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Category: The Business of Health Care

A Rosa Parks Moment is Coming in Phase 1 Cancer Trials

By DAVID C. NORRIS, MD

David Norris, MD

 

I want to tell you about the most exciting discovery I’ve made in 2+ years of research on dose individualization methods for phase 1 cancer trials. This discovery has nothing to do with any of the technical problems I’ve confronted and solved along the way. It involves no gigantic equation, no table of simulations results, and no colorful plot. Rather, it’s a discovery about sources of power to innovate in drug development.

In general, how would you describe the balance of power between Big Pharma and the individual patient? The question seems ludicrous—maybe even offensive—in light of ongoing scandals with price-hikes and shortages for critical drugs. But in the special area of trial methodology, I’ve got a real surprise for you…

One result from my DTAT research has been a clear demonstration that 1-size-fits-all dose finding in phase 1 cancer trials can cut the value of a drug in half, or even drop it to zero by setting the drug up for failure in phase 2 or 3. Although this economic argument has never been made quite so explicit and rigorous, I am certain the underlying principle comes as no surprise to anyone. (I note hardly anyone bats an eye when I detail the math.) Continue reading…

Is Universal Health Care Socialism?

By ETIENNE DEFFARGES

The November midterms elections are approaching, and one of the major topics is health care. Democrats are campaigning on retaining Obamacare, in many cases advocating that we move towards universal health care.

That would be pure socialism, retort Republicans, who would rather repeal the Affordable Care Act as they attempted in 2017, even if this leads to 20 million Americans losing coverage.

Is Universal Health Care Socialism?

Only if we believe that every other developed market-based economy in the world is socialist since the U.S. is the only one without universal coverage. We spend almost $10,000 per year per capita on health care, about twice as much as most developed countries. However, in terms of major health outcomes, such as infant mortality or life expectancy, we are laggards. In a recent OECD survey, we ranked 27th out of 35 countries in life expectancy. Japan spends about $4,000 per year per capita in health care, yet the average Japanese has a life expectancy of 84 years, versus 79 for the average American. Why?

Every developed country other than the U.S. has had universal care for decades. While Prussia’s “Iron Chancellor” Otto Von Bismarck implemented the first universal care system…in 1883, our health care history is a patchwork of partial reforms, an inefficient collage of private and public institutions. We first tied health insurance to employment in 1946, because business and conservative opposition would not allow universal coverage; then added Medicare in 1965 so that our seniors would have coverage after they retired; then Medicaid, a different one for each one of our fifty states; Continue reading…

A Libertarian’s Case Against Free Markets in Health Care

By ROMAN ZAMISHKA

In the final act of Shakespeare’s Richard III, the eponymous villain king arrives on the battlefield to fight against Richmond, who will soon become Henry VII. During the battle, Richard is dismounted as his horse is killed and in a mad frenzy wades through the battlefield screaming “A horse, a horse! My kingdom for a horse!” Richard shows us how market value can change drastically depending on the circumstances, or your mental state, and even the most absurd exchange rate can become reasonable in a moment of crisis.

This presumably arbitrary nature of prices should be the first thing about the US healthcare market that catches the attention of any student of economics. Prices for the same procedure vary greatly between hospitals on opposite sides of the street and even then appear to have no basis in reality. Further investigation reveals many other features of the healthcare market that economics teaches us will increase transaction costs and the misallocation of resources. The prices we discussed are generally not paid by the patient, but by a third party insurer. Often the patient isn’t even able to select the insurer but is assigned one by his or her employer. What the patient thinks of the insurer’s ability as a steward of his or her premiums is irrelevant. Further, contracts between providers or pharmacies and the insurer completely hide the true price from the patient’s view. In addition, anti-competitive certificate of need laws limit competition between providers and expensive regulations compel providers to merge to compete in a nuclear arms race with the insurers, although the real victim is the patient’s wallet over which the providers and insurers fight their proxy wars. The best way to explain the US healthcare system is if you took every economic best practice and then did the opposite. How does one get out of this mess?

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Making Sense of the Health Care Merger Scene   

By JEFF GOLDSMITH

In the past 12 months, there has been a raft of multi-billion-dollar mergers in health care. What do these deals tell us about the emerging health care landscape, and what will they mean for patients/consumers and the incumbent actors in the health system?

Health Systems

There have been a few large health system mergers in the past year, notably the $11 billion multi-market combinations of Aurora Health Care and Advocate Health Care Network in Milwaukee and suburban Chicago, as well as the proposed (but not yet consummated) $28 billion merger of Catholic Health Initiatives and Dignity Health. However, the bigger news may be the several mega-mergers that failed to happen, notably Atrium (Carolinas) and UNC Health Care and Providence St. Joseph Health and Ascension. In the latter case, which would have created a $45 billion colossus the size of HCA, both parties (and Ascension publicly) seemed to disavow their intention to grow further in hospital operations. Ascension has been quietly pruning back their operations in markets where their hospital is isolated, or the market is too small. Providence St. Joseph has been gradually working its way back from a $500 million drop in its net operating income from 2015 to 2016.

Another notable instance of caution flags flying was the combination of University of Pittsburgh Medical Center (UPMC) and PinnacleHealth, in central PA, which was completed in 2017.   Moody’s downgraded UPMC’s debt on the grounds of UPMC’s deteriorating core market performance and integration risks with PinnacleHealth. As Moody’s action indicates, investor skepticism about hospital mega-mergers is escalating. Federal regulators remain vigilant about anti-competitive effects, having scotched an earlier Advocate combination with NorthShore University HealthSystem in suburban Chicago. The seemingly inevitable post-Obamacare march to hospital consolidation seems to have slowed markedly.

However, the most noteworthy hospital deal of the last five years was a much smaller one: this spring’s acquisition of $1.7 billion non-profit Mission Health of Asheville, NC, by HCA. This was remarkable in several respects. First, it was the first significant non-profit acquisition by HCA in 15 years (since Kansas City’s Health Midwest in 2003) and HCA’s first holdings in North Carolina.  While Mission’s search for partnerships may have been catalyzed by a fear of being isolated in North Carolina by the Atrium/UNC combination, Mission Health certainly controlled its own destiny in its core market, with a 50% share of western North Carolina. Mission was not only well managed, clinically strong and solidly profitable, but its profits rose from 2016 to 2017, both from operations and in total.

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Adjusting for Risk Adjustment

Risk adjustment in health insurance is at first glance, and second, among the driest and most arcane of subjects. And yet, like the fine print on a variable-rate mortgage, it can matter enormously. It may make the difference between a healthy market and a sick one.

The market for individual health insurance has had major challenges both before and after the Affordable Care Act’s (ACA’s) risk adjustment program came along. Given recent changes from Washington, like the removal of the individual mandate, the market now needs all the help it can get. Unfortunately, risk adjustment under the ACA has been an example of a well-meaning regulation that has had destructive impacts directly contrary to its intent. It has caused insurer collapses and market exits that reduced competition. It has also led to upstarts, small plans and unprofitable ones paying billions of dollars to larger, more established and profitable insurers.

Many of these transfers since the ACA rules took effect in 2014 have gone from locally-based non-profit health plans to multi-state for-profit organizations. The payments have hampered competition not just in the individual market, which has never worked very well in the U.S., but in the small group market, which arguably didn’t need “help” from risk adjustment in many states.

The sense of urgency to fix these problems may be dissipating now that the initial rush for market share under the ACA is over and plans have enough actuarial data to predict costs better. There has been an overall shift to profitability. But it would be a serious mistake to think that just because fewer plans are under water, the current approach to risk adjustment isn’t distorting markets and harming competition.

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Misdiagnosis: Obamacare Tried to Fix the Wrong Things and Prescribed the Wrong Treatments

Today THCB is happy to publish a piece reflecting the learnings from Charles Silver and David Hyman’s forthcoming book Overcharged: Why Americans Pay Too Much For Health Care, shortly to be published by the libertarian leaning Cato Institute. In subsequent weeks we’ll feature commentary from the right radical libertarian zone on the political game board (Michael Cannon) and from the left (Andy Slavitt) about the book and its proposals. For now please give your views in the comments–Matthew Holt

There are many reasons why the United States is “the most expensive place in the world to get sick.” In Part 1 of Overcharged: Why Americans Pay Too Much For Health Care, we show that the main reason is that we pay for medical treatments the wrong way. Instead of having consumers purchase these treatments directly, we route trillions of dollars through third-parties payers – both government and private insurers.

Relying on third party payers has many consequences — few of them good. To start with, this arrangement removes the budgetary constraint that would otherwise cap the amount consumers are willing to spend. By minimizing the direct cost of treatments at the point of sale, third party payment arrangements alter everyone’s incentives fundamentally. Consumers no longer need worry about balancing marginal costs against marginal benefits; instead, they have an incentive to use all treatments that have any potential to help, regardless of their prices. When millions of consumers act on these incentives, total spending skyrockets and consumers collectively wind up worse off, because their fixed costs spiral upward too. Heavy reliance on third party payers creates a classic failure of collective action.

It isn’t just consumers. Providers love third party payment as well. And why not? Once providers have access to the enormous bank accounts of third party payers, the sky is the limit, at least until third party payers start setting limits on the amounts they will pay and saying no to unproven and/or cost-ineffective treatments that doctors want to provide and patients want to receive.

Not surprisingly, it has turned out to be extraordinarily difficult and politically unpopular for third party payers to set such limits. Obamacare’s appeal derives largely from two requirements: health insurance plans must accept all comers, including applicants with preexisting conditions that require expensive medical treatments; and health plans must provide unlimited benefits (i.e., no annual or lifetime spending caps). From an individual consumer’s perspective, what could be better than having access to unlimited amounts of money to spend on medical needs? From society’s point of view, though, this combination is a recipe for disaster.Continue reading…

Apple, Cerner, Microsoft, and Salesforce

… all rumored to be in the mix to acquire athenahealth.

Nope.

Why not?

a) Apple doesn’t do “verticals.” It’s that easy. Apple sells products that anyone could buy. A teacher, a doctor, my mom. Sure – they have sold high-end workstations that video editors can use, but so could a hobbyist filmmaker. Likelihood of Apple buying athenahealth? ~ .01%

b) Cerner? Nah. While (yes) they have an aging client-server ambulatory EHR that needs to be replaced by a multi-tenant SaaS product (like the one athenahealth cas built), they have too much on their plate right now with DoD and VA and the (incomplete) integration of Siemens customers. Likelihood of Cerner buying athenahealth?  ~ 1%

c) Microsoft. Like Apple, it’s uncommon for MSFT to go “vertical.” They have tried it. (Who remembers the Health Solutions Group?) But the tension between a strong product-focused company that meets the needs of many market segments, and a company that deeply understands the business problems of health (and health care) is too great. The driving force of MSFT, like Apple, is to sell infrastructure to care delivery organizations. Owning a product that competes with their key channel partners would alienate the partners – driving them to AMZN, GOOG and APPL. Likelihood of Microsoft buying athenahealth?  ~ 2%

d) Salesforce. I’d love to see this. But it’s still unlikely. athenahealth has built a product, and they (now) have defined a path to pivot the product into a platform. This is the right thing to do. Salesforce “gets” platform better than everyone (aside from, perhaps, Amazon). But Salesforce has struggled with health care. They’ve declared times in recent years that they are “in” to really disrupt health care, and with the evolution of Health Cloud, and their acquisition of MuleSoft, they have clearly made some investments here, but the EHR is not the “ERP of healthcare” as they think it is. (Salesforce’s success in other markets has been that they dovetail with – rather than replace – the ERP systems to create value and improve efficiencies.) The way that Salesforce interacts with the market is unfamiliar (and uncomfortable) to most care delivery organizations. So if Salesforce “gets” platform, and athenahealth wants to be a platform when it matures, could these two combine? It’s the most likely of the three, but I still see the cultures of the two companies (I know them both well) as very different, and not quite compatible. Likelihood of Salesforce buying athenahealth?  ~ 10%

e) IBM. yup. I forgot that one. Many recent acquisitions. This would fit. I don’t think it would work very well, but it could happen. ~6%

Others?Continue reading…

Bad Blood & Mad Love at Theranos—Psychopaths at Work

I’ve been kidding John Carreyrou on Twitter that I was going to give Bad Blood, his tale about the Theranos fraud, a one star review because he never sent me a preview copy. But it’s a barn burner, and I can’t recommend it enough, even though I spent my own $13.95 on the Kindle version!

By now the story is well known. The young blonde Stanford drop out with the baritone voice says she’s going to change lab testing forever, then hides in stealth in Silicon Valley. I caught a few whispers over the years that this company was doing something but as lab testing was a little away from the mainstream of health tech, I didn’t ever bother to look for more. And then in 2014 Holmes gets into Fortune and from a distance we are all cheering her on because she’s figured out a new way to disrupt a stodgy industry. The first Carreyrou piece is published in the WSJ in late 2015—even though Murdoch was a huge investor–and over the next 2 years massive fraud is exposed.

About when Holmes was starting to talk about stuff, and after the Walgreens deal eventually went live (mid 2014) there was the very odd series of events when Holmes appeared to agree to come talk at Health 2.0 and but shortly afterwards she and her PR team went totally radio silent on us. I was told by one PR flack that he’d heard that another conference had told her to choose between us and them (TedMed? I’m guessing) but who knows. She appeared at TechCrunch in September 2014 and had the interviewer Jon Shieber’s blood drawn with his results coming back while she was on stage—clearly faked we now know. I saw her interviewed by a fawning Toby Cosgrove at Cleveland Clinic, where she said that Carreyrou was lying. I stood at the end of a receiving line full of people asking her to sign things for their daughters as she was such an inspiration. When I got to the front I asked her why she didn’t come to Health 2.0 and invited her to come the next time. With me in line was Medcity News Editor Chris Seper who asked for an interview. After about 15 seconds of her not saying anything, a PR flack jumped in, pulled us away from her, got our cards and said she’d get back to us. I’m still waiting

But what is just remarkable about this whole thing is how little due diligence was done by investors who plunked down hundreds of millions.Continue reading…

Consider this Speculative Scenario on Walmart & Humana

Walmart (WMT) is in talks with Humana (HUM) about a relationship enhancement, possibly an acquisition. The two already know how to work together in alliances (narrow pharmacy network, marketing collaborations, points programs). If a new structure is needed, WMT and HUM must be considering a major expansion of scope or a set of operating models where contributions are difficult to attribute and reward (e.g. joint asset builds). What is on their minds? Beyond any interim incremental moves, what could be the endgame?

Catching convergence fever

Horizontal combinations among the top five health plans have arguably reached the regulatory “permissible envelope.” But provider combinations continue apace, enhancing ability to execute on value-based care to be sure, but also increasing negotiation leverage relative to payers. Further, Amazon’s (AMZN) interest in healthcare is gaining momentum but the specific goals are still mysterious, leaving many incumbents to imagine red laser dots are on their foreheads.

Accordingly, health plans are seeking defensible terrain in convergence combinations: CS & Aetna (CVS-AET), Cigna & Express Scripts (CI-ESRX), Anthem’s PBM insourcing and growing attention to CareMore (United Healthgroup [UNH] has been ahead of the curve as usual: but their recent SCA and DaVita medical group acquisitions have clarified for the market the scope of its ambitions for OptumCare). Of course, each of these moves just contributes to the uncertainty about the new competitive paradigm, driving more land grabs in response. I view the WMT-HUM discussions as part of these developments.

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Vineti raises $33m, Amy DuRoss interview

Any DuRoss is one of the more charming and remarkable characters in the health tech world. She lead the campaign for Proposition 71 in 2004 which funded and established the California Institute for Regenerative Medicine. Later on she was a key player at early genetics company Navigenics, and more recently after time at GE Ventures she founded Vineti, which today raised $33.4m in Series B funding. Vineti is a new kind of pharma supply chain company helping deliver gene therapy, but what does that mean? I asked Amy and she told me!

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