This Cancer Doctor Is Leading the Attack on Astronomical Drug Prices

By Robert Langreth and Cynthia Koons
Bloomberg Business, June 1, 2015

As the one-year cost of cancer drugs edges up to $200,000 per patient, a top doctor from Memorial Sloan Kettering Cancer Center used his speech before a massive gathering of colleagues to call for limits on the cost of cancer therapies. “These drugs cost too much,” Dr. Leonard Saltz, a gastrointestinal oncologist, said in an unusual speech at the American Society of Clinical Oncology meeting on Sunday.

“We need to first accept that there has to be some upper limit as to what we as a society are going to be willing to spend on a patient, and we have to be willing to engage in that discussion,” Saltz told Bloomberg in an interview from the meeting in Chicago. “It’s a very uncomfortable discussion. We should be willing to have it. Because we’re not having the conversation, only the people selling the drugs are weighing in on what they should cost.”

Alan Venook, an oncologist at the University of California at San Francisco and the scientific program chair for the American Society of Clinical Oncology this year, says he picked Saltz to discuss cancer costs even before he knew that the melanoma combination would be on the program. The problem of rising cancer drug costs “needed to be front and center,” Venook says, and Saltz “is somebody who will really come out there and put it on the table.”

Saltz has been among an outspoken group of physicians at Memorial Sloan Kettering that has railed against high-priced cancer drugs. In his latest broadside he lit into the cost of a melanoma drug combination from Bristol-Myers Squibb, just hours after another physician from his hospital presented data showing the combination could delay the progression of advanced melanoma by months.

The cocktail combining two existing Bristol-Myers Squibb drugs, Opdivo and Yervoy, would cost the average patient $295,000 for a little less than a year of therapy, Saltz calculated. An experimental high-dose regimen of another new drug highlighted in Saltz’s speech could cost patients as much as $1 million a year.

Anthem has implemented a program that incentivizes oncologists to use the most effective — and most cost-effective — drug by offering a bonus to doctors who put patients on the drugs the insurer deems to fit that criteria. Anthem estimates drug spending represents about a third of the cost of cancer care for the insurer, Jennifer Malin, Anthem’s medical director for oncology, said in an interview at the American Society of Clinical Oncology meeting. As for the newest cancer drugs coming to market, Malin said Anthem will look at the effectiveness and side-effect profile when making coverage decisions.

http://www.bloomberg.com/news/articles/2015-06-01/this-cancer-doctor-is-leading-the-attack-on-astronomical-drug-prices

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Dr Jennifer Malin on the Patient as the Payer in Oncology

AJMC TV, May 30, 2015

The move to have patients shoulder greater share of their cost of care is particularly challenging in cancer care, according to Jennifer Malin, MD, medical director for oncology at Anthem.

Does the patient becoming the payer have a different impact in oncology compared with other specialties?

Dr. Jennifer Malin:  “So I think having patients have to bear a greater share of their costs is a particular challenge in cancer care because the care is so expensive they reach their out-of-pocket maximum very quickly. So it’s overwhelming to have to come up with several thousand dollars, if you’re on a bronze plan on the exchange, you reach your six thousand dollar out-of-pocket maximum within a month or two. The data suggest that only twenty percent of people in the U.S. can be able to access a thousand dollars in savings in a course of thirty days. So it’s overwhelming when you have a major illness that’s going to be so costly. On the other hand, once you reach that out-of-pocket maximum though, then the cost of treatment doesn’t really impact you as a patient, until the next year comes around and you have to start all over again.”

http://www.ajmc.com/conferences/ASCO2015/Dr-Jennifer-Malin-on-the-Patient-as-the-Payer-in-Oncology?utm_source=Informz&utm_medium=AJMC&utm_campaign=ASCO_Day_1_5-30-15

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Comment:

By Don McCanne, MD

The outrageous price of drugs has been a topic of a plethora of news reports, and for very good reason. Thus it is encouraging that the nation’s cancer specialists, at their recent national meeting, brought the topic of rising cancer drug costs front and center.

We need to do something about it, but what options do we have? According to Dr. Saltz, “only the people selling the drugs are weighing in on what they should cost.” Oncologists have the option of simply not using the expensive drugs, but that may not be in the bests interests of the patients. And what other real option do they have?

The insurers can play a role, but that may simply be excluding expensive drugs from their formularies. Again, that may not be in the best interests of the patients. Anthem’s medical director of oncology, Jennifer Malin, clearly recognizes the burden of patient cost-sharing for these expensive drugs. So what do they recommend? They are offering bonuses to physicians who use drugs that the insurer has decided are the most effective and most cost-effective. Does anyone else see a potential conflict here that also may not be in the best interests of the patients?

Our current public policies not only allow, but specifically encourage, price gouging by the drug firms, through measures such as prohibiting Medicare from negotiating drug prices. Yet it is the government that has the responsibility to step in when the private sector tramples the marketplace with abusive, anti-consumer (anti-patient) practices.

We need more than just price controls. We need to protect patients from cost sharing that erects financial barriers to care. We need to make funding of health care more equitable. We need to be sure that everyone has affordable access to care. The obvious solution is a single payer national health program that is truly universal, that eliminates cost barriers, that is funded equitably through the tax system, and that ensures optimum value through monopsonistic purchasing which pays enough to support the health care system while avoiding excess payments that would not provide optimum value for our tax dollars.

The current Medicare program won’t quite do that, but if we improved it and then expanded it to cover everyone, then we would no longer be victims of gouging by the drug companies nor by any of the rest of the health care industry.

2015 Milliman Medical Index

Milliman, May 2015

In 2015, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $24,671 according to the Milliman Medical Index (MMI). The amount will almost certainly surpass $25,000 in 2016.

• This year, the growth rate has again climbed, increasing to 6.3% in 2015, largely due to increases in prescription drug costs. Even at last year’s low-water mark of 5.4%, the annual rate of increase is still well above growth in the consumer price index (CPI) for medical services.
• Costs for our typical family have more than doubled over the past decade.
• A family of four with the MMI plan is likely to reach the Cadillac tax much sooner if the plan is provided by a smaller employer and if trends exceed recent levels.
• Prescription drug costs spiked significantly, growing by 13.6% from 2014 to 2015.
• The total employee cost (payroll deductions plus out-of-pocket expenses) increased by approximately 43% from 2010 to 2015, while employer costs increased by 32%.
• Over the 10-year period ending March 2015, medical CPI has increased by approximately 3.3% per year, while the MMI has increased by 7.3% per year.

The family of four represented by the MMI has total annual healthcare expenditures of $24,671, of which $10,473 is paid by the family, $6,408 through payroll deductions, and $4,065 in out-of-pocket expenses incurred at point of care. These figures represent significant (and increasing) percentages of family income, particularly for middle-income families. The U.S. median annual household income in 2015 is approximately $53,800.

With income growth at slightly less than 2% per year and healthcare expense growth over 6%, health insurance will likely become even less affordable for many working families and for employers.

http://www.milliman.com/MMI/

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Comment:

By Don McCanne, MD

Health care for a typical family of four with an employer-sponsored PPO health plan now costs about $24,671, according to this update of the Milliman Medical Index. This has increased 6.3% since last year, well in excess of the rate of increase in the CPI. The claim that we have controlled health care costs rests on very tenuous grounds.

For perspective, in 2013 the median family household income was $65,587. Obviously, if there were no government programs to help pay for heath care, the typical American family could not afford the average costs of health care nor could they afford an insurance policy that would cover most of those costs.

We do have a multitude of programs that result in transfers of income that make it possible for a large majority to have some sort of coverage. Examples are Medicaid for low income individuals funded by progressive taxes, Medicare for the elderly and individuals with long-term disabilities partially funded by payroll taxes on workers and by general revenues, government supported safety net institutions, subsidies for lower income individuals and families enrolled in ACA exchange plans, and a multitude of other transparent and opaque forms of income transfer.

These programs and the income transfers – especially taxes – that make them possible are complex and administratively burdensome and are not always equitable. For instance, the tax expenditures that help pay for the largest sector of health care coverage – employer-sponsored health plans – are regressive since the tax benefit increases with an increase in income, leaving lower income individuals and families with little or no tax benefit. Also, the very high administrative costs of the most common method of administering health care payments – private health plans – are relatively fixed and thus the percentage of income consumed is inversely related to the amount of income, with lower income individuals paying a higher percentage of their incomes for these wasteful services.

The complexity of this highly fragmented system of paying for health care is unique in the United States and is a primary contributor to the dysfunctions of our system that result in its very high costs and in its inequities that leave tens of millions underinsured and tens of millions more with no insurance at all.

These high health care costs will result in greater financial hardship for workers and their families. Either the premiums will exceed the threshold for excise taxes (“Cadillac tax”) which would be paid either directly or indirectly by the employee, or the employer will reduce benefits to avoid the excise tax, thereby increasing out-of-pocket costs for the employee, or perhaps a combination of the two.

If we had a single payer national health program we could more effectively slow the rate of increase in health care spending without compromising health care access and quality, we could dramatically reduce the profound administrative waste in our system, and we could fund the entire system with much more equitable transfers through the tax system that would make health care affordable for everyone.

Remember, the Milliman Medical Index – now close to $25,000 – shows us, that, without transfers, middle- and low-income families would not receive adequate health care. Most Americans believe that everyone should have health care, but they are more comfortable with paying a premium than with paying a tax. But if you removed all of the opacity in financing health care today, and you showed families what the premium would have to be for a plan that actually did cover an average of $25,000  and then compare that with the amount of taxes they would be paying in a transparent progressive tax system that funded health care, how many people would really want to pay significantly more in premiums than they would in taxes simply because of their aversion to government taxation?

Only high-income individuals would pay more in a single payer national health program. You say that is not fair? Then keep paying that $6,408 in payroll deductions for your family premium, plus an average of $4,065 in out-of-pocket expenses, plus $14,198 in forgone pay increases that your employer is paying towards your family premium. Maybe a better awareness of that last relatively opaque number, combined with the rest, might give you pause. $25,000 is a lot of money.

Antitrust Lawsuits Target Blue Cross and Blue Shield

By Anna Wilde Mathews
The Wall Street Journal, May 27, 2015

Blue Cross and Blue Shield health insurers cover about a third of Americans, through a national network that dates back decades. Now, antitrust lawsuits advancing in a federal court in Alabama allege that the 37 independently owned companies are functioning as an illegal cartel.

A federal judicial panel has consolidated the claims against the insurers into two lawsuits that represent plaintiffs from around the country. One is on behalf of health-care providers and the other is for individual and small-employer customers.

The antitrust suits allege that the insurers are conspiring to divvy up markets and avoid competing against one another, driving up customers’ prices and pushing down the amounts paid to doctors and other health-care providers.

The suits, which name all of the Blue Cross and Blue Shield companies as defendants as well as the Blue Cross Blue Shield Association, have already survived the insurers’ first major legal challenge.

The Blue Cross and Blue Shield companies trace their roots to the 1930s, when hospital and doctor groups started insurance plans to help people pay for medical care. Hospital plans used the Blue Cross name, and the physician plans were sold under the Blue Shield banner. Eventually, the names were trademarked.

Today, the Blue Cross Blue Shield Association licenses the brands to the insurers that use them. Companies typically hold exclusive rights to the Blue Cross and Blue Shield names within a certain territory.

Most of the 37 Blue Cross and Blue Shield companies are not-for-profit. Many do business in a single state. The biggest Blue Cross and Blue Shield company is publicly traded Anthem Inc., which operates the plans in 14 states. In a few places, Blue-branded plans compete directly against one another, as in California, where Anthem Blue Cross battles Blue Shield of California.

“This is a model that has withstood scrutiny over our entire history,” said Scott Nehs, general counsel of the Blue association. “There’s no smoky room involved, there’s no dividing up.” Also, he said, the insurers’ rates are closely watched by state regulators.

The plaintiffs, however, allege that the Blue association is controlled by its members, who use it to engage in “illegal market division.” The customer suit says the association also limits the amount of insurance business insurers can do under non-Blue brands. The suit also alleges that the Blue agreements result in “inflated premiums.”

“You have less competition in a market, so prices are higher,” said William Isaacson, an attorney with Boies, Schiller & Flexner LLP, which represents the customer plaintiffs. “That’s one of the basics of antitrust law.”

The plaintiffs have “some surprisingly strong claims,” said Mark Hall, a professor at Wake Forest University School of Law. “It’s sort of antitrust law 101 that direct competitors can’t agree to divvy up their territory.”

http://www.wsj.com/articles/antitrust-lawsuits-target-blue-cross-and-blue-shield-1432750106

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Comment:

By Don McCanne, MD

Although this lawsuit is basically over whether or not the Blue Cross Blue Shield Association and its 37 licensees are functioning as an illegal cartel, its significance for those of us interested in health care reform is much deeper. Even the best of the private insurers can become corrupted when they operate under the rules of the free marketplace, which is quite a contrast to the rules under which a public program such as Medicare operates, or should operate.

This is not to say that government bureaucrats are never corrupt. Rather the point is that, whereas corrupt bureaucrats would be ferreted out and prosecuted for their illegal acts, the business world thrives on manipulating markets to serve their own interests. A government bureaucrat whose function it is to help citizens obtain and finance their health care is guided by an ethic that places the patient first, whereas an intermediary that creates a business entity designed to manage the money that flows within the health care system functions under an amoral business ethic.

The executives of the Blue Cross Blue Shield entities are not crooks. But look at the largest one of all – Anthem Blue Cross. Read any of its annual reports and the emphasis is primarily on enhancing investor value. Though most Blue Cross Blue Shield plans are nonprofit, they adopt the same innovations as the for-profits that are trying to gain an advantage in the competitive markets. In California, it is difficult to see any differences between the innovative leader – for-profit Anthem Blue Cross – and nonprofit Blue Shield of California that has adopted the same business innovations.

What about Medicare? The traditional Medicare program is subject to abuses by the health care providers – abuses which occur with private plans as well – but these abuses are prosecuted in the public sector whereas the private sector seems to consider them to be business as usual.

An example is the approach to current outrageous drug prices. Public programs such as Medicaid and the VA demand fair pricing in contrast to the modest marketplace discounts that protect the excessive profits of not only the pharmaceutical firms but also the intermediary pharmacy benefit managers. The latter is good business whereas the former is good governance. There is a difference.

Yet there is a serious problem that has crept into our Medicare program, and that is the expanding privatization of Medicare through the private Medicare Advantage plans. We have recited repeatedly the abuses of this industry stemming largely from their adherence to “good business practices” – behavior that covertly shortchanges the taxpayers who finance Medicare while enhancing profits for their passive investors.

It will be interesting to see if the courts determine the prohibition of geographic overlapping of the Blue Cross Blue Shield trademarks to be anticompetitive behavior. But do we really care? If we were to establish one uniform public program that covered everyone, this issue goes away.

Assembly passes universal health care bill

By Dan Goldberg 
Capital New York, May 27, 2015

The state Assembly on Wednesday voted for a single-payer health bill, the first time in more than two decades the chamber has taken up the measure.

The vote was 89-47, an overwhelming but largely symbolic step toward universal health insurance. The bill now heads to the Republican-controlled Senate where it is not expected to pass. 

Assemblyman Richard Gottfried, chair of the health committee, gave an impassioned speech on the floor in support of the New York Health Act, arguing that it was long past time for New Yorkers to rid themselves of the intrusive insurance companies whose goal is to deny claims rather than provide care.

The plan’s benefits, Gottfried said, would be more generous than any plan on the current market, and there would be no co-pays or deductibles.

One problem, pointed out by Republicans, is that the offering, while generous, is the opposite of what public health officials are pushing, including those in the Cuomo administration, who have professed that insurance systems, and high deductibles and co-pays help ensure people use the health system judiciously instead of opting for more, often unnecessary, care.

“There is a role for insurance companies,” state health commissioner Dr. Howard Zucker said Wednesday before the debate.

The passing of the Affordable Care Act, which subsidizes private insurance for people below a certain income level, was a valid effort, Gottfried said, but ultimately served to highlight why the system needs to be entirely scrapped.

“I think the A.C.A. has made it clear to people … there are profound problems in our health care system that cannot be addressed by incremental change in that system,” Gottfried said.

http://www.capitalnewyork.com/article/albany/2015/05/8568890/assembly-passes-universal-health-care-bill?top-featured-2

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Comment:

By Don McCanne, MD

Although there remains considerable political resistance to the concept of a universal public health insurance program, the fact that Richard Gottfried’s New York Health Act passed the Assembly by such a wide margin, 89-47, shows that there is very strong support for single payer reform amongst many politicians and the voters who support them.

The policies incorporated in a publicly-administered and publicly-financed single payer model of health care financing are vastly more efficient and effective than a fragmented, multi-payer model such as that perpetuated by the Affordable Care Act. But better policy alone does not equate with an improved understanding of the models. That is why coalitions, education, and grassroots support is so important. These activities in New York undoubtedly contributed to moving the bill through the Assembly.

In an email message, Mark Dunlea, co-founder of Single Payer New York, listed coalition members supporting the New York Health Act:

“New York Health has been endorsed by the NYS Academy of Family Physicians, NYS American Academy of Pediatrics, NYS Nurses Association, Committee of Interns and Residents, Doctors Council SEIU, NY chapter of Physicians for a National Health Program, SEIU 1199, NYS AFL-CIO, Communications Workers of America, Amalgamated Transit Union Local 1056 and 1179, United Auto Workers 9 & 9A, UFCW Local 1500, Capital District Area Labor Federation, Local 32BJ SEIU, NYSUT, United Federation of Teachers, Working Families Party, Green Party, Citizen Action, StateWide Senior Action Council, NYPIRG, League of Women Voters, and others.”

Those of us at Physicians for a National Health Program are particularly proud of the contribution of the New York Metro chapter of PNHP.

The lesson is clear. The health policies enacted through the Affordable Care Act, though of some limited benefit, are grossly inadequate when considering the need that exists. When people understand that there is a far better option, they will support it. Obviously we have much more work to do, so it is imperative that we step up our efforts in educating the public and in mobilizing grassroots efforts through coalition activities.

The Post-Launch Problem: The Affordable Care Act’s Persistently High Administrative Costs

By David Himmelstein and Steffie Woolhandler
Health Affairs Blog, May 27, 2015

Last year we, and many others, drew attention to the chaotic and costly roll out of the Affordable Care Act’s (ACA) exchanges. The chaos is mostly over (unless King prevails over Burwell), but the costs will linger on. The roughly $6 billion in exchange start-up costs pale in comparison to the ongoing insurance overhead that the ACA has added to our health care system — more than a quarter of a trillion dollars though 2022.

Bloated Administrative Costs

Between 2014 and 2022, CMS projects $2.757 trillion in spending for private insurance overhead and administering government health programs (mostly Medicare and Medicaid), including $273.6 billion in new administrative costs attributable to the ACA. Nearly two-thirds of this new overhead — $172.2 billion — will go for increased private insurance overhead.

Most of this soaring private insurance overhead is attributable to rising enrollment in private plans which carry high costs for administration and profits. The rest reflects the costs of running the exchanges, which serve as brokers for the new private coverage and will be funded (after initial startup costs) by surcharges on exchange plans’ premiums.

Government programs — primarily Medicaid — account for the remaining $101.4 billion increase in overhead. But even the added dollars to administer Medicaid will flow mostly to private Medicaid HMOs, which will account for 59 percent of total Medicaid administrative costs in 2022. (The subcontracting of Medicaid coverage to private HMOs has nearly doubled Medicaid’s administrative overhead, which has risen from 5.1 percent of total Medicaid expenditure in 1980 to 9.2 percent this year).

The $273.6 billion in added insurance overhead under the ACA averages out to $1,375 per newly insured person per year, or 22.5 percent of the total federal government expenditures for the program.

Better Options

Insuring 25 million additional Americans, as the CBO projects the ACA will do, is surely worthwhile. But the administrative cost of doing so seem awfully steep, particularly when much cheaper alternatives are available.

Traditional Medicare runs for 2 percent overhead, somewhat higher than insurance overhead in universal single payer systems like Taiwan’s or Canada’s. Yet traditional Medicare is a bargain compared to the ACA strategy of filtering most of the new dollars through private insurers and private HMOs that subcontract for much of the new Medicaid coverage. Indeed, dropping the overhead figure from 22.5 percent to traditional Medicare’s 2 percent would save $249.3 billion by 2022.

The ACA isn’t the first time we’ve seen bloated administrative costs from a federal program that subcontracts for coverage through private insurers.  Medicare Advantage plans’ overhead averaged 13.7 percent in 2011, about $1,355 per enrollee. But rather than learn from that mistake, both Democrats and Republicans seem intent on tossing more federal dollars to private insurers. Indeed, the House Republicans’ initial budget would have voucherized Medicare, eventually diverting almost the entire Medicare budget to private insurers (the measure passed by the House on April 30 dropped the “premium support” voucher scheme).

In contrast, a universal single payer system would pare down both insurers’ and providers’ overhead, yielding huge administrative savings — $375 billion in 2012 according to one recent estimate.

In health care, public insurance gives much more bang for each buck.

http://healthaffairs.org/blog/2015/05/27/the-post-launch-problem-the-affordable-care-acts-persistently-high-administrative-costs

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Comment:

By Don McCanne, MD

Although there are innumerable major problems with having used the Affordable Care Act to reform health care, one of the more significant deficiencies that we pointed out well in advance was that the design would add significantly to the excessive administrative burden that already characterized the U.S. health care system. This study quantifies that additional burden.

These additional administrative costs amount to $1,375 per newly insured person per year, an astonishing 22.5 percent of the total federal government expenditures for the program. Between 2014 and 2022, $273.6 billion in new administrative costs will be attributable to ACA.

The two primary goals of those involved in reforming health care were to expand coverage to everyone (well, almost everyone) and to control health care spending. Because of design defects, tens of millions will be left uninsured, and tens of millions more will be have inadequate coverage, leaving them vulnerable to health care costs — certainly falling short of what should have been our goals in expanding coverage.

Regarding controlling spending, the experimental innovations to date have had little impact in reducing wasteful spending but rather seem to have slowed health care costs by erecting financial barriers to beneficial health care services. Not only did the designers fail to use this opportunity to reduce the profound administrative waste unique to the U.S. health care financing system, they added significantly to this waste, as this study demonstrates.

Single payer would fix these problems. Administrative waste would be dramatically reduced and the savings would be used to expand coverage to absolutely everyone while eliminating financial barriers to care. We simply need the political resolve to do it.