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PHARMA: Drug pricing here and there II:The Industry Veteran is not impressed with Levinson’s logic

In a recent speech Art Levinson, CEO of Genetech managed to simultaneously state that "the dollars going into health care are going up exponentially….That can’t happen forever. The question is when is it going to implode?" " and to demand that "if developed nations want access to breakthrough medicines, they should have to pay full price". He pours scorn on the tactics of his competitors "I think the drug industry, and I’m speaking largely about big pharma here, is shooting themselves in the foot by allowing people to buy drugs in Canada for as low as 10 cents on the dollar. I almost see it as unconscionable." While the logic may be somewhat contradictory, given that biotech drug prices are as more or less as high abroad as they here, even if the use of global budgeting and a more conservative medical culture means that they’re used far less and so the total revenues from them are far less, the Forbes article called Drug Prices: The Genentech Solution lays out the end-game as far as Levinson’s concerned.

    Levinson says that if he had the choice, he would "draw a line in the sand." A country that refused to pay a fair price for a medicine simply wouldn’t get it. Levinson said it’s unfair to allow some countries to get drugs on the cheap just because the U.S. pays a great deal. Moreover, he added, if all drugs were sold at those cut-rate prices, the incentives that drive medical innovation would vanish.

As I suggested in my earlier post on this topic, there’s scant evidence that R&D would dissapear for good if US drug prices came down to closer to the European level, despite what some boneheaded columnists with no understanding of the health care "market" think. There would be less R&D at the margin but it would still be one of the most profitable industries to invest in, and there is plenty of R&D spending in lots of other industries which have lower margins and no exended patent protection. Marketing budgets and pharma executive compensation might also be closer to where it is on other industries too, which PhRMA doesn’t mention quite so loudly for some reason. I suspect that the type of logic big pharma is using to protect it’s pricing strategy, and the associated outbursts like Levinison’s, doesn’t help big pharma in the PR war–which if it bothers to read the papers or watch 60 Minutes it would notice that it is currently losing in a blow-out. Of course TCHB contributor The Industry Veteran is slightly more "colorful" in his analysis, which I print below.

    Must a person relinquish 100 IQ points to become a Big Pharma CEO? by The Industry Veteran

    It appears that Big Pharma is respnding to public outrage at their pricing by mounting a major PR campaign and by making indignant, f**k-you comments such as those by Genentech CEO Art Levinson. Levinson and Sanford Bernstein ass-kisser Rick Evans apparently want to play chicken with Brazil, India and several other countries by forcing them into compulsory licensing, i.e., patent busting. These two al Qaeda-like fanatics of crony capitalism seem to willfully ignore at least one market principle. Of course, Mr. Levinson should be free to sell his products at a single price around the world — but let him relinquish his rights of patent exclusivity. He can have it either one way or the other. If he desires a government sanctioned monopoly via patent protection, then let him function the way electric companies do and petition a public utilities board for every rate change he desires. Conversely if he wants to exert total control over pricing decisions for Herceptin, Activase, Avastin and his other products, then he must relinquish his monopoly over them. He can’t have it both ways. Levinson, Evans and their dim bulb epigoni have played a transparently rigged game long enough: a free market for you and me, a government sanctioned, government subsidized monopoly for themselves. Say, Art, is that the wolf I hear at the door, or is it the bowed and bloodied apostle of Big Tobacco trying to tell you that it’s the beginning of the end?

(BTW if like me you weren’t sure who the Epigoni were, here’s encylcopedia.com’s explanation).

POLICY/PHARMA: JSK on Medicare

My friend and health care sage Jane Sarasohn Kahn took offense at this paragraph from my recent post

    So absolute proof that the Bush administration’s efforts to defend the Medicare bill is nothing but PR. Silly really, as there are some good things in the bill (like coverage for the very poorest seniors) that they could at least make a half-assed attempt to promote properly.

Jane writes

    "I must respectfully disagree with you on your identifying coverage for the very poorest seniors in PDIMA as a "good thing." The poorest seniors have already been covered through Big Pharma cos. discount programs — like GSK’s Orange Card, the TogetherRx program which is a consortium of many pharmas (AZ, GSK, Janssen, Aventis, Abbott, Ortho-McNeil, Novartis, BMS), and others. You rightfully describe other aspects of the bill as being PR, and this "poorest seniors" aspect is, as well.All Congress would have had to do to extend Rx access to a greater number of seniors would have been to extend an already successful program that gets too-little PR in our sound-bitten era of "Big Tobacco, Big Oil, Big Pharma" to more seniors. The pharmas would extend the programs more in today’s environment. I’m no defender of all of Big Pharma’s practices, as you know–but Congress could have prevented the huge bureaucratic mess that will be the 2-year discount card program prior to the 2006 implementation of PDIMA. I am working with a pharma on their approach to the card (Phase I of PDIMA) and have attended two meetings in Baltimore with DHHS on the implementation schedule and requirements — and it really will be a bureaucratic mess that will add administrative costs to our already-costly system. This is even before the actual "modernized Medicare" kicks in in 2006. I cannot fathom the bureaucratic mess, donut hole and all, that will play out then.

Now I agree with Jane that there’s alot bundled in the bill that’s not helpful towards covering the poorest seniors. But while Medicaid does cover the very poorest seniors, there is another tranche of seniors who don’t have coverage and don’t do well. CMS reports that 76% of seniors have drug coverage. But that means that 24% do not. Of those that do not 19% of seniors without drug coverage spend between $1,000 and $1,999 a year on drugs and 4% spend more than $2,000. And of those that do have drug coverage 6% pay between $1,000 and $1,999 and 2% more than $2,000. So if you’re following along at home, 31% of seniors are paying more than $100 out of pocket a month on drugs. I don’t have the exact numbers to correlate drug coverage with income but the Stat Abstract reports that the median income of households over 65 was $23,000 in 2000, and 30% had incomes less than $15,000. So it’s pretty good bet that if your a senior with less than $1,100 a month in income, you’re likely to be paying over $100 of that in drug costs.

I’m sure Janes’s correct to say that the money could have been better spend subsidizing a discount card, even thought these programs don’t cover anything like the 30% of seniors who need help. Dan Burton would agree that the premiums and the donut hole combine mean that these costs won’t go to nothing, but there will be subsidies of premiums for the very poor and the bill is going to make the situation better for those who are spending hundreds a month on drugs. If I was the Administration I’d be pushing this very hard. What else can they do?

POLICY/PHARMA: Thompson prepares to cave on drug imports

Understanding that this issue could lose Florida and Pennsylvania for the Bushies in November, it looks like (as I’ve been saying for a while) the Administration is getting ready to cave on the banning of drug import issue that its pharma paymasters had inserted into the PDIMA Bill. Yesterday HHS Secretary Tommy Thompson created a Task Force on Drug Importation, which in due course will come back and recommend changing that part of the bill. This has big implications as it’s by far the most unpopular part of the PDIMA bill, and if it goes away opposition to the bill could fade. That will make life a little tricky for the Dems.

Meanwhile the fuss about Tom Scully banning the CMS actuary from telling Congress the truth has been turned into a formal investigation, which will presumably proceed with the same "relentnessness" with which the DOJ has gone after whoever in the White House outed Valerie Plame. So we can expect that to be all cleared up around the time the bill takes effect in 2006!

TECHNOLOGY: Backdoor man

I’ve been working with a hospital system client who’s investigating how to create a number of initiatives to work with its various business partners. Chief among those business partners, of course, are doctors–who remain (believe it or not) the most important people in health care. One issue that hospitals are wrestling with now is how to extend their CPOE systems and wireless networks across their facilities, and of course integrate that technology into the business practices of their partner physicians. Of course, most of those physicians who work with the hospitals in this country do not employ them or own them. So that means that the hospitals, who are spending gazillions on information systems, now have to integrate those with physicians’ behavior–in other words with whatever the physicians are bringing in the backdoor.

On example of that behavior is blogging doctor Jacob at Family Medicine Notes. He’s got himself a new Treo 6000. Half the time he’s in the hospital, part of the time he’s in his office. He’s using IM in the hospital, and being paged there. And the Treo cannot yet get on the Wi-Fi, but that’s a matter of months at most. So now you’re a hospital CIO, you have the pressure to get your doctors to use that IT stuff, but then you have the backdoor men bringing their own stuff in. Plus not only do you have to make it all work on multiple platforms, you’ve got HIPAA saying that information must be protected even if its not on your system anymore. A confusing and difficult time for hospital CIOs, but when docs like Jacob are finally pushing the envelope on using technology to improve care and their own care process, an exciting one too, no?

HOSPITALS: Tenet numbers look, er, bad?

On Monday in advance of the Tuesday quarterly earnings announcement, I took my lumps and closed out of my long Tenet position. (While selling it yesterday was a good idea, I’d have been happier if I hadn’t bought it $2.5 higher). There was no bounce off the 5 year low at $10, and yesterday it traded down to $9.30 then back up to $10 in advance of the numbers.

The numbers came out and were pretty confusing in that the loss per share quoted ($2.04) included some one time losses but depending on who you believe Tenet either made an operating profit of 7 cents or a loss of 15 cents on the quarter. (Analysts’ consensus was for 0 cents). The stock traded down as low as $9.15 in the first hour but by the middle of the day it was around $9.50 roughly 5% below where it was a couple of days ago, and late in the day it spiked up to around $10.25.

As the hucksters at TheStreet.com report, overall it looks dismal for Tenet. The main problem is that as they retrench by selling and closing hospitals, same store (hospital) cash flow appears to be getting much worse, which is a result both of increasing bad debts (i.e. inability to collect) and reduced ability to charge payers (i.e. Medicare) as much as they could back in the good old days (Pre-Redding). So cash flow is heading the wrong way, and there isn’t that much cash left to flow out—hence the need to change the terms of the credit line, which is what caused the latest stock plummet.

Tenet is still an interesting stock to trade. If it gets out of the current mess, you can buy a hospital chain that’s about half the size of HCA for about 25% of the price. On the other hand you might be buying a company that cannot stop itself heading into chapter 11.

Here’s where it all gets interesting. The unknown variable in all of this is what fines Tenet has to pay the government for the indiscretions at Redding. Some estimates are that the overcharging was in excess of $1.9 Billion. Tenet has $30m-odd set aside to pay the fines. If the government wants it all back, then it’s hard to believe that anything other than chapter 11 is possible. If on the other hand the government wants to keep Tenet alive to pay its fine, then somewhere down here Tenet is just maybe a hell of a buy. It just wasn’t one 3 weeks ago, as I now know!

POLICY: Saving Private Ryan

So one of the perks of having a blog is that you see how people found you and I was very curious why a couple of people found my blog after searching for Karen Ryan. I’d never heard of her, having missed today’s NY Times story about how the Bush administration had paid actors to imitate reporters to make fake news clips about Medicare. So why did the phrase "from Washington I’m Karen Ryan reporting" show up in THCB?

Well you may remember a few weeks back I got all hot and bothered about a poorly researched report on the subject of whether the huge increase in health spending was good for us or not. The report was put together by a coalition of health industry groups and was very thinly veiled propaganda–even though it did have legitimate points to make. With the report was distributed a video clip. By now you’ve guessed the rest; the last line of the voice over was "from Washington I’m Karen Ryan reporting", which went into TCHB and thence into Google.

So absolute proof that the Bush administration’s efforts to defend the Medicare bill is nothing but PR. Silly really, as there are some good things in the bill (like coverage for the very poorest seniors) that they could at least make a half-assed attempt to promote properly.

POLICY: The uninsured

The Center for Health System Change continues to pump out great stuff, including this piece from Len Nichols called 10 myths about the uninsured. Go read it because it’s very sensible and makes directly the link between the mess we have of an individual insurance market, the fact that the majority of the uninsured cannot afford insurance, and that (as Alain Enthoven will tell you) health benefits are part of compensation, not an independent cost to business. Coincidentally over at Business Word, Don Johnson, a (non-foaming at the mouth) conservative had a sensible piece on the uninsured yesterday. Don almost lets it slip in his last paragraph when he says:

    I have long advocated requiring everyone who pays Social Security and Medicare payroll taxes to provide proof on their income tax forms that they have purchased basic health insurance for themselves and their dependents. If people don’t provide such proof, they are taxed the equivalent of a year’s premium, payable monthly, and that money is put into a pool that provides catastrophic health insurance to those who won’t buy health insurance for themselves.

So despite some recent comments about Enthoven and me , it seems that Don, too, is in favor of universal insurance. His version of it is called an individual mandate, with a mop-up social program for the truly indigent, those outside the system. What Don misses is that he’s only got half the solution. Yes, the uninsured should be forced to pay into the system for some of their insurance, but as Nichols points out

    "if policy makers really want to increase coverage, they’re going to have to subsidize people, probably quite substantially, since most of the uninsured have incomes below twice-times poverty"

Of course there is already a cross subsidy of the uninsured by all of us who use health services and find that we are charged more than cost by providers who are also treating the uninsured. It would just be more sensible if the subsidy was clear and obvious. But again this is only half the issue. The Commonwealth Fund reported thatemployers continue to support providing health insurance. But, and this is not a minor "but", more and more of the cost of premiums are being forced onto employees. Meanwhile the proportion of smaller employers (with less than 100 employees) who believe that it is "very important" to provide insurance is only 54%, and only 44% of those employers who do not currently provide insurance think that it’s "very important" that they do so. It’s the employees of these employers who make up the majority of the working uninsured, who are themselves about 75% of the uninsured.

In other words, to get to universal insurance you either need an individual mandate, an employer mandate, or some kind of social insurance system (maybe Medicare-for-all). The first two need some cross-subsidy and the last needs to change "premiums" for "taxes." The first two also in some part rely on an individual and small groups insurance system which is a total mess, charges far more for the exact same products that are sold to large groups, and probably cannot be fixed without major legislation too. In the end, we’re not getting any of these solutions in the next few years. But at least the discussion has restarted. . . . .

PHARMA: West Virginia joins the fray

Just in case you out there haven’t been keeping up with the big city papers, the Sunday Gazette-Mail from Charleston, West Virginia reports that West Virginia is the latest state to try to institute Canadian price levels in what it pays for drugs, presumably for Medicaid and state employees. How’s it going to do that? It’s going to

    establish a "pricing schedule," a list of drugs and what they should cost. It would be based on either the Federal Supply Schedule (which is estimated to be 40 percent less expensive than retail prices), what the Canadian government pays, or another price reference "that will maximize savings to the broadest percentage of the population of this state."

This is more or less the same thing that several other states have done by setting up links to Canadian pharmacies, but the first one that I recall that’s explicitly trying to piggyback of the discounts that the Feds get when they buy for the VA system. And I believe that this is the first one in a "Red" state.

EDITORIAL: Ignoring science

It may come as no surprise to my readers to know that I’m not a fan of the current Administration, but it should equally come as no surprise to them that I don’t view THCB as a venue for those discussions. This blog is designed to focus on explaining the likely developments of the health care market, which of necessity brings with it a view on the likelihood of policy developments. But, for example, unlike most bloggers I never came to a formal position here on the PDIMA bill, even if I remain very dubious about the potential success of many of its aspects.

However, sometimes all reasonable people must make a statement when they see clear malfeasance, and in the last few days two incidents have forced me over that line. The first incident is the revelation that the head actuary of CMS was told to withhold cost information from Congress on the direct orders of CMS head Tom Scully. Scully of course left CMS straight after PDIMA’s passage to a well paid job as a lobby flack lawyer. He was also the representative of the for-proft hospitals in Washington in the 1990s — a decade in which his clients like Columbia and Tenet looted the Medicare system. Essentially scientific evidence (or whatever passes for it from actuaries) was deliberately withheld from Congress, and the difference in this case was enough to allow passage of legislation.

It would be nice to dismiss this as an occasional lapse, but similar disregard of science and rationalism was revealed by an original member of the President’s panel on bio-ethics, who was fired last week. Elizabeth’s Blackburn NEJM article on her firing from the commission shows that the level of political manipulation of science and objective reasoning in this administration is as bad as the Krugman’s and Moore’s say it is. She notes that of the three replacements for people who were fired from the commission:

    “Not one of the newly appointed members is a biomedical scientist. One, a pediatric neurosurgeon, has championed religious values in public life; another, a political philosopher, has publicly praised Kass’ work (Kass is the commision’s chair who rejects science that “feels wrong to him”) ; the third, a political scientist, has described as “evil” any research in which embryos are destroyed.”

This commission, which makes reccomendations which are crucial for the future of scientific research, has been newly hand-picked purely to shore up the President’s fundamentalist base. And if we are going to continue scientific progress in the tradition of the enlightenment, that is not acceptable no matter what your political philosophy.

PHARMA: 60 Minutes helps put the boot into Pharma

While I can write a balanced article looking at the issue of drug profits home and abroad, and Derek Lowe can conduct a debate with his readers about it, we’d both probably admit that rather more people watch 60 Minutes than read our blogs. So today’s 60 Minutes on re-importation may have slightly more influence than Derek’s views or mine. I’m now pretty convinced that the Republicans are going to cave on the drug re-importation issue. With every senior in America watching, 60 Minutes showed an extremely pained Mark McClellan trying defend the indefensible–he was forced to say that the FDA is not allowed to check out if Canadian exporters are safe–"Under current law, we don’t have the authority to insure the safety of foreign produced, foreign distributed drugs." (I bet he’s damn happy he’s moving on to CMS and doesn’t have to sit through that interview again). They then showed that Lipitor is made in Ireland and that the same pill made there sells for twice as much here as it does in Canada. They showed that the taxpayers of Springfield, Mass will be $9 million better off because the city is buying its drugs in Canada, and that translates into more firefighters and cops on the beat. They even found a conservative Republican (Dan Burton) to attack both PDIMA and the pharma industry, and managed to say that no major drug company would come on the TV to defend their position. All in all, not the pharma industry’s finest 15 minutes ever of PR.

In a weird associated connection, there was also a commercial from AARP which seemed to first focus on the real "drug war" and then talked of AARP fighting the "other drug war, one we can win" demanding legalization not of marijuana but of Rx imports from Canada and for the ability of the government to negotiate drug prices. AARP’s blessing of course is what pushed PDIMA over the edge and won it through the house, so it looks like they’ve changed their PR position. Meanwhile, conservative Republican Dan Burton was featured prominently opposing PDIMA. He’s a long time drug-war warrior in that other drug war, but as he gets older he seems to be showing the odd bit of sense.

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