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PBMs: Something old and something new

You may not know this (I admit I didn’t) but there’s a trade association for PBMs called the Pharmaceutical Care Management Association which yesterday was one of the first to come out and laud the Administration’s call for improving the Nation’s Health Care Information Infrastructure. That reminded me of something old and something much more recent about PBMs. I’ve written pretty widely about PBMs in THCB, with the much shorter version being that despite the fact that they have totally failed in their stated mission to keep the lid on drug prices, and for that matter haven’t really done much to advance care management (or "health improvement"), they have made a business out of being decent claims processors and by inserting themselves firmly in the financial dealings between their clients and their "partners" in the pharma world. filed Monday against Caremark:

  No wonder that the biggest PBM, Medco, is starting its first ever PR campaign. There’s no question in my mind that PBMs need to find what we consultants call a new value proposition–but then I’ve been thinking that for a while. What that new value prop is and whether they can get away with doing what they’ve been doing for a while longer while they figure it out is of course up in the air.

It’s interesting that the PBMs are now loudly backing the new health IT initiative (more on that from THCB tomorrow when I hear back from my spies in DC) as the data processing part of their business was indeed launched by the last major change to Medicare. That was the ill-fated Medicare Catastrophic Act which was passed in 1988 and repealed in 1989. One thing that its passage caused was the installation of what ended up being NDC and PCS’ pharma claims and editing transaction systems. So now when you go to the drug store, your claims and co-pay information is right there for the pharmacy tech to read off to you–no, you didn’t notice that happening in the doctor’s office! So it looks like PBMs have decided that the new Medicare "Modernization" Act with its somehow associated IT initiative will do something equally good for its business in the future.

They’d better hope so. Whatever the future holds, their present continues to come under increasing attack. THCB has mentioned before the attempt by large employers to go around the PBMs in negotiating rebates, and several of the bigger PBMs have been settling with trial lawyers and their customers over the extremely opaque nature of their rebate mechanisms. I thought that the plaintiff’s attorney put it rather well in a further lawsuit

The lawsuit says that Caremark keeps discounts from drug makers and pharmacies instead of sharing them with members of the Morrell benefit plan. It says Caremark secretly negotiates rebates for drugs and keeps that money. It also says that the company provides plan members with expensive drugs, instead of cheaper alternatives, to get rebates.

BLOGS: Apology to Brian Towell

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Last week I published an article from Industry Veteran responding to an article posted by Brian Towell. On re-reading the Veteran’s piece in a more grounded manner, he went over the line from being rude about Brian’s ideas to being rude about him personally. My aim in THCB is to provide a place where I and others can air strong opinions about the health care marketplace. I welcome contributions from the Veteran and others, and it’s in the nature of this blog that sometimes posts are more like a late night bar conversation than scholarly articles. But there’s enough really bad stuff going on in the world without adding more personal invective. So I apologize to Brian for publishing the Veteran’s piece. I’ll employ a slightly heavier use of my editorial discretion in future and hope that we can now get back to more constructive consideration of the issues.  By the way, Brian’s piece on what pharma has to do about its overall marketing strategy, which is long and thoughtful, is here, and the Veteran will be back doing what he does so well later.

POLICY: Free Market Medical Care, by Andy Ribner, M.D.

THCB has a new contributor today; Dr Andrew Ribner, a cosmetic surgeon who wrote to me originally in praise of my opinions about a piece I wrote about Regina Herzlinger a while back. After a bit of back and forth, Andrew figured out that despite my call for an intellectually honest backer of health care consumerism, I wasn’t a true believer in the power of the market. Cosmetic surgeons know something about the role of the free market in health care, so Andy sent me this:   Free markets are the most efficient mechanism for exchange of goods and services because they promote the features and price at which willing sellers and buyers agree to exchange.  When free markets are present, the price and features of goods or services offered respond to the desires of the aggregate of buyers.  Knowledge on the part of buyers as to what sellers are offering and on the part of sellers concerning what buyers want is necessary.  Perfect knowledge is desirable but rarely present.   Completely free markets are difficult to achieve, and perhaps not necessarily desirable or practical under all conditions.  Government controls and laws often limit the complete freedom of the market place.  We have laws against fraud, age requirements to purchase certain products and certain guarantees concerning product quality which protect consumers.  We even intervene with the evolution of markets to keep them from being under the excessive control of a single seller in a market monopoly.  Rarely, we do protect sellers when the purchase in a market is dominated by one buyer, as in monopsony.   At the present time there is not a free market in the purchase of health care.  This is the consequence of several factors.  First of all, the user of the service in most cases is not the purchaser of the service.  During the period of wage-price controls in World War II, companies devised a new way to compete for scarce labor by introducing employer purchased health insurance as a benefit of employment.  This continues to the present day.   When the buyer of a product or service is not the end user, this creates non-alignment of incentives between buyer and user.  The market cannot respond to the preferences of a user who is not a payer.  Only the flow of dollars will modify the features of goods or services offered.   On the other side of the coin, a buyer not pressured by the constraints of price or budget will have an unlimited demand for goods or services.  This was the fatal defect of a third party payment system.  This was further exacerbated by years of labor union demand for "first dollar" coverage of medical care.   The health insurance industry response to rising costs was first to increase premiums.  However, payers preferred reduction in coverage to increasing costs, and thus managed care (read reduced care) was born.  Health care users predictably resented gatekeepers and denial of care which has become a mainstay of insurance company strategy.  Although HMOs have begun to disappear, insurance companies are still active participants in treatment decisions through their approval process.   Free markets also cannot exist in the presence of a single dominant seller or small group of sellers who have so much leverage that they can control market price and features offered.  "Trust busting" was the solution to that problem when it was identified under President Theodore Roosevelt.  Monopoly may be more common, but monopsony, the situation of a single powerful buyer distorting a free market, is equally as destructive to free market function.   Today, huge health insurance companies have become monopolies (more accurately oligopolies) as sellers of health insurance.  With competition so diminished it is no wonder buyers can no longer get the features and price they seek.  In addition, these same insurance carriers exercise monopsony power in the purchase of health care services, controlling price paid and scope and nature of services covered.   Hospitals have joined together in ever larger groups in order to maintain market power in negotiation with insurance companies.  Physicians, on the other hand, have not been permitted to negotiate as large groups with few exceptions.  Consequently, during this time of double digit health care cost increases, physician reimbursements have been flat or gone down.  Medical practice has become a high volume exercise just to keep up with overhead.  Adam Smith would predict that as you pay less and less for a service, the motivation to be available at all hours to provide that service disappears.   What to do? Some have suggested "managed competition" to create agreement between insurers, doctors and government would control costs and improve quality.  "Managed competition" is an oxymoron right up there with jumbo shrimp and would more likely result in the insurance industry using its considerable political clout to influence government decisions to the detriment of both patients and physicians.   The best prescription for a responsive and responsible health care system is a free market.  Medical Savings Accounts (MSAs) are a good first step toward market discipline.  MSAs would be funded by pre-tax earnings and would be used to pay the high deductible of a catastrophic or stop loss type of health insurance policy.   Money placed in MSAs could be used to pay any health expense and would be a less painful way to meet a high insurance deductible.  By allowing the individual to roll over money in the plan from one year to the next, it would provide a motivation to spend the money carefully and shop for price as well as features of service.   Tax treatment of health insurance premiums would change. Health insurance premiums would no longer by tax deductible to employers, but would be either a tax deduction or tax credit to individual purchasers.  An employer could pay its employees in salary what it had spent on health insurance.   Overnight, employers would stop providing insurance to its employees, and the purchasers of health insurance would be the end users.  Portability of insurance coverage would no longer be an issue because health insurance would be individually purchased.   In the scenario of individually purchased health insurance would force insurance companies to at least respond to buyer preferences for features.  Change in tax treatment to individuals would certainly maintain price responsiveness on the part of buyers, but it would allow the working uninsured to purchase insurance as individuals. We can encourage healthy lifestyle and reduce overall health care costs if we permit underwriting of risk factors as is done in automobile insurance.  The current argument against this practice is that it would make insurance unaffordable for those who are chronically ill and likely to incur high expenses on an ongoing basis.  That group of patients would be eligible to receive federal subsidies for their insurance premiums.   This is by no means a perfect solution to our health care problems.  But, it is a step in the right direction to encourage the free market to find the solutions to our current dilemmas in the provision of health care.    Those of you looking for an alternate view of MSAs/HSA’s may be interested in Paul Krugman’s views in his NY Times op-ed last week. I’ll reply to Andrew later this week, but my concerns about the consumer directed health plan movement have been voiced in THCB before.

POLICY: In Florida not all the nuts grow on trees

In Florida, the state Supreme Court has decided in its wisdom that its should put competing initiatives on the November ballot about medical errors and malpractice. Both of these are mutual nitpicky tit for tat assaults by the trial lawyers on the doctors and vice versa. Believe it or not these will get to change the state Constitution!

And we still let this state stay in the Union, despite the screw-up that they made of it in 2000. As Charlie Brown said, "Good Grief!"

PHARMA: Marcia Angell’s frontal assault on big pharma

Hat-tip to Ross at the Bloviator for this one. I know I promised that I’d try to stop writing about pharma, but….. a synopsis of her thesis. Nothing here that you wouldn’t know if you’d been observing the industry for 20 years, but really interesting to see so may arguments put together in one place. Her main thrust is that:

Marcia Angell, former editor of NEJM has been working away on a damning book about big pharma. Her long article is presumably

a) Pharma is not innovative (mostly gets its products from NIH backed research, and from smaller biotech) b) The big money is spent on marketing not R&D c) They use monopoly protection to continually increase prices d) Pharma buys protection by huge contributions to politicians e) The major players are not trying to innovate their way out of the current situation

    How is the pharmaceutical industry responding to its difficulties? One could hope drug companies would decide to make some changes—trim their prices, or at least make them more equitable, and put more of their money into trying to discover genuinely innovative drugs, instead of just talking about it. But that is not what is happening. Instead, drug companies are doing more of what got them into this situation. They are marketing their me-too drugs even more relentlessly. They are pushing even harder to extend their monopolies on top-selling drugs. And they are pouring more money into lobbying and political campaigns. As for innovation, they are still waiting for Godot.

Angell’s book is presumably going to be a hatchet job (albeit a justifiable hatchet job) on the industry. Her explicit intention is to make what insiders and observers know about the industry well understood amongst the public, hoping to get the political winds to change and reform the industry.

    These are just two of many reforms I advocate in my book. Some of the others have to do with breaking the dependence of the medical profession on the industry and with the inappropriate control drug companies have over the evaluation of their own products. The sort of thoroughgoing changes required will take government action, which in turn will require strong public pressure. It will be tough. Drug companies have the largest lobby in Washington, and they give copiously to political campaigns. Legislators are now so beholden to the pharmaceutical industry that it will be exceedingly difficult to break its lock on them. But the one thing legislators need more than campaign contributions is votes. That is why citizens should know what is really going on. Contrary to the industry’s public relations, they don’t get what they pay for. The fact is that this industry is taking us for a ride, and there will be no real reform without an aroused and determined public to make it happen.

So what’s the likely impact of this book? There have been similar screeds about the pharma industry for over 20 years, many coming from academic docs like Angell. They’ve had zero impact on the industry or on its relationship with non-academic physicians. What may be different this time is that the polls are now showing the decline in the industry’s public image happening at a time when pipelines are drying up. Meanwhile the genomic and information revolutions are going to allow much better tracking and understanding of what drug works on whom. That in turn will begin to make more inevitable demands from payers for better understanding of what they are buying when they pay so much for drugs. So perhaps the pressure on pharma will finally be great enough that they’ll be forced into a change one way or another.   Some innovative people in pharma are planning for that day, trying to integrate the desire to intervene in care with the right cost-effective drug at the right time into their R&D activities. (On a personal note, I’m about to start working with a Foundation that is creating partnerships to promote that model). In the end, to paraphrase Craig Ventner, I believe the greatest days of the pill business are actually in front of us.  But they may not be quite so fantastically profitable, and they will probably not look like the business as usual approach that Angell excoriates.  However, this is an industry that is very conservative (big and small Cs). It’s primary need now is to ensure that it goes into the future on terms that are best for it and the system, rather than invite on itself the kind of dramatic regulation and intervention that Americans frankly do poorly.   Like their kissin’ cousins over at the AMA and their obsession with liability caps, PhRMA and its members need to start fighting the right fight, and their obsession with reimportation is not that.

PHARMA: Free trade and importation redux

So the Australian trade agreement passed the house and it includes the limits on reimporting drugs discussed in THCB earlier this week. Of course they passed it by swearing blind that it won’t impact the reimportation issue as apparently Australian drugs can’t be imported here anyway. Funnily enough the AARP is out with a new push poll survey that shows what Harris and others have been saying for a while now: 80% of seniors favor legalization of Rx re-importation. And for the gazillionth time; Florida, Pennsylvania — swing states, old populations.   Next week I’ll be ignoring pharma and trying to convert this from The Pharma Blog back to the THCB that you know and love (or at least some of you love).

PHARMA: The Industry Veteran responds to “mountebank” Brian Towell

Oh dear.  The Industry Veteran was not pleased about what he read from Brian Towell in THCB two days ago.  And he’s in a particularly feisty (not to mention rude) mood about it! So send the women and children outdoors before you read this:

    The quality of THCB took a precipitous decline yesterday with your decision to print Brian Towell’s display of excrement.  The substantive content of his long, tedious wail consisted largely of his claim that he possesses wiser approaches to drug discovery than the clinicians and bench scientists now working for the pharmaceutical companies.  Maybe so, and maybe he also has a direct line to the Almighty, but somehow I doubt the likelihood that either condition obtains.  The drug discovery wisdom he chooses to impart in messianic tones consist of such claims as: organizing development by therapeutic category limits opportunities for serendipitous discoveries in basic science; blockbusters dontt necessarily come from targeting big patient populations; combinatorial chemistry isn’t the pat answer for drug discovery and; the one pill per genotype approach has major holes.  Well, a dog has four legs and if your parents don’t have any kids, there’s a good chance that you won’t either.  Simply put, anything of value that your countryman says about drug discovery is not new.  Pharma companies big and small are all trying the approaches he suggests to one degree or another.  All senior R&D managers know that we’re dealing with gambling probabilities here and they’re all smart enough to hedge their bets.  Anything that Brian says outside the common practice possesses the value of a three-dollar bill.    I find Brian’s evangelical tone especially annoying.  By turns he adopts postures that are prophetic, beleaguered, resentful and beatific.  It’s charming that you may want to buck up the prospects for a fellow Brit, but this guy reminds of the transplants satirized by Evelyn Waugh.  After leaving the motherland and landing in a country with a looser social structure, he thinks he has arrived over the rainbow.  Like Humbert Humbert at the end of Lolita, Brian probably figures he might as well drive on the wrong side of the road too.     What are you doing giving so much space anyway to a soothsayer on drug discovery?  Let him peddle his shopworn ideas over to DB Medical Rants or some other such site.  I thought THCB focuses on issues involving healthcare access, quality, cost, marketing and ethics.

PHARMA: When is a kickback not a kickback?

When it’s a sample and a legitimate consulting contract, of course. So despite the fact that their employer had settled with the government to the tune of $875m back in 1991 on related charges, eight TAP pharma executives were today aquitted on charges that they bribed physicians. This is great news for those in the murkier end of marketing in the pharma business, as they can go back to business as usual knowing that prosecutors likely won’t bring charges against them personally.

It’s probably also good news for Fastow, Skilling, Lay et al as they try to convince their juries that so long as "that’s how business is done" it can’t be illegal or unethical. It’s probably even better news for Bush, Cheney, Rumsfeld, Wolfowitz et al (and maybe also Michael Moore, although he only created a movie not an occupation) in that lying, cheating, stealing and using selective evidence is now fine so long as you can convince enough people that that’s the way things are done.

I assume a few of my regulars who’ve posted about this case before will have something to say soon enough!

POLICY: Cuts in Drug Benefits for Retirees

So the hopes that the Administration had of the Medicare Bill being a political plus have looked pretty grim for a while. But they really didn’t need their own government agencies putting the metaphorical boot in. The NY Times leads its front page with a DHHS estimate that 3.8 million retirees will see their employer provided-drug benefits evaporate in the first years of the new Medicare Law. Let’s not ignore the fact that these retirees are more likely to vote and more likely to vote about health care than any other demographic group, including the smaller number of much poorer seniors who will benefit from the Medicare bill.

Just a week ago the Administration announced that it was basically OK to lie to Congress about what it knew about the likely cost of the Medicare bill, and then hide that information for over 6 months. You’d have thought that they might have lost this latest report behind a filing cabinet until after November.

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