Category: Health Alerts

Regulating Mobile Health Apps under a 38-Year-Old Law: It’s Time for Congress to Act

A similar version of this Health Alert appeared at Forbes.

1976: The United States celebrated the bicentennial of our independence; Jimmy Carter was elected president; young men wore bell bottoms and middle-aged ones wore leisure suits; advertising encouraged women to smoke Kool cigarettes. And the Food and Drug Administration (FDA) first regulated medical devices.

Although we fantasized about having Captain Kirk’s communicator or Dr. McCoy’s tricorder, nobody would have known what to do with an actual smartphone or tablet, had they existed in those days. Today, increasing numbers of us use them to keep track of medical information, to remind us to take our meds or do countless other tasks important to our health. In 2013, the Apple app store had 97,000 mobile health apps, and over 60 percent of physicians were using tablets.

And yet, the FDA is still regulating these 21st century technologies under legislation passed when Wings’ Silly Love Songs topped the pop music charts. It’s past time for Congress to amend the Food, Drug and Cosmetic Act to clarify the FDA’s regulatory authority over these new tools for our health.

According to the 1976 amendments, a medical device is an “instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory…” [21 U.S.C. 321(h)]. That does not really give the FDA much direction with respect to apps, smartphones and tablets, does it?

Left to its own devices (excuse the pun), the FDA has actually done a very effective job of letting the industry and patients know how it intends to regulate these new technologies. Dr. Jeffrey Shuren, Director of the Center for Devices and Radiological Health, and Bakul Patel, who is responsible for writing the FDA’s final guidance, promised a light regulatory touch. The final guidance was published in September 2013, at which time the FDA noted, “The agency has cleared about 100 mobile medical applications over the past decade; about 40 of those were cleared in the past two years.”

Bye, Bye “Bailout”: CROmnibus Takes a Small but Important Bite out of Obamacare

The CROmnibus, with which the lame-duck Congress keeps the government open in 2015, takes small but important steps to repeal Obamacare. For the short term, the most important anti-Obamacare achievement is eliminating taxpayers’ liability for Obamacare’s risk corridors, often described as a “bailout,” to health insurers participating in Obamacare’s exchanges.


In June, I testified before the House Oversight and Investigations Committee about this insurance “bailout.” In that testimony, I advised Congress to define a limited liability to the program. So, budget neutrality is a better result for taxpayers than I had expected. Also, the CROmnibus prevents any other funds controlled by the Centers for Medicare and Medicaid Services from being used to fund risk-corridor payouts. This is a significant win for taxpayers.

A year ago, I described how Obamacare’s risk corridors created an unlimited liability for taxpayers to compensate health insurers who lose money in Obamacare’s exchanges. Although risk corridors take money from unexpectedly profitable insurers and hand it over to insurers with unexpected losses, the program does not necessarily balance. That is, if there are more insurers that lose money than make money, the risk corridors look to taxpayers to make up the difference.

How Can Digital Health Startups Work with Health Insurers and Big Pharma?

A similar version of this Health Alert appeared at Forbes.

A Health Alert published in October noted that risk capital is fleeing or stagnant in most of health care. The exception is digital health. StartUp Health, a New York investor in new healthcare ventures, reported that $5 billion was raised for new digital health businesses through the third quarter, versus $2.8 billion in all of 2013. 2014 Q3 alone saw $1.7 billion raised, versus $946 million in 2013 Q3.

A Health Alert published in October noted that risk capital is fleeing or stagnant in most of health care. The exception is digital health. StartUp Health, a New York investor in new healthcare ventures, reported that $5 billion was raised for new digital health businesses through the third quarter, versus $2.8 billion in all of 2013. 2014 Q3 alone saw $1.7 billion raised, versus $946 million in 2013 Q3.

Where is all this capital coming from? Since 2010, the three largest investors in digital health are Merck’s Global Health Innovation Fund, Blue Cross Blue Shield Venture Partners (founded by the Blue Cross Blue Shield Association) and Qualcomm Ventures.

It is remarkable to see the venture arms of a leading research-based drug company, the largest association of health insurers, and the company that invented mobile technology all dominate this space.

For a digital-health entrepreneur seeking investment, this poses an interesting choice. Assuming you do have a compelling story, what are the advantages and disadvantages of dealing with one or another of these types of investors, especially the first two? This was the topic of a panel discussion at this week’s mHealth Summit, which included Wendy Mayer, VP of Worldwide innovation at Pfizer; and Jess Jacobs, Director of Innovation at Aetna.

With respect to the research-based pharmaceutical industry’s approach to investing in digital technology, Merck and Pfizer are pretty much at opposite ends of the spectrum. Merck has its own venture-capital fund, which effectively treats the parent company as a limited partner. It invests with other venture capitalists, and looks at the value of deals notwithstanding the parent company’s business strategy.

National Health Spending Slowdown Underwhelms; Obamacare Hurting Middle Class

Last week, the media got more than usually excited about the latest National Health Expenditures (NHE) produced by actuaries at the Centers for Medicare and Medicaid Services (CMS). Modern Healthcare reported that “healthcare spending growth hit 53-year low in 2013,” noting that last year’s 3.6 percent growth was the lowest since 1960.

While it is literally true that last year’s increase was the lowest since 1960, growth in 2009 was only 3.8 percent, after 4.8 percent in 2008. You do not need a PhD in economics to conclude that the recession was likely the largest factor. It is hard to detect much more than noise in the annual changes since the recession hit. This is corroborated by the fact that 17.4 percent of Gross Domestic Product is accounted by health care ― exactly the same percentage as in 2009 and every year since.

Nevertheless, CMS’ actuaries allege that Obamacare’s provisions kept a lid on costs, citing:

  • productivity adjustments for Medicare fee-for-service payments;
  • reduced Medicare Advantage base payment rates;
  • increased Medicaid prescription drug rebates; and
  • the medical loss ratio requirement for private insurers.

Yes, Medicare spending dropped from 4.0 percent in 2012 to 3.4 percent in 2013. However, Medicare’s enrollment growth also slowed, and the Republican-driven sequestration also held back spending. Medicare spending per enrollee actually rose at the same rate as in 2012. It is hard to see Obamacare’s technocratic cost savings in these figures.

Drug Research and Its Discontents: Does It Really Cost $2.6 Billion to Research a New Medicine?

A similar version of this Health Alert appeared at Forbes.

My last Health Alert discussed the high cost of researching and developing a new pharmaceutical compound. I noted that the latest estimate, by the Tufts Center for the Study of Drug Development, is “controversial” and promised to address the controversy.

The Tufts group now estimates that it costs $2.6 billion to research and develop a new medicine, 2.5 times more than the previous estimate, which was published in 2003. The 2003 estimate provoked criticism, against which the Tufts group defended itself without qualification.

The Tufts group has not substantively changed its method. So, we can expect the same criticisms to be raised against the $2.6 billion figure. Aaron E. Carroll has most recently challenged the estimate at the New York TimesUpshot blog.

There have been five criticisms of the Tufts group’s estimate: Lack of peer review, use of proprietary data, excluding the value of R&D tax benefits, including the cost of capital as a real cost and the fact that the research-based pharmaceutical industry funds the Tufts group.

The new estimate has not yet been published in a peer-reviewed journal, although the 2003 estimate was published in the Journal of Health Economics. There is no reason to believe that the Tufts group has dropped its standards in 2014; and it can still use the new data for an academic article. However, peer-reviewed journals can take a long time to publish an article.

The 2003 article was received by the Journal of Health Economics over a year before publication. Researchers often release working papers before publication by journals. For example, working papers released by the National Bureau of Economic Research (NBER) frequently have great impact in policy debates, while the associated journal articles are published years later with little impact (except for academic housekeeping).

Crisis in Pharma R&D: It Costs $2.6 Billion to Develop a New Medicine; 2.5 Times More Than in 2003

A similar version of this Health Alert appeared at Forbes.

The rate of growth of health spending remains moderate. But one area where prices appear to be increasing faster than they have in the past few years is brand-name prescription drugs. By 2012, blockbusters had lost their patents, and many looked forward to a future where we could all get a month-long supply of generic drugs for $4. Well, it did not quite work out that way.

Specialized drugs for smaller patient populations were introduced with high nominal prices. In September, EvaluatePharma confirmed that the increasing cost of prescription drugs was concentrated in more specialized drugs. Of the 100 top-selling drugs in the United States:

  • The median revenue per patient of the top 100 drugs has increased from $1,260 in 2010 to $9,400 in 2014, representing a seven-fold increase;
  • The median patient population size served by a top 100 drug in 2014 is 146,000, down from 690,000 in 2010; and
  • There are now seven treatments priced in excess of $100,000 per patient per year in 2014, versus four in 2010.

Given these facts, it may be understandable that the health insurance industry is campaigning against the high prices of specialty drugs. For its part, the brand name pharmaceutical industry emphasizes that health insurers (especially in Obamacare exchanges) often put these specialty drugs on the most expensive tier of their formularies. This requires patients to pay high out-of-pocket costs. While this is an accurate description of the situation, a government policy simply forcing insurers to cover a higher share of the price of a specialty drug does not reduce the price. It just moves it from patients’ direct payments to their premiums.

How the U.S. Single-Payer System for Seniors’ Health Compares Internationally

The Commonwealth Fund has published another survey of health care across countries. The Commonwealth Fund’s widely reported surveys, while thorough, are frustrating because they invoke abstractions (for example “universal health insurance coverage“) to explain why the U.S. health system underperforms.

The latest survey should be able to get around this problem because it surveys only people aged 65 years and older in 11 developed countries. Because almost all American seniors are on Medicare — a single-payer, government-run program that is mostly funded by taxpayers — we might expect the Commonwealth Fund to find that the U.S performs about as well as other countries.

No such luck. Kaiser Health News featured the survey’s conclusions about the challenges American seniors have, relative to their peers in other countries, in getting access to care:

Americans older than 65 are more likely to have chronic illnesses and to say they struggle to afford health care — despite qualifying for the federal Medicare program — than are seniors in other industrialized countries, according to a study by the Commonwealth Fund published Wednesday in the journal Health Affairs.

The media often manage to pluck criticisms of U.S. health care out of the Commonwealth Fund surveys that are not quite as straightforward in the reports themselves as they appear in the stories about the reports. This case is no exception.

Post-Obamacare Reform: Will Health Insurers Be Redeemed?

A version of this Health Alert appeared at Forbes.

Robert Pear of the New York Times recently described the “symbiotic” relationship between the Obama administration and health insurers. It was not always so:

But since the Affordable Care Act was enacted in 2010, the relationship between the Obama administration and insurers has evolved into a powerful, mutually beneficial partnership that has been a boon to the nation’s largest private health plans and led to a profitable surge in their Medicaid enrollment.

“Insurers and the government have developed a symbiotic relationship, nurtured by tens of billions of dollars that flow from the federal Treasury to insurers each year,” said Michael F. Cannon, director of health policy studies at the libertarian Cato Institute.

The entire article is a depressing read. And it is not just the fact that insurers are profiting from Obamacare. It’s that Obamacare is motivating health insurers to consider other harmful public policies. Most glaringly, health insurers appear to be inches away from endorsing price or profit controls on research-based pharmaceutical firms. (The pharmaceutical industry’s response to this threat is also somewhat short-sighted, but that is another story for another Health Alert.)

This poses quite a challenge for health reform after Obamacare is repealed by the next president in January 2017. Just as Ronald Reagan’s 1981 tax reforms did not drop out of the sky when he took office but had been developed in Congress for years by Jack Kemp and William V. Roth, the newly elected Congress has the opportunity and responsibility to pursue a consensus on post-Obamacare health reform that puts patients’ needs in front of politicians’ delusions, so the next president has something with which to replace Obamacare. 

The “Average” Obamacare Rate Hike May Be Much Lower than Advertised — and That Indicates More Adverse Selection

Now that we are on the third day of open enrollment, it may be time to puncture the balloon of “tame” Obamacare premium hikes. There has been a drumbeat of positive news about premiums in the Obamacare exchanges. Here are some of the higher profile reports:

  • According to PricewaterhouseCoopers (PwC), seven states and DC (which had announced approved rates by November 4) have an average premium (across metal tiers and ages) of about $344, an increase from 2014 of 3.5 percent. By contrast, the average premium increase across all reporting states is 5.6 percent, and the average premium is $381;
  • According to the Robert Wood Johnson (RWJ) Foundation and the Urban Institute, which reviewed 17 states, six states will have average premium reductions across the carriers’ lowest cost silver plans, 10 will have small premium increases (defined as 5 percent or less) and two will have increases greater than 5 percent;
  • According to the Kaiser Family Foundation, which reviewed the lowest-cost bronze plan and the second-lowest-cost silver plans in 15 states, the average premium for a bronze plan will jump up 3.3 percent, and the average silver premium will drop 0.8 percent.

Good news? Well, not really. First, we have no idea what the “average” change in premium will be until after the dust settles on open enrollment next February 15. A simple average of rates announced prospectively does not tell us much until we see which plans Obamacare enrollees actually choose.

“Peak Obamacare”: Will Exchanges End with a Bang or with a Whimper?

A version of this Health Alert appeared at Forbes.

The U.S. Supreme Court has agreed to hear King v. Burwell, an important case about Obamacare’s subsidies (tax credits) to health insurers. Plaintiffs argue that in the 36 states with federal Obamacare exchanges, subsidies cannot be paid legally. If no tax credits can be paid, neither the individual mandate to buy health insurance nor the employer mandate to offer insurance can be enforced.

Few people would voluntarily buy health insurance from an Obamacare exchange if the health insurers on the exchanges did not receive subsidies to enroll people. The premiums would be too high otherwise. Experts expect that the Supreme Court might decide on King v. Burwell in July, in which case Obamacare will end with a bang.

Some observers, like insurance expert Robert Laszeswki, believe that a legal victory would be like shooting the puck into your own team’s net. States which lose subsidies because they do not have their own exchanges would quickly try to establish them. Republican governors would be forced to cave in to Obamacare. Indeed, the risk of starving the federal exchanges of subsidies has led to some interesting fantasizing among Obamacare supporters about how states with operating exchanges, like California, could enroll people from other states, and hang on to subsidies that way.

It is not really politically tolerable for people in 14 states (plus DC) to receive significant subsidies to purchase health insurance while people in 36 states do not. Although there will be a battle of wills between the President and the anti-Obamacare governors over solving the dilemma that the Supremes might bring about, the results of the mid-term election significantly reduce the risk that Republican governors will stampede into state exchanges. Rather, a Supreme Court defeat of federal exchanges would likely force the President to return to Congress to re-open Obamacare.