Survey for the National Business Group on Health

Towers Watson, March 6, 2014

The cost of providing employer-sponsored health care benefits is expected to increase 4.4% this year, a slight uptick from last year, when cost increases fell to a 15-year low, according to an annual survey by global professional services company Towers Watson and the National Business Group on Health (NBGH), an association of large employers.

The 19th Annual Towers Watson/NBGH Employer Survey on Purchasing Value in Health Care found that employer costs are expected to reach $9,560 per employee in 2014, an increase of 4.4% from $9,157 in 2013 (DM – but it would have been a 7.0% increase had employers not made changes to their plans that shifted more costs to their employees). The survey found the employees’ share of premiums increased nearly 7%, to $2,975, this year. Out-of-pocket costs also increased. The total employee cost share has climbed from 34.4% in 2011 to 37% in 2014. Employees now pay over $100 more each month for health care compared with just three years ago.

“Despite the moderation, health care costs continue to outpace inflation and remain a major concern for U.S. employers given the challenging macroeconomic environment,” said Ron Fontanetta, senior health care consultant for Towers Watson. “To find more effective ways to manage health costs, many employers are focusing on reshaping their health strategy for the next three to five years.”

Indeed, while the vast majority (95%) of respondents indicate that subsidizing health care coverage for active employees is a very important part of their rewards package, almost as many (92%) expect to make moderate to significant changes to their programs by 2018.

Contribution strategy for spouses changing: Nearly half (49%) of employers have increased employee contributions for dependent tiers at higher rates than for individuals. Another 19% expect to make this move next year. Only 56% of companies believe that subsidized health care for spouses will be very important for 2015 and beyond — down from over 70% today, an indication that the trend toward increased cost sharing for spouses will likely continue.

More employers embracing account-based health plans (e.g., HSAs): Nearly three-quarters of respondents currently offer these plans, with another 9% expecting to add one for the first time in 2015. Nearly one-third of all companies could offer ABHPs as their only option by 2015 if they follow through with current plans.

Employers looking at exchange options: Two-thirds of companies believe that private exchanges will offer a viable alternative to employer-sponsored coverage for active employees as early as 2015.

Retiree health: Nearly two-thirds of employers that offer access to a sponsored plan today say they are likely to eliminate those programs in the next few years and steer their pre-Medicare-age population to public exchanges.

Health and financial subsidies: Twenty-two percent of companies adopted outcomes-based incentives (other than for tobacco), and that figure could reach 46% by 2015 if companies follow through with their plans.

Value purchasing: The best-performing respondents are addressing key drivers of performance including pharmacy management, network delivery options and enhanced wellness strategies.

http://www.towerswatson.com/en-US/Press/2014/03/us-employers-experiencing-smallest-increases-in-health-care-costs-in-15-years

Comment:

By Don McCanne, M.D.

The most important reason that a more effective model of social insurance, such as single payer, was rejected in favor of a fragmented model of reform based on private health plans and public programs was that a majority of Americans were receiving their coverage through their employment and that was perceived as a segment of the market that was working well and should not be disrupted. “If you like the insurance you have, you can keep it.”

Not only was three-fifths of the population already covered by employer-sponsored plans, if this coverage were abandoned, the policy community working on reform would have had to devise a way of replacing the funds paying for this coverage – decisions that would likely provoke even greater public hostility than we saw with the enactment of the Affordable Care Act.

In the last half century, the best coverage has been provided mostly through large employers – those represented by the National Business Group on Health (employers with over 1,000 employees each and 55 million employees in total). These employers have been very concerned about rising health care costs, and now they know that they will have to live with our highly flawed version of comprehensive reform – the Affordable Care Act. They see very little in this Act that will provide them relief, so they are moving forward with their own measures.

We can now see where employers have been, where they have taken us, and where they are headed – on a downward spiral of ever inferior employer-sponsored health plans.

Some of the changes we are seeing, according to this and other reports:

*  Higher deductibles (shifting costs to those with health care needs)

*  Health savings accounts (not much help when they are underfunded or empty)

*  Increasing employees’ share of premiums

*  Reducing dependent coverage, especially spouses

*  Sending employees to private insurance exchanges (shifting to defined contribution)

*  Using narrower provider networks (taking away health care choices)

*  Using outcome-based incentives that effectively penalize those with health problems

*  Dumping retirees into public exchanges

*  Using value purchasing – a code term for managed care

How could employers be so crass as to dump on their employees like this? Quite simple. They now have a new standard to point to – the low actuarial value private plans that are being offered through the government exchanges – plans that are using many of of the same strategies that will be harming the physical and financial health of plan enrollees. In fact, two-thirds of employers believe that “private exchanges will offer a viable alternative to employer-sponsored coverage for active employees as early as 2015” – next year! These private exchanges will offer plans using the same devious measures that will shift more costs to patients, thereby impairing access.

Our observation of this rapid deterioration in plans offered by the nation’s largest employers should cause us to sound the alarms. We need to begin immediately preparation for transition into a single payer national health program – an improved Medicare that covers all of us. The Fortune 500 employers are not going to do it for us.

Survey for the National Business Group on Health

Towers Watson, March 6, 2014

The cost of providing employer-sponsored health care benefits is expected to increase 4.4% this year, a slight uptick from last year, when cost increases fell to a 15-year low, according to an annual survey by global professional services company Towers Watson and the National Business Group on Health (NBGH), an association of large employers.

The 19th Annual Towers Watson/NBGH Employer Survey on Purchasing Value in Health Care found that employer costs are expected to reach $9,560 per employee in 2014, an increase of 4.4% from $9,157 in 2013 (DM – but it would have been a 7.0% increase had employers not made changes to their plans that shifted more costs to their employees). The survey found the employees’ share of premiums increased nearly 7%, to $2,975, this year. Out-of-pocket costs also increased. The total employee cost share has climbed from 34.4% in 2011 to 37% in 2014. Employees now pay over $100 more each month for health care compared with just three years ago.

“Despite the moderation, health care costs continue to outpace inflation and remain a major concern for U.S. employers given the challenging macroeconomic environment,” said Ron Fontanetta, senior health care consultant for Towers Watson. “To find more effective ways to manage health costs, many employers are focusing on reshaping their health strategy for the next three to five years.”

Indeed, while the vast majority (95%) of respondents indicate that subsidizing health care coverage for active employees is a very important part of their rewards package, almost as many (92%) expect to make moderate to significant changes to their programs by 2018.

Contribution strategy for spouses changing: Nearly half (49%) of employers have increased employee contributions for dependent tiers at higher rates than for individuals. Another 19% expect to make this move next year. Only 56% of companies believe that subsidized health care for spouses will be very important for 2015 and beyond — down from over 70% today, an indication that the trend toward increased cost sharing for spouses will likely continue.

More employers embracing account-based health plans (e.g., HSAs): Nearly three-quarters of respondents currently offer these plans, with another 9% expecting to add one for the first time in 2015. Nearly one-third of all companies could offer ABHPs as their only option by 2015 if they follow through with current plans.

Employers looking at exchange options: Two-thirds of companies believe that private exchanges will offer a viable alternative to employer-sponsored coverage for active employees as early as 2015.

Retiree health: Nearly two-thirds of employers that offer access to a sponsored plan today say they are likely to eliminate those programs in the next few years and steer their pre-Medicare-age population to public exchanges.

Health and financial subsidies: Twenty-two percent of companies adopted outcomes-based incentives (other than for tobacco), and that figure could reach 46% by 2015 if companies follow through with their plans.

Value purchasing: The best-performing respondents are addressing key drivers of performance including pharmacy management, network delivery options and enhanced wellness strategies.

http://www.towerswatson.com/en-US/Press/2014/03/us-employers-experiencin…

The most important reason that a more effective model of social insurance, such as single payer, was rejected in favor of a fragmented model of reform based on private health plans and public programs was that a majority of Americans were receiving their coverage through their employment and that was perceived as a segment of the market that was working well and should not be disrupted. “If you like the insurance you have, you can keep it.”

Not only was three-fifths of the population already covered by employer-sponsored plans, if this coverage were abandoned, the policy community working on reform would have had to devise a way of replacing the funds paying for this coverage – decisions that would likely provoke even greater public hostility than we saw with the enactment of the Affordable Care Act.

In the last half century, the best coverage has been provided mostly through large employers – those represented by the National Business Group on Health (employers with over 1,000 employees each and 55 million employees in total). These employers have been very concerned about rising health care costs, and now they know that they will have to live with our highly flawed version of comprehensive reform – the Affordable Care Act. They see very little in this Act that will provide them relief, so they are moving forward with their own measures.

We can now see where employers have been, where they have taken us, and where they are headed – on a downward spiral of ever inferior employer-sponsored health plans.

Some of the changes we are seeing, according to this and other reports:

*  Higher deductibles (shifting costs to those with health care needs)

*  Health savings accounts (not much help when they are underfunded or empty)

*  Increasing employees’ share of premiums

*  Reducing dependent coverage, especially spouses

*  Sending employees to private insurance exchanges (shifting to defined contribution)

*  Using narrower provider networks (taking away health care choices)

*  Using outcome-based incentives that effectively penalize those with health problems

*  Dumping retirees into public exchanges

*  Using value purchasing – a code term for managed care

How could employers be so crass as to dump on their employees like this? Quite simple. They now have a new standard to point to – the low actuarial value private plans that are being offered through the government exchanges – plans that are using many of of the same strategies that will be harming the physical and financial health of plan enrollees. In fact, two-thirds of employers believe that “private exchanges will offer a viable alternative to employer-sponsored coverage for active employees as early as 2015” – next year! These private exchanges will offer plans using the same devious measures that will shift more costs to patients, thereby impairing access.

Our observation of this rapid deterioration in plans offered by the nation’s largest employers should cause us to sound the alarms. We need to begin immediately preparation for transition into a single payer national health program – an improved Medicare that covers all of us. The Fortune 500 employers are not going to do it for us.

Associations between palliative chemotherapy and adult cancer patients’ end of life care and place of death: prospective cohort study

By Alexi A Wright, Baohui Zhang, Nancy L Keating, Jane C Weeks, Holly G Prigerson
BMJ, March 4, 2014

Conclusions

The use of chemotherapy in terminally ill cancer patients in the last months of life was associated with an increased risk of undergoing cardiopulmonary resuscitation, mechanical ventilation or both and of dying in an intensive care unit. Future research should determine the mechanisms by which palliative chemotherapy affects end of life outcomes and patients’ attainment of their goals.

http://www.bmj.com/content/348/bmj.g1219

****

Nexavar (sorafenib)
Bayer HealthCare and Onyx Pharmaceuticals

Nexavar is now indicated for the treatment of patients with locally recurrent or metastatic, progressive, differentiated thyroid carcinoma (DTC) that is refractory to radioactive iodine treatment.

Efficacy

Progression-free survival:

Median progression-free survival

10.8 months  Nexavar

5.8 months  Placebo

Overall survival:

Number of deaths

32% (66)  Nexavar

34% (72)  Placebo

Important safety considerations:

Most common adverse reactions reported for NEXAVAR-treated patients vs placebo-treated patients in DTC, respectively, were: Palmar-plantar erythrodysesthesia syndrome (PPES) (69% vs 8%), diarrhea (68% vs 15%), alopecia (67% vs 8%), weight loss (49% vs 14%), fatigue (41% vs 20%), hypertension (41% vs 12%), rash (35% vs 7%), decreased appetite (30% vs 5%), stomatitis (24% vs 3%), nausea (21% vs 12%), pruritus (20% vs 11%), and abdominal pain (20% vs 7%). Grade 3/4 adverse reactions were 65% vs 30%

(15 other important safety considerations are listed – available at the link)

http://www.nexavar-us.com/differentiated-thyroid-cancer/

****

Oncology “Top Five” List Identifies Opportunities to Improve Quality and Value in Cancer Care

American Society of Clinical Oncology, April 3, 2012

The Oncology Top Five List

1.  For patients with advanced solid-tumor cancers who are unlikely to benefit, do not provide unnecessary anticancer therapy, such as chemotherapy, but instead focus on symptom relief and palliative care. 

http://www.asco.org/advocacy/oncology-top-five-list-identifies-opportunities-improve-quality-and-value-cancer-care

Comment:

By Don McCanne

For those whose lives are dedicated to the science and art of healing, this discussion on cancer chemotherapy at the end of life is one that we shouldn’t have to have. But apparently we do need to discuss it.

The new study on this topic published by BMJ confirms what we already knew. Those patients who receive often futile chemotherapy late in the course of their malignancies seemed to be programmed for a course that increases the risk of being subjected to CPR, to being placed on a ventilator, and to dying in an intensive care unit. Most in their rational moments would prefer the more humane approach of hospice care in their final days. Yet the fact that this study was done is further evidence that mostly inappropriate, aggressive, and quality-of-life reducing interventions are still being pursued.

Nexavar is a $96,000 cancer chemotherapeutic agent that was recently approved for certain progressive thyroid carcinomas. It had been previously approved for selected cases of liver and kidney cancer, though NICE (UK’s National Institute for Health and Care Excellence) did not recommend it since “available evidence does not indicate that it delays symptom progression or improves quality of life.” Regular readers may recall that Marijn Dekkers, Chairman of Bayer, said that this product was not developed for poor people in the Indian market but rather for Western patients who could afford it.

What is the evidence for its use in “locally recurrent or metastatic, progressive, differentiated thyroid carcinoma (DTC) that is refractory to radioactive iodine treatment”? Simply stated, when radiologists followed the tumors by measuring them, there was no progression for six months for those given a placebo, whereas those receiving Nexavar did not demonstrate progression until eleven months. This is a demonstration that successfully treating a test, but not the patient, is considered by some to be of therapeutic value.

But what about the overall death rates? They were the same with Nexavar and placebo. Okay, what about the quality of life? Looking at the list above, the incidence of several miserable side effects was much greater in the Nexavar treated group than it was in the placebo group. They experienced poorer quality of life and did not postpone death. If you extend the findings described in the article in this week’s BMJ, by being treated with palliative chemotherapy, they had greater odds of being subjected to CPR, to being place on a ventilator, and to dying in an intensive care unit rather than in hospice.

The American Society of Clinical Oncology certainly recognizes what is happening here. As one of the top five opportunities to improve quality and value in cancer care, they recommend that “for patients with advanced solid-tumor cancers who are unlikely to benefit, do not provide unnecessary anticancer therapy, such as chemotherapy, but instead focus on symptom relief and palliative care.”

We desperately need NICE care in the United States. We would have that under a well designed single payer national health program.

NICE: http://www.nice.org.uk

An extra: Roberta Flack – Killing Me Softly (Imagine the oncologist “singing my life with his words”) : http://www.youtube.com/watch?v=O1eOsMc2Fgg

Associations between palliative chemotherapy and adult cancer patients’ end of life care and place of death: prospective cohort study

By Alexi A Wright, Baohui Zhang, Nancy L Keating, Jane C Weeks, Holly G Prigerson
BMJ, March 4, 2014

Conclusions

The use of chemotherapy in terminally ill cancer patients in the last months of life was associated with an increased risk of undergoing cardiopulmonary resuscitation, mechanical ventilation or both and of dying in an intensive care unit. Future research should determine the mechanisms by which palliative chemotherapy affects end of life outcomes and patients’ attainment of their goals.

http://www.bmj.com/content/348/bmj.g1219

****

Nexavar (sorafenib)
Bayer HealthCare and Onyx Pharmaceuticals

Nexavar is now indicated for the treatment of patients with locally recurrent or metastatic, progressive, differentiated thyroid carcinoma (DTC) that is refractory to radioactive iodine treatment.

Efficacy

Progression-free survival:

Median progression-free survival

10.8 months  Nexavar

5.8 months  Placebo

Overall survival:

Number of deaths

32% (66)  Nexavar

34% (72)  Placebo

Important safety considerations:

Most common adverse reactions reported for NEXAVAR-treated patients vs placebo-treated patients in DTC, respectively, were: Palmar-plantar erythrodysesthesia syndrome (PPES) (69% vs 8%), diarrhea (68% vs 15%), alopecia (67% vs 8%), weight loss (49% vs 14%), fatigue (41% vs 20%), hypertension (41% vs 12%), rash (35% vs 7%), decreased appetite (30% vs 5%), stomatitis (24% vs 3%), nausea (21% vs 12%), pruritus (20% vs 11%), and abdominal pain (20% vs 7%). Grade 3/4 adverse reactions were 65% vs 30%

(15 other important safety considerations are listed – available at the link)

http://www.nexavar-us.com/differentiated-thyroid-cancer/

****

Oncology “Top Five” List Identifies Opportunities to Improve Quality and Value in Cancer Care

American Society of Clinical Oncology, April 3, 2012

The Oncology Top Five List

1.  For patients with advanced solid-tumor cancers who are unlikely to benefit, do not provide unnecessary anticancer therapy, such as chemotherapy, but instead focus on symptom relief and palliative care.

http://www.asco.org/advocacy/oncology-top-five-list-identifies-opportuni…

For those whose lives are dedicated to the science and art of healing, this discussion on cancer chemotherapy at the end of life is one that we shouldn’t have to have. But apparently we do need to discuss it.

The new study on this topic published by BMJ confirms what we already knew. Those patients who receive often futile chemotherapy late in the course of their malignancies seemed to be programmed for a course that increases the risk of being subjected to CPR, to being placed on a ventilator, and to dying in an intensive care unit. Most in their rational moments would prefer the more humane approach of hospice care in their final days. Yet the fact that this study was done is further evidence that mostly inappropriate, aggressive, and quality-of-life reducing interventions are still being pursued.

Nexavar is a $96,000 cancer chemotherapeutic agent that was recently approved for certain progressive thyroid carcinomas. It had been previously approved for selected cases of liver and kidney cancer, though NICE (UK’s National Institute for Health and Care Excellence) did not recommend it since “available evidence does not indicate that it delays symptom progression or improves quality of life.” Regular readers may recall that Marijn Dekkers, Chairman of Bayer, said that this product was not developed for poor people in the Indian market but rather for Western patients who could afford it.

What is the evidence for its use in “locally recurrent or metastatic, progressive, differentiated thyroid carcinoma (DTC) that is refractory to radioactive iodine treatment”? Simply stated, when radiologists followed the tumors by measuring them, there was no progression for six months for those given a placebo, whereas those receiving Nexavar did not demonstrate progression until eleven months. This is a demonstration that successfully treating a test, but not the patient, is considered by some to be of therapeutic value.

But what about the overall death rates? They were the same with Nexavar and placebo. Okay, what about the quality of life? Looking at the list above, the incidence of several miserable side effects was much greater in the Nexavar treated group than it was in the placebo group. They experienced poorer quality of life and did not postpone death. If you extend the findings described in the article in this week’s BMJ, by being treated with palliative chemotherapy, they had greater odds of being subjected to CPR, to being place on a ventilator, and to dying in an intensive care unit rather than in hospice.

The American Society of Clinical Oncology certainly recognizes what is happening here. As one of the top five opportunities to improve quality and value in cancer care, they recommend that “for patients with advanced solid-tumor cancers who are unlikely to benefit, do not provide unnecessary anticancer therapy, such as chemotherapy, but instead focus on symptom relief and palliative care.”

We desperately need NICE care in the United States. We would have that under a well designed single payer national health program.

NICE: http://www.nice.org.uk

An extra: Roberta Flack – Killing Me Softly (Imagine the oncologist “singing my life with his words”) : http://www.youtube.com/watch?v=O1eOsMc2Fgg

The Calculus of Cures

By Robert Kocher, M.D., and Bryan Roberts, Ph.D.
The New England Journal of Medicine, February 26, 2014

Bringing a drug from bench to bedside is a risky and expensive proposition. The development of a new drug is estimated to cost many hundreds of millions of dollars; as a result, decisions about funding a drug-development program are based as much on economics as on science and medicine. Decisions to invest and reinvest at all stages of development are driven by the imperative to generate an attractive return on the capital invested, whether by venture-capital and public investors or by pharmaceutical companies.

It is not mysterious why projects get funded. As venture-capital investors, we evaluate projects along four primary dimensions: development costs, selling costs, differentiation of the drug relative to current treatments, and incidence and prevalence of the targeted disease.

Fortunately, much can be done to bring more drugs and a more diverse set of drugs to market. The two economic dimensions — development costs and selling costs — can be most easily improved. The most expensive step in creating a new drug is conducting clinical trials. Conducting a trial costs $25,000 or more per patient studied, and phase 3 trial programs consume more than 40% of a sponsoring company’s expenditures. Unfortunately, every patient is not equally valuable when it comes to clinical trials, and many clinical development programs are economically inefficient in that they are excessively large relative to the amount of information they yield, especially in light of the information-technology breakthroughs that have lowered the cost of data acquisition and analysis over the past 20 years.

High-frequency, material information about clinical efficacy and safety comes from the first few hundred patients studied in a trial. Unfortunately, most clinical development programs go far past the point of diminishing returns for frequent safety events, but they do not go far enough to permit detection of rare events. Statistically, it is only in the long tail of patient data that reliable signals of rare adverse effects can emerge and comprehensive safety can be established. Safety is critical, but studying the long tail of adverse events is not feasible from either a time or a capital perspective until after a new drug enters the market, especially if the drug is for a chronic condition.

Redesigning trials to include fewer patients, providing conditional approval of drugs, and requiring postmarketing surveillance could have a profound effect, allowing smaller development programs to achieve greater success. We estimate that development costs for drugs could be reduced by as much as 90%, and the time required by 50%, if the threshold for initial approval were defined in terms of efficacy and fundamental safety. Cutting costs and time, while requiring high-quality and transparent patient registries for independent safety monitoring, would be a more informative and cost-effective approach. With the widespread adoption of electronic health records and the introduction of many low-cost data-analysis tools, it is now feasible to develop mandatory postmarketing surveillance programs that make thousand-patient trials obsolete.

This approach to reducing drug-development costs would have the greatest effect on drugs for chronic conditions such as cardiovascular disease and type 2 diabetes, since such drugs currently require the largest trials. Moreover, our ability to identify rare side effects and take action to protect patients would be substantially improved when many more patients are being followed, albeit in the absence of a control group. We believe this approach would have no adverse effect on the trend in the development of drugs for orphan diseases and cancers, since those drugs will continue to have low development and selling costs and substantial differentiation from existing treatments. Yet, this approach would make it attractive to pursue drug candidates for many more disease conditions and would lower the threshold for financing a drug’s development so that more drugs would be brought forward.

Another major factor is selling costs. It is far more cost-effective to sell a drug when it is either prescribed by specialty physicians or commonly used in hospitals, both of which effectively aggregate patients. Moreover, it is easier to predict the level of adoption by these customers on the basis of the drug’s clinical differentiation and pharmacoeconomics. Sales of drugs prescribed by primary care doctors depend on a mixture of expensive sales representatives and advertising and can cost hundreds of millions of dollars annually.

While scientists work hard to increase the rate of scientific discovery, the rest of us should do our part to improve the other variables that figure into the calculus of which cures are brought to market. Such improvement would be good for patients and would represent good economic policy, since drug prices could be lowered even as investors generated the returns necessary to finance more discoveries.

http://www.nejm.org/doi/full/10.1056/NEJMp1400868

****

PNHP Data Update

September 29, 2000

The new editor of the New England Journal of Medicine, Jeffrey Drazen, M.D. was cited by the FDA last year for making “false and misleading” statements about the asthma drug, levalbuterol. Drazen received $7,000 from the drug’s maker, and has ties to another 20 drug firms (USA Today, 5/31/00). “Academic researchers should be able to own substantial stock in a company or accept sizeable consultant fees and still accept research support,” according to Drazen. (California Healthline, 5/26/00).

(Note: Though this was written in 2000, Jeffrey Drazen is still the editor of NEJM.)

https://www.pnhp.org/news/2000/september.php

Comment:

By Don McCanne, MD

One of the most serious defects of the U.S. health care system is that we not only allow but we encourage the participation of passive investors. For those who believe that the free market is what makes America so great, the opportunity to glom onto some of the $3 trillion that we spend each year on health care cannot pass the attention of the entrepreneurial mind. Venture capitalists in the pharmaceutical industry are a case in point.

The venture capitalists who authored this article in The New England Journal of Medicine have diagnosed a major problem with the U.S. pharmaceutical industry and are providing a solution – a solution for investors that is.

They have decided that clinical trials of new drugs are too expensive. They note that you can determine clinical efficacy from the first few hundred patients in the study and that adding many more patients goes far past the point of diminishing returns. As far as determining drug safety, we can use the computerization of health records to detect adverse events, taking advantage of the very large number of patients receiving the drug after it has been released for marketing. By reducing these research costs, and by moving products to the market earlier so they can begin providing returns, the venture capitalists then would have more funds to invest in even more new products. See, the market really works.

We have seen the tragedies of products rushed to the market, with the inadequacies of post-marketing surveillance, resulting in great harm to patients, even death, while the pharmaceutical industry pays massive fines that they pass off as simply a cost of business. When passive investors are involved, the investors must be taken care of first, certainly before the patients, and these guys writing this article want a greater piece of the action.

Why would one of the world’s most prestigious medical journals publish an article promoting the interests of venture capitalists in the pharmaceutical industry? The answer might be found in the views of the editor of NEJM, Jeffrey Drazen, MD, who in the past expressed the opinion, “Academic researchers should be able to own substantial stock in a company or accept sizeable consultant fees and still accept research support.”

It is sad when the pursuit of money contaminates even the paragons of health care, and yet those involved seem to be totally insensitive to the fact that there is even an issue here.

What does this have to do with single payer? When our own public purchasers of health care products and services enter the marketplace on our behalf to negotiate the acquisition of our health care, they can refuse to pay the money lenders who personally provide no value to our health care. If research funds are needed we can provide them ourselves though our own National Institutes of Health. Such an investment would have the goal of determining efficacy and safety – benefitting patients – and not on how fast you can turn a buck.

The Calculus of Cures

By Robert Kocher, M.D., and Bryan Roberts, Ph.D.
The New England Journal of Medicine, February 26, 2014

Bringing a drug from bench to bedside is a risky and expensive proposition. The development of a new drug is estimated to cost many hundreds of millions of dollars; as a result, decisions about funding a drug-development program are based as much on economics as on science and medicine. Decisions to invest and reinvest at all stages of development are driven by the imperative to generate an attractive return on the capital invested, whether by venture-capital and public investors or by pharmaceutical companies.

It is not mysterious why projects get funded. As venture-capital investors, we evaluate projects along four primary dimensions: development costs, selling costs, differentiation of the drug relative to current treatments, and incidence and prevalence of the targeted disease.

Fortunately, much can be done to bring more drugs and a more diverse set of drugs to market. The two economic dimensions — development costs and selling costs — can be most easily improved. The most expensive step in creating a new drug is conducting clinical trials. Conducting a trial costs $25,000 or more per patient studied, and phase 3 trial programs consume more than 40% of a sponsoring company’s expenditures. Unfortunately, every patient is not equally valuable when it comes to clinical trials, and many clinical development programs are economically inefficient in that they are excessively large relative to the amount of information they yield, especially in light of the information-technology breakthroughs that have lowered the cost of data acquisition and analysis over the past 20 years.

High-frequency, material information about clinical efficacy and safety comes from the first few hundred patients studied in a trial. Unfortunately, most clinical development programs go far past the point of diminishing returns for frequent safety events, but they do not go far enough to permit detection of rare events. Statistically, it is only in the long tail of patient data that reliable signals of rare adverse effects can emerge and comprehensive safety can be established. Safety is critical, but studying the long tail of adverse events is not feasible from either a time or a capital perspective until after a new drug enters the market, especially if the drug is for a chronic condition.

Redesigning trials to include fewer patients, providing conditional approval of drugs, and requiring postmarketing surveillance could have a profound effect, allowing smaller development programs to achieve greater success. We estimate that development costs for drugs could be reduced by as much as 90%, and the time required by 50%, if the threshold for initial approval were defined in terms of efficacy and fundamental safety. Cutting costs and time, while requiring high-quality and transparent patient registries for independent safety monitoring, would be a more informative and cost-effective approach. With the widespread adoption of electronic health records and the introduction of many low-cost data-analysis tools, it is now feasible to develop mandatory postmarketing surveillance programs that make thousand-patient trials obsolete.

This approach to reducing drug-development costs would have the greatest effect on drugs for chronic conditions such as cardiovascular disease and type 2 diabetes, since such drugs currently require the largest trials. Moreover, our ability to identify rare side effects and take action to protect patients would be substantially improved when many more patients are being followed, albeit in the absence of a control group. We believe this approach would have no adverse effect on the trend in the development of drugs for orphan diseases and cancers, since those drugs will continue to have low development and selling costs and substantial differentiation from existing treatments. Yet, this approach would make it attractive to pursue drug candidates for many more disease conditions and would lower the threshold for financing a drug’s development so that more drugs would be brought forward.

Another major factor is selling costs. It is far more cost-effective to sell a drug when it is either prescribed by specialty physicians or commonly used in hospitals, both of which effectively aggregate patients. Moreover, it is easier to predict the level of adoption by these customers on the basis of the drug’s clinical differentiation and pharmacoeconomics. Sales of drugs prescribed by primary care doctors depend on a mixture of expensive sales representatives and advertising and can cost hundreds of millions of dollars annually.

While scientists work hard to increase the rate of scientific discovery, the rest of us should do our part to improve the other variables that figure into the calculus of which cures are brought to market. Such improvement would be good for patients and would represent good economic policy, since drug prices could be lowered even as investors generated the returns necessary to finance more discoveries.

http://www.nejm.org/doi/full/10.1056/NEJMp1400868

****

PNHP Data Update

September 29, 2000

The new editor of the New England Journal of Medicine, Jeffrey Drazen, M.D. was cited by the FDA last year for making “false and misleading” statements about the asthma drug, levalbuterol. Drazen received $7,000 from the drug’s maker, and has ties to another 20 drug firms (USA Today, 5/31/00). “Academic researchers should be able to own substantial stock in a company or accept sizeable consultant fees and still accept research support,” according to Drazen. (California Healthline, 5/26/00).

(Note: Though this was written in 2000, Jeffrey Drazen is still the editor of NEJM.)

https://pnhp.org/news/2000/september.php

One of the most serious defects of the U.S. health care system is that we not only allow but we encourage the participation of passive investors. For those who believe that the free market is what makes America so great, the opportunity to glom onto some of the $3 trillion that we spend each year on health care cannot pass the attention of the entrepreneurial mind. Venture capitalists in the pharmaceutical industry are a case in point.

The venture capitalists who authored this article in The New England Journal of Medicine have diagnosed a major problem with the U.S. pharmaceutical industry and are providing a solution – a solution for investors that is.

They have decided that clinical trials of new drugs are too expensive. They note that you can determine clinical efficacy from the first few hundred patients in the study and that adding many more patients goes far past the point of diminishing returns. As far as determining drug safety, we can use the computerization of health records to detect adverse events, taking advantage of the very large number of patients receiving the drug after it has been released for marketing. By reducing these research costs, and by moving products to the market earlier so they can begin providing returns, the venture capitalists then would have more funds to invest in even more new products. See, the market really works.

We have seen the tragedies of products rushed to the market, with the inadequacies of post-marketing surveillance, resulting in great harm to patients, even death, while the pharmaceutical industry pays massive fines that they pass off as simply a cost of business. When passive investors are involved, the investors must be taken care of first, certainly before the patients, and these guys writing this article want a greater piece of the action.

Why would one of the world’s most prestigious medical journals publish an article promoting the interests of venture capitalists in the pharmaceutical industry? The answer might be found in the views of the editor of NEJM, Jeffrey Drazen, MD, who in the past expressed the opinion, “Academic researchers should be able to own substantial stock in a company or accept sizeable consultant fees and still accept research support.”

It is sad when the pursuit of money contaminates even the paragons of health care, and yet those involved seem to be totally insensitive to the fact that there is even an issue here.

What does this have to do with single payer? When our own public purchasers of health care products and services enter the marketplace on our behalf to negotiate the acquisition of our health care, they can refuse to pay the money lenders who personally provide no value to our health care. If research funds are needed we can provide them ourselves though our own National Institutes of Health. Such an investment would have the goal of determining efficacy and safety – benefitting patients – and not on how fast you can turn a buck.

New Law’s Demands on Doctors Have Many Seeking a Network

By Abby Goodnough
The New York Times, March 2, 2014

Dr. Sven Jonsson, a primary care physician in this rural community, is seeing a steady tide of new patients under President Obama’s health care law, the Affordable Care Act. And so far, it is working out for him. His employer, a big hospital system, provides expensive equipment, takes care of bureaucratic chores and has buffered him from the turmoil of his rapidly changing business.

About 25 miles away in the more affluent suburb of Crestwood, Dr. Tracy Ragland, 46, an independent primary care physician, is more anxious about the future of her small practice. The law is bringing new regulations and payment rates that she says squeeze self-employed doctors. She cherishes the autonomy of private practice and speaks darkly of the rush of independent physicians into hospital networks, which she sees as growing monopolies.

(Dr. Ragland) said that she embraced the goal of extending health coverage to far more Americans, but that Medicaid paid too poorly for her to treat any of the new enrollees. And while she is accepting some of the private plans sold through Kentucky’s new online insurance exchange, she has rejected others — again, because she considers the payment too low.

Dr. Jonsson owned his practice in Louisville for a decade — and did not accept Medicaid, for the same reasons that Dr. Ragland generally does not — but sold it in 2010, months after the Affordable Care Act passed. He did so, he said, expressly out of concern that the law and related requirements were about to ratchet up the pressures and expense of private practice. In particular, he dreaded having to buy and learn how to use an electronic records system, not only because such systems are expensive but because doctors’ productivity slows down while they are learning the computerized systems, threatening tight margins.

Only about 40 percent of family doctors and pediatricians remain independent, according to the American Medical Association — and many, including Dr. Ragland, feel that harsh economic winds that were already pushing against them have been accelerated by the Affordable Care Act.

Dr. Jonsson is less mired in the daily worries of running a medical business. His hospital system (Baptist Health), with far more bargaining power than a private practice, negotiates with insurers on his behalf, pays his overhead and malpractice insurance, and handles much of the ever-expanding paperwork. It provides him with an X-ray machine and a costly system for keeping digital patient records, a move encouraged by the new law. He has been able to take his first long vacations in years, including a recent month in his native South Africa.

Since the passage of the act in 2010, hospital systems have been acquiring physician practices to shore up their market positions and form networks to take advantage of incentives under the new law. For now, Baptist is taking a financial hit by putting so many doctors on staff: Moody’s Investors Service downgraded its credit rating in September, citing “increased losses from an aggressive and rapid physician employment strategy.”

Baptist enlisted about a dozen of its primary care providers in the Louisville region to take on new Medicaid patients, officials there said, both to get more paying customers in the door and, as a nonprofit system with a stated charitable mission, to help more of Kentucky’s poor get medical care under the law.

Comment:

By Don McCanne, MD

The primary care practices of Dr. Sven Jonsson and Dr. Tracy Ragland described in this article are not merely anecdotal. They are truly representative of major changes taking place in the financing of primary care today. Is this change a disruptive innovation that will deliver on the promise of an expanded primary care infrastructure with higher quality and lower costs? Let’s take a closer look.

How disruptive is this? Both Dr. Jonsson and Dr. Ragland practice in free standing clinics with only a few associates. They see similar patients with acute and chronic care needs. Previously they both felt that they could not afford to accept Medicaid patients because of the very low payment rates under their state Medicaid program. Since becoming employed by Baptist Health, Dr. Jonsson now includes Medicaid patients in his practice, whereas Dr. Ragland, who continues with her traditional primary care practice, still does not accept Medicaid patients and, furthermore, does not accept patients who are now insured through certain plans in Kentucky’s new insurance exchange – plans that have payment rates which she considers too low for her practice.

Although their practices are very similar, Dr. Jonsson is the more contented physician. He simply practices medicine without the economic concerns that he formerly faced. Dr. Ragland still has these concerns.

The difference is that Dr. Jonsson, along with his Medicaid patients and patients covered by exchange plans, are benefiting from the consolidation that is taking place in the health care delivery system in which hospitals and physicians are merging. These consolidated systems are able to extract greater concessions from the insurers since they become “must have” organizations when the insurers establish their provider networks.

Dr. Jonsson’s association with Baptist Health – a nonprofit health care organization with a charitable mission of caring for the poor – seems to be an ideal arrangement for meeting the health care needs of the community. So what could be wrong?

The obvious reason that Dr. Jonsson is personally financially secure in spite of seeing Medicaid patients is that Baptist Health is paying him more than he would be receiving from Medicaid or the exchange plans. How is that working? Moody’s Investors Service has downgraded Baptist Health’s credit rating citing “increased losses from an aggressive and rapid physician employment strategy.”

Under our current fragmented, dysfunctional financing system, when hospitals and physicians are trying to do the right thing, it still isn’t working in spite of the enactment of the Affordable Care Act. The current flux in primary care financing is highly unstable and likely will continue to be disruptive to traditional primary care practices. For those who say good riddance, realize two things: 1) prices are higher in the consolidated systems and will not be tolerated for long, and 2) traditional primary care practices, including community health centers, provide essential community health care services in regions often not attractive to large, consolidated health systems.

If we switched everyone to Medicare right now, the system would work, though many problems would remain because of the deficiencies in Medicare. On the other hand, if we created a well designed single payer system (an improved Medicare for all) our financing problems would be solved, and we could get on with repairing our health care delivery system – one in which both Dr. Jonsson and Dr. Ragland would take pride in their ability to meet the health care needs of their patients.

New Law’s Demands on Doctors Have Many Seeking a Network

By Abby Goodnough
The New York Times, March 2, 2014

Dr. Sven Jonsson, a primary care physician in this rural community, is seeing a steady tide of new patients under President Obama’s health care law, the Affordable Care Act. And so far, it is working out for him. His employer, a big hospital system, provides expensive equipment, takes care of bureaucratic chores and has buffered him from the turmoil of his rapidly changing business.

About 25 miles away in the more affluent suburb of Crestwood, Dr. Tracy Ragland, 46, an independent primary care physician, is more anxious about the future of her small practice. The law is bringing new regulations and payment rates that she says squeeze self-employed doctors. She cherishes the autonomy of private practice and speaks darkly of the rush of independent physicians into hospital networks, which she sees as growing monopolies.

(Dr. Ragland) said that she embraced the goal of extending health coverage to far more Americans, but that Medicaid paid too poorly for her to treat any of the new enrollees. And while she is accepting some of the private plans sold through Kentucky’s new online insurance exchange, she has rejected others — again, because she considers the payment too low.

Dr. Jonsson owned his practice in Louisville for a decade — and did not accept Medicaid, for the same reasons that Dr. Ragland generally does not — but sold it in 2010, months after the Affordable Care Act passed. He did so, he said, expressly out of concern that the law and related requirements were about to ratchet up the pressures and expense of private practice. In particular, he dreaded having to buy and learn how to use an electronic records system, not only because such systems are expensive but because doctors’ productivity slows down while they are learning the computerized systems, threatening tight margins.

Only about 40 percent of family doctors and pediatricians remain independent, according to the American Medical Association — and many, including Dr. Ragland, feel that harsh economic winds that were already pushing against them have been accelerated by the Affordable Care Act.

Dr. Jonsson is less mired in the daily worries of running a medical business. His hospital system (Baptist Health), with far more bargaining power than a private practice, negotiates with insurers on his behalf, pays his overhead and malpractice insurance, and handles much of the ever-expanding paperwork. It provides him with an X-ray machine and a costly system for keeping digital patient records, a move encouraged by the new law. He has been able to take his first long vacations in years, including a recent month in his native South Africa.

Since the passage of the act in 2010, hospital systems have been acquiring physician practices to shore up their market positions and form networks to take advantage of incentives under the new law. For now, Baptist is taking a financial hit by putting so many doctors on staff: Moody’s Investors Service downgraded its credit rating in September, citing “increased losses from an aggressive and rapid physician employment strategy.”

Baptist enlisted about a dozen of its primary care providers in the Louisville region to take on new Medicaid patients, officials there said, both to get more paying customers in the door and, as a nonprofit system with a stated charitable mission, to help more of Kentucky’s poor get medical care under the law.

http://www.nytimes.com/2014/03/03/us/new-laws-demands-on-doctors-have-ma…

The primary care practices of Dr. Sven Jonsson and Dr. Tracy Ragland described in this article are not merely anecdotal. They are truly representative of major changes taking place in the financing of primary care today. Is this change a disruptive innovation that will deliver on the promise of an expanded primary care infrastructure with higher quality and lower costs? Let’s take a closer look.

How disruptive is this? Both Dr. Jonsson and Dr. Ragland practice in free standing clinics with only a few associates. They see similar patients with acute and chronic care needs. Previously they both felt that they could not afford to accept Medicaid patients because of the very low payment rates under their state Medicaid program. Since becoming employed by Baptist Health, Dr. Jonsson now includes Medicaid patients in his practice, whereas Dr. Ragland, who continues with her traditional primary care practice, still does not accept Medicaid patients and, furthermore, does not accept patients who are now insured through certain plans in Kentucky’s new insurance exchange – plans that have payment rates which she considers too low for her practice.

Although their practices are very similar, Dr. Jonsson is the more contented physician. He simply practices medicine without the economic concerns that he formerly faced. Dr. Ragland still has these concerns.

The difference is that Dr. Jonsson, along with his Medicaid patients and patients covered by exchange plans, are benefiting from the consolidation that is taking place in the health care delivery system in which hospitals and physicians are merging. These consolidated systems are able to extract greater concessions from the insurers since they become “must have” organizations when the insurers establish their provider networks.

Dr. Jonsson’s association with Baptist Health – a nonprofit health care organization with a charitable mission of caring for the poor – seems to be an ideal arrangement for meeting the health care needs of the community. So what could be wrong?

The obvious reason that Dr. Jonsson is personally financially secure in spite of seeing Medicaid patients is that Baptist Health is paying him more than he would be receiving from Medicaid or the exchange plans. How is that working? Moody’s Investors Service has downgraded Baptist Health’s credit rating citing “increased losses from an aggressive and rapid physician employment strategy.”

Under our current fragmented, dysfunctional financing system, when hospitals and physicians are trying to do the right thing, it still isn’t working in spite of the enactment of the Affordable Care Act. The current flux in primary care financing is highly unstable and likely will continue to be disruptive to traditional primary care practices. For those who say good riddance, realize two things: 1) prices are higher in the consolidated systems and will not be tolerated for long, and 2) traditional primary care practices, including community health centers, provide essential community health care services in regions often not attractive to large, consolidated health systems.

If we switched everyone to Medicare right now, the system would work, though many problems would remain because of the deficiencies in Medicare. On the other hand, if we created a well designed single payer system (an improved Medicare for all) our financing problems would be solved, and we could get on with repairing our health care delivery system – one in which both Dr. Jonsson and Dr. Ragland would take pride in their ability to meet the health care needs of their patients.

Inpatient Hospital Prices Drive Spending Variation for Episodes of Care for Privately Insured Patients

By Chapin White, James D. Reschovsky, Amelia M. Bond
National Institute for Health Care Reform, February 2014

When including all care related to a hospitalization — for example, a knee or hip replacement — the price of the initial inpatient stay explains almost all of the wide variation from hospital to hospital in spending on so-called episodes of care, according to a study by researchers at the former Center for Studying Health System Change (HSC) based on 2011 claims data for 590,000 active and retired nonelderly autoworkers and dependents. For example, average spending for uncomplicated inpatient knee and hip replacements ranged across 36 hospitals from less than $17,500 to $37,000 for an episode of care that included all services during the inpatient stay and all follow-up care within 30 days of discharge. The pattern of spending variation for knee and hip replacements held true for other conditions, with hospital inpatient price differences accounting for the vast majority of spending variation rather than differences in spending on physician and other non-hospital services during and after discharge or spending on readmissions. Moreover, hospitals’ case-mix-adjusted relative spending per episode for different service lines — for example, orthopedics and cardiology — tend to be highly correlated with each other. Understanding why spending for episodes of care varies so much among hospitals can help private purchasers accurately target ways to control spending. This study’s findings — inpatient prices drive the bulk of episode-spending variation and hospitals with high spending for one service line tend to have high spending for other service lines — indicate that private purchasers can focus on hospitals’ overall inpatient price levels rather than pursue bundled payments for episodes of care or service-line-specific purchasing strategies.

To Bundle or Not to Bundle…

In Medicare, there is a compelling case for bundled payments — wide variations in post-acute care use are the main factor behind differences between high- and low-spending geographic regions and between high- and low-spending hospitals. Moreover, Medicare patients often have multiple chronic conditions that are complex to manage. But the results of this analysis show that the case for bundled hospital payments for the privately insured is much weaker — post-acute care and other ancillary services account for a relatively small share of overall spending on hospitalization episodes, and they account for almost none of the variation in episode spending from one hospital to another.

Implications for Private Purchasers

It remains to be seen whether, going forward, the tools available to private purchasers — tiered benefits, reference pricing, and so on — can counteract hospitals’ significant market power. Other more dramatic interventions, such as state-based hospital rate setting, or offering a “public option” that uses administered pricing through the state health insurance exchanges are options, albeit unlikely in most states to gain traction.

http://www.nihcr.org/Episode-Spending-Variation

Comment:

By Don McCanne, MD

Rather than relying on proven methods of controlling health care costs through government administered pricing, the Affordable Care Act (ACA) relies on private sector integration of the health care delivery system through entities such as accountable care organizations. One of the mechanisms promoted by ACA is bundled payments – paying a single pre-set amount for all services associated with a single hospital episode of care such as a joint replacement. Will bundled payments adequately control our health care spending?

This study shows that, for private patients, the upper end of the wide variation in spending between hospitals is driven by high prices which permeate all of the hospitals’ service lines. For those services amenable to bundling, such as joint replacement, most of the services provided are related to the specific episode and thus do not vary much between hospitals. Post-acute care and other ancillary services which might otherwise be pared back with bundling are such a small part of the overall services that bundling cannot save money by reducing the volume of services connected to the episode.

Since it is the high prices of the standard services that are a problem, attacking only those services that are bundled will not save much since high prices throughout the rest of the hospital are left undisturbed or even increased some to offset any price concessions for the bundled services.

This article mentions that there is a case for bundled payments under Medicare since these more complex patients have wide variations in acute and post-acute care, providing more flexibility in controlling the volume of services. Prices are already controlled through the Medicare prospective payment system, which, to a limited degree, represents a form of bundling (think DRGs).

Other nations, even if using private insurers, utilize rigid government price setting through one form or another. The authors of this report suggest that state-based hospital rate setting or government administered pricing would not likely gain traction. Yet “bundling” all hospital spending through global hospital budgets (like fire or police department budgets), as part of a single payer system, is precisely what we need. Let’s give it traction.