Above the Fold

PHARMA: Big Pharma influencing formulary decision makers

The Pharma Veteran points me towards this story surrounding some slightly tawdry business in creation of the Pennsylvania state formulary.  The Veteran says:

    This furthers the conviction that healthcare is either tragedy or farce.  It reinforces several conclusions we’d already  developed.  First of all, it illustrates how the function of "greasing" healthcare providers has moved from office/hospital reps to higher positions within the companies.  It also shows that while the industry grapevine places one of the companies mentioned below (Pfizer) as reputedly the most aggressive transgressor, even a self-proclaimed good corporate citizen (high science Janssen, a part of Harvard-case-study-on-Tylenol-recall-J&J) swims in the same water.

    The third thing this article suggests is the increasing, chain-of-influence approach that companies are adopting with respect to greasing organizational decision makers.  Many office reps perceive their companies are paying less attention to office-based practitioners and are more aggressively targeting government, MCO and PBM decision makers whose choices, the companies hope, will trickle down to the offices.  The potential for this trickle down marketing, some believe, can increase enormously when the Medicare legislation goes into effect in 2006.

    The fourth lesson here appears at the bottom of the article.  A director of a mental health policy association makes the point that at least at the state level, decision makers are so dependent upon Big Pharma for vital information that there is a complete asymmetry of knowledge and power in the relationship.

My only comment here is that these numbers are so relatively small ($14,000 over a few years), and were clearly not used as straight bribes.  So shouldn’t the state find some way to pay for the educational trips and information that its officials need, without shortchanging them to the point that a few thousand from a pharma makes a difference?

PHARMA: Headline news–Seniors with better drug coverage use more, and more expensive drugs

Health Affairs has a new study on the web that confirms the blindingly obvious. People with better insurance coverage will use more health services than those without insurance.  What’s interesting about this study is that it looked at the difference by comparing those with drug coverage to those without in Cox-2 Inhibitor use (that’s Celebrex and Vioxx to you) in the Medicare population.

As you may know Cox-2s are painkillers that are supposed to kill pain without the adverse side effects to the GI tract that some 35% of the population gets from NSAIDs and ibuprofen.  But they don’t do more to end pain and they cost a whole lot more than NSAIDS, so theoretically the health care spending wonks think that their use should be limited to those patients with demonstrated GI problems from using alternatives.  But of course real life isn’t like that, and as a study from Express Scripts showed last year, patients are getting prescribed Cox-2 inhibitors whether or not they have GI problems.  There’s also been contention that Celebrex isn’t as safe for the GI as it’s been made out to be, but that’s another story.

The new study shows that although GI problems are a pretty good predictor of increased COX-2 use among the senior population, good drug insurance coverage is twice as good a predictor. And then, noting that even more seniors are going to be getting a drug benefit soon, in my favorite part the authors conclude in academic-ese:

    Our study suggests that policymakers should be concerned with potential overuse of drug therapy by Medicare beneficiaries once the benefit is implemented.

All together now, "Duh!".  That’s what the legislation was supposed to create, although the authors might find that they and PhRMA have a different definition of the word "overuse"!

PBMs: Zero sum big swings in the PBM world

If you’ve been reading THCB for a while you’ll know that I’m not overall bullish on PBMs. But of course in any market if you win an account from your competitor that’s responsible for over 14% of the competitors’ earnings, your stock will go up and theirs will go down! So when Caremark won the Blue Cross Blue Shield Federal Employees’ contract away from Medco, forcing Medco to lower its 2004 outlook, Caremark stock went up 5%, while Medco’s stock is down 10%.

PHARMA : Big investor unloads some AstraZeneca shares

The Wallenberg family of Sweden own some 5% of Astra-Zeneca via their Investor AB fund.  Last week they sold some 30% of their holdings. As you’ll recall A-Z’s future performance and the performance of its new statin Crestor have been the subject of several posts on THCB. The Dow Jones story (can’t find link but it was on Feb 11) reported that

    Investor decided to reduce the holding in order to strengthen its finances, company spokesman Fredrik Lindgren said.

    "We have decided to reduce our leverage and strengthen our financial flexibility. We continue to believe strongly in AstraZeneca and the company is still our largest holding," Investor President Marcus Wallenberg said in a statement. With the sale, Investor’s holding in AstraZeneca falls to 3.75% of the voting rights and share capital. The stake amounted to 5% of the votes and shares at the end of December.

    Lindgren said Investor is constantly looking at its holdings and the risk profile of its portfolio. He declined to comment on widespread speculation the proceeds from the sale would be used to fund the acquisition of a larger stake in truck maker Scania AB (SCV-A.SK).

While the speculation concentrates on the Wallenbergs’ need for the money elsewhere, a new correspondent for THCB, PharmaWatcher, has some speculation about the motives for this sale. He writes:

    What is actually driving Investor to sell its stake in AstraZeneca?  If it truly seeks to "strengthen its finances," why is it selling AZ?  His suspicion is that someone at Investor AB/Wallenberg must be looking at:
    a) The stock run-up in ’03;
    b) The analysts’ downgrades during January;
    c) The sales decline in the US, both yr/yr and Q4/Q4;
    d) The questionable prospects going forward for 2 of the 4 alleged saviors, Nexium and Crestor (never mind Iressa) and;
    e) Perhaps someone at Investor/Wallenberg knows something about (anti-coagulant) Exanta, or at least may have caught wind of the views at the EMEA/French regulatory authorities.

This is of course all pure speculation.  But the stock trader in me thinks that  A-Z’s stock has had a pretty nice run over the last 18 months, and the prudent money might just be looking for safer waters right now.

POLICY: Medicaid used as a way for the Feds to batter the states? with UPDATE Tues afternoon

While you may have thought that the New York Times was up on the news, the careful reader of THCB might have noticed that today’s story, titled U.S. Nears Clash With Governors on Medicaid Cost, shares exactly the theme of this post from Jones the Policy Wonk back in late December.

Both the NY Times and The Wonk believe that the Adminstration is gong to go after states that play games with their Medicaid accounting to increase Federal dollars into their Medicaid systems. The Wonk told us to pay attention to the appointment of Dennis Smith as CMS chief.  What was his quote in the NYT?

    "The Medicaid program must be a federal-state partnership, not an exercise in financial gamesmanship," said Dennis G. Smith, the top federal official for Medicaid.

Now I actually agree that there shouldn’t be these accounting shell games, but the states do this because they are desperately short of cash to deal with their responsibilities and unlike the Feds, they can’t go into deficits for as long as the eye can see (although Arnie is trying!). They’re already cutting Meidcaid services and SCHIP (500,000 kids off those rolls in California and 300,000 in Texas according to JeanneScott). Now there’s a chance that there might be substantially more cuts as Medicaid moves to a block grant system–the adminstration’s end-game.

So I’m all for ending these games. But instead we should either be properly funding health care for the poor and vulnerable, as Medicaid is intended to do, or admit that we don’t want to and just give up on the program–as we have for 43 million citizens already. Oh well, I suppose we have to cut off these loopholes and stop running up the deficit for those Medicaid-types so that there’s enough for vital programs like tax cuts on dividends, missile defense, raiding medical marujiana co-ops, invading Iraq, subsidizing millionaire cotton farmers, giving the airwaves to media corporations for free homeland security.

UPDATE: It appears that the noises from HHS & the White House are having the impact expected amongst the Republicans in Congress. Modern Healthcare reports late today that Tenet’s best friend Senator Grassley is on the case

    Senate Finance Committee Chairman Chuck Grassley (R-Iowa) has called for a federal probe into whether states’ use of consulting firms to increase federal Medicaid payments is leading to fraud and abuse. In a letter to HHS and the General Accounting Office, Grassley said investigations in Georgia and New Jersey may point to a national problem. HHS’ inspector general’s office is reviewing whether New Jersey inappropriately received some $41 million in Medicaid funds, while the CMS is examining an $84 million contract Georgia awarded to a consultant to maximize the state’s federal funding.

While Grassley may have a point about the consultants and the games they play, do you think he’d be quite so agressive if Medicaid was a subsidy program for rural hospitals that produced ethanol?

PHARMA: The Pharma company’s fear of the consumer

In an probably futile attempt to improve the literary tone here at THCB, I stole this post’s title from an early Wim Wenders movie.  But like the hero of the movie, the dual nature of the pharma companies’ relationship with consumers has been obvious for some time. (The Wender’s movie is about a soccer "Goalkeeper’s fear of the penalty"–the goalie knows that he’s likely to concede a goal, but he has a secret hope that he might save the penalty kick and become a hero).  Like the goalie, the pharma company hopes that by advertising directly to the consumer they may create a stronger bond and be less reliant on intermediaries like doctors.  But on the other hand the consumer might not want to pay so much for their drugs and the pharma company might lose a chunk of its margins.

In fact the rise of DTC advertising coincided with an explosion in pharmaceutical benefit plans that reduced the cost of prescription drugs for most consumers.  In 1990 59% of spending on pharmaceuticals was out of pocket for consumers.  By 2000 it was down to 32%.  Of course those were bonanza years for the pharmas, so third party payment meant high profits. The reaction from payers was to introduce three-tier formularies, and more cost sharing.  Late last year the NEJM published an article that basically said that this cost sharing worked to reduce utilization.  In other words you wouldn’t be so likely to take the drug if you had to pay for it.

Last week Harris Interactive released a poll that suggested that roughly half of those prescribed a drug discussed the drug with their doctor, roughly half of those discussed the cost, and roughly half of those got a different drug prescribed to them that was cheaper. The last category is equivalent to 20% of all patients prescribed drugs.

If I was a health plan/PBM I’d be flooding my patients with information about the different costs of different drugs. I doubt the pharma companies can do too much to respond aggressively.  Their fear of becoming a real consumer good with margins way lower than they’re used to is a real scenario they should consider.

POLICY: Medicare costs and HMO enrollment, with long UPDATE

I came across this article from Jeff Lemieux who used to be the head staffer for the Commission on the Future of Medicare under Breaux and Thomas.  (The commission never went anywhere, but that surely wasn’t his fault).  The article is called The Curious, Counter-Intuitive Relationship Between Medicare Costs and HMO Enrollment and basically says that the more Medicare recipients joined HMOs the lower overall Medicare spending went, and that the relationship was partially causal.  When I first skimmed it I wanted to throw something at the computer screen.  But now I’m not so sure.  Take a look at it and I’ll give more comments in an update later in the morning.  It’s very relevant given PDIMA’s passage last year.

UPDATE:  OK, the site appears to be back up after an unexplained hosting glitch on Friday, so here goes for my take on this piece. 

Lemieux makes two major arguments. (Please read his piece if you can as this precis doesn’t do it justice) and they are well argued and (probably) empirically unprovable as the regression analysis equation required to figure out what caused what would be damn long. Lemieux himself says that there was so much going on that it’s hard to parse out.

First, he says that political pressure from conservative Republicans trumpeting Medicare HMOs as a solution to all the ills of the Medicare program caused liberal Medicare officials to subtly cut spending in response to show that the mainstream Medicare program could cut costs too.  He says that this attack on spending started in advance of the Balanced Budget Act (BBA) in 1997 that specifically went after hospital spending in Medicare and caused overall Medicare costs to actually decrease for a brief period of about 18 months. So his argument is that more Medicare recipients going into HMOs will cause the FFS Medicare program to innovate and compete by cutting its own costs.

Second, he says that the accepted wisdom that the Medicare Risk HMOs only recruited healthy seniors was wrong because if that had been the case, the increase in average cost of those staying behind in the Medicare program plus the 95% of average cost doled out to the Medicare HMOs as premium should have been reflected in an increase in the overall cost of the program. But instead at the time when Medicare HMO growth was at its height Medicare costs increases headed down not up. (I hope you’re following)

Both of these arguments may have some grain of truth in them, but equally both can be refuted.  For example, a significant amount of the reduction in Medicare cost growth came as the home health care program was frozen in place in the mid-1990s because of the massive amount of fraud in it.  Now that fraud had been going on for the better part of a decade (and was partly to do with laundering drug-trade profits in Florida).  Why did Medicare fraud become such a big deal?  Ed Hughes used to give a talk in which he said the reason was that all the FBI agents who had been assigned to chasing Russian spies in the cold war found themselves in 1992 with nothing to do, and so they seized on health care fraud as the next big boom area for their services. (If you think that’s far fetched consider that the FBI was a main mover behind the banning and demonization of Marijuana in 1937 after their work chasing bootleggers ended with the repeal of Prohibition).  So given that since 9-11 the FBI has got other stuff on its mind perhaps the increase in Medicare costs since then reflects that all the fraudsters who’d stopped taking it to Medicare in the mid-1990s are now back.

Is that the real answer? Almost certainly not, but there are several other factors and there’s actually been some real research on a related topic by Lauren Baker at Stanford. Baker found that from 1990-4 in areas where there was growing HMO penetration (which tended to be in the same places where there was highest Medicare HMO penetration too), overall health care utilization in the Medicare program fell slightly.

The standard interpretation of this is that physicians can only practice one style of medicine at a time. So when enough managed care comes to town–meaning the number of HMO patients goes from 10% to 20% or higher–they start practicing more conservatively with all their patients including those in Medicare FFS. So you could argue that Lemieux is right about HMOs causing a decline in Medicare FFS costs, but it’s all HMOs not just Medicare ones, which never got above 15% of the Medicare population and only got above 30% of the Medicare population in a few big cities, mainly in the West.

Lemieux’s other analysis is that the notion that only healthy Medicare recipients were going into HMOs was false.  The GAO report on this used data from the early 1990s.  Well it was pretty true then, hence the profits of HMOs like Pacificare that specialized in Medicare HMOs–reflected here in its stock price versus the S&P index–went up very fast until the growth in Medicare HMO enrollment slowed after 1996. After that they started getting to saturation in the markets where they were strongest out in the west, which meant that their mix probably did look like the overall Medicare populations. Their remaining growth was in the big cities in the East where Medicare payments were much higher and for a while the HMOs could still make money by hammering the hospitals on price and admission rates.

However, even if the HMOs were not recruiting healthier people, claiming that risk selection in Medicare HMO recruitment had anything to do with the overall costs of Medicare is a big stretch.  Don’t forget that Medicare spends 50% of its money on 10% of its people and 80% on 20%.  And the numbers in HMO’s never got much beyond 15% of the whole Medicare population.  My guess is that the vast majority of very expensive cases got treated the same way in both FFS and HMOs, as the costs of the really expensive cases were probably re-insured out by the Medicare HMOs, and they never had a sufficient number of the really expensive ones to try to change what happened with their care.

So what was happening with the care of the expensive folks?  Well costs went up much faster for Medicare than in the private sector in the early 1990s because it took HCFA longer than the private sector to figure out that they could beat their suppliers down on price.  The employers and HMOs figured it out in 1993-4, HCFA didn’t start being so aggressive until 1996 and really not until the BBA cuts took effect in 1997-8–hence the sharp fall in Medicare cost growth in 1997-9 as shown in Lemieux’s chart. By then of course the AHA got their people in Congress to adjust the rates, first on the side issues like rehabilitation care, and then overall.  At the same time America’s hospitals were merging like crazy to gain market share to enable them to raise prices to the private sector, while the HMOs were being beaten up in the court of public opinion, and gave up trying to cut expenditures. Of course drug costs (which as you know if you’ve been awake in the last 2 years) are not covered by FFS Medicare were going up like a rocket and were a big part of making Medicare HMOs’ margins shrink, which is one reason that their enrollment stopped growing as they often stopped offering cheap or free drug coverage. Not surprisingly they found that their members left in response.

So the artificial price controls of HCFA didn’t last long, and the artificial price controls of HMOs didn’t either.  And when market power switches back to suppliers, costs go up fast. Public costs and private costs take turns in going up fastest–but they all go up in the end. That’s the same pattern that Uwe Rheinhardt has been talking about in his core speech for years. My contention is that the Medicare HMO issue is somewhat irrelevant to the overall expansion of Medicare costs, and will stay that way for some time.

However, Lemieux is a supporter of innovation in Medicare and so am I.  He thinks that a combination of private plan innovations and mainstream response to that innovation will create the chronic care management, improved patient care and process innovation that I think we both agree is necessary to change the program. To that end he’s arguing that Medicare HMOs and other private plans will over the long run save costs. 

He may be right and they may be the best source of innovation but I think what he’s missing is the real reason that lefty Democrats are so opposed to the private sector expansion into Medicare. They are all decrying the privitization of Medicare, but I don’t think that’s the real problem.

The real issue for the future of Medicare is whether it will be defined benefit or a defined contribution.  As the AAHP’s own propaganda survey shows more money from the government means a higher "contribution", and hence the ability of the private plan to offer more at a lower premium cost to the senior. The real fear of the those in the left who care about equity isn’t so much that the private plans themselves will destroy Medicare or not provide promised services, or even that the people left in FFS Medicare will really be that much more expensive.  Scratch them very hard and you’ll see that their real concern is that once a large number of seniors are in a private plan and there’s a widespread acceptance of a voucher-type defined contribution system, at that point, defined contribution could be mandated. Then the mainstream plan will just become another option where the senior can spend their voucher. And of course the "contribution" from the government will be means tested as of 2006 anyway (rich seniors will be getting less of a "contribution" to Part B premiums after then).

That’s when things get really worrying, as the voucher now becomes a form of government welfare, and of course that can be cut if things get tough on the budget side.  So eventually it’s not impossible to foresee a time when the Medicare recipient gets a voucher that can only buy the overloaded public FFS plan, or a bare-bones private plan.  And of course the better-off seniors can trade up with their own money to a better class of plan.  That’s the nightmare scenario for the Democrats, and it’s hard to see  a way to definitively avoid that happening in the current legislation.

To paraphrase a concept Lemieux introduces elsewhere, we shouldn’t be focusing on whether the public sector MacDonalds or the private sector Burger King makes a better cheeseburger unless we’re damn sure that the senior of the future will be able to eat in the same resturant as everyone else and won’t be abandoned outside on the sidewalk as many were before 1965–and as the uninsured are now.


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