July 3rd, 2009 by admin in Better Health Network, Health Policy, Opinion
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[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.*
June 30th, 2009 by Happy Hospitalist in Better Health Network, Opinion
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The drug makers have agreed to cover part of the costs of brand name drugs in the donut hole, that no man’s land of Medicare Part D where patients must pay for their own drugs.
As reported:
Obama said that drug companies have pledged to spend $80 billion over the next decade to help reduce the cost of drugs for seniors and pay for a portion of Obama’s health care legislation. The agreement with the pharmaceutical industry would help close a gap in prescription drug coverage under Medicare.
I see one problem with the assertion that drug companies will be “spending” $80 billion dollars to reduce the cost of drugs for seniors. Drug companies and by default, their board of directors have allegiance to their shareholders, not the the US government or the seniors of this country. I can assure you, this deal may look good on paper (for seniors) and it may benefit seniors a great deal (FREE=MORE) but it is also one step further to the promised land of the senior vote. And it will worsen access to drugs for everyone else. There is no free lunch in this world.
It may save seniors money, but it will not be revenue neutral. It will not save $80 billion dollars over 10 years or reduce overall costs of care. Somehow, someway, the costs will be shifted. It may mean higher drug costs for those privately insured or the uninsured. It may mean decreased access to compassion programs. It may mean higher costs to hospitals. Whatever the agreement means, it will not mean $80 billion dollars saved in the next decade.
Drug companies are not in the business of sacrificing their shareholders or bond holders for patriotic means. They are in the business of making money. And that means they have selfish interests to maximize their ROI for any agreement they make with the government.
The question isn’t really how wonderful this is for seniors. The question is how will buying off seniors affect the rest of America. And I’m telling you here, right now, you will see higher costs for everyone not lucky enough to bathe in a sea of FREE=MORE known as the Medicare National Bank.
*This blog post was originally published at A Happy Hospitalist*
June 29th, 2009 by admin in Better Health Network, Health Policy
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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.
February 24th, 2009 by Dr. Val Jones in Health Policy, Medblogger Shout Outs, Opinion
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As far as I can tell, there are very few physicians currently involved in the innermost circles of healthcare reform. This is concerning to me, not because I’m one of those “paternalistic doctors” who “drive up in their Porsches threatening to pull out of Medicare” but because I think that many policy makers don’t really understand the incredible complexity associated with doing the right thing for patients. Here is an excerpt from the WhiteCoat’s Call Room blog that perfectly illustrates why practicing good medicine often requires a break from protocol:
It isn’t just the patients who think I’m a bad doctor.
Based on the information from all the pinheads at Medicare’s “HospitalCompare” web site, I’m downright dangerous.
For those who don’t know about Hospital Compare, it is a site where the general public can compare the “quality indicators” for hospitals on measures deemed important by the AHRQ.
I failed to meet a couple of indicators recently, so I received notices from our hospital administration that I am now considered out of compliance with the HospitalCompare guidelines and am bringing down our numbers on the HospitalCompare.gov web site.
In other words, Medicare thinks I’m a bad doctor.
Let me tell you about the patients I screwed up on.
The first patient was a gentleman in his 70’s who started having chest pain at home. He got sweaty, passed out, and hit his head on the concrete floor in his house, causing a nice goose egg on the back of his noggin. When he arrived in the emergency department, he was still having chest pain, so we hooked him up to an EKG and … lo and behold … he was having a myocardial infarction.
According to the quality indicators at “HospitalCompare”, if a patient with a heart attack is going to receive thrombolytics (”clot busters”), the thrombolytics must be given within 30 minutes of the patient’s arrival at the hospital. If a health care provider takes longer than 30 minutes to administer thrombolytics to someone with a heart attack, the government considers that provider to be practicing bad medicine.
Now I’m faced with a choice:
A. Do I give clot busters to someone who sustained a significant head injury (and may be bleeding internally) so that I can look like a “good doctor” to Medicare and HospitalCompare.hhs.gov? If there is bleeding inside his brain, clot buster medications will make the bleeding worse and could kill him.
-OR-
B. Do I perform a CT scan on the patient to make sure that there is no bleeding inside his brain before I give the clot-buster medications? If I do the CT scan, there is no way that we’ll get the results and be able to give the patient thrombolytics within the 30 minute window.
If I choose “A,” the hospital stays in the upper echelon of facilities that meet HospitalCompare.hhs.gov’s guidelines. Doesn’t matter if the patient dies – according to Medicare, “We’re Number ONE!”
If I choose “B” I’m doing what is right for the patient, but our hospital will look bad and HospitalCompare.hhs.gov will plaster it all over the internet that our hospital doesn’t follow Medicare’s rigid and sometimes life-threatening guidelines.
I chose “B.”
According to HospitalCompare.hhs.gov, my decision made me a bad doctor…
