Two weeks ago, I blogged here about various state bills designed to encourage transparency in the pharmaceutical industry, by requiring companies to disclose information about their research & development costs, marketing expenses, and prices charged to different purchasers. In that post, I glossed over the state initiatives to cap drug prices directly, but as these initiatives have been more recently in the news, I want to focus on them here and ask a basic question: can someone explain to me how they would work?
Let’s back up. Two states, California and Ohio, are considering ballot initiatives that propose to cap what drug manufacturers can charge to public payers in the state (such as Medicaid). The texts of the initiatives are nearly identical, with a few state-specific differences in the enumeration of entities eligible to pay the capped price. As clearly stated in a comprehensive POLITICO article earlier this week by Nancy Cook and Sarah Karlin-Smith, the initiatives “would require the state to pay no more for prescription drugs than the U.S. Department of Veterans Affairs — one of the few federal agencies allowed to negotiate drug prices.”
We can and should debate whether price caps like these are a good idea, as a policy matter, and the Cook & Karlin-Smith piece canvasses a number of the arguments on both sides. But first, we should be clear that the laws we’re enacting can actually accomplish their intended purpose. And if they can’t, we should acknowledge that publicly. I see at least two primary obstacles to the implementation of these price cap initiatives, and since they’ve largely been absent from the public discussion, it’s useful to state them explicitly.
Pharmaceutical companies are making breakthrough drugs to cure diseases, but no one knows how to pay for them. In 2013 and 2014, FDA approved Solvaldi and Harmoni, which can cure hepatitis C in more than 90% of patients. Solvaldi and Harmoni cost $84,000 and $95,000, respectively, for a standard course of treatment. Government payers and health plans, without a good solution for providing Solvaldi and Harmoni to patients who need them, have restricted coverage of the drug to only those patients with advanced hepatitis C. Last year, Germany approved Glybera, a gene therapy that enables patients with lipoprotein lipase deficiency to produce the deficient enzyme. Glybera is expected to cost $1 million, and it is doubtful whether any payer could shoulder such a price.
Last week, MIT professor Andrew Lo proposed a new way of paying for these high-priced therapies: securitized consumer healthcare loans (HCLs). HCLs would function as mortgages for large healthcare expenses. Because the benefits of some therapies occur upfront, HCLs would allow consumers to pay for the value of their therapies over time, instead of in one upfront payment. The paper proposed two frameworks to govern HCLs. The first is a consumer-funded loan, where the patient borrows a loan to pay the upfront costs of the drug, and pays back the loan over time. The second framework operates similarly to the consumer-funded loan, except that private payers and government agencies assume the debt. Under this model, insurance companies could take the debt associated with the patient’s treatment then shift the debt onto the next payer if the patient changes insurance companies. Continue reading →
At AcademyHealth’s 2016 National Health Policy Conference earlier this month, payment reform was a pervasive theme. Its prominence was not surprising. Indeed, in early 2015, HHS Secretary Sylvia Burwell announced the agency’s goal to have 30% of traditional, fee-for-service Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% by the end of 2018. As the current sea change in health care moves the system towards these goals, the conference’s panelists explored various aspects of the transition to value-based payment. Speakers who discussed the issue included leaders in government, clinical practice, and private insurance. They sent an overarching message that payment reform efforts will continue to take a variety of forms — on parallel tracks with cross-cutting themes — rather than a single approach. Representatives from provider organizations particularly stressed the necessary groundwork for these efforts to be effective.
The Center for Medicare and Medicaid Innovation (CMMI) under the federal Centers for Medicare & Medicaid Services (CMS) is operating dozens of payment- and quality-focused models and demonstrations across the country. The breadth of payment models and their varying degrees of success represent different approaches to health care reform, such as population- and episode-based payment. On his panel, CMMI Deputy Director Dr. Rahul Rajkumar noted that this breadth is designed to appeal to diverse providers that differ in type and readiness for payment reform. Indeed, a health care system that has operated for decades with multiple payers, little care coordination, fragmented use of technology, and inconsistent definitions of quality care is undergoing monumental transformation. The transition from fee-for-service to value-based payment thus involves some experimentation to identify the most effective approach. Continue reading →
There has been an update to a story I recently blogged about here.
As announced by the Department of Justice (DOJ) on Wednesday, another 51 hospitals have settled allegations that the hospitals placed implantable cardioverter defibrillators (ICDs) in the chests of patients without complying with Medicare’s mandatory waiting periods. These 51 settlements amount to $23 million, meaning that the DOJ’s ICD review has now has resulted in settlements with more than 500 hospitals totaling more than $280 million.
According to the DOJ, this is the final stage of the investigation, concluding an initiative that has highlighted the tension that exists between fraud enforcement, medical necessity, and reimbursement standards (recent articles here, here, and here).
Addressing the high cost of drugs was at the top of President Obama’s list in his fiscal year 2017 budget, released last week. Many of his proposals were familiar. The President hoped to increase manufacturer contributions to prescription drug coverage under Medicare Part D and wanted to shorten the length of biologic market exclusivity from twelve to seven years. These proposals were also in the President’s fiscal year 2016 budget but were not put into place.
However, the budget also included a number of surprising, new proposals that underscore how post-market evidence might play an increasing role in controlling drug prices in coming years. Rachel Sachs has written about the role that the Centers for Medicare and Medicaid Services (CMS) can play in keeping down drug prices, and it seems like some of these ideas are gaining traction:
Modify reimbursement of Part B drugs. The White House estimates that changes to Medicare Part B payments could save the country $7.75 billion over ten years. Medicare Part B covers drugs and services dispensed in an outpatient setting. Many of the most expensive biologic drugs are currently covered under Medicare Part B. The budget proposal did not elaborate on how the White House hopes to change Part B payments, but the proposal likely refers to recommendations released by the Medicare Payment Advisory Commission (MedPAC) last June. MedPAC’s 2015 report recommended that Congress link Part B payments to clinical effectiveness evidence. For example, the government could group drugs with similar health effects and pay all drugs in each group the rate of least costly product in the group. This approach relies on having reliable clinical effectiveness data so that researchers can easily compare the relative effectiveness of two or more drugs. Continue reading →
Dear readers and colleagues, I would like to take this opportunity to wish you all a very happy, healthy and peaceful year 2016. Reaching the end of 2015, I cannot stop thinking about the year that has passed. Being a native German, … Continue reading →
A recent study in JAMA by Dorner, Jacobs, and Sommers released some good and bad news about provider coverage under the Affordable Care Act (ACA). The study examined whether health plans offered on the federal marketplace in 34 states offered a sufficient number of physicians in nine specialties. For each plan, the authors searched for the number of providers covered under each specialty in each state’s most populous county. Plans without specialist physicians were labeled specialist-deficient plans. The good: roughly 90% of the plans covered more than five providers in each specialty. The bad: 19 plans were specialist-deficient and 9 of 34 states had at least one specialty deficient plan. Endocrinology, psychiatry, and rheumatology were the most commonly excluded specialties.
Here’s where it gets ugly.
Excluding certain specialists from coverage can be a way for insurers to discriminate against individuals with certain conditions by excluding them from their plans. By excluding rheumatologists, insurers may prevent enrolling individuals with rheumatoid arthritis; by excluding endocrinologists, insurers may prevent enrolling individuals with diabetes. Individuals with chronic conditions need to see specialists more frequently than healthier adults, and how easily a patient with chronic conditions can see a specialist can affect his health care outcomes.
The study adds to the growing body of empirical research showing that even after the ACA, insurers may be structuring their plans to potentially discriminate against individuals with significant chronic conditions. In January, Jacobs and Sommers published a study showing that some plans were discriminating against patients with HIV/AIDS through adverse tiering by placing all branded and generic HIV/AIDS drugs on the highest formulary tier. Another study found that 86% of plans place all medicines in at least one class on the highest cost-sharing tier. These studies show that despite being on a health plan, individuals with certain chronic conditions may still have trouble accessing essential treatments and services. Continue reading →
As flu season begins, we are bombarded by ubiquitous reminders to get our flu shot. So, it is a good opportunity to reflect on how we provide vaccines to our fellow citizens 65 and older. By law, Medicare Part B covers 4 preventive vaccines (flu, two pneumococcal, and hepatitis B for medium-to high-risk patients). Part D picks up the rest, namely shingles, TDaP, and any other commercially available vaccine. But, that’s where the trouble begins.
In a case previously blogged about here, last week, the Southern District of New York denied Defendants’ motion to dismiss in U.S. ex rel. Kane v. Continuum Health Partners, No. 11-2325, in a major decision for health care entities unclear on the parameters of overpayment liability under the False Claims Act (FCA).
The case centers on Continuum Health Partners, Inc. (Continuum)—which operated three New York City area hospitals—and its erroneous receipt of overpayments from the New York Medicaid program based on a software glitch. The overpayments began in 2009; by September 2010, the New York State Comptroller had notified Continuum. Continuum tapped Robert Kane, an employee, to review the billing data and identify all claims that were incorrect. On February 4, 2011, Kane emailed a spreadsheet to superiors that contained 900 claims that may have been erroneously billed. The spreadsheet was “overly inclusive” and “approximately half of the claims listed therein were never actually overpaid.” On February 8, Kane was terminated.
Last month, Slate columnist Reihan Salam wrote a provocative article about outrageous hospital prices that are driven, according to Salam, by greed, avarice, and market power. Salam gets a few things dead right, namely his diagnosis that we have a massive hospital pricing problem that is bleeding us dry and that the problem is largely caused by growing hospital market power. However, he misses the mark when laying out policy recommendations to curb monopoly-driven hospital prices.
Antitrust: Salam favors using antitrust enforcement to prevent health care consolidation and to reduce barriers to entry for competition. The biggest problem with antitrust enforcement is that it can do little to reverse or break up existing monopolies. Antitrust laws will be unable to help the vast majority of hospital markets that are already concentrated. Second, even with its improving success rate in court, the FTC simply cannot prevent or police the ongoing wave of hospital mergers, resulting in price increases up to 40% price increases in some areas. To be sure, increased antitrust enforcement is a necessary element of the strategy to control hospital prices to stem the tide of consolidation that is driving prices upward. But antitrust is no silver bullet, especially for hospital markets that have already become noncompetitive. Continue reading →
April 13, 2015 5:00 PM
Griswold Hall, Room 110 (Harvard Law School)
1525 Massachusetts Ave., Cambridge, MA [Map here.]
Presentation Title: “Rethinking the Incentives/Access Dichotomy: Prescription Drug Reimbursement as Innovation Incentive.” This paper is not available for download. To request a copy in preparation for the workshop, please contact Jennifer Minnich at firstname.lastname@example.org.
Rachel E. Sachs is an Academic Fellow at the Petrie-Flom Center. She earned her J.D. in 2013 magna cum laude from Harvard Law School, where she was the Articles Chair of the Harvard Law Review and a student fellow with both the Petrie-Flom Center and the John M. Olin Center for Law, Economics, and Business. Rachel has also earned a Master of Public Health from the Harvard School of Public Health, during which she interned at the United States Department of Health and Human Services. She holds an A.B. in Bioethics from Princeton University. After law school Rachel clerked for the Honorable Richard A. Posner of the United States Court of Appeals for the Seventh Circuit. Rachel’s primary research interests lie at the intersection of patent law and public health, with a particular focus on problems of innovation and access and the ways in which law helps or hinders these problems. Her past scholarship has examined the interactions between patent law and FDA regulation in the area of diagnostic tests, and explored the mechanisms behind the passage of patent-related legislation. Her current scholarship applies this focus on innovation and access to the intersection of patent law and drug reimbursement policies.
At the end of January, the House Energy & Commerce Committee released a discussion draft of the 21st Century Cures Act. This document marks the beginning of the legislative phase of the 21st Century Cures Initiative, during which the Committee has held numerous roundtables and hearings and issued several white papers. The first discussion draft of the Act, clocking in at nearly 400 pages (even with several sections “to be supplied”), is incredibly wide-ranging, including proposals that could affect every stage of the innovation process.
The discussion draft should be of interest to everyone in the health policy field. One series of proposals is targeted at the NIH, including more support for the National Center for Advancing Translational Sciences and for the NIH’s BRAIN initiative. Another set would act on the FDA, including one provision giving new drugs for unmet medical needs the option of 15 years of exclusivity. This provision, based on the MODDERN Cures Act, is particularly likely to inspire a great deal of controversy and opposition. The draft also contains a series of proposals designed to promote the development of new antibiotics, in keeping with President Obama’s recent focus on this issue. Its attention to the use of social media by drug companies and to the FDA’s regulation of health-related software will be of interest to many, as well.
The proposed draft is much too long to catalog fully in this brief blog post, although those who are interested in a broader summary might enjoy the 13-page summary of the Act put out by the Committee, the Sciencesummary by Kelly Servick and Jocelyn Kaiser, or Alexander Gaffney’s comprehensive Regulatory Explainer. But I do want to highlight one section of the draft which deserves more attention than it has gotten: section 2021, which would create a national Medical Product Innovation Advisory Commission.
Last year Endo Pharmaceuticals paid just under $182 million to settle a Department of Justice prosecution over its illegal marketing of Lidoderm for uses that the FDA had not approved. This settlement reflects a widespread practice in which pharmaceutical firms illegally promote drugs for off-label uses. In recent years, pharmaceutical firm settlement agreements for off-label promotion have included Johnson and Johnson ($2.2 billion for off-label promotion of Risperdal, Invega and Natrecor); Pfizer ($2.3 billion for off-label promotion of Bextra); and GlaxoSmith Kline ($3 billion for off-label promotion of Avandia). However, the problem of off-label drug use is more complex than it appears.
Manufacturers are prohibited from marketing drugs off-label, that is, for purposes that the FDA has not found to be safe and effective. However, physicians may prescribe drugs off-label for a different therapeutic purpose, with a different dose or for a different category of patients than that on which the drug was tested. Physicians—with the manufacturer’s encouragement—prescribe off-label much more frequently than is justifiable and risk harming their patients. In fact, 70 percent of off-label uses lack significant scientific support.
Physicians value the right to prescribe off-label, but it is the pharmaceutical firms’ incentive to increase sales that drives this practice. More sales means increased profits, so manufacturers have financial incentives to promote off-label use. The First Amendment protects certain off-label promotion as commercial free speech. Furthermore, manufacturers sometimes engage in illegal off-label promotion when the expected revenue exceeds potential penalties.
Unmanaged off-label drug use compromises good medical practice and the FDA’s ability to protect consumers from unsafe and ineffective drugs. Yet typical reform proposals, such as stronger sanctions for illegal promotion, don’t eliminate the problem. Public policy should manage off-label drug use by tracking off-label prescribing, removing economic incentives to sell off-label, and evaluating the safety and effectiveness of off-label uses.
Whereas “allocation of scarce resources” is a buzz phrase that inspires a great deal of distress and desire for good ethical argument, “waste avoidance” strikes us as a relatively uncontroversial method for containing health care spending. Perhaps this is because rationing implies a trade-off between two individuals, each of whom have the potential to benefit from a possible intervention, whereas waste avoidance, on the other hand, implies a trade-off between two services – one of which has the capacity to benefit an individual, and the other which does not. Surely the latter trade-off is preferable, and perhaps even imperative, to make before we take up the former. This week U.S. Secretary of Health and Human Services Sylvia Burwell signaled a commitment to making the latter trade-off in her announcement on a complex area of health care financing: Medicare payment & payment reform. Medicare payment is one of the few levers that the federal government has relatively direct control over when it comes to controlling health care spending, and Burwell’s announcement was a welcome change in the policy discourse from the oft-lamented “doc fix”/SGR debacle (a fix for which was just bypassed again).
In her announcement and this perspectives piece in NEJM, Burwell set goals to (1) move 50% of Medicare payments to alternative payment models such as Alternative Care Organizations (ACOs) and bundled payment arrangements by 2018, and (2) tie 90% of all Medicare payments made under the traditional fee-for-service model to quality or value, through programs such as the Hospital Value Based Purchasing and the Hospital Readmissions Reduction Programs, by 2018. Notably, these are the first explicit goals for transitioning to alternative payment models and value-based payments that have been set in the history of the Medicare program – though it remains to be seen how these goals will be pursued.
Actavis is back in the spotlight regarding its allegedly anticompetitive behavior. Last month, the U.S. District Court for the Southern District of New York issued an injunction against Actavis and its subsidiary, Forest Laboratories LLC based on the New York Attorney General’s “product hopping” suit.
The suit concerns Actavis’ attempt to extend monopoly protection for its drug Namenda. Namenda is one of only a few FDA approved drugs to treat Alzheimer’s disease, and the only approved drug in a class of medications that act on the glutamatergic system by blocking NMDA receptors. Namenda is also Actavis’ largest revenue generating drug; it brought in $1.5 billion in sales last year. Unfortunately for Actavis, Namenda’s patent protection is due to expire in 2015. Once the patent protection for Namenda has expired, Actavis should ordinarily expect to see a dramatic reduction in sales revenue, as much as 90% in the first year, as consumers switch to a lower-cost generic version.
As the backlog of Medicare appeals indicates, Medicare claimants are seeking many more hearings than we can currently provide. The mismatch makes a fundamental question particularly acute: Why do we hold hearings to review Medicare coverage decisions in the first place?
It’s a question worth asking. The Affordable Care Act mandated that denials of private health insurance coverage be reviewed by external, contract medical specialists, without a hearing. (See here.) If we are comfortable with private, sometimes profit-motivated coverage decisions obtaining external review review by someone other than an Administrative Law Judge (ALJ), without a hearing, why do we feel differently about Medicare coverage decisions? Continue reading →
Next week (on October 29) Medicare’s Office of Medicare Hearings and Appeals (OMHA) is holding another appellant forum to discuss the ongoing backlog of Medicare claims waiting for a hearing. In one sense, a lot has happened since the last forum in February (I covered that here): OMHA announced pilot projects to try statistical sampling and facilitated settlement in some cases (see here and here); CMS (effectively the “defendant” for settlement purposes in these appeals; functionally independent from OMHA) announced a willingness to settle a subset of pending inpatient hospital billing claims for 68 cents on the dollar (see Nick Bagley’s post at the incidental economist); the backlog came up at a couple congressional hearings; and two lawsuits were filed to challenge it, one by providers (see here) and another by beneficiaries (see here).
In another sense, not that much has happened. Unless Thursday’s forum brings big news—and I know that OMHA and CMS have been working hard on reforms so perhaps it will—there is still a big backlog of Medicare appeals, there is still not a resource fix in sight, and the influx of Medicare appeals seems to still far outstrip OMHA’s capacity to hold hearings.
In advance of the forum, I’m planning a series of posts offering my thoughts, such as they are, on where we are and where we are going. I invite anyone who disagrees or thinks I’ve gotten something wrong to post their own views in the comments. Or you can email me and I will look into sharing your thoughts as an independent posting. You can get all my posts on this subject, including new ones as they come in, by clicking here.
A caveat: I’m approaching these as blog posts—trying to get my educated thoughts based on everything I have read out in a timely way—but I might be missing something. If the upcoming forum or comments reveal that I am–I won’t be there in person but will be watching remotely–I will either post a general update or go add particular updates in the text of my posts as necessary.
And a disclosure: I’ve said this before but want to do it once more again before pontificating—I worked in government until a little over a year ago, so my views on these matters may be biased. (And of course I will not discuss anything I worked on.) But I’ve done my best to be objective.
Nick Bagley has written a great post at the Incidental Economist responding to Elisabeth Rosenthal’s recent article in the NY Times on out-of-network emergency physician billing. This phenomenon arises when a patient goes to an in-network hospital, but the physicians staffing the emergency room are out-of-network. As a result, patients get balance-billed by the out-of-network physicians for large amounts that are not subject to their deductible or out-of-pocket limits. I wanted to pile on to the moral outrage and add some thoughts about legal solutions.
(1) DOL and HHS should issue rules to include out-of-network physician services provided at an in-network facility (not just emergency rooms) in calculations of an individual’s out-of-pocket maximum.
Nick suggests that the Department of Labor require out-of-network emergency services to count toward the ACA’s out-of-pocket spending cap. HHS should do the same for plans sold on the Exchange. Emergency rooms are an easy target, because in an emergency most people have little choice but to go to the nearest ER or the one to which the ambulance delivers them. My 2-year old fell and hit her head when we were traveling out of town, and I can personally attest to the difficulty of trying to figure out whether the nearest ER is in-network even for a law professor who writes about the perils of balance billing.
However, the out-of-network doctor problem goes beyond emergency care. Even for non-emergencies, you could dutifully select an in-network hospital and in-network surgeon to perform your hip replacement or bypass surgery, but the anesthesiologist or the other physicians working on you may be out-of-network, and you would be stuck with a large out-of-network charge. So the regulatory solution must reach beyond emergency services. Continue reading →
For all those who are interested in issues of global health, access to medicines, and drug pricing, yesterday Gilead formally announced its access program for enabling many developing countries to purchase its new Hepatitis C drug, Sovaldi, at low prices. This announcement is particularly noteworthy because Sovaldi represents a significant improvement over the current standard of care for Hepatitis C, as it can cure a much greater percentage of sufferers than could standard therapies, and it does so with many fewer negative side effects. Gilead’s partnership-based program will permit seven Indian generic drug companies to produce and sell the drug in 91 developing countries. The discounts are significant: although Gilead formally charges $1,000 a pill (or $84,000 for a course of treatment) for Sovaldi in the United States, it will charge just 1% of that, or $10 a pill, in India (the total cost there is estimated at $1,800, given the difference in strain prevalence).
The global health community has reacted to the announcement with mixed reviews. The 91 countries in the program include more than half of the world’s Hepatitis C patients. But tens of millions of other patients in large nations like China, Brazil, Mexico, and Thailand are left out of the program. Going forward, some of the excluded nations may seek to issue compulsory licenses in an effort to expand access to Sovaldi.
Gilead has also drawn fire in the United States for Sovaldi’s $84,000 sticker price (which, for various reasons, very few if any will actually pay), to the degree that members of both houses of Congress haveasked Gilead to justify the price of the drug. Those opposing Sovaldi’s price have generally not come out publicly against the high price of many orphan drugs, which can cost $250,000-$350,000 per year. But because Hepatitis C afflicts about 2.7 million people in the US, as compared to the few thousand people with one of the relevant orphan diseases, its impact on insurers (both public and private) is likely to be much larger (as this very blog has previously noted). Continue reading →
After last week’s foray into patents and pharmaceutical policy, which is perhaps the most technical and specialized area of pharmaceutical policy, I will return to the never-ending story of pharmaceutical prices and the controversy over Sovaldi, Gilead’s break-through Hepatitis C drug. Sovaldi has a “sticker price” of $84,000 for a 12-week course of treatment, at the end of which 90% or more of patients would be expected to be cured. Since Sovaldi is a pill that is given once a day, the 12-weeks of treatment means that there are 84 daily doses. The math is easy, even if the price, unlike the pill, is hard to swallow–$1,000 per pill. The drug has been a huge financial success for Gilead, which reported $2.274 billion in sales in just the first quarter of 2014. However, the backlash has been equally huge. In a rare display of bipartisanship in Washington, Senator Ron Wyden (D.-Ore), the Chair of the Senate Finance Committee and Senator Chuck Grassley (R.-Iowa), the Ranking Member of the Finance Committee, sent a demand for information concerning the development costs of Sovaldi and Gilead’s pricing decision. However, even more than the investigation by two senior senators, the impetus for today’s post came from the blog RxObserver, which featured a post entitled Sovaldi: A Poster Child for Predatory Pricing [sic]. Before discussing the epithet “predatory pricing,” the perspective of RxObserver requires a bit of explanation. RxObserver is a site that primarily provides the views of pharmaceutical benefit managers (PBMs), or as the blog itself states its purpose: “the Clearinghouse of the Future for Pharmacy Benefits.” It is, in general, a very high-quality blog, with an editorial staff composed primarily of well-recognized academic and government experts in health care policy. I regularly read it and find it useful, although I was taken aback by that “predatory” epithet. Continue reading →