I can talk for hours about national security, foreign policy, energy issues, political gamesmanship and the law. I’m even learning more about economics now than I did throughout all of my schooling combined. But if you ever want to shut me up, or at least have me turn down the volume a little bit, ask me about health care. I understand the free market aspects of the issue, as well as the other intricasies of health care which can be brought from other realms, but when it comes to specifics, I am sorely lacking.
For that reason, I am delighted to introduce you to William Harvey. Mr. Harvey is a medical doctor, and is a pharmaceutical industry executive currently involved in research and development. His pedigree is about as good as it gets, and his travels, experiences and expertise will, I believe, make him an excellent fit here at America’s Right. — Jeff
By William Harvey, M.D.
Significant changes in the healthcare reform landscape and in the political stance of key stakeholders have occurred in the last few weeks. Given the emphasis that President Obama has placed on healthcare reform, enactment of reform may be inevitable, but clearly the options for the underlying structure and strategy for long-term governance of the process and financing of the system are changing at a staggering pace.
Let’s look at the following events, involving primarily (but not exclusively) the pharmaceutical industry:
- June 16 –- DHHS statement on Defining “Meaningful Use” of Electronic Medical Records
- June 20 –- PhRMA Statement on Medicare Part D Coverage Gap
- June 21 –- PhRMA statement on the Healthcare Reform Agreement
- June 22 –- PhRMA Statement on AARP-White House Press Conference
- June 25 — Baucus Says $1 Trillion Health-Reform Overhaul Is Possible
- June 25 — PhRMA statement on Authorized Generics
Each of these topics deserves its own posting to really explore the details–and in healthcare reform, the devil really is in the details, full of technical and medical complexity, with financial, personal, political, and social interactions–and provide background; if the healthcare arena stays at its current level of activity, I may have the opportunity to go back and fill in the details. In the meantime, in chronological order, I’ll do my best to address each.
June 16, 2009 – DHHS statement on Defining “Meaningful Use” of Electronic Medical Records
In order to understand the significance of this DHHS press release, we need to go back 4 months, when healthcare delivery and clinical decision making in healthcare in the United States were redefined. What, you say? How could something that important have happened without intense discussion, public debate and deliberation? There haven’t been any healthcare bills introduced, let alone passed, in the last 4 months … right?
Wrong. In case you missed it, the American Recovery and Reinvestment Act of 2009 (“The Stimulus Bill”) created several new healthcare bureaucracies, redefined the nature and purpose of the healthcare information infrastructure as well as the Medicare payment scheme for healthcare providers, and implemented the vision of giving healthcare providers a set of Federally-defined comparative effectiveness research standards and treatment guidelines, along with a system that would “encourage” healthcare providers to follow the recommended treatment guidelines, whether appropriate for the patient or not.
The real healthcare reform bill was introduced in Congress on Jan 26, 2009, passed by the House two days later, by the Senate on Feb 10, and signed into law on Feb 17. Very few people–including congressmen, staffers or mere citizens–had a chance to read it, and fewer still to think about it. The likelihood that anyone voting on it actually understood the significance of what they were doing is vanishingly small, as this video of Pennsylvania Senator Arlen Specter demonstrated:
All the hoopla going on now is less about the bureaucratic structure needed to implement the reform and more about how to pay for the new healthcare platform that has already been envisioned, fleshed out and passed in the so-called Stimulus Bill. Here are the healthcare implications of that legislation:
The keystone is found in Division A, Title 13, also known as the “Health Information Technology for Economic and Clinical Health Act” (“HITECH Act”). This Act-within-an-Act starts by creating the Office of the National Coordinator for Health Information Technology (ONC HIT), reporting directly to the Secretary HHS (sec 3001). Subsequent sections create the HIT Policy Committee (sec 3002), reporting to the National Coordinator, and the HIT Standards Committee (sec 3003), advising the National Coordinator. Subsequent sections describe the creation and funding of additional bodies, including multidisciplinary Centers for Healthcare Information Enterprise Integration at multiple academic centers as well as additional funding for the National High performance Computing Program to undertake HIT research and development. Additional funding to train and staff a new nationally distributed profession of HIT specialists and to create centers to conduct comparative effectiveness research is included at various points in the legislation.
Of interest, the composition of the HIT Policy Committee and the HIT Standards Committee is specified in the Act — and there is little representation for many of the key stakeholders in healthcare. If this were purely about the design and implementation of a computer communications system, the lack of representation would in fact be reasonable; but, as we will see, the ONC HIT and its committees are expected to deliver far more than just a computer network and a standardized method for exchanging information.
The National Coordinator is charged initially with creating a nationwide HIT infrastructure — in itself, a simple and a commendable purpose. However, in reading section 3001, it becomes clear that the ONC HIT has far more responsibility (detailed in the next paragraph) and wields tremendous power centralizing federal information efforts in healthcare and, more importantly, wielding tremendous financial influence through the payments made by Medicare and Medicaid to the nation’s hospitals and healthcare providers.
The ONC HIT has eleven separate objectives, including improving healthcare quality (by reducing errors and disparities); reducing healthcare costs (by reducing inefficiencies, duplication); improving the coordination of care among multiple providers; and the provision “of appropriate information to help guide medical decisions at the time and place of care.”
Look at that last item carefully: an organization supposedly established to create a technology infrastructure will also provide healthcare providers, at the moment when treatment is being decided or delivered, with information to help guide medical decisions? The roles of infrastructure (the information delivery tool) and policy (the information itself, on treatment selection) are being blended and blurred. Can (and should) the same organization provide both? Can a single organization be competent to do both?
More worrisome is the content of Subtitle B (“Incentives for the Use of Health Information Technology”), sections 3011-3018. In these sections, financial incentives are provided to physician practices and to hospital-based organizations to purchase and use HIT in their daily practice. The incentives have both a carrot and stick: the earlier you adopt HIT, the greater your incentive and the longer you receive it; but if you are a late adopter, no incentive; and if you are not a “meaningful user,” no incentive. More ominously, if you are not an adopter after 2014 or a “meaningful user “after 2016, your payments for services provided to Medicare and Medicaid patients will be reduced (section 4101).
This brings us to the press release issued by DHSS almost 2 weeks ago: the definition of a “meaningful user” is being created. Is a meaningful user a healthcare provider who puts 80 percent of his or her patient data into the electronic medical record (EMR) environment? Is 90 percent required? Is a meaningful user one who follows the “recommended treatment” 75 percent of the time? 90 percent of the time? Can a healthcare provider respond to a recommended treatment with patient-specific information to justify an alternative treatment, or is any deviation penalized?
Perhaps more detail would be enlightening. How, for example, would HIT work and do we really have the other components we need to make this system work? At its heart, the HIT infrastructure is a computer network with a standard structure for communication and for data storage and display. The vision for this network is that it contains not only patient data, but also recommended treatment approaches. When a healthcare provider sees a patient, receives any laboratory and diagnostic results, and forms a diagnosis, the treatment approach selected by the healthcare provider is entered into the HIT network, which reviews the diagnosis and treatment decision and determines if that is consistent with the recommended approach. If it isn’t, the system will send a message to the healthcare provider, informing him or her that he is out of compliance with the recommendations of comparative effectiveness research (CER).
Most healthcare providers know that individual medical practice often is not optimal care, based on the best clinical data available. We also know that a significant amount of medical resource utilization (lab tests, imaging procedures, “second opinions”) is unnecessary; experts estimate this may account for as much as 25 to 30 percent of total healthcare expenditures. We also know there is a significant variation in the amount spent on similar populations for the same disease and similar treatments with no noticeable improvement in outcome; the amount may vary by as much as 100 percent — spending more doesn’t necessarily get you better healthcare. All these points lead to the same conclusion: there is significant waste in the healthcare system that could be used to extend coverage to non-covered populations and to reduce premium costs to current populations.
That said, we have a major deficiency — lots of clinical research data collected in homogenous populations, with few additional illnesses, taking few additional medicines, treated in very controlled conditions by specially trained research physicians; what we’re missing is data on regular people, with all their diseases and medicines, treated by regular clinicians, and taking their treatment while living in the real world. This is the difference between “efficacy” and “effectiveness” … and we often don’t have the comparative effectiveness data we need to know what the optimal treatment is for a specific patient.
The so-called Stimulus Bill contains $1.1 billion to fund comparative effectiveness. That won’t fund more than ten to twenty comparative effectiveness studies, and we need hundreds of such studies to cover the spectrum of diseases and treatments.
The Stimulus Bill also contained $19 billion as the funding for HIT implementation — the so-called “down payment” on healthcare reform. Now it should become clear — HIT isn’t just a way to improve medical records and get prescriptions to the pharmacy faster, it will become the tool to implement the budgetary controls the federal government will eventually put in place.
So, while the discussion on “healthcare reform” will generate a great deal of noise in the mainstream media and the talk shows, the real process has already begun and needs input as well. We may not be able to sit at the table, but all of the committee reports and recommendations are submitted for public comment. Let’s make our voices heard where it will count.
June 20, 2009 – PhRMA Statement on Medicare Part D Coverage Gap
The $80 billion deal announced this weekend between drug makers and Washington Democrats points to one of the odder features of the Medicare Part D Drug Benefit: The doughnut hole.
Medicare mavens and readers of a certain age will already be familiar with the hole — the gap in coverage that leaves beneficiaries on the hook for the cost of prescription drugs when the cost of their prescription drugs passes $2,700 in a year. Coverage kicks back in when a beneficiary’s annual drug cost passes $6,154 in a year, according to the WSJ’s story on the deal.
As we noted last year, one report found that a quarter of Medicare beneficiaries hit the doughnut hole — and among those who do, about 15% stop taking their medicine.
Under the new deal, with a projected value of $80 billion over 10 years, drug makers will pay half of the cost of prescription drugs while beneficiaries are in the doughnut hole.
June 21, 2009 – PhRMA statement on the Healthcare Reform Agreement
For the press release, click HERE. An exerpt:
This marks an important first step toward our shared goal of providing high-quality, affordable health care to everyone in America. We applaud President Obama and Senate Finance Committee Chairman Baucus for their commitment to comprehensive health care reform – one of the most challenging issues of our lifetime. Health care reform is important to patients, the economy and the future of America.
June 22, 2009 – PhRMA Statement on AARP-White House Press Conference
According to a report in The Wall Street Journal, the pharmaceutical industry has committed $80 billion over 10 years to help close the “doughnut hole.” Say what? First, a little background: President George W. Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), establishing Medicare Part D, which subsidized the cost of prescription drugs for Medicare beneficiaries. This was the younger Bush’s most significant action in healthcare reform and frankly was a step that most Medicare beneficiaries thought was long overdue. The MMA had a bizarre intentional “feature”: a complete gap in coverage, starting when an individual’s total drug benefit received reached approximately $2700 (this is the 2008 trigger amount; it changes annually), and ending when the individual reaches approximately $4350 in out of pocket (“OOP”) drug costs. At that point, Medicare Part D coverage kicked back in. This gap is the infamous “doughnut hole.”
The doughnut hole was the political solution designed to get the Medicare Part D benefit passed while keeping the budget impact of the benefit below an acceptable figure. Since 2003, the government has been unwilling to close the gap because of the cost that would incur.
If an individual were relatively healthy, his or her drug costs were unlikely to hit $2700 and the doughnut hole didn’t impact him; if he had significant health issues, however, he would hit the far end of the doughnut, and the Medicare Part D drug benefit would cover the subsequent (and significant) drug costs of such patients. However, for about 25 percent of Medicare beneficiaries, their total drug costs placed them “in the doughnut hole” — essentially, their drug benefit left them with a significant out-of-pocket cost, sometimes high enough that an estimated 15 pecent stopped taking their medications.
Clearly, this was a personal catastrophe for the patient, but also a disaster for the Medicare system, since such patients would end up costing Medicare far more than the drug benefit gap in increased and more costly system use. However, in the arcane finance of Medicare, these costs aren’t allocated to Medicare Part D — they’re allocated to Part A (Hospital Insurance), Part B (Medical Insurance) or Part C (Medicare Advantage Plans). So, Medicare Part D costs don’t go up.
The American Association of Retired Persons (AARP), the primary advocacy group for seniors (and thus for Medicare beneficiaries), fought to have the drug benefit gap closed almost as soon as Medicare Part D was passed. However, Congress cried “no money, no can do” and there was no action. AARP approached the pharmaceutical companies, but here there was a misalignment: the pharma companies were more interested in helping low-income seniors (and helping others with no or inadequate healthcare coverage), while AARP was adamant in wanting coverage for all Medicare beneficiaries.
What was negotiated between the White House, Congress, AARP, and the pharmaceutical industry (represented by their primary trade organization, PhRMA, the Pharmaceutical Research & Manufacturers’ Association) was an agreement on the part of pharmaceutical companies “to provide a 50 percent discount to most beneficiaries on brand-name medicines covered by a patient’s Part D plan when purchased in the coverage gap . . . In addition, the entire negotiated price of the Part D covered medicine purchased in the coverage gap would count toward the beneficiary’s out-of-pocket costs.” In short, the pharmaceutical industry agreed to fund an estimated $80 billion (over 10 years) of the cost needed to close the Medicare drug benefit gap. Note that this is in addition to the $2 trillion in savings (over 10 years) the pharmaceutical industry, along with hospitals, insurance companies, and others committed themselves to finding last month.
Why did the pharmaceutical industry undertake such massive commitments? The pharmaceutical industry still remembers the 1993 Clinton Healthcare initiative, in which they had no seat at the table … and the Obama process has certain chilling reminders of that exclusionary process. The pharma companies decided they needed to take whatever action was necessary to ensure they would have a role in creating the new healthcare environment. If necessary they, as well as the insurance companies, will pay to obtain that presence.
Where will the $80 billion come from, not to mention the Pharma share of the $2 trillion in savings? It will come from the earnings of the individual companies, funds that will be unavailable to support ongoing business operations (primarily to fund research and development of new medications) or to repay shareholders for their investment and risk. Do we see any other examples of industries providing government with a targeted “give back” of revenue for the public interest? Should cement and steel companies provide the funding for rebuilding the U.S. infrastructure? Should airline manufacturers and airline companies provide the funding for a new national air traffic control system? Should universities use their endowments to fund improvements in the public education system?
Where will new and better medicines come from? Who will fund the comparative effectiveness studies that President Obama will need to make healthcare reform more efficient (i.e., work better at lower cost)? Well, drug development is a high-risk process, with each new medicine costing between $800 million to $1.2 billion and taking ten to 15 years to develop before it can be considered for approval, so each pharmaceutical company is giving up the equivalent of three to six potential new products to fund this commitment. It goes without saying that no one will ever know what wondrous medicines will be delayed or simply never found in order to fulfill this commitment.
June 25, 2009 — Sen. Max Baucus Says $1 Trillion Health-Reform Overhaul Is Possible
According to another Wall Street Journal article, Montana Democrat Max Baucus has assured concerned Americans that the healthcare reform on the horizon could cost less than $1 trillion. What, no applause from penny-pinching Americans?
As Jesse Civello said a few days ago here at America’s Right: “Health care reform, insuring all Americans, is a noble goal – just not at the expense of the American taxpayer and limited government.” Most Americans agree fully with that statement; and most foreigners find that the American health care system, for all its issues, still exceeds the quality and delivery efficiency of most other healthcare systems: a McKinsey study report indicates that 40 percent of all medical travelers come to the United States, at their expense, for their medical treatment.
The current Baucus plan “improves” the fiscal bottom line, but still fails to address far too many issues. Just to mention two critical factors:
First, you cannot add 35 to 50 million uninsured individuals and expect to maintain the current level of healthcare without increasing the number of healthcare providers. Sadly, the long training period required for physicians, nurses, technicians, etc., mean that it takes at least five to ten years to increase the number of primary care practitioners and specialists. Until then, the results are a severe increase in demand and a prolongation in waiting time, for both necessary and discretionary care.
In the UK, where the government determines the availability of post-graduate training positions (both by number and by specialty), a miscalculation of the need of their aging population for replacement hips and knees resulted in unacceptable waiting times for “elective” surgery because of a shortage of orthopedic surgeons. Trust me — a patient with constant degenerative pain, unable to walk or perform most normal activities, doesn’t consider a hip replacement as “elective” and isn’t willing to wait 12-18 months for surgery. The population became so enraged that the government, in order to avoid being voted out of office, made arrangements to transport patients to have surgery and recuperation in France (apparently, the excellent food and nursing care in French hospitals didn’t hurt either!). Subsequently, the EU Commission determined that EU citizens could go to another country for health care if they faced an “undue delay” in their home country … and bill their national health service for the cost.
Second, attempting to improve health care resource utilization (i.e., eliminating “defensive medicine” practice, additional testing, second opinions, etc.) without also addressing malpractice litigation reform exposes healthcare practitioners to an unmitigated risk, which will result in an increase in healthcare provider retirement and a systematic continual overuse of resources. Frankly, when faced with “do I reduce healthcare costs at the risk of being sued and losing my home, my retirement, everything?” … well, what would you do?
To date, neither Obama nor Baucus have included any plans to address the misalignment of healthcare providers and increased patients or malpractice as part of healthcare reform. Without providing effective solutions to these issues, and focusing on cost and increased coverage only, the Baucus plan risks raising expectations and failing the American people. In addition to these critical factors, the Baucus plan does not take into consideration the following:
- With all its defects, the American healthcare system satisfactorily provides coverage for a far larger population than any other national healthcare plan. Most national plans would fail if they had to “scale up” to cover even part of the U.S. population. Remember that the Scandinavian national systems (Norway, Sweden, Finland, Denmark) cover a total population of 24.7 million; for comparison, the population of greater New York City is 18.8 million. Canada, often used as an example of a satisfactory national system, provides care to a population of 31.6 million, or the equivalent of just under two NYCs. The Baucus plan will attempt to add coverage for about 50 million people, the equivalent of adding coverage for two Scandinavias or for the entire UK (population 58.8 million). Most national health plans have never actually had to function at the scale we are contemplating.
- While the President repeatedly describes the American healthcare plan as “broken” or “unsustainable,” surveys show that 83 percent of Americans are very or somewhat satisfied with the quality of care they and their families receive. Furthermore, the United States still discovers and develops more new medicines, devices, and treatment procedures than any other region of the world. While some might describe the development of new technologies as resulting in increased healthcare costs and wasted utilization, the reality is that the increase in American average lifespan in the last 3 decades can be traced in large part to improved diagnostics, improved medicines and improved surgical interventions. Admittedly, we need to learn to optimize the use of new interventions, but we shouldn’t kill the discovery and development parts of the healthcare industry to the point where innovation is stifled. As individuals and as populations, we still die from diseases and disorders that are, for the most part, treatable or preventable.
Neither Baucus nor Obama discuss what aspects of the current system are satisfactory and how they will be preserved. The currently proposed plans provide no analysis of the impact each reform plan would have on the innovative aspects of the healthcare industry. Let’s not kill what is still possibly the best healthcare plan on the planet.
June 25 — PhRMA statement on Authorized Generics
Earlier, we discussed the time and cost involved in developing a new medicinal product. Pharmaceutical companies need new medicines to continue to fund their ongoing operations as well as to fund the research and development for the next generation of medicines. “Ongoing operations” are not simply a euphemism for advertising and sales activities; only approved medicines generate revenues, so they have to cover the development of compounds that fail in the development process, as well as the development costs and marketing costs for the successful medicine.
While most people will recognize the names of “blockbuster drugs” (generally defined as a drug with annual worldwide revenues exceeding $1 billion), the reality is that about 50 percent of approved drugs recoup ten to 25 percent above their development and marketing costs; about 10 percent are true blockbusters; the remainder are basically break-even compounds. To provide some perspective, in 2004, Pfizer had 18 products with global revenues above $1 billion, but it marketed a total of just over 600 medicinal products.
Most companies are hesitant to discuss their success and failure rate for compound development, but aggregate data shows that the rate of success for a compound that reaches initial human testing (phase 1) is around three to five percent, meaning that three to five percent of compounds that start phase 1 will become approved, marketed products. Remember that less than one percent of the compounds that are created in the discovery process will make it through chemical and biological screening, followed by pre-clinical (animal) testing to even make it to phase 1. In short, drug development is not the “license to print money” that is often portrayed; it is in fact a high-risk, high-cost process.
Because the most valuable asset of any Pharma company (other than their staff) is the intellectual property they develop (i.e., patents). Because patents have a fixed lifetime before expiring, pharma companies are exquisitely sensitive to the length of time between initial approval by FDA (or by the equivalent agency in a major market) and the date of loss of exclusivity (generally, initial patent expiration). This represents the period of exclusivity in which a pharma company can recoup its development costs and make a profit.
A generic company can file an application with FDA a year before a medicinal product loses exclusivity to become authorized to sell a generic version of that medicinal product and, if FDA has approved their application, can sell a generic version of the medicinal product the day after exclusivity is lost. Generally, once a generic is marketed, the price (and profits) of a medicinal product plummet, often losing 90 percent of their value within six to nine months. Accordingly pharmaceutical companies go to great lengths to gain additional exclusivity time, while generic companies go to equally great lengths to look for questionable or weak patents or patents extensions and challenge those in court to reduce the time they must wait before being able to file a generic application. Given the high stakes involved in such litigation, Pharma and generic companies may reach settlements that allow both to benefit. The Federal Trade Commission has stated that such settlements may be anticompetitive.
The law covering approval of generics gives the first company to obtain approval for a generic version of an approved medicine 180 days of exclusivity, i.e., no other generic company may initiate marketing of a competing generic. However, the company that markets the original branded medicine is not bound by this restriction and may market a generic version of its own medicine at any time, assuming it has FDA approval for the generic. Such a product is called an “Authorized Generic.”
The generic industry has filed a complaint with the FTC, claiming that Authorized Generics represent a loophole in the law and a violation of Congress’ intent in creating the generic regulations in the first place. The FTC had undertaken a study of the effect of Authorized Generics on pricing and competition and released an interim report on June 24, 2009. In that report, FTC reported that the presence of an Authorized Generic results in a 4.2 percent decrease in retail prices compared to the situation where there is no Authorized Generic. However, because many consumers recognize the Authorized Generic manufacturer as the originator company for the medicine, and because the generic marketplace is based on significantly lower profit margins, the presence of an Authorized Generic manufacturer competing with a generic manufacturer translates into a 47-51 percent reduction in revenue for the generic manufacturer compared to the situation where there is no Authorized Generic manufacturer.
However, rather than declare this an example of the inherent benefit of free-market competition for the consumer, FTC has indicated that this may be an example of how the Authorized Generic company (i.e., the originator pharmaceutical company) can lower revenues to the generic company to the point where the generic company would be “crowded out” of the marketplace.
In the same week in which the pharmaceutical industry provided $80 billion to help the Congress close a gap it created in the first place, the FTC, faced with a clear example of the free market working to the benefit of the consumer, instead advances the argument that consumers should not be given the opportunity to choose the lower cost, equivalent product if that product is made by the originator pharmaceutical company. Is there any reason or logic left within the Beltway?
Sadly, I’m not sure there is.
William Harvey is a physician with extensive experience in drug research and development. He began as an academic researcher but has been a pharmaceutical executive in the global development arena for almost two decades. His current position involves the strategic use of comparative effectiveness research to speed drug development and to educate healthcare stakeholders: government, payors, prescribers, and patients. He lives in the greater Philadelphia area.