Thursday, July 2, 2015

Fwd: qotd: Is it time to nationalize the drug industry?

Quote-of-the-day mailing list

-------- Forwarded Message --------
Subject: qotd: Is it time to nationalize the drug industry?
Date: Thu, 2 Jul 2015 11:16:19 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

June 30, 2015
Novartis to test new pricing model with heart failure drug
By Ben Hirschler

Novartis plans to test a novel pricing model with some customers when it
launches its keenly awaited new heart failure drug Entresto, the Swiss
company's head of pharmaceuticals said on Tuesday.

Entresto, also known as LCZ696, is the first new drug in decades for
helping patients whose lives are in danger because their hearts cannot
pump blood efficiently. As a result, it is widely expected to generate
billions of dollars in annual sales.

How the product should be priced, however, is a dilemma for Novartis,
since the company wants to reach as many patients as possible and it
knows it will be competing with very cheap - though less effective -
older medicines.

David Epstein said he was talking to several healthcare customers about
a system under which they would get the drug at a discount but then pay
Novartis more if, as expected, it successfully reduces the need for
costly hospital visits.

"We are beginning to share the risk," he said in an interview.

The idea of moving from a simple pay-per-pill model to one based on
clinical outcomes is being considered by several drugmakers, and
Novartis already has such a system in place for one customer using its
multiple sclerosis drug Gilenya.

But Entresto could be an important test case because the drug will push
up immediate drug costs markedly for a large number of patients, while
having the potential to reduce their long-term medical bills.

The issue of drug pricing has come to a head recently, thanks to the
launch of extremely expensive new medicines for cancer and hepatitis C,
which are straining healthcare systems and adding to co-payment costs
for patients.

Epstein, whose team is in the final stages of deciding the price for
Entresto, declined to detail a likely cost per pill. But he said it
would take into account "cost offsets", such as fewer hospitalizations,
as well as the value added from improving patients' lives.

"We going to try and be fair and reasonable," he said.


Health Economics
October 2014
Cost-Offsets of Prescription Drug Expenditures: Data Analysis Via a
Copula-Based Bivariate Dynamic Hurdle Model
By Partha Deb, Pravin K. Trivedi and David M. Zimmer


In this paper, we estimate a copula-based bivariate dynamic hurdle model
of prescription drug and nondrug expenditures to test the cost-offset
hypothesis, which posits that increased expenditures on prescription
drugs are offset by reductions in other nondrug expenditures. We apply
the proposed methodology to data from the Medical Expenditure Panel
Survey, which have the following features: (i) the observed bivariate
outcomes are a mixture of zeros and continuously measured positives;
(ii) both the zero and positive outcomes show state dependence and
inter-temporal interdependence; and (iii) the zeros and the positives
display contemporaneous association. The point mass at zero is
accommodated using a hurdle or a two-part approach. The copula-based
approach to generating joint distributions is appealing because the
contemporaneous association involves asymmetric dependence. The paper
studies samples categorized by four health conditions: arthritis,
diabetes, heart disease, and mental illness. There is evidence of
greater than dollar-for-dollar cost-offsets of expenditures on
prescribed drugs for relatively low levels of spending on drugs and less
than dollar-for-dollar cost-offsets at higher levels of drug expenditures.


Comment by Don McCanne

With the marketing success of outrageously priced drugs, the
pharmaceutical industry is now devising schemes to be sure that their
new products that are protected by patents will continue to be
introduced with similar outrageous prices. This concept of adding "cost
offsets" to the pricing is not new, but it now has a label that
supposedly legitimizes its inclusion in pricing decisions.

In the past, pharmaceutical firms have cited the high costs of drug
research as an excuse for high prices of new products (though the high
prices of the past were nothing compared to the five and six digit
prices of today's new products). As the public discovers that the drug
industry's advertising budgets are typically three times their research
budgets, and much of the research is funded through government programs
such as those of the NIH, the firms apparently have decided that this
argument is no longer as persuasive, and so they have to find another
reason to justify outrageous pricing.

"Cost offsets" is a convenient label for adding to the the research,
marketing, administration and profit costs of the products. These "cost
offsets" include such concepts as money saved by fewer hospitalizations,
fewer expensive interventions for progression of disease processes, and
for the added value of prolonged lives or the added value of higher
quality lives.

Think about that. What gall it takes for these pooh-bahs of the
pharmaceutical world to suggest that they are entitled to capture, for
themselves, not just the costs and legitimate profits, but the value of
the benefits of their products, through higher consumer prices, whether
paid individually or through some form of public or private insurance.

This perverse type of thinking is not limited to Novartis' David
Epstein. Bayer's Marijn Dekkers 18 months ago said, about their
expensive cancer drug, Nexavar, "we did not develop this product for the
Indian market - let's be honest - we developed this product for Western
patients who can afford this product, quite honestly."

Perhaps more despicable is this entry from a draft of the infamous
Trans-Pacific Partnership Agreement, which contains the following in its
statement of principles: "(d) the need to recognize the value of
pharmaceutical products and medical devices through the operation of
competitive markets or by adopting or maintaining procedures that
appropriately value the objectively demonstrated therapeutic
significance of a pharmaceutical product or medical device."

Not only did the pharmaceutical industry buy off Congress when they went
the route of the market-based Affordable Care Act instead of an
efficient single payer Medicare for all, they have demonstrated to us
that their primary goal is to achieve the greatest returns for their
executives and shareholders no matter the cost to the ultimate consumers
- the patients.

There could not be an industry that cries out more for government
intervention to protect consumers than the pharmaceutical industry (oh
wait, the private insurance industry, of course, but that's another
topic). Many suggest that it is time to demand negotiation of drug
prices, or even to dictate fair prices. But should that be our opening
position? How about calling for nationalization of the industry, at
least their U.S. subsidiaries. That should get their attention. They
have to know that we're serious about wanting relief from their greed.

Wednesday, July 1, 2015

Fwd: qotd: Sound the alarm: The private insurance exchanges are coming!

Quote-of-the-day mailing list

-------- Forwarded Message --------
Subject: qotd: Sound the alarm: The private insurance exchanges are coming!
Date: Wed, 1 Jul 2015 12:35:47 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

The Washington Post
June 30, 2015
Towers Watson merges with London-based consulting firm in $18 billion deal
By Aaron Gregg

Towers Watson, the Arlington-based professional services company that
operates a private health insurance exchange covering about 1.2 million
people, announced an $18 billion all-stock merger with Willis Group
Holdings, a London-based insurance and benefits firm.

The merger is the latest in a series of what Willis chief executive
Dominic Casserley called "carefully targeted mergers and acquisitions"
to expand his company's international footprint. Last month, Willis
Group acquired Evolution Benefits Consulting, a Pennsylvania health and
welfare benefits advisory firm, and in late April it announced it would
fully acquire Gras Savoye, one of France's largest insurance brokerage

Casserley said in a news release that the new company "will advise 80
percent of the world's top-1,000 companies," operating as a one-stop
shop for large employers managing complex aspects of their human
resources mix, benefits such as employer-provided health insurance and a
range of other costs that affect companies' bottom lines.

Because the new company will be based in Ireland, Towers Watson's
corporate tax rate will drop from 34 percent to a projected 25 percent.

This merger "is driven by business purpose, not from a tax planning
standpoint but from serving customers," said John Greene, chief
financial officer of Willis. "The tax benefits that are derived just
happen to be a nice consequence of the transaction."

Towers Watson Chairman John Haley will lead the new company as chief
executive, and Casserley will serve as president and deputy chief
executive of the new company, which will operate under the name Willis
Towers Watson.

Casserley said in a conference call that the merger was first conceived
while Willis worked in partnership with Towers Watson on a health exchange.

The exchange "has rapidly grown to serve more than 1 million members in
the United States," Casserley said. "Many independent analysts believe
that this is just the start, and that the business is at an inflection
point, with the total market likely to grow significantly within five to
seven years."


Comment by Don McCanne

This mega-merger of benefits consulting firms is designed to capture the
rapidly expanding market in private health insurance exchanges. Why
should we be concerned?

The Affordable Care Act (ACA) was designed to protect the sectors of
health care coverage that allegedly were functioning well - especially
employer-sponsored health care plans. The greater changes enacted in ACA
were aimed at the much smaller sector of dysfunctional individual and
small group plans, plus expanding Medicaid for low-income individuals
and families.

So how has it gone for the stable, well functioning employer-sponsored
plans? Not so well. Even though there has been some slowing in the
increase in health care costs, the increases have been in excess of
inflation, and there appears to be a return to an accelerating pace of
cost increases. Most employers are very concerned about the costs of
their employee benefit packages, and they are already taking action to
slow their nominal portion of the increases (though most economists
contend that the employers' portion is actually paid by the employees in
forgone wage increases).

The most important measure already taken by many employers is to
increase cost sharing, especially by requiring high deductibles that
must be paid before most benefits kick in. This reduces the insurance
premiums (or the contributions to the self-insured health trust) for the
employer-sponsored plans since a significant portion of actual health
care spending is shifted to the employees and their families. Other
innovations such as tiering of drugs also shift more costs away from the
employer. Plan beneficiaries also are reducing their utilization of
beneficial health care services when they are exposed to high
deductibles - a perverse disincentive that reduces spending.

The use of narrower provider networks also helps to reduce the
employers' contribution to health care payments. The employers'
representatives are able to contract for lower provider rates in
exchange for a promise of oligopolistic exclusivity. Also the
responsibility for payment of costs for care obtained outside of the
networks is shifted almost entirely to the employees. In addition,
providers known for managing expensive chronic disorders can be excluded
from the networks, impairing the ability of patient beneficiaries to
obtain the care that they need.

The employers are still not satisfied. Some are now beginning to
implement the use of private insurance exchanges. In this model, the
employer no longer offers an employer-sponsored health plan but instead
provides the employee with a voucher or voucher-equivalent to purchase
from a selection of plans in the private insurance exchanges. Since the
value of the voucher is fixed, the employee must bear the additional
costs of plans that have greater benefits. Thus this is a shift from a
defined benefit program to a defined contribution program; by
controlling the value of the voucher, the employer is able to shift much
of the future health care cost increases onto the employees.

If you look at the insurance exchanges set up by ACA, you will see that
the standard plans are low actuarial value plans. The benchmark silver
plan has an actuarial value of 70 percent - the patient is responsible
for paying an average of 30 percent of the costs (though many qualify
for subsidies). The bronze plans have an actuarial value of only 60
percent. Employer-sponsored plans formerly had an actuarial value closer
to 90 percent, but with the plans offered in the private exchanges,
employees usually will select plans that the voucher will cover. This is
a great opportunity for employers to gradually shift the value of the
voucher so that it would cover 60 or 70 percent actuarial value plans,
just like in the ACA exchanges (except that no government subsidies
would be available for the private exchange plans).

This move to private insurance exchanges represents a tremendous
business opportunity for benefits consulting terms, as today's article
indicates (not to mention offshoring to Ireland!) That's just what we
need: more administrative complexity and costs in our system already
tremendously overburdened with administrative excesses. These benefits
consulting firms are selling health insurance products without bearing
any of the insurance risk of those products. The private insurers, with
all of their administrative waste and insurance product perversions,
remain prominent players in the system.

These benefits consulting firms tout choice. The employees are free to
upgrade to a high actuarial value Cadillac health plan if they so
desire. Little does it matter that most of them have hardly enough funds
to be able to purchase a low actuarial value roller-skate health plan.

As if the deterioration in employer-sponsored plans has not already been
enough, this switch to using a defined contribution voucher in private
insurance exchanges will be a disaster for affordable health care for
employees and their families.

Rather than accelerating the move toward private health insurance
exchanges, we need to accelerate the transition to a single-payer
improved Medicare for all program. Or do we just sit back and watch
people go broke and suffer?

Tuesday, June 30, 2015

Fwd: qotd: Link to the PNHP statement on King v. Burwell

Quote-of-the-day mailing list

-------- Forwarded Message --------
Subject: qotd: Link to the PNHP statement on King v. Burwell
Date: Tue, 30 Jun 2015 10:45:44 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

The link to the PNHP statement on King v, Burwell - the subject of
today's Quote of the Day:'subsidies-upheld-but-health-needs-still-unmet'-doctors-group