Novartis to test new pricing model with heart failure drug

By Ben Hirschler
Reuters, June 30, 2015

Novartis plans to test a novel pricing model with some customers when it launches its keenly awaited new heart failure drug Entresto, the Swiss company’s head of pharmaceuticals said on Tuesday.

Entresto, also known as LCZ696, is the first new drug in decades for helping patients whose lives are in danger because their hearts cannot pump blood efficiently. As a result, it is widely expected to generate billions of dollars in annual sales.

How the product should be priced, however, is a dilemma for Novartis, since the company wants to reach as many patients as possible and it knows it will be competing with very cheap – though less effective – older medicines.

David Epstein said he was talking to several healthcare customers about a system under which they would get the drug at a discount but then pay Novartis more if, as expected, it successfully reduces the need for costly hospital visits.

“We are beginning to share the risk,” he said in an interview.

The idea of moving from a simple pay-per-pill model to one based on clinical outcomes is being considered by several drugmakers, and Novartis already has such a system in place for one customer using its multiple sclerosis drug Gilenya.

But Entresto could be an important test case because the drug will push up immediate drug costs markedly for a large number of patients, while having the potential to reduce their long-term medical bills.

The issue of drug pricing has come to a head recently, thanks to the launch of extremely expensive new medicines for cancer and hepatitis C, which are straining healthcare systems and adding to co-payment costs for patients.

Epstein, whose team is in the final stages of deciding the price for Entresto, declined to detail a likely cost per pill. But he said it would take into account “cost offsets”, such as fewer hospitalizations, as well as the value added from improving patients’ lives.

“We going to try and be fair and reasonable,” he said.

http://in.reuters.com/article/2015/06/30/us-novartis-heart-idINKCN0PA1N720150630

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Cost-Offsets of Prescription Drug Expenditures: Data Analysis Via a Copula-Based Bivariate Dynamic Hurdle Model

By Partha Deb, Pravin K. Trivedi and David M. Zimmer
Health Economics, October 2014

Summary

In this paper, we estimate a copula-based bivariate dynamic hurdle model of prescription drug and nondrug expenditures to test the cost-offset hypothesis, which posits that increased expenditures on prescription drugs are offset by reductions in other nondrug expenditures. We apply the proposed methodology to data from the Medical Expenditure Panel Survey, which have the following features: (i) the observed bivariate outcomes are a mixture of zeros and continuously measured positives; (ii) both the zero and positive outcomes show state dependence and inter-temporal interdependence; and (iii) the zeros and the positives display contemporaneous association. The point mass at zero is accommodated using a hurdle or a two-part approach. The copula-based approach to generating joint distributions is appealing because the contemporaneous association involves asymmetric dependence. The paper studies samples categorized by four health conditions: arthritis, diabetes, heart disease, and mental illness. There is evidence of greater than dollar-for-dollar cost-offsets of expenditures on prescribed drugs for relatively low levels of spending on drugs and less than dollar-for-dollar cost-offsets at higher levels of drug expenditures.

http://onlinelibrary.wiley.com/doi/10.1002/hec.2982/abstract

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Comment:

By Don McCanne

With the marketing success of outrageously priced drugs, the pharmaceutical industry is now devising schemes to be sure that their new products that are protected by patents will continue to be introduced with similar outrageous prices. This concept of adding “cost offsets” to the pricing is not new, but it now has a label that supposedly legitimizes its inclusion in pricing decisions.

In the past, pharmaceutical firms have cited the high costs of drug research as an excuse for high prices of new products (though the high prices of the past were nothing compared to the five and six digit prices of today’s new products). As the public discovers that the drug industry’s advertising budgets are typically three times their research budgets, and much of the research is funded through government programs such as those of the NIH, the firms apparently have decided that this argument is no longer as persuasive, and so they have to find another reason to justify outrageous pricing.

“Cost offsets” is a convenient label for adding to the the research, marketing, administration and profit costs of the products. These “cost offsets” include such concepts as money saved by fewer hospitalizations, fewer expensive interventions for progression of disease processes, and for the added value of prolonged lives or the added value of higher quality lives.

Think about that. What gall it takes for these pooh-bahs of the pharmaceutical world to suggest that they are entitled to capture, for themselves, not just the costs and legitimate profits, but the value of the benefits of their products, through higher consumer prices, whether paid individually or through some form of public or private insurance.

This perverse type of thinking is not limited to Novartis’ David Epstein. Bayer’s Marijn Dekkers 18 months ago said, about their expensive cancer drug, Nexavar, “we did not develop this product for the Indian market – let’s be honest – we developed this product for Western patients who can afford this product, quite honestly.” 

Perhaps more despicable is this entry from a draft of the infamous Trans-Pacific Partnership Agreement, which contains the following in its statement of principles: “(d) the need to recognize the value of pharmaceutical products and medical devices through the operation of competitive markets or by adopting or maintaining procedures that appropriately value the objectively demonstrated therapeutic significance of a pharmaceutical product or medical device.”

Not only did the pharmaceutical industry buy off Congress when they went the route of the market-based Affordable Care Act instead of an efficient single payer Medicare for all, they have demonstrated to us that their primary goal is to achieve the greatest returns for their executives and shareholders no matter the cost to the ultimate consumers – the patients.

There could not be an industry that cries out more for government intervention to protect consumers than the pharmaceutical industry (oh wait, the private insurance industry, of course, but that’s another topic). Many suggest that it is time to demand negotiation of drug prices, or even to dictate fair prices. But should that be our opening position? How about calling for nationalization of the industry, at least their U.S. subsidiaries. That should get their attention. They have to know that we’re serious about wanting relief from their greed.

Towers Watson merges with London-based consulting firm in $18 billion deal

By Aaron Gregg
The Washington Post, June 30, 2015

Towers Watson, the Arlington-based professional services company that operates a private health insurance exchange covering about 1.2 million people, announced an $18 billion all-stock merger with Willis Group Holdings, a London-based insurance and benefits firm.

The merger is the latest in a series of what Willis chief executive Dominic Casserley called “carefully targeted mergers and acquisitions” to expand his company’s international footprint. Last month, Willis Group acquired Evolution Benefits Consulting, a Pennsylvania health and welfare benefits advisory firm, and in late April it announced it would fully acquire Gras Savoye, one of France’s largest insurance brokerage firms.

Casserley said in a news release that the new company “will advise 80 percent of the world’s top-1,000 companies,” operating as a one-stop shop for large employers managing complex aspects of their human resources mix, benefits such as employer-provided health insurance and a range of other costs that affect companies’ bottom lines.

Because the new company will be based in Ireland, Towers Watson’s corporate tax rate will drop from 34 percent to a projected 25 percent.

This merger “is driven by business purpose, not from a tax planning standpoint but from serving customers,” said John Greene, chief financial officer of Willis. “The tax benefits that are derived just happen to be a nice consequence of the transaction.”

Towers Watson Chairman John Haley will lead the new company as chief executive, and Casserley will serve as president and deputy chief executive of the new company, which will operate under the name Willis Towers Watson.

Casserley said in a conference call that the merger was first conceived while Willis worked in partnership with Towers Watson on a health exchange.

The exchange “has rapidly grown to serve more than 1 million members in the United States,” Casserley said. “Many independent analysts believe that this is just the start, and that the business is at an inflection point, with the total market likely to grow significantly within five to seven years.”

http://www.washingtonpost.com/business/capitalbusiness/towers-watson-merges-with-london-based-consulting-firm-in-18-billion-deal/2015/06/30/747118e2-1f5a-11e5-aeb9-a411a84c9d55_story.html

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Comment:

By Don McCanne, MD

This mega-merger of benefits consulting firms is designed to capture the rapidly expanding market in private health insurance exchanges. Why should we be concerned?

The Affordable Care Act (ACA) was designed to protect the sectors of health care coverage that allegedly were functioning well – especially employer-sponsored health care plans. The greater changes enacted in ACA were aimed at the much smaller sector of dysfunctional individual and small group plans, plus expanding Medicaid for low-income individuals and families.

So how has it gone for the stable, well functioning employer-sponsored plans? Not so well. Even though there has been some slowing in the increase in health care costs, the increases have been in excess of inflation, and there appears to be a return to an accelerating pace of cost increases. Most employers are very concerned about the costs of their employee benefit packages, and they are already taking action to slow their nominal portion of the increases (though most economists contend that the employers’ portion is actually paid by the employees in forgone wage increases).

The most important measure already taken by many employers is to increase cost sharing, especially by requiring high deductibles that must be paid before most benefits kick in. This reduces the insurance premiums (or the contributions to the self-insured health trust) for the employer-sponsored plans since a significant portion of actual health care spending is shifted to the employees and their families. Other innovations such as tiering of drugs also shift more costs away from the employer. Plan beneficiaries also are reducing their utilization of beneficial health care services when they are exposed to high deductibles – a perverse disincentive that reduces spending.

The use of narrower provider networks also helps to reduce the employers’ contribution to health care payments. The employers’ representatives are able to contract for lower provider rates in exchange for a promise of oligopolistic exclusivity. Also the responsibility for payment of costs for care obtained outside of the networks is shifted almost entirely to the employees. In addition, providers known for managing expensive chronic disorders can be excluded from the networks, impairing the ability of patient beneficiaries to obtain the care that they need.

The employers are still not satisfied. Some are now beginning to implement the use of private insurance exchanges. In this model, the employer no longer offers an employer-sponsored health plan but instead provides the employee with a voucher or voucher-equivalent to purchase from a selection of plans in the private insurance exchanges. Since the value of the voucher is fixed, the employee must bear the additional costs of plans that have greater benefits. Thus this is a shift from a defined benefit program to a defined contribution program; by controlling the value of the voucher, the employer is able to shift much of the future health care cost increases onto the employees.

If you look at the insurance exchanges set up by ACA, you will see that the standard plans are low actuarial value plans. The benchmark silver plan has an actuarial value of 70 percent – the patient is responsible for paying an average of 30 percent of the costs (though many qualify for subsidies). The bronze plans have an actuarial value of only 60 percent. Employer-sponsored plans formerly had an actuarial value closer to 90 percent, but with the plans offered in the private exchanges, employees usually will select plans that the voucher will cover. This is a great opportunity for employers to gradually shift the value of the voucher so that it would cover 60 or 70 percent actuarial value plans, just like in the ACA exchanges (except that no government subsidies would be available for the private exchange plans).

This move to private insurance exchanges represents a tremendous business opportunity for benefits consulting terms, as today’s article indicates (not to mention offshoring to Ireland!) That’s just what we need: more administrative complexity and costs in our system already tremendously overburdened with administrative excesses. These benefits consulting firms are selling health insurance products without bearing any of the insurance risk of those products. The private insurers, with all of their administrative waste and insurance product perversions, remain prominent players in the system.

These benefits consulting firms tout choice. The employees are free to upgrade to a high actuarial value Cadillac health plan if they so desire. Little does it matter that most of them have hardly enough funds to be able to purchase a low actuarial value roller-skate health plan.

As if the deterioration in employer-sponsored plans has not already been enough, this switch to using a defined contribution voucher in private insurance exchanges will be a disaster for affordable health care for employees and their families.

Rather than accelerating the move toward private health insurance exchanges, we need to accelerate the transition to a single-payer improved Medicare for all program. Or do we just sit back and watch people go broke and suffer?

‘Subsidies upheld, but health needs still unmet’: doctors group

Physicians for a National Health Program, June 25, 2015

Although the Supreme Court has upheld the premium subsidies under the Affordable Care Act, the law remains incapable of remedying the U.S. health crisis, physician group says

Physicians for a National Health Program, an organization of 19,000 doctors who support single-payer national health insurance, released the following statement today:

Today’s decision by the Supreme Court in King v. Burwell to uphold the Affordable Care Act’s premium subsidies in about three dozen states will spare more than 6 million Americans the health and financial harms associated with the sudden loss of health insurance coverage.

For that reason alone the decision must be welcomed: Having health insurance is better than not having coverage, as several research studies have shown.

That said, the suffering that many Americans are experiencing today under our current health care arrangements is intolerable, with approximately 35 million people remaining uninsured, a comparable number underinsured, and rapidly growing barriers to medical care in the form of rising premiums, copayments, coinsurance and deductibles, and narrowing networks.

The unfortunate reality is that the ACA, despite its modest benefits, is not a remedy to our health care crisis: (1) it will not achieve universal coverage, as it will still leave at least 27 million uninsured in 2025, (2) it will not make health care affordable to Americans with insurance, because of high copays, deductibles and gaps in coverage that leave patients vulnerable to financial ruin in the event of serious illness, and (3) it will not control costs.

Why is this so? Because the ACA perpetuates a dominant role for the private insurance industry. Each year, that industry siphons off hundreds of billions of health care dollars for overhead, profit and the paperwork it demands from doctors and hospitals; denies care in order to increase insurers’ bottom line; and obstructs any serious effort to control costs.

In contrast, a single-payer system – an improved Medicare for All – would achieve truly universal care, affordability, and effective cost control. It would put the interests of our patients – and our nation’s health – first.

Single payer is simple: everyone in the U.S. would be covered for all medically necessary care in a single program financed by equitable taxes.

By replacing multiple private insurers with a single, nonprofit agency like Medicare that pays all medical bills, we would save approximately $400 billion annually by slashing the administrative bloat in our current private-insurance-based system. That money would be redirected to clinical care. Copays, coinsurance and deductibles would be eliminated.

Further, such a single, streamlined system would be able to rein in costs for medications and other supplies through the system’s strong bargaining clout – again, to our patients’ benefit.

A single-payer system would also be legally robust.

Because of the ACA’s administrative complexity and flaws – largely reflecting its accommodation to the private health insurance industry and other corporate, profit-oriented interests in U.S. health care – it is particularly vulnerable to the kind of legal challenge we saw today.

Our patients, our people and our national economy cannot wait any longer for an effective remedy to our health care woes. The stakes are too high. We need to move beyond the administratively wasteful, complex and inadequate ACA to a more fundamental, rational single-payer national health program.

Contrary to the claims of those who say we are “unrealistic,” a single-payer system is within practical reach. The most rapid way to achieve universal coverage would be to improve upon the existing Medicare program – which is celebrating its 50th anniversary this year, showing it has stood the test of time – and expand it to cover people of all ages. There is legislation before Congress, notably H.R. 676, the “Expanded and Improved Medicare for All Act,” which would do precisely that.

What is truly unrealistic is believing that we can provide universal and affordable health care in a system dominated by private insurers and Big Pharma.

The American people desperately need a universal health system that delivers comprehensive, equitable, compassionate and high-quality care, with free choice of provider and no financial barriers to access. Polls have repeatedly shown an improved Medicare for all, which meets these criteria, is the remedy preferred by two-thirds of the population. A solid majority of the medical profession now favors such an approach, as well.

We pledge to step up our work for the only equitable, financially responsible and humane cure for our health care ills: single-payer national health insurance, an expanded and improved Medicare for all.

https://www.pnhp.org/news/2015/june/%E2%80%98subsidies-upheld-but-health-needs-still-unmet%E2%80%99-doctors-group

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Comment:

By Don McCanne, MD

Before the release of the Supreme Court decision on King v. Burwell, there was extensive speculation on the relatively narrow topic of what would happen if some individuals lost their subsidies for purchasing plans in the insurance exchanges. Following the decision supporting the subsidies, much of the reporting has shifted to the view that the Affordable Care Act (ACA) is here to stay; the inherent infrastructure of ACA will guide further reform. Unfortunately, this framing of the issues has diverted us from the conversation that we need to be having.

When considering what needed to be done, ACA fixed very little of our health care financing system. This victory being celebrated now upheld premium subsidies that will allow less than two percent of the population to keep their ACA exchange plans – mostly low-actuarial-value underinsurance plans. To characterize this as the make-or-break Supreme Court decision for health care reform is entirely missing the essence of an equitable health care financing system.

On the day that the Supreme Court decision was announced, a link to the PNHP statement was included in the Quote of the Day message. That was not enough. The PNHP statement does catch the essence of the problem and thus is being distributed in full as today’s message. It should be shared widely with others since true health care equity is what the nation now needs to be talking about.

Justice Scalia, dissenting

Supreme Court of the United States, No. 14-114, King v. Burwell

(The following paragraphs are not in continuity in the dissent.)

Faced with overwhelming confirmation that “Exchange established by the State” means what it looks like it means, the Court comes up with argument after feeble argument to support its contrary interpretation. None of its tries comes close to establishing the implausible conclusion that Congress used “by the State” to mean “by the State or not by the State.”

The Court’s next bit of interpretive jiggery-pokery involves other parts of the Act that purportedly presuppose the availability of tax credits on both federal and state Exchanges.

The Court persists that these provisions “would make little sense” if no tax credits were available on federal Exchanges. Ante, at 14. Even if that observation were true, it would show only oddity, not ambiguity.

The Court claims that the Act must equate federal and state establishment of Exchanges when it defines a qualified individual as someone who (among other things) lives in the “State that established the Exchange,” 42 U. S. C. §18032(f)(1)(A). Otherwise, the Court says, there would be no qualified individuals on federal Exchanges, contradicting (for example) the provision requiring every Exchange to take the “‘interests of qualified individuals’” into account when selecting health plans. Ante, at 11 (quoting §18031(e)(1)(b)). Pure applesauce. 

The Court has not come close to presenting the compelling contextual case necessary to justify departing from the ordinary meaning of the terms of the law. Quite the contrary, context only underscores the outlandishness of the Court’s interpretation. Reading the Act as a whole leaves no doubt about the matter: “Exchange established by the State” means what it looks like it means.

On the other side of the ledger, the Court has come up with nothing more than a general provision that turns out to be controlled by a specific one, a handful of clauses that are consistent with either understanding of establishment by the State, and a resemblance between the tax-credit provision and the rest of the Tax Code. If that is all it takes to make something ambiguous, everything is ambiguous.

The Court protests that without the tax credits, the number of people covered by the individual mandate shrinks, and without a broadly applicable individual mandate the guaranteed-issue and community-rating requirements “would destabilize the individual insurance market.” Ante, at 15. If true, these projections would show only that the statutory scheme contains a flaw; they would not show that the statute means the opposite of what it says.

So even if making credits available on all Exchanges advances the goal of improving healthcare markets, it frustrates the goal of encouraging state involvement in the implementation of the Act. This is what justifies going out of our way to read “established by the State” to mean “established by the State or not established by the State”?

Worst of all for the repute of today’s decision, the Court’s reasoning is largely self-defeating. The Court predicts that making tax credits unavailable in States that do not set up their own Exchanges would cause disastrous economic consequences there. If that is so, however, wouldn’t one expect States to react by setting up their own Exchanges? And wouldn’t that outcome satisfy two of the Act’s goals rather than just one: enabling the Act’s reforms to work and promoting state involvement in the Act’s implementation? The Court protests that the very existence of a federal fallback shows that Congress expected that some States might fail to set up their own Exchanges. Ante, at 19. So it does. It does not show, however, that Congress expected the number of recalcitrant States to be particularly large. The more accurate the Court’s dire economic predictions, the smaller that number is likely to be. That reality destroys the Court’s pretense that applying the law as written would imperil “the viability of the entire Affordable Care Act.”

Perhaps sensing the dismal failure of its efforts to show that “established by the State” means “established by the State or the Federal Government,” the Court tries to palm off the pertinent statutory phrase as “inartful drafting.” Ante, at 14. This Court, however, has no free-floating power “to rescue Congress from its drafting errors.”

It is entirely plausible that tax credits were restricted to state Exchanges deliberately—for example, in order to encourage States to establish their own Exchanges. We therefore have no authority to dismiss the terms of the law as a drafting fumble.

Our only evidence of what Congress meant comes from the terms of the law, and those terms show beyond all question that tax credits are available only on state Exchanges. More importantly, the Court forgets that ours is a government of laws and not of men. That means we are governed by the terms of our laws, not by the unenacted will of our lawmakers.

Much less is it our place to make everything come out right when Congress does not do its job properly. It is up to Congress to design its laws with care, and it is up to the people to hold them to account if they fail to carry out that responsibility.

Congress could also do something else altogether, entirely abandoning the structure of the Affordable Care Act. The Court’s insistence on making a choice that should be made by Congress both aggrandizes judicial power and encourages congressional lassitude.

The Act that Congress passed makes tax credits available only on an “Exchange established by the State.” This Court, however, concludes that this limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare.

And the cases will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.

I dissent.

http://www.supremecourt.gov/opinions/14pdf/14-114_qol1.pdf

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Justice Scalia is the Supreme Court’s real loser in Obamacare ruling

By William Yeomans
Reuters, June 26, 2015

It is reasonable to suspect that Scalia’s distaste for the Affordable Care Act, which likely inclined him to bring it down rather than save it, made his textual argument easier for him to make here.

William Yeomans served as Senator Edward M. Kennedy’s chief counsel on the Senate Judiciary Committee and as a Justice Department official.

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Political Polarization in the American Public

Pew Research Center, June 12, 2014

Overall, the public is divided over how far the government should go in providing health care. About half (47%) say the government has a responsibility to make sure all Americans have health care coverage, while 50% say that is not the responsibility of the federal government.

While half say it isn’t the government’s responsibility to make sure all have health care coverage, relatively few want the government to get out of the health care system entirely. Rather, 43% say it’s not the government’s responsibility to ensure health care coverage for all, but believe the government should “continue programs like Medicare and Medicaid for seniors and the very poor.” Only 6% of Americans go so far as to say the government “should not be involved in providing health insurance at all.”

Even among consistent conservatives, there is minimal support for the government having absolutely no role in providing health care. Three-quarters of consistent conservatives (75%) say the government should continue Medicare and Medicaid while just 20% think the government should not be involved in providing health insurance.

http://www.people-press.org/2014/06/12/section-4-political-compromise-and-divisive-policy-debates/

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Comment:

By Don McCanne, MD

In his dissent, Justice Antonin Scalia placed the importance of a negligible textual drafting error over the importance of the clear intent of the Affordable Care Act (ACA) to expand health care coverage to more people while trying to keep insurance affordable. With a full reading of both the majority opinion and Scalia’s dissent, it is clear that Justice Scalia’s opposition was based on ideology, with only token references to law. That is likely true with Justices Thomas and Alito as well, although they did not explain the basis of their votes.

When the same set of justices review the same laws in arriving at their decisions, yet quite consistently align themselves in two different camps, it is difficult to draw any conclusion other than that the decisions are being based primarily on ideology.

This divide also permeates not only Congress but the entire nation as revealed last year by the Pew Research Center in their comprehensive study of political polarization.

It is difficult for those of us who are ideologically inclined to support social justice goals, such as health care for everyone, to understand those who are opposed. Many try to give both views equal credibility, yet when standing for a principle such as universal health care, it is difficult to assign the same cogency to a view in opposition.

The Pew study suggests that there is greater agreement on the fundamental moral principles  such as ensuring health care coverage. Three-fourths of conservatives say that the government should continue Medicare and Medicaid. Yet half of the nation continues to support politicians who campaign using conservative and libertarian rhetoric.

We have been traveling the last ten days and have engaged in many conversations with individuals holding widely varying political views. Specifically on health care, those opposed to reform seemed to explain their positions through empty rhetorical memes such as those that are frequently present in the selected Fox News programs that are ideologically biased. In attempting to ferret out the reasoning behind these statements, it seemed to me that these individuals were not well informed on actual facts and policy implications, often admitting that they didn’t understand the details. This in no way is meant to criticize them but rather is an observation that many important principles of reform have not been widely distributed to the public.

But can we assume that Justice Scalia did not understand the adverse consequences that his warped interpretation of the intent of ACA would potentially have on the health of millions of Americans? Does it not represent an uncaring view when he ridicules the majority decision with terms such as “jiggery-pokery,” “pure applesauce” and “SCOTUScare”? It is very difficult to assume that there is no fundamental ethical transgression here.

Politicians frequently bury their advocacy for harmful public policies under rhetorical memes, thereby hiding their support for the rich and powerful. But the public at large? When they understand the issues, they do seem to support doing the right thing. But all too often it seems too easy for them to accept and spread the rhetoric assuming that there is not much more behind the memes which represent “the truth,” and thus it is not worth their time to learn more.

Living in Orange County, many of our friends are conservative. Most of them do support health care for everyone, just as, nationally, three-fourths of conservatives support Medicare and Medicaid. Wouldn’t it be nice if, after some introspection, caring conservatives selected candidates who do share their values on health care for all? Maybe some of the politicians already do and would gladly change their rhetoric if they thought their constituents agreed.