Category: Health Care Costs

Gilead Pays $125 Million for Priority Review Voucher

Last May, we discussed Priority Review Vouchers, a type of intellectual-property right whereby the inventor of a drug for a rare disease, which is unlikely to be profitable because very few patients suffer from it, earns a marketable voucher that it can sell to another drug-maker that it can cash in at the FDA for a priority review of another new drug.

In the previous case, Knight Pharmaceuticals figured it could sell the voucher for $125 million to $300 million. Well, the market is now proven to function. Gilead Sciences has paid Knight $125 million for the voucher.

Gilead is the firm criticized for the prices it charges for Hepatitis C drugs. It appears to be putting those revenues to good use. The NCPA believes that fundamental reforms to the FDA’s regulatory obstacles to innovation are necessary to speed up innovation and reduce the prices of drugs. Until them, the Priority Review Voucher is a valuable work-around.

Why California Hospitals Can’t Cut Capital Costs

After two major earthquakes, California’s legislature passed SB 1953 in 1994. The law imposed a mandate requiring hospitals at risk of earthquake damage to retrofit or replace their buildings. Many chose replacement. The state provided no capital grants. Twenty years later, the mandate has caused an explosion of capital expenditure dollars that are coming home now. In the San Francisco Bay Area alone, at this date, the capital costs of just 12 projects amounting to almost $10 billion are being committed that will end up being reflected in hospital prices.

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Source: San Francisco Business Times, 10/31/14

Real Health Spending Remains Moderate; Inflation Increasing

For a while now, I’ve been surprised at how optimistic investors are about healthcare companies. Obamacare, the stock market tells us, is good for business. However, data on health spending does not support that story without qualification.

It looks like the discrepancy is between real versus nominal data. A survey reported in nominal dollars indicated a big hospital spending boom. On the other hand, the Gross Domestic Product (GDP) estimates indicate that real spending growth on health care is moderate.

This blog did not discuss September’s 3rd estimate of 2nd quarter GDP, which contained a significant upward revision to health spending. The Altarum Institute’s October briefing clarified that real health spending has been growing significantly faster than real GDP since the December 2007 recession. However, this is mostly because GDP dropped dramatically through the first half of 2009, while health spending did not. In absolute terms, health spending remained moderate.

Third Parties Control 83 Percent of Prescription Drug Spending, Up From 52 Percent in 1993

Adam J. Fein of Drug Channels has written a short article describing the evolution of payment for prescription drugs. In just twenty years, patients’ share of payments dropped from almost half of the spending to just 17 percent. Even worse, Fein forecasts, the share will drop to 12 percent by 2023.

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1 Percent of People Account for 23 Percent of Medical Spending

The Agency for Healthcare Research and Quality (AHRQ) has updated its estimate of the concentration of medical expenditures, previously reported as of 1996. In 2012:

  • Total medical spending was $1.35 trillion;
  • One percent of people accounted for 22.7 percent of total health expenditures, with an annual mean expenditure of $97,956;
  • Five percent of people accounted for 50.0 percent of the total, with an annual mean expenditure of $43,058;
  • Ten percent of people accounted for 66.0 of the total, with a mean annual expenditure of $28,468;
  • Fifty percent of people accounted for 97.7 percent of the total; and
  • Fifty percent of the people accounted for only 2.3 percent of the total.

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Employer-Based Benefits: Health Spending Up 3.9 Percent in 2013

The Health Care Cost Institute, a collaboration of four major insurers, has published its 2013 Health Care Cost and Utilization Report and companion Out of Pocket Spending Trends 2013, which discusses cost trends for people with employer-sponsored insurance (ESI):

In 2013, health care spending for the national ESI population grew 3.9%. This growth rate was similar to the rates observed in 2011 (4.0%) and 2012 (3.7%). Spending growth for 2013 was driven mainly by rising prices rather than by utilization, as use of many services declined.

That is mixed news. Prices for outpatient services increased 5.8 percent and by 21.1 percent for brand-name drugs.

Per Patient Spending Higher in Hospital-Owned Physician Groups Than in Physician-Owned Groups

Hospitals and multihospital systems have been acquiring medical groups and physician practices at a rapid pace. One cause is the financial incentives provided by Obamacare for physicians to join hospital-affiliated accountable care organizations (ACOs).

Advocates claim that consolidation builds integrated delivery systems (professional, facility, laboratory, and pharmaceutical services) that lead to care that is better coordinated. This reduces duplication of tests and treatment and lowers total expenditures. Health economist James C. Robinson investigated the latter claim using data obtained on total expenditures for care provided to 4.5 million between 2009 and 2012. These patients were covered by commercial HMO insurance and excludes individuals covered by commercial PPO insurance, Medicare, or Medicaid.

The table below presents trends in total expenditures per patient between 2009 and 2012.

Obamacare Premiums Increased Dramatically for Every Age Group in 2014

HealthPocket, an online insurance broker, has measured the increase in premiums for every age group in Obamacare versus the pre-Obamacare individual market. Their conclusion: Premiums increased by double digits for every age group.

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Price Transparency: Organizations to Watch

George Washington University’s Master of Public Health program has complied a nice list of fourteen “organizations to watch” because they are moving the ball on price transparency. The woman who wrote the article, Emily Newhook, sent an email to NCPA bringing it to our attention. Unfortunately, we can hardly ever make time and space to profile lists compiled by other parties, but I decided to give this one a boost for a number of reasons.

First, it is exciting to see a school of public health get interested in this issue in a positive way. It was not too long ago that any proposal that included Health Savings Accounts or similar tools that removed healthcare dollars from insurers and returned them to patients brought forth wails of anguish from the public-health community about “barriers to care” and the like. Now, according to Ms. Newhook’s description: “This kind of price transparency empowers consumers to comparison shop for health care as they would a car, house or television, forcing higher priced providers to lower their prices to stay competitive.” This is unusual language for a school of public health, and is to be congratulated.

5 Myths about Cancer Care

PIC2In this month’s Health Affairs, leading health economists Dana P. Goldman and Tomas Philipson challenge five myths about cancer care. To the right we have an infographic that explains them very clearly.

The most economically interesting one is the fourth. This appears to challenge the notion that we should be skeptical about paying high prices for therapies that might buy only a short time of good life. (In health-economics, we use terms like Quality-Adjusted Life Year [QALY] and Disability-Adjusted Life Expectancy [DALE].)

The classic approach to these calculations was illustrated by Professor Christopher Conover in a recent article:

…[M]ost of the gains were concentrated in the 35-64 age group, which narrows the plausible range of what the average gain in life expectancy might be. Someone who is 60-64 is 7.3 times as likely to die in a given year as someone age 35-39. The reason this matters is that there are reasonably well-accepted rules of thumb about the value of what’s called a quality-adjusted life year (QALY).