Category: Economics

Saying no to CT

published date
November 2nd, 2006 by

Saying no to CT

Advanced CT scanners have revolutionized trauma care and provided physicians with lots of information to aid diagnosis and track treatment progress. Utilization has gone through the roof, which is good news for radiologists and hospitals but bad news for payers. There has been no significant progress in holding the line on imaging costs, the way there has been on drugs, for example.

But there is growing concern over the high dosage of radiation that some patients receive from CT scans, according to the Wall Street Journal. A chest CT exposes the patient to 8-10 millisieverts of ionizing radiation. That’Â’s 100 to 1000 times as much as a chest x-ray, and about half of the exposure received by the average atomic bomb survivor in Hiroshima or Nagasaki. Some patients get dozens or even hundreds of scans. No doubt not all those scans are necessary.

I’ve always been leery about medical radiation exposure. My mother was conservative about letting us have our teeth x-rayed, and she was probably right. If payers want to rein in CT costs, they’d be wise to tap patient safety concerns. However, if they aren’t careful they will just drive up the use of MRI, which costs even more.

A glimpse into the future of medical cost management

published date
November 1st, 2006 by

A glimpse into the future of medical cost management

Payers are starting to get serious about controlling drug costs. As described in yesterday’s Wall Street Journal, payers are using the widespread availability of generics to their advantage. Tactics include:

  • Forcing patients to switch to a generic drug within a class, e.g., from on-patent statin Lipitor to off-patent simvastatin. Or favoring drugs within a class that are soon to become generic, e.g., Ambien
  • Ending coverage for branded drugs that are similar to generic (or better yet, OTC) drugs they replaced, e.g., favoring Prilosec over Nexium as United has done
  • Allowing patients to pay the difference between covered and uncovered drugs, but not counting the difference paid toward the plan’s deductible, as South Carolina is doing for its state employees
  • Offering generics-only plans, as Medco has recently done

I expect these moves to have quite a dramatic impact. I think that in at least some areas of the country we will see some of these same principles echoed on the medical cost side. (The discussions about “efficiency”” already hint at this direction.) We may see:

  • Plans that cover only community hospitals and health centers
  • Coverage for nurse practitioners and physician assistants for routine care
  • Tighter restrictions on what procedures are performed and what medical devices are used
  • Requirements to go overseas for surgical procedures where feasible

Let’s hope BMS can keep Hummingbird’s wings flapping!

published date
October 26th, 2006 by

Let’s hope BMS can keep Hummingbird’s wings flapping!

One thing almost everyone in Massachusetts seems happy about is Bristol-Myers Squibb’s plan to build a biotech manufacturing facility on the site of the old Fort Devens. In last night’s gubernatorial debate, Democrat Deval Patrick praised Republican Kerry Healey for her role in making it happen. There was even more exuberance when the deal was announced:

“We’re walking on air,” said Thomas Finneran, president of the Massachusetts Biotechnology Council, among the many industry and state groups that worked to lure Bristol-Myers. “It was very impressive. For us to beat North Carolina in this type of competition is almost like a Nixon-to-China type of breakthrough. Nobody would have expected it.”

Governor Mitt Romney praised the announcement as evidence of his administration’s ability to nurture high technology in the state. The legislature approved tens of millions of dollars in infrastructure improvement for the site and the BMS facility is the return on that investment.

The facility is supposed to break ground around now and begin production by late 2011. BMS expects to hire about 550 people and spend around $600 million.

It sounds wonderful and I hope everything comes to pass as planned, but I’m starting to get a little worried. Consider:

  • BMS still hopes that its one biotech drug, Orencia, will be a billion dollar product. But considering it’s a late entry in the rheumatoid arthritis arena and that the drug requires a 30-minute intravenous infusion rather than subcutaneous self-injection like competing products, I’d say it’s doubtful. Sales were only $34 million in Q3 2006.
  • It’s far from certain that BMS will have additional biotech products in the near term. It’s impressive that they were able to develop and launch Orencia, but that doesn’t mean they’ll be able to do it again. If Orencia sales are lower than expected and there aren’t other products, do they really need to build a whole new facility?
  • BMS is not in a strong financial position overall. Probably one reason they decided to build the new facility in the continental US rather than in a tax haven like Puerto Rico is that they need to generate cash onshore to fund the dividend. That’s doubly true in the wake of the Plavix fiasco, which sent BMS’s 3rd quarter profits down to $338 million from $964 million a year earlier. If BMS is acquired how secure is the commitment to Massachusetts?

I don’t doubt BMS’s sincerity, I just hope they have the wherewithal to pull off their original plan. Meanwhile, I wonder what kind of recourse Massachusetts would have, if any, if BMS has to walk away.

Platinum parachute

published date
October 17th, 2006 by

Platinum parachute

From the Wall Street Journal’s morning report:

William McGuire walks away from the UnitedHealth Group under the cloud of having benefited from manipulation of stock-option dating, and with the stigma of being one of the most senior executives in corporate America to be felled by the backdating boardroom epidemic. But… he might not be leaving empty handed. Dr. McGuire could step down as chief executive with about $1.1 billion of stock options, retirement payouts and other benefits… And some experts say that despite the pressure that is forcing him out, his contract with UnitedHealth gives him a strong negotiating hand. Dr. McGuire has already earned some $530 million at UnitedHealth, much of it related to the company’s soaring stock price in the years after he took charge in 1991.

At least he won’t have to worry about rising co-pays and deductibles in his golden years!

UK doesn’t flinch from making hard choices to control costs

published date
October 11th, 2006 by

UK doesn’t flinch from making hard choices to control costs

The UK’s National Institute for Health and Clinical Excellence (NICE) has decided not to cover Alzheimer’s drugs Aricept (donepezil), Reminyl (galantamine), Exelon (rivastigmine) and Ebixa (memantine) for those in the early stages of the disease. The first three can be used for moderate cases and Ebixa was ok’d for more severe cases.

I wonder whether NICE considered whether to allow use in the early stages (when patients still can function) but scrap coverage for moderate patients. It would be an interesting tradeoff to see analyzed. Under that scenario, once a patient progressed to moderate they would lose coverage.

I believe it’s just a matter of time (probably 5 years) before NICE-style decision-making comes to the US.