Tag: "drugs"

Government Price Controls & Drug Addiction

Variety of Medicine in Pill BottlesIn a recent print issue of National Review, David French has a sobering article describing how the Veterans Health Administration is overdosing veterans on prescription drugs. A veteran himself, French has plenty of anecdotes about his buddies:

They couldn’t sleep, so they had to take Ambien. They were depressed, so they were taking Lexapro. They had chronic neck and back pain after hanging 90 pounds of gear on their frame day after day, month after month, so they took Lortab. They were anxious, so they took Xanax.

It was as if a VA doctor had simply listened to a list of symptoms, located a pill to address each complaint, loaded up the patient with prescriptions, and called it “treating” a soldier with PTSD.

In 2014, an inspector-general report found that the VA was systematically over-medicating its patients – even to the point of death.

Wisconsin’s Senate race is being roiled by a report on the VA facility at Tomah, a place so notorious for freely writing narcotics prescriptions that it gained the nickname “Candyland.”

(David French, “Casualties of the VA,” National Review, Vol. LXVIII, No. 12, July 11, 2016, pp. 20-21.)

Chemotherapy Payment Reform: Medicare Is Missing the Elephant in the Room

cigarettes-2Last May I wrote about the uproar over Medicare’s proposed changes to how it will pay doctors who inject drugs in their offices. This largely concerns chemotherapy. Currently, physicians buy the drugs and Medicare reimburses them the Average Sales Price (ASP) plus 6 percent. The proposed reform would cut the mark-up to 2.5 percent and add a flat fee of $16.80 per injection.

I did not think the reform would have a positive impact, but I also thought criticism was overblown. Well, Medicare has managed to irritate all the affected interest groups to such a degree that it is likely to toss the proposal and go back to the drawing board.

CPI: Medical Prices Resume Upward March

BLSDue to vacation, I did not discuss June’s release of the Consumer Price Index for May, in which medical care prices were very moderate. This continued that which was observed in May (for the April CPI).

Unfortunately, prices for medical care resumed their upward march in the June CPI, released today. At 0.4 percent, prices for medical care increased twice as fast as the CPI for all items. Price changes for medical care contributed 16 percent of the price change for all items. Prescription drug prices, especially, resumed their increase. Prices for medical care services, on the other hand, were in line with the CPI for all items.

Over the last twelve months, prices for medical care have increased over four times faster than prices for all items other than medical care. Medical care price increases have contributed almost one third (29 percent) to the price increase of one percent for all items. Claims that consumers have experienced relief from medical prices are simply not grounded in data.

(See Table I below the fold.)

PPI: Health Prices Remain Tame

BLSAlthough I did not discuss June’s release of the Producer Price Index (PPI) for May at this blog (due to vacation), prices of pharmaceutical preparations did not increase at all. Similarly, they remained flat in today’s PPI release for June.

Prices for final demand goods (less food and energy), and prices for all final demand health services were either flat or down in June. Similarly, price changes of health services for final demand were all lower than price changes for final demand services overall. The same was true for both goods and services for intermediate demand.

For the last 12 months, prices of health goods and services (especially pharmaceutical preparations) have increased significantly more than prices of other goods and services, but the trend of disproportionately high health price increases might be breaking down.

(See Table I below the fold.)

Should Drug Investors Worry About Medicare Revenues?

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

The pharmaceutical sector has held up quite well in this aging bull market. Now, a new political risk is on the horizon: The Independent Payment Advisory Board (IPAB), which was instituted in the 2010 Affordable Care Act. Starting in 2015, the IPAB was empowered to cut Medicare spending if costs increased faster than a certain rate. It quickly faded into the background as the growth in Medicare spending moderated after President Obama signed the Affordable Care Act.

Those days are gone. The latest annual Medicare Trustees’ report, published on June 22, indicates Medicare spending will cross the threshold for IPAB to swing into action in 2017. The 2017 threshold is determined by a target rate of growth which is the average of the change in the Consumer Price Index (CPI) and the medical-care component of the CPI. Estimates of both actual Medicare spending per capita and the target rate are calculated as five-year averages.

Table I, extracted from a recent presentation by Medicare’s Chief Actuary, illustrates why investors are becoming concerned. Table I highlights this year’s Medicare spending per capita will increase 2.21 percent (averaged over the five years, 2014 through 2018). The target rate is 2.33 percent, higher than the estimated actual rate, so the threshold is not crossed. IPAB remains asleep.

20160708 Forbes IPAB TI

Wholesale Drug Price Transparency Laws Won’t Lower Costs

Price transparency is an enormous benefit to consumers in retail markets. Consumers who make the effort to shop around often discover drug prices can vary from one pharmacy to the next. Retail drug prices are mostly transparent; patients generally encounter few problems when calling a pharmacy to ask what a given drug costs on their health plan. However, with the possible exception of buying an automobile, wholesale price transparency provides little benefit to consumers. The reason price transparency serves almost no purpose for consumers in wholesale markets is because consumers don’t buy from wholesale markets!

Efforts to Boost Generic Competition are Bearing Fruit

The U.S. Food and Drug Administration (FDA) has a backlog of nearly 4,000 generic drug applications – each of which currently requires more than two years to approve. Over the past few years the FDA typically approved between 400 and 500 generic drugs a year. Under pressure from Congress, the agency hired 1,000 new employees and managed to approve (or tentatively approve) 99 drugs in December alone.  That is more than in any other single month.  The FDA has taken a lot of heat for the backlog. But the reality is actually more positive than many people realize. The primary reason for the backlog is competition; generic drug makers have filed an average of more than 1,000 abbreviated new drug applications (ANDAs) a year for the past four years. That is about one-third more than what the FDA expected. That is good news: Research finds that the average price of a generic drug relative to its brand prior to generic competition is inversely correlated to the number of competing firms producing a generic version. Basically, the more the merrier!

Misleading Rhetoric on Medicare Cancer Drug Payment Reform

man-in-wheelchairA few weeks ago, Medicare proposed a pilot program to test a new way to pay doctors who inject drugs. Cancer is the big kahuna, cost-wise, when it comes to injected drugs. Medicare payment policy leads to certain industry practices to profit from the status quo. When the status quo is threatened, the “preservatives” immediately form a defensive coalition to stop the change.

Although I do not endorse this precise reform, the campaign to roll it back has become irresponsible and misleading. Currently, physicians who inject drugs are paid by Medicare a margin of 6 percent on top of a reported price called the Average Sales Price (ASP). The concern is that the oncologists make more margin off an expensive drug than a less-expensive drug.

CPI: Medical Inflation Finally Under Control

BLSThe Consumer Price Index (CPI) for April confirmed medical inflation is matching the broad measure of price changes. For the second month, price changes for medical care (0.3 percent) were in line with all-items (0.4 percent). Although, it looks like a jump in energy prices drove the CPI up. If energy price increases moderate, we can expect prices for medical care to increase faster than CPI.

With respect to medical commodities, it prices of prescription drugs continued to increase faster than other medical commodities or commodities over all. Although, pharmaceutical price hikes in the CPI are not as big as in the Producer Price Index. 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: 3.0 percent versus 1. percent. Prescription prices increased 4.0 percent, as did prices for inpatient hospital services. Health insurance increased 5.8 percent.

(See Table I below the fold.)

PPI: Pharma Price Hikes Continue To Stand Out

BLSThe Producer Price Index (PPI) for final demand goods grew 0.2 percent last month, or 0.3 percent less food and energy. Prices for pharmaceutical preparations and most medical devices grew significantly faster, at 1.0 percent and 0.5 percent, although prices for X-Ray and similar equipment were flat.

With respect to final demand services, for which prices rose 0.1 percent (or 0.3 percent, less trade, transportation, and warehousing), prices of medical services changed similarly. However, prices for health insurance jumped 0.8 percent.

With respect to goods for intermediate demand, which dropped 0.3 percent, price increases for biologics, including diagnostics, stood out at 2.5 percent. With respect to services for intermediate demand, which rose 0.1 percent, prices for health insurance jumped 0.8 percent

Looking back over the 12-month period, the price increase of 10.4 percent for pharmaceutical preparations continues to stand out like a sore thumb. Political agitation against drug prices is unlikely to go away soon. Health insurance, having risen 1.7 percent in a flat or negative inflationary environment, is also beginning to stand out. (See Table I below the fold.)