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.
Praluent, which analysts project will become a huge seller, is expected to become the next flashpoint in the growing controversy of escalating pharmaceutical prices, and health plans are expected to put in place strict measures to control which patients can use the drug and prevent it from becoming a budget buster.
This story and similar ones say Praluent may be like Sovaldi, an expensive Hepatitis C drug that has driven up healthcare costs over the past year or so. According to this narrative, health plans and pharmacy benefits managers are gearing up to do battle with the manufacturer and have learned their lesson from the Sovaldi experience. Maybe the payers will do a better job of managing Praluent expenses –I assume they can devise something better than whining about the expense to the general public while simultaneously rallying against price controls. But when the Praluent crisis is “averted” don’t let the payers pat themselves on the back too much.
I see four main reasons why Praluent will not be as much of a “budget buster” as Sovaldi:
Praluent doesn’t cure anything
There are good alternatives for most patients
Praluent is an injection
Praluent will have competition from the start
1. Praluent doesn’t cure anything
Sovaldi cures Hepatitis-C in something like 90 percent of patients. You can quibble with the numbers if you like, but the fact is this is a cure for many people who have waited for one –in many cases for decades. Take it for three months and you’re done with the drug and the illness.
What does Praluent do? It lowers cholesterol dramatically. Does it prevent heart attacks or strokes? No one knows, and we won’t have evidence about that for a couple years at least. In any case I’m sure it won’t cure heart attacks or strokes and I doubt it will reduce their likelihood by anything approaching 90 percent. And patients will have to keep using the drug indefinitely.
2. There are good alternatives for most patients
Statins work well and are available as inexpensive generics. Starting on a statin or increasing statin dosage is an option for most patients, including those who have already had a stroke or heart attack. A smaller group has a genetic condition that can’t be addressed by statins. Praluent sounds like a good choice for them.
3. Praluent is an injection
Sovaldi comes in a pill. It’s easy to swallow. Same with statins.
Praluent is an injection. Ouch. Sure it only has to be done twice a month and you can do it yourself, but who really likes a needle? I expect patients to want to try statins first.
4. Praluent will have competition from the start
Sovaldi was on the market for about a year before an (arguably inferior) competitive offering was introduced. That gave Gilead a big first-mover advantage, especially important for a drug people had been awaiting for a long time and then only needed to take for three months.
It appears that Repatha, a similar drug to Praluent, will come to market about the same time, with others to follow. Competitive pressures should keep prices in check.
5. The name evokes something nasty
I know I promised only four reasons, but I have fifth. The name reminds me too much of Soylent, the disgusting meal replacement product.
Proponents of follow-on biologics are invariably surprised that their hopes for product introductions and price competition outpace reality. Instead of stepping back and asking whether the whole concept of biosimilars makes any sense from a cost reduction standpoint they persist in recommending tweaks to the existing regime and asking for patience as we await results.
The New England Journal of Medicine published a Perspective on the topic last month (Progress and Hurdles for Follow-on Biologics), which followed the usual script. Rather than blog about it I wrote a letter to the editor. I didn’t expect to see it published –after all NEJM receives lots of letters and I don’t have the right academic credentials. Sure enough it was rejected, so here it is:
Sarpatwari et al. (June 19 issue) mistakenly expect the market for follow-on biologic drugs to evolve in a similar manner to the market for generic versions of small molecules. As a result they are surprised that prices of follow-on biologics are stubbornly high and competition low. But follow-on biologics are more like me-too versions of small molecule products, where similar drugs are introduced in the same class. Remember, Lipitor was a me-too product, the fifth statin on the market. Lipitor didn’t compete on price, however. Instead Pfizer used superior marketing to differentiate. I expect similar behavior in biologics.
The authors’ misunderstanding leads them to faulty recommendations designed to encourage development of more follow-on products. If the goal is to reduce costs without depressing innovation, then a wiser approach would be to regulate the price of the original biologic after it has been on the market for a decade or so. That would enable innovators to earn healthy financial returns, eliminate the expense and risk to patients of clinical trials of follow-on products, and reduce demands on FDA inspectors.
David E. Williams, MBA
Health Business Group
Health Business Blog readers know the Wall St. Journal is among my favorite publications, but I have to call BS on a recent piece: Why People Don’t Buy Long-Term-Care Insurance. It’s written by a couple of Wharton professors, who frankly should be ashamed of themselves.
Here’s what they have to say:
When it comes to long-term care, two facts stand out. First, an estimated 70% of people will need such care, which will be costly. And second, most of them refuse to buy insurance to cover it…
[O]ur research suggests that some consumers’ rejection of long-term-care insurance is based on what psychologists call “narrow framing,” or people’s tendency to exclude key factors when making decisions. Narrow framing has been found to be common when individuals face complicated decisions—and shopping for long-term-care insurance is certainly one of those instances.
Then they go on to explain how they classified people as “narrow framers” and finally end with advice for insurance companies on how to tweak and reposition their products.
Give me a break.
There may be some narrow framing going on, but that’s not the main issue. The problem is that for many people long term care insurance isn’t an attractive product.
Insurance is useful when it covers rare events that could be financially ruinous. But long-term care is a common need (“70% of people” according to the authors) and the benefit structure doesn’t protect against catastrophic expenses.
Last time I looked into long term care insurance, two years ago, I was offered a level premium policy for my wife and me that cost over $10,000 per year. The benefits were $10,000 per month, with a 25 week elimination period (that’s the waiting time before benefits kick in) and 6 year benefit period, with a 5% COLA. In other words (leaving aside inflation for a moment), the maximum benefit is $720,000.
What I really wanted was a policy with a 5 year elimination period and no cap on the benefit period. But no one I can find offers that –either because it’s not legal or because there’s insufficient demand.
Call me a “narrow framer” if you will, but before that, please provide a better argument for why long term care insurance is a good value.
We are modest and moralistic in Boston. The lead story in the May 1 Boston Globecriticized Vertex Pharmaceuticals for approving a plan to pay a dozen executives a total of about $54 million if the company becomes profitable, something that has taken 25 years to achieve. If the company becomes profitable it will be because it successfully launches a new drug that will improve the lives of people with cystic fibrosis. Sounds pretty good to me.
The bonuses represent an insignificant percentage of the $15 billion increase in Vertex’s market value in the past 12 months. Critics can complain all they want, juxtaposing the high prices insurers pay for medication with the bonuses awarded. I just don’t see this as a headline issue.
Meanwhile the New York Times yesterday led off with an article about the top paid hedge fund managers (For Top 25 Hedge Fund Managers, a Difficult 2014 Still Paid Well). The top 3 managers each made about $1 billion. That’s right, each one made 20x what the dozen Vertex managers might be due for collectively. To make it to #25 on the list required earning $175 million, still far, far above the Vertex dozen. Oh, and by the way most of the hedge funds had mediocre performance in 2014, in the low single digits, and their operations didn’t contribute much, if anything to improving society.
Some of the funds employ scientists (physicists and astronomers are two examples provided) to help with their trading, yet they earned returns far lower than the non-geniuses who bought and held the S&P 500. Vertex critics are up in arms about taxpayers indirectly paying executive bonuses, but maybe they should instead scrutinize public entities such as pension funds that are paying large fees to hedge funds.