THCB

Categories

Above the Fold

PHARMA: US attorney cracking down on drug companies, by Matt Quinn

• 1

From THCB’s legal office, Matt Quinn is back on the track of health care fraud once again.  This time he’s turned his attention from Medi-Cal to big pharma:

The new edition of "Fortune" (the one with, as I remember, Andy Fastow in handcuffs on the cover) also has a great article about the efforts of the Michael Sullivan and his US Attorney’s office in Boston to crack down on fraud by the pharmaceutical industry (only first part avail free).  In a speech at this year’s Pharmaceutical Marketing Congress in Philly that, I’m sure, went over like a fart in church, Michael Loucks (who runs the health care Fraud unit in Sullivan’s office) lectured the assembled industry leaders:

    "Since 2000…drugmakers (have) coughed up more than $2.2 billion to settle such civil and criminal violations as kickbacks to doctors, overcharging, and marketing drugs for unapproved uses…No other sector of the health-care industry," he said, "has ever paid similar amounts in health-care fraud investigations in so short a time."

While some suspect that Sullivan has higher political ambitions and is simply attacking big pharma because it’s an easy target with deep pockets, the US Attorney’s office states that its main concern is "that drug companies are corrupting medical judgment by paying off doctors, then passing on those costs to consumers."  Strict oversight, he argues is "pro business."  That whistleblowers get a cut of the judgment doesn’t hurt either.

According to the article, in 2002 the average American incurred $5,037 in medical costs.  By 2010 that number is expected to jump 60% to $8,368.  As much as 10% of that pricetag, the article postulates, is fraud.

With a trend (see this article in AIShealth’s Government News) of reinvesting money from Medicare and Medicaid fraud back into healthcare, wouldn’t a great use for this money be to invest in 1) beefed up investigation and oversight efforts and 2)  a task force to simplify and streamline Medicare’s rules?  While this would ultimately (hopefully!) be a self diminishing revenue stream, it would serve the good of the taxpayer by driving efficiency in the healthcare system as a whole while focusing enforcement efforts on those who intend to defraud vs. those  who are simply confused with the rules.  And best of all it would be totally self funding (with, perhaps, a little left over for investment back into the provision of care).

POLICY: Medicare drug coverage issue hurts Bush

Today’s New York Times reports with data what most of us following along at home have suspected for a while–seniors don’t like what they are hearing about the Medicare drug bill, and the blame is shifting towards the President.

    A poll conducted this month by The New York Times and CBS News showed that Mr. Bush had a 41 percent approval rating among the 65-and-older voters, his lowest among any age group. That was down from 44 percent in July and 63 percent in May.

The main issue is that middle income retirees are finding out not only that they’ll have to pay premiums for drug coverage, but also that there’s a hole in the middle of the benefit package–it runs out somewhere after the first $4,000 of spending.  There may also be some nasty compromises required for upper income seniors, in particular means testing for those earning more than $60,000 a year. Furthermore, without any bill there’s a big increase in the amount Medicare recipients will have to pay in Part B premiums next year, up $7.90 to $66.60 per month.

Liberal Democrats in the Senate, led by Edward Kennedy, have vowed not to accept means testing, as they believe it will be the start of a slippery slope to a two-tiered system. And in poll after poll seniors have consistently trusted the Democrats over the Republicans in their assessment of which party is better for Medicare. It may be hard for the average taxpayer to feel much sympathy for the small percentage of seniors who earn almost double the average American household being asked to contribute more towards their Medicare coverage.  However, it was those seniors who caused the repeal of Medicare Catastrophic Act back in 1989.  And all politicians know that the average senior not only votes at much higher rates than younger voters but also that seniors are concentrated in states like Pennsylvania and Florida.  You may remember that one of those states in particular was quite important in the outcome of the last Presidential election, and you can be very sure that, bill or no bill this year, this issue will be at the forefront of the Democratic campaign in those states.

INDUSTRY: Slow progress on HBOC indictments

If you think back to late 1998 you may remember that stodgy drug distributor McKesson bought hospital software company HBOC. HBOC had grown into being the biggest HIT software supplier, mostly through a series of acquisitions through the 1990s. At that point most observers believed that McKesson was mistakenly buying a  company that had run out of growth potential and was selling out at the top. If you remember 1999 (and if you owned McKesson stock you probably do!), it became apparent to McKesson that the news was much worse. They discovered that HBOC’s profits were fictional and found that Charles McCall, its new CEO acquired with HBOC, was behind the fraud. In one day McKesson lost half its value. 

Fast forward to last Friday, a mere 4 years and 6 odd months later, and one of the guilty parties, former Exec VP Albert Bergonzi admitted it. Meanwhile the biggest fish, McCall, was indicted only in June 2003. Evidence given by some of the others, notably ex-CFO Jay Gilbertson, shows that the fraud was started in early 1997 basically to dress the company up for sale.

So apart from the awful luck McKesson had by failing to do its due diligence properly, and the consequent suffering of the shareholders (Mckesson’s stock is still where it was immediately after the fraud was announced), the real question is why does it take the better part of 5 years for this fraud to be prosecuted? And does that delay help to encourage other white collar criminals to cheat the books and the rest of us?

INDUSTRY: The ever-growing power of Wal-Mart

There’s been plenty written elsewhere about the influence of Wal-Mart in America’s economy. For instance, this about Wal-Mart and the recording industry and this critical view of its influence on local communities. Somewhat under the radar Wal-Mart has been growing in scale as grocery store and a pharmacy chain. It’s now the number 3 pharmacy chain in the US, behind Walgreens and CVS. Jane Sarasohn Kahn has written an excellent article about Wal-Mart’s influence on the health care business.

One of the best known aspects of Wal-Mart’s presence is what it does to suppliers.  It forces them to cut costs and pays them later than they’d like, so Wal-Mart makes more of the "float" than other retailers.  In fact I was once told that Sam’s Club (its discount "club" store) actually makes zero margin on goods sold but turns over its inventory every 7 days and pays its suppliers in 90, giving it nearly 3 months to collect interest. Donald Johnson at The Business Word has written a fairly complimentary article about Wal-Mart’s employee health benefit program, particularly the emphasis on cost control and catastrophic care insurance, but he neglects to point out that it takes 6 months for an employee to be eligible for health benefits and that Wal-mart has 40% employee turnover a year. So great swathes of Wal-Mart employees are uninsured. (It could be worse–they could offer no health insurance).

One example of Walmart’s power over suppliers happened this morning.  It pulled out of a flu vaccination program is was going to offer with the FluMist product from MedImmune.  MedImmune’s stock price is off over 5%.

INDUSTRY: Major healthcare M&A deals this year

This Reuters report shows major healthcare M&A deals this year.  I found this after looking at GE’s further incursions into the health care business.  Most recently GE last week bought Amersham. Amersham makes reagents and fits in with GE’s MRI and other scanner business.  Meanwhile GE has also decided to to get further into medical IT, with its purhcase of the old Medicalogic EMR system from Medscape. Add to that Siemens purchase of SMS a couple of years back, and its apparent that the world’s biggest companies are starting to scrutinize the US’ biggest industry, and also see if there are opportunities on the information and medical technology side, as well as on the pharmaceutical side.

Note: Amersham’s interesting historical footnote is that it was the first company privatized by the Thatcher government in the 1980s, and possibly the first privatized company ever

TECHNOLOGY: Physician IT use–New Zealand leads the way

I mentioned anecdotally a while back that GPs in New Zealand and the UK are very advanced in their in-office IT use. A GP I stayed with there last March was using a computer to type his patient notes while the patient was in the office.  He was no fresh young doc, in fact he’s much closer to retirement than to hanging his shingle. So what caused this transformation? A national system, national planning, the creation of a single health identifier for everyone in the country, and funding for the technology.  The result is shown in this piece by the New Zealand Health IT Cluster:

80% of GPs use an EMR
95% of GPs, 100% of laboratories and 100% of radiology clinics are connected to the Health Data Network.

More from iHealthbeat

QUALITY QUICKIE: Design in HC–IDEO’s take

Famed Palo Alto industrial design firm IDEO is taking on the challenge of designing a more-patient friendly hospital process. Many of the ideas they are talking about are similar to the quality circles that the Japanese used to successfully destroy threaten the US auto industry. Don Berwick has been promoting these ideas in health care for many years, as I posted about here.

The most interesting idea the IDEO team comes up with is rapid prototyping.  They changed many things about the process, did it very quickly, and then observed the results immediately.

    Ordinarily the hospital spends a year or two in committee, create what they think is the perfect team process, and then goes out and tries it and fails. At IDEO we say, "fail early to succeed sooner." So after a half hour bringing into the field, we see how colleagues use it. Then we come back and revise it. So we get rapid prototyping in place. Previously it was death by committee.

On a side note, IDEO made its name in part on its design of the Palm V PDA (on the left in the picture).  What’s not so widely known is that IDEO stole assumed its role in the design process from a smaller design firm (for reasons that were totally unrelated to the design work). The smaller firm had already come up with this design, which IDEO if anything made less attractive in the final product. So it just shows that even the best and brightest amongst us have skeletons in our closets.

INDUSTRY: Employer health costs moderating slightly

Hewitt Associates report on their annual survey on health costs for employers. They found that the 2004 premiums will be up an average of 12.6% next year as opposed to 14.7% in 2003. They also note that HMO costs continue to rise a little more than PPO and POS plans (13.5% vs 12%) which is one reason that HMO enrollment has been declining (although HMOs and POS are pretty similar these days). Don’t forget that these costs are for employers and are not really the same as overall health costs which are also paid by government and consumers. Employers are continuing to respond by imposing more costs onto their employees, which is leading to contentious labor relations in many industries, such as retail and public services (via The Bloviator). Hewitt expects some of the following tactics:

    Higher payroll contributions (from employees), lower subsidies for dependents, and increased office, hospital inpatient and emergency room copayments. (For drugs), implementing higher copayments, coinsurance models, mandated low-cost substitution provisions for certain therapeutic classes and generic incentives. (For chronic care)
    contracting with organizations that offer specialized or disease management programs. Offering new consumer-driven health plans.

In other words pay more and probably get less.

There are a couple of implications here for health plans serving the commercial market. One is the slow but steady emergence of the "consumer-directed health plan".  While this doesn’t appear to be any more than another fancy benefit-set such as the HMO, PPO or POS were in their day, it is making an appearance as this news from Siemens suggests. Expect consumer directed plans to mean employees choosing between a diminishing set of benefit options.

The other implication is that the slight reduction in cost increase may translate into lower revenue increases and therefore lower margins for health plans. Health plans (and insurance companies) ride out something called the underwriting cycle. Simplisticly put they charge more in some years to make up for losses in past years and they make big profits in those years–so big premium increases as we’ve seen in the past few years equal big profits for insurers.

Two of the biggest insurers, United and Wellpoint, have seen their stocks rise over 50% in the past 2 years, and beat the S&P500 by way more than that. This may not continue for much longer if costs are coming slightly more under control, which may have consequences for the vast amount of money with which United’s senior management have been rewarded, mostly with the approval of an exceedingly compliant board led by ex-New Jersey governor, Thomas Kean .

HEALTH PLANS–Using OTC as a lever for pushing costs onto members

Health plans and their PBMs failed in their mission to control drug costs in the 1990s. One option that has proved somewhat successful is to get members to use OTC versions of previously popular prescription drugs.  Wellpoint in particular waged a successful campaign to get Claritin (and other non-sedating anti-allergy drugs) reclassified as OTC by the FDA. They then gave away (initially) free coupons to Claritin users to persuade them to try the OTC variety and at the same time made it very expensive for members to get the prescription anti-allergy drugs, Zyrtec and Allegra, by essentially kicking them off the formulary. Now other plans including Aetna are doing something similar by promoting free use of Prilosec now it’s OTC.  Of course this means that Aetna members will probably have to pay much, much more if they want Prilosec’s replacement, Nexium, instead of OTC Prilosec.

While this is good business for the plans and obviously not so for the pharmas, it’s just one more indicator that costs are being pushed directly onto consumers.

QUALITY QUICKIE: Blue Cross’ Pay for Performance strategy

California Blue Cross (Wellpoint) is one of the plans participating in the California wide Pay for Performance (P4P) scheme, which rewards physician groups for improving a variety of quality scores.  The scheme is administered by the IHA, a provider/payer talking shop that’s seized on quality as an issue that might help improve the antagonistic relationship between plans and providers. This article from MD Practice Alert describes the way Blue Cross HMO is using pay for performance. The article is a little confusing; despite what it says there is no monolithic P4P standards.  All the health plans involved have slightly different metrics. The key thing is that they are all paying bonuses based on some performance measure and making those measures and bonuses publicly available.  For more information on differences between the plans, see here.

Like the other plans Blue Cross is rewarding the groups on the more preventative HEDIS-type measures that are the core of the current P4P. However, one difference between Blue Cross and some of the others is that it’s rewarding physician groups that have utilization management systems that track care given to the group’s patients outside the group’s walls, and especially that given to long-term inpatients in hospitals, rehab centers and skilled nursing facilities. In addition, Blue Cross is paying out more money ($28m) and a higher percentage of its overall payment budget (10%) via its version of P4P.