Blog Page 985

PHARMA: Drug stocks low risk in the new year?


The AP reported on New Year’s Eve that the rough consensus of analysts is that 2004 will be a reasonable but not great year for the pharma stocks. Those stocks have of course underperformed the S&P over the last year but actually haven’t done too badly over the last 2 years compared to the S&P after their plunge 18 months ago. One potential major problem has been dodged, with a Medicare bill that’s as friendly to the pharmas as possible.  The longer term problem is the paucity of the pipelines, so I’d look for more deals in the biotech sector like the one Pfizer did with Esperion Therapeutics. But of course some time after 2006 when the Medicare coverage comes in, the likelihood of more governenment interference is a risk in the much longer term.

In the shorter term the most interesting stock remains Astra-Zeneca. Since its beautiful technical double bottom in February and March last year A-Z has rallied over 65%.  THCB has reported at length about the potential problems with both Crestor and its struggles with Lipitor. This past weekend the influential finance magazine Barrons essentially came out  warning that A-Z’s rally was overdone, but if you’d shorted A-Z a few months ago when this discussion started, you would be under water. Is it any different now?



Welcome to 2004 at THCB.  I hope to do a revamp to the site in the next few weeks, but I don’t think you’ll see too much change to the way things are run. I don’t think I’ll be adding comments, but please keep those emails coming and please feel free to write pieces that fit into the spirit of THCB. I’ll keep posting them if they’re suitable, whether or not I agree with them. Also please let me know if there are other topics you’d like to see covered in the future.

And in the spirit of New Year Renewal for some years now I’ve written an end of year letter suggesting some charities and issues that I’m supporting. It has nothing to do with health care, but if you’ve got some time I’d be delighted if you took a look and supported some of the charities and causes I feature.



Thanks for reading THCB in 2003. I’m off to see if my knee will hold up to a little gentle snowboarding.  See you next week and happy 2004.

INTERNATIONAL/INDUSTRY–British Surgeons’ Private Fees Highest in World, really?


And in a fun story at the end of the year, Reuters claims that in their private practice British Surgeons charge the Highest fees in the World.  Now I know a little about this given that my father was, until his retirement last year, one of those NHS surgeons who worked 20% time in the private sector.  No question that the private sector was where he made the majority of his income (usually more than double there what he made in his relatively paltry NHS income), and there’s always been some controversy over this arrangement.  But although private fees were high there I’m very surprised that they were really higher than in the US, and specialists there make overall nothing like what specialists here do.  Last year the surgeon fee alone for my serious knee operation was, list price including assistant,  $21,500, and after I negotiated it down to roughly UCR, it was still around $12,000, or $10,000 for the surgeon’s fees alone.  Of course this didn’t count the tissue graft acquisition which was another $5,000 which I’m sure the surgeon’s office made a pass thru on. That was a for a three hour major but relatively routine surgical procedure.

So I asked my dad if he made 6,000 GBP equivalent of $10,000 for the average 3hr period he spent on this private operations and here’s the transcript of his response. "No (bleep) (bleep) (bleep) (bleep)(bleep) (bleep)ing (bleep), and you can (bleep) (bleep) in your (bleep)ing (bleep) and if I did I’d have (bleep)(bleep) (bleep)ing Ferrari, (bleep)(bleep) yacht (bleep)(bleep) house in south of France (bleep)(bleep) private jet (bleep)ing too".  So as they say in the medical literature, perhaps more research is needed!

TECHNOLOGY: Paying for online consults


This fairly routine article about the very slow growth in online (email) consults had one line that made me sit up and pay attention.

    The payment obstacle may be lowered Jan. 1, when the American Medical Association creates a reimbursement code for online communication between doctors and patients.

At the least the more dubious online pharmacies can now double bill the insurers of the patients they’re already charging for the "consults" that get them prescriptions. OK that was just a wisecrack, but one day we may just wake up and find that the adoption of the online email visit as a compensated service just kind of happened– because of this new CPT code.

PHARMA: The Cholesterol Wars


This won’t be much new news for those of you who’ve been following the various commentators here on THCB about the war between Lipitor and Crestor, but The Motley Fool website has a good summary of the statin market called The Cholesterol Wars.

HEALTH PLANS: HSAs and Doctors Letting Patients Skip Co-Pays


In a bit of end of year silliness I got involved in the comments over at Robert Prather’s post  at Insults Unpunished about HSA’s in the new Medicare bill.  There’s no doubt that HSA’s have a greater chance of success than the MSA’s they replace but Robert and I disagree about how easy it is for doctors and pharmacists to be transparent enough about their pricing to allow a real market to develop.  The comments are worth reading though, particularly some of those from Don Johnson who as usual injects a serious and balanced view from the right into the discussion, and has some perceptive things to say about why managed competition has never gotten far in the policy world.

Meanwhile, The NY Times reports on the related issue of out-of-network doctors counteracting the attempts of what’s left of the managed care industry to restrict members to tight networks.  The Times found that in several states Some Doctors (are) Letting Patients Skip Co-Payments. Of course it’s those co-pays that are supposed to keep the managed care patients in network. If doctors are prepared to work for UCR fees minus the patient’s co-pay/co-insurance, then what’s left of the managed care plans’ efforts to control medical care using loose networks is doomed.



I’ll say more in my personal end of year message, but for now, thanks for reading THCB and Merry Christmas, Chunakah, Kwanza or other mid-winter fertility ritual to you!  Back next week!

POLICY: Medicaid as the vehicle for Republican health reform?


So please welcome yet another anonymous contributor, this one we’ll call Jones the Policy Wonk.  The Wonk took exception to my recent post which suggested that "big" health care reform would be absent in the next administration whether it was Bush, Clark or Dean at the top. (Don Johson at Businessword indirectly chides me for leaving out Gephardt’s plan, but besides my admiration for Kucinch taking a bold non-conforming stand, I am a realist and Dick Gephardt ain’t got a shot either! The Geek seems to me to be in the Paul Krugman camp who think that the current Administration wants to "starve the beast" (scroll down to #3 here to learn more)–that is, run deficits so there’s no money for moderate income people’s programs like SS and Medicare so those people will turn against the government. Anyway, the Wonk gets her name because she understands Medicaid very well, not because she said I was wrong about no big health care reforms coming. Here’s what she suspects is coming from Bushco in the next couple of years:

    First, I think Bush will unveil some kind of tax credit for individuals, and while it will be deeply flawed policy, it will make for excellent political soundbites.  He’ll run on that and "I fixed Medicare!"

    I see the following happening:  An agenda of caring for the uninsured, which encompasses:
    #1 Med malpractice reforms–it’s ideologically desirable and the right kind of "malpractice reform" would undercut a huge source of funding for Democrats (trial lawyers).  It’s going to be a senate battle, and depending on how well Edwards does in the election, med mal could move WAY up in the agenda),
    #2 some kind of tax credits scheme (probably similar to the TAA bill), and
    #3 Medicaid Reform (largely an intragovernmental fight, and I think the White House will lose).

    My guess that they’ll go to Medicaid is just a guess, but it makes sense–
    Hint #1:  Dennis Smith, head of Medicaid, rather than Leslie Norwalk, currently the acting #2 person at CMS, was tapped to "temporarily" to take over Scully’s position.  I’m reading tea leaves at the Kremlin here, but it suggests to me they’re looking for someone conversant in Medicaid policy, and with the credibility and connections of a former state Medicaid director (Virginia) to push through reform.   

    Hint #2–Bill Frist has said his #1 priority will be helping the uninsured. This doesn’t only suggest tax credits for low-income people.  Interestingly, when George Bush made his initial push for Medicaid reform in August, 2001 he linked it to decreasing the number of uninsured. 

    Rationale for Action: Because of the Federal match, the Federal government has almost no control over the annual budget line for Medicaid, and states love to spend through Medicaid.   Richt now, Medicaid growth is really being driven by medical inflation, esp in the care of long-term disabled and elderly dual-eligibles.  So, the question isn’t "why is Medicaid spending increasing"–all healthcare spending is increasing.  The question is: "why don’t states slash their Mcaid budgets?" 

    States are decreasing Medicaid spending (or, more often, decreasing the rate of growth in spending), but less than one would expect.  This is because aside from all the traditional political pressures against cuts (industries dependent on Medicaid  like pharma, hospitals, nursing homes, etc//political fallout of cutting benefits for poor people), every dollar of state spending through Medicaid is matched federally on a 1:1 or greater level (depending on how poor a
    state is).  So, a Medicaid budget of $100 million  represents (at maximum) $50 million in state spending, and $50 million in free federal dollars.  In most states, every dollar spent on Medicaid brings in way more than a dollar in federal matching funds.

    As a result, states have done things like classify state funded programs as part of Medicaid (eg: NY put its entire developmental disability system in Medicaid), to get the federal match on state spending they were going do even without the match.  Additionally, some states have engaged in fantastic accounting gimmicks with Medicaid to effectively draw down "match" federal dollars that could be used for any purpose.    

    So, the problem from a Bush Administration standpoint is that federal Medicaid spending can be infinitely expanded (states just get a waiver), and there’s not a lot of accountability for where the money goes (in theory, there’s accountability, but in practice not really.  Lots of states, you know.)  So, as you go farther and farther out, it’s gets harder and harder to predict Medicaid spending because you have the typical uncertainties of medical spending growth, but also the uncertainty of "Will California one day declare universal healthcare through Medicaid?" 

    In addition, there is some argument that federal regulations are too onerous.  IMHO, this is a red herring–most of the regulations really prohibit states from slashing benefits to the truly poor, and from providing benefits in a discriminatory manner.  Furthermore, you can always get around them with a good reason and a waiver.  Additionally, if the feds think the federal regulations are too burdensome, they can just not enforce them.  Grant waivers to everyone, for everything.  Problem solved.   

    So, the Bush suggestion is that states should take a block grant instead of a match, in exchange for increased flexibility.  It’s supposed to look like "managed care" for states–they get a block grant and all the flexibility they want to design their programs however they want.  However, the danger is that this will look a lot like "managed care" ended up–capitation with ruthless enforcement of spending caps, and not so much delivery on creating a better, more integrated system.  There’s already sufficient pressure for efficiency–states DO have to foot about 40% of the bill, and with the shortfalls they’re suffering, it’s significant.  So, the "taking on of risk in exchange for freedom" analogy that the Bush Administration is pushing is fundamentally flawed–they already have enough risk to motivate them to maximize efficiency, and they have enough freedom to get the job done. 

    However, it is strongly analogous to employers moving from a "defined benefit" system (we provide insurance to our employees) to a "defined contribution" system (shoot, we don’t know HOW much this damn insurance is gonna cost next year; let’s give all employees $900 annually to buy into a plan)

So there you have it. According to the Wonk, the next Bush administration will dump more people and less money into Medicaid, declare more or less universal coverage victory and go home.  My sense is that this won’t get off the ground politically because it runs into the roadblock of the southern strategy.  Most of those states relying on Medicare match for more than 50% of Medicaid spending, and the ones that get the most pork anyway, are the central and southern "Red" states. It seems unlikely to me that an Administration with almost no interest or appetite for significant policy reform domestically (i.e. outside Baghdad) and showing very little interest in fiscal restraint, will start down this path by upsetting its core supporters. But if I’m wrong the Wonk‘s theory does have a suitably neo-con ring to it!

POLICY: First decent Medicare Bill polling data


The first decent poll I’ve seen on the Medicare bill is out from Harris, and the seniors hate it. No one under 40 has a clue about the bill (really!) but those over 65:
–are disappointed it passed by 51% to 16%
–disapprove of the discount drug card provision 45% to 44%
–disapprove of allowing private plans to compete with Medicare 54% to 30%
–disapprove of the ban on Canadian imports by a modest 85% to 12%

They only just approve of the drug benefit itself by 48% to 44%! These are horrible numbers by any interpretation and perhaps may have an impact in the wider scheme of things.

The Republicans (62-3%) get the blame over the Democrats (57%).  So my memo to the Democrat strategists (if they can find one) is to blame the Republicans for banning cheap drugs from Canada and selling Medicare to those evil HMOs, and perhaps they should suggest that Bushco has the same thing planned for social security.  The Donkey faithful must see Florida and Pennsylvania veering into the D column any time now……