have some of the biggest insurers that provide medical benefits to corporate America, including UnitedHealth Group, Wellpoint, Aetna and Cigna.

When asked about the potential conflicts, Express Scripts and the other companies — which are known as pharmacy benefit managers — tend to describe themselves as mere middlemen with little influence over what the drugs’ makers choose to charge.

Dr. Steve Miller, an Express Scripts executive vice president, said of the HP Acthar Gel episode: “The increase was a manufacturing decision. I can’t comment on that.”

The pharmacy benefit managers say that keeping a lid on employers’ drug costs is still their top priority. And they defend their involvement with specialty drugs, saying it helps them keep better track of the medicines’ use.

“I don’t believe it is a conflict,” said Dave Rickard, an executive vice president of CVS-Caremark. “We saved clients $115 million last year that would have been spent on specialty drugs that were not appropriate.”

Meanwhile, though, CVS-Caremark sold nearly $6 billion in specialty drugs last year through its pharmacy benefit management business — nearly 14 percent of the company’s annual revenue.

The main drug benefit managers make as much as 10 to 15 percent on each sale of a specialty drug, whose prices can range from $5,000 a year for certain anemia drugs to $389,000 in the case of Soliris, a drug for a rare blood disorder, whose distributors include Express Scripts’ specialty drug unit, CuraScript.

Spending on specialty drugs rose 16.5 percent in 2006, growing twice as fast as traditional drug spending, and totaled about $62 billion — which was about 23 percent of overall drug sales in this country, according to Charles Boorady, a Citigroup health care analyst.

Big employers and organizations including General Motors, Caterpillar and Calpers — the large California public employees health and pension group — say their spending on specialty drugs is growing at double the rate of the rest of their drug benefits for employees.

In some cases, employers are starting to push back. A group of large- and medium-size companies like Kinder Morgan Energy, a Houston pipeline company, and Enodis, an international restaurant equipment maker with United States headquarters in Florida, recently pushed CVS-Caremark to agree to hand back $15 to the employers on each prescription for all specialty drugs listed in a Caremark contract.

The giveback is meant to let the employers share a portion of the rebates that the pharmacy benefit managers often collect from drug makers in addition to keeping a portion of sales. But the giveback is relatively minuscule, acknowledged David Dross, a drug benefits specialist at the Mercer benefits consulting group who helped organize the employer effort.

With specialty drugs, the pharmacy benefit managers are “getting a lot more than the $15 in rebates,” Mr. Dross said.

Susan A. Hayes, a drug benefits consultant based in Lake Zurich, Ill., said she had seen rebate contract terms that give the pharmacy benefit managers rebates of 3 percent to 10 percent of the selling price.

Specialty drugs are aimed at diseases that include cancer, multiple sclerosis and hepatitis C. Some, for rarer disorders, may have federal “orphan drug” status that gives a manufacturer exclusive marketing rights for a certain period. Specialty drugs also include medications whose distribution is tightly regulated as federally controlled substances, like the narcolepsy treatment Xyrem, which is distributed through Express Scripts.

Makers of specialty drugs can command lofty prices mainly because patients have few alternatives, and there is typically little or no competition — whether because the medicine still has patent protection or the drug is difficult to make. Or it may be, as with HP Acthar Gel, that the patent has long since lapsed but there is a relatively small number of patients.

With specialty drugs representing about 60 percent of the new medicines submitted for approval by federal regulators, their overall cost will probably keep pushing up drug expenses well into the future.

Express Scripts is smaller than Medco and CVS-Caremark, but it gets a bigger share of its revenue from specialty medicines — 19.8 percent of its 2007 revenue of $18.3 billion.

That compared with about 13 percent of Medco’s $44.5 billion total revenue last year. And it compared with about 13.9 percent of CVS-Caremark’s total of $43.3 billion, not counting $2 billion sales of specialty prescriptions filled at CVS retail drugstores.

Express Scripts also has a larger number of exclusive distribution deals, with sole rights to 7 specialty drugs, including 7 with orphan drug designation, as well as 11 more that are available through only one or two other national distributors.

Medco’s specialty unit, Accredo Health, lists 4 orphan drug exclusives and 21 more drugs it shares with one or two other distributors. CVS Caremark said it had one exclusive and 35 drugs available from a limited group of specialty pharmacies.

In the case of HP Acthar Gel, an injectable anti-seizure medication derived from hog hormones, the 14-fold price increase came after the maker, Questcor Pharmaceuticals, gave exclusive distribution rights to Express Scripts’ CuraScript unit last summer.

“This sort of puts the spotlight on the greed angle of the business,” said Dr. Robert R. Clancy, a pediatric neurologist at Children’s Hospital of Philadelphia. He has been using HP Acthar Gel to treat a severely ill 3-year-old girl, Reegan Schwartz. Employer health plans bear most of the drug’s steep cost, with individuals in many cases making only a standard co-payment. In the case of the two courses of Acthar treatments for Reegan, the cost to her father’s health plan was about $226,000. Her father, Mike Schwartz, who works for a large pharmaceutical company, Merck, that has no ties to Acthar or its manufacturer, said he ended up paying only $60 out of pocket for the Acthar therapy.

Steve Cartt, a Questcor executive vice president, said the new price was chosen by looking at the prices of other specialty drugs and estimating how much insurers and employers would be willing to bear.

“We did some market research,” Mr. Cartt said. Talking to pediatric neurologists and others about various pricing options “gave us some comfort that the strategy would work, and physicians would continue to use the drug, and payers would pay,” he said. “The reality was better than we expected.”
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