High Drug Prices, Complexity of Drug Development and What the Market Will Bear

By Claire Thayer, August 30, 2016

The escalating cost of prescription drugs is of concern for all of us and impact stakeholders all across the health continuum: patients, payers, providers, as well as policy makers.   A recent Consumer Reports study, Is There a Cure for High Drug Prices?, offers these 5 reasons drug costs are ballooning:

• Reason #1: Drug Companies Can Charge Whatever Price They Want
• Reason #2: Insurance Companies Are Also Charging You More
• Reason #3: Old Drugs Are Reformulated as Costly ‘New’ Drugs
• Reason #4: Generic Drug Shortages Can Trigger Massive Price Increases
• Reason #5: Specialty Drugs Are Costing All of Us

This week, the Journal of the American Medical Association (JAMA) released an in-depth article, The High Cost of Prescription Drugs in the United States, which explores literature from January 2005 to July 2016 for sources of drug prices in the U.S., justification and consequences of high prices and possible solutions.  The authors conclude that “high drug prices are the result of the increasing cost and complexity of drug development but also arise in large part from the approach the United States has taken to the granting of government-protected monopolies to drug manufacturers, combined with restriction of price negotiation at a level not observed in other industrialized nations.”

Among overall study findings:

• In 2013, per capita spending on prescription drugs was $858 compared with an average of $400 for 19 other industrialized nations.
• In the United States, prescription medications now comprise an estimated 17% of overall personal health care services.
• The most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents.
• The availability of generic drugs after this exclusivity period is the main means of reducing prices in the United States, but access to them may be delayed by numerous business and legal strategies.
• The primary counterweight against excessive pricing during market exclusivity is the negotiating power of the payer, which is currently constrained by several factors, including the requirement that most government drug payment plans cover nearly all products.
• Another key contributor to drug spending is physician prescribing choices when comparable alternatives are available at different costs.
• Although prices are often justified by the high cost of drug development, there is no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.

EpiPens By The Numbers

by Clive Riddle, August 26, 2016

Without wading into the policy, prognostication, editorial or other narrative issues surrounding Mylan’s EpiPen pricing controversy, here simply is a collection of selected relevant data compiled related to all that is Mylan EpiPen:

• $1 – the cost of the hormone epinephrine, used in the EpiPen
• $73.50 – average EpiPen copayment for health plan members administered through Express Scripts
• $85 – cost of an EpiPen 2-Pak in France
• 40% - portion of Mylan profits driven by EpiPen for 2014
• 55% - EpiPen operating profit margin in 2014
• 89% - EpiPen share of the epinephrine auto-injector market
• $112.10 – 2015 EpiPen4Schools discounted price
• $164.98 – May 2011 U.S. list price for an EpiPen 2-Pak
• $300 – the maximum savings for a just announced Mylan “My EpiPen Savings Card” to reduce out of pocket costs 50% for qualifying patients with health plan coverage
• 500% - the EpiPen average wholesale price increase since 2009
• $608.61 – the current U.S. list price for an EpiPen 2-Pak
• 2007 – the year Mylan acquired the rights to sell EpiPen from Merck
• 65,000 – the number of U.S. schools participating in EpiPen4Schools program
• $97,200 – the maximum income for a family of four to quality for zero out of pocket costs for their EpiPen auto-injector
• 353,600 – the number of annual prescriptions for competitor Sanofi’s Auvi-Q, before it was recalled from the market for dosing problems.
• $18.9 million - Mylan CEO Heather Bresch's total compensation in 2015
• $100 million -  the projected cost of just announced EpiPen patient assistance subsidies, representing 10% of the product’s sales
• $200 million – EpiPen revenue in 2007
• $339 million – Pfizer’s 2015 revenue for manufacturing the drug for Mylan’s EpiPen
• $1 billion+ - EpiPen revenue in 2015

Out With the Old...Wait, Not in Health Care

By Kim Bellard, August 16, 2016

The last company still manufacturing VCRs announced it has ceased their production.  VCRs had a good run, most households had one, but their time has passed.  Meanwhile, the stethoscope is celebrating its 200th birthday, and is still virtually the universal symbol for health care professionals.  

There has got to be a moral in there somewhere. VCRs are a classic example of how technology (usually) moves on.  Except in health care.

Like stethoscopes.  Digital advocate Dr. Eric Topol recently tweeted: "The stethoscope's 200th birthday should be its funeral. That's all well and good, but -- to paraphrase Mark Twain -- reports of its death are greatly exaggerated.

It's not like stethoscopes do all that good a job, or, perhaps, that physicians use them all that well.  A 2014 study found that participants only detected all tested sounds 69% of the time.  As the authors diplomatically concluded, "a clear opportunity for improving basic auscultations skills in our health care professionals continues to exist."   

Oh, and stethoscopes also help carry germs.

And it's not like there aren't alternatives.  As one might expect in the 21st century, there are electronic/digital stethoscopes.  There are also handheld ultrasounds that provide another strong alternative.

And now, of course, there are smartphone apps for stethoscopes.  Apple was claiming 3 million doctors had downloaded its $0.99 stethoscope app as long ago as 2010, with Android versions also available.  

And yet stethoscopes hang in there.  

We might like to think that physicians continue to use traditional stethoscopes because they are simply being thrifty, since electronic stethoscopes and handheld ultrasounds are much more expensive, but that seems a reach.  They've certainly not been reluctant to adapt other types of newer, more expensive technology -- at least, not as long as they can charge more for it.  

It is a conundrum that has bedeviled economists: why in health care does new technology almost always increase costs, unlike most other industries?  E.g., DVRs were much better than VCRs, but quickly became comparably priced.  Professor Kentaro Toyama cites what he calls technology's Law of Amplification: "Technology’s primary effect is to amplify, not necessarily to improve upon, underlying human inclinations."

And in health care, those underlying inclinations don't drive towards greater value.

When it comes to stethoscopes, it's not about the money.  Many physicians believe that the stethoscope helps foster the patient-physician relationship.  In a recent article in The Atlantic, Andrew Bomback admitted that, "Indeed, for many doctors (myself included), the stethoscope exam has become more ceremony than utility."  

Physician/engineer Elazer Edelman argues that a stethoscope exam can help to create a bond between patients and physicians.  He worries that technology may be fraying the "tether" between doctors and patients. Still, if the relationship depends on which device a physician uses to listen to our chest, that relationship is in bigger trouble than we think.

So, R.I.P. VCRs, and thanks for the memories.  As for stethoscopes, and for health care more generally, though, maybe the moral is that we should focus less on status symbols and more on what is best for patients.

This post is an abridged version of the posting in Kim Bellard’s blogsite. Click here to read the full posting

Health Benefit Costs for Large Employers – Up 6% again in 2017

By Claire Thayer, August 12, 2016

This week, the National Business Group on Health released their Large Employers’ 2017 Health Plan Design Survey, with the ‘good’ news that the overall health benefit costs were only expected to increase 6%.  Says Brian Marcotte, president and CEO of the National Business Group on Health, “interestingly, current estimates have health insurance premiums for the average public exchange plan increasing by at least 10%, about twice what large employers are projecting for next year. This is a clear indication that the employer-based health care model continues to be the most effective way to provide health insurance coverage to employees and their families.”

Spending on pharmaceuticals and specialty drugs are contributing factors in the overall growth of health care benefit costs.  The survey reports that overall, 80% of employers placed specialty pharmacy as one of the top three highest cost drivers, followed by high cost claimants (73%) and specific diseases and conditions (61%).

The survey offers highlights of what employees will see during their upcoming open enrollment:

• Telehealth services on the rise: Nine in 10 employers (90%) will make telehealth services available to employees in states where it is allowed next year, a sharp increase from 70% this year.
• Consumer-Directed Health Plans (CDHPs) increase slightly: Overall, 84% of employers will offer a CDHP in 2017, up from 83% this year. In addition, more than one-third of employers (35%) will only offer CDHPs to employees in 2017, a slight increase from 33% this year.
• Spousal surcharges leveling off: One in three employers (33%) will have surcharges in place for spouses who can obtain coverage through their own employer, roughly the same as this year. A few employers will exclude spouses when other coverage is available through an employer.
• Expanded options at Centers of Excellence grow. The use of Centers of Excellence will grow from 79% this year to 85% in 2017. The largest increases will be for bariatric surgery (up 15 percentage points), transplants and fertility treatments, both up 8 percentage points.
• Tools to manage care: Eight in 10 respondents (80%) plan to offer nurse coaching for care and condition management while 72% will offer nurse coaching for lifestyle management. Nearly two-thirds (65%) will provide employees with self-service decision-making tools to help them become better health care consumers.

A Snapshot of Managed Care Pie

By Clive Riddle, August 4, 2016

MCOL’s Managed Care Fact Sheet webpages are being updated to reflect current data, so I took this opportunity to grab some Facts and provide this preview, baking this snapshot of managed care pie.

National HMO Enrollment is 92.4 million for 2016, up from 85.7 million in 2015, and a recent low of 66.8 million in 2007. The previous high was 81.3 million in 1999, just before managed care backlash whipped the numbers down. (1)

How does the managed care enrollment pie divide up?  33% are enrolled in HMOs, 57% in PPOs, 2% in POS plans and 7% in HDHPs.(1) - (3)  The top five national health plans by enrollment are United Health Group – 48.0 million; Anthem – 39.6 million; Aetna – 23.0 million; Cigna – 15.1 million and Health Care Service Corporation – 15.0 million. (14)

And what portion of the total national pie does managed care represent? 31% of Medicare beneficiaries are enrolled in Medicare Advantage plans, 63% of Medicaid enrollees are in Medicaid managed care plans, and 99% of commercial lives are enrolled in managed care. Factor in the 9% of the population that is still uninsured, and 70% of the total population is enrolled in some form of managed care plan. (4) – (10)

What are current resource use benchmarks in managed care – or how much of the pie is being eaten? HMO Hospital inpatient days per 1,000 members per year are 1,639 for Medicare, 395 for Medicaid and 231 for commercial; Commercial PPO are 237. HMO Physician visits per member per year are 10.2 for Medicare, and 4.8 for Medicaid and Commercial; Commercial PPO are 4.7. HMO Prescriptions per member per year are 29.9 for Medicare, 9.6 for Medicaid and 9.0 for Commercial; Commercial PPO are 11.8. (2) (11)

Getting back to pie, medical cost components – for a family covered by a PPO – are sliced up 31% for inpatient, 30% of physician, 19% for outpatient services, 17% for pharmacy and 4% for other services. (12)

So what does the pie cost? Single health plan premiums average $518 for HMOs and $548 for PPOs, and family premiums average $1,437 for HMOs and $1,539 for PPOs. Premium increases are estimated to be 4.3% in 2016, and have been under 5% after 2011, and under 8% after 2003. In 2002 – post managed care backlash -  they were 14.7%, but they were 8.1% or less in the pre managed care backlash era from 1993 to 2000, including a decrease of 1.1% in 1994.  Before that, double digit increases were the norm for a number of years.

(1) Total HMO Enrollment - Kaiser State Health Facts; Data Source: Health Leaders InterStudy, a Decision Resources Group Company July 2015 Data, accessed August 2016 www.statehealthfacts.org

(2) 2015 HMO-PPO Rx Digest Series, Sanofi www.managedcaredigest.com 

(3) New Census Survey Shows Continued Growth in HSA Enrollment, AHIP November 11, 2015  https://ahip.org/new-census-survey-shows-continued-growth-in-hsa-enrollment/     

(4) CMS Fast Facts: www.cms.gov/fastfacts/  

(5) Medicaid Enrollment Report as of January 2016: https://www.medicaid.gov/medicaid-chip-program-information/program-information/downloads/january-2016-enrollment-report.pdf 

(6) Kaiser Family Foundation State Health Facts Total Medicaid MCO Enrollment http://kff.org/other/state-indicator/total-medicaid-mco-enrollment/ 

(7) CDC Fast Facts, National Center for Health Statistics, Health, United States 2016: http://www.cdc.gov/nchs/ 

(8) Tricare Prime Beneficiaries 2016: www.tricare.mil/About/Facts/BeneNumbers.aspx 

(9) CDC May 2016: Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, 2015 http://www.cdc.gov/nchs/data/nhis/earlyrelease/insur201605.pdf  

(10) Total U.S. Population data as of April 2016, U.S. Census Bureau: www.census.gov

(11) 2015 Public Payer Digest Series, Sanofi www.managedcaredigest.com

(12) Milliman Medical Index, Milliman, May 24, 2016 http://www.milliman.com/mmi/    

(13) Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2015. www.kff.org

(14) MCOL research from 2016 company reports