Category: Economics

How Martin Shkreli is driving down drug prices

published date
December 17th, 2015 by
Thanks Mr. Evil for helping build consensus
Thanks Mr. Evil for helping build consensus

Breaking news: Martin Shkreli has been arrested for securities fraud. Not surprising, but actually I was hoping this wouldn’t occur for a while –at least until some of his drug pricing schemes had played all the way out. I hope he gets out on bail and keeps going with his business plan.

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Turing Pharmaceuticals CEO Martin Shkreli made waves this year by boosting the price of generic drug daraprim from $13.50 to $750 per tablet. Now he’s angling for an FDA voucher worth hundreds of millions of dollars by abusing an incentive program intended to encourage development of new drugs for neglected diseases. He’ll be ratcheting up the price of another drug to boot. And finally his interview with HipHopDx reveals him to be a very nasty and unsavory character. (Jump straight to the last question if you don’t believe me.)

Yet ironically his well publicized price-jacking of a few specific products seems reasonably likely to lead to a slowdown in price increases for the pharma industry as a whole, if not outright price controls. You see, what Shkreli has done differs only in degree from standard industry practices.

The industry spends a lot of money and energy to explain that its pricing is directly related to the high cost of drug development. We know that’s not true, but even if it were true it would not explain why prices for medications rise so quickly, even for products that have been on the market a long time.

The Shkreli affair, along with shenanigans from Valeant, have awakened serious journalists, who have started to look into drug pricing more broadly. This Wall Street Journal article (How Pfizer set the cost of its new drug at $9,850 a month) is a good example.  Pfizer doesn’t set its price based on R&D costs, but it doesn’t charge the maximum it can get away with either. Pfizer is in this game for the long term and likes the status quo. It doesn’t want to generate a backlash. But Shkreli is generating a backlash, not just against him but against the whole industry. Politicians are seizing on him as an example, and rightly so.

Free markets unfettered by government interference are great, but as I have written (Why drug price regulation should not be ruled out) we have to remember that the government plays a very big role in enabling high and rising product prices: it grants monopolies and market exclusivity that keep out competitors. And, through Medicare, Medicaid and other programs the government is the biggest payer for many products. Shkreli’s actions present legislators and the president with an opportunity to re-examine drug pricing policies and consider changes that are in the country’s interest. The longer he keeps up his act, the higher the chance for significant reform.

Image courtesy of Sira Anamwong at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

 

Joslin Diabetes CEO faces 'big challenges' –I'm quoted

published date
December 1st, 2015 by
It's tough to win in the diabetes business
It’s tough to win in the diabetes business

Diabetes is a huge health problem, and Joslin Diabetes Center is a renowned, world-class institution. You’d think it would be a good moneymaker, or at least able to break even. But, as the Boston Globe explains in Big challenges ahead for new Joslin CEO, that’s not the case.

Here’s the part of the article where I’m quoted:

Diabetes typically doesn’t require the kinds of expensive treatments or surgeries used to fight illnesses such as eye diseases and cancers. That means Joslin doesn’t have the same opportunities to generate revenues as other specialty clinics in Boston, such as Dana-Farber Cancer Institute and Massachusetts Eye and Ear Infirmary.

“Diabetes is not as profitable a market as more procedure-oriented specialties,” said David E. Williams, a Boston health care consultant

Several years into health reform, it seems odd that we’re still rewarding expensive interventions rather than the type of coordinated, prevention-oriented care that Joslin provides. In some fields, prevention has an uncertain payoff, yet for diabetics proper care helps head off terrible and expensive downstream complications such as amputation, blindness, heart disease and kidney failure.

Joslin has a couple other things going against it:

  • Big healthcare systems have focused on keeping all care within their own systems, preventing “leakage” to other providers even when those providers are excellent
  • Joslin derives a fair amount of its revenue from research. Unfortunately for Joslin NIH rules such as salary caps and COLA freezes make research a loser from a purely financial standpoint. There’s also a lot of competition for grant dollars

Joslin has actually done a good job of recognizing these problems, and has built a substantial commercial business to license its knowhow and brand. But that hasn’t been enough to make up for all of the headwinds.

I am wishing new CEO Dr. Peter Amenta the best of success as he tries to turn this ship around.

Image courtesy of smarnad at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

What can we do about overuse of emergency rooms?

published date
October 7th, 2015 by
Come and get it!
Come and get it!

I’d expect an emergency physician with 35 years of experience to have some solid insights on why people come to the emergency room. Sure enough, Dr. Paul Auerbach delivers the goods in his Wall Street Journal opinion piece (Why ER Visits for Non-Emergencies Aren’t Going Away). In particular:

  • Patients can’t easily distinguish between true emergencies and non-emergencies
  • You can’t teach economics lessons to people when they are sick
  • Patients have learned they can get care in an emergency department more conveniently and quicker than in a community setting
  • Ambulatory physicians are culpable, because they encourage patients to go to the ER and don’t offer convenient hours
  • Emergency room use will continue to be heavy until key deficiencies in care delivery are addressed

So it was interesting that the Journal published five letters from people with different ideas. I disagree with four (all by doctors), and note that the fifth idea (by someone who may be a dentist) is already being implemented.

  • Dr. Ainslie thinks that “if ERs were forced to post prices, patients could decide what services they wanted to use.” That might work for an elective knee replacement, but doesn’t square at all with my experience in the ER. Am I really going to pick out what emergency services I want and exclude others? Who is going to have the time to discuss the costs and tradeoffs? Am I going to try my luck at a different ER if I don’t like the pricing at the first? Ridiculous
  • Dr. Dunn complains that primary care physicians like him spend half their time filling out documentation that offers no value add for the patient. He thinks docs should be paid “for the service they provide (without having to battle for reimbursement) and eliminate the non-value-added documentation.” This would boost the capacity of primary care physicians and reduce the need for emergency room use. I’m sympathetic to the paperwork complaint but I don’t think we can replace it with no questions asked fee for service. If Dr. Dunn is ready to take on global capitation for his population of patients then his idea might work. Even then there will be some paperwork
  • Dr. Geehr blames ObamCare. “ObamaCare, like its predecessor RomneyCare, promised fewer ER visits and more primary-care access. Government always fails to account for the unintended consequences of vast, new entitlement programs.” Actually, some proponents of ObamaCare (including me) did foresee the rise in ED utilization. Opponents didn’t think of this argument ahead of time, since they were so busy blaming the uninsured for clogging up the emergency department.
  • Dr. Brotherton writes, “the best way to reduce ER visits is for insurers to pay adequately for primary care.” Somehow –he doesn’t explain how– this will cause patients to go to their primary care doctors instead of the emergency room. I’ll give him the benefit of the doubt and suggest that he means higher payments will induce more physicians to practice primary care, but that would take quite a while to play out and still doesn’t address patient behavior.
  • David Lieberman wants hospitals to put urgent care clinics alongside emergency departments to keep the non-emergencies out. Not a bad idea and some hospitals are actually doing this. It works best when hospitals have a financial incentive to hold down costs

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

Massachusetts hospitals are making money — I'm quoted

published date
August 27th, 2015 by

The Massachusetts Center for Health Information and Analysis has released its 2014 profile of hospital financial performance. Profits are up moderately overall by various measurers, despite drops in inpatient stays, outpatient visits, and emergency department utilization. What’s going on?

As I told the Boston Globe (State hospitals report $1.2 billion in earnings):

“The health care system as a whole and the state’s biggest hospitals in particular have gotten the message that they need to control expenses.”

Hospitals saw this coming and have been making serious efforts to increase efficiency and control expenses in the face of healthcare reform. It’s encouraging to see that they are passing their first tests, as there will be more to follow.

As usual, many of the comments on the Globe’s website lament the big money made in medicine. But to put things in perspective, the whole Massachusetts hospital industry made less money in 2014 than some individual hedge fund managers.

By healthcare business consultant David E. Williams, president of Health Business Group.

 

Wal-Mart provides evidence Obamacare is working

published date
August 19th, 2015 by
What's in your basket?
What’s in your basket?

From a Wall Street Journal blog:

Wal-Mart Stores Inc.’s took a hit from the Affordable Care Act during the second-quarter.

The Bentonville, Ark.-based retailer said its pharmacy business had reduced margins, which hurt earnings at the U.S. business.

What does this mean? It means that Wal-Mart’s core customers, lower middle class families with median household income of around $45,000, are benefiting from the Affordable Care Act. Some have gained Medicaid coverage under the ACA’s expanded eligibility requirements, others have purchased policies on the public exchange, and some young adults have retained coverage under their parents’ policies. All of those people have prescription drug coverage and many are probably filling their prescriptions at Wal-Mart.

All else being equal, many of the newly covered should have extra disposable income. They could be spending some of that extra income at Wal-Mart, and maybe they are. But net/net consumers may be benefiting more from expanded insurance coverage than Wal-Mart. That’s not a bad thing in my book.

Image courtesy of atibodyphoto at FreeDigitalPhotos.net