Economics

Economics

On the Wondrous U.S. Market For Prescription Drugs

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Citing a recent report in the Los Angeles Times, an article in FirecePharma entitled “Some generic drug prices soar despite heavy competition” rises questions on the ability of market forces to reign in drug prices – for example, on the idea that the price of Mylan NV’s EpiPen would not have risen to $614 per 2-pack from about $100 per 2-pack or less in 2007 if the Food and Drug Administration (FDA) had not prevented Sanofi’s and a new product by Teva to come on market, leaving Mylan NV in full monopolistic control, of this blockbuster market.

According to data assembled by the Los Angeles Times, prices of generic drugs can rise sharply even if multiple manufacturers compete for market share. As an illustration, the article cites the generic drug ursodiol for gall stones, produced by no less than 8 manufacturers. “Several years ago, the wholesale price ran as low as 45 cents a capsule. In May 2014, Lannett Co. ($LCI) bumped its price for ursodiol to $5.10 a capsule, a price hike of more than 1,000%. Rather than keeping their own generic versions of ursodiol low to steal market share, each competitor followed Lannett’s lead and priced their versions the same or close.”

Defund “Medical Homes”, Fund Primary Care

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flying cadeuciiIn the first article in this three-part series I reviewed the findings in CMS’s latest report on one of its “medical home” experiments – the second-year evaluation  of the Multi-Payer Advanced Primary Care (MAPCP) Demonstration.We saw that the “patient-centered medical homes” (PCMHs) in that demo have failed to cut costs or improve quality during the first two years of the demo. We also saw that the sloppy definition of “medical home” put the author of the report, RTI International, in a bind: They did not identify a single feature of PCMHs to treat as an independent variable, and were forced to offer an impressionistic, on-the-one-hand-on-the-other-hand account of what the PCMHs are doing.

In the second article of this series I examined the report’s explanation for why the PCMHs have so far been unable to outperform non-PCMHs despite receiving substantial subsidies from CMS and other sources that non-PCMHs don’t get. The report seems to say that insufficient subsidies explains the PCMHs’ failure. I noted, however, that the report contains no evidence indicating how much more money PCMHs might need.

At the end of my second article I characterized the problem presented by the report as a conundrum. On the one hand, PCMH staff and many other observers feel PCMHs are severely underfunded, but on the other hand no one can say by how much or which PCMH services need more money.

So what do we do? Do we just pick a number out of thin air and say that’s how much more money PCMHs need, and pour that money down the PCMH black hole along with the other subsidies PCMHs receive now? That appears to be CMS’s position judging from its endorsement of yet another “medical home” program (CPC+ as an “alternative payment model” in its proposed MACRA rule despite the fact that all three of CMS’s “home” demos are failing.

Salvaging what we can

Throwing more money down the PCMH black hole is not a good idea. I recommend that CMS allow PCMHs to focus, and that CMS do so by radically sharpening and cutting down the definition of “PCMH” so that the concept refers to a uniform set of medical and social services provided to a subset of the chronically ill. [1]

Once CMS has clearly defined what services it wants “homes” to provide, it can then determine what the extra services cost and make adequate payment for them. It would help if, in addition to paying adequately for the extra services, CMS would let doctors and patients decide when the extra services should be provided rather than stick its nose into the doctor-patient relationship with pay-for-box-clicking schemes. Paying adequately for additional services and eliminating pay-for-clicks schemes would increase the physician “flexibility” that CMS claims it seeks to promote with PCMHs. Eliminating pay-for-clicks schemes would also lower physician overhead and reduce physician burn-out.

How Big Is Too Big?

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Screen Shot 2016-05-20 at 8.38.33 AMWith healthcare mergers now announced seemingly every week, I’ve been giving some thought to scale:  How big can/ should health systems be?

Anecdotally, I’m struck that the most impressive healthcare companies in America are super- regional players:  Geissinger, Cleveland Clinic, UPMC, etc.  They seem to get a lot more attention than the national players with hundreds of facilities.

Leaving aside questions like strategy (e.g. is integration of payers/doctors/hospitals the key to these successes), I’ve wondered whether regional systems are simply the right size to thrive.  My suspicion is that even clever organizational structure (a topic which I wrote about last year) can’t overcome barriers that prevent large healthcare companies from innovating and thriving, particularly as companies move to risk and the business of healthcare becomes more complex. Like cellular organisms, large companies can outgrow their life support. (Interestingly, it’s actually the ratio of body volume to surface area [gas exchange, digestion, etc] that served as a constraint to organism size…)

I recently ran across a superb paper-  a doctoral thesis written by Staffan Canback.  Canback (who now leads the Economist Intelligence/ Canback predictive analytics consulting firm in Boston) wrote his thesis, called Limits of Firm Size: An Inquiry into Diseconomies of Scale in 2000, while a student in London. Canback argues, convincingly, that companies do become more efficient with scale, but reach a point where “diseconomies” begin to mitigate performance.  This may seem intuitive: (as Canback notes, if efficiency only improved with scale then we would buy everything from one company that produces everything with great levels of efficiency).  We don’t.

A Free Market Repudiation of Evidence-Based Medicine

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Michel AccadIn a recent article entitled “A Hayekian Defense of Evidence-Based Medicine” Andrew Foy makes a thoughtful attempt to rebut my article on “The Devolution of Evidence-Based Medicine.”  I am grateful for his interest in my work and for the the kind compliment that he extended in his article.  Having also become familiar with his fine writing, I return it with all sincerity.  I am also grateful to the THCB staff for allowing me to respond to Andrew’s article.

Andrew views EBM as a positive development away from the era of anecdotal, and often misleading medical practices:  “Arguing for a return to small data and physician judgment based on personal experience is, in my opinion, the worst thing we could be promoting.”  Andrew’s main concern is that my views may amount to “throwing the baby with the bath water.”

On those counts, I must plead guilty as charged.  I have been trying to sink that baby for a number of years now, attacking it from a variety of angles.  I have made a special plea in favor of small data and I have even questioned the intellectual sanity of EBM.  On the question of the coexistence between EBM and clinical judgment, I have been decidedly intolerant, relegating EBM to second class citizen status.  In other words, I’m an unapologetic EBM-denialist which, as I found out yesterday on Twitter, puts me in the same category as climate change skeptics.

The ACO Delusion

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flying cadeuciiAccountable care organizations (ACO’s) promise to save us.  Dreamed up by Dartmouth’s Eliot Fisher in 2006, and signed into law as a part of the Patient Protection and Affordable Care Act (PPACA) in 2010, we have been sold on the idea that this particular incarnation of the HMO/Managed Care will save the government, save physicians and save patients all at the same time.  I dare say that Brahma, Vishnu and Shiva together would struggle to accomplish those lofty goals.  Regardless of the daunting task in front of them, the brave policy gods who see patients about as often as they see pink unicorns, chose to release the Kraken – I mean the ACO – onto an unsuspecting public based on the assumption that anything was better than letting those big, bad, test ordering, hospital admitting, brand name prescribing  physicians from running amuck.

I realize I am being somewhat harsh towards the creators of the ACO morass.  But, while they all may be well-meaning, hard-working folks that own a Harvard crimson sweater, their intent is to fundamentally change how health care is provided – this mandates a withering evaluation.  As Milton Friedman aptly said, “One of the great mistakes is to judge policies and programs by their intentions rather than their result.”  Thus, with little regard to intent, and with an eye on the end result, I say unequivocally : ACO’s do not work.

A Spoonful of Inequality Helps the Medicine go Down

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The conventional wisdom in the circles I hang out in – pro-Hillary, morally conscious,happy bunnies who pretend to enjoy French wine and opera – is that the greatest scourgeon humanity after the bubonic plague is inequality of wealth. They worship Pope St. John Paul Piketty and canonize Archbishop Paul Krugman. Not only is inequality bad for its own sake, they say, it makes people ill, like medically ill.

Their premise always struck me as specious. I once took them through a thought experiment. Imagine, I said, you time travel to the Bengal famine. There was a lot of equality then – people were equally malnourished. Everyone’s ribs protruded equally because of muscle wasting from marasmus. The loss of protein from kwashiorkor made sure everyone’s belly popped out without prejudice. Starvation because of poverty is a great leveler. It cares little about gender, caste or religion. It is non-judgmental.

Will New Funding Improve Alzheimer’s Dementia Outcomes?

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Alzheimer dementia mortality is increasing in the United States, while heart disease and cancer death rates have decreased at least 25% recently.1  New cardiac and cancer treatments frequently make headlines.  However, the assessment of Alzheimer’s therapy is stark: “…there are currently no treatments that change the course of this progressive brain disorder,” [original italics] so stated in the 2014-2015 Alzheimer Disease Progress Report by the National Institute of Aging (NIA).2

President Obama signed the National Alzheimer’s Project Act in 2011, with a goal of having effective therapy by 2025.  Now five years later, clinicaltrials.gov lists fewer than 120 Alzheimer drug trials in the US recruiting subjects, with nearly 500,000 new patients each year. Heart disease has almost 800 drug trials, while adult cancer has almost 4000 drug trials listed.

Clinical research efforts in a disease are reflected by the number of pertinent clinical trial publications. We examined Pub Med data along with US mortality statistics to show the juxtaposition of those measures for Alzheimer’s disease, heart disease, cancer and six other leading causes of death, (Figure 1).3,4  

Reductions in US disease mortality have been proportional to the number of trials conducted in each disease except Alzheimer’s, during the years 2000-2013. Alzheimer’s disease is a significant outlier, since mortality is increasing while the number of peer-reviewed publications lags behind other conditions.

Stephen Curry’s Health Care Plan

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Screen Shot 2016-04-14 at 10.20.03 AM

The 3 point shot has revolutionized basketball and turned the NBA upside down. The smartphone has revolutionized health care and turned the doctor-patient relationship upside down.

Let’s examine those two statements.

In a recent Wall Street Journal article, Martin Johnson describes the dramatic changes that the creation of the 3 point shot has created. The prior era in was dominated by a dominating big man-  Bill Russell, Wilt Chamberlin, and Kareem Abdul Jabbar.  As Johnson writes, “This made intuitive sense: The better a team is at protecting its basket, the better its defense should be.”

Suddenly, the rules changed and the 3 point shot was created.

With new rules, new values.

With new rules, new math, new economics for the NBA.

What had been valuable- the dominant big center to defend the basket- is no longer as valuable.

What had not been as valuable- a small, quick, long distance shooting guard, and those best suited to defend against them- now are a valued resource.

The evidence of this ‘transformative innovation’ is everywhere; from Stephen Curry, a small nimble, excellent shooting guard, winning the NBA MVP award to the NBA finals between the Cavaliers and the Warriors- where the defense is as fierce at the 3 point line as it is right under the basket.

So the  new rule establishing the 3 point line has turned the game inside out, shifting the focus from the ‘big man’ to a new type of player – as John Hollinger, the Memphis Grizzlies vice president of basketball operations, states in the Journal, “It has completely changed the way players are valued on the market.  Now we put a premium on length and basketball IQ.”

Are Your Health Cost Savings an Illusion?

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flying cadeuciiThe New England Journal of Medicine carried an excellent article by David Casarette, MD, on the topic of health care illusions and medical appropriateness. Click here to read the full article. Hats off to Bob Stauble for a heads up on this article.

Casarette observes that humans have a tendency to see success in what they do, even if in truth there is none. Casarette writes, “Psychologists call this phenomenon, which is based on our tendency to infer causality where none exists, the ‘illusion of control’.” This illusion applies in all walks of life, especially in politics and parenting, and it includes medical care as well.

In medical care, the phenomenon has been referred to as “therapeutic illusion“, and it impacts both doctors and patients. Undoubtedly, therapeutic illusion is why placebos can so effective.

The Prescription for High Drug Costs? Transparency for Starters

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Ceci ConnollyFor most Americans, $280,000 might represent the price of a home or perhaps their entire retirement savings. But for the 1.3 million people in this country stricken by rheumatoid arthritis (RA)that quarter million dollars could be their drug bill.

Rheumatoid arthritis is a debilitating disease that causes painful inflammation and swelling of the joints. Left untreated, it can lead to permanent disability. Thankfully medications such as Enbrel, Humira and Zeljanzcan keep patients healthy enough to stay active and keep working. Yet the price tag is quickly becoming out of reach.

One recent report from Express Scripts found that spending on drugs that treat inflammatory conditions such as arthritis rose 25 percent in the last year alone. The annual cost of treating the nation’s RA sufferers is expected to reach $9.3 billion by 2020 – a 45 percent jump from 2013.

For a 45-year-old patient recently diagnosed with RA, the lifetime cost of medication is likely to exceed $1.4 million. Even if that person has 80 percent of their costs covered through insurance, the math works out to $280,000 in copays alone.

There’s something out of kilter when families may be forced to choose between investing in a home or easing a loved one’s pain. Yet that is exactly the sort of Catch-22 some will face if we do not find a sensible way to price drugs.