These Politicians Must be on Drugs (or Maybe They Should Be)

 

Rising drug prices and high-cost drugs have been in the news lately. Naturally, presidential candidates have weighed in on the issue in hopes of scoring some points with voters. Hillary Clinton would cap Americans share of the drug costs — which would do nothing about the actual cost except encourage price hikes. Bernie Sanders supports a single-payer system with strict price controls. Donald Trump has even proposed allowing the importation of cheaper drugs from abroad, many of which are cheap due to price controls in other countries.

CPI: Most Medical Price Hikes Stall

 

The Consumer Price Index for March indicates that medical price inflation matched changes in other prices charged to consumers, with a slight uptick of 0.1 percent. Prescription drugs (0.5 percent increase), nursing homes and adult day care, eyeglasses, and health insurance (all with 0.4 percent increases) stood out as continuing to experience higher inflation than other items. Prices for many health goods and services actually dropped.

However, over the last twelve months, medical prices faced by consumers have grown much faster than non-health prices: 3.3 percent versus 0.6 percent. Prescription prices increased 3.4 percent. However, inpatient hospital services and health insurance prices increased much faster, by 5.9 percent and 6.0 percent.

When we compare the medical components of the CPI with those in the Producer Price Index, it appears that hospitals, not drug makers, are shifting more prices directly onto consumers.

(See Table I Below the fold.)

HHS Could Effectively Kill HSAs in the Exchange

 

I have written ad nauseam about how the Unaffordable Care Act has killed off affordable health plans. The Obamacare exchange system has turned into a high-risk pool for people who are older, sicker and poorer than the average. As a result, insurers are hemorrhaging money to the tune of hundreds of millions per year. The exchange system is so unstable that in an attempt to avoid collapse, the Obama Administration is looking for ways to have taxpayers absorb some of the industry’s bad debts.

PPI: Pharmaceutical Prices Up Amid Deflation

 

BLSDeflation in the Producer Price Index (PPI) continued last month, as the PPI for final demand dropped 0.1 percent from February. Prices for final demand goods, less volatile food and energy, increased 0.2 percent. Most prices for health goods for final demand were flat. The exception – again – was pharmaceutical preparations, for which prices increased 0.4 percent.

With respect to final demand services, for which prices dropped 0.2 percent (or increased just 0.1 percent, less trade, transportation, and warehousing), prices of medical services changed little. Even the price of health insurance remained flat, after an increase in February.

With respect to goods for intermediate demand, prices for chemicals (which go into pharmaceutical preparations) increased by just 0.1 percent, while prices of biologic products (including diagnostics) dropped the same percentage. With respect to services for intermediate demand, prices for health insurance remained flat, although prices for other intermediate services declined.

Looking back over the 12-month period, the price increase of 9.8 percent in pharmaceutical preparations continues to stand out like a sore thumb. Political agitation against drug prices is unlikely to go away soon. (See Table I below the fold.)

Digital Health Funding Defies Expectations

 

Oscar(A version of this Health Alert was published by Forbes.)

Investors have not had their fill of digital health deals, according to new fundraising reports from Rock Health and Startup Health, two outfits which have led the digital health revolution and produce complementary reports on how much capital is flowing into the sector. While other sectors have wobbled recently, digital health (which was only defined as a market five or six years ago) continues to attract venture capital.

Digital health refers to businesses that apply new information technology, especially the cloud, to health care. That being said, there is no agreement about where the boundary is. San Francisco’s Rock Health and New York’s Startup Health do not quite agree on which deals are digital health deals.

Medicare Pays for Prevention – Finally!

 

man-in-wheelchairThe Centers for Medicare & Medicare Services has announced Medicare (that is, taxpayers) will pay for lifestyle-intervention program that prevents type 2 diabetes:

In 2011, through funding provided by the Affordable Care Act, CMS awarded the National Council of Young Men’s Christian Associations of the United States of America (Y-USA) more than $11.8 million to enroll eligible Medicare beneficiaries at high risk for diabetes in a program that could decrease their risk for developing serious diabetes-related illnesses. Beneficiaries in the program attended weekly meetings with a lifestyle coach who trained participants in strategies for long-term dietary change, increased physical activity, and behavior changes to control their weight and decrease their risk of type 2 diabetes. After the initial weekly training sessions, participants could attend monthly follow-up meetings to help maintain healthy behaviors. The main goal of the program was to improve participants’ health through improved nutrition and physical activity, targeting at least a five percent weight loss for each individual.

The results of the Diabetes Prevention Program model are striking:

  • Medicare beneficiaries enrolled in the program lost about five percent of their body weight, which is enough to substantially reduce the risk of future diabetes. Average weight loss was 4.73 percent of body weight for participants attending at least four weekly sessions.  Participants who attended at least nine weekly sessions lost an average of 5.17 percent of their body weight.
  • Over 80 percent of participants recruited attended at least four weekly sessions.
  • When compared with similar beneficiaries not it the program, Medicare estimated savings of $2,650 for each enrollee in the Diabetes Prevention Program over a 15-month period, more than enough to cover the cost of the program.

After years and years of jawboning about preventing disease and reducing health spending by catching health problems early, the federal government has finally approved one intervention that actually appears to achieve this goal!

Four Options for Saving Medicare from Collapsing under its Own Weight

 

The 50-year old Medicare program is showing its age. Medicare accounts for about one-fifth of medical spending, or about 3.5 percent of gross domestic product (GDP). Over the years Medicare spending per capita has exceeded income growth in the economy. Over the next 75 years the Medicare Trustees estimate Medicare spending as a percentage of GDP will rise anywhere from about 6 percent to just above 9 percent. The Congressional Budget Office baseline put the estimate even higher — about 12.5 percent.

CBOBaseline

Chicken & Egg in Consumer-Driven Health Care

 

debtAn advocate of consumer-driven health care will often be challenged by this question: “So, when I am hit by a bus, or have a heart attack or stroke, or am suffering from dementia, you want me to go shopping around for medical care?”

Obviously not. Nevertheless, this is a serious challenge and invites the question: How much of our health spending can be meaningfully controlled by discriminating patients? Researchers at the Health Care Cost Institute (HCCI) recently addressed this. The HCCI has a unique advantage in producing such research, because has access to a database of claims for employer-based plans run by a number of insurers.

The research categorized “shoppable” versus “non-shoppable” services. It found:

  • At most, 43 percent of the $524.2 billion spent on health care by individuals with employer-sponsored insurance in 2011 was spent on shoppable services.
  • About 15 percent of total spending in 2011 was spent by consumers out-of-pocket.
  • $37.7 billion (7 percent of total spending) of the out-of-pocket spending in 2011 was on shoppable services.

So, it looks like only 7 percent of health spending is subject to price-conscious patients spending their dollars wisely. The researchers concluded that “Overall, the potential gains from the consumer price shopping aspect of price transparency efforts are modest.” That would be true if we were talking about just forcing price transparency on the current benefit design. However, that is a distraction.

Blue Cross Blue Shield Association Confirms Obamacare Death Spiral

 

CAM00109The Blue Cross and Blue Shield Association, which represents 36 Blue Cross and Blue Shield plans covering 105 million Americans has released a study of its members’ claims data in Obamacare exchanges 2014 and 2015. It confirms Obamacare exchange enrollees are sicker and more expensive than enrollees in pre-Obamacare individual plans or employer-based plans:

Members who newly enrolled in BCBS individual health plans in 2014 and 2015 have higher rates of certain diseases such as hypertension, diabetes, depression, coronary artery disease, human immunodeficiency virus (HIV) and Hepatitis C than individuals who had BCBS individual coverage prior to health-care reform.

Consumers who newly enrolled in BCBS individual health plans in 2014 and 2015 received significantly more medical care, on average, than those with BCBS individual plans prior to 2014 who maintained BCBS individual health coverage into 2015, as well as those with BCBS employer-based group health insurance.

The new enrollees used more medical services across all sites of care—including inpatient admissions, outpatient visits, medical professional services, prescriptions filled and emergency room visits.

Medical costs of care for the new individual market members were, on average, 19 percent higher than employer-based group members in 2014 and 22 percent higher in 2015. For example, the average monthly medical spending per member was $559 for individual enrollees versus $457 for group members in 2015.

These health plans have not done a great job containing costs in employer-based health plans either. Those policies’ average monthly health spending increased 8 percent in the first nine months of 2015 versus 2014. However, costs in individual policies increased 12 percent, half again as much. This means the gap in medical spending between the two markets is increasing.

Our Corporate Tax Code is Unhealthy for Medical Innovation

 

(A version of this Health Alert was published by Forbes.)

It would be fair to say markets were blindsided by the U.S. Treasury’s 300-page plus batch of regulations that blew up the merger between Pfizer and Allergan. The deal was widely described as a so-called “inversion,” a deal whereby a U.S. domiciled company reverses itself in to a foreign firm for the purpose of reducing its U.S. tax burden.

Pfizer has been trying to invert itself for a long time. It has not been easy. In May 2014, Pfizer gave up its dance with AstraZeneca, a British-based global pharmaceutical company. The problem for a huge biopharmaceutical firm like Pfizer is that it cannot just collapse itself into a foreign shell.

As I discussed in an article published in the wake of the failed AstraZeneca deal, the newly consolidated company has to have a minimum 20 percent foreign ownership to qualify for tax inversion. That means the target has to have a market cap at least 25 percent that of the U.S. bidder – and that is only if the deal is fully financed by equity. Not that many companies are big enough to fit the bill for a company like Pfizer.

The deal with Irish-based Allergan was first disclosed provisionally on October 29, 2015, and confirmed on November 23.  Since then the return to an investor who arbitraged the merger by buying one share of Allergan to exchange for 11.3 shares of Pfizer (the terms of the all-equity deal) ranged between 15 percent and 21 percent until March 17 (assuming one year for the deal to close, and taking account Pfizer’s February 3 dividend of $0.30. See Chart I.)

20160406 Chart I

Not until after the middle of March did the spread widen to around 25 percent, suggesting something was indicating to investors they needed to demand a higher risk premium. Still there is nothing indicating Treasury’s regulations were leaked before being released on Monday and blowing up the deal.