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Why Medicare-For-All Would Not Reduce Costs

[This post was written by Charlie Baker, President and CEO of Harvard Pilgrim Health Care, Inc., one of New England’s leading non-profit health plans.]

I heard this idea promoted at a luncheon I was at last week — that the best way to fix health care in the U.S. would be to move to a “Medicare-For-All” system.  Needless to say, I find this odd — since I think many of the things people hate most about our existing system — too procedure driven, doesn’t support primary care and prevention, favors technology over face-to-face interaction, doesn’t support multi-disciplinary approaches to care delivery, etc. — derive from the rules of the game set up and enforced by…Medicare!!!  Yikes!

But aside from that, the two things I always hear about why it’s a good idea are — Medicare has lower Administrative costs than private health plans and they’re a ”better” payer than the private plans.  Hmmm…Let’s take the first one.  What I’ve heard before is that Medicare only spends 4% of its money on a per beneficiary basis on administration, while the plans spend 14% per member on administration — a big difference.  This is interesting, but misleading.

Medicare beneficiaries are over the age of 65.  They spend almost three times as much money on health care as a typical private plan member — most of whom are under the age of 65.  If the Medicare member typically spends $800 per month on health care, and 4% of that is spent on administration, that’s $32  a month on administration.  If the private health plan member typically spends $300 per month on health care, and 14% of that is spent on administration, that’s $42 a month — a much smaller difference.  But we’re not done yet.  Medicare is part of the federal government, so its capital costs (buildings, IT, etc.) and benefit costs (health insurance for its employees and retirees (!), pension benefits, etc.) are funded somewhere else in the federal budget, not in the Medicare administrative budget.

Private plans have to pay for these items themselves.  That’s worth about $5-6 per member per month, and needs to come out of the health plan number for a fair comparison.  Now we’re almost even.  And finally, Medicare doesn’t actually process and pay claims for all of its beneficiaries.  It contracts with health plans around the country to do much of this for them.  That’s not in their administrative number, either — and it is, needless to say, in the private health plan number.

People push and pull these numbers all the time, and there may be “some” difference between Medicare and the private health plans on administrative spending as a percent of total spending.  But it’s not huge, if you try to compare apples to apples.

On the payment issue, the numbers I’ve seen suggest that nationwide, private plans — on average — pay somewhere between 120 and 125 percent of what Medicare pays for hospital and physician services.  In other words, private plans pay MORE than Medicare pays, not less!  If people want Medicare For All, they need to be prepared to either dramatically raise Medicare rates and payment — and therefore, Medicare costs — by a lot of money — 20 to 25% by this estimate — or kick the bejeebers out of the physician and hospital communities and make them eat the difference.

Medicare-For-All is not as simple as it seems.

*This blog post was originally featured at the Let’s Talk Healthcare blog.*

Generic Biologic Drugs: What Are They And Will They Save Billions Of Dollars?

Much has been made of the recent pressure on the FDA to create a pathway for follow-on biologics. On June 9, 2009, Rep. Henry Waxman, chair of the Energy and Commerce committee, sent a letter to President Obama imploring him to approve a pathway for generic biologics: “I urge the administration to consider what steps can be taken under existing authority to prepare and even begin to use a pathway for generic biologics.”

Six days later, President Obama, in his June 15, 2009 speech to the AMA, followed Waxman’s lead, asking the FDA and industry “to introduce generic biologic drugs into the marketplace.” He continued: “These are drugs used to treat illnesses like anemia. But right now, there is no pathway at the FDA for approving generic versions of these drugs. Creating such a pathway will save us billions of dollars.”

Is this true? Are follow-on biologics, biosimilars, or generic biologics (all names for the same concept) truly the path to healthcare savings? And what are they, anyway? To clear up the confusion, this post aims to explain what biologics are, what generics are, and what the challenges are in the creation of an approval pathway for generic biologics.

What are biologics? How do they differ from traditional small-molecule therapies?

When you think of a drug, you probably think of a pill like Tylenol or Lipitor. You may not be as familiar with biologics, which are attracting a great deal of attention from policymakers and media. Biologics represent a different set of drugs, distinguished by their size, their informational and manufacturing complexity, and their therapeutic advantages.

If you were to look at most drugs under a microsope, you would find that they are actually rather small relative to a typical biologic. Acetaminophen, which is the active ingredient in Tylenol, weighs 150 daltons (a dalton is a unit of atomic mass). Enbrel, on the other hand, which is a top-selling biologic indicated for several autoimmune diseases, weighs 150,000 daltons. To put that thousand-fold difference in visual terms, if Tylenol weighed as much as your mountain bike, then Enbrel would weigh as much as an unfueled 12-passenger private jet. Hence you will often hear people in the pharmaceutical industry refer to “small molecule” drugs and “large molecule” drugs — because these are two truly distinct classes.

Biologics are often designed to closely mimic the body’s own specific natural processes. Because of this higher specificity, biologics tend to bind to drug targets in the body more precisely than do traditional drugs, which may bind to other unintended targets in the body, placing the patient at greater risk of side effects.

On top of it all, there is currently no defined pathway at the FDA for companies to develop generic versions of biologics, so biologic manufacturers retain data exclusivity over their products. Not surprisingly, the therapeutic and market advantages of biologics have caused pharmaceutical companies to focus their efforts on developing or acquiring biologics over small-molecule drugs. In fact, according to a recent forecast, by 2014, seven of the top ten drugs in America will be biologics, including every single one of the top six.

Unfortunately, while biologic therapies provide a great deal of therapeutic benefits, they are also extremely challenging for biopharmaceutical companies to develop and manufacture, because they are composed of entire proteins, carefully grown through recombinant DNA methods which are newer and less practiced than traditional drug chemistry methodologies. A traditional drug is usually derived through a set of chemical reactions. It’s a lot like following a recipe. Synthesizing a biologic, however, is a bit more like cloning a cat. In order to synthesize a biologic, host mammalian cells, usually Chinese hamster ovary cells, must be implanted with a gene that codes for the desired drug. The host cells are maintained in a special bioreactor that is designed to keep the cells alive as they translate, synthesize and excrete the drug. The broth of cells must then be harvested from the cells, modified, purified, and tested. The solution is finally packaged into vials or pre-filled syringes for distribution.

This manufacturing process is unusually challenging to reproduce consistently, even within a company. For example, Johnson & Johnson manufactures epoetin alfa, an anemia therapy, under the name EPREX in Europe. In the late 1990s, J&J changed its manufacturing process for EPREX at the request of the EMEA (the European version of the FDA). The process change caused some patients to develop pure red blood cell aplasia, a serious adverse reaction. Rather than receiving the benefit of the anemia therapy, these patients actually lost their ability to make red blood cells because they produced an antibody (triggered by the faulty EPREX) that inactivated both the EPREX and the body’s natural protein that is essential for red blood cell production. J&J eventually determined the cause of the adverse reaction and corrected it, but only after a lengthy and expensive investigation.

Because of the intense development and manufacturing process, biologics are also significantly more expensive than traditional therapies. Herceptin, an effective treatment for some forms of breast cancer, can cost as much as $48,000 for one year’s worth of treatment. It’s important to keep in mind, however, that virtually every drug company provides programs to help underinsured or uninsured patients get financial assistance in the form of co-pay cards, co-pay grants, or free drug programs. Simply contact the drug manufacturer.

Why have biologics gotten so much attention from healthcare reformers such as Rep. Waxman and President Obama?

The high cost of biologic therapies has attracted attention from both private payers, such as Aetna and UnitedHealthcare, and public payers, such as Medicare, Medicaid, and state health insurance programs. While payers agree that the therapeutic benefits of these treatments are important, they are still anxious to limit their exposure to the high price tags. Most insurers require several other therapeutic steps before allowing a physician to prescribe a biologic therapy.

Wait, what exactly is a generic? And what’s all this talk of bioequivalence?

The Hatch-Waxman Act of 1984 established a pathway for generic versions of small-molecule drugs to be offered to the public. Once the patent ends on a drug, generic drug makers may manufacture and sell the same drug without repeating the research, expensive clinical trials, or marketing efforts conducted by the original patent holder. These savings allow generic manufacturers to sell their versions for a lot less.

In order to gain approval, the maker of the generic must still show bioequivalence to the original drug, called the “reference listed drug” in the generic drug maker’s application. In a bioequivalence study, the reference listed drug is administered to one group of healthy volunteers, and the generic is administered to a second group. The blood concentrations of the active ingredients are measured over time and graphed. If the generic drug’s graph lies between 80% and 125% of the graph of the reference listed drug, then the two are deemed bioequivalent, and the generic drug is approved. Once approved for the market, it may be sold and independently substituted by a pharmacist for the branded medication without telling the physician, assuming the doctor has not expressly forbidden generic substitution. This last permission is referred to as the “interchangeability” of the drug.

Why can’t Congress just duplicate the same approval process used for generic small-molecule drugs?

In theory, Congress could. In practice, however, there are several technical hurdles that remain to be cleared. As discussed above, the processes used to create biologic therapies are extremely sensitive to manufacturing changes, as in the EPREX case. If a generic biologic manufacturer develops its own process, there is a good chance that the quality of the product would differ from that of the reference listed drug. Furthermore, no one has yet confidently measured bioequivalence for a biologic.

Frank Torti, Chief Scientist of the FDA, summarized these issues very well in a September 2008 response to a Congressional inquiry about follow-on biologics:

Because of the variability and complexity of protein molecules, current limitations of analytical methods, and the difficulties in manufacturing a consistent product, it is unlikely that, for most proteins, a manufacturer of a follow-on protein product could demonstrate that its product is identical to an already approved product. Technology is not yet sufficiently advanced to allow this type of comparison for more complex protein products.

All is not lost, though. The FDA could still create a pathway for generic biologic manufacturers to develop “biosimilars,” which are products that are intended to be close to a reference listed drug but cannot be shown to be the same. Because they are not the same, biosimilar manufacturers would likely have to conduct clinical trials to show that their version is safe and effective for human use, and can be manufactured consistently.

What are the realistic cost savings?

Because of the added cost of clinical development, testing, and marketing of a biosimilar product on top of the difficult manufacturing process, and competition, generic biologic pricing is more likely to resemble brand-to-brand biologic competition than the generic-to-brand competition seen in the small-molecule drug marketplace. Therefore, it’s not yet clear how much more affordable a FOB would be for health insurers. Without being able to show that the products are truly identical and therefore interchangeable, physicians are also likely to be reluctant to try what is essentially a “new” drug that does not truly share the established track record of the original drug. Payers and patients may be excited about the lower cost but skeptical of potential safety issues. As a result of these factors, generic biologic manufacturers may ultimately fail to capture enough business to make up for the upfront expenses of clinical testing, as well as the ongoing manufacturing and marketing expenses.

The Federal Trade Commission recently published a report that studied and called out these limitations. The consequences of the market dynamics imply that only two or three companies with large biologics manufacturing capabilities will even bother to get involved in this field, because only those companies will already have the plants and people to compete effectively. Ironically, the FOB manufacturer for a given reference drug will probably be other biologics innovators who already have the manufacturing capabilities but don’t normally compete in that particular market.

What would be some of the other implementation challenges for the government?

For one, CMS would need to decide how to bill and code for the new products, a subtle referendum on how identical the biosimilars will really be. If they give the generic versions the same codes as the originals, interchangeability is easier and the cost savings are more likely to materialize. On the other hand, it’s important for both the FDA and CMS to track adverse events with these new products (an activity known as “pharmacovigilance”), which is easier to do if the codes are different.

Where does the policy debate stand? What are the Eshoo and Waxman proposals?

The current Waxman bill is remarkably similar to the Hatch-Waxman Act of 1984, which was originally designed for small-molecule drugs. It would not require any new clinical trials for generic biologics provided that the generic had a “highly similar molecular structures,” and allows a case-by-case determination on whether or not safety and efficacy data would be required before pharmacies could substitute generics for reference biologics without telling the physician, but the default would be to allow substitution on approval. The Waxman bill allows for five to nine years of data exclusivity for the original patent holder.

The current Eshoo bill would require clinical trials comparing the generic biologic to the reference biologic, unless the FDA waived them. Rather than automatically granting interchangeability upon approval, the FDA would have to publish guidance with data that describe the criteria required for interchangeability. The bill also recognizes the greater challenge in developing biologics by allowing for twelve to fourteen years of data exclusivity.

Can the healthcare system really save billions of dollars with biosimilars?

President Obama’s speech to the AMA suggested that billions of dollars would be saved by the creation of a biosimilars approval pathway. Several others to study the issue have cited fairly conservative numbers. Avalere Health put the federal savings at $3.6 billion over a ten-year period, while the Congressional Budget Office says $6.6 billion. Avalere’s model assumes moderate discounting, several entrants, slow uptake of biosimilars, and a ten-year data exclusivity period. The CBO report scores a bill that resembles the Eshoo option described above, but doesn’t account for some of the market dynamics discussed above and in the FTC report.

Finally, to keep pharmaceutical costs in perspective, policymakers should remember that prescription drugs currently make up only 10% of healthcare costs, while physician services make up 21% and hospital care makes up 31%. The CBO estimate also predicts that follow-on biologics would save $25 billion on national biologics expenditures over ten years. Even if correct, those savings still make up one-half of one percent of all national spending on prescription drugs, which is itself one-tenth of all healthcare spending in the United States.

Which option makes more sense?

Overall, the Eshoo bill appears to do the best job of reflecting the current technical challenges particular to biologic therapies. The need for clinical trials to insure the safety, efficacy and quality of FOBs ought to be non-negotiable. However, given the high cost of becoming a FOB manufacturer, and the small number of likely entrants, the optimal length of data exclusivity is a good open question. Henry Grabowski of Duke University studied the issue and concluded that an ideal breakeven point is 12.9 and 16.2 years, also suggesting that the Eshoo option is the most likely to drive economic growth. The European Union currently allows for biosimilars and permits ten to eleven years of data exclusivity. Let’s hope that policymakers work hard to thoughtfully strike the right balance that maintains both a stream of innovative therapies from scientific pioneers and a structure that wisely manages costs for payors.

Author’s bio:
Jonathan Sheffi is a summer intern in the FDA Office of Biotechnology Products. Before the FDA, Jonathan worked for Amgen, first as a marketing analyst and then as a biopharmaceutical sales rep. He will start at Harvard Business School in the fall of 2009, and is seeking an internship opportunity for the summer of 2010. Follow Jonathan’s blog at http://jonathansheffi.com/ and on Twitter at @sheffi.

Acknowledgments:
Thank you to Val Jones (Better Health), Niko Karvounis (The Century Foundation), and Kimberly Barr (UnitedHealthcare) for their comments and suggestions.

Disclosures:
All included information has been derived only from publicly available sources. This blog post reflects the author’s personal opinions and do not represent the opinion of any other organization or individual.

Get Your Fruit On


Get Your Fruit On! I love this new tagline from Tropicana. Statistics show that 7 out of 10 Americans are not getting enough fruit in their daily diets. The Dietary Guidelines encourage us to get 2 cups of fruit per day. For those who do get their fruit, many are getting it from 100% orange juice.

Children are especially susceptible to not getting enough fruit. An 8 ounce glass of 100% orange juice has:

  • 2 servings of fruit
  • 120% of Vitamin C
  • 13% of Potassium
  • 15% of Folic Acid
  • No Sugar Added
  • 110 Calories

Tropicana is actually donating up to a quarter of a million fruit servings in the form of Tropicana Pure Premium 100% orange juice to the USDA Summer Food Service Program and the School Breakfast Program. Both programs offer free or reduced price nutritious meals to children in low- income areas. Tropicana did this by getting 5,000 Americans to pledge to increase their fruit intake.

Other tips to Get Your Fruit On (courtesy of Elizabeth Ward, RD):

  • Add in-season fruit to your morning bowl of oats or cereal.
  • Blend a smoothie using your favorite fresh or frozen fruit and a cup of OJ
  • Create a breakfast trail mix by combining dried fruit, nuts, and cereal. You can also use this as a snack.
  • Assemble breakfast fruit kabobs using pineapple chunks, bananas, grapes, and berries.
  • Drink a glass of 100% fruit juice at breakfast.

This post, Get Your Fruit On, was originally published on Healthine.com by Brian Westphal.

Is Soy Safe?


I have had several people recently ask me about whether eating foods from soy is harmful. Some have asked because they have a thyroid problem and heard that soy interferes with their synthroid, others are worried about breast cancer, and most recently I guess some negative press has been writing about men and soy. Let me try to set the record straight.

What is soy?
All soy foods come from soybeans. Soy has a high protein content as well as carbs, fiber, vitamins, minerals, and some healthy fats. Soy is an excellent source of plant-based protein because it is known as a “complete protein” meaning it contains all of the essential amino acids. Whole soy is best, meaning it has been minimally processed and you are getting the naturally occurring nutrients found in the soybean. Foods that contain whole soy are edamame, soynuts, and surprisingly a bar called SOYJOY. Tofu and soymilk are also great sources of soy.

Health Benefits/Dispelling Myths
Numerous health benefits of soy have been very well documented in literature. In addition, many myths about soy have been dismissed with research studies.

Heart health: Soy is cholesterol free, low in saturated fat, and contains healthy fats. Some evidence also shows that it helps to lower LDL, or “bad” cholesterol.
Breast cancer: A high soy intake during puberty has been shown to reduce breast cancer risk, but consuming it as an adult has not been linked to lowering risk. Some animal studies have connected soy isoflavones with breast cancer growth, but no data on humans has supported this. In fact, some studies show a favorable impact on breast cancer outcomes with soy. Check with your physician before taking a soy isoflavone supplement. The American Cancer Society suggests that up to 3 servings of soyfoods per day is safe for a breast cancer survivor.
Bone health: Soybeans and calcium-fortified soyfoods are good choices because of the soy isoflavones as well as calcium and Vitamin K which can help bone mineralization.
Menopause: Over 50 studies have examined whether soy can relieve hot flashes in menopause and the consensus is that it may for many women but it depends on hot many hot flashes you get and how much soy isoflavone is taken.
Reproduction: No human data shows that consuming soy causes abnormal testosterone or estrogen levels. Several studies found no affect on sperm or semen when consuming soy isoflavones.
Thyroid: A comprehensive review of literature concluded that soy does not adversely affect thyroid function. Researchers recommended that thyroid function be reassessed if there is a large increase or decrease in soy intake, but normal day-to-day variations are unlikely to affect normal thyroid function.

Good for the Planet
Soy is environmentally friendly. The amount of fossil fuel to process soybeans is estimated to be 6-20 times less than that used to produce meat.

Bottom line
Soy foods can be part of a healthy diet for men and women. Eating 2-3 servings per day of soy foods is safe and very healthy. Soy contains important protein, amino acids, fiber, calcium, potassium, zinc, iron, and folic acid.

For more information:
www.soyconnection.com
www.soyjoy.com

This post, Is Soy Safe?, was originally published on Healthine.com by Brian Westphal.

How Much Protein Do You Really Need?


Have you ever thought about how much protein you are supposed to get each day? The answer to that question is not as black and white as you may think.

The Recommended Dietary Allowance (RDA) for protein is set at 0.8 grams (g) per kilogram (kg) of body weight. In order to figure out your weight in kg, divide your weight in pounds by 2.2. So if you weigh 150 pounds (68.2 kg), you need about 55 grams of protein. You can also use 0.36 grams per pound of body weight if you don’t want to convert to kg.

The RDA is set at a level of what you need to prevent deficiency. But many researchers believe that we actually need more than that for reasons of muscle building and for optimal satiety (to keep us full).

Here are some other recommendations:

Pregnancy/lactation: 1.1 g per kg body weight (0r 0.5 grams per pound). You can use pre-pregnancy weight for the calculation. The point is you need significantly more protein when pregnant. Add 25 grams more per day if you are carrying multiples. This extra protein is especially important in the second half and third trimester. You can also use 0.55 grams per pound body weight to calculate.

Endurance athletes: 1.2-1.4 g per kg body weight (or 0.55-0.65 grams per pound). Endurance athletes often think of carbs, carbs, carbs, and they ignore protein. But you are using your muscles quite a bit and need extra protein to repair them. Endurance athletes would be runners, bikers, long distance swimming, etc.

Strength athletes: 1.6-1.7 g per kg body weight (or 0.73-0.77 grams per pound). Strength athletes are pushing their muscles to the extreme and need more protein to build and repair those muscles. But don’t skimp on carbs because your body will break down protein for energy if you don’t get enough carbs. Strength athletes are people who do a signficant amount of strength training and may lift very heavy weights.

An upper limit of protein has not really been established, but many researchers believe that the body cannot use much more than 1 gram of protein per pound body weight.

This post, How Much Protein Do You Really Need?, was originally published on Healthine.com by Brian Westphal.

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