Category: Health Alerts

Should Politicians Fix the Price of Sovaldi?

A version of this Health Alert appeared at Forbes.

Gilead (NASDAQ: GILD) has become the whipping boy du jour for the forthcoming Obamacare-driven cost explosion in government and private health spending. Apparently, everything was going swimmingly until Gilead — right out the blue! — dropped a cure for Hepatitis C on the market and threw everyone’s spending projections into a tizzy.

Politicians and the health insurance industry have embarked on a high-profile campaign to shame Gilead for the price of its new wonder-drug, Sovaldi, which can add up to $84,000 for a course of treatment. If successful, this campaign will have terrible long-term consequences for medical innovation.

Thursday’s earnings report by Gilead confirms that Sovaldi is blowing the doors off. About 70,000 patients have already received treatment in the U.S., and a further 10,000 in Europe. Worldwide, sales for the first half have amounted to $5.75 billion, almost half the company’s revenue. That revenue comes from health insurers and governments, so it is not surprising that they are scrutinizing the issue.

Senators Wyden and Grassley have requested documents from Gilead respecting its acquisition of Pharmasset, the company which originally developed the medicine that was to become Sovaldi. This is a fishing expedition that purports to have the objective of determining exactly how much Pharmasset and Gilead spent on researching and developing Sovaldi. However, this question cannot be answered. Further, it is irrelevant to the value Sovaldi delivers.

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.

Should Doctors and Dentists Regulate Their Competitors?

An article in Modern Healthcare, “Should state medical boards be allowed to set scope-of-practice? Supreme Court will decide,” poses an important question that would seem like a no-brainer at first glance. Yet, the question deserves a second look. State medical boards are typically composed of members from the industry the board regulates. Thus, it’s common for these boards to take positions in the industry’s self-interest. At issue is an effort by the North Carolina Board of Dental Examiners to prohibit dental hygienists from performing teeth whitening services in mall kiosks, day spas and non-dental offices. Dentists who offer teeth whitening in their offices often supervise dental technicians and hygienists, who perform the actual service. Allowing those same dental technicians and hygienists to perform the work without the supervision of a dentist undercuts dentists’ prices and reduces their profits. According to Modern Healthcare:

The removal of stains from teeth can be a lucrative business for dentists. Starting in 2003, the dental board sent out numerous cease-and-desist orders to competitors who were accused of illegally practicing dentistry. The Federal Trade Commission (FTC) sought to encourage price competition for peroxide treatments by forbidding the state dental board in 2011 from taking action against lower-cost providers that offer teeth-whitening services. A federal appeals court upheld the FTC decision in 2013.

Health Spending and First Quarter GDP: What Happened?

A couple of months ago, I noted that the only thing growing in the stagnant economy in the first quarter was health spending. Further, another source suggested that most of that spending was from Medicaid, a welfare program. Such “growth” is not really good for the economy.

The final estimate of real first quarter Gross Domestic Product (GDP) has thrown everyone for a loop, reporting an annualized decline of 2.9 percent. It was a huge revision: The previous estimate was that first quarter GDP had declined by only one percent.

The huge error in the earlier figure was almost entirely driven by a poor estimate of the effect of ObamaCare by the Bureau of Economic Analysis (BEA):

The downward revision to consumer spending was mostly to services, especially to health care services. The revision to health care services reflected the incorporation of newly available Census Bureau quarterly services survey (QSS) data for the first quarter. The QSS data reflect the revenues of for-profit and nonprofit hospitals, physician offices, nursing homes, and other health care providers and the expenses of nonprofit hospitals and other nonprofit health care providers. Prior to receiving the Census QSS data, BEA used information on Medicaid benefits and on Affordable Care Act insurance exchange enrollments to prepare the previously published estimates of health services.

The State of Medicaid Quality Measurement

Thanks to ObamaCare, the state of quality measurement in health care is rapidly approaching the state of quality measurement in public education. Process measures dominate. Many of these measures are worthless. They measure nothing that has anything to do with providing actual medical care that successfully cures or alleviates the suffering of sick people in a timely manner.

The following list gives the items chosen to measure the general performance of the Indiana Medicaid program for 2012 with an emphasis on access to care. The good news is that Indiana contracts for an independent outside evaluation of its program. The bad news is that 13 of the 16 measures depend upon whether or not a patient decides to visit the doctor.

In those 13 measures, quality is assumed to be higher if a higher fraction of covered individuals have at least one health care visit. The report continually equates visits with access as in “there were fewer differences in the rate of access to primary care for adults across the regions than was found for children” and “the adults in the 45-64 age range were more likely to access primary care services than the 20-44 range.”

The bulk of the measures show whether an otherwise healthy person came in for a check-up. One of the measures, nutrition and physical activity counseling for children and adolescents, which is satisfied by entering BMI data in a patient record, likely duplicates school programs. Others, like measuring the quality of mental health care by whether or not someone hospitalized with a psychiatric diagnosis shows up for an appointment 7 or 30 days later, are beyond the control of anyone but the patient.

Are There Elements of Consumer Direction in the Proposed Indiana Medicaid Expansion Plan?

Supporters of Indiana’s proposed Medicaid expansion say that Healthy Indiana Plan 2.0  (HIP 2.0) is “an alternative to traditional Medicaid” that promotes “consumerism by requiring members to make contributions” to their individual health accounts. They say that it is modeled after the much smaller Healthy Indiana Plan (HIP) and that HIP is a consumer-directed model that has “demonstrated remarkable success in promoting healthy lifestyles and appropriate utilization of health care services by increasing preventive care and decreasing inappropriate use of hospital emergency departments.”

These claims greatly overstate the case.

HIP has little in common with consumer-directed health care models. The people in it are not allowed to shop for care. They are required to use the services of a single managed care provider. Their individual POWER (Personal Wellness and Responsibility)accounts are prefunded with $1,100 in government money. They must make low monthly premium payments to their accounts, but because the size of the payment is means tested, they have relatively little of their own money at risk, and premium payments were waived for about 23 percent of enrollees in 2012. Aside from monthly premiums, the only out-of-pocket cost current HIP members face is a copay for unnecessary emergency room visits. It ranges from $3.00 to $25.00.

Most HIP emergency room users don’t even pay that. According to the HIP annual report for 2012, of the people who used the emergency room in the past six months, only 28 percent of them, an “extremely small” number, were asked to make a copay. Hospitals may not have bothered to collect it due to the “administrative burden of collecting small co-payments” and “the difficulties inherent in refunding copayments after ER visits were determined to be true emergencies.”

ObamaCare’s Mandates Are Harming Small Business

The Affordable Care Act’s employer mandate — intended to make employers provide employee health coverage — is having especially large effects on small businesses. Whereas large corporations typically self-insure — paying their employees’ medical bills and hiring insurers to administer health benefits — small businesses purchase group health coverage from insurers. Thus small firms face cost-increasing regulations as they go through the annual ritual of renewing their coverage. As the ACA is fully implemented over the next few years, ObamaCare will negatively affect how businesses operate — including hiring, employee compensation, growth and so forth.  If the early signs are representative of what the future holds, they are not encouraging.

The Mandate on Employers. Though most of the media attention has focused on the number of individuals who have lost health coverage and the rocky start of the federal and state health exchanges, much of the burden of complying with the ACA will actually fall on employers. About six-in-ten Americans with private health coverage get it through an employer. The cost is not trivial: The Congressional Budget Office estimates that the required coverage for an individual will cost the equivalent of an additional $3 an hour “minimum health wage.” Family coverage could cost more than twice that amount.

Employers are also required to limit the amount of premiums most employees pay to a percentage of their wage income. For example, health plans are considered “unaffordable” if workers earning less than 400 percent of the federal poverty level (about $46,680 for an individual) must pay a premium that is more than 9.5 percent of their income. Firms that fail to provide health insurance will be subject to a tax penalty of $2,000 for each uninsured employee beyond the first 30.  Firms that offer “unaffordable” coverage will pay a penalty of $3,000 for each worker who cannot afford coverage.

At a Pharmacy Near You: The Specialty Drug Turf War

Drug therapy is the most efficient method to treat most illnesses — often substituting for hospital treatments and even surgery. The pace of scientific advancement in pharmacology is rapid. So-called specialty drugs are displacing traditional drugs as the primary component of drug spending. Only about 10 such drugs were available 20 years ago, but today there are more than 300. Cancer treatments are the most common type of specialty drugs, making up one-third of  the total. Drugs for autoimmune disorders, rheumatoid arthritis and Crohn’s disease, medications for HIV and drugs for multiple sclerosis are responsible for another third of specialty drug spending.

Specialty drugs are expensive. Although comprising only about 1 percent of drugs prescribed, specialty drugs account for more than one-quarter of prescription drug spending — increasing to 50 percent by 2020. These therapies cost anywhere from $15,000 per year to as much as $750,000 per year. Most have no close substitutes, rendering health plans’ traditional efforts to control costs by encouraging generic substitution largely ineffective.

Due to the vast amounts of money involved, a diverse assortment of new and old competitors are jockeying for position and vying to enter the field of specialty pharmacy. These market participants include not just traditional large retail chain drug stores, but also infusion providers (clinics specializing in intravenous therapies), hub vendors (specialized middlemen), therapy-based service providers (clinics specializing in specific diseases), group purchasing organizations and so forth. Small, independent community pharmacies are also teaming up and organizing their own networks in order to break into the market for specialty drugs.

What Would Have Happened to ObamaCare If More States Had Set Up Their Own Exchanges?

Politico‘s Kyle Cheney and Jennifer Haberkorn have made the case that Republican non-collaboration with ObamaCare has brought a completely federally controlled healthcare system closer to reality:

Right now, 36 states rely on, the federal exchange, to enroll people in health coverage. At least two more states are opting in next year, with a few others likely to follow. Only two states are trying to get out.

That’s precisely the opposite of the Affordable Care Act’s original intent: 50 exchanges run by 50 states.

The federal option was supposed to be a limited and temporary fallback. But a shift to a bigger, more permanent Washington-controlled system is instead underway — without preparation, funding or even public discussion about what a national exchange covering millions of Americans means for the future of U.S. healthcare. It’s coming about because intransigent Republicans shunned state exchanges, and ambitious Democrats bungled them.

This is a complete misreading of the implications of the unexpected fiasco of the exchange rollout. It is also similar to an argument that was respectable in limited-government circles back in 2010.

Population Health

I’ve been wanting to write about “Population Health” for some time now. It is a huge new trend that has risen under the radar of almost the entire population. Nearly every medical school now has a Department of Population Health or a Center for Population Health. Thomas Jefferson University has an entire school devoted to the subject — The Jefferson School of Population Health, founded in 2008.

The concept is kind of creepy, but it is getting even creepier. The Institute for Healthcare Improvement (IHI), Don Berwick’s old outfit, recently announced a conference on “Population Management” to be held September 28 to October 1 this year. Enrollment will cost $4,950 per person, so you know it’s a very big deal.

One of the reasons it is hard to write about this is there is no settled definition of what it is. A paper written in 2003 by David Kindig and Greg Stoddard in the American Journal of Public Health took a stab at it. They write –

Although the term “population health” has been much more commonly used in Canada than in the United States, a precise definition has not been agreed upon even in Canada, where the concept it denotes has gained some prominence.