Rita Numerof Archives

Two weeks ago, recognizing the overwhelming and insurmountable issues associated with implementing the Community Living Assistance Services and Support (CLASS) Act, the House voted to repeal what Democratic Senator Kent Conrad described as "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would be proud of." While Senate action on the bill remains uncertain, this recent turn of events illustrates another example of the question that PPACA has exemplified -- free market or nanny state?

The amusingly-named CLASS Act was supposed to create a voluntary program wherein monthly premiums would be used to finance benefits of at least $50 a day for those needing long-term care. The money would go for services at home or to help with nursing home bills. Last fall, HHS Secretary Kathleen Sebelius finally admitted that it would not be possible to certify the program's financial solvency, so it would not be implemented.

And as another piece of the fiscal gimmickry associated with ObamaCare is exposed, it's possible to overlook the bigger issue. Why should the federal government need to create this program? If there is a real need for a product or service, and someone can provide it and make the case for it, then it will be successful -- because the market has mandated it.

A quote from Senator Tom Harkin (D., Iowa) to the National Journal has been making the rounds on the blogosphere as well -- "the problem with CLASS is that it's voluntary." This summarizes the threat -- that a future Congress could amend the act, forcing another unsustainable entitlement program on all of us. So long as it remains on the books, CLASS is another example of the menacing hand of government threatening our liberty.

In this case, the solution is clear. But as I pointed out earlier this week, the bureaucratic mindset behind programs like CLASS is unlikely to result in better health outcomes at lower cost.

As I reflect on the PPACA (Patient Protection and Affordable Care Act) legislation on the Supreme Court's docket - all 2700 pages of it - it occurs to me that it's a perfect example of the bureaucratic mindset, and why that kind of thinking can't work.

One defining characteristic of the bureaucratic mindset is an extraordinary level of obsessive compulsiveness. In this world view, the solution to a complex problem is to anticipate every possible contingency and write down what the response should be in each and every case. Of course, this approach is hopeless and self-defeating, and even worse, sets the stage for the regulated to eschew responsibility for compliance, and for abuse by agents of the bureaucracy itself.

It's a hopeless approach because you can't possibly anticipate all the contingencies, and it's self-defeating because to the extent that you even try, you create an impenetrable wall of regulation that defies mastery by any individual. That's why, for example, we have a whole industry that's evolved to help citizens with their taxes. The tax code - all 70,000-plus pages of it, is another exemplar of what the bureaucratic mindset produces.

Although it's virtually impossible to anticipate every possible contingency and prescribe the appropriate response, the attempt to do so, and the presumption that it's been done virtually eliminates the opportunity for individual judgment, and in doing so, eliminates any sense of personal responsibility. The truth is, very complex problems defy simplistic prescriptions. That's not to say that complex issues can't be regulated.

The FDA creates guidelines for an extraordinary range of complex issues involved in regulating and enforcing the Pure Food and Drug Act and its extensions. The agency has no shortage of detractors, but review of its regulatory output suggests that it attempts to avoid the bureaucratic mindset by offering guidelines, not prescriptions for managing the issues for which it is responsible.

For an example of the alternative, consider HIPAA - the Health Insurance Portability and Accountability Act of 1996. Intended to protect patients' rights to privacy of their health information, HIPAA's byzantine prescriptions and penalties have inspired an industry of healthcare providers largely clueless about the letter and the spirit of the law, who take no accountability for its accurate implementation, or responsibility for the inconvenience they create.

Finally, products of the bureaucratic mindset set the stage for abuse by the bureaucracy itself. To the extent that there is oversight, legislation like PPACA invites arbitrary and politicized action, because the requirements are so complicated and contradictory that ultimately they can be used to justify any decision. The tax code has been the "take-down" tool of last resort by law enforcement for many years. PPACA is only 2700 pages, but that's more than enough to serve the same purpose - and all the rules aren't out yet!

Implicit in the bureaucratic mindset are the following underlying assumptions:
1. people's judgments cannot be trusted.
2. bureaucrats who write regulations are sufficiently omnipotent to anticipate all contingencies and prescribe optimal responses to all of them.
3. people who genuinely want to do a good job will be satisfied following rules that others have laid out.

In short, the bureaucratic mindset is the outgrowth of a kind of terminal hubris that imagines those who create and enforce the rules as the only stakeholders worthy of any respect. We've had enough of that already. I, for one, would like to see more judgment and fewer rules. We'd all be better off for it. We might even get better health outcomes at lower cost ...

A recent article in the Wall Street Journal reported on a study that concluded that nicotine replacement therapy (NRT) doesn't positively impact smoking cessation. Not surprisingly, this report has raised a number of questions for insurers, consumers, and the FDA.

The study, A prospective cohort study challenging the effectiveness of population-based medical intervention for smoking cessation, conducted by the Harvard School of Public Health and the University of Massachusetts, examined a sample of 787 adult smokers who had recently quit smoking. The study's objective was to "examine the effectiveness of NRT... to better inform healthcare coverage decisions."

Participants were surveyed over three time periods: 2001-2002, 2003-2004, and 2005-2006. In the initial interview, they were asked whether they had used a nicotine replacement therapy in the form of the nicotine patch, nicotine gum, nicotine inhaler, or nasal spray to help them quit. They also were asked if they had joined a quit-smoking program or received help from a doctor, counselor, or other professional. During the subsequent interviews, they were asked if they had started smoking again.

One of the most significant conclusions, and the source of much of the controversy surrounding the report was the relapse rates between the first, second and third interviews reported by the participants were no different between individuals who used NRT and those who did not. The lead author of the study, Hillel Alpert, was quoted in the Harvard Gazette as saying "This study shows that using NRT is no more effective in helping people stop smoking cigarettes in the long term than trying to quit on one's own."

Since the study only examined relapse rates, this claim is not supported by the evidence put forth in the study. Effectiveness is measured in more than one dimension -- relapse rates are only one piece. As numerous, larger studies around the globe have indicated (according to a review from the Cochrane Collaboration of 123 different controlled studies), NRT is effective among smokers who are motivated to quit, regardless of setting. The quit rate among smokers who use NRT is 1.5 to 2 times higher than smokers who quit cold turkey.

So, if we were to compare two equal sized populations of smokers trying to quit smoking -- one that used NRT and one that did not -- the population of people who successfully quit using NRT will be larger than the population of people who successfully quit without it. Even if both populations relapse at equal rates in the years to come, nearly twice as many people will have successfully quit smoking for good using NRT.

Furthermore, even if the ex-smokers relapse, there are health benefits to quitting for even a short time period. According to the US Surgeon General's Report, 3 months after quitting, circulation and lung function improve, after 9 months, coughing and shortness of breath decrease, and after 1 year, the risk of coronary artery disease is cut in half (not to mention the social benefits of not constantly being engulfed in a cloud of smoke!).

So, reimbursing NRT may still be cost effective, even if some smokers relapse. Another study in the UK actually examined the cost effectiveness of NRT and found that NRT was a low-cost treatment when measured per life-year saved. And this study examined the cost of nicotine patches 15 years ago; since then, the patent on nicotine patches has expired, so they are available at an even lower cost today.

Alpert, according to the Harvard Gazette's coverage, argues that even though clinical trials have found NRT to be effective, the new findings demonstrate the importance of empirical studies regarding effectiveness when used in the general population. But since the study only includes participants who have already quit smoking, it doesn't provide sufficient evidence to conclude the value of NRT is questionable. There are confounding variables that the study does not take into account -- for example, the number of people who would have failed to quit in the first place had they not used NRT.

To really understand the effectiveness of NRT in a real-world setting, researchers would have to start with a population of smokers who are trying to quit, not a population of smokers who have already quit, and follow them over several years. And since so few people who want to quit smoking are successful, the population studied would have to be very large. Only then can the study measure NRT effectiveness in a real-world setting.

So what does all of this mean for insurers? Not much. The Harvard study examined such a narrow indicator that the value of NRT can't really be argued one way or another based on the evidence provided. Because the study only looked at relapse rates, it does not sufficiently undermine the numerous other studies that have indicated that NRT does improve quit rates and can improve health outcomes.

For consumers, the water is even murkier. The study underscores the point that NRT is not a long-term treatment; it's meant to be taken for 6-12 weeks to help with initial symptoms of withdrawal. It doesn't make the urge to smoke go away forever. Still, based on other studies -- like those included in the Cochrane Collaboration's review -- it can be a valuable tool for people who are trying to quit.

Alpert's point about the importance of real-world evidence in evaluating different treatment options is a good one, though, and as long-term, observational studies become more prevalent, there are clear implications for the FDA. Medical device and pharmaceutical manufacturers will increasingly look to real-world, post-market evidence to find new information about existing products, including information to support new indications for existing products. These studies will be increasingly complex, as they examine many dimensions of similar products and protocols. The FDA will need to learn to process this information quickly, and should re-examine its approach to ensuring product safety.

Currently, the FDA usually makes demands for clinical evidence based on large-scale clinical trials to gain product approval. But if it were to adapt a more flexible approach, looking at more diverse kinds of studies, it could revolutionize the medical products industry as we know it.

Manufacturers could design clinical studies that rely on data reflecting a real-world evidence approach and modeling, rather than merely relying on the current "gold standard" -- traditional, large-scale, randomized, placebo-controlled clinical trials (RCTs) with their associated inclusion/exclusion issues. Instead of waiting years for an actual clinical outcome from RCTs, manufacturers could use a "surrogate endpoint" (like quit rates, in the case of NRT) to establish an event that can reasonably predict improved clinical outcomes. Additional confirmatory studies would provide longitudinal evidence that the treatment either does or does not provide clinical benefits for specific sets of patients, allowing the FDA to react accordingly.

New products would reach the market faster and enable many patients the opportunity to try a new treatment sooner rather than later. This approach, in turn, could reduce development costs, and medical products companies could focus their attention on innovating new life-saving therapies.

To reach this goal, the FDA will need to shift its focus from an almost exclusive emphasis on pre-market gatekeeping to post-approval oversight. There are clearly inefficiencies in the agency's ability to bring new products to market, and it does need to do a superior job in its post-approval oversight role. What's really needed is an overhaul of both the agency's regulatory process and its focus.

It's hard to believe that we're at the end of the first month of the New Year! And it has been anything but dull. Just look at the world theatre or the controversies, twists, and turns of the 2012 presidential race in the U.S. Before we get too far into the year, I didn't want to miss the opportunity to reflect on one of the most significant developments of 2011... and perhaps even of the last several years.

In a political climate of flying rhetoric and accusations, it is noteworthy when calm and reason prevail. When self-interest is rampant, often cloaked in holier-than-thou proclamations, simplicity and compelling logic offer a welcome respite. When true collaboration appears to be in short supply, it is so refreshing when it emerges from the rubble. In case anyone hasn't figured out where this is going... let me be perfectly clear!

At the tail end of 2011 Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) came out with their bipartisan and cross-legislative proposal for the future of Medicare -- Guaranteed Choices to Strengthen Medicare and Health Security for all. It was a courageous act and a masterfully crafted document. Its Executive Summary is a mere three pages in length. The proposal is nine pages. The document is clear, to the point, compelling, logical and insightful. Oh, did I mention that it's readable, too? Or that it's devoid of jargon and policy-speak, accessible to 'every man' (or is it... 'every person'...) and challenges partisan attacks and assumptions. It is a sad commentary on the national debate surrounding the topic of healthcare (... no, a debate is far more reasoned, fact based and thoughtful on the issues)...that these positive characterizations are so special, in part, because what's represented by the document is so rare.

The basic outline of the Wyden-Ryan plan includes choice that begins ten years from now in 2022 (i.e. Medicare approved private plans and traditional Medicare); affordability through premium support, and a set of protections for vulnerable populations, ostensibly stronger protections against fraud and abuse, and most notably the opportunity to separate the purchase of healthcare insurance from employer sponsored programs. The latter component would apply to those employees who wish to do so in companies employing fewer than 100 workers.

At the heart of the recommendations is the recognition that Medicare has issues which must be confronted and resolved, and that any changes to the program must be patient-centered... not structured to meet the needs of bureaucrats... wherever they may reside. The language emphasizes market competition to improve quality of care as well as reduce cost and waste. Consistent with positions that I and others have taken over the last several years, the Wyden-Ryan approach relies on a market based set of solutions, competition that fosters innovation, and guarantees for those without the financial means to secure care and coverage on their own.

The proposal acknowledges serious flaws in the current system, including design issues inherent to Medicare Advantage which result in access and payment problems -- for both recipients and providers.

While the plan offers a broad brush outline of principles and a framework for a conversation, the devil is always in the detail. There are many points unspoken... like understanding and managing variation, employing predictive care paths, focus on outcomes and engaging greater transparency and accountability across the board... even among beneficiaries! We are all in this together; there really is no free-lunch. The Wyden-Ryan proposal represents a serious effort at presenting a framework for reasoned discourse to solve a very old problem. In that regard it is a welcome change we should embrace even as we challenge its assumptions and bring more insight to bear regarding how we will achieve better health outcomes at lower cost.

When you think about the industries where the U.S. has been preeminent, it's mostly a list of has-beens -- steel, autos, heavy equipment. Those few industries where the US is still a world leader include pharmaceuticals and medical devices. But this is changing.

Today, pharmaceutical and medical device manufacturers rely on patents to protect their innovations as they compete in the commercial markets. In most cases, innovators have 17 years from the date of patent issuance to recoup their investment. But having a patent is not the same as having a product. First you need FDA approval.

That's when the real work begins. Experts estimate that it costs approximately $1 billion and 10 years to bring a new drug to market. There are lots of patents sitting on the shelf, never to see the commercial light of day. Molecules may not perform the way scientists had expected in the earliest stages of discovery; side effects may prove to be problematic and so development stops in the middle of clinical trials. And getting the biggest US insurer - the Centers for Medicare and Medicaid Services (CMS) to agree to reimburse the product is a further hurdle that must be crossed.

Given the substantial time and financial commitments required to bring a new drug to market, Congressional and public pressure to further reduce the length of patent protection represents a major challenge for the US medical products industry. What most people don't realize is this very pressure puts at risk one of our few remaining industrial jewels. The argument put forth in support of more limited protection is the opportunity to bring generics to market faster ... and at a significantly lower cost than branded pharmaceuticals.

That generics come at a cheaper price should come as no surprise to anyone. Generic manufacturers don't have to invest in risky R&D, don't bear the brunt of regulatory approval, and don't have the same commercialization costs to bear. But the focus on bringing generics out faster to lower overall healthcare costs misses one critical point. Pharmaceuticals, while highly visible, represent only about 10% of the cost of healthcare in the US. And they enable greater productivity on the part of people taking them for the most part! If we're serious about lowering healthcare costs, then we need to look elsewhere.

Finally, increased regulation in this country makes it more difficult to get drugs approved in the first place. So much so that venture capitalists, in evaluating investment opportunities, commonly reject proposals from start-ups who want to launch their new products first in the US. They regard such plans as reflecting business naiveté.

If the risk to innovation and access to life saving new compounds isn't significant enough, consider this: 6,000,000 jobs -- good jobs -- are connected to the pharmaceutical and medical device industry. There was never a time we could afford to put 6 million jobs at risk - and certainly not now.

Every year pundits announce the word-of-the-year. In 2010 the winning word was austerity; in 2009 the winner was admonish. I predict that for 2011 (or maybe 2012, or for sure by 2013...) the winning word will be value.

Questions about value in the healthcare industry have largely been missing, and getting individuals (and companies) focused on value is one of the milestones on the path of a more efficient and effective healthcare system.

Individuals have largely abdicated their responsibility as consumers to ask about economic and clinical value.

Questions have been left to employers and insurance companies who make the rules about what products we can and can't have and how much we'll pay. The system has come to take for granted the lack of a 'consumer reflex' that characterizes virtually every other purchase we make.

Part of the explanation for this missing consumer orientation is that patients historically haven't paid for much of their drugs and devices themselves, although this is changing rapidly. Another part of it has to do with the reluctance of patients to assert themselves and to believe that they're capable of playing a meaningful role in the clinical decisions that affect them.

Part of Government's 'grand plan' to fix healthcare, embedded in the 2,700 page regulatory nightmare titled the Patient Protection and Affordable Care Act of 2010, was the ACO -- Accountable Care Organization, which proposed in some vague fashion to make providers more accountable for the care they provided. As I've written in other posts, this approach will be unsuccessful for a variety of reasons.

Yet ironically, more accountability is needed, and it's up to patients -- healthcare's consumers -- to demand it; to become engaged, to ask the questions that matter to us about the economic and clinical value provided by the drugs, diagnostics and therapies we receive, regardless of whether or not we're paying for them directly. If we're serious about creating market based solutions to healthcare, then consumers will be key to making it happen.

For more information on a market based solution to the healthcare crisis, see my white paper: Why Accountable Care Organizations Won't Deliver Better Health Care -- and Market Innovation Will.

In recent months, concerns about the safety of medical devices have taken center stage. Recalls and lawsuits in recent headlines have led to scrutiny from the public, directed both at manufacturers and the FDA. These concerns were center stage again last month when Sens. Chuck Grassley, R-Iowa, Richard Blumenthal, D-Conn., and Herb Kohl, D-Wis. introduced The Medical Device Patient Safety Act, S. 1995.

This bill would give the FDA the authority to require companies to submit post-market data as a condition for continued approval of moderate-risk medical devices under the fast-track process, and would allow the FDA to rescind approval if this condition is not met.

While AdvaMed quickly noted that the FDA already has broad authority to require post-approval studies, this bill does underscore the growing sentiment that medical device manufacturers and the FDA ought to increase activities aimed at ensuring product safety. Last summer, the Institutes of Medicine also called for an integrated pre- and post-market regulatory framework aimed at improving device safety.

Unlike other recommendations in their report -- for example, the recommendation to scrap the 510(k) approval process altogether -- requirements for more post-market safety surveillance were considered relatively uncontroversial by AdvaMed and even the FDA.

The reality is that much more will be required of manufacturers to comply with post-market safety surveillance emerging rules. The current standard of practice for manufacturers has been to systematically report on and respond to certain classes of "complaints" such as deaths, serious injuries, and malfunctions likely to contribute to death or serious injury.

As regulators enact greater requirements for medical device safety, reviewing these passively-acquired complaints through call centers will no longer be sufficient. There will need to be a more comprehensive approach to ensuring medical device safety throughout the product lifecycle. This will mean more proactive planning for post-market safety surveillance based on product characteristics (e.g. product novelty, consequences of product failure, device complexity) identified in early product development.

In light of the Senate bill and the IOM report, it is increasingly clear that manufacturers will need to rethink their approach to safety surveillance, taking into account the current environment, including scrutiny from the public, new regulations, and likely future changes. For some thoughts on how to do this, see our recent brief, Post-Market Safety Surveillance: A Call to Action.

Let's start with the assumption that lawmakers, manufacturers, healthcare providers and patients are generally well-intentioned, honorable and capable individuals who care about the integrity of what they do. Human nature being what it is, there have been and likely always will be a competitive streak that operates such that individuals will attempt to maximize personal well-being -- sometimes at the expense of those around them. The right balance between the individual and the society has been the subject of debate for thousands of years. The fact that it's being debated hotly today should come as no surprise to anyone. The fact that some think there shouldn't be a healthy debate and natural tension between these two views should be the surprise reflecting an unfortunate naiveté! At one extreme is the view that people are basically not to be trusted and therefore society should put in place restrictions to keep people in line following minute prescriptions about what is or isn't acceptable behavior in a wide range of circumstances.

This is a country of law, of rules... The issue in the debate is how far those rules have gone -- intruding into basic individual freedoms, threatening states' rights in favor of a central government, and basically undermining innovation. If you start with the premise that people (and therefore business) can't be trusted, then your goal is to prescribe in infinite detail what can and can't be done and then delineate the penalties for non-compliance. Even in Soviet Russia under Communist/Socialist rule and the real threat of severe penalties, people found ways around rules, with people often paying officials large sums to enable special treatment (even in Soviet Russia corruption was widespread). Not that I'm suggesting our Federal Government has become an entirely socialist system -- yet. But the move in recent years towards more rules is quite alarming, and it carries with it the real possibility of stifling the very innovation and entrepreneurship that has made this country great.

Too much structure (i.e. rules) stifles freedom and creativity. Too little structure (i.e. rules and expectations of appropriate conduct) can breed chaos and corruption. We are unfortunately becoming a nation of people watching people to make sure that others don't violate the rules. But often the rules that we do have are not reinforced. The solution is not, as some would suggest, to layer on more rules. The solution ironically may be to make the rules clearer, more transparent and simpler.

Some people in general and some people in business will focus on finding the loopholes to advantage them. Nothing will be so ironclad to prevent people from finding ways around onerous rules. So finding the minimally necessary structure... the right level of guidance to balance competing interests and maintain innovation and safety is really what the doctor ordered. Effectively applying this principle to the challenges facing the FDA as it confronts PDUFA and MDUFA will be critical to success.

Government has a responsibility to protect its citizens from harm -- whether the threat comes from abroad or within. The removal of bureaucratic rules which keep potentially life-saving innovations from reaching their intended audiences is clearly in the spirit of protecting citizens from harm. So, it is in that spirit that I look favorably on recent efforts within the FDA to accelerate the new drug approval process.

Dr. Donald Berwick has left the Centers for Medicare and Medicaid Services (CMS). Admittedly a controversial figure, he has nailed several key points in the healthcare reform debate that rages on. In a parting interview in the New York Times, he noted that there is enormous waste in spending on healthcare delivery. He's right in concept, conservative on the estimate. While he suggested the number was 20-30%, research that we've done puts the number at 30-40% (approximately $500 billion annually) - more than enough to cover the uninsured without a reform law - and this was before taking into account savings from addressing fraud and abuse.

Yet CMS, the agency that could have changed this situation without what Dr. Berwick aptly described as, "a complex, complicated law," didn't. Berwick's ideals and vision - more healing, safer care and more access - are all noteworthy, reasonable, and aspirational.

The announcement of a $950 million settlement between Merck and the FDA for off-label promotion and false statements about risks for heart attacks and strokes should come as little surprise to anyone, particularly given the upcoming $3 billion dollar settlement by GlaxoSmithKline publicized in early November (and other recent large settlements). Unfortunately, drug companies do not seem too keen on avoiding behavior that results in massive financial penalties for illegal activities.

But wait! Aren't companies doing more and more to stay compliant these days? Haven't corporate integrity agreements included stricter and more detailed requirements? While Merck's settlement dates back to incidents occurring prior to the 2004 withdrawal of Vioxx from the market, the question still remains: Why then are these companies willing to risk massive fines for something that can be done as a normal part of business? My firm outlines specific guidance on this in our article "The Need for Compliance as Business Strategy."

Lipitor's domination of the cholesterol market ended when the blockbuster drug fell off the patent cliff on Wednesday. Less-expensive generics will eventually begin to flood the market, all but eliminating Pfizer's monopolistic share. But what would happen if Pfizer now made Lipitor available at a price differential so great that no one could afford not to continue to take it?

Let's start with the challenge of the patent cliff, the value of the Lipitor brand and the impact that Lipitor has had on the people who have been able to manage their cholesterol because of it. During the days Pfizer continued to support the patent-protected drug from a sales perspective, savvy insiders knew that "even a monkey could sell Lipitor." So why let Lipitor be substituted by a generic alternative? Why not let loyal Lipitor customers (patients and prescribing physicians) continue to take advantage of its enormous clinical value...and at a price point that can't be resisted?

As Paul Howard recently noted, FDA's removal of Avastin's indication for breast cancer is a lagging indicator - the FDA was just picking up on what the market had already realized. One could even argue that the revoked approval was redundant, since the market had responded to post-approval studies, as indicated by the fact that use of the drug for treating metastatic breast cancer had plummeted as more data about the drug's limitations became available.

Since the market behaved as it should, this supports the case for expanding the Accelerated Approval process to other therapeutic areas. But here lies the dilemma: Which therapeutic areas get to be a part of the accelerated process?

The Supreme Court's recent announcement that it would examine the constitutionality of PPACA in the spring was not surprising; in fact, bloggers and pundits were predicting the announcement for quite some time. So by this time next year, the Supreme Court may have overturned the law because Congress has exceeded their constitutional authority by mandating that U.S. citizens must purchase particular products or face financial penalties.

But regardless of what happens on Constitutional grounds, PPACA has heralded a new level of bureaucracy (approximately 2700 pages worth) only adding complexity and cost to a system desperately needing reform. While PPACA took on the insurance sector and attempted to create 'access' for uninsured Americans and coverage for pre-existing conditions, it did so at great cost, and didn't deal with the fundamental issues of delivery and payment reform. Ironically, and predictably, costs rose 9% in 2010 and are projected to continue down this path.

Until we address fundamental business model changes in healthcare -- focused on transparency, accountability and market based innovation centered on the consumer -- nothing will really change for the better. Everyone agrees on two things... the system is broken... and someone else needs to fix it.

Healthcare is an industry in transition -- globally. It faces sweeping regulatory change, changes in competition, technology and market expectations. At these times, innovative companies able to challenge base assumptions about their business -- their consumers, the products and services they offer and how they go-to-market -- will be the winners.

Whatever happens in the Supreme Court, we need to finish the job and do it right.

In the fury of the healthcare debate, most people have come to realize that we spend a lot of money on healthcare in this country. It's also generally recognized that we aren't getting our money's worth. "Better health outcomes at lower cost" has become the common theme for efforts to reform healthcare.

So, why is this? It's partly because neither the physician nor the patient -- the critical actors or decision makers in the equation -- are paying for it. As a result, neither has a direct stake in the cost side of the equation.

Not surprisingly, there's been a lot of commentary about the FDA's recent report touting a near-record 35 new drug approvals in 2011. As Paul Howard recognized, the FDA gladly taking credit for the increased rate of drug approvals in 2011 seems more than a bit disingenuous, especially after blaming drugmakers for the lower number of drugs approved over the last few years (21 in 2010, 24 in 2009, 23 in 2008, and 19 in 2007).

For years, the agency has claimed that the scarcity of new drugs approved was the result of lower quality applications, but now that approvals are up, they are singing their own praises. The FDA commissioner's statement about this apparent contradiction, "I think the point we're trying to make is that when high quality science, good applications come before us, we are able to act swiftly and surely," doesn't resolve this discrepancy. Nor does it address internal process delays that need to be addressed by the agency.

Even so, there are lessons to be learned from the types of drugs approved, rather than the total number:

Of the 35 approvals, two are theranostics -- personalized drugs approved for use in conjunction with a specific diagnostic test; seven are cancer drugs; 10 are for orphan diseases; and a total of 16 were approved under priority review. 2010, in contrast, only saw 21 approvals, and the outright rejection of two potential blockbuster weight-loss drugs. The argument I have been making in my last several posts now appears to be a reality. Increasing opportunities exist for drugmakers to pursue alternative research venues, particularly in the areas of theranostics and orphan drugs.

In my last post (Orphan Drugs: A Shift in the R&D Paradigm), I alluded to how today's orphan drug could be tomorrow's blockbuster. Drugs initially may be approved for one indication in a small population, but later acquire additional uses after longitudinal studies and real world observations. These drugs present significant opportunity for innovation, while minimizing cost and time to market.

How many of you are familiar with the drug "Occulinum"? While this name may not universally resonate, it certainly represents the potential of orphan drugs.

While historically on the margins of R&D spend, orphan drugs represent the wave of the future in drug development. As I discussed in my recent post, the blockbuster model is wearing thin. The pressure for lower cost drugs with better outcomes flies in the face of the "one-size-fits-all" approach to drug-making. Clearly, pharmaceutical companies must find a different way to be profitable.

Staying competitive in the 21st century means cost-cutting and targeting segmented markets. Cost-cutting has been significant in the industry recently. Pharma companies slashed commercial budgets and pulled back thousands of reps from the street, but they still have to make significant investments in R&D. The question is what and how. Here's where orphan drug development fits in.

Parallel review may improve speed-to-market for some products. Potential side effects include decreased approval volumes, and disincentives for innovation across a broad spectrum of therapeutic areas.

As I pointed out last week, the more cost-containment policy is effective, the more disincentives there are to innovate. We know that government agencies like CMS and HHS are focused on cost-containment, but what happens when this focus spreads to the FDA -- an organization whose mandate has historically been safety and efficacy?

On September 17, 2010, the FDA and CMS jointly announced their intent to institute a process for cooperation and concurrent review of medical products. The proposed approach would give CMS the go-ahead to begin considering a request for a National Coverage Determination (NCD) before the FDA has completed its review of the product's safety and effectiveness. Pilot programs have since begun -- including a pilot for medical devices announced earlier this month.

Last Thursday marked the release of the much-anticipated final ACO regulations. Industry organizations like the AMA (American Medical Association), the AHA (American Hospital Association), and AMGA (American Medical Group Association), who had been full-throated in their critiques of the proposed preliminary rules six months earlier, dashed out statements supporting elements of the program almost immediately, praising CMS's willingness to adjust the rules, offer greater incentives for participation and actually listen to those providing the service.

This is interesting, however, as none of the changes addressed the real, fundamental flaws in the ACO model initially conceptualized in PPACA. As I laid out in my policy paper published by the Heritage Foundation, Why Accountable Care Organizations Won't Deliver Better Health Care - and Market Innovation Will, the ACO model simply overlays a new layer of Federal regulation and oversight on the existing system, doing nothing to address its flaws and inefficiencies -- most notably a piecework payment system that defies real accountability for better health outcomes and greater value. Moreover, given the scale requirements, this model stands to exacerbate the trend toward provider consolidation and does nothing to move to a market-based model of healthcare focused on transparency, patients, and accountability for better health outcomes.

In short, the Administration didn't get it before, they still don't get it and it's highly unlikely that they will. The organizations that have been considered models for healthcare delivery -- Geisinger, Kaiser, Mayo, Cleveland Clinic -- weren't mandated by the government; they were mandated by the market. The answer is not more regulation, more government intervention, and more bureaucracy, but rather greater transparency and greater accountability for costs and outcomes.

Healthcare reform legislation has put intense pressure on medical products manufacturers. What we know about the law has set in motion regulatory changes that already have had far reaching (and costly) impacts. In a nutshell, they include:

• A $2.5B in branded pharmaceuticals excise tax starting in 2011, and increasing to $4.2B in 2018
• 2.3% excise tax on "taxable medical devices" starting in 2013
• Increased access to generics
• 32 million more people gained access to prescription drugs
• Increased transparency around physician payment (each event >$10 or >$100 annually)
• Increased focus on fraud and abuse (compliance program integrity, Anti-kickback Statute, False Claims Act, etc.)

One objective of the legislation that's been generally accepted is that, as a society, we need to achieve better health outcomes at lower cost. How to get there is the subject of great debate. Challengers decry the law and proponents applaud it as the gateway to a single payer system (and therefore the solution to what ails American healthcare). In reality, PPACA is only the tip of the iceberg! The real news is what's less known...