While the shareholders have approved the Anthem-Wellpoint merger, it looks like state insurance commissioner John Garamendi is likely to oppose it, causing a little embarrassment for a certain Governator. Meanwhile, the public hearing has been set for later next week.
Again, look for a deal with at least some of the money once headed to the pockets of Wellpoint executives instead ending up in the (bankrupt) state’s coffers.
OK, not really, but serious bad news at what has been one on the health care industry strongest performers and best run companies. Cardinal Health anounced that it would miss profit forecasts, and was being investigated by the SEC. The stock is off 25%. The Street.com has (for them) a balanced article including this juicy quote from one analyst: ‘Multiple investigations, lowered guidance and a hazy outlook on growth have shaken our thesis that CAH is a ‘buy and hold forever’ stock,’ Wieland concluded.". Of course regular THCB readers know what’s coming next. I bought a small amount of Cardinal stock on a slight dip as part of my "sensible" portfolio last month! Oh well, back to crazy biotech companies with no revenue–they’re clearly safer!
I’m moving today and tommorrow so dont expect much real thoughtful action here until next week. However, I’ll list a few bits and pieces you should keep up with.
As you’ll recall in my comparisons of Canadian and US healthcare systems (in my Oh Canada piece and elsewhere) the major issue for lower income Americans is their problems paying the bills associated with medical care. This is virtually unknown elsewhere in the civilized industrialized world. HSC has a new report out showing that 20 million families, which is about 20% of households, in the US have serious problems with medical bills, including having to choose between paying them and paying rent.
With a little more of this rhetoric, health care just might become a slightly more important issue for this election cycle. It’s more likely though that this will continue to build up until the dam bursts in the latter part of this decade, and we engage in a full-scale national debate a la 1992-4.
Jeff Barbakow was the CEO in charge of Tenet at the time of their stock collapse following all the goings-on at their Redding, CA, facility and elsewhere. Although he cashed out nearly $111m in Tenet stock a few months before the scandal broke and the stock crashed, he apparently lost a fortune on Worldcom stock, when it went into bankruptcy–also after massive fraud. But proving that this is a great country, he’s suing to get his money back! At least Tenet hasn’t quite yet followed Worldcom in Chapter 11.
So following Sunday’s NY Times article on bribes being paid for prescribing and my comments yesterday, the Industry Veteran let me in on some email exchanges going on round his electronic watercooler. You’ll note that he and his colleagues do not ascribe most of the blame to pharma:
This morning a friend who teaches marketing at a local university e-mailed to me an article from yesterday’s NYTimes. The subject line of his e-mail read, "Just how stupid is Big Pharma anyway?" I am forwarding to you my reply to him. I think my reply will again tweak the noses of your physician readers who consider themselves healthcare’s good guys because I believe physicians hold equal or more blame for the system of pharma-to-prescriber payoffs now coming to light.
The Veteran’s reply to his friend:
‘In this case I don’t think it’s a matter of stupidity as much as systemic incentives and culture. Whenever fiduciary gatekeepers (e.g., healthcare professionals) are inserted into a market system, there will always be an enormous temptation to influence their decision-making. It’s the same with company purchasing agents and government contract committees. From the NYTimes article, one might as easily admonish physicians as the pharma companies. If you were to speak with the marketing and sales people who develop these payoff programs, I’m sure they’d all say that the docs expect it and that if their company were to opt out the payoff system, their competitors would get all the business.I’d make the argument that over the past 40 years, the development of physicians’ unbridled avarice represents a bigger change than any supposed penchant for corruption on the part of Big Pharma. After years of attending scores of brand team meetings at all the Big Pharma companies, I’d go so far as to say that in most cases where baldfaced, baksheesh programs are developed, the driving force is usually one or more of the physicians in the room. As a curbstone assessment of their underlying psychology, I suspect that they typically seek to impress other team member with their machismo and their marketing acumen. Their payoff initiatives represent an attempt by arrogant ignoramuses to figuratively say, "What’s so tough about this marketing stuff? Hell, I’m not just a clinical nerd. I’ll show you marketing."’
A little later the Veteran copied some more correspondence into THCB
I wanted a reality check on the reply that I sent to my academic friend this morning. After sending it you (i.e THCB) I also forwarded it to an acquaintance who has worked for 20+ years in the industry. Unlike my dangerously subversive political views, his are hard core, Reagan-Bush right wing. He is, however, scrupulously honest and empirically open-minded. I pass along to you his comments in anticipation of the fusillade from the medical practitioners of negotiable virtue.
"I agree with your message back to _____: the $$ demands of MDs are just amazing. And having been in marketing most of my career (launched two products and Director of Marketing for a biotech company), I can tell you that most of the time pharma is in reactive mode. Those who are strong enough can resist the demands* of the purveyors of the Hippocratic Oath, but it is difficult for the very reason you mentioned: at some point, you know you’ll get left in the competitive dust. And one of the biggest jokes is biotech. Many, if not most of their top honchos are ex-academic researchers. In my experience the majority of them are not at all cognizant (nor do they care) about such trivialities as FDA guidelines or anything that they believe applies only to the dirty, big pharma companies. In their way of thinking, biotech is much too cerebral and pure to be lumped in with the pharma industry."
*Just look at how the cost per patient of legit clinical trials has zoomed the past 10-12 years; clinical investigators will take on any trial if the price is right.
So after all the fuss about Canada possibly changing political horses, the election result shows that the Liberal Party got much more of the vote (37%) than the conservatives (29%). Due to the way Canada’s parliamentary system works (and because of the gains by the Quebec nationalists), PM Martin will have to form a coalition government. But the impact on the health care system will likely be neglible, as both sides more or less want to keep it as it is and both have promised to spend more money on it.
If you missed this over the weekend, the New York Times reports on yet another example of very dubious marketing practices by certain pharma manufacturers. This time the charges are that Schering (more or less) paid doctors to prescribe drugs. Anyone watching the health care system for any length of time is used to this. It’s rare that it’s this overt, although it was when Caremark was paying for infusion referrals back in the early 1990s, but sweetening the route to ensuring the right drug ends up written on the prescription pad has always been a big part of pharma’s marketing approach. While there are some limits that since the late 1990s are supposed to be placed on what the local marketing teams can do, the pressure remains on to make the physicians happy, whether it be via Dine and Dashes, free goodies, consulting agreements, or simply having a rep show up that the doctor will enjoy meeting (and I’m not spelling that out for you!).
The NYT suggests that this will only get worse as more and more of the pharma dollar gets spent by the government, and hence more and more of this bad behavior will be punished by Federal fines. As it’s been an accepted cost of doing business by the pharmas for a long time, and as the government really hasn’t got the option of giving them the "death penalty" (i.e. banning them from the Federal marketplace), expect this cycle–bad behavior, then punishment, then official reform, then more local level bad behavior, more punishment, more reform, new bad behaviors, etc–to continue.
By the way, if (as reported in the article) anyone out there wants to send me a consulting agreement accompanied by a large check with a blank schedule of works to be performed at some unspecified time in the future, they will find that I have few fewer ethical qualms in accepting it than the anonymous physician interviewed by the NY Times!
Just a quick one for today. Go read Jane Sarasohn Kahn’s article on "transparency" in her iHealthbeat column. Then consider if the recent Supreme Court decision not allowing health plans to be sued by their members increases or decreases their incentives to be "transparent".
Thank God for the tobacco and oil companies for without them the health care industry’s reputation would be bottom of the heap. Harris Interactive is out with its latest scores on reputations and the pharma industry continues its fall from having 79% of the public thinking they’re doing a good job for consumers to 44%. Managed care companies fell to 30% from 51% in 1997. Only the oil, tobacco and health insurers rate worse than pharma.
So the tale of managed care’s woes is well understood–once they were well known they were despised, and probably will be better off trying to get themselves known as health insurers (which is sort of what they are anyway). The pharma case is a little more curious. Americans love medical technology and the pharma industry has delivered great new technology in spades. And although the pricing of drugs is well known to be out of control, not that many people have to bear those high prices directly.
My suspicion is that this means that the Democratic rhetoric about the Medicare bill and the stonewalling on the reimportation issue are really getting through to the public. It’s been in the past 18 months that the pharma industry’s reputation has really gone into freefall.
Ernst and Young (hattip to Don at BusinessWord) seem to think that the pharma companies really need to fight their corner on reimportation and pricing. They seem to be doing so via the Administration in their negotiations with the Australians at least. (Thanks to the Industry Veteran for that link). I disagree. Imports are and will remain a small part of the market. The pharma industry can afford a drop in revenues and pricing and keep pretty decent margins(hint to CFOs: there’s a ton of fat in sales and marketing to be taken out), and this short-term thinking increases the likelihood of price controls and greater government intervention in the future.
Sidebar: The Aussies went to Iraq despite the opposition of 90% of their population because they were promised a free-trade deal to get their agricultural products into the US. They continue to be horrified that free-trade according to the US means that the Australian government has to give up its role as monopsony for drugs in that country! Meanwhile, what did Bushco offer the UK government go to war in Iraq with it? Guesses on a postcard to me please, as I have no clue and my British friends are now being fingerprinted at US immigration.
A while back Medco lost the FEBHP contract to Caremark. Now TheStreet.com reports that Medco is laying off some 7% of its workforce. And its stock has started to rally somewhat on the news.
THCB readers will know that I’ve never really understood what value PBMs add in the chain. It appears that with the announcement that 50 big employers are starting their own buying group, others share that view.
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