Filed under: Drug Pricing, Drugs & Medical Devices, Health Law, Seton Hall Law
Here at Seton Hall Law, the halls are filled with the sounds of students again, which means our summer-long blog hiatus has come to an end. We’re excited to get back to blogging at Health Reform Watch!
As always, the blog will feature analysis and commentary from Seton Hall’s health law faculty and Recommended Reading posts highlighting the health law scholarship we’ve been reading and enjoying. It will also include contributions from the students in our health law program as well as announcements of program activities.
Guest posts on health and pharmaceutical law and policy topics are welcome, so please contact me, Kate Greenwood, at firstname.lastname@example.org if there’s something you’d like to share.
. . .
From the beginning, the content of Health Reform Watch has been driven by the diverse interests and expertise of Seton Hall’s health law faculty. In my case, that’s maternal and child health, drug and device law and policy, and, most especially, the intersection of the two. In recent months, I have focused on the regulation of orphan drugs (a video of me opining about the same can be found here), and so yesterday’s news that the Australian government has decided to pay the $110,000 per-course-of-treatment price for Bristol-Myers Squibb’s melanoma drug Yervoy caught my attention. What’s newsworthy is not Australia’s decision to pay – other countries are, too – but rather its plan for making sure it is getting its money’s worth. As reporter Wendy Carlisle explains, Australia’s Pharmaceutical Benefits Advisory Committee will for the first time be conducting its own epidemiological study.
As is the case with many orphan drugs, Yervoy was approved on the basis of clinical trials that were relatively small. A 2011 review conducted by Aaron Kesselheim, Jessica Meyers, and Jerry Avorn of all new oncology drug approvals from 2004 through 2010 in oncology revealed that “the FDA ha[d] approved alternative trial designs that allowed most orphan cancer drugs to be approved on the basis of single-group, nonrandomized trials that enrolled comparatively small numbers of patients.” EvaluatePharma recently estimated that regulators require a median phase III trial size of 528 patients, at an estimated average cost of $85 million, for orphan drugs, as compared to 2,234 patients, at an estimated average cost of $186 million, for non-orphan drugs.
When it comes to clinical trials, smaller is not better. As the chair of Australia’s Pharmaceutical Benefits Advisory Committee, Dr. Suzanne Hill, explains, “[i]f we are going to look at new products and try to judge them on the basis of smaller clinical trials – which is what is happening – then we are going to be less confident about the clinical trial data when we see them for making recommendations[.]“ To shore up the Committee’s confidence in Yervoy, it will be tracking “who gets prescribed it, what happens to them, how long do they get treatment for, how is the treatment … put in the context of other treatments that they have and what happens to the outcome?” The Committee’s ultimate goal is to determine whether “we get the survival benefit in the community that we saw in the trials[.]”
The number of orphan drugs, many of which cost in excess of $100,000, is climbing and is expected to continue to do so. EvaluatePharma estimates that “the worldwide orphan drug market is set to grow to $127 [billion], a compound annual growth rate of +7.4% per year between 2012 and 2018[,]” which “is double that of the overall prescription drug market, excluding generics, which is set to grow at +3.7% per year.” Given these expected trends, there is no doubt that regulators and payers will increasingly look to post-marketing studies to supplement the available clinical trial data about orphan drugs, whether they conduct the studies themselves, as Australia is doing, or require manufacturers to shoulder the burden. Care must be taken to ensure that manufacturers remain incentivized to develop treatments for rare diseases, but there is evidence to suggest that regulators have room to maneuver. EvaluatePharma reports that “[t]he current stock of Phase III/Filed orphan products is expected to yield a return on investment of x10.3,” while the current stock of non-orphan products is only expected to yield a return on investment of x6.0.
Filed under: Cost Benefit Analysis, Cost Control, Drug Pricing, Drugs & Medical Devices, Economic Analysis of Health, Health Reform, HHS, Hospital Finances, Medicare, Medicare & Medicaid, Social Justice, Taxation
One rare point of elite consensus is that the US needs to reduce health care costs. Frightening graphs expose America as a spendthrift outlier. Before he decamped to Citigroup, the President’s OMB director warned about how important it was to “bend the cost curve.” The President’s opponents are even more passionate about austerity.
Journalists and academics support that political consensus. Andrew Sullivan calls health spending a “giant suck from the rest of the working economy.” Gregg Bloche estimates that “the 30% of health care spending that’s wasted on worthless care” is “about the price of the $700 billion mortgage bailout, squandered every year.” He calls rising health spending an “existential challenge,” menacing other “national priorities.” Perhaps inspired by Children of the Corn, George Mason economist Robin Hanson compares modern medicine to a voracious brat:
King Solomon famously threatened to cut a disputed baby in half, to expose the fake mother who would permit such a thing. The debate over medicine today is like that baby, but with disputants who won’t fall for Solomon’s trick. The left says markets won’t ensure everyone gets enough of the precious medical baby. The right says governments produce a much inferior baby. I say: cut the baby in half, dollar-wise, and throw half away! Our “precious” medical baby is in fact a vast monster filling our great temple, whose feeding starves our people and future. Half a monster is plenty.
But when you scratch the surface of these sentiments, you have to wonder: is the overall level of health care spending really the most important threat facing the country? Is it one of the most important threats? There are many ways to raise revenue to pay for rising health costs. Aspects of the Affordable Care Act, like ACOs and pilot projects, are designed to help root out unnecessary care.
I am happy to join the crusade against waste. But why focus on total health spending as particularly egregious or worrisome? Let’s explore some of the usual rationales.
Terrible Tax Expenditures and Suspect Subsidies?
Employment-based insurance gets favorable tax treatment, and much Medicare and Medicaid spending is drawn from general revenues. So, the story goes, medicine’s big spenders don’t have enough “skin in the game.” Once health and wealth are traded off at the personal level (as the Harvard Business School’s Clayton Christensen advocates), people will be much less likely to demand so much care. Government can attend to other national priorities, or individuals will enjoy higher incomes and will be free to spend more.
I respect these arguments to a point, but I worry they partake of the “nirvana fallacy.” If I could be certain that leviathan would repurpose all those wasted health care dollars on infrastructure, or green energy, or smart defense, or healthier agriculture, I’d be ready to end tax-advantaged health insurance in an instant. But I find it hard to imagine Washington going in any of these directions presently.
Giving tax dollars back to taxpayers also sounds great, until one processes exactly how unequal our income distribution is. In 2004, “the top 0.1% — that’s one-tenth of one percent — had more combined pre-tax income than the poorest 120 million people.” To the extent health-related taxes are cut, very wealthy households may see millions per year in income gains; the median household might enjoy thousands of dollars per year. Sure, middle income families will find important uses for those funds (other than bidding up the price of housing and education). But at what price? What if the insurance systems start collapsing without subsidies, and more physicians (who are already expressing a desire to work less) start seeking out pure cash practices? A few interactions with the the very wealthy may be far more lucrative than dozens of ordinary appointments.
Consider the math: billing a $20,000 retainer from each of 50 millionaires annually may be a lot more attractive to physicians than trying to wrangle up 500 patients paying $2000 each—or, worse, getting the money from their insurers. There are about 10 million millionaires in the US; that’s a lot of buying power. One $10,000 score by a cosmetic dentist from such a client could be worth 400 visits from Medicaid patients seeking diagnostic procedures. Providers are voting with their feet, and a Medicaid card is already on its way to becoming a “useless piece of plastic” for many patients. Given those trends, simply reducing health care “purchasing power” generally risks some very troubling outcomes for the very people the health care cost cutters claim to protect. No one should welcome a health care plutonomy, where the richest 5% consume 35% of services, regardless of how sick they are.
Is Anyone Underpaid in Health Care?
Health commentators rightly draw attention to big insurer CEO paydays. Top layers of management at hospitals and pharma firms are also getting scrutiny. Wonks are up in arms about specialist pay. Read more
Listen up, Hoboken, Newark, and Orange residents. There’s a new prescription discount program in town: Coast2Coast Rx Card. Well, the program isn’t all that new to the area: Newark launched it last year and Hoboken launched it in January. However, I didn’t learn about Coast2Coast Rx Card until I filled a prescription at my local CVS last month. Since my prescription wasn’t covered by my health insurance (I always joke to the pharmacist that it kind of defeats the purpose of having health insurance, but I never get any laughs), I was bracing myself for the out-of-pocket cost. So imagine my surprise when the pharmacist said that I owed $35 instead of $50. When I pointed out the “mistake,” I was handed a Coast2Coast Rx Card.
While it isn’t a substitute for health insurance, the free Card does offer discounts on prescription drugs, laboratory tests, and imaging tests. Specifically, the Card boasts such features as:
- 59,000+ participating pharmacies including all major chains and most independents
- Over 60,000 drugs included in formulary
- Save up to 65% on a brand name or generic drugs
- Overall annual savings range from 30% to 45%
- Card is good for an entire family
- Cardholder pays no fees for the card
- No paperwork to fill out — card is ready to use
- There are no health, age or income restrictions; everyone qualifies
- Card has no expiration date and can be used as often as needed
- Card can be used to fill pet prescriptions at participating pharmacies
- Card is primarily for uninsured although insureds can use the card if they have a high deductible
- Insureds can use the card if their drug isn’t covered by their insurance
- In some instances the card can be used during the Medicare Part D “donut hole.”
- Cardholder information is held confidential and is not used for any other purpose.
- The card includes 50%-80% discounts on lab and imaging tests
According to The Florida Times-Union, Financial Marketing Concepts, Inc. (FMC), a Florida-based company, issues the Card on behalf of WellDyneRx, a national pharmacy benefit management company. In the past three years, FMC has secured agreements with 57 cities and counties in Alabama, Arizona, California, Florida, Illinois, Massachusetts, Mississippi, Missouri, New Jersey, New York, Ohio, Pennsylvania, Tennessee, and Texas (which may or may not look something like this.) These agreements give FMC a small fee for each prescription filled through the program. FMC in turn passes along a royalty to the city or county.
If you’re like me, you may already be in the habit of calling pharmacies and comparing the cost of prescriptions, regardless of whether or not your health insurance covers them — and it’s surprising how the cost can vary. So if you live in Hoboken, Newark, or Orange, be sure to check out whether the Card gives you any discounts. Can’t hurt.
Filed under: Bioethics, Drug Pricing, Drugs & Medical Devices, Economic Analysis of Health, Pharma
An unusually hardy strain of Klebsiella pneumoniae was isolated from a 59-year-old Swedish patient who had been treated in a New Delhi hospital. The bacterium was found to be indifferent to even our most powerful antibiotics. To make matters worse, the genes that gave it this superpower were found on a small ring of DNA that is easily traded between different species of bacteria.
New Delhi metallo-beta-lactamase (NDM-1) has since turned up in more than 16 countries across the world, including Britain. A study published in Lancet Infectious Diseases today shows the resistance factor has spread to 14 different species of bacteria. . . In a report published last year, the US Institute of Medicine described antimicrobial resistance as “a global public health and environmental catastrophe”, while the WHO called the rise of NDM-1 a “doomsday scenario of a world without antibiotics”.
Econbloggers on both left and right are worried. But the chairman of the Board for the Canadian Committee on Antibiotic Resistance says that, despite these tocsins, “The problem is that it is somewhat akin to climate change and so slow and insidious that people, and notably our politicians, are lulled asleep.” I am worried by the chair’s climate analogy: it may speed antibiotic activism to the same graveyard of “socialist ideas” that high speed rail recently crashed into. (Yes, that metaphor was as ugly as the political process that provoked it.) Obama advisor Cass Sunstein’s dismissal of the precautionary principle is far closer to administration policy than, say, Lisa Heinzerling‘s, Robert Verchick‘s, or Greg Mandel’s and James Thuo Gathii‘s rehabilitations of the concept. Official Democrats endlessly dither over risk prospects, while Red America is not even that concerned:
One of the most Republican demographic groups — affluent white men — is the demographic with the highest number of confident risk takers. Among academic researchers, this phenomenon is known as “the white male effect.” A 1992 study reported in the journal Risk Analysis found that, in a survey of 1,512 people, men saw less risk than women from each of twenty-five potential health hazards including nuclear waste, pesticides, blood transfusions, radon, and X-rays: “Sizeable differences between risk perceptions of men and women have been documented in dozens of studies. Men tend to judge risks as smaller and less problematic than do women.”
Why invest in future antibiotics if risk is seen as so manageable? As Edsall noted, in other studies of Americans, “fully 69 percent believe[d] they are ‘above average’ in their overall personality and character, and 86 percent [said] their intelligence is above average.” A culture of “self-help” encourages individuals to think they can outwit the superbug, if they are smart and savvy enough.
But there is a deeper problem that American culture is only beginning to grapple with. As FT editor Martin Wolf recently noted in a address at the LSE, the US has been the beneficiary of enormous capital inflows since the beginning of the Bush administration, and has spectacularly wasted them. Charged with efficiently allocating capital, the finance sector has instead opted, by and large, for get-rich-quick schemes. That mentality has affected every sector, including pharma. Even in a society where national priorities are set by an increasingly small group, one would think that drug-resistant bacteria would stir some coordinated response. But when money is primarily thought of as a way to earn more money, even the most pressing needs can be left neglected. Perhaps that’s why Americans are increasingly suspicious of the “free market” and financial institutions.
A form of progesterone known as 17P was used for years to reduce the risk of preterm birth. . . Because no companies marketed the drug, women obtained it cheaply from “compounding” pharmacies, which produced individual batches for them [at about $20 each]. Doctors and regulators had long worried about the purity and consistency of the drug and were pleased when KV won FDA’s imprimatur for a well-studied version, which the company is selling as Makena.
The list price for the drug, Makena, turned out to be a stunning $1,500 per dose. That’s for a drug that must be injected every week for about 20 weeks, meaning it will cost about $30,000 per at-risk pregnancy. . . . The approval of Makena gave the company seven years of exclusive rights, and KV immediately fired off letters to compounding pharmacies, warning that they could no longer sell their versions of drug.
A day after Stein’s article appeared, the FDA made it clear that it “does not intend to take enforcement action against pharmacies that compound” 17P, “in order to support access to this important drug, at this time and under this unique situation.”
This is a fascinating, and in some ways, troubling response to the accusations of price-gouging by KV. Compounding pharmacists had already averred that “many of [KV's] assertions that the compounding of an FDA approved product is prohibited are not supported by the legal citations it references.” Though the FDA’s letter preserves access to 17P for now, that access could be revoked at any time. As the FDA states on its website:
FDA understands that the manufacturer of Makena, KV Pharmaceuticals, has sent letters to pharmacists indicating that FDA will no longer exercise enforcement discretion with regard to compounded versions of Makena. This is not correct. In order to support access to this important drug, at this time and under this unique situation, FDA does not intend to take enforcement action against pharmacies that compound hydroxyprogesterone caproate based on a valid prescription for an individually identified patient unless the compounded products are unsafe, of substandard quality, or are not being compounded in accordance with appropriate standards for compounding sterile products. As always, FDA may at any time revisit a decision to exercise enforcement discretion.
Moreover, the problem persists for at least one other drug, colchicine. As Arthur Allen explains at Slate,
The colchicine and [17P] stories have their roots in the FDA’s historically complex relationship with the drug industry. Since 1962, the agency has required that all new drugs be proven safe and efficacious before hitting the market. Many drugs marketed before 1962, however, remain on sale without having been formally approved by the FDA and are technically illegal. In 2006, the FDA launched the Unapproved Drugs Initiative, aimed at getting rid of as many of these drugs as possible. . . .
The FDA campaign has two approaches. In some cases, the agency simply warns companies to stop producing and shipping unlicensed drugs by a given date. In other cases the FDA warns a group of companies producing a particular class of drug, notifying them that it plans to crack down on their unapproved substances. The idea here is to give the companies an opportunity to submit their drugs to the rigorous testing required for FDA approval. This is what happened with . . . at least 86 newly approved drugs. The problem is that after submitting such drugs to expensive testing, drug makers typically jack up the prices, in a position to do so under congressional patent incentives aimed at producing innovative drug research. The FDA has no say in how a drug is priced.
As the Post notes, KV says it “is spending more than $200 million to develop the drug and conduct follow-up studies that the Food and Drug Administration demands.” Had it kept its pricing power, it was estimated that Makena would cost the US health care system $4 billion per year. Assuming that 3/4 of that would be revenue to Makena, and it lasted for the full 7 years of exclusivity, that would be a $21 billion return on a $0.2 billion investment. That seems excessive, especially given that KV didn’t develop the drug. On the other hand, if the Makena price were to be reduced one hundredfold, that’s a $0.21 billion return on a $0.2 billion investment. Unless we hit some serious deflation, that doesn’t cover the time value of the money invested in studies and development.
Are there any better models here? Stein’s story says that “experts said the FTC could sue KV if it concludes the company is illegally impairing competition,” but I don’t see the theory there. The FTC has lamented post-merger price hikes for life sustaining drugs (see FTC v. Lundbeck), but has precious little authority over price hikes here. Perhaps liberal constitutional law professors could fuse the “medical self-defense” theory of Eugene Volokh with the expansive Yoo/Vermeule/Posner theories of executive power, and find inherent executive authority here to save preemies? Probably not; the current Supreme Court is only receptive to creative con law from one side of the political spectrum.
Another idea is for legislation to create “risk corridors” for researchers who engage in the FDA’s Unapproved Drugs program, as CMS has for prescription drug insurance plans in Medicare Part D. As Kip Piper explains,
Using a system of risk corridors that compares actual incurred drug benefit costs to estimated costs submitted in bids, Medicare limits the profits and losses of Part D drug plans. Specifically, if a Medicare drug plan’s actual benefit costs exceed expected (bid) levels by a sufficient degree, the plan will receive an additional federal payment to cover a portion of the loss. However, if a drug plan’s actual spending falls sufficiently below projections, the plan must share some of the profit with the feds. Risk corridors apply to actual and expected drug benefits costs but exclude plan administrative costs and federal reinsurance payments.
Unfortunately, estimates of the value of testing unapproved drugs vary widely. The FDA’s director of the FDA’s Office of New Drugs and Labeling Compliance insists on the importance of these programs. But, looking specifically at colchicine, an Austin rheumatologist said “Doing one trial in patients and a few drug interaction studies doesn’t justify marketing exclusivity and a 50-fold increase in price.” As Allen puts it, we need “legislative remedies to improve the drug supply without costing the public an arm and a leg.”
In health care finance, the “cost-shift” hydraulic is a familiar model. When policymakers cut reimbursements for, say, Medicare or Medicaid, providers still have the same income target, and respond by raising prices for the privately insured. One scholar estimated that the privately insured pay over 120% of costs, while Medicare payments are between 95 and 99%. We might think of pharmaceutical patents as another manifestation of “cost-shifting,” from the future (which will enjoy drugs in the public domain) to the present (which must pay the monopolist’s price). Other forms of exclusivity can also lead to that type of cost-shift, as the Makena controversy makes clear. Perhaps the people most benefited by a regime of pharmacovigilance and evidence-based medicine should be asked to pay something for that new reassurance. But they shouldn’t be price gouged. A risk corridors approach might better balance patients’ interests in research on, and reasonable prices for, unapproved drugs.