July 2013 Archives


The pharmaceutical industry - collectively and often individually - has tarnished its own reputation through unethical commercial practices such as off label promotions, bribery in China, covering up (or at best, not being as forthright as they might have been) safety concerns, and manufacturing problems leading to massive recalls. Besides creating their own problems, other players in the healthcare industry have pointed the finger of blame at pharma companies as a major cause of runaway costs.

Pharma companies are constrained in what they can say and how they communicate with key stakeholders such as the public or physicians. Whether they are marketing a particular product, or the company as a whole, they are limited by regulations and their message is likely to fall upon a skeptical (if not hostile) audience. Any attempt to get their own message out is undermined by the perception that they are greedy and self-serving.

While there has been increasing pressure for companies to publish all of their clinical trial data for some time, they can at least control the timing and method of its release. The publishing of data could be timed with the news cycle to enhance positive news and downplay anything that might harm the company's reputation.

Today, however, much of the data about marketed products is generated and stored beyond the control of the manufacturers, whose ability to manage their reputation is further weakened. As real-world evidence becomes more pervasive - and a more critical component of reimbursement decisions - control of that data will reside with payers, providers, and analysts more than with Pharma manufacturers.

Additionally, considering the abundance of unstructured and often non-validated data communicated about a product through "new media" such as health-care chat rooms, blogs, Facebook, and Twitter, it is easy to see how reputation management has become increasingly difficult for manufacturers to influence - let alone control.

Healthcare is one of the most popular topics discussed on the Internet. Chat rooms are full of patients, caregivers, and physicians discussing diseases, treatments, and side effects - all unregulated and often non-validated. While Pharma companies can monitor what people are saying, there's very little regulatory guidance on how they can and should participate. How should they be able to address misinformation? Do they have a duty to report side effects discussed in a chat room?

How Pharma companies manage their reputation in a world where the data is out of their control will be an increasing focus in the years ahead.


Across many categories, the US is exceptional. A few notable examples: we have one of the highest statutory corporate tax rates in the industrialized world; Americans spend more on health care than any other developed nation; and the American welfare state, compared to countries of similar wealth, is relatively small (and more targeted). One can argue back and forth about the merits of these points - for instance, those leaning left would certainly support high (and higher) tax rates on corporations; opponents on the right, however, see these as inefficient and as a drag on the economy. Similarly, ideological perspectives can color one's position on the latter two points as well.

Yet, you would be hard-pressed to find someone of any political stripe who thinks that the uniquely American concept of employer-sponsored health insurance is, on net, good or helpful to the American health care system. Tracing its roots to a poorly-devised Great Depression-era tax break (which allowed employers to treat spending on health insurance as wages, thus being able to deduct it from their taxes - the kicker is that now, health insurance spending is more valuable than wages because health insurance dollars aren't subject to payroll taxes), the American health insurance scheme rests primarily on the insurance that employers purchase for their employees - over 160 million Americans receive insurance in this manner.

This creates a whole host of unintended consequences ranging from bad to very bad to terrible (as is common with many government regulations). For starters, economists tend to agree that employer-provided health insurance tends to depress wages. Because employer-paid premiums are paid pre-tax, the federal government also loses about $250 billion annually from foregone tax revenue. But this isn't all. Employer-sponsored health coverage contributes to a phenomenon known as "job lock," where people remain in a job primarily for the health insurance. This means that the allocation of labor becomes less efficient than it otherwise would be. Lastly, there is a good deal of literature on how relatively generous employer coverage leads to greater health care utilization, which in turn leads to higher health care prices. In short, while employers should certainly be allowed to offer fringe benefits to their workers, it makes little sense to subsidize it through the tax code - after all, health insurance is no better if purchased by an employer than if purchased by an individual.

For all the negative impacts of employer-sponsored health insurance, the "job lock" phenomenon does have one positive effect - it keeps people in the labor force and working. This isn't to insinuate that perhaps the downsides are somehow balanced out - they aren't - but simply to point out a fact. Employer-provided insurance does increase the incentive to remain in the labor force. And a recent paper from researchers at Northwestern University, the University of Chicago, and Columbia attempts to gauge the impact of the Affordable Care Act's (ACA's) insurance expansion on labor supply.

At the core of the ACA are two forms of insurance expansion - one which expands Medicaid, and the other which creates the first ever national system of publicly subsidized health insurance (to be sold through exchanges). The basic functions of the exchanges should be clear to most readers of this blog by now - individuals with incomes between 100% and 400% of the Federal Poverty Line (FPL) will receive federal subsidies for the purchase of individual health coverage through state exchanges. Those below 139% of FPL, depending on the state they live in, may be eligible for expanded Medicaid coverage (which is effectively free for the individual). As the study's authors note, "The ACA will weaken the link between employment and health insurance through the creation of a series of state-based individual insurance exchanges."

For their analysis, the authors make use of an understudied natural experiment. To make a long story short, in 2005, Tennessee discontinued the expansion of its Medicaid program (TennCare), disenrolling about 170,000 people from the program. Because the population that lost coverage with the TennCare disenrollment is relatively similar to the population that is likely to gain coverage under the ACA (more than that, TennCare was similar in some levels to the ACA, as the program also provided income-based subsidies on a sliding scale, accounting for the possibility of a marginal tax cliff), the behavior of Tennessee's labor market post-disenrollment appears to be a decent indication for what we may see under the ACA.

So what do the study's authors discover? Based on their analysis, the TennCare disenrollment resulted in a huge employment increase of about 6 percent (the authors conduct additional analysis to ensure that. Applying their results to the US as a whole, accounting for the ACA, the authors estimate a 0.3 to 0.6 percentage point decrease in employment - at a time when we quibble about 7.5 percent versus 7.6 percent unemployment, these numbers are highly significant - between 530,000 and 940,000 people.

Does this study, then, condemn the ACA as a disastrous job killer? Not quite. Certainly, the ACA's (now delayed) employer mandate will likely lead to reduced hours (involuntary part-time employment) and may reduce the total size of the workforce. But this study looks at the ACA not from the perspective of labor demand, but rather in terms of labor supply - that is, given a certain subsidy level, whether or not a person will decide to participate in the workforce. If the weakened link between employment and health insurance means that it is no longer beneficial for someone to keep working, then he will stop working. There is no implication of "welfare loss" for the individual.

And perhaps it is best to view this exit from the labor force as something of a necessary evil. If enough workers choose to drop out of the labor force because the ACA has weakened the work incentive (more precisely, it will displace the incentive coming from relatively cheap health insurance), then over the long-run, wages should rise to compensate for the diminished incentive. This could only be a good deal for workers and the economy as a whole, as workers will have higher cash wages (which would bring more revenues to government) and health care would no longer be an obstacle to switching jobs.

But more broadly, the "job lock" phenomenon (the authors are careful to call it "employment lock" because they focus on the actual decision of whether or not to participate in the labor market) presents a problem for any type of health care reform. Even more conservative reforms, such as universal HSAs, would likely result in reduced labor force participation. The problem when it comes to the ACA, however, is that many of the beneficiaries will already have high marginal tax rates as a result of other public programs - the ACA simply adds to it (though to a lesser extent than other programs).

Moreover, when it comes to the ACA, there is also a real potential for increased job lock. The employer mandate (which requires companies with more than 50 full-time equivalent employees to offer health insurance) ensures that the majority of the US will remain on employer-based plans, and those who receive newly-minted insurance through their employers (assuming they keep their hours and their jobs) will have less incentive to switch jobs. The mandate was likely included simply as a way to discourage employers from dumping workers onto the exchanges (to keep the cost of the law down); while it may do so, it also reinforces the unhealthy link between a job and health insurance.

Perhaps the best course for policymakers would be to pursue an end to tax-favored treatment of employer-sponsored health insurance. It would be an uphill battle, but ending the deduction would make concerns such as these largely moot - to much of the country's benefit.  


Having survived six years of stage-4 colon cancer, the last thing my dear friend Jim Capuano needed last summer was a grand mal seizure followed by a ten-day medically induced coma, from which he miraculously awoke.

And it was preventable. He was a victim of the West Nile virus, which is spread by mosquitos--the same mosquitos that shouldn't have been there in the first place.

We are both long-time summer residents of Ocean Beach, one of the 17 communities on Fire Island, a barrier beach off the south shore of Long Island. As an incorporated village, Ocean Beach has the authority to opt out of the mosquito control program that is conducted annually by the Suffolk County Department of Health. So, for decades, while virtually every other community on Fire Island (not to mention vast areas of Long Island and New York City) had been getting sprayed, Ocean Beach was not.

For years the village played Russian roulette with West Nile. Last year there was a bullet in the chamber.

But the culprit is not the village--it is chemophobia, the irrational fear of all chemicals. And it was this fear that drove Ocean Beach to make a series of poor decisions over the years. And who could blame them?

Earlier this week, residents of Westhampton Beach were seen running into their houses after Suffolk County sprayed their town with Anvil without advance warning. So, what were they running from? The answer is nothing.

As a former organic chemist, I know firsthand how important it is to be aware of which chemicals are dangerous and which are not. Our lives depend on this. Anvil is most definitely not, yet you would not know this from the hyper-precautionary notice from Suffolk County.

Among other things, they advise you to close all your windows and doors, for 30 minutes, wash clothing that comes into contact with the spray separately from other clothing and bring all homegrown vegetables inside and scrub them with detergent. No wonder people are scared. This sounds like chemical warfare.

But it is nothing of the sort. In fact, it's quite the opposite.


Anvil is virtually non-toxic to mammals (including humans). Based on rat toxicology (an imperfect, but still useful method of estimating human toxicity), a lethal dose for people would be roughly 350 grams--about 12 ounces--if you drank it. Just for comparison, the minimum lethal dose of Tylenol in humans is about 8 grams.

Nor is the chemical in any way, shape, or form a carcinogen. Anvil fails to even make it onto California's Proposition 65 list of carcinogens and reproductive toxins, which includes dozens of common substances, including alcohol, Valium, and tetracycline.

Ironically, Anvil, on a scale of 0 to 5 (with 5 being the most toxic) falls into health category #1--"May Be Irritating." Yet, both DEET, which we constantly spray all over our bodies, and citronella, which we breathe when we light anti-mosquito candles, are in category #2--"May be harmful if inhaled or absorbed."

Does it really make any sense to put a more toxic (albeit still mostly safe) chemical on you rather than spray a less toxic one on the bugs? Keeping in mind that the active component of Anvil, sumithrin, is used in flea and tick collars, and directly on your child's scalp for head lice, is this really something to worry about?

No, it's not--something that we wish Ocean Beach had realized years ago.

This awful episode, however, did serve a purpose. It helped people to reevaluate the way they view risk vs. benefit--the heart of this issue. In this case the risk of not spraying far outweighed the risk of spraying--something that can only be gauged by examining the actual science--rather relying on fear, emotion and hyperbole.

And the story actually ends well.

After listening to us speak at a recent town meeting, the Ocean Beach board of directors wisely changed the longstanding policy. Ocean Beach will be sprayed today.

And in two weeks, Jim will be pitching in the 9th Annual Ocean Beach Softball Tournament. Even though we will be on different teams it will be hard to root against him.

Note: To see ACSH's Director of Videography, Ana Simovaka's poignant interview of Jim, click here.


Dr. Scott Gottlieb recently wrote an article in Forbes asserting that governmental healthcare agencies such as CMS are practicing medicine by asserting "their own clinical judgment about when and how seniors get access to new medicines." He argues that CMS extracts concessions from manufacturers by preemptively making their displeasure about new innovations known. Dr. Gottlieb portrays manufacturers as powerless in the face of an overzealous bureaucracy determined to cut spending with no consideration of the impact on innovation and patient care.

The pharmaceutical and medical device industry is not powerless to counteract this downward pressure on price constraints for new products. We know payers (government and private) are seeking to reduce costs any way they can. In the absence of any evidence that the new products deliver a commensurate improvement in outcomes, the agencies are acting rationally in considering cost as the sole determinant of value. Pharmaceutical and medical device manufacturers need to develop and present compelling data as evidence of the value of their product if they want to be reimbursed at all -- let alone at higher levels than existing treatments. This presents two significant challenges manufacturers must address.

First, they need to generate compelling data to support the economic and clinical value of their products. In the case of the Sapien aortic valve replacement that Dr. Gottlieb cites, the increased cost of the product and procedure is offset by the reduced risk of infection, shorter hospital stay and greater patient satisfaction achieved by minimally invasive surgery as opposed to conventional invasive open-heart repair. Edwards Lifesciences -- the manufacturer -- has to demonstrate not a product to product cost comparison, but that the total value of its offering is greater than that of alternative treatment options. In many cases the research methodology necessary to produce this data is different from the randomized clinical trials (RCT) that of been used to gain regulatory approval of the product. New skills and capabilities are needed to develop data based on real world evidence (RWE) and comparative effectiveness research (CER).

Second, companies will need to do a better job communicating the value supported by this new evidence. For a long time manufacturers have allowed others to control the narrative, to portray them as greedy and uncaring. This impression is enhanced when manufacturers behave in a manner that leads to substantial fines and product withdrawals due to avoidable marketing malfeasance (e.g., numerous off-label promotion verdicts), manufacturing lapses (e.g. J&J recently) and poor decisions relating to safety issues (e.g., covering up or not publishing poor data).

Bad news such as fines and consent decrees travels louder, faster and further (and sells more media) than the good news that comes from the development of new medicines and products that improve patient lives. Manufacturers have to share data about their products' value more clearly and work to take the reins of public perception back. Leveraging patient advocacy groups, the media and others can influence decision makers -- but this is only a viable strategy if you have the data supporting your product.

The pressures to reduce reimbursement are real. The best defense is to get data supporting the economic and clinical value of your product and then aggressively get that data out to convince the decision makers.



It is hard to write legislation that is free of unintended consequences. It's that much harder for larger bills and it gets even more difficult for bills that are debated quickly and passed using backroom deals to secure key votes. Enter the 906 pages of the Affordable Care Act (ACA), or Obamacare.

Consider the employer mandate. The ACA says employers with more than 50 employees must provide affordable and comprehensive coverage to all full-time employees (i.e., 30+ hours per week). What does affordable coverage mean? According to the ACA, it means that insurance premiums must not exceed 9.5% of an employee's family income. If the premiums exceed the 9.5% level, the employee may purchase insurance through a Health Insurance Exchange, where the employee might be eligible for subsidies.

Let's say you are an employer who wants to provide employer-sponsored insurance (ESI) to your higher income employees, but not to your lower income employees. Obamacare provides you with the perfect solution. You simply need to ensure that the insurance you provide is sufficiently expensive so that it is above the 9.5% threshold for at least the lower income employees. (Note: this doesn't fit with the bill's "affordable" moniker, does it?)

The ACA allows for employees who face this expensive coverage to opt out of their ESI and purchase insurance through an exchange, but only the lower income employees will receive a subsidy, so they will be the only ones who will likely opt out, leaving the higher income employees to remain with the ESI. You, the employer, will need to pay a $3,000 annual penalty for each of these employees who drops out, but that's far below the approximately $10,000 that ESI would have cost you.

So the employer who wants to provide ESI to the company's top talent only has found an easy way to do so. Interestingly, even the employer who wants to provide ESI to all employees will find that the economics are strongly against him or her. Those employees who earn less than 400% of the federal poverty level may save money on the exchanges courtesy of subsidies from U.S. taxpayers. The economics of Obamacare may force the employer's hand in this matter.

Did Congress consciously design this provision of Obamacare to entice employers to select more expensive employer-sponsored insurance and force out lower income employees? We will never know for sure, but I certainly doubt it. This looks like yet another unintended consequence.


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Rhetoric and Reality—The Obamacare Evaluation Project: Cost
by Paul Howard, Yevgeniy Feyman, March 2013


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