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PHARMA: PBM plays tough with A-Z’s Crestor

Oops…for some reason this didn’t "publish" late last night…..

In a report out of The Delaware News Journal comes interesting news about the statin wars. The ACC meeting this week has lead to the release of a host of studies concluding that "stronger is better" in terms of the health effects of statins. Although bloggers Sydney Smith at Medpundit and Robert Centor at Medrants disagree on the exact significance of the PROVE-IT study, all concerned seem to believe that stronger is more or less better. Crestor from A-Z is usually believed to be the strongest statin, yet the folks at Medco, the nations biggest PBM have followed the lead of Wellpoint, one of the biggest health plans (and the most influential in terms of Rx trends) by leaving Crestor off its formulary listing. AdvancePCS, which is about to be the other big PBM gorilla after its pending merger to Caremark is complete, has put Crestor high up on its formulary.

So in the real world, will the dogs eat the dog food if they have to pay more for it? Astra-Zeneca is about to find out. Despite the carnage in the market lately, their stock is still doing fine. But the news from three-tier formulary land is not good, as an off-formulary position usually means that people won’t pay the extra for the non-preferred branded Rx.

PHARMA/PHYSICIANS: The Continuing Saga of Injectable Drugs, from Matt Quinn, with UPDATE

From THCB Sacramento bureau, Matt Quinn continues his comments on the injectable oncology market by discussing an article in Physician Compensation Report titled Oncology Income May Drop 40% by 2005. (The article is in italics, Matt’s comments are in normal text).

    "Clinical oncologists in practices that infuse chemotherapy drugs say that changes made in their 2004 reimbursement schedule by the Medicare reform law will result in income losses ranging from 2%-3% up to 15%, depending on each practice’s payer mix and current prices for purchasing the drugs. For 2005, practice managers predict physician income losses of another 25% if Congress does not repeal the new law’s reimbursement cuts for next year."

This seems significant until you get to:

    "Median physician compensation and benefit expense was $446,000 in 2002, the survey says."

So, my interpretation of this is that "the powers that be" are giving oncology practices 2004 to shift from a drug-based business to a service-based business (like 99% of other practices) at relative cost neutrality (using the bad assumption that per physician salary hasn’t grown since 2002, they are estimated to make between $379K and $437K in 2004). I don’t disagree that practices / physicians that cling to the drug-based reimbursement model in 2005 will stand to lose up to a quarter of their revenue (making them paupers who only make ~$285K to $328K per year). That’s the point. The government feels that oncologists are padding their salaries (at huge expense to the taxpayer) with excess drug utilization. Either take the carrot or get the stick. It will be interesting to see how utilization patterns change when (if) financial incentives change. This is hardly a situation that will leave cancer patients dying in the streets/driving hundreds of miles for lack of a community cancer center. Although it might leave a few oncologists short some of the income to which they have grown accustomed.

    "Holcombe notes that ASPs do not reflect the markup that drug distributors charge to practices, or the drug inventory financing and handling costs that practices have."

This (which is the rationalization why the ASP for a drug must be greater than the cost of the drug), of course, contradicts the huge margins that oncologists make on administering drugs. There is a "cost of money" for maintaining the drugs necessary for running a practice, although healthy cash flows, favorable payment terms from distributors (60 to 90 days is standard), low interest rates, and mileage programs make this seem pretty darn negligible. There are shipping fees (very low, especially for planned purchases), and there is a cost associated with setting up and maintaining an oncology practice (must buy a chemo mixing hood, have ventilation, must have oncology specialist nurses), but these are not (obviously) anywhere near current (or projected) overall profit levels.

    "The medical lobby opponents of the reimbursement changes are working to interest Congress in a change of direction."

They have scuttled this sort of legislation many times before. A membership that makes $450K per head has some influence, to say nothing of Big Pharma.

UPDATE: The NY Times reports that the situation is extra grim for some cancer patients in Marin County because the oncologists are laying off their massage therapists!

HOSPITALS: When you’re wrong you’re wrong–Tenet shares fall

As careful reader will have noted, a while back I had a punt on the guess that despite the difficulty in valuing the company Tenet shares have reached their bottom for the year. Well it appears that I was wrong. Yesterday after looking carefully at a deal for refinancing that was actually announced early the day before, the marketsmacked Tenet shares down $2 to close at $10. I’ve been lucky with some other health care gambles recently, and this time the market is teaching me humility.

Tenet has been postulated to have a break up value of around $9 a share. The unknown is how big a fine it will be hit with for the goings on at Redding Medical Center. However, the latest data seems to indicate that they’re burning through their cash a little quickly. I suspect that this is finally the bottom, although it may be that the increase in Medicare payments in the PDIMA act will be too little too late to help Tenet.

QUALITY/PHYSICIANS: I disappoint the Industry Veteran, with UPDATE

My corrrespondent the Industry Veteran was upset to see me teetering on the doctors’ side, while trying vainly to take the middle road, in the malpractice debate that I highlighted here last week. Meanwhile the same issue (the web site that identifies plaintiffs for doctors) has been busying a slew of doctors and a few of their detractors over at MedRants. The Veteran writes to point out the error of my ways!:

    I was sorry to see your statement that you "take the doctors’ side" in their battle against the malpractice lawyers. Among those who deserve blame for the shortcomings and inequities in this country’s two-tier healthcare system, organized medicine is at least as blameworthy as hospitals, Big Pharma and insurance companies. Although you back away from this ill-considered partisanship in subsequent sentences, your initial sentiment reveals a reflexive simpatico that you should try to eradicate.In the first place, efforts to assign principal blame for the healthcare system’s problems remind me of the old Chicago scholasticism that sought to place responsibility for the city’s corruption on either the politicians, the police, the gangsters or big business. All the participants have historically sought to dip their beaks in the public’s blood and, in the case of healthcare, the providers have enacted the Tony Soprano role to an extent equalling that of manufacturers and payers. Paul Starr’s Social Transformation of American Medicine and other monographs have described the tactics that organized medicine used to elevate medical practice from a middling, lower-middle class occupation at the start of the 20th century (when the requirement for admission to Harvard’s medical school consisted of the ability to read and write) into the significant holder of gross domestic product that it is today. "In the physicians’ view," according to Starr, "the competitive market represented a threat not only to their incomes, but also to their status and autonomy…and threatened to turn them into mere employees."While increasing a profession’s exposure to tort liability is rarely the sole means of reforming public policy, I believe that in this case malpractice actions do help to advance the process. Dragging physicians into the dock furthers the demystification and dissipates the profession’s unchallenged self-judgment, both of which permit physicians to insert economic bottlenecks into healthcare while making the provider sector a two-caste system. Other positive functions of malpractice activity include making medicine less attractive to the spoiled princes (and, increasingly, princesses) of American society. Certainly I agree with your contention that the necessary process of knocking physicians from their pedestal can be abetted by the increased use of physician extenders (I prefer the term used by labor historians: "de-skilling") and the enforcement of evidence-based logarithms to constrain self-indulgent, self-dealing, cost escalating "autonomy." Despite the nervous handwringing from some of your fellow bloggers, I also want to advance the feminization (more accurately, the "mom-ification") of medicine to deter avaricious ambition from the profession (keep the Jeff Skillings and the Billy Tauzins in business and policitics where they belong) while making it more hospitable to the needs of 9-5, live-and-let-live employees.I think we can proceed through a long, tedious dialogue on this issue, and we’d probably conclude with more agreement than disagreement. I don’t wish to engage in such a colloquoy, and would instead urge a way for you to expunge your reflexive sympathy for physicians. Instead of maintaining the preconscious image of a workaday British physician such as your father, think instead of the two-dollar whores who demand that the pharmaceutical companies entice them to breach fiduciary responsibilities to patients.

UPDATE: (late Weds) The Veteran‘s anti-physician line may be a little extreme for me, but nothing to the extent to which it’s upset the medblogshpere’s favorite surgeon. Go see Bard Parker‘s reply at A Chance to Cut…

HEALTH PLANS: Look who’s getting into the business

You know that health plan margins are too high when you see who the latest entrant into the business is. Yup, Walmart, the 800lb gorilla of brutal discounting is now offering health insurance for small businesses via it’s Sam’s Club. Those providers who’ve been complaining about harsh discounting from aggressive managed care firms haven’t seen anything yet! I can just see America’s hospital and physician and pharma execs waiting for their turn in the "seven-by-ten-foot blue roomlet–one fluorescent light, one table, one photo of Mr. Sam. So, says the buyer in his unfailingly polite manner, how can your company help Wal-Mart?"

test post

This is a test of the emergency formating system.

POLICY: Enthoven’s lament, with UPDATE

The new Health Affairs is out and it’s fascinating. This journal is over 20 years old and getting better and better. I’ll try to run something from it every day this week. Sadly if you want the full articles you have to subscribe, at about $100. It’s well worth it (and I do) but I think that it’s so valuable that I wish RWJ or someone would just fund it in perpetuity so that it’s all freely available.

The first article that jumps out at me is a commentary from Alain Enthoven about not why competition has failed but why (in his words from a decade or so ago) “it hasn’t been tried.” I learnt much of what I know (and believe) about health care from Enthoven in his classes at Stanford and he in those days delivered a biting expose of the failure of government regulation to create the conditions for sensible competition in the healthcare system, which remains true to this day. His “managed competition” model was at least the partial basis for the Clinton plan, although he fell out with the Hillary team fairly early on in the process.

I somewhat parted the ways with his philosophy when he put (at the time of the Clinton plan) the interests of the market over the interested of universal insurance — as it turned out neither happened legislatively. But what is very interesting is that Enthoven has also been watching the slow emergence of what Bob Leitman calls the problem of the Nascar dads, and the rest of the baby boomers heading to, but not quite getting to Medicare by 2008-16. Here’s his forecast, and lament:

    Why not “Medicare for All”?

    It is late, probably too late, to avert the inexorable progression to “Medicare for All.” U.S. employers would need to have an epiphany soon. But when it comes to health care, most of their horizons are so limited and their vision so constrained that such a change seems unlikely.

    What is becoming most likely is that the winning candidate in 2008 will make “Medicare for All” a foundation of his or her platform. And employers, incapable of controlling costs and desperate to get medical expenses off their financial statements, will lead the candidate’s campaign finance committee. Labor and small business will join them. The large and growing numbers of uninsured, by then reaching well into the middle class, will consider the issue to be of top priority.

    While I would welcome universal coverage as long overdue, I think it would be a tragedy to lock in FFS Medicare and deny people the opportunity to save money by choosing less costly options. The recent Medicare “reform” debate shows that it will be almost impossible to dislodge FFS from Medicare. FFS makes doctors and payers adversaries. It punishes doctors for innovating in ways that make their costly services less needed. The burden of chronic disease is growing rapidly, yet our FFS delivery system is oriented toward episodic, acute care. FFS promotes the wide variations in practice patterns documented by John Wennberg and colleagues. And it certainly does not motivate quality improvement in the sense of discouraging overuse, underuse, and misuse. Providers do not bear the costs of their poor quality.“

I think his forecast is right and that his fears of a locked -in over politicized fee-for-service Medicare-for-all at some point out beyond 2010 is the likely scenario. The alternate is the Brazilianization of the US social welfare system into one for the very rich and chaos for everyone else. However, I’m not as pessimistic as Alain about the end result of that first option.

First, whatever its faults Medicare-for-all would be better for a significant chunk of the population than what we have now–including the uninsured, the underinsured and those under 65 who really need help but can’t get it, as well as those over 65 who need better drug coverage than they have now (and still won’t have after PDIMA). It would not be that much worse for anyone (other than vastly over-paid specialists, who would still get by OK).

Second, Americans love medical technology and even under a state run system they’ll happily tax themselves to get it, so we are not heading to Canada or the Soviet Union (and you won’t catch me lumping those two together that often!)

Third, I’ve concluded that meaningful reform is only possible under a single-payer system. The things we need like universal pooling of risk, and public funding for a common data exchange system can only come about easily under a single-payer/government system. It may take us a long time to get there after Medicare-for-all, but for an example look at the Brits who, much influenced over the years by Enthoven, are making the right moves to get a single-payer system in place that rewards the pay-for-performance (or at least pay-for-process) that Enthoven favors, and are putting the information technology in place that will deliver the consumer friendly health-care Jeff Goldsmith wants. (More on that later!)

UPDATE: Don Johnson (a non-foaming-at-the-mouth Republican, and yes there are some!) has some criticism of both my and Enthoven’s approach over at the Business Word. Read his point and my reply at his post.

TECHNOLOGY: Stents now movin on up, with UPDATE

Loads from the American College of Cardiology meeting including a detailed study on stent use in the carotid arteries from Guidant (here’s the more digestible press release) and also "proof" from J&J that drug eluting stents really, really prevent restenosis — honest!!

Meanwhile over at MedRants more on the latest with the statins. (Short version is that stronger is better so Lipitor beats Pravachol but may get bested by Crestor).

Funnily enough the meeting is in New Orleans, so from my recollection of the food down there, plenty of future work for these statins and the stent manufacturers is being created each dinner time!

UPDATE: Sydney Smith over at Medpundit has a very interesting take on the real world application of this study and isn’t so sanguine about it.

PHARMA: HHS’ Thompson reads THCB

OK, maybe not, but in talking to a congressional committee who’s members do, or at least do read opinion polls like these, HHS secretary Thompson hints that the Republicans might cave on the drug re-importation issue to save the most unpopular part of the Medicare bill from becoming an election issue. Perhaps they noticed that Florida and Pennsylvania are both full of seniors and are both needed to be in the Red column on Nov 2, if Dubya is going to stay in the White House.