Health Policy: Factors Affecting Health Care Costs

Profits Climb (NYT)

Although many procedures can be performed in either a doctor's office or a separate surgery center, prices generally skyrocket at the special centers, as do profits. That is because insurers will pay an additional "facility fee" to ambulatory surgery centers and hospitals that is intended to cover their higher costs. And anesthesia, more monitoring, a wristband and sometimes preoperative testing, along with their extra costs, are more likely to be added on. Maggie Christ had two colonoscopies two months apart, after her doctor decided it was best to remove a growth that had been discovered during the first procedure. They were performed by the same doctor, with the same sedation. The first, in an outpatient surgery department, was billed at $9,142.84 (insurance paid $5,742.67). The second, in the doctor's office, was billed at $5,322.76 (insurance eventually paid $2,922.63) because there was no facility fee. "The location was about accommodating the doctor's schedule," Ms. Christ said. "Why would an insurance company approve this?" If you work as a 'facility,' you can charge a lot more for the same procedure," said Dr. Soeren Mattke, a senior scientist at the RAND Corporation. The bills to Ms. Yapalater's insurer reflected these charges: $1,075 for the gastroenterologist, $2,400 for the anesthesia — and $2,910 for the facility fee. When popularized in the 1980s, outpatient surgical centers were hailed as a cost-saving innovation because they cut down on expensive hospital stays for minor operations like knee arthroscopy. But the cost savings have been offset as procedures once done in a doctor's office have filled up the centers, and bills have multiplied. The Long Island center was set up with the help of a company based in Pennsylvania called Physicians Endoscopy. On its Web site, the business tells prospective physician partners that they can look forward to "distributions averaging over $1.4 million a year to all owners," "typically 100 percent return on capital investment within 18 months" and "a return on investment of 500 percent to 2,000 percent over the initial seven years." the center contracted with insurance companies in the area to minimize patients' out-of-pocket costs. In 2009, the last year for which such statistics are available, gastroenterologists performed more procedures in ambulatory surgery centers than specialists in any other field. Once they bought into a center, studies show, the number of procedures they performed rose 27 percent. The specialists earn an average of $433,000 a year, among the highest paid doctors, according to Merritt Hawkins & Associates, a medical staffing firm. those rates are the starting point for negotiations with Medicare and private insurers. Those without insurance or with high-deductible plans have little weight to reduce the charges and often face the highest bills. Nassau Anesthesia Associates — the group practice that handled Ms. Yapalater's sedation — has sued dozens of patients for nonpayment, including Larry Chin, a businessman from Hicksville, N.Y., who said in court that he was then unemployed and uninsured. He was billed $8,675 for anesthesia during cardiac surgery. For the same service, the anesthesia group accepted $6,970 from United Healthcare, $5,208.01 from Blue Cross and Blue Shield, $1,605.29 from Medicare and $797.50 from Medicaid. A judge ruled that Mr. Chin should pay $4,252.11. Ms. Yapalater's insurer paid $1,568 of the $2,400 anesthesiologist's charge for her colonoscopy, but many medical experts question why anesthesiologists are involved at all. Colonoscopies do not require general anesthesia — a deep sleep that suppresses breathing and often requires a breathing tube. Instead, they require only "moderate sedation," generally with a Valium-like drug or a low dose of propofol, an intravenous medicine that takes effect quickly and wears off within minutes. In other countries, such sedative mixes are administered in offices and hospitals by a wide range of doctors and nurses for countless minor procedures, including colonoscopies. Nonetheless, between 2003 and 2009, the use of an anesthesiologist for colonoscopies in the United States doubled, according to a RAND Corporation study published last year. Payments to anesthesiologists for colonoscopies per patient quadrupled during that period, the researchers found, estimating that ending the practice for healthy patients could save $1.1 billion a year because "studies have shown no benefit" for them, Dr. Mattke said. When propofol won the approval of the Food and Drug Administration in 1989 as an anesthesia drug, it carried a label advising that it "should be administered only by those who are trained in the administration of general anesthesia" because of concerns that too high a dose could depress breathing and blood pressure to a point requiring resuscitation. Since 2005, the American College of Gastroenterology has repeatedly pressed the F.D.A. to remove or amend the restriction, arguing that gastroenterologists and their nurses are able to safely administer the drug in lower doses as a sedative. But the American Society of Anesthesiologists has aggressively lobbied for keeping the advisory, which so far the F.D.A. has done. A Food and Drug Administration spokeswoman said that the label did not necessarily require an anesthesiologist and that it was safe for the others to administer propofol if they had appropriate training. But many gastroenterologists fear lawsuits if something goes wrong.

Avonex (WSJ)

Avonex, the drug with 21 price increases during a decade of falling demand, reached the U.S. market in 1996. It was just the second drug shown to delay symptoms of the most common form of multiple sclerosis. The injected drug had been beaten to the market by one called Betaseron, now sold by Bayer AG. Both are genetically engineered versions of a protein called beta interferon. Avonex needed less-frequent injections and soon claimed half the market. The maker of Avonex, Biogen, initially set its wholesale price at about $9,200 for a year of treatment. The strategy at that time focused on expanding the market, said a former Biogen vice president of sales, Michael Bonney. "We probably had pricing power, but we decided not to exercise it," he said. As more MS drugs appeared, including some taken orally, (Avonex is injected), Avonex's share of the market steadily fell. Each year from 2005 through 2014, the company sold fewer units of Avonex, company financial statements show. But Biogen's U.S. revenue from the drug kept growing as it raised the price up to three times a year. In the decade through 2014, the wholesale price, before discounts or rebates, more than quadrupled to an annual $62,000 per patient. "If there's price increases that can be taken and delivered to shareholders, we'll go get it, but I do think we got to make sure we take a long enough view and you don't start to put this thing in a box, where you get the backlash." Today, Avonex is among the least-popular MS drugs, said Clyde Markowitz, a specialist in the disease at the Hospital of the University of Pennsylvania, but it is still used by patients who have had good results. While costs for all MS drugs have skyrocketed in the past decade, Dr. Markowitz said, Avonex's price growth has been extraordinary. "It's absolute insanity, what's happened," he said. "For a drug that's 20 years old, and they just keep jacking up the price."

Pharmacy Benefit Managers (NY Times Article)

Benefit managers negotiate with drug companies on behalf of insurers, such as employer plans and government programs like Medicaid and Medicare Part D. In theory, their job is to bargain for lower drug prices. The hitch is that the biggest P.B.M.s are out to make a buck. They get "rebates" from drug manufacturers — payments based on sales or other criteria, which look suspiciously similar to kickbacks. The rebates are not publicly disclosed, but they are sizable. Industry analysts estimate that those payments, and other back-room deals, amount to as much as 50 percent of the list price of insulin. Benefit managers are supposed to be driving down costs, but the system incentivizes them to choose the products with the largest rebates. It's not clear whether most of these "savings" are passed along to consumers or simply pocketed. Last month, a large insurer, Anthem, complained publicly that its P.B.M., Express Scripts, was not sharing enough of its savings. Together, the three biggest benefit managers — Express Scripts, CVS Health and OptumRx — bring in more than $200 billion a year in revenue. They also control over 80 percent of the P.B.M. market, involving 180 million insured people. In much of Europe, insulin costs about a sixth of what it does here. That's because the governments play the role of pharmacy benefit managers. They negotiate with the manufacturer directly and have been very effective at driving down prices. In the United States, we rely on the private sector and a free market for drug pricing. But in order for this to work, we need to regulate it better and demand greater transparency. Over the past 10 years, the Federal Trade Commission has brought only a single enforcement action against benefit managers, over an issue of patient privacy violations.

Factors Affecting Health Care Costs

Many factors affect the cost of health care. Specifically, we will look at technology, pharmaceuticals and legal influences on the health care costs.

Policy Issues (Kaiser)

Compared to other high-income countries, the U.S. spends more,10 but this spending is not reflected in greater health care resources (such as hospital beds, physicians, nurses, MRIs, and CT scanners per capita)11 or better measures of health.12 However, studies have found that, on average, increases in medical spending as a result of advances in medical care have provided reasonable value. For example, Cutler et al. found that from 1960 to 2000, average life expectancy increased by 7 years, 3.5 years of which they attribute to improvements in health care. Comparing the value of a year of life (anywhere from $50,000 to $200,000) to the study's finding that each year of increased life expectancy cost about $19,900 in health spending (after adjusting for inflation), the authors concluded that the increased spending, on average, has been worth it.13 as the rapid growth in health care costs increasingly strains personal, corporate, and government budgets, policymakers and the public must consider the question of how much health care we can afford. Can the U.S. continue to spend an expanding share of GDP on health (from 7.2% in 1970 to a projected 20% by 2015)? If the answer is no, then society must consider ways to reduce future health spending growth. And since, as described earlier, the development and diffusion of new medical technology is a significant contributor to the rapid growth in health care spending, it is new technology that we would look to for cost savings. Currently, most suggestions to slow the growth in new medical technology in the U.S. focus on cost-effectiveness analysis. Other approaches have problems: some used by other countries are not popular in the U.S. (rationing, regulation, budget-driven constraints), some have been tried and found not to have a significant impact on technology-driven costs (managed care, certificate-of-need approval), while others are expected to have only limited impact on health care spending (consumer-driven health care, pay-for-performance, information technology). Cost-effectiveness analysis involves non-biased, well-controlled studies of a technology's benefits and costs, followed by dissemination of the findings so they can be applied in clinical practice. The method to control the use of inappropriate technology could be through coverage and reimbursement decisions, by using financial incentives for physician and patients to use cost-effective treatments. Use of the cost-effectiveness findings could be implemented at the health plan level14or through a centralized, institutional process, such as Britain's National Institute for Health and Clinical Excellence (NICE). If implemented at the national level, questions about the structure, placement, financing, and function of a centralized agency would have to be resolved. Other issues include whether money would be saved by reducing costly technology where marginal value is low and how to monitor the cost impact, and whether a cost containment approach would discourage technological innovation.

What Factors Affect the Growth of New Medical Technology?

Consumer demand for better health is a prime factor. Research shows that the use of medical care rises with income: as people and the nation become wealthier, they provide a fertile market for new medical innovations. Consumers want medical care that will help them achieve and maintain good health, and advances in medical technology are perceived as ways to promote those goals. Consumer demand is affected by the increased public awareness of medical technology through the media, the Internet, and direct-to-consumer advertising. Health insurance systems that provide payment for new innovations also encourage medical advances. Medical treatments can be very expensive, and their cost would be beyond the reach of many people unless their risk of needing health care could be pooled though insurance (either public or private). The presence of health insurance provides some assurance to researchers and medical suppliers that patients will have the resources to pay for new medical products, thus encouraging research and development. At the same time, the promise of better health through improvements in medicine may increase the demand for health insurance by consumers looking for ways to assure access to the type of medical care that they want. the desire by professionals to find better ways to treat their patients and the level of investment in basic science and research. Direct providers of care may incorporate new technology because they want to improve the care they offer their patients, but they also may feel the need to offer the "latest and best" as they compete with other providers for patients. Health care professionals, like people in other occupations, also may be motivated by professional goals (e.g., peer recognition, tenure, prestige) to find ways to improve practice. Commercial interests (such as pharmaceutical companies and medical device makers) are willing to invest large amounts in research and development because they have found strong consumer interest in, and financial reimbursement for, many of the new products they produce. In addition, public and private investments in basic science research lead directly and indirectly to advancements in medical practice; these investments in basic science are not necessarily motivated by an interest in creating new products but by the desire to increase human understanding. An estimated $111 billion was spent on U.S. health research in 2005. The largest share was spent by Industry ($61 billion, or 55%), including the pharmaceutical industry ($35 billion, or 31%), the biotechnology industry ($16 billion, or 15%), and the medical technology industry ($10 billion, or 9%). Government spent $40 billion (36%), most of which was spent by the National Institutes of Health ($29 billion, or 26%), followed by other federal government agencies ($9 billion, or 8%), and state and local government ($3 billion, or 2%). Other Organizations (including universities, independent research institutes, voluntary health organizations, and philanthropic foundations) spent $10 billion (9%). About 5.5 cents of every health dollar was spent on health research in 2005, a decrease from 5.8 cents in 2004.8 It is not known how much of health research was spent specifically on medical technology, though by definition most of the Industry spending ($61 billion) was spent on medical technology. Medical technology industries spent greater shares of research and development as a percent of sales in 2002 than did other U.S. industries: 11.4% for the Medical Devices industry and 12.9% for Drugs and Medicine, compared to 5.6% for Telecommunications, 4.1% for Auto, 3.9% for Electrical/Electronics, 3.5% for All Companies, and 3.1% for Aerospace/Defense.

The Legal Costs of Medical Malpractice on Health Care

Medical Malpractice lawsuits are blamed for the high cost of medical malpractice. medical malpractice claims fall under the Tort of negligence. to bring a tort of negligence, a plaintiff must show that there was a breach in the standard of care ( the duty) and that breach caused harm (damage). Not everyone believes med/mal insurance carriers rates are sky high because of torts or that lawsuits significantly increase health care costs overall. https://www.forbes.com/sites/rickungar/2010/09/07/the-true-cost-of-medical-malpractice-it-may-surprise-you/#4ae2f9952ff5

The Case of Imatinib (medscape)

In 2001, the agent, developed to treat chronic myelogenous leukemia, cost about $30,000 per year. Since then, the drug has more than quadrupled in price in the United States. "It went from $92,000 in 2012 to $132,000 in 2014," He pointed out that the drug sells for a fraction of the price north and south of the border; it costs $46,000 in Canada and $29,000 in Mexico. Imatinib has become the bestselling drug for Novartis, generating $4.7 billion in 2012, and pay-for-delay deals have allowed Novartis to delay the entry of generic imatinib in the American market from July 2015 until February 2016, Dr Kantarjian explained. It is estimated that this delay will cost consumers and the healthcare system in the United States at least half a billion dollars. Last year, Novartis settled a case concerning a version of imatinib developed by a subsidiary of the generic manufacturer Sun Pharmaceuticals Industries. According to the settlement, Sun Pharma's generic version of imatinib can enter the market in the United States in February 2016 and, because it has first-filer status, is entitled to 6 months of marketing exclusivity. That means that no other generic versions of imatinib can be launched in the United States until at least August 2016. "The patent was supposed to expire in January 2015, but due to some sort of manipulations, it was delayed until July 2015," said Dr Kantarjian. "And now an agreement between Sun and Novartis — which they will not reveal — will delay it. We have all of these behind-the-scenes agreements." The patent for the basic compound is scheduled to expire in July, and Sun Pharma has tentative approval from the FDA for its generic version. According to Novartis, patents covering the use of certain polymorphic forms of the drug (including those for children) will not expire until 2019. The actual terms reached by the two companies remain confidential. Critics such as Dr Kantarjian say that this deal delays the entry of the generic product by about 7 months, which will add to costs and deprive patients of treatment. the manufacturer says that the "settlement validates the Novartis patents while allowing Sun Pharma's subsidiary to enter the market with its generic product" before the expiration of the other patents scheduled for 2019. But in their lawsuit, Sun Pharma argued that its generic drug wasn't in violation of those specific patents. Novartis recently lost a lengthy patent case on the other side of the world. After a 6-year legal battle, India finally denied a patent claim for a slightly altered version of imatinib (the original version was not patented under Indian law). The Supreme Court in India ruled that the altered drug was too similar to the earlier version to qualify for patent protection. Novartis argued that this was not a case of evergreening to protect their patent because the new version is 30% easier for the body to absorb and, thus, is significantly superior to the older product. The Court, however, did not agree that the newer version enhanced or had superior efficacy, as is required under Indian law.

Snapshots: How Changes in Medical Technology Affect Health Care Costs (Kaiser)

Since 1970, health care spending has grown at an average annual rate of 9.8%, or about 2.5 percentage points faster than the economy as measured by the nominal gross domestic product (GDP). Annual spending on health care increased from $75 billion in 1970 to $2.0 trillion in 2005, and is estimated to reach $4 trillion in 2015. As a share of the economy, health care has more than doubled over the past 35 years, rising from 7.2% of GDP in 1970 to 16.0% of GDP in 2005, and is projected to be 20% of GDP in 2015. Health care spending per capita increased from $356 in 1970 to $6,697 in 2005, and is projected to rise to $12,320 in 2015.1 The particularly rapid increases in health insurance premiums over the last few years have focused the health policy community on the issues of cost containment and health insurance affordability. Health care experts point to the development and diffusion of medical technology as primary factors in explaining the persistent difference between health spending and overall economic growth, with some arguing that new medical technology may account for about one-half or more of real long-term spending growth.

'Too Much for Too Little' (NYT)

The Department of Veterans Affairs, which performs about a quarter-million colonoscopies annually, does not routinely use an anesthesiologist for screening colonoscopies. In Austria, where colonoscopies are also used widely for cancer screening, the procedure is performed, with sedation, in the office by a doctor and a nurse and "is very safe that way, But she noted that gastroenterologists in Austria do have their financial concerns. They are complaining to the government and insurers that they cannot afford to do the 30-minute procedure, with prep time, maintenance of equipment and anesthesia, for the current approved rate — between $200 and $300, all included. "I think the cheapest colonoscopy in the U.S. is about $950," studies in Europe had estimated that the procedure cost about $400 to $800 to perform, including biopsies and sedation. "The U.S. is paying way too much for too little — it leads to opportunistic colonoscopies," done for profit rather than health Some doctors in the United States are campaigning against the overuse of the procedure, He estimates that about a quarter of Medicare patients undergo the screening test more often than recommended, even though the risks of complications, like long recovery times and poor tolerance of sedation, increase for older people. Routine screening is not recommended for all people over 75. Safeway realized that it was paying between $848 and $5,984 for a colonoscopy in California and could find no link to the quality of service at those extremes. So the company established an all-inclusive "reference price" it was willing to pay, which it said was set at a level high enough to give employees access to a range of high-quality options. Above that price, employees would have to pay the difference. Safeway chose $1,250, one-third the amount paid for Ms. Yapalater's procedure — and found plenty of doctors willing to accept the price. When Aetna tried in 2007 to disallow payment for anesthesiologists delivering propofol during colonoscopies, the insurer backed down after a barrage of attacks from anesthesiologists and endoscopy groups. With Medicare contemplating lowering facility fees for ambulatory surgery centers, experts worry that physician-owners will sell the centers to hospitals, where fees remain higher. People who do not have insurance or who are covered by Medicaid typically get far less colon cancer screening than they need. But those with insurance are appealing targets. Nineteen months after Matt Meyer, who owns a saddle-fitting company near Keene, N.H., had his first colonoscopy, he received a certified letter from his gastroenterologist. It began, "Our records show that you are due for a repeat colonoscopy," and it advised him to schedule an appointment or "allow us to note your reason for not scheduling." Although his prior test had found a polyp, medical guidelines do not recommend such frequent screening. An article on June 2 about the high cost of colonoscopies in the United States, using information provided by the federal government's Centers for Medicare and Medicaid Services, described the average payment for a colonoscopy incorrectly. The price of $531 does indeed include the payment for the facility fee; those fees are not extra. (As the article correctly noted, the $531 does not include the cost of an anesthesiologist's services.)

Pay for Delay

This case was whether drugmakers can pay companies that manufacture generic versions of a drug to not make the drug. Why is this important? Because delaying the generic version costs the consumers who must then pay for the more expensive brand version of their medication. http://www.medscape.com/viewarticle/806442 http://www.medscape.com/viewarticle/843231 In a 5-3 decision, the Supreme Court ruled today that the Federal Trade Commission (FTC) can pursue antitrust challenges of drug patent settlements, which delay the availability of cheaper generic drugs. the court did not completely reject these so-called "pay for delay" deals between brand-name and generic drug makers, suggesting that drug makers will have some room to keep making them as long as they meet federal antitrust rules. The case is being sent back to the appeals level for a final decision. FTC Chairwoman Edith Ramirez called the decision "a significant victory" for consumers because cheaper generic versions would come to market earlier. In another release, however, Actavis Pharmaceuticals, a generic drug maker and a defendant in the lawsuit, declared that the decision still provides "a lawful and legitimate pathway for resolving patent challenge litigation in a manner that is pro-competitive and beneficial to American consumers." Actavis is 1 of 3 generic companies that were paid as much as $30 million by Solvay Pharmaceuticals Inc, now owned by AbbVie, to keep their generic versions of AndroGel, a gel used to treat men with low testosterone, off the market until 2015. In addition to Actavis, previously Watson Pharmaceuticals, the other 2 generic makers were Paddock Laboratories, now part of Perrigo Co, and Par Pharmaceutical Cos. payment "for staying out of the market keeps prices at patentee-set levels and divides the benefit between the patentee and the challenger, while the consumer loses." Justice Breyer was joined by justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan. Chief Justice John Roberts dissented, joined by justices Antonin Scalia and Clarence Thomas. Justice Samuel Alito recused himself from the case. "Pay for delay" deals have become increasingly more common. The FTC has stated that 40 such deals were made in the 2012 fiscal year, which ended on September 30. This is an increase from 28 such deals in the previous year. The agency said the agreements involved 31 different brand-name drugs with total US sales of more than $8.3 billion annually. The FTC's antitrust lawsuit against the practice was struck down at the district court level, and that decision was upheld by 11th Circuit Court of Appeals. Although the Supreme Court reversed the decision, it did not accept the FTC's argument that the drug patent settlements should be viewed as presumptively unlawful under antitrust laws. Rather, the Supreme Court called for use of the "rule of reason" antitrust standard, which allows the circumstances of each case to be considered. The decision "definitely legitimizes the role of antitrust law in these settlements that the FTC has been pursuing for a while," Noah Leibowitz, a patent expert with Simpson Thacher & Bartlett, told Reuters. "Any settlement is going to be more difficult, and companies will think much more carefully about how they settle these cases," he said. However, Jeffery Cross, an antitrust expert at Freeborn & Peters LLP, suggested to Reuters that the companies would find a loophole in the antitrust laws. "The parties will be more savvy to avoid 'unexplained' large reverse payments that suggest that the patent is not that valid," he said.

A Market Is Born (NYT)

Until the last decade or so, colonoscopies were mostly performed in doctors' office suites and only on patients at high risk for colon cancer, or to seek a diagnosis for intestinal bleeding. But several highly publicized studies by gastroenterologists in 2000 and 2001 found that a colonoscopy detected early cancers and precancerous growths in healthy people. They did not directly compare screening colonoscopies with far less invasive and cheaper screening methods, including annual tests for blood in the stool or a sigmoidoscopy, which looks at the lower colon where most cancers occur, every five years. Experts agree that screening for colon cancer is crucial, and a colonoscopy is intuitively appealing because it looks directly at the entire colon and doctors can remove potentially precancerous lesions that might not yet be prone to bleeding. But studies have not clearly shown that a colonoscopy prevents colon cancer or death better than the other screening methods. Indeed, some recent papers suggest that it does not, in part because early lesions may be hard to see in some parts of the colon. But in 2000, the American College of Gastroenterology anointed colonoscopy as "the preferred strategy" for colon cancer prevention — and America followed. Gastroenterology groups successfully lobbied Congress to have the procedure covered by Medicare for cancer screening every 10 years, effectively meaning that commercial insurance plans would also have to provide coverage. Though Medicare negotiates for what are considered frugal prices, its database shows that it paid an average of $531 for a colonoscopy in 2011. But that does not include the payments to anesthesiologists, which could substantially increase the cost If the American health care system were a true market, the increased volume of colonoscopies — numbers rose 50 percent from 2003 to 2009 for those with commercial insurance — might have brought down the costs because of economies of scale and more competition. Instead, it became a new business opportunity.

Users and payers (WSJ)

What gives the pharmaceutical industry so much pricing power? Part of the reason is the patent protection drug makers have on new products, which keeps competitors from offering copies for up to two decades. "It's easier for consumers to substitute a car that meets their needs than it is to substitute a patented drug because no one else can make it insurance-based health system, in which consumers rarely feel the full brunt of price increases. In most markets, products are ordered, paid for and consumed by the same party, But prescription drugs are ordered by a physician, used by a patient and usually paid for by a third party, either an insurer or a large employer. Neither doctors nor patients typically have much of a sense of drugs' prices. That blunts what economists call price sensitivity, the tendency of higher prices to curb demand. It confuses incentives and dampens the normal economic dynamics some drugs long on the market develop customer loyalty that provides a price umbrella. If patients who started on a drug such as Avonex a decade ago are happy with it, they or their doctors may see no reason to switch to a new one that comes along. At an investment conference in 2009, Biogen's then-CEO James Mullen was asked whether the company could keep raising Avonex's price. He said he was surprised at "how unresistant the market has been to price increases." Until about a year ago, price increases were garnering little public attention because spending on drugs had moderated. U.S. expenditures for most prescription drugs grew by an average of 2.7% from 2007 through 2013, according to data from the Centers for Medicare and Medicaid Services. That was a slower growth rate than in several previous years, due largely to greater use of generics as some big-selling drugs lost patent protection. The moderating price effect from generics now is tapering off. Pharmacy-benefits manager CVS Health Corp. said drug spending by its customers jumped 12.7% last year, more than triple the prior year's rise. Price boosts represented more than 80% of this increase, CVS said. Medicare's spending on its prescription-drug benefit rose 8% last year on a per capita basis, after several years of averaging less than 1%. A leading reason for the surge was "price increases for both brand-name and generic drugs," The Journal examined 30 of last year's top drugs by revenue that are sold by U.S. pharmacies, looking at data from the start of 2010 through the end of 2014. The analysis used corporate financial statements, prescription figures from IMS Health Holdings Inc. and wholesale-pricing data provided by Truven Health Analytics. It excluded drugs that weren't yet on the market in 2010 or for which full data weren't available. For 18 of these 30 drugs, both revenue and the number of dispensed prescriptions for them rose. But revenue rose twice as fast as prescriptions. For the cancer drug Gleevec, from Novartis AG, prescriptions rose 2% over the five years, but the wholesale price doubled, to $102,000 for a year's supply at the end of 2014. The price increases helped to drive Novartis's U.S. revenue from the drug up 69% over the period, to $2.17 billion in 2014. Gleevec is a strikingly effective drug that has been approved for more cancers since its 2001 launch for chronic myeloid leukemia, or CML. Asked about the price increases on Gleevec, Novartis said it is "a life-changing medicine" whose "success is funding the next generation CML innovations." Drug makers often give rebates from the wholesale prices--also called list prices--to large purchasers such as insurers and pharmacy-benefit managers. Even so, the wholesale prices are a meaningful measure because they are the starting point from which rebates are given. In competitive markets such as asthma and diabetes therapy, which have multiple drugs that can be substituted for one another, manufacturers often give especially large rebates as they seek better positioning on insurers' "formularies" of covered drugs. Take insulin, of which there are several brands, among them Humalog from Eli Lilly & Co. The company gave rebates averaging 56% of its list price last year, Credit Suisse estimates. A spokeswoman for Eli Lilly said that although it doubled Humalog's price over five years, steep rebates meant that its net price rose only 3%.

Shallower discounts (WSJ)

With a drug that is harder to substitute for, such as Amgen Inc.'s arthritis treatment Enbrel, discounts are shallower. Amgen raised Enbrel's wholesale price 88% over the five years. The rebates it provided averaged 21% last year, Credit Suisse estimates. Over the five years from 2010 through 2014, U.S. prescriptions for Enbrel rose 2% while Amgen's revenue from it went up by a third. Some rebates are locked in. Medicaid and the Veterans Health Administration are legally entitled to rebates of at least 23.1% and 24%, respectively, on purchases of patent-protected drugs. Drug companies must also pay additional rebates to the two health programs if their drug prices exceed inflation. Among the 30 retail drugs the Journal examined, 10 produced revenue increases for their makers last year despite lower demand. Prescriptions for these drugs declined an average of 17%. But their wholesale prices went up an average of 80%. After discounts, revenue from the drugs rose 22%. For two drugs in the 30, both revenue and demand fell. But revenue fell less. For a different category of drugs--those usually administered in doctors' offices, such as intravenous cancer drugs--prescription volumes aren't reliably tracked by commercial databases. To assess these, the Journal identified last year's 10 top-selling such drugs and analyzed 2010-2013 data on how much Medicare reimbursed doctors for them. Medicare bases these reimbursements on the average price that drug makers report receiving from customers, excluding certain government buyers such as the Veterans Health Administration and Medicaid. For four of the doctor-administered drugs, the number of billing claims from doctors fell, yet Medicare's outlays to doctors rose because prices went up. For example, Medicare payments for Neulasta, an infection-fighting drug sold by Amgen, rose 12% over the four years, while claims from doctors who used it fell 8%. The manufacturer reported that the average net price it received for this 13-year-old drug rose 24% over the four years, undergirding Medicare's higher payouts. An Amgen spokeswoman said the company prices its products to "reflect the economic value that is delivered to patients, providers and payers."

How Does New Medical Technology Affect Health Care Spending and Costs? (Kaiser)

advances in medical technology have contributed to rising overall U.S. health care spending. Rettig describes how new medical technology affects the costs of health care through the following "mechanisms of action: Development of new treatments for previously untreatable terminal conditions, including long-term maintenance therapy for treatment of such diseases as diabetes, end-stage renal disease, and AIDS; Major advances in clinical ability to treat previously untreatable acute conditions, such as coronary artery bypass graft; Development of new procedures for discovering and treating secondary diseases within a disease, such as erythropoietin to treat anemia in dialysis patients; Expansion of the indications for a treatment over time, increasing the patient population to which the treatment is applied; On-going, incremental improvements in existing capabilities, which may improve quality; Clinical progress, through major advances or by the cumulative effect of incremental improvements, that extends the scope of medicine to conditions once regarded as beyond its boundaries, such as mental illness and substance abuse. Whether a particular new technology will increase or reduce total health expenditures depends on several factors. One is its impact on the cost of treating an individual patient. Does the new technology supplement existing treatment, or is it a full or partial substitute for current approaches? Do these changes result in higher or lower health spending for each patient treated? In looking at the impact on cost per patient, consideration needs to be given to whether the direct costs of the new technology include any effect on the use or cost of other health care services such as hospital days or physician office visits. A second factor is the level of use that a new technology achieves (i.e., how many times is the new technology used?). Does the new technology extend treatment to a broader population? — examples would be innovations that address previously untreatable illness, diagnose new populations for existing treatments, or extend existing treatments to new conditions. New technologies can also reduce utilization — for example, new screening or diagnosis capacity that allows more targeted treatment. There also are temporal aspects to evaluating the impact of new technologies on costs. Some innovations, such as a new vaccine, may cost more immediately but may lead to savings down the road if the vaccine results in fewer people seeking more expensive treatment. New technologies also can extend life expectancy, which affects both the type and amount of health care that people use in their lifetime. a case study that focuses on a single technology or disease may show cost savings based on the costs and benefits of the new technology if it replaces a more expensive technology and provides health improvements, while an analysis of health care system-wide costs may show cost increases if the new technology results in greater utilization than the old. A specific example is anesthesia, where substantial innovations have occurred in recent years. Better anesthetic agents and practices have reduced the burden of surgery on patients, producing faster patient recoveries, shorter hospital stays, and fewer medical errors. These changes reduce the cost per patient compared to surgery in the absence of these changes. At the same time, these innovations also make it possible to perform surgeries on patients who previously would have been considered too frail to undergo the surgery; this adds to the amount of health care that is delivered system-wide, thus perhaps increasing total health care spending. It is not possible to directly measure the impact of new medical technology on total health care spending; innovation in the health care sector occurs continuously, and the impacts of different changes interrelate. The size of the health sector (16% of gross domestic product in 2005) and its diversity (thousands of procedures, products, and interventions) also render direct measurement impractical. Economists have used indirect approaches to try to estimate the impact of new technology on the cost of health care.6 In an often-cited article, Newhouse estimates the impact of medical technology on health care spending by first estimating the impact of factors that can reasonably be accounted for (e.g., spread of insurance, increasing per capita income, aging of the population, supplier-induced demand, low medical sector productivity gains). He concludes that the factors listed above account for well under half of the growth in real medical spending, and that the bulk of the unexplained residual increase should be attributed to technological change - what he calls "the enhanced capabilities of medicine."7

The True Cost Of Medical Malpractice - It May Surprise You (Forbes)

A new study reveals that the cost of medical malpractice in the United States is running at about $55.6 billion a year - $45.6 billion of which is spent on defensive medicine practiced by physicians seeking to stay clear of lawsuits. The amount comprises 2.4% of the nation's total health care expenditure. The numbers are the result of a Harvard School of Public Health study published in the September edition of Health Affairs, purporting to be the most reliable estimate of malpractice costs to date. Some of the more vocal opponents to health care reform have long argued that doing away with medical malpractice would go a long way towards solving a major cost problem in the system. Given the small percentage of the health care dollar spent on medical malpractice issues, that would hardly appear to be the case. At the same time, with a full $45 billion annually being spent on medical procedures and testing done solely for the purpose of defensive medicine, there is clearly room for improvement. Physician and insurer groups like to collapse all conversations about cost growth in health care to malpractice reform, while their opponents trivialize the role of defensive medicine. Our study demonstrates that both these simplifications are wrong -- the amount of defensive medicine is not trivial, but it's unlikely to be a source of significant savings.

Stifling Competition? (medscape)

In 2013, the European Commission fined Johnson & Johnson about €10.8 million ($11.43 million) and Novartis about €5.49 million ($5.8 million) after it found that, in breach of European Union antitrust laws, their subsidiaries in the Netherlands had agreed to a deal that was designed to delay the market entry of a generic version of the painkiller fentanyl (Duragesic). In the United States, the FTC has made pay for delay one of its top priorities and has opposed a number of settlements that are believed to have stifled the competition from releasing lower-cost generic medicines. These deals cost consumers and taxpayers $3.5 billion more in drug costs every year. Former FTC chair Jon Leibowitz pointed out in a press release that according to the Congressional Budget Office, restricting these arrangements would reduce federal government debt by $5 billion over 10 years. In fact, of the 145 patent-dispute settlements filed in 2013, 29 were potential pay-for-delay agreements between branded and generic drug companies. Those 29 settlements involved 21 different branded pharmaceutical products, with combined sales of $4.3 billion in the United States, and 13 generics made by "first filers." Being a first filer — the first company to seek approval from the US Food and Drug Administration (FDA) to market a generic version of a branded drug — makes a company eligible for 6 months of exclusivity, without competition from other generic manufacturers. FDA regulations stipulate that other generic manufacturers cannot enter the market if the entry of a first flier is delayed, which can make these patent-settlement deals particularly harmful to consumers, according to the FTC. Appropriate enforcement by the Commission of antitrust laws means that there will be fewer of these anticompetitive deals," Kades told Medscape Medical News. "This translates to lower prices for the consumer."

Can it Benefit the Consumer? (medscape)

In late 2012, the US Supreme Court finally agreed, for the first time, to hear the pay-for-delay case of the FTC vs Actavis (a generics manufacturer). In their ruling, which is considered a victory for the FTC, the Court said that these settlements are not categorically immune from antitrust laws, even when they are within the scope of the patent. Although the Court did not declare them illegal, it agreed with the FTC that this type of settlement could be harmful to consumers and violate antitrust laws. The Court also rejected arguments that these settlements are always legal, and provided guidance on how they might violate antitrust laws. What the Supreme Court said is that they can be judged case by case, and that the Commission can challenge these arrangements," said Kades. But the Court also ruled that these settlements are not presumptively anticompetitive. Supporters of these agreements believe that they can be beneficial to patients. According to the Generic Pharmaceutical Association (GPhA), these settlements can eliminate costly and time-consuming trials over the drug patent, and can actually bring generics to market sooner. Reverse-payment settlements can facilitate the entry of generics into the market," They provide a guaranteed way of market entry before expiration of the patent if the parties reach a settlement." Patent protection for a drug is quite long, so any opportunity to provide medications ahead of time in a generic form is a benefit for the patients and the healthcare system, "Under the law, generic companies are encouraged to challenge the patents in court. If they win, they come to market sooner." This is like any other type of litigation, in that both parties have the option to settle out of court, which generally allows the generic to actually come to market sooner, "That is the benefit of the settlements — you don't have to continue all the way through a court case. The reason that it has become an issue is that these settlements include a consideration, which may or may not include money." Part of that dispute is that many are misinformed about what is actually going on with these settlements, Simmon explained. "They came up with a catchy slogan [pay for delay], but that really is a misnomer. It is built on the misguided perception that if they don't settle, the case will continue on to court and the generic companies will win." The truth is that there is a high probability that they will not be successful in court. An independent study conducted in 2010 by RBC Capital Markets analyzed 370 drug patent suits from 2000 to 2009 and found that generic companies were successful in only 48% of cases. When settlements were factored into the mix, manufacturers were successful in bringing the generic product to market before patent expiration in 76% of cases. the generic version of the top-selling statin atorvastatin (Lipitor, Pfizer) entered the market 6 years before patent expiration because of a settlement. This early market entry will result in a projected savings of $22 billion by 2017, Simmon noted.

Pay-for-Delay Drug Deals: Do They Hurt or Help Patients? (medscape)

Numerous factors have been cited as contributors to escalating costs, including strategies that are said to delay or discourage competition by generic companies. Because manufacturers of generic drugs are not required to repeat clinical trials or pay for advertising and promotion, these products are typically priced far lower than brand-name drugs. One of the strategies to delay generics is a practice known as "patent evergreening," in which a variation of a drug is developed — such as a new form of release, a different dose, or a new combination — to extend the life of the original patent. But a more ominous strategy is "pay for delay." These are deals in which pharmaceutical manufacturers with patents that are nearing expiration pay companies to delay the introduction of a generic version preventing pay for delay is one way to rein in costs. "Federal legislation is needed that will prevent delaying access to generic drugs by preventing drug companies from making deals to protect patents Pay for delay has become a particularly contentious issue, and has entangled the US Federal Trade Commission (FTC) in several lawsuits that have made their way all the way to the Supreme Court. The controversy has even spread to the European Union. In a pay-for-delay strategy, a patent holder — in this case a pharmaceutical company — agrees to pay a potential competitor who has threatened to enter the market and challenge the patent to delay entry. They are often called reverse-payment patent settlements because the payment flows in a direction opposite what is normally expected in patent litigation cases. Opponents of these settlements argue that delaying generics harms patients and might even be unlawful and violate antitrust laws. Supporters contend that if a valid patent is being infringed on, a settlement that restricts the entry date of the generic drug does not violate lawful competition.

For Prescription Drug Makers, Price Increases Drive Revenue (WSJ)

http://search.proquest.com.proxy.library.stonybrook.edu/wallstreetjournal/docview/1719140640/5735C6D5D950480EPQ/1?accountid=14172 Demand for a drug called Avonex has declined every year for the past 10. Not a problem for its manufacturer. U.S. revenue from the drug has more than doubled in that time, to $2 billion last year. The key: repeated price increases. The multiple sclerosis drug's maker, Biogen Inc., raised its price an average of 16% a year throughout the decade--21 times in all. drug companies' unusual ability to boost prices beyond the inflation rate to drive their revenue, even when demand for the drugs doesn't cooperate. A result of this pricing power is that across 30 top-selling drugs sold by pharmacies, U.S. revenue growth has far outpaced demand in the past five years Revenue growth averaged 61%, three times the increase in prescriptions. Attention has focused lately on new drugs with eye-popping prices and on a few whose price a new owner abruptly raised several-fold . But what many drug companies rely on for sales growth is a pattern of steady increases, year in and year out, on older medicines. Wholesale-price increases for the 30 drugs analyzed by the Journal averaged 76% over the five-year stretch from 2010 through 2014. That was more than eight times general inflation. For 20 leading global drug companies last year, 80% of growth in net profits stemmed from price increases in the U.S., according to a May report by Credit Suisse. Pricing power helps some in the pharmaceutical industry to compensate for sluggish demand, new competition or weak product pipelines. "Pricing has covered up a multitude of other disappointments over the past 15 years" in the sector, said Geoffrey Porges, a biotech analyst at AllianceBernstein LP. This is no cause for cheer to the many large companies that pick up the tab for their employees' prescriptions. Drug pricing has helped drive up spending on benefits at Lowe's Cos. Pharmaceutical companies defend their pricing as helping to finance development of innovative medicines, an expensive and risky enterprise they say wouldn't attract investment without the potential for large returns when a new drug succeeds. Many in the industry also say a focus on drug prices is shortsighted because it overlooks drugs' role in helping to contain overall health-care costs by preventing disease complications. Robert Zirkelbach said that eventually, prices for all drugs will decline sharply when they lose patent protection and go generic. Avonex maker Biogen has noted the central role of price boosts in the drug's success. "For 2014 compared to 2013, the increase in U.S. Avonex revenues was primarily due to price increases, partially offset by a decrease in unit sales volume of 10%," Biogen said in its 2014 financial report. A similar note has appeared in its annual reports since 2005. But Biogen points to the way this revenue funds its quest for new medicines. The company spent an average of $1.19 billion annually on R&D from 2005 through 2014, or 24% of total revenue. Besides Avonex, the company has brought out two other multiple sclerosis drugs and is studying a treatment to repair nerve damage from the disease. "Over the past two decades, which is the life of Avonex, we've done more than any other company to improve the treatment of multiple sclerosis. The reality is that revenues from therapies available today make this possible."

Pharmaceutical pricing: Crippling (economist)

http://www.economist.com/blogs/democracyinamerica/2015/06/pharmaceutical-pricing health insurers have begun revealing proposed rate increases to their health-care plans for 2016. These potential hikes, which in some cases exceed 30%, can be partly explained by the fact that insurers low-balled their prices in the early days of the Affordable Care Act in order to gain market share. But there is another reason: higher drug prices. Prescription drug spending increased 13.1% in 2015. This rise is partly explained by some new drugs for Hepatitis C. scientists announced that new immuno-oncology drugs work in a wider range of cancers, and even better when given in combination. The problem is that these drugs are some of the most expensive the country has ever seen. At $295,000 a year, the price of combination therapy is unsustainable, he explained. At a big drug-sponsored conference, this was like swearing at a vicar's tea party. The fact that the bad news about prices somewhat eclipsed the good news on cancer treatment was an irony lost on no one. And the problem of drug costs is expected to only get worse as Americans get older and fatter and the rates of cancer go up. Innovation in the drug industry is expensive and risk must be rewarded. Some novel drugs may be worth paying high prices for. Yet drug prices in America often have more to do with what the market will bear than anything else. For example Gleevec, a drug sold by Novartis to treat blood-based cancer, seemed rather dear when it was first sold in 2001 at around $30,000 for a year's supply, yet the price still tripled in the past decade. One economist at a closed-door session of pricing experts at ASCO dryly remarked that she could find no economic theory to explain how companies price their drugs. drug companies were being rewarded for innovations that benefit people. Yet too many drugs have long charged outsized prices for trivial benefits. For example Avastin, one of the most popular cancer drugs in the world, which raises billions of dollars a year for Roche, a Basel-based drug company, has long been seen as having questionable utility. Drug companies also tend to charge Americans more for the same drug sold in other markets, in part because other countries often have a single-payer system that negotiates better deals for consumers. pharmaceutical companies can advertise directly to patients in America, which helps ensure demand. Second, price increases have been largely invisible to both patients and their doctors, in part because health-insurance plans often shield buyers from the true costs of their drugs. Third, Medicare, the public-health programme for those aged 65 and older, is the country's largest drug customer, yet it is not allowed to negotiate prices with drug companies—with predictable results. insurers have two options. They can either raise the cost of their insurance, as many would like to do this year. Or they can continue to limit the coverage of their plans, either by using co-pays on drugs or increasing the amount that patients must pay out of pocket before insurance kicks in (ie, high-deductible plans). Yet high-deductible plans tend to deter patients from seeking medical help. If high drug prices for a few speciality drugs drive more people onto high-deductible plans next year, then the needs of a select few may end up distorting the health outcomes of the masses. Examples also abound of patients who are brought to ruin by the costs of their drugs, and others who are forced to abandon life-saving therapies altogether. Companies that are forced to pay higher health-insurance premiums for their workers are less inclined to raise salaries, Drugs for Hepatitis C alone will have $20 billion in sales this year, he says. Divided by 180m workers, this is a 5 cent-per-hour tax on every single paycheck. Express Scripts has long been a thorn in the side of the pharmaceutical industry. In recent years the company has begun excluding drugs from coverage if they are seen as overpriced or underwhelming. Last year Express Scripts decided to forgo use of Gilead's $84,000 drug for Hepatitis C in favour of a cheaper alternative. If drug prices continue to soar, expect other insurance companies to follow this lead.

The $2.7 Trillion Medical Bill (NYT)

http://www.nytimes.com/2013/06/02/health/colonoscopies-explain-why-us-leads-the-world-in-health-expenditures.html?pagewanted=all Angiogram US 914 Canada 35 Colonoscopy US 1185 Switzerland 655 Hip replacement US 40364 Spain 7731 Lipitor US 124 New Zealand 6 MRI us 1121 netherlands 319 colonoscopy in long island: $6,385 Matt Meyer's colonoscopy was billed at $7,563.56. Maggie Christ of Chappaqua, N.Y., received $9,142.84 in bills for the procedure. In Durham, N.C., the charges for Curtiss Devereux came to $19,438, which included a polyp removal. While their insurers negotiated down the price, the final tab for each test was more than $3,500. Although her insurer covered the procedure and she paid nothing, her health care costs still bite: Her premium payments jumped 10 percent last year, and rising co-payments and deductibles are straining the finances of her middle-class family, In many other developed countries, a basic colonoscopy costs just a few hundred dollars and certainly well under $1,000. That chasm in price helps explain why the United States is far and away the world leader in medical spending, even though numerous studies have concluded that Americans do not get better care. Americans pay more for almost every interaction with the medical system. They are typically prescribed more expensive procedures and tests than people in other countries, no matter if those nations operate a private or national health system. A list of drug, scan and procedure prices compiled by the International Federation of Health Plans, a global network of health insurers, found that the United States came out the most costly in all 21 categories — and often by a huge margin. Americans pay, on average, about four times as much for a hip replacement as patients in Switzerland or France and more than three times as much for a Caesarean section as those in New Zealand or Britain. The average price for Nasonex, a common nasal spray for allergies, is $108 in the United States compared with $21 in Spain. The costs of hospital stays here are about triple those in other developed countries, even though they last no longer, according to a recent report by the Commonwealth Fund, a foundation that studies health policy. The U.S. just pays providers of health care much more for everything, Colonoscopies are the most expensive screening test that healthy Americans routinely undergo — and often cost more than childbirth or an appendectomy in most other developed countries. Their numbers have increased manyfold over the last 15 years, with data from the Centers for Disease Control and Prevention suggesting that more than 10 million people get them each year, adding up to more than $10 billion in annual costs. Largely an office procedure when widespread screening was first recommended, colonoscopies have moved into surgery centers — which were created as a step down from costly hospital care but are now often a lucrative step up from doctors' examining rooms — where they are billed like a quasi operation. They are often prescribed and performed more frequently than medical guidelines recommend. business plans seeking to maximize revenue; haggling between hospitals and insurers that have no relation to the actual costs of performing the procedure; and lobbying, marketing and turf battles among specialists that increase patient fees. While several cheaper and less invasive tests to screen for colon cancer are recommended as equally effective by the federal government's expert panel on preventive care — and are commonly used in other countries — colonoscopy has become the go-to procedure in the United States. "We've defaulted to by far the most expensive option, without much if any data to support it," Hospitals, drug companies, device makers, physicians and other providers can benefit by charging inflated prices, favoring the most costly treatment options and curbing competition that could give patients more, and cheaper, choices. And almost every interaction can be an opportunity to send multiple, often opaque bills with long lists of charges: $100 for the ice pack applied for 10 minutes after a physical therapy session, or $30,000 for the artificial joint implanted in surgery. The United States spends about 18 percent of its gross domestic product on health care, nearly twice as much as most other developed countries. The Congressional Budget Office has said that if medical costs continue to grow unabated, "total spending on health care would eventually account for all of the country's economic output." And it identified federal spending on government health programs as a primary cause of long-term budget deficits. While the rise in health care spending in the United States has slowed in the past four years — to about 4 percent annually from about 8 percent — it is still expected to rise faster than the gross domestic product. Aging baby boomers and tens of millions of patients newly insured under the Affordable Care Act are likely to add to the burden. Patients in the United States make fewer doctors' visits and have fewer hospital stays than citizens of many other developed countries, according to the Commonwealth Fund report. People in Japan get more CT scans. People in Germany, Switzerland and Britain have more frequent hip replacements. The American population is younger and has fewer smokers than those in most other developed countries. Pushing costs in the other direction, though, is that the United States has relatively high rates of obesity and limited access to routine care for the poor. A major factor behind the high costs is that the United States, unique among industrialized nations, does not generally regulate or intervene in medical pricing, aside from setting payment rates for Medicare and Medicaid, the government programs for older people and the poor. Many other countries deliver health care on a private fee-for-service basis, as does much of the American health care system, but they set rates as if health care were a public utility or negotiate fees with providers and insurers nationwide, for example. Consumers, the patients, do not see prices until after a service is provided, if they see them at all. And there is little quality data on hospitals and doctors to help determine good value, aside from surveys conducted by popular Web sites and magazines. Patients with insurance pay a tiny fraction of the bill, providing scant disincentive for spending. Even doctors often do not know the costs of the tests and procedures they prescribe. called the hospital that he is affiliated with to price lab tests and a colonoscopy, he could not get an answer. "It's impossible for me to think about cost," he said. "If you go to the supermarket and there are no prices, how can you make intelligent decisions?" Instead, payments are often determined in countless negotiations between a doctor, hospital or pharmacy, and an insurer, with the result often depending on their relative negotiating power. Insurers have limited incentive to bargain forcefully, since they can raise premiums to cover costs.

Supreme Court Lets Regulators Sue Over Generic Drug Deals (NYT)

http://www.nytimes.com/2013/06/18/business/supreme-court-says-drug-makers-can-be-sued-over-pay-for-delay-deals.html In a 5-to-3 vote, the justices effectively said that the Federal Trade Commission can sue pharmaceutical companies for potential antitrust violations, a decision that is likely to increase the number of generic drugs in the marketplace and benefit consumers. Specifically, the justices threw out lower-court rulings that said the agreements were legal, provided that a deal did not keep a generic drug off the market beyond the term of the brand-name drug's patent. shift an important balance of power to the generic companies Drug developers may now find it harder to ward off generics, which typically cost about 15 percent of the brand-name's price and cause the original to quickly lose up to 90 percent of its market share. Consumer groups, drug retailers, wholesalers and insurance companies, which all benefit from the lower prices of generic drugs, could also step up their challenges to the agreements under antitrust laws. The court did not address whether the agreements, called pay-for-delay or reverse payments, were unlawful on their face. In a standard patent infringement lawsuit, a settlement payment would be made by an infringer to the patent holder. In the case, Federal Trade Commission v. Actavis, No. 12-416, the agency said that a payment to Actavis by Solvay Pharmaceuticals, the holder of a patent on a testosterone gel known as AndroGel, represented an unlawful restraint of trade because it was intended to keep Actavis from producing its generic version of AndroGel for a certain number of years. Solvay's deal with Actavis is known as a reverse-payment agreement because payment flows from the brand-name drug company to the generic competitor that is challenging the patent. Justice Stephen G. Breyer, writing for the majority, said that "a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent." Pharmaceutical sales in the United States totaled roughly $320 billion in 2011, according to IMS Health, a research company whose statistics the trade commission cited in its arguments. Brand-name drugs accounted for 18 percent of the total prescriptions written by doctors in 2011 but 73 percent of consumer spending, IMS reported. Justice Breyer's decision, which was joined by Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, reversed a decision of the 11th Circuit Court of Appeals, which had thrown out the F.T.C.'s case. The appeals court said that because the exclusion of the generic drug did not extend beyond the term of the brand-name drug's patent, a "quick look" could determine that there was no anticompetitive effect. The Supreme Court's decision adopted a different standard, known as the "rule of reason," which states that the agreements must be considered in the context of their possible benefits for consumers. Chief Justice John G. Roberts Jr. wrote a dissenting opinion, which was joined by Justices Antonin Scalia and Clarence Thomas. Justice Samuel A. Alito Jr. recused himself from the case. In their dissent, the justices pointed out that the agreement between Solvay and Actavis allowed for the generic drug to come to market five years before the scheduled expiration of Solvay's patent. The majority's decision will discourage the settlement of patent litigation, the justices said. Congress has encouraged generic drug makers to challenge the patents protecting lucrative brand-name drugs through the 1984 Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act.

It's Time to Rein in Exorbitant Pharmaceutical Prices (HRB)

https://hbr.org/2015/09/its-time-to-rein-in-exorbitant-pharmaceutical-prices Pharmaceutical companies executed well on the rules set by the U.S. government as well as the "make the most money" dictum set by their stockholders. Over the last five years, returns for the S&P Pharmaceuticals Select Industry Index have been virtually double that of the S&P 500 (roughly 24% vs. 12% annually). Americans need to take some responsibility for deciding how drug prices are set, and they need to ask the larger question for the future: how should future pharmaceutical advancements be funded? American drug prices are among the highest in the world. Prices in advanced countries are often 50% cheaper than what Americans pay for drugs. The AARP estimates prices for commonly used brand name prescription drugs in the U.S. rose by 8 times the general inflation rate in 2013. The annual expense for a recently developed cancer drug cocktail is $295,000. (No wonder health insurance expenses are one of the biggest costs facing many employers.) virtually every country regulates prices and the U.S. doesn't. In fact, Congress has explicitly prohibited Medicare from negotiating drug prices with pharmaceutical companies. (Close to 40 million people in the U.S. have this prescription drug benefit). Prices in Norway, the fourth wealthiest country in the world (U.S. is number 6), for instance, are amongst the lowest in Western Europe. The bottom line: most countries play hardball on drug prices, while the U.S. pays retail. As a result, consumers in the U.S. are stuck footing most of the bill for developing new drugs, even as consumers throughout the developed world reap the benefits. The biggest expense of a new drug is R&D; once developed, the cost of producing pills is relatively trivial. Most important, everyone in the world can - and should - benefit from pharmaceutical advancements, especially since the variable costs are so low. In other words, the R&D behind new drugs is a common good. Typical solutions to the dilemma of high drug prices include single payer (e.g., U.S. government negotiates "take it or leave it" prices for its territory) and price regulation (e.g., the government simply specifies prices). These tactics will lower prices but don't address the issue of paying for new pharmaceutical developments. How can we make sure that the cost of developing new drugs is equitably split among the various beneficiaries around the world? That high-price-paying Americans are not essentially subsidizing R&D for pharma multinationals? A tethered price regulation is the answer. Regulators could pass a law that says neither American insurers nor government agencies would pay more than a set percentage above (or below) what other developed countries pay for drugs. In other words, our prices are tethered to theirs. This accomplishes two goals. First, drug prices will be lowered for Americans. Second and just as importantly, pharma companies and other countries will be on notice that sick Americans are no longer going to shoulder a disproportionate share of drug development costs. Tethered regulation should apply only to new drugs, not existing drugs, which were developed with the understanding that U.S. prices will be as high as the market can bear. We made a bad deal, but we should keep our word. A common reaction to any whiff of price regulation is concern that pharma R&D will be reduced. This is a fair concern, but it's not a given that R&D will decrease. Pharma companies may opt to cut sales and marketing costs (which 9 out the top 10 pharma companies spend more on than R&D), executive compensation, or dividends instead, keeping R&D budgets healthy. That said, it is very possible R&D may decrease as a result of regulation. In utopia, it'd be wonderful for pharma companies to have unlimited R&D budgets. But back here in reality, tradeoffs are made. Even today, R&D budgets are not infinite. And if budgets are cut by 20%, instead of funding 100 initiatives, it may be that only the top 80 with the highest potential will be greenlit. A common reaction to any whiff of price regulation is concern that pharma R&D will be reduced. This is a fair concern, but it's not a given that R&D will decrease. Pharma companies may opt to cut sales and marketing costs (which 9 out the top 10 pharma companies spend more on than R&D), executive compensation, or dividends instead, keeping R&D budgets healthy. That said, it is very possible R&D may decrease as a result of regulation. In utopia, it'd be wonderful for pharma companies to have unlimited R&D budgets. But back here in reality, tradeoffs are made. Even today, R&D budgets are not infinite. And if budgets are cut by 20%, instead of funding 100 initiatives, it may be that only the top 80 with the highest potential will be greenlit. The word "regulation" and threats of lower pharma R&D can be polarizing. There's room for a more balanced discussion: regulation may be appropriate for select products, the possibility of lower R&D may be acceptable in return for lower costs and expanded access to important drugs. Now is the time to have this crucial discussion. And if the U.S. decides to keep the status quo - that's fine. But in that case, Americans should recognize that we have chosen to keep prices high and subsidize drug development for the rest of the world, rather than pointing the finger at pharmaceutical executives.

Opinion- The Cost of Insulin (NYT)

https://www.nytimes.com/2016/02/21/opinion/sunday/break-up-the-insulin-racket.html?_r=1 Insulin has been around for almost a century. The World Health Organization considers it an essential medicine, which means it should be available "at a price the individual and the community can afford." In the United States, just three pharmaceutical giants hold patents that allow them to manufacture insulin: Eli Lilly, Sanofi and Novo Nordisk. Put together, the "big three" made more than $12 billion in profits in 2014, with insulin accounting for a large portion. the big three have simultaneously hiked their prices. From 2010 to 2015, the price of Lantus (made by Sanofi) went up by 168 percent; the price of Levemir (made by Novo Nordisk) rose by 169 percent; and the price of Humulin R U-500 (made by Eli Lilly) soared by 325 percent. To make insulin affordable, we need more competition. Nothing would do this faster than a "generic" form of insulin. (Technically, because insulin is made using bacteria, it should be referred to as a "biosimilar" instead of a "generic.") Unfortunately, there isn't one available in the United States. This is true, in no small part, because the big three have cleverly extended the lives of their patents, making incremental "improvements" to their insulin. It's not clear whether the newer insulin products are significantly safer or more effective than their predecessors, yet the strategy has been effective: There is no generic insulin, and over 90 percent of privately insured patients with Type 2 diabetes who are prescribed insulin get the newer and more expensive products. Something else is most likely contributing to the rising price of insulin: a very powerful and largely invisible group of middlemen, known as pharmacy benefit managers, or P.B.M.s. Mrs. B has Medicare Part D coverage. She is responsible for co-payments on her insulin. But every year, by early fall, she typically reaches a coverage gap (known as the doughnut hole) when she becomes responsible for paying for insulin out of pocket. So Mrs. B skimps on her medicine, allowing her blood sugar to rise to worrisome levels. The patent on Lantus (Sanofi's top-selling insulin) recently expired, allowing other companies to start preparing generic forms. The first generic competitor usually sets a price that is only slightly below the branded insulin. Research shows that once there are two manufacturers of a generic drug, the price typically drops by about half; with eight, it drops to about a fifth. But because insulin is a biosimilar, the decline may be more modest. And this will take time; additional testing is needed to ensure the safety and effectiveness of each new generic before it is approved. short-term solutions in the hands of patients and doctors. prescribed an older, slightly cheaper version of insulin — known as "human" insulin — which worked just as well. In fact, it is more effective because she is actually taking it. our faith in newer and "better" drugs — coupled with our unwillingness to police this marketplace — has done little to help Americans. we need to protect the intellectual capital of pharmaceutical companies so that they continue to invest in innovative new drugs. But those drugs should ultimately result in better health for patients, not just wider profit margins.

Drug Prices Soar, Prompting Calls for Justification (NYT)

pharmaceutical companies are coming under pressure to disclose the development costs and profits of those medicines and the rationale for charging what they do. So-called pharmaceutical cost transparency bills have been introduced in at least six state legislatures in the last year, aiming to make drug companies justify their prices, which are often attributed to high research and development costs. If a prescription drug demands an outrageous price tag, the public, insurers and federal, state and local governments should have access to the information that supposedly justifies the cost," says the preamble of a bill introduced in the New York State Senate in May. more than 100 prominent oncologists called for support of a grass-roots movement to stem the rapid increases of prices of cancer drugs, including by letting Medicare negotiate prices with pharmaceutical companies and letting patients import less expensive medicines from Canada. drug companies keep challenging the market with even higher prices, This raises the question of whether current pricing of cancer drugs is based on reasonable expectation of return on investment or whether it is based on what prices the market can bear." The top Republican and Democrat on the United States Senate Finance Committee last year demanded detailed cost data from Gilead Sciences, whose hepatitis C drugs, which cost $1,000 a pill or more, have strained the budgets of state and federal health programs. The U.A.W. Retiree Medical Benefits Trust tried to make Gilead, Vertex Pharmaceuticals, Celgene and other companies report to their shareholders more about how they set prices and the risks to their businesses from resistance to high drug prices. The trust cited the more than $300,000 per year price of Vertex's cystic fibrosis drug Kalydeco and roughly $150,000 for Celgene's cancer drug Revlimid. Even former President Bill Clinton said it would be in the industry's best interest to say more about its costs and pricing. The pharmaceutical industry has already had the veil lifted on various practices. Drug companies now have to report the payments, including meals and entertainment, that they make to doctors for research, consulting and giving promotional speeches. The companies have also had to disclose more results of their clinical trials and in some cases have started to provide raw data to outsiders. The state bills, which are supported by some health insurers and consumer groups, have not progressed. The two senators, Republican Charles E. Grassley of Iowa and Democrat Ron Wyden of Oregon, have not reported the results of their inquiry. And shareholders of Gilead, Vertex and Celgene voted down the resolutions proposed by the U.A.W. trust, though the trust says it reached settlements with Eli Lilly and with two other drug companies it would not identify. The pharmaceutical and biotechnology industry trade groups say the transparency bills would be costly to comply with and would provide misleading information. Even some people concerned about drug prices say that the cost to develop a particular drug has little to do with that drug's price and that knowing such information will not keep prices down. "The current revenue doesn't pay for past R&D; it pays for current R&D." Prices for cancer drugs, some of which extend lives by only a couple of months, routinely exceed $100,000 a year, and some new ones exceed $150,000. And it is not unusual for the list prices of existing drugs to rise 10 percent or more year after year, far beyond the rate of inflation. The prices of older drugs for multiple sclerosis have risen from about $10,000 per year in the late 1990s to more than $60,000 now, according to a study, even as competition in the market has intensified with the introduction of new products. Cost transparency bills have also been introduced in California, Massachusetts, North Carolina, Oregon and Pennsylvania. Three of the bills require disclosures for drugs costing $10,000 or more per year. The others have different criteria. Besides development costs, some of the bills would require disclosure of the costs of manufacturing, marketing and advertising. At least some of the bills also ask for a history of price increases, the profit attributable to the drug and how much a company spends in providing financial assistance to patients using the drug. Two of the bills would allow the states to act on the information, not just require disclosure. Pennsylvania's would allow insurers to refuse to pay for a drug if the manufacturer did not file the required report. In Massachusetts, a state commission would be able to set a maximum price for a drug if it determined that the price set by the manufacturer was significantly high compared with the benefits, costs or prices in other countries. Most of the bills have not been acted upon, though hearings were held in California and Oregon. The sponsor of the California bill, Assemblyman David Chiu, pulled it back shortly before a committee was to vote on it, apparently because it did not have sufficient support. The bill could be picked up again next year. Insurers and consumer groups told the Oregon Legislature that more disclosure was needed because the state had to decide whether to pay for certain drugs. Representatives of the pharmaceutical industry said the bill was unfair and would discourage industry investment in Oregon. it was misleading to look only at the cost of developing a particular drug because that ignored the money spent on the drugs that fail during development. Only about 12 percent of drugs tested in people reach the market publicly traded drug companies already disclosed their overall research and development costs, as well as other financial information. She also said that focusing on costs ignored the value of the drugs. Some drugs, for instance, can save money for the health system over all by keeping people out of the hospital, she said. Pharmaceutical executives do not typically tie the price of any particular drug to its development cost. But they do say that their sales have to recoup their investment in research and development if the companies are to stay in business. companies spent an average of $2.6 billion to bring a drug to market, up from an estimate of $800 million in 2003. That includes the cost of failures. And almost half the figure is opportunity cost, the amount a company might have earned if it had invested money elsewhere rather than spending it on drug development. Tufts center gets funding from the pharmaceutical industry and uses data supplied by the drug companies, but does not disclose which drugs are used as the basis of the estimates. they price the drugs based on the value they provide, though often a detailed explanation of that is not provided. In many cases, it appears, the price of new drugs is set in comparison to rival drugs already on the market, and usually a bit higher. Companies then can raise their prices for the older drugs. National Coalition on Health Care, a group of insurers, consumer organizations, labor unions and employers concerned about drug prices, hoped to introduce transparency legislation in Congress, but aimed at determining how drug companies estimate the value of their drugs, not the research and development costs. "The industry has used R&D costs for the justification, but anyone who is reasonably sophisticated understands those are sunk costs and have little to do with pricing," Mr. Rother said. "The more important information is any calculation of value. If the drug actually cures people, then what costs in health care are you saving?"

Current Trends for Cancer Drugs (medscape)

the Supreme Court ruling will likely increase future investigation and litigation of reverse-payment settlements. In a prepared statement before the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights, Edith Ramirez, chair of the FTC, applauded the Supreme Court decision and made it clear that the FTC will continue to pursue these investigations. This includes cases currently in litigation, pending cases, and a revisiting of settlements that were "previously filed, in light of the Actavis decision, to determine whether they merit further investigation." Cancer therapies are a particularly popular target for patent challenges; from 2006 to 2011, they were the second-most commonly litigated generic class (70 unique cases), just behind cholesterol-lowering agents (123 unique cases). The patents of other expensive cancer drugs are nearing expiration, and some have already been making the rounds in court. The patent on bortezomib (Velcade), for example, is set to expire in 2017 and, according to FiercePharma, Actavis has already filed an application with the FDA to produce a generic version. In 2012, the generic manufacturer Mylan challenged the patent covering the active ingredient in erlotinib (Tarceva, Genentech & OSI) and the patent covering the method of using the drug to treat non-small cell lung cancer, but the challenges were rejected by the Court. The first patent for the drug will expire in November 2018. However, Roche, the marketer of erlotinib outside the United States, was not as successful. They recently lost a 4-year battle over patent rights for erlotinib in India to the generic manufacturer Cipla. A drug with a victory for both the brand-name manufacturer and the generic company is pemetrexed (Alimta, Eli Lilly). The composition-of-matter patent expires in 2016, but the company successfully fought off a challenge from Teva Pharmaceuticals when a judge ruled that the patent should be upheld until 2022. But Eli Lilly did not fare as well in Europe. In the United Kingdom, the Court ruled against it, giving Actavis the go-ahead to launch a generic version. And just last month, a German court ruled that a generic version can come to market in December, but Eli Lilly plans to appeal that ruling.

Case Studies (Kaiser)

the benefits of 4 of the 5 conditions studied (heart attacks, low-birthweight infants, depression, and cataracts) were greater than the costs; costs and benefits were about equal for the fifth condition (breast cancer). For example, in 1984 nearly 90% of heart attack patients were managed medically; by 1998, more than half of patients received surgical treatment. Spending by Medicare on heart attack patients increased from $3 billion to $4.8 billion (a 3.4% annual change), despite a 0.8% annual decline in the number of heart attacks. From 1984-1998, the use of new technology helped to increase the average heart attack patient's life expectancy by one year (valued at $70,000 per case), while treatment costs increased $10,000 per case (4.2% per year), for a net benefit of $60,000 per case studied the relationship between the supply of new technologies and health care utilization and spending at 3 levels (a particular technology, "category" spending on substitutable or complimentary technologies, and total health spending), using 10 diagnostic imaging, cardiac, cancer, and newborn care technologies. They found that more availability of the technologies was frequently associated with higher use and spending on the services. For example, a one unit increase in the number of freestanding MRI units per million people was associated with an increase of about $32,900 per million beneficiaries (commercial and Medicare) per month, or approximately $395,000 per year. Looking at "category" spending, they found an individual technology can increase or decrease spending on other technologies in the same category depending on whether they complement those technologies (e.g., an increase of one unit per million in availability of MRI equipment was associated with an increase of 0.33% in total diagnostic imaging spending) or substitute for those technologies (e.g., increases in the availability of cardiac services were typically associated with reductions in total spending on patients with cardiac diagnoses). For total health care spending, they found that greater availability of technologies was associated with higher total spending in the commercial population in all but 2 technologies studied, and these effects were larger than the technology-specific relationships.

The Residual Approach (kaiser)

the impact of changes in other factors (such as prices, income, population growth and demographic changes, and utilization) is quantified, and the residual not accounted for is attributed to changes in technology. The most widely-used approach, it circumvents the need to specify a direct measure of technology and captures the impact of general technologies applied in the health sector, such as information technology. However, it is only a rough, indirect estimate (and perhaps an overestimate) of the impact of technology on health spending because other factors that cannot be quantified (such as lifestyle, environment, education) will also be included along with technology. that nearly half (47%) of the 1960-1993 growth in real per capita U.S. medical spending and almost two-thirds (64%) of its 1983-1993 growth were due to increasing levels of insurance coverage (i.e., a decline in coinsurance levels paid by consumers). Because lower coinsurance levels and higher research spending are considered inducers of technology, the authors concluded that these results imply that about two-thirds (70%) of the 1960-1993 medical spending growth and about three-fourths (76%) of the 1983-1993 medical spending growth came from cost-increasing advances in medical technology.

What is Medical Technology? (Kaiser)

the procedures, equipment, and processes by which medical care is delivered. Examples of changes in technology would include new medical and surgical procedures (e.g., angioplasty, joint replacements), drugs (e.g., biologic agents), medical devices (e.g., CT scanners, implantable defibrillators), and new support systems (e.g., electronic medical records and transmission of information, telemedicine). Heart disease and its consequence, heart attack, is the leading cause of death in the U.S. and a good example of how new technology has changed the treatment and prevention of a disease over time. In the 1970s, cardiac care units were introduced, lidocaine was used to manage irregular heartbeat, beta-blockers were used to lower blood pressure in the first 3 hours after a heart attack, "clot buster" drugs began to be widely used, and coronary artery bypass surgery became more prevalent. In the 1980s, blood-thinning agents were used after a heart attack to prevent reoccurrences, beta-blocker therapy evolved from short-term therapy immediately after a heart attack to maintenance therapy, and angioplasty (minimally invasive surgery) was used after heart attack patients were stable. In the 1990s, more effective drugs were introduced to inhibit clot formation, angioplasty was used for treatment and revascularization along with stents to keep blood vessels open, cardiac rehabilitation programs were implemented sooner, and implantable cardiac defibrillators were used in certain patients with irregular heartbeats. In the 2000s, better tests became available to diagnose heart attack, drug-eluting stents were used, and new drug strategies were developed (aspirin, ACE inhibitors, beta-blockers, statins) for long-term management of heart attack and potential heart attack patients. From 1980-2000, the overall mortality rate from heart attack fell by almost half, from 345.2 to 186.0 per 100,000 persons. treatment of pre-term babies, for which very little could be done in 1950. But by 1990, changes in technology, including special ventilators, artificial pulmonary surfactant to help infant lungs develop, neonatal intensive care, and steroids for mother and/or baby, helped decrease mortality to one-third its 1950 level, with an overall increase in life expectancy of about 12 years per low-birthweight baby.4

The Proxy Approach (kaiser)

where a proxy (such as research and development spending, or time) is used to measure the impact of technology. The usefulness of these studies depends on how good a substitute the proxy is for technology and how measurable it is. that technological change, proxied by total research and development (R&D) spending and health R&D spending, is a statistically significant long-run driver of 1960-1997 rising real health care expenditures per capita that time, used as a proxy for technological change, accounted for about two-thirds of the 1975-2000 increases in real per capita health expenditures in the U.S. and Canada.