qotd: New drugs fail to align benefits, risks and costs

Health Affairs Blog
July 6, 2015
Serious Risks And Few New Benefits From FDA-Approved Drugs
By Donald W. Light

Over the past year, the U.S. Senate and The New York Times have been
investigating the failure of the nation's auto safety regulators to
protect citizens from cars with occasionally dangerous faulty devices.

But neither august institution has paid attention to the Food and Drug
Administration's (FDA) failure to protect the 170 million Americans who
take prescription drugs from adverse reactions that are killing more
than 2,400 people every week. Annually, prescription drugs cause over 81
million adverse reactions and result in 2.7 million hospitalizations.

This epidemic of harm from medications makes our prescription drugs the
fourth leading cause of death in the United States. Including
hospitalizations and deaths from prescribing errors, overdosing, and
self-medication, drugs move up to third place.

Below I describe the biases that appear throughout the drug development
process, from initial research to FDA review and approval. I conclude
with recommendations that would reduce drug development costs and ensure
that drugs are only approved if they are safe and significantly more
effective than already existing medications.

Figure 1. Few Clinical Advances in a Decade and Hundreds of Other Drugs
Approved for Promotion

Number of New Drugs, 2002-2011

2 - Breakthrough

13 - Real Advance

61 - Some Advantage

918 - Little or No Improvement

(The exhibit focuses on France, a country whose consumer-oriented drug
market features an array of products similar to the U.S.)

Flooding the market with hundreds of minor variations on existing drugs
and technically innovative but clinically inconsequential new drugs,
appears to be the de facto hidden business model of drug companies. In
spite of its primary charge to protect the public, the FDA criteria for
approval encourage that business model. The main products of
pharmaceutical research are scores of clinically minor drugs that win
patent protection for high prices, with only a few clinically important
advances like Sovaldi or Gleevec.

This business model works. Despite producing drugs with few clinical
advantages and significant health risks, industry sales and profits have
grown substantially, at public expense. Companies spend 2-3 times less
on research than on marketing to convince physicians to prescribe these
minor variations.

The Center for Drug Evaluation and Research (CDER) is the FDA division
responsible for determining whether new drugs should be approved. Its
funding, however, now largely comes not from taxpayers but from the
companies submitting their drugs to CDER for review.

This clear conflict of interest and approving so many new drugs with few
clinical benefits serve corporate interests more than public interests,
especially given the large risks of serious harm. Direct and indirect
costs to society far exceed the cost of funding the FDA as a public,
independent review body.

Peer-reviewed studies already demonstrate how pharmaceutical companies
manipulate FDA rules to generate evidence that their new drugs are more
effective and less harmful than unbiased studies would show. The
industry then recruits teams of medical writers, editors, and
statisticians to select and repackage trial results into peer-reviewed
articles that become accepted as reliable medical knowledge.

Based on his investigations, Marc Rodwin concludes, "Scholarly studies
have revealed that drug firms design trials that skew the results and
that they distort the evidence by selective reporting or biased
interpretation."

New FDA policies to get more drugs reviewed faster so that they can
reach patients sooner result ironically in even more drugs being
approved with less evidence that they are either safer or more
effective. Faster reviews mean the chance that a drug will generate an
FDA warning of serious harm jumps from one in five to one in three.

To protect the public from unsafe and ineffective drugs and earn public
trust, the FDA and Congress must acknowledge the biases described here
that result from pharmaceutical corporations financing the public
regulator. They should also require two changes: that new drugs
demonstrate patient-based clinical advantages through comparative
trials, and that these trials be based on the population that will
actually take a drug.

These changes would reduce the flood of minor variations shown in
Exhibit 1 and the subsequent billions spent on them.

http://healthaffairs.org/blog/2015/07/06/serious-risks-and-few-new-benefits-from-fda-approved-drugs/

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Comment by Don McCanne

Outrageously high pricing is not the only problem we face with new
pharmaceutical products. We are inundated with new drugs that provide
little or no improvement over existing products. This exposes us not
only to the higher prices driven by new patents, but also to the
potential of serious adverse effects that may not be recognized until
the new drugs have been on the market for a period of time.

Under a single payer system, drug formularies should include only those
products are reasonably effective, comparatively safe, and cost
effective. Since the industry does not provide us with those assurances,
it is the responsibility for the government to step in and do so.

qotd: What do the projected health insurance premium increases mean to us?

The New York Times
July 3, 2015
Health Insurance Companies Seek Big Rate Increases for 2016
By Robert Pear

Health insurance companies around the country are seeking rate increases
of 20 percent to 40 percent or more, saying their new customers under
the Affordable Care Act turned out to be sicker than expected. Federal
officials say they are determined to see that the requests are scaled back.

The rate requests, from some of the more popular health plans, suggest
that insurance markets are still adjusting to shock waves set off by the
Affordable Care Act.

It is far from certain how many of the rate increases will hold up on
review, or how much they might change. But already the proposals,
buttressed with reams of actuarial data, are fueling fierce debate about
the effectiveness of the health law.

A study of 11 cities in different states by the Kaiser Family Foundation
found that consumers would see relatively modest increases in premiums
if they were willing to switch plans. But if they switch plans,
consumers would have no guarantee that they can keep their doctors. And
to get low premiums, they sometimes need to accept a more limited choice
of doctors and hospitals.

Marinan R. Williams, chief executive of the Scott & White Health Plan in
Texas, which is seeking a 32 percent rate increase, said the requests
showed that "there was a real need for the Affordable Care Act."

"People are getting services they needed for a very long time," Ms.
Williams said. "There was a pent-up demand. Over the next three years, I
hope, rates will start to stabilize."

Sylvia Mathews Burwell, the secretary of health and human services, said
that federal subsidies would soften the impact of any rate increases. Of
the 10.2 million people who obtained coverage through federal and state
marketplaces this year, 85 percent receive subsidies in the form of tax
credits to help pay premiums.

In an interview, Ms. Burwell said consumers could also try to find less
expensive plans in the open enrollment period that begins in November.
"You have a marketplace where there is competition," she said, "and
people can shop for the plan that best meets their needs in terms of
quality and price."

In their submissions to federal and state regulators, insurers cite
several reasons for big rate increases. These include the needs of
consumers, some of whom were previously uninsured; the high cost of
specialty drugs; and a policy adopted by the Obama administration in
late 2013 that allowed some people to keep insurance that did not meet
new federal standards.

"Healthier people chose to keep their plans," said Amy L. Bowen, a
spokeswoman for the Geisinger Health Plan in Pennsylvania, and people
buying insurance on the exchange were therefore sicker than expected.
Geisinger, often praised as a national model of coordinated care, has
requested an increase of 40 percent in rates for its health maintenance
organization.

Federal officials have often highlighted a provision of the Affordable
Care Act that caps insurers' profits and requires them to spend at least
80 percent of premiums on medical care and related activities. "Because
of the Affordable Care Act," Mr. Obama told supporters in 2013,
"insurance companies have to spend at least 80 percent of every dollar
that you pay in premiums on your health care — not on overhead, not on
profits, but on you."

In financial statements filed with the government in the last two
months, some insurers said that their claims payments totaled not just
80 percent, but more than 100 percent of premiums. And that, they said,
is unsustainable.

http://www.nytimes.com/2015/07/04/us/health-insurance-companies-seek-big-rate-increases-for-2016.html

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Comment by Don McCanne

Although it will be about three months before we have the final health
insurance premiums for 2016, the information we have already can warrant
a few preliminary observations.

* The Affordable Care Act appears to have failed on delivering its
promise of controlling global health care costs. The primary reason
given by the insurers when submitting requests for much higher premiums
for 2016 is that health care costs were much higher than their actuaries
anticipated.

* Some complain that new enrollees were less healthy and thus drove
spending up, but under the individual mandate, increases in enrollment
were across the board and not concentrated amongst the less healthy.

* There may have been some pent up demand amongst new enrollees (e.g.,
joint replacement) but that is only a transient surge which does not
warrant long term premium increases. Much of the pent up demand will
have been ventilated as most of the remaining uninsured are ineligible
by immigration status or by personal hardship. The numbers who are
eligible but decline coverage will only trickle in as health care needs
develop.

* It appears that the increases in the benchmark silver plans will not
be as great as the increases currently receiving considerable publicity.
Requests over a ten percent increase were required to be made public
whereas increases under ten percent will not be known until plans are
marketed prior to the November 1 beginning of open enrollment.

* Because rate increases vary considerably amongst the plans, many
individuals will be forced to choose between paying higher rates by
staying in their current plans or changing to plans with lower rates but
with different narrow provider networks thereby potentially sacrificing
continuity of care.

* Respected institutions such as Geisinger in Pennsylvania and Scott
and White in Texas are asking staggering premium increases, indicating
that the supposed cost containment features of ACA are having a
negligible impact on legitimate spending.

* Little is being said about the insurance underwriting cycle. Large,
well capitalized insurers are able to price their products more
competitively, decreasing the market presence of less competitive
insurers. Once market dominance is established, insurers are free to
drive up premiums as much as 20 to 40 percent, as reported in this New
York Times article. The regulated medical loss ratios are generous
enough to allow market performance (profits) to excel, as confirmed by
current Wall Street activity in health insurance equities.

So are we going to wait until October when the premium rates are
announced, and then do nothing other than continue to stand back and
observe because the insurers will reassure us that silver benchmark
plans didn't go up that much - maybe 4.4 percent - even if it means that
the enrollees have to switch plans and find new providers in a different
narrow network? Is this the good that's coming out of all of this? What
about those who want to continue with their current providers, but face
a 20 to 40 percent premium increase? Will the death spiral bleed over
from insurers to patients?

Enough. Single payer.

qotd: Is it time to nationalize the drug industry?

Reuters
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.

http://in.reuters.com/article/2015/06/30/us-novartis-heart-idINKCN0PA1N720150630

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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

Summary

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.

http://onlinelibrary.wiley.com/doi/10.1002/hec.2982/abstract

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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.