MPT WWW
Selected news articles which highlight important policy issues.

News: Weekly Archives

News for the week of 06-22-2006

Big Buyers Push for Steep Cuts from Drug Makers
Wall Street Journal, 6-22-06

Editor‘s Notes:

Why are pundits and reporters always chasing stories about drug prices? Part of the reason is that, until recently, drugs tended to be the least insured part of American health care, and that Americans without health insurance (e.g., big negotiators who buy drugs in bulk at discount) had to pay full price for their medicines.

This generated a lot of resentment, even though drugs (branded and generic) account for a relatively low percentage of overall U.S. healthcare spending. The problem, then, is an insurance problem, not a drug price problem.

How good are insurers and government programs at pushing down drug prices? Pretty darn good and getting better, according to this story from the Wall Street Journal:

Earlier this year, the U.S. Department of Veterans Affairs made Levitra its preferred impotence pill, toppling Viagra from the spot it had held for years. The VA decision boiled down to cold cash.

The provider of health care to more than 5 million veterans pays just $2.58 for each Levitra tablet, compared with the roughly $4.90 it had been shelling out for Pfizer Inc.‘s Viagra. Levitra‘s share of impotence pills dispensed by the VA increased to 89% in April from 1.5% in December, the last month before the change. Viagra‘s share fell to 11% from 98%.

It‘s a stark example of how big buyers like the VA are extracting steep price cuts from pharmaceutical companies on some of their brand-name medicines. Competition on prices paid by the biggest customers is now heating up in some categories, like pills for impotence and osteoporosis. Remarkably, that rivalry is often hot even in cases where generics are either unavailable or not used widely.

Here‘s a reason to love the much maligned “me-too” drugs: they drive price competition. Since drug companies are often working on similar drugs that hit the market in quick succession, companies are forced to compete with each other for market share and price inevitably becomes one of the flashpoints in that battle.

The drawback of course, is that consumer desires and incentives for big programs don‘t align perfectly. Consumers might very well prefer the expensive drug A to the cheaper bulk purchased drug B. Drug A might also turn out to lower total health care costs in the long run. But that‘s an argument in favor of more consumer control over healthcare spending, a discussion for another day.

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4 Diabetes Drugs Are Seen Raising Hope and Profit
The New York Times, 6-22-06

Editor‘s Notes:

Hope and profit are not words that most Americans associate with healthcare. But they should. This article chronicles how companies are rushing to bring new diabetes treatments to market, giving hope to millions of diabetics that they can better control their illness.

New drugs alone will not reverse rising rates of Type 2 diabetes, a condition that affects about 20 million Americans and is closely tied to obesity and lack of physical activity. And doctors caution that for the foreseeable future, diabetes will remain a progressively worsening disease that can cause devastating complications.

But doctors say the new drugs are important additions to the treatment arsenal because they work differently from existing diabetes medicines and have relatively mild side effects.

With the annual market for diabetes drugs expected to reach at least $25 billion worldwide by 2011, up from $15 billion today, drug makers have been investing heavily in new approaches to treating diabetes. And data presented at the American Diabetes Association‘s annual scientific conference last week suggested they are having at least some success.

One of the four treatments, Byetta, given by injection, is already on the market. Another, Exubera, an inhalable form of insulin, has been approved and will reach pharmacies next month. The other two, Galvus and Januvia, both taken as pills, are awaiting approval from the Food and Drug Administration, which analysts expect by early next year. “There‘s cause for tremendous optimism,” said Dr. John Buse, the director of the diabetes center at the University of North Carolina School of Medicine and the vice president of the American Diabetes Association. “We have the drugs to basically control diabetes in 90 percent-plus of patients.” Dr. Buse said he had consulted for the manufacturers of all the new drugs.

The best of all possible worlds is, of course, not to develop diabetes in the first place. But for Americans who can‘t control their illness using currently available treatments, these drugs offer new hope.

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How a Hospital Stumbled Across an Rx for Medicaid
Wall Street Journal, 6-22-06

Editor‘s Notes:

The U.S. leads the world in healthcare innovation—and healthcare spending. One reason for our disproportionate spending is certainly that third party payers—like Medicaid—can be penny wise but pound foolish. As researchers like David Cutler at Harvard have pointed out, the U.S. healthcare system generally rewards providers for intensity of treatment, not the quality of treatment or disease prevention.

This story, on a Medicaid disease management program for congestive heart failure, offers instructive lessons on how we can lower total costs without impeding quality.

The unusual [New York State Medicaid] program is the result of a deal between Mount Sinai and the state, and it could offer a way to help ease the U.S.‘s seemingly intractable health-care crisis. The hospital provides free preventive care to poor East Harlem residents in exchange for higher Medicaid reimbursement rates at its outpatient clinic. It also expects to fill the beds that become free with better-paying patients. Combined, that will more than make up for the hospital‘s lost revenue. The state, for its part, hopes the program will help reduce its ballooning Medicaid expenditures by cutting down on expensive trips to the ER.

As health care grows ever more costly, Medicaid is becoming a growing financial burden for the states. The program, which provides health insurance to 52 million low-income Americans, saw costs rise 44% between 2000 and 2004 to $296 billion. States share the expense with the federal government, and Medicaid now consumes almost 17% of their budgets.

The lion‘s share of these costs is generated by a minority of recipients, typically patients with chronic diseases such as heart failure. According to the nonprofit Center for Health Care Strategies, adults with chronic illnesses represent 40% of Medicaid recipients but 80% of its expenditures. Hospital fees for these patients make up a major chunk of the costs. …

Reducing hospitalization rates for chronically ill people is “the Holy Grail of Medicaid cost savings,” says James Tallon, president of the United Hospital Fund, a philanthropic organization that tries to improve New York‘s health-care system. Mount Sinai‘s program, he says, could provide an answer.

Getting more providers and payers to think holistically about patient care is the key to resolving this problem. But we won‘t get there until there is a real paradigm shift in how we think about healthcare spending. Mt. Sinai shows how spending more resources on managing the most expensive patients can actually save money in the long run.

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Drug Prices Up Sharply This Year
The New York Times, 6-22-06

Editor‘s Notes:

The AARP and USA Families are in the habit of releasing periodic reports alleging that the branded drug industry in the U.S. is engaged in ruthless price gouging of Americans. This is yet another report along these lines, as predictable as you‘d expect:

AARP, which represents older Americans, said prices charged by drug makers for brand-name pharmaceuticals jumped 3.9 percent, four times the general inflation rate during the first three months of this year and the largest quarterly price increase in six years.

Price increases for some of the most popular brand-name drugs were much steeper; the sleeping pill Ambien was up 13.3 percent, and the best-selling cholesterol drug, Lipitor, was up 4.7 to 6.5 percent, depending on dosage. Over all, AARP said, higher prices mean that the cost of providing brand-name drugs to the typical older American, who takes four prescription medicines daily, rose by nearly $240 on average over the 12-month period that ended on March 31.

“When the manufacturers‘ wholesale prices increase, it gets passed through the system, regardless of who the final purchaser is,” said John Rother, the policy director of AARP. Although the drug industry‘s main trade association challenged the accuracy of the AARP survey, a separate study, by Families USA, a patient advocacy group, found similar inflation rates among brand-name drug prices. While the higher prices have a general impact on the drug-taking public, consumer advocates said the higher prices have special implications for Medicare, which Congress barred from negotiating prices with drug makers when lawmakers devised the new so-called Part D drug program.

Commercial insurers, which are offering the drug insurance plans under Medicare‘s auspices, do have negotiating power. And they say that by switching to generic drugs, consumers can avoid most of the price increases.

For a counterpoint to AARP‘s argument, readers should peruse another article we mentioned in this issue of MPT. In short, AARP seems to be engaging in gratuitous industry bashing—perhaps because, thanks to its deal with UnitedHealth to offer Medicare Part D coverage, it too is now one of the big buyers negotiating with drug companies for lower prices.

Benjamin Zycher, a senior fellow at the Manhattan Institute, offered this observation in response to the AARP report:

Only a day after the AARP reported sharp increases in reported drug prices, the Wall Street Journal reported that generic competition has driven down the price of a leading cholesterol drug, and that “big buyers push for steep price cuts from drug makers”. The larger reality is that official prices differ from those actually paid, in substantial part because of negotiations; drug prices under Medicare Part D, negotiated by the pharmacy benefit managers, have proven lower than projected only a year ago.

More important is the effect of drug prices and availability on health costs in the aggregate: it is incontrovertible that medicines reduce the total costs of health care delivery, and that new and improved drugs will enhance that effect. Prices that reflect the value of medicines should be applauded, because they induce the full stream of research and development investments that yield the drugs of the future. Inexpensive drugs are wonderful today, but those that fail to be developed will prove expensive indeed tomorrow.

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