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PHARMA: Big pharma gets aggressive over pricing

Two of my favorite contributors both have found me interesting stories about pharma company tactics today.  Jane Sarasohn Kahn sent me an article about the ongoing US-Australia talks on drug pricing.  Recall that the Aussies joined us in invading Iraq because they were promised in a nudge-nudge wink-wink way a free trade deal which would allow their agricultural products into the US market. However, fresh from victory in the Medicare drug coverage arena, the US pharmas a going after price "discounting" by governments abroad.  (For background info look at this latest edition of the Pfizer sponsored Health Politics which basically trots out Mark Pauly’s not entirely untrue line that Canadian drugs aren’t any cheaper than US drugs overall when you factor in that fact that they don’t use so many generics and don’t allow access to the some of the newest and most expensive drugs). As part of the Australian negotiations things are getting a little heated. The Australian (which is the pretty unsuccessful result of Murdoch’s attempt to create a highbrow national paper there) wrote that

    US drug lobbyists were peddling misinformation about Australia’s medicine subsidy scheme to secure a better deal under a free trade agreement, federal Health Minister Tony Abbott warned a delegation from Washington yesterday.

    During a meeting with a powerful US congressional delegation yesterday morning, Mr Abbott also said the Australian Government would not change the "basic architecture" of the $5.8 billion-a-year Pharmaceutical Benefits Scheme to secure a trade deal. But he left open the prospect of other concessions to multinational drug companies, saying he would be happy to talk with them about demands for greater transparency. After the talks with Acting Prime Minister John Anderson and eight influential Republican congressmen in Sydney yesterday, Mr Abbott accused drug lobbyists of waging a dishonest campaign against the scheme. "Misleading information is being peddled in Washington," he said in a statement. "The PBS is not a rationing system but a subsidy system. The PBS does not deny access to US drugs but treats them exactly the same as drugs made in Australia or elsewhere."

Now despite the party name (which harks back to the old European meaning of liberal not its American derviation) the Aussies have a very right wing government in power by all but US standards. (Randomly enough I’m a friend of Tony Abbot’s sister who’s political views are somewhat pinkish and despite the fact her brother is the rising star of the Aussie Liberal party and a likely future Prime Minister, she basically thinks he’s a right wing nut!) So if the Aussies feel that they can’t sacrifice their drug pricing system despite the huge carrot of free-trade in agriculture that the US is dangling, there’s no chance of the Europeans doing so.

Meanwhile, the Industry Veteran sends me this story about Abbot’s huge price increase in Novir, its protease inhibitor which is used as a component of many anti-viral HIV regimen. Basically Abbot has increased the price of a drug five-fold that is used in combination with its competitors anti-virals, but if you take Novir in a combo form with Abbot’s new protease inhibitor Kaletra, it’s now cheaper than taking it separately with the competitors’ drugs. The Seattle Times reports

    Abbott is pricing Norvir as though it is a "full component" in the drug cocktail, complained Shalit. "But it’s not being used for its activity against the virus — it’s used as a booster for the other drugs." While Abbott vigorously denies it, Shalit and others believe the Norvir price increase was aimed at Abbott’s competition. In essence, Shalit said, increasing Norvir’s price raises the cost of taking Abbott’s competitors’ drugs used in combination therapy. That could push patients toward Abbott’s newer drug, Kaletra, a combination drug with Norvir built in. With the Norvir price increase, Kaletra’s competition has become more expensive than Kaletra, approved by the Food and Drug Administration in 2000.

    In their letter to Abbott, the local doctors also expressed worry that the increased cost of Norvir would have a chilling effect on development of other drugs designed to work with its boosting power; at least one such drug is now being tested in Germany.

The Industry Veteran comments

    Here’s an ominous trend that I see as more pervasive than just the HIV area. Big Pharma will seek to extend patent protection and up-sell patients by exorbitantly raising the price of single-compound products, thereby coercing people onto fixed-dose combinations (one pill containing two or more compounds) that contain the unconscionably priced compound. Watch for this trend in (y)our favorite category: the statins.

In any event both these stories prove that big pharma, conscious of its potential problems with future drying pipelines, is going to fight hard to maintain its profits and protect its turf.  That’s to be expected and it is also part of their fiduciary duty which, lest we forget is not to Canadians, Australians or AIDS patients, but to their shareholders.  The question is will this type of behavior cross the line and cause sufficient resentment that politicians bring a backlash against them. That may yet happen in their incredibly unpopular opposition to Canadian imports.

Then again there is the other question that Jane posed in her post here a month or two back. She wrote

    Pharmas are looking to biotech for new formulations, but they’re also looking to smaller pharmas too for licensing deals. This will be important over the next few years. Obviously, biotech will be important in the longer term, but the juries are still out on so many very expensive drugs. We will be hitting the wall on who is going to pay for those expensive bio drugs, and I anticipate that will be a big area of contention. It’s not clear really who will be willing to pay for innovation.

Jane’s follow up goes to the heart of the "how much will who pay, and be able to pay?" question.

    In today’s news, I see that the small pharma Trimeris based in NC which produces the $20K/year drug, Fuzeon, for HIV/AIDS, is now laying off and looking like it could close shop…for a few weeks, literally, a few payers last year said they’d be willing to pay for such an expensive HIV drug. However, as I recently told one of my clients who is big in HIV, that’s one disease state where that high cost just won’t get rationalized….now an expensive prostate cancer drug used by rich old white (mostly) men, sure…but even $20K a year for that wouldn’t be chronically taken virtually ‘forever.’ Some discussions are afoot about whether we have "enough" innovation for now.

QUALIITY: Says here that Doctors read the news!

Over at DB’s Medical Rants Robert has responded  to my gentle chiding and has written a nice piece regarding what’s wrong (in his view) with Wampum’s piece on malpractice.  (Note that he got up at 4 am to write it too! Who’d be an intensive internist?)

He’s also alerted me (and you) to a very interesting report about how doctors changed their behavior after the results of the two big trials on HRT and Alpha Blockers in the last couple of years. (Reuters release here but both full articles are unusually available for free from JAMA via my earlier links). The findings suggest that doctors do indeed respond in their prescribing habits to the latest evidence, particularly if the results of the trial are blared all over the press. This just makes the whole conversation over evidence based medicine more and more confusing.  How come doctors change practice on a dime over the HRT study but take years and years to apply some of the best practices elsewhere . . . . . I think Robert’s deliberately trying to make my future article about this harder to write!

PHARMA: GSK says to contest $5.2 billion U.S. tax claim

Just in case you thought you had tax troubles, the IRS thinks that GlaxoSmithKline owes it $5.2 billion. GSK has about $2bn in reserves to pay this, but obviously will be in tax court for a few years whittling this number down.  Given the way the stock market works the relative certainty of this upper limit may end up being a positive thing for GSK, and I doubt that rest of us will be passing the collection hat for them any time soon!

QUALITY: IOM meeting focuses on asthma, other key areas while Berwick puts it to the sword

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The IOM just held a two day meeting to follow up on the 2001 report on Crossing the Chasm, which focused on the quality of chronic care management. This meeting focused on how to make real improvements in the areas of Asthma, Depression, Diabetes, Heart Failure and Pain Control. (I presume that no one from the DEA was there to discuss how locking up doctors improves pain control). Don Berwick was there and gave what sounds a pretty raucous speech about how we’re wasting our money in the health system.  If you haven’t read his speech called Escape Fire, then take a few minutes and do so.

QUALITY: More on malpractice

Stephen Schoenbaum and Randall Bobjerg, from the Commonwealth Fund and the Urban Institute respectively, probably just got themselves crossed off the AMA’s Christmas card list by publishing  this article in the Annals of Internal Medicine.  They suggest that doctors are paying too much attention to malpractice and not enough to actually improving patient safety.  In case you missed the point, Schoenbaum, an ex-Exec at Harvard Community Health Plan, one of the "good guys" HMOs is quoted in this interview as saying "All the discussion is about how do we minimize the impact of the suits rather than how do we minimize the number of suits". He also points out that certain groups of physicians, notably anesthesiologists,  have improved their patient safety activities over time leading to the question of why other specialists have not.

I’m going to waffle as to whether greater efforts by specialists to improve patient safety would be immediately effective, given my fuzzy position on whether evidence based medicine is easily-attainable in the real world (see yesterday’s post on appendectomy failure rates).  But it is fair to say that if some of the energy physicians spend on malpractice reform was redirected towards patient safety issues, we’d all be better off.

INDUSTRY: Boutique medicine emerges as an on & off-line niche. Will it be turbocharged by HSAs?

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I’m preparing a speech I’m giving next week and I’ve gone back to some of my old charts which essentially said that over time Americans would have less time and more money to deal with our health care (and lives as a whole).  The cause of the less time and most of the "more money" is the disappearance of the (voluntary) stay-at-home spouse.  The additional cause of the more money is the growth in incomes and wealth of higher paid Americans versus the average.

As part of the medical profession’s attempt to deal with the new reality of a higher-end consumer, and as part of the rejection of managed care, some of those physicians who can have made the move towards "boutique medicine". Essentially what that means is they charge an upfront fee for some set of enhanced services to patients that is not billable to an insurer, and thus is paid in cash by patients.  The leading example of this is Howard Maron, M.D., MD2’s founder and ex-team doctor for the Seattle Supersonics who apparently has enabled himself and three colleagues to bill over $1 million each annually by taking care of 100 people at $10,000 each (or $20,000 depending on who you believe)–the patients still carry insurance for labs, hospitalization and other expensive stuff.

    MD2 physicians deliver care not available elsewhere, such as appointments often lasting an hour, extensive preventive care, thorough annual physicals, and even advocacy for patients with payers and other providers. MD2 doctors practice a "proactive, preventive" approach to health, he adds. They also provide the full range of primary care.

    MD2 doctors don’t bill insurers or participate in insurers’ networks, Moses notes. "We encourage the patients to have insurance for everything else" besides primary care, he continues, including hospitalization, specialists and drugs. "This is not a replacement for insurance in any way."

 It sounds great for the docs as the overhead is lower and the revenue is higher than typical primary care.  It doesn’t sound so great for the patients, unless the price of doctor visits is much higher in Seattle than I’ve understood.  But if they can get people to sign up for it, good luck to them–it’s the American way.

More realistically The McKinsey Quarterly had an article a while back about Virginia Mason (also in Seattle) which charges $3,000 a year and has over 850 people signed up.

    For $3,000 a year, it offers individual subscribers 24-hour access to internists by mobile telephone or e-mail, as well as house and office calls by physicians. In addition, the Dare Center’s doctors who see 3 to 8 patients a day, compared with 20 to 25 for their colleagues at health maintenance organizations (HMOs) spend more time with each subscriber. Revenue from subscriptions easily fills the gap between the higher fees charged for the longer, off-hour, off-site consultations and the insurers’ reimbursement payments, which are based on the standard charge for an office visit to an internist during normal hours.

    About 850 people, mostly over 60 years of age, have subscribed, far exceeding expectations, and the Dare Center plans to expand. On average, members use it 7 or 8 times a year, while people in their US age cohort make an average of 6.8 visits to clinics a year.

This may work for some clinics and systems, and they may manage to sail around Medicare laws that ban balanced billing.  But it strikes me that that’s a little too much money to become mainstream.  Some other clinics are offering similar services at a lower price–you can get extended phone and email consults, plus the promise of an appointment the next day from GreenField Health Systems for a mere $350 a year, so long as you move to Portland, Oregon! That seems to me to be closer to what most people might find reasonable to pay, if they are regular visitors to their doctor.  For those who want these type of "concierge services" a company like Health Dialog, which uses the Wennberg technique of Shared Decision-Making. Shared Decision Making "presents patients with evidence-based, unbiased views of their healthcare options, and encourages patients to work with their doctors to choose the healthcare options that are right for them". It also tends to make patients use less health care, and so health plans and employers are happy to pay for it, which is why Health Dialog is growing quite fast and why the other DSM companies like LifeMasters and American Healthways are growing quite fast.

There’s a very limited market of people who can or will pay $10,000 or even $3,000 a year for primary care services.  But $1,000 or $1,500 which covers, say, 10 doctor visits, emails, phone calls, and all the hand-holding you can eat, may be attractive to consumers–especially if doctors stop making phone calls for free (mine does, thanks Dr…no I won’t say his name!). The question I don’t know the answer to is whether people will be able to use their yet to be set-up HSA or Consumer-directed health plan accounts to pay for these boutique care services.  But if the fees counts against the HSA and the deductible, then anything else (more or less) hits against the catastrophic insurance.  So the boutique service is more or less free (assuming that the patient would be making those visits any way). And if a primary care doctor can get 3-400 patients to pay it, well that’s a nice bonus.

So watch this one shake out as doctors try to set up to get into the boutique game at a bargain price and make it work for CDHPs and HSAs. Of course the insurers will try to wriggle out from having these payments count as co-pays or against deductibles.

The bigger question is that, as employers and plans push "consumer choice" onto patients (what Ian Morrison calls "You’re on your own pal!"), how big a phenomenon will boutique medicine be? Or will consumers/patients who are already getting aggravated with having to contribute more for their insurance at work, get really mad when they are asked to pay more for the services that they thought they were already getting from their physicians?

INDUSTRY: Malpractice at Wampum, with UPDATE

An interesting little storm is brewing over at Wampum about malpractice and its role in the latest Tort reform issue. There’s a lot of lefty and righty rhetoric in the comments, and I stuck my 2 cents in about the lack of attention to the defensive medicine issue–which is the only really meaningful and substantial part of the whole debate.  Of course, legislation doesn’t always get passed in this country because of keen insights into meaningful or substantial issues.  However, you should read the whole thing in order to see where the political arguments lie (pun intended).

While you’re there the Koufax awards are a great source for intros into some of the best political blogging on the left side of the American spectrum. (I’m a Brit so I have to use that qualifier!)

UPDATE: DB’s Medical Rants has a quick comment on Wampum’s piece, but the most intelligent pieces are in his comments.

QUALITY: Appendix surgery, too often needless but inevitably so?

I am determined to get back to the conversation on evidence based medicine that I was having with Robert Cantor over at Medical Rants before the holidays. Sadly I’m too gummed up with other work to finish the thoughtful response his last reply to me deserves–although I have subsequently interviewed Michael Millenson, the bete noir of the EBM-deniers (if that’s a term!), who’s last piece The Silence took a pretty hard line with the IOM for not being as aggressive as it should be on the topic.  More to come on that later.

But I remind you that I started this by discussing why evidence-based medicine was so hard to achieve in real world  practice.  This balanced article from the Boston Globe shows that big city hospitals which do lots of procedures on kids do better on reducing the false positive rate for pediatric appendectomies than lower volume hospitals. It seems that it’s pretty hard to get the mistake rate of the big city med centers (still up at around 4.8%) at the local hospital where they don’t see so many and have twice the error rate. The key point in the Pediatrics abstract that’s not in the write up for the lay reader is that two thirds of these pediatric appendectomies are done at the lower volume hospitals, and therefore have the worse results. Yet how many parents want to drive an extra hour or so to a distant hospital when their child is in pain? Does the "centers of excellence" concept make sense for this relatively trivial level of surgery? Is an 8% error level acceptable when the cost is more likely to be financial than medical?  It’s still a tough subject. 

I shall vent later mostly about information use, and this study provides useful information on how we should be tackling this type of procedure.  But it’s a bigger system change to move this type of surgery than to get all the transplants, say,  to high-volume physicians.

HEALTH PLANS: Goldman analyst reads THCB, BusinessWord

OK the headline is bogus, but sometimes I should believe myself. Not too long ago I posted about health insurance and in the middle of that post I wrote this:

    How do health plans make their money?. …..it helps if you are at the top of the underwriting cycle. Sadly for plans we are now somewhere near the top. At least HSC also reports that, in the first half of 2003, health costs only went up 8.3% as opposed to 10% for the last half of 2002. Given that for health plans the last few years have mostly been "cost-plus" actors, there’s slightly less "cost" to "plus" onto.

So my gentle conclusion was the health plan stocks were at the top. Unfortunately I don’t work for Goldman Sachs and so no one noticed. (I know that Don Johnson at The Business Word agrees with me, note what he says about the Wellpoint-Anthem merger, story number 3 in his excellent year end roundup).  However, yesterday (Monday 4th Jan) Matthew Borsch, who does work for Goldman Sachs, figured out that the non-profit Blues were making loads of money and may be pressed to reduce rates next year–a rollback which will create price competition with the for-profit carriers. So the health plan stocks are down heavily, with for example United off 6% and Humana down 7%. And yet again I was too wussy to go short . . . . .

TECHNOLOGY: CSC, Accenture Win Regional Pacts for NHS System

The remaining contracts in the UK’s NHS Care Record Service are being awarded.  The latest contracts are for the east and northwest regions and the big winners are CSC and Accenture. These are huge contracts of over $1.6bn each. In the 1990s Accenture (then known as Andersen Consulting) developed a bit of a bad reputation for not delivering as promised on IT contracts developing claims systems for various Blues plans.  And to be fair they were by no means the only systems house that dissapointed their plan client (for instance EDS as noted in this article). But those expenditures were in the tens of millions not the billions that the NHS will be spending. Now to be fair these huge projects are very difficult to run and manage, so you can’t always expect perfect results.

The UK is not unaware of the risks they’re running and the contracts come complete with fairly aggressive penalty clauses. As it’s such a prominent contract dealing with the UK’s most sacred political cow, you can bet that the government will be paying close attention.  And for those of us on this side of the Atlantic, well, we’ll be looking for clues to see if there are lessons for slower development of clinical records infrastructure in the US.

Meanwhile the NHS story is Health-IT World‘s top story for 2003.  Here are the rest of the Top 10

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