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Selected news articles which highlight important policy issues.

News: Weekly Archives

News for the week of 01-04-2006

US Pharmaceutical industry limbers up for Medicare’s brave new world: Overhaul of healthcare systems will put drug manufacturers on a collision course with government
Financial Times, 1-4-06

Editor’s Notes:

Although the new Medicare drug benefit is only a week old, there is one thing we know for certain: it is going to change the future of healthcare, although perhaps not in the way many expect. While critics on the left have portrayed the benefit as a slush fund for drug companies, the reality is just the opposite: any temporary increase in revenue will probably be offset by new pricing pressures and demands for additional data on the effectiveness of marketed drugs.

And while Medicare Part D, where "D" stands for drug benefits, brings big change to millions of pensioners previously without drug insurance, it also creates a new world for the pharmaceutical industry - in part by putting it on a collision course with government. Part D makes the federal government the biggest purchaser of pharmaceuticals, albeit indirectly, but bars it from negotiating drug prices. …
Even if government stays out of pricing, Part D is prompting the drug industry to rethink everything from cost structure and how they deal with customers, to how to build a case for a drug's value. Part D should at the start boost drug makers' business. The plan is expected to help at least 12m previously uninsured pensioners to get medicines and use them more consistently.

But in the longer term it changes the game. Government's involvement as a drug purchaser will bring a transparency to drug pricing, compared with decades of opacity. The drug industry expects this to squeeze the divergence in prices among customers who have generally negotiated individually. …
Price increases, particularly in the US market, have in the past been a staple of the industry's revenue growth. But now the industry sees the need to persuade customers of the value of their drugs. To do this, drug companies are breaking out of aloof isolation. They are seeking a less adversarial relationship with big paying customers and looking to find out more about what patients and doctors expect. Discussing US drugmaker Merck's new strategy, Richard Clark, chief executive, said: "I've heard the word 'customer' more putting this plan together than in the last 33 years (combined) in this company."

The future of biopharmaceuticals may well hinge on who the industry sees as its ultimate customer base: the government or consumers? If policymakers in the U.S. change the Medicare Modernization Act to mandate VA-style price controls, the U.S. industry will become more like Europe: less innovative, more risk averse, and increasingly isolated from consumers.

To ward off innovation-stifling regulations, the industry will have to make the case to consumers that new drugs are worth the extra cost. That means encouraging the development of consumer-driven health care, where consumers are empowered with information to shop for the best values in health care. As Hank McKinnell notes in his book, A Call to Action, “In a properly functioning healthcare system, patients would be able to consider costs and trade-offs in selecting procedures and services…They have actionable information about prices and quality on which to make these decisions. Price is not always the determining factor, but it is always considered.”

The problem is that providers—doctors, hospitals, and insurers—have been reluctant to publicize data on prices and outcomes, and have preferred to keep captive customers. Burgeoning health-care costs, and the IT revolution, are making this model increasingly unwieldy as stakeholders fight for limited revenue streams. Someone will have to make the leap of faith into CDHC, and pharma companies may have the most powerful incentives to lead broad-based change.

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AARP edges away from drug imports
The Hill, 1-4-06

Editor’s Notes:

The AARP has been practically schizophrenic about the Medicare Drug Benefit. It has touted an AARP drug plan while criticizing the Medicare program as too complex for seniors, and derided its costs while calling for direct government negotiations over drug prices and legalizing importation from Canada and other countries. The AARP, however, may be changing its tune now that one of its own studies has found that the Medicare Part D benefit can be cheaper for its members, in at least some cases, than buying drugs from Canada. The AARP found that “many who choose the least expensive Medicare drug plan in their area that covers all their drugs could pay less this year than getting those same drugs from Canada.”

The new analysis, titled “The New Math: Cheaper than Canada? The drug benefit may be the better deal,” used the government’s Medicare plan finder to compare “stand alone” plans that cover all of a senior’s prescription needs to the cost of acquiring drugs across the border. It concluded that seniors who enroll in a low-cost Medicare prescription-drug plan would save more in drug costs this year than if they were to buy the same drugs in Canada.
While Canadian drug prices are still cheaper than prices in the United States, AARP found that when a senior includes all out-of-pocket costs — premiums, deductibles and payments for medications — the price is lower.
AARP stressed that it continues to support reimportation legislation.“The bottom line is drug prices are too high,” said AARP spokesman Mark Kitchens. “The two ideas [reimportation and the Medicare drug benefit] are not mutually exclusive. Many Americans that are not on Medicare would benefit from reimportation. Medicare Part D is a tool that would make prescriptions more affordable.”
But AARP CEO Bill Novelli adopted a different tone in the group’s Dec. 29 release, saying, “Jan. 1 is truly a watershed day for many Americans who face the high cost of prescription drugs. Millions of Americans who have never had drug coverage can now save more money through Medicare Part D rather than turning to Canada to get their prescriptions.”

The problem is, and remains, that there aren’t enough drugs in Canada to supply the American market, and the security and verification procedures needed to monitor a national importation program from a breadbasket of cheaper countries would likely eat up much, if not all of the savings.

Someone should ask the AARP what it thinks is best for all Americans—and not just its members: Canadian style drug innovation (i.e., price controls and fewer new medicines), or slightly higher prices but a steady stream of new treatments. This would clear up AARP's schizophrenia in a hurry.

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Drug companies will have to pay to get on state list
Associated Press Newswires, 1-8-06

Editor's Notes:

Caveat emptor: let the buyer beware, particularly when the buyer is a government agency that can command steep discounts from pharmaceutical companies. By demanding ever-larger drug discounts, state Medicaid programs encourage a "race to the bottom," where cheaper drugs may gain preference over more expensive but more effective drugs that may actually save money in the long run, by keeping patients out of hospitals and emergency rooms.

New York, however, remains content to shake down companies for access to the states Medicaid program.

With spending on prescription drugs skyrocketing at three times the rate of the overall Medicaid budget, the state is now asking drug companies to pay to get on a "preferred drug list." To get their drugs on the list, which is expected to implemented this summer, companies would have to subsidize the state with heavy rebates. The state Health Department estimates the legislation could save $200 million in its first year of operation.

Most drug companies will likely pay to get on the list, said Craig Burridge, executive director of the Pharmacists Society of the State of New York. …

To prescribe drugs that are not on the list, doctors would need prior authorization from the Health Department. But physicians would ultimately have the final say in which drugs to prescribe, said Robert Scher, president of the Medical Society of the State of New York.

"The process is meant to create a speed bump to discourage doctors from prescribing drugs that are more expensive and heavily advertised, but not necessarily any better," said Assembly Health Committee Chairman Richard Gottfried, a Manhattan Democrat.

The "speed bump" approach is unlikely to be a winning fiscal strategy, since drug spending is only about 11% of New York’s $44.5 billion Medicaid budget. While the state shaves millions of dollars off its drug budget, billions of dollars in fraud and waste go untouched. Manhattan Institute senior fellow E.J. McMahon puts the problem in context: "The restrictive drug list is a short-term cost-squeezing mechanism with potentially very expensive long-term consequences for New York's Medicaid program. Among other things, sweeping price controls on drugs could stifle the development of innovative treatment alternatives we need to get this program under control. This is not real reform."

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Health Care: Can Consumer Choice Cure the Nation's Ills?
Wall Street Journal, 1-9-06

Editor's Notes:

This is a fascinating exchange on the future of consumer-driven health care by two think-tank scholars who endorse the concept (Joseph Antos and John C. Goodman), and Robert Reischauer, who is something of a skeptic. Goodman tries to correct one crucial misconception about CDHC,—viz., that it is about "shifting costs to employees." Actually, Goodman, argues, it is about shifting "money from employers to employees."

Consumer driven health care is not about shifting costs to employees. It is instead about shifting money from employers to employees, so that employees can manage their own health-care dollars.

It is true that many employers are shifting costs to their employees by charging higher premiums and raising deductibles and co-payments. These activities by themselves do not constitute consumer-driven health care. CDHC is all about patient power—having patients make the often-difficult choices between health care and other uses of money instead of having those choices made by large, impersonal bureaucracies. …

The key mistake that most people make is in thinking that health care provided by their employers is "free." In reality, employers pay for health-care costs out of compensation that they allocate for each employee. Employer-provided health insurance is, any way you slice it, coming out of your paycheck—with the added drawback that you don't get to choose how it is spent.

This tends to drive up health care costs (no one spends your money as carefully as you do). It also means that if you lose your job or change jobs, your coverage ends. CDHC puts the same money employers use to buy health care spending in the employee's pocket.

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'Next frontier' in heart disease: Undoing it
USA Today, 1-9-06

Editor's Notes:

Merck's blockbuster drug Zocor, a statin drug that lowers cholesterol, is set to go off patent this summer. The cheap generic version will then compete with branded statins, and undoubtedly cut into their sales.

The response from pharmaceutical companies? They are researching and developing new, more effective treatments that can actually reverse heart disease in patients' arteries.

The new drugs either raise "good" cholesterol (HDL) or try to improve its effectiveness. That's because HDL is a kind of blood-borne barge that hauls fat from the artery wall to the liver for excretion. Studies show that people with high levels of HDL have cleaner arteries and less risk of heart attack.

Until recently, only exercise and mega-doses of the vitamin niacin have been shown to boost HDL levels. … Drug firms are racing to fill the treatment gap…

With research gaining momentum, doctors are gearing up for studies involving thousands of patients. Many studies will rely on a new imaging technology called intravascular ultrasound, or IVUS, that allows researchers to measure the growth or shrinkage of deposits on artery walls.

This is the cycle of market-driven innovation at its best. As patents expire, generic companies produce older treatments for pennies on the dollar. Branded pharmaceuticals, facing loss of revenue, scramble to find new treatments that outperform those same cheap generics—in the process, even developing new diagnostics and better medicines.

Advocates of pharmaceutical price controls ignore the role that competition and profits play in both lowering prices and driving innovation.

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Officials in Rockland Question Medicaid Billings of $13 Million
The New York Times, 1-9-06

Editor's Notes:

While New York State is creating a "preferred drugs" list for its Medicaid program, which would limit access to new, more expensive drugs (a dubious cost control measure at best), investigators are finding more signs of fraud in the state's $44.5 billion Medicaid program.

Last fall, the state's Department of Health granted a group of 12 New York counties permission, for the first time, to comb through Medicaid bills filed by doctors, pharmacists, nursing homes, hospitals and others, and look for odd patterns that might signal abuse of the system. Yesterday, Rockland County officials produced the first results of that new power—saying they had turned up as much as $13 million in improper billing. And that, they said, came after examining just a small part of the program.

County officials said the findings stood to be a watershed moment, because they suggest that across the state and the entire Medicaid program, counties could find billions of dollars worth of questionable Medicaid bills that state officials had failed to uncover over the years.

If the effort saves just half as much money as Rockland has flagged so far as questionable payments, "that's a 15 percent reduction in property tax that we have achieved," said C. Scott Vanderhoef, the Rockland County executive.

Last summer, the New York Times ran a devastating series on fraud in New York's Medicaid program. If legislators in Albany are serious about spending the state's health care dollars wisely, Medicaid reform should be at the top of their list.

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