Sunday, March 18, 2018
Blog Page 1008

INDUSTRY: First Healthsouth sentence is a juicy one


OK. I give in and I’m talking about Healthsouth again. An assistant controller, Emery Harris, gets 5 months at Club Fed and has to pay back $100K in the first sentence of the HealthSouth scandal.  Extrapolating up, my guess is that Scrushy will get 12 years.  Meanwhile Scrushy has yet more of his own troubles even before he gets to court, where he plans to challenge the constitutionality of Sarbanes-Oxley.

But the best bit is Harris’ excuse for maintaining his silence.  He noticed that "HealthSouth was buying guns, grenades and spy equipment" and this made him too afraid to go to the authorities. This reminds me of the Monty Python sketch about the Piranha brothers gangsters.  One extortion victim (Michael Palin) was asked why after being threatened with a nuclear war-head why he didn’t go to the police.  He said "Well I noticed that the lad with the thermo-nuclear device was in fact the Chief Constable for the area!"

BLOGS: Health care blogs in the press


Several health care bloggers including me were recently interviewed by the San Antonio News-Express about health care blogging. They were a little upset not to find a Matt Drudge among us, but not as upset as I was not to be included in the story!  How am I ever going to be as famous as Don Johnson at the Businessword, Robert Centor at DB’s Medical Rants or the amazing Sydney Smith at Medpundit?  I guess I never will (sigh); but at least I know Sydney’s real name now!

INDUSTRY: HMA fights back


HMA, who’s stock dropped 10% on Monday following a downgrade from a UBS analyst (after a great bull run) fought back.  In a statement HMA claimed that UBS was retaliating after HMA fired it as its investment bank due to UBS’ connections with Healthsouth. The fighting words didn’t help much as the stock only rose a fraction after the big drop.

TECHNOLOGY: HIMSS’ view of what’s hidden in the Medicare bill & the UK really starts up


There’s quite a bit of tech push buried in the Medicare bill, but it’s mostly demonstration projects.  Go take a look at the summary by HIMSS and wonder what could be done if just some of the money used to bribe the AMA, the AARP, employers, the health plans and the PBMs into supporting the bill had been directed to info tech where it could do some good.

Then take a look at what just happened in the UK where contracts for the National Health Information infrastructure were awarded nationally and in some regions yesterday.  Consider the numbers, BT gets $2.8 billion to build a record infrastructure and to wire London, Accenture gets $1.9 billion to do the north-east, Cerner already got $64 million to build a booking system, and there are another 3 more regional contracts worth another $5 billion to be awarded. In American terms you need to multiply those awards by 6 for population and at least 1.5 for relative GDP (or 3 times for relative health spending!), so that’s the equivalent of the US awarding $100 billion of IT contracts (over 10 years).  Currently the US as a whole spends roughly $20 billion a year on health care IT.  So the equivalent program here would be a 50% annual increase in spending.

Then wonder whether the free market or socialized medicine is going to be making full use of information technology in health care first.

PHARMA: $1.7bn R&D for a new drug? Surely you jest, Bainies?


In an study in the news yesterday Bain, the big management consulting firm, said that the cost of bringing a drug to market was $1.7bn.  I’ve heard the $7-800m number many times before and scoffed but this one made me do some basic math.  The CMS (a newly pharma-friendly organization) put out a report this year that suggested that R&D for pharma would be $30 billion (see chart on page 13), although the same report suggested that R&D spending was 13% of revenues of branded drugs revenues of $130bn. So that actually indicates that the number was $17bn.  But let’s go with the $30 billion number and assume that it’s constant over a ten year period (which it hasn’t been).  When I last looked at this about 2 years ago there were about 500 drugs with over $10m sales in the US, and who knows how many more worldwide. In the US according to this list of the top 200 prescribed drugs some 80 odd (or 40%) were generic. So assuming that to be true for the top 500 drugs, means that there are 300 branded drugs.  Assume further that in a 10 year period there’s turnover of 80% of the branded drugs (and it’s probably faster than that), the back of the envelope calculation is that some 500 drugs of any reasonable size come onto the market every decade. Yet at its most generous assessment, R&D spending is only $300bn in decade–leading me to guesstimate that the cost of R&D per product is, at the outside, in the $5-600m range, not more than 3 times that.

Now Bain is playing both sides of this.  It’s acting on behalf of its pharma clients to keep their line about the costs of R&D in the press, but it’s also interested in frightening them into serious restructuring to combat their lack of revenue from new blockbusters and to get them to spend consulting dollars on the development of new business models.  But if you thought these numbers had me perplexed, my anonymous pharma veteran who is an occasional contributer to THCB is foaming at the mouth about it:

    What the hell; let’s do a study to show that it actually costs $2 Billion to bring each new drug to market.  Stick in all fixed costs  (maintenance, landscaping, inspections, property taxes, perquisites for senior management, depreciation, anything else we can think of.)  Yes, let’s show that Big Pharma is in a real pickle and they should get a federal bailout.  Highest return on equity of any industry? On sales?  Guys like Ray Gilmartin sitting around with $90 Million in unexercised options and Hank McKinnell getting $40 Million a year?  Nah, none of that matters.  Blame the foreigners (Old Europe, the Canucks, everyone else) for not allowing unconscionable profits the way we do.  Blame the retirees for not adequately planning for themselves, blame baby boomers for being too short sighted.  Hell, if none of that sticks, then just grease the politicians and make sure we get a bunch in there who can do business on a bought-and-paid-for basis.  It’s just like the advocates and opinion leaders we’re always buying off, only this will be easier because there’s no goddamned competitor with enough hash to pay them to go the other way.

And then he calms down, somewhat

    Oops, sorry, that was my Texas alter ego that got out of the cage.  I just stuffed him back in there, together with some crony capitalists, militarists, jingoists and religious fundamentalists.

    But his hyperbole does have a point.  I recently completed a study for a Big Pharma client who gave me the actual dollar costs to develop two, recently launched products.  Take the smaller of the two spurious figures (i.e., $800 Million), divide it by 20 and you’ll be in touch with reality.  Looking at the range of drug development costs, these products were on the low side because they’re in a category where Phase III trials enroll between several hundred and 3,000 patients.  If you go to something such as hypertension where trials often enroll upwards of 15,000 patients, costs will be higher but still within the $200 million range and not the billion dollar level.  Only by throwing in the kitchen sink and dividing all R&D costs by the number of new products do the whores at Tufts get to $800 billion.  The other whores at Bain throw in the toilet and shower as well by including costs for marketing, sales, bribery and what not.

Now the pharma veteran’s alter ego has flown off the handle somewhat, and he may not be including the costs of failed drugs in his calculations (although there aren’t that many highly expensive failures). But let’s remember what this is all about.  It’s about convincing the WTO and the US trade negotiators that price setting by foreign governments is a restraint on trade, and that far from Canadian prices coming here, ours should go to Canada, and Europe and Japan, etc!

This is not a joke.  Said the man from Merck (Ian Spatz, VP for public policy), "This is all going on in this larger context of growing unrest in the United States that other countries are not paying their share of the cost of pharmaceutical research."  And PhRMA is starting with Australia. The poor Aussies, who sent soldiers to Iraq over the objections of the vast majority of their citizens in order to get a free trade deal that would enable their agricultural goods to get onto US dinner tables, did not see this one coming! But if big PhRMA manages to convince us all that those costs are real, why wouldn’t they at least try to take them to the rest of the world? You may have thought that "growing unrest" over drug pricing here was all about American seniors taking the bus to Canada to buy drugs cheap. PhRMA thinks instead that we’re all upset about subsidizing the Canadians, and if we’re not we should be! After all the best defense is a good, pre-emptive, offense!

TECHNOLOGY: Mass. docs say one thing do another


A recent Mass medical society survey shows that doctors view computers as a necessity for their office work but are not using them much in their clinical care. Slightly more concerningly, despite the fact that overwhelming percentages think that they should be using computers for electronic prescribing (85%), recording of patient summaries (89%) and the collection of treatment records (83%) less than half have plans to do so. You’ll have noted that despite ePrescibing being compulsory in the House version of the recent Medicare bill, that unfunded mandate didn’t survive the AMA’s intervention in the conference committee.  So the question remains, who is going to pay for this computerization? Hint: in every other country where physicians actually use computing in their practice (UK, Sweden, New Zealand, even Canada), it’s been the government that coughed up.

QUALITY: Why are we caring about medical errors now?


In my background for the post last week on paying for Quality, I came across some of the more recent work by Michael Millenson, who wrote the great Demanding Medical Excellence. Millenson is not only a smart guy who tells a good story but he’s been a professional journalist for a major daily and a consultant for a major benefits firm.  So his explanation of why the IOM’s To Err is Human report hit such a nerve is well worth reading.  Partly it was the culmination of a slow groundswell of news and opinions from across the nation, both from reporters and consumers, and even a few doctors. But just as important was the fact that the IOM used human interest stories which were easy for journalists to latch onto and reproduce and also it was released on a slow news day.  Scary but true, that’s how things get to be a big deal in America. You can read Millenson’s article Pushing the profession: how the news media turned patient safety into a priority here.

POLICY: Bush signs Medicare bill, declares victory, goes home


Well he went back to the White House anyway….

So the Medicare bill is signed into law, and Bush used the occasion to point out that a poor diabetic who couldn’t afford $6,000 in drugs and needles will now only need to be unable to afford $3,000. OK that’s a little cynical of me. If you click here and got to Chart 7, you’ll see that 43% of the Medicare population have incomes below $15,000 a year and this bill will help most of them….but it doesn’t give them everything for free. Click through to chart 9 in the same file, and you’ll see that 15% already have Medicaid and most of the rest have some variety of either employer or individual drug insurance.  While this bill is good news for the 15% without any drug insurance, it’s neutral to bad for everyone else. That will be the political impact but probably not until people understand the bill in late 2005, which amazingly enough is after the next election.

And as usual when this White House announces financial data and gives human examples (and no I won’t give you a Krugman-esque diatribe here), the numbers Bush gave anticipated a best case scenario in the negotiations between the as yet unformed Medicare PBMs and the drug companies, expecting them to get a 20% price discount.  We’ll see, but few serious observers are anticipating the PBMs to turn into Wal-mart any time soon.

INDUSTRY: HMA stock down 10%


Stock in Health Management Associates, a chain of mostly rural hospitals, was down 10% after a downgrade from UBS today.  HMA’s stock has actually had a decent run up of over 40% since June, and with the Medicare bill favoring rural hospitals this might have been expected to continue. But the hint from UBS is that there are issues with billing, and of course that makes everyone think of Tenet and Columbia/HCA–of which HMA’s hospitals were a part before the now HCA spun them off as one result of their Medicare billing scandal.

In fact Don Johnson from the Businessword and I were having an email discussion about this last week and I presciently wrote this to him last Thursday:

    meanwhile HMA is a logical winner, but I’m terrified of investing in hospital chains as they always get indicted for fraud or its equivalent eventually (e.g. NME, Columbia-HCA, Tenet)

So did I take every penny I had and short HMA on Friday?  Of course not; curses, curses!

PHARMA: More on A-Z, Crestor, statins, heart disease . . .


And in a follow-up to Friday’s post about Crestor, I was alerted to this interview with Astra-Zeneca President David Brennan in which he claims that Crestor’s slower than forecast sales are due to an overabundance of free samples that they’d put into the market and expected (emphasis added by me) concerns about the drugs safety profile following the Baycol withdrawal. However, A-Z still believes that Crestor will get to be 20% of the statin market, and believe that their projections are on track. All of which leads the industry veteran who contributed to the post last week to comment:

    "Talk about a non-denial denial of Crestor’s lagging sales, see the Reuters article below.  I should think that if AZ’s U.S. president, David Brennan, disagreed with the Rx data or if there were any discrepancies in the performance measures, he would clearly make such points.  Not only did he fail to refute the data in the interview, but he says they were expecting this slow uptake. "We knew going into this market, based on our market research, that because of Baycol safety on uptake would be an issue." Strange, but  I don’t recall AZ ever mentioning anything like this before Labor Day!

    Brennan then launched into what I can only consider a diversionary statement about sampling. "AstraZeneca distributed around 100,000 30-day "Reach for Crestor" free sample packs to doctors at the time of launch." This is certainly far short of the 500,000 we heard about earlier, but also suggests a faulty marketing plarelativeve to sampling distribution.  If AZ has 3,000 reps promoting Crestor, the "Reach for Crestor" sample drop provides only 33 sample kits per rep.  If we assume that each rep will drop one sample kit per physician, that means each rep is only sampling 20% of his/her call list (at an average of 150 physicians/rep).  If AZ has 5,000 people on the street to promote Crestor, then they’ve given each rep only 20 sample packs.  Each 4-wk pack is still for only one patient, no matter how many weeks worth of pills are in the sample.  AZ would have been wiser to give out  400,000 1-week sample kits.  The goal consists of getting as many patients as possible to start using the product, not to give a ton of free drugs to fewer patients!

    Brennan goes on to say: "The amount of sampling in general, not just ‘Reach for Crestor’, has increased significantly with our launch. Not only our sampling, but the sampling of our competitors has gone up substantially." I knew someone here was born at night, but I didn’t think it was last night.  What he described here is basic competitive marketing behavior.  When a new product launches, it provides a wakeup call for existing competitors.  They stiffen most of their "spokes on the marketing wheel."

Personally I’m taking a more sympathetic view.  Brennan is a smart guy and he realizes that expectations here have gotten a little our of whack, and that the market needs to see the move to Crestor as evolution rather than revolution.  It’s just a pity that A-Z didn’t try to prepare Wall Street for this before the Crestor launch.  There will be a major DTC effort for Crestor next year, so we’ll see both what that does to sales and how Lipitor and Zocor respond.

Other statin news: Meanwhile (reg req’d) reports on a British study which suggests that for patients with heart disease statins are harmful. The study’s author Dr Andrew Clark (University of Hull, UK) commented to heartwire:

    "In heart failure, the fatter you are and the higher your cholesterol, the better off you will be. This raises the possibility that statins may be dangerous in these patients, but I couldn’t state that categorically. We need controlled trials to make such definite statements." But he is not treating his heart-failure patients with statins. "My recommendation at the moment is not to use statins in heart-failure patients. I have no evidence to believe that they are good and quite a lot of suspicious evidence that they are bad," he said.

Of course this is for patients who already have heart disease who are a very small share of the target market for statins. also has a round up of the letters to the Lancet supporting and opposing its recent anti-Crestor stance.