How to Pay for the Next Sovaldi


prescription-bottleImagine a pill that could cure cancer with one course of therapy or reverse an inherited, deadly disease. If it cost $1 million, could you access it?

This was the question asked at a recent panel discussion held by the American Enterprise Institute. The panel discussed a couple of new proposals to finance new medicines that come at a high price. Because these medicines address the needs of only a small number of patients, manufacturers contend that prices need to be high to make the investment worthwhile.

Hits and Misses


Jcigarettes-2ury awards $23.6 billion in Florida smoking case.

India to pay whistleblowers for info on counterfeit drugs.

Self-measurement of blood pressure at home is cost effective.

Seniors: A host of digital health tools can save you money, and your life.

Stroke rates declining for seniors — cholesterol, blood pressure meds credited.

Who Patents Genes? The U.S. National Institutes of Health Has More than Twice as Many Patent Applications as the Runner-Up


Gene patents are one of the most controversial areas of intellectual property. “How can they patent genes?” people ask. “It’s like patenting blue eyes.” Even those not deep into the issue have likely heard of the cloud of litigation surrounding Myriad Genetics, a Salt Lake City company that sells a test for diagnosing breast cancer based on a woman’s genetic make-up. (Myriad Genetics has an informative backgrounder explaining what can and what cannot be patented.) The U.S. Supreme Court struck down one Myriad Genetics’ patent-protection in June 2013.

So, I was somewhat surprised to see a new report by the global law firm, Marks Clerk, which reported that the leading patent-filer for sequencing technology, personalized medicine and synthetic biology in the decade to 2013 was not a corporation, but the U.S. National Institutes of Health, with 360 applications of the total 1,752. Indeed, government research facilities, both in the U.S. and other countries, accounted for 617 applications — over one third of the total (and this does not include public universities, like the University of California.)

The Good, the Bad and the Ugly Truth about Specialty Drugs


Recently, my colleague Linda Gorman wrote about Sovaldi, a new treatment for Hepatitis C that actually cures about 90 percent of patients taking it within three months. A regimen of this drug costs $1,000 per pill — or about $84,000 for a course of treatment. Despite its high cost, drug maker Gilead Sciences argues the lifetime costs of treating patients with Sovaldi are lower than older, less effective drugs that merely suppress Hepatitis C, as though it were a chronic condition. The ability to actually cure the disease is a huge bonus, which definitely bolsters Gilead Sciences’ argument. When deciding how to price Sovaldi, Gilead Sciences undoubtedly took the efficacy and cost of competing drug therapies into account. For example, a liver transplant can cost $600,000.

But what if Sovaldi merely held the disease Hepatitis C at bay, and only as long as it was taken regularly? What if Sovaldi had to be taken 6 days a week — year in and year out — at a cost of more than $300,000 per year? That is the type of question Joe Nocera tackles in a recent New York Times article.

Writing in the Times, Nocera actually discusses another wonder drug, Kalydeco, developed by Vertex Pharmaceuticals. Kalydeco targets a specific subset of people with the genetic lung disease cystic fibrosis. For this small subset of patients, the drug works wonders. According to the New York Times:

…it is the first drug that attacks not just the symptoms but the underlying cause of cystic fibrosis, a genetic lung disease that usually kills victims by the time they reach their 40s. It doesn’t work for every sufferer of the disease, but rather for a small subset — probably around 2,000 people — who have a specific genetic mutation that the drug targets. But for those it helps, it is life changing.

The CON of Certificate of Need Laws


I once heard Dr. Roy Cordato of the John Locke Foundation in North Carolina describe an unusual metaphor. Imagine that you wanted to open an Italian restaurant. In the town where you want to open it, you need to apply to the municipal authorities for a Certificate of Need. That is, before you put any of your capital or reputation into actually opening and operating the restaurant, you have to prove to bureaucrats and politicians that the town “needs” it. So, even though no taxpayers’ dollars are invested in your business, you are not allowed to take this risk before writing applications and participating in hearings to prove the unprovable: That potential customers “need” your Italian restaurant.

Who else is monitoring your application and participating in hearings? Owners of Italian restaurants that already exist. They have reams of data that prove that they fully satisfy the demand for Italian cuisine in the town. You have none. They have effective veto power over the entry of new competitors. You do not need a PhD in economics to predict that such a town would have a shortage of Italian restaurants with very high prices.

Yet, this unacceptable situation exists for hospitals or other healthcare facilities in 36 states and the District of Columbia. Thomas Stratmann and Jake Russ of the Mercatus Center have used a newly compiled database of these laws to examine their consequences. Their key findings are:

Federal Courts Zig and Zag on Obamacare Tax Credits


index1Obamacare opponents’ hearts rose this morning, as a three-judge panel of the DC Circuit Court of Appeals struck down the power of federal Obamacare exchanges to pay out tax credits to health insurers who sign up beneficiaries for subsidized Obamacare coverage. Because most states declined to set up their own Obamacare health insurance exchanges, subsidies to insurers would have come to a screaming halt in most of the country. Opponents have long hoped that such a decision would force the Administration back to the negotiating table with Congress.

However, merely a couple of hours later, the 4th Circuit Court of Appeals in Richmond, VA upheld the Administration’s position: That federal exchanges have the same powers as state exchanges to pay out subsidies to health insurers. The Administration plans to appeal the DC panel’s decision to the entire DC Circuit, en banc (i.e. all eleven judges).

Cost to Treat Cancer Drops 34 Percent When Physicians Package Price


An experiment by UnitedHealth Group tested bundled payments for cancer care. Another name for bundled payments that you might recognize is package pricing — where a vendor offers to group all costs together and lower the total price in an attempt to win a consumer’s patronage. Although common in every other industry where consumers buy services, package prices are quite rare in health care (except cosmetic surgery). Ordinarily, oncology doctors are given a fixed percentage markup on the cancer drugs they administer in their offices. For instance, a doctor administering an expensive drug would earn a proportionately larger fee than a doctor using a cheaper generic. UnitedHealth Group wondered if this perverse incentive translated into doctors using higher-priced medications rather than a cheaper drug that might be more effective.

The study found that over a 3-year period doctors who received bundled payments spent about one-third less treating cancer patients than if they had been paid a percentage of every oncology drug they used. Authors noted that while actual drug spending rose, total treatment costs were lower than expected. In other words, doctors weren’t skimping on drugs; they were choosing the most effective drug regardless of their commission.

This result should not be unexpected. What would be considered common sense or conventional wisdom in any other industry is considered novel in health care. The bottom line: incentives matter!

Is Medicaid Crowd-Out the Only Effect of Obamacare?


Medicaid “crowd-out” is the hypothesis that enrolling more people in Medicaid will cause some people to drop private coverage in favor of Medicaid. Historical analyses of this effect come to a wide range of estimates, as Linda Gorman discussed in a recent blog entry.

Now courtesy of the Robert Wood Johnson Foundation (RWJF), we have evidence that the entire effect of Obamacare so far is to crowd out private coverage. The RWJF report further confuses the consequences of Obamacare on coverage and access to care. This is not the RWJF’s fault: The emerging evidence on Obamacare is a jumble of contradictions. In this instance, the report insists that physicians saw no increase in patient demand after Obamacare, as demonstrated in Figure 2. More sophisticated metrics showed that the complexity of patients’ needs also did not increase after Obamacare.


Switching Cholesterol Drugs to Over-the-Counter Could Prevent 250,000 Coronary Events


Lipid-lowering statins have been life-savers for many years now. They are so well understood that many now believe that they should be sold over-the-counter (OTC), that is, without a physician’s prescription. The proposal is certainly controversial. After all, how do you know you have high cholesterol without a physician telling you? It’s not like you are coughing or sneezing and just trot off to the pharmacy to get some cough suppressant or antihistamine or whatever you need.

Nevertheless, many medicines we consume OTC — even children’s Advil — were once available by prescription only. There is no doubt that when a medicine switches from prescription to OTC that more people will take it. New research by Christopher Stomberg and colleagues suggests that switching statins to OTC would reduce the number of coronary events by a quarter million annually. Manufacturers would like to switch their statins, but the FDA is not allowing it.

Let me open a bag of worms…

Three Conservative Ideas Buried within Obamacare


Caduceus with First-aid KitThe Affordable Care Act is the worst piece of legislation ever passed into law in the United States. However, it does open up some doors that were firmly locked before — things that most free-market economists have been espousing for years without success. We should not run away from those things just because they have President Obama’s name on it.

I am not talking about the things the idiot media think are popular — the slacker mandate, open enrollment, equal premiums for men and women, and free “preventative” services.

However, I see three conservative ideas buried in Obamacare. Read about all three in my column in The Federalist.