Prescription Drugs -- Outlandish Pricing, Part 2

Posted by Stephen Weinberg, MD FACC FACP

As a followup from the previous post, there are a few other reasons we in the US pay significantly more for drugs than any other country.

Keep in mind that we essentially pay for all of the world's research and development with our inflated prices of drugs!

The FDA has had a significant backlog of generic drug filings to deal with. Any company that wants to produce a generic drug must go through FDA approval to be sure the factory meets acceptable standards and the drug produced is equivalent to the non-generic version. Recent information indicates that the backlog is about 47 months compared to Europe of less than one year. If more generic drugs were approved and on the market, competition would reduce the price. More money and resources need to be expended to improve the approval thru-put.

Finally, there are "orphan drugs" that are for diseases that have less than 200,000 patients. The government encourages the development of these drugs for humanitarian reasons and the drug companies can charge any "reasonable" amount. The government can certainly encourage competition in this area, but it is a small part of the problem and not worth dealing with at this time.

A recent article in the Washington Post, dated December 9, 20018, speaks about price fixing and collusion among numerous generic drug makers which has increased the cost of at least 300 generic drugs in the recent past. An anti-trust lawsuit has been filed and the justice department in Washington has launched an investigation into the matter. We all have and know of generic drugs that have experienced enormous price increases in the past few years for no good reason. I encourage you to read this article. 
Generic Drug Price Fixing.
In my opinion, there should be substantial jail time for those CEO's and others in their organizations that have participated in these schemes.

So what can be done to reduce the cost of prescription medications in the US?

First, we should support the ongoing justice department investigation and the anti-trust lawsuit that is under way.

In looking back to the prior post, the first issue was the establishment of a national panel to determine if a new drug is really any better than existing drugs and whether it is worth the cost. Given our open market philosophy and capitalism, it is unlikely that panels which exist in other countries would be adopted here. On the other hand, we could certainly have, as part of the FDA review, a comprehensive statement about the differences between the new drug and existing ones in the same category and a discussion about pricing and value.

The second point raised was the issue of the prohibition of negotiating pricing from manufacturers as a country or as Medicare or as a large coalition of buyers (such as the American Hospital Association) for the drugs. Allowing a larger buying population to negotiate prices would drastically bring down costs.  The prohibition from 2003 should be eliminated.

The third issue was the illegality of importing drugs from other countries. We should be allowed to shop around for drugs in other countries to obtain a more reasonable price. Since most industrialized countries purchase brand name meds from the same manufacturer and they are deemed safe by the FDA, we should be allowed to buy them from outside the US. Obviously, it is important to be sure that the pharmacy from which the drug is purchased is reputable, but this can be done through licensing. This is called "parallel trade" and can actually be done on a country to country basis. The US could by a drug from say Italy at a much lower price than we can get it from the same manufacturer and Italy could make some money on a markup. Medicare could do the same thing as could other buying cooperatives. Once again, this prohibition was part of the deal when Medicare Part D was established and should be eliminated.

The fourth issue was the $40B rebates that are paid by the manufacturers to the pharmacy intermediaries. This rebate should be passed on to the consumer as lower pricing. At the very least, it should be made public and allow all of us to see who is getting paid to sell which medication. It is unconscionable that this type of bribery is ongoing.

Fifth, it is unreasonable to allow a drug company to extend or renew a patent in a situation where they produce an extended release or combination version of the medication. It is highly likely that they have had this idea on the "shelf" since the drug was discovered and are only putting it forth to extend the patent and period of exclusivity. This practice should be eliminated or at least modified to allow the company to have some means of recouping the cost of producing this variation for the good of the patient.

The sixth issue regarding the payment of a generic manufacturer to not produce a drug coming off patent should be made illegal. In addition, the purchasing of a generic drug manufacturer by the manufacturer of the patented medication should be illegal. This is also clearly done to prevent competition and needs to be prosecuted.

As can be seen by the various issues above, there are numerous problems that can be solved to reduce the cost of prescription medications. To the extent that these companies have the highest profit of any other industry and they often engage in practices that are illegal and certainly unethical, we should expect the federal government to step in and make the industry adhere to the law. We should also expect the federal government to produce an environment that will enhance competition to produce needed drugs at a more reasonable cost. We need to communicate to our congressmen/women that this is a priority!!

Prescription Drugs--Outlandish Pricing

Posted by Stephen Weinberg, MD FACC FACP

Let's take a look at the pharmaceutical industry and try to discern why prescription drugs are so expensive.

Worldwide, the industry has revenue of about $1T, of which $350B comes from the US. Globally, the amount of profit is about $210B annually or 21% of revenue. This is the most profitable industry in the world. The industry spends about $250B per year on sales and marketing and only $93B on research and development.

The cost of developing a new drug is about $2.6B and the patent will last 20 years from the time the actual chemical is discovered and placed under patent. It could take 10 years to get the drug onto the market, leaving only 10 years to make back the money spent on the discovery of the chemical and the studies needed to bring the drug to market. After that time, the drug can be produced as a generic. Of all the chemicals discovered, only a small fraction actually become a salable drug, further increasing the cost of development.

The cost of prescription drugs in the US is greater than twice that of other industrialized countries. Many drugs are far more expensive in the US. Some examples are seen here:

So, the question simply, is why are the prices so high in the US compared to the rest of the world?
There are several reasons for this.

First, other countries have national panels that determine whether the medication to be sold in their country has value above the other medications in their class and if the cost is worth it. The pharmaceutical companies know this and they price their new medications so that they are competitive with existing drugs to enable them to be sold. What this means is that a new drug must demonstrate additional value at a competitive price in order to be accepted by the country of interest. This is not the case in the US. Any drug approved by the FDA can be sold here and the manufacturer depends upon their marketing skill to get the drug into general circulation. Remember, the sales and marketing budget is $250B annually.

Second, the US does not negotiate prices as a nation, or even as Medicare, for the costs of medications. The other industrialized countries negotiate pricing after they decide if the drug is of value. With the US population of 330M, we would have extraordinary negotiating clout as compared to many other countries with much smaller populations. An example is Canada with 1/10 the population of the US and they pay substantially less for drugs. Medicare, with 55M people would have more leverage than Canada with 36M. We cannot negotiate pricing, as a country or as Medicare, as a result of the "compromise/deal" achieved with the pharmaceutical industry in 2003 when Medicare Part D was established under the Bush administration.

Third, it was also established under the Part D law that the US population could not purchase drugs from other countries, legally. Currently, only 2% of drugs are purchased outside of the US, despite the fact that they are produced by US manufacturers.

Fourth, manufacturers generally sell to intermediaries like pharmacy benefit managers (PBM) and provide them with rebates as an inducement to use their drugs. This amounts to more than $40B annually in the US. This enormous sum is not passed on to the patient to lower the cost of the medications and the entire transaction is non-transparent. So the PBM's are making money on the mark up of the drugs plus the rebates.

Fifth, pharmaceutical companies will commonly extend their patent timelines by introducing combination drugs and extended release formulations of the drug. This allows them to sell the medication without competition. It is interesting that they will often "discover" the additional formulations close to the patent expiration date.

Sixth, manufacturers will pay generic manufacturing companies to not produce their patented medication when it comes off patent for 1 or more years. This will allow the original company to reap additional profit without competition.

In the next post, I will detail other reasons for the exorbitant prices of drugs and provide some easy solutions that can be adopted to control the costs and get pricing in the US to be more reasonable and competitive with the other industrialized countries of the world.

At the "end of the day", it is important that we all understand what is happening and then put pressure on Congress to do the right thing and fix the problem.

More to come. Stay tuned...

Book--Healthcare Financing

Posted by Stephen Weinberg, MD FACC FACP

There is a strong, renewed interest in a single payer system or "Medicare for All" as it has become known. I began to think about this subject in 2004 and after 3 years of research and writing, I completed my book "U.S. Healthcare on Life Support". It is 128 pages of heavily annotated research into the field of healthcare financing that is easy to read and comprehend.
The book details the entire healthcare delivery system and provides incites into how the system can be transformed financially, provide excellent healthcare for all, and save a significant amount of money for the entire country. Though the numbers in the book are from 2007, the information in the blogs has updated the numbers to the present.
The book can be purchased through Amazon:  U.S. Healthcare on Life Support
Below, you can find the Table of Contents and the Forward written by Professor Burns from The Wharton Graduate MBA Program.

Another look at a "single payer" system (Part 1)

Posted by Stephen Weinberg, MD FACC FACP

Let’s take another look at a single payer system. 

I have had numerous recent conversations with people regarding a single payer model. In an effort to bring additional clarity to the discussion and cut through the complicated math from the previous post, this post will attempt to simplify the issue.

As soon as one brings up the concept of a single payer health system, there is a great deal of pushback. The arguments include predominantly that this is socialism, the government cannot run any program of that size efficiently, it controls too much of the country’s economy, and the government cannot be trusted to do what is in the best interests of patients and will use this opportunity to ration healthcare similar to Canada and  the United Kingdom.  All of these ascertains may be true in theory, but it seems that, in reality, this is likely not the case.

From a very practical standpoint, Medicare is the largest single payer system in this country. Having been enacted in 1965, it has grown to cover about 55M people, or 1/6 of our population. I have practiced Cardiology since 1978 and I cannot recall a single patient who does not like Medicare. On the contrary, there is not a day that has gone by when a patient did not complain about their private health insurance carrier. These complaints range from lack of coverage, the need for referrals, inability to obtain necessary testing and treatments, rapidly escalating premiums, among others. I never hear that from Medicare patients.

Medicare is efficiently managed with an overhead of about 1.5% compared to private insurance overhead of about 15-20%. A huge difference.

The argument that the government would control a large part of the country’s economy cannot be denied. The US healthcare sector is about 1/6 of the total economy. Legislative controls and oversight could be applied similar to what exists now, which is controlling Medicare effectively; as compared to private insurers with premium increases of 20-30%, higher deductibles, higher copays and less coverage.

The argument that the government cannot be trusted to do what is in the patients’ best interests is also false. Once again, Medicare has always provided comprehensive care coverage since inception, unlike private health care insurance, as virtually anyone will attest who has private coverage.

The issue of rationing care is likewise untrue. This has never been the case with Medicare, as opposed to Canada and Great Britain. The difference between us and them is that the other countries have a fixed, capped budget for healthcare expenses so once the money runs out, care stops. This leads to long waiting periods for testing and care, as well as rationing. This is one of the mechanisms by which they can control costs. In the US, by contrast, there is no budgetary cap. The expenses are open-ended, so care is not rationed. Furthermore, the discussions regarding “death panels” that occurred when Obamacare was being legislated were totally false and were used only as scare tactics by opponents.

So, the arguments against a single payer are without merit. Since Medicare has been successful and extremely well accepted by senior citizens as well as the vast majority of the population, why not provide everyone with the same insurance coverage? As shown in the prior post, we are already spending more than enough money to insure everyone with comprehensive coverage and still save $260B annually. 

The next post will detail how to provide "Medicare for all".

Stay tuned.

The Case for a Single Payer System

Posted by Stephen Weinberg, MD FACC FACP

In an effort to discuss the healthcare system and options to finance it, this post will detail the costs associated with the delivery of care.

Each year the government publishes several large databases that detail the expenditures and revenues of the entire country. The data I will provide is for 2013, the year prior to the inception of “Obamacare” in an effort to simplify the analysis. The numbers are drawn directly from the databases. National Health Expenditure Accounts

	$Billion	# people  in millions	$/person
Total personal HC costs	2,725	316	8,623
Govt Admin (Medicare and Medicaid) expenses	37	108	343
Private Health Insurance Admin expenses	174	165	1,055
Govt Public Health	75
Personal Care costs Net of Expenses	2,439	316	7,810
Out of Pocket	325	316	1,028
Private Health Insurance	834	165	5,055
Medicare	561	52	10,788
Medicaid	407	49	8,306
CHIP	11	8	1,375
VA/Military	89
Other Indian, workers comp, etc	212
Uninsured		45

This chart shows total personal healthcare costs were about $2.7 Trillion with overhead of about $286B leaving net personal healthcare costs (the amount actually spent on care) of about $2.4Trillion.

Medicare overhead was about 1.5% of total expenditures (from the Medicare Trustee Report) or $160/person. As you can see, private insurance overhead was about $1,055/person, or approximately 6.6 times that of Medicare. (Remember the prior post regarding the excess costs of private insurers.) If private insurance overhead was the same as Medicare, the total private insurance overhead would be $160x165M people or $26.4B instead of $174B. The savings would be about $148B annually. Additionally, several studies, (Insurance driven overhead, NEJM insurance overhead) have demonstrated that the excess overhead of hospitals, physicians offices, nursing homes, employers, clinical labs, and home care was about $172B in order to deal with the numerous private insurance companies. The total annual cost of excess overhead of our multipayer system was about $320B in 2013.

The real question is “what are we getting for this additional cost?” I would argue, nothing!

There is also a substantial amount of money being spent by individual states and the federal government in order to provide care for the uninsured, as outlined below.  (Also from 2013)

	$B	# people	$/person
Charity care from states, indigent clinics	20
Federal Govt	33
Other public money	10
Increased private insurance premiums*	66	165	400
Subtotal	129
Total Admin savings from 1.5% overhead	320
Total money available	449

*A study by Families USA demonstrated that private insurance premiums are increased by about $400/person per year as a result of providers (predominantly hospitals) obtaining higher reimbursements to offset the losses from Medicare, Medicaid, and the uninsured. Families USA, Hidden Tax

The cost to provide private insurance to all 45M uninsured (including children) was about $188B annually using the private insurance cost numbers from above. As you can see, there is about $449B available and currently being spent. If everyone had health insurance with a single payer at the current overhead of Medicare (1.5%), we would save about $449-$188 = $260B annually and everyone would have comprehensive health insurance. 

Seems like a good deal to me!

More to come.

The Upcoming Healthcare Debate: Universal and Single Payer, Get Ready

Posted by Stephen Weinberg, MD FACC FACP

With the changing political landscape in Washington and the dismantling of the Affordable Care Act (Obamacare, ACA), it is becoming clear that a significant portion of the population will again be without affordable, comprehensive healthcare. This will likely spark a serious national debate as to what steps should be taken to resolve this situation.

There are many ways to think about this, but I believe it is important to decide at the outset whether you believe comprehensive healthcare is a right or a privilege.

 If you believe it is a right, with altruism as your guide, then we need to determine what services should be included and how to pay it. If you believe it is a privilege, then the marketplace should decide what coverage you purchase and how much you will pay for it. It is important to note that the US is only 1 of 5 countries in the world that has not ratified the UN 1966 Covenant of Social and Cultural Rights which stipulates that each country will provide for “The creation of conditions which would assure all medical service and medical attention in the event of sickness”. We are in the company of Cuba and 3 other third world countries. Additionally, the lack of comprehensive healthcare is the third leading cause of death in the US in the age group 50-64, behind heart disease and cancer.

If you believe healthcare is a privilege, then you should consider your own self interest as a driving force regarding your decision as to how to proceed. If it can be shown that it is less costly to provide universal comprehensive care, then you should support it. I will address this issue in detail in future posts.

There is a difference between “universal” healthcare and a “single payer” system. “Universal” means that all the people in your society are covered with comprehensive healthcare. The mechanism of paying for it can be with private health insurance, a public/governmental plan, or a combination. All industrialized countries in the world provide for “universal” coverage of their citizens. The payment mechanisms vary, as noted above, from country to country. The benefit of “universal” coverage is that you have a large risk pool so you can spread the costs over more people making it less costly for everyone.

This “universal” coverage doctrine is very different from a “single payer” system.

A “single payer” system means that all costs are paid for by one entity, typically the government, except for a small amount of self pay for copays and deductibles. Bear in mind that a “single payer” system could allow for payment of certain healthcare expenses in addition to the basics covered by the system. An example would be costs for elective cosmetic surgery not related to an illness or injury. The benefit of a “single payer” is lowered overhead in that you would not have duplication of resources of each payer which would include the buildings, computers, marketing, management and their salaries, lawyers, accountants, actuaries, shareholder profits, and the corporate jet. Additionally, another benefit is that there would be one set or rules that providers (physicians, hospitals, home care nursing, etc.) would have to follow making it less costly and more easily managed.

It is important, therefore, to not confuse the terms “universal” and “single payer”.

In future posts, I will discuss in detail the costs associated with our current system and compare them to those of a “universal” system and a “single payer”. In an effort to participate in what I believe will be the upcoming national discussions regarding healthcare, you need to have the information necessary to speak with authority and I will provide it. I believe you will be surprised about the actual costs and what can be accomplished with the current amount we are spending on healthcare.

Further information will be forthcoming very shortly. Stay tuned.

Fee for Service Medicine is going to disappear

Posted by Stephen Weinberg, MD FACC FACP

Fee for service medicine may be a thing of the past, relatively soon.

The President and Congress have stated on multiple occasions that they believe fee for service medicine is the principle cause of the high cost of medical care. The theory is that physicians often order tests that are sometimes unnecessary in order to increase their income. Unfortunately, it is difficult if not impossible to be certain that these tests are, in fact, inappropriate. Studies that have tried to determine the usefulness tests ordered by physicians look at tests that were performed relative to the final diagnosis. However, the tests were performed in order to make the diagnosis. It is not surprising that some of the tests were not directly related to the final diagnosis, since the final diagnosis was unknown at the outset. Admittedly, a small percentage of physicians probably churn testing to enhance their incomes. On the other hand, the vast majority of physicians practice appropriate medicine and order tests they believe are necessary and follow appropriate guidelines.

So what does Washington propose to take the place of the current system? The programs being put in place are related to the Accountable Care Act (Obamacare). Physicians will be placed into Accountable Care Organizations (ACO's) which will pay them salaries based upon the financial performance of the organization. Simply put, if the ACO makes money, physician income will increase; and if the ACO loses money, physicians will earn less. My fundamental concern with this system is that there is a perverse incentive to do less for patients because of the very real financial "vice" physicians will be put into. I believe it is important that the patient has confidence in the physician doing what is best for the patient and not the physician. This new system will damage the physician-patient relationship and create uncertainty about whose interest the physician is truly serving.

Additionally, there is no good data to suggest that this type of system will be effective. Medicare has done several demonstration projects over the past 20 years in a effort to show that costs will decrease and quality will be enhanced in a non fee for service system where physicians and hospitals are at risk. These studies have not shown any significant benefit as reported by the Congressional Budget Office. Despite this failure, Medicare has now licensed more than 200 ACO's and more will be coming to a region near you. As pointed out in a prior post, the ACO is supposed to provide a letter to each patient indicating that they and their physician are in the ACO, but the letters do not point out the financial implications. It is one thing to be in the ACO with full disclosure and quite another to not know all the intricacies.

What is interesting is that none of the major medical centers that have had this staff model for years (Mayo, Cleveland, Geisinger, and others) has joined the ACO programs. One could argue that some of the motivation of groups to form these ACO's is that the handwriting is on the wall as to the direction of the government programs, there is perhaps money to be made, and the organizers can control large regional resources of physicians, hospitals and money, so why not do it. This does not seem to be an appropriate motivation.

So what is an alternative?
The easiest way to promote appropriate use is to have the physician office computers ramped up with some artificial intelligence to point out what is the best testing for the patient's symptoms and problems. This would not be very difficult with overlay software packages that can provide appropriate use criteria in real time. There would always be the ability to override the recommendations with good reasons. The problem is that by not planning ahead when practice computers were mandated by the government, there are so many platforms now that it would be a more difficult task, but not impossible. This is just another example of poor planning by Washington. They jump from one issue to another without long term thought as to the best approach. Instead of trying things out in a regional laboratory, they move ahead with draconian programs that can destroy the healthcare system. And when they try programs that do not work, as above, they embark on them anyway.

The current programs of healthcare delivery set forth in the Accountable Care Act are like throwing the baby out with the bath water. We will develop a system that few will like or trust with uncertain results.

The easiest way to control costs is to set a fixed annual budget for healthcare nationally and regionally and then you will have certainty as to cost. I do not think any consumer of healthcare wants this alternative; but, believe it or not, this proposition is also part of the ACA with ACO's taking the lead. By doing this you will have Canadian and European healthcare with all the problems associated with it. More about this in a later post.  

It is important that we all have knowledge about what is coming down the road with the ACA and speak out against policies that will be detrimental to our collective health.

Less Money for your Care!!

Posted by Stephen Weinberg, MD FACC FACP
In October, 2012, Medicare established a program to reduce the frequency of hospital readmissions that occur within 30 days of discharge for 3 illnesses. Hospitals are being financially penalized for readmissions that are more than the predicted by Medicare. 2225 hospitals will be penalized a total of $227M this year. Since this money will  come out of their operating budgets, less money will be available for patient care, your care.
Hospitals caring for the poor were more likely to be penalized than those that did not. 77% of indigent hospitals vs. 36% of non-indigent hospitals are having money withheld. Medicare does not take into account the socioeconomic profile of hospitals. 87% of academic teaching hospitals, which care for a disproportionate number of indigent patients, are being fined. These reductions are in addition to the fact that the hospitals do not get paid for that readmission as well. These institutions typically provide sophisticated  tertiary care services to a large segment of the population and can ill afford reduced reimbursements.
These reductions are in addition to the increased expenditures for social workers, discharge nurses and more intense post hospital care paid for by these hospitals. It should also be noted that the government penalizes hospitals for keeping patients in the hospital longer than predicted. Premature discharge contributes to re-hospitalizations. So if you keep patients too long, you get penalized. If you discharge them prematurely, they have a higher chance of readmission. Seems like perfection is the only answer.
Whose fault is it if the patient cannot afford medications (hospitals often provide drugs for several days at home), appropriate dietary components such as a low salt diet for congestive heart failure, unable to truly understand what it takes to stay well despite extensive written and verbal instructions? Many patients just do not care or cannot comprehend the complexities of their own care.
The % hold back (2% now) will be increasing over the next couple of years and additional diagnoses will be added to the list of readmission penalties.
What is important to know is that the government is withholding significant money from many hospitals. This reduced reimbursement will impact your care!

"I have Medicare" or "I have good private insurance, so what do I care about the upcoming changes with Obamacare" Well, think again . . .

Posted by Stephen Weinberg, MD FACC FACP
The Accountable Care Act, better known as Obamacare, has, as part of the program, the imposition of Accountable Care Organizations. These are relatively large organizations comprised of hospitals, physicians and in some instances insurance companies. The goal is to provide a better coordinated healthcare delivery experience for the patient. The end result is to improve the quality of care and reduce costs. I outlined some of the issues in a prior post.
That's the easy part. The more difficult issues involve who's working for who.

First, when your primary care physician joins an ACO, you will likely receive a letter from the parent organization introducing itself and that your physician is part of it. An example is this letter from Partners Healthcare in Boston.
What is important to note is that you need to "opt-out" if you so desire. You will otherwise be part of the ACO if you do nothing!

Second, the type of ACO matters as to how your care may be provided. Briefly, ACO's are being designed with various levels of financial risk. Some will have upside risk, meaning bonuses will be paid for reducing costs and maintaining certain quality standards. The other large type is both upside and downside risk where the organization may lose money if costs are in excess of revenues. These losses will filter down to physicians as well as the hospitals. So how might this affect you? Savings can occur by reducing costs through standardizing hospital purchases of equipment, drugs and disposables; standardizing protocols of care; better sharing of information; and coordination of the various aspects of care. Other cost saving measures consist of reducing readmissions to the hospital, reducing the use of expensive testing and therapies (MRI, CAT scans, cardiac cath, PET scans, surgeries, pacemakers, defibrillators, etc.). These are all laudable goals except if they produce harm to patients. Quality indicators are being designed to determine if care is substandard. Unfortunately, these measures are very imprecise indicators and on an individual basis, they are not very helpful. As a patient, you may be injured as a result of withholding care. The financial incentives may be too great to allow for protection of individual patients. It may be that the quest for cost savings may lead to harm of some individual patients. I believe this highly likely. When I was writing my book on healthcare financing several years ago, I performed a non-scientific survey of many of my patients to see if they would accept somewhat less care if the cost savings benefited the country as a whole. Not one patent was willing to accept any change in care! They all wanted to know that their physician had their welfare as the only issue. I feel the same way and as a physician, I do not want an incentive program to influence my decisions regarding care. The pressure to withhold testing and therapy could be so great that patients may suffer, individually. Putting in place purchasing and protocols makes sense, but incentives that may withhold care are dangerous.

So what are the messages that you need to understand?
You may be in an ACO and do not know it.
Your care may be influenced by the policies of the ACO and you may not know it.

At the very least, it is important to provide full disclosure to all patients regarding the parameters of the ACO they are enrolled in. The government should mandate this. The Partners letter is incomplete and needs further details about the positive and negative incentives of the program. With this information, you can then have a conversation with your physician decide what you want to do. If you do not think the ACO policies are something you can accept, you have the option of opting out and changing your physicians.

The more you know, the better off you are!