Health Business Blog

Health care business consultant and policy expert David E. Williams share his views

800 pound gorillas can be friendly

Today’s Arkansas Democrat-Gazette has an article that explores the implications of having the local Blue Cross Blue Shield plan dominate the market, as is the case in Arkansas. (Blue Cross posts hot ’04, but rising costs stalk field, by Brian Baskin.) I’m quoted as saying that while it’s important to keep an eye on the Blues to avoid excesses, there are some positive aspects. I’ve seen high-share Blues do a number of innovative things, including BCBS of Massachusetts’ subsidies for e-prescribing and sponsorship of the Massachusetts eHealth Collaborative. A number of Blues are promoting online doctor-patient messaging. Why is this?

  • In healthcare, only payers with high market share have the power to drive innovation. We see this most starkly in single payer, socialized systems such as the UK, where the National Health Service has driven innovation in electronic medical records, electronic prescribing, and pay-for-performance to a much greater degree than has occurred in the US
  • Government monopolies, such as Medicare, Medicaid, and the VA System, despite all their flaws, have shown themselves capable of leading and sustaining innovation. Private payers usually adopt Medicare’s ideas
  • Healthcare is mainly a local business, so national companies such as Aetna, Cigna, United, and Humana are usually fairly unsuccessful at eroding local Blues’ shares, as long as the local Blue is providing reasonable service

FDA is gunning for Neurontin

The FDA is asking makers of anticonvulsants to re-examine their clinical trial data to see if the drugs increase suicide risk. This is the same path that led to the placement of black box warnings on all antidepressants, making doctors warier about prescribing them.

Pfizer’s Neurontin is the leading drug in the class, and is also the poster child for overly aggressive pharmaceutical market expansion efforts and dubious post-marketing research. As the Boston Globe notes, Pfizer’s Warner Lambert division recently paid $430 million in fines for illegally marketing Neurontin “for illnesses ranging from migraines to hiccups.”

It’s one thing to tolerate rare but serious risks in the treatment of major illnesses such as epilepsy and bipolar disorder. But the same level of risk is unacceptable for hiccups. By marketing overzealously to people with minor illnesses who don’t need their drugs, the industry has put itself in danger of having its products removed from the shelves. As I’ve written recently, that’s what appears to have happened with Vioxx and Bextra, and there’s a real risk of the same thing happening with asthma drugs.

It’s a real shame for the seriously ill patients who depend on these drugs. Rather than seeing drugs pulled from the market, I’d like to see physicians step up and take a more skeptical view of what they hear from drug reps.

Merck decides to compete with Canadian pharmacies

Merck has a new program to provide 15-40% discounts on its drugs to anyone who lacks insurance. Unlike competitors’ programs, Merck’s is broad based. There are no age or income limits. The program is clearly aimed at matching Canadian prices.

There are some interesting implications if other big pharma companies follow Merck’s lead:

  • If consumers can get the same prices as insurers and PBMs, it may make sense for companies and individuals to drop insurance coverage for drugs and avoid the overhead of plan administration. (This has to be counterbalanced against the tax advantages of insurance and the need for catastrophic coverage.)
  • Insurers and PBMs may demand greater discounts and rebates in order to restore the differential
  • A conscious effort to match Canadian prices in the US may enforce greater discipline as pharmaceutical companies negotiate prices abroad. The pharma industry has argued that Americans subsidize other countries’ drug purchases –on the other hand the companies are free to walk away if they don’t want to charge the lower prices. I expect we’ll see greater harmonization of world prices –the Merck program is one factor contributing to that trend
  • Relief for the non-poor uninsured may increase pressure on hospitals and physicians who charge list prices to the uninsured but no one else

Health plans jump on the e-prescribing bandwagon

Horizon Blue Cross Blue Shield of New Jersey is the latest health plan to provide support to physicians who shift to electronic prescribing, according to the New Jersey Star-Ledger. Doctors have been slow to embrace e-prescribing because it costs them money and time while most of the benefits accrue to health plans, pharmacies, office staff and patients.

However, health plans are realizing that they can generate a high return on investment by providing financial support for e-prescribing. Plans like e-prescribing because it improves formulary compliance and use of generics by presenting information at the point of care. It’s also good for patients, because it reduces errors from sloppy handwriting and allows checking for drug-drug interaction and allergies. And it helps cut down on phone calls and paperwork for prescription renewals.

E-prescribing is also a good first step to prepare doctors for electronic medical records. And when e-prescribing, electronic medical records and claims systems are fully integrated, physicians will be able to rely on decision support systems to analyze all the information about a patient’s medical record and insurance coverage to suggest the most efficacious and cost effective treatments. I recently saw a very impressive demonstration of such a system from SafeMed, which is being piloted by Blue Cross Blue Shield of Massachusetts at Beth Israel Deaconess Hospital in Boston.

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Big pharma tries to have it both ways on patents

The pharmaceutical industry doesn’t understand why it’s unpopular with the public. In my opinion, a big part of the problem is that the industry’s lofty rhetoric is seen as self-serving. For example, the industry touts the importance of patents on its drugs, but is seeking to preserve an exemption that has allowed drug companies to use analytical companies’ patents in drug discovery without paying royalties.

Here’s what the Pharmaceutical Research and Manufacturer’s of America (PhRMA) says on its website about the importance of patents:

Pharmaceutical companies rely on government-granted patents to protect their huge investments in researching and developing new drugs… Without patents to
protect all the inventions necessary to develop a drug for a limited time, others could simply copy the drugs immediately, offering their versions at a reduced price since they did not incur the high costs to develop the drug. This would seriously impact the pharmaceutical companies’ ability to recoup their costs and reinvest in other research projects.

But the drug industry is fighting hard to preserve an exemption that has allowed it to use analytical companies’ patents free of charge in research that is aimed at gaining FDA approval for a drug. When someone else owns the patents, all of a sudden the drug companies find that patents impede progress!

From today’s Wall Street Journal:

…if the Supreme Court upholds [the] view [that drug companies are infringing the analytical companies’ patents], “drug innovators would have to sit on their hands, awaiting patent expiration before starting to conduct the battery of experiments necessary to qualify a path-breaking new drug for clinical trials including human subjects.” Potential treatments “for innumerable diseases and conditions will be denied to patients for a decade or more after all patents expire” if the Supreme Court upholds the earlier decision [that drug companies must pay royalties to the patent holders].

If patents are necessary for pharma companies to “recoup their costs and reinvest in other research projects,” why doesn’t the same hold for analytical tool companies?