Patent Law and Health Care Cost

Today’s Managing Health Care Costs Indicator is $3.5 billion

While I wasn’t paying attention late this fall, Amgen succeeded in getting a new patent for Embrel (entanercept), an injectable biologic medicine used to treat rheumatoid arthritis and other immune diseases.   Patent protection for Embrel was expected to end in October of this year. This new patent means “follow-on biologics” (the equivalent of generics) will in this instance be delayed for as long as 17 years. The new patent was issued in 2011 because previous patent applications had been flawed. Current law would set the expiration date based on the initial application, but Amgen is benefiting from previous law which started the patent expiration clock ticking the date the new patent was issued.

Embrel had sales of $3.5 billion in the US and Canada, and costs about $20,000 per year. Forbes Magazine suggested that this patent decision could be worth $6 per share, but that seems quite low (there are ~800 million outstanding shares;  this would have suggested the new patent has less than $5b in market value)    Amgen stock was trading at under $55 in November. It’s over $67 now.  That’s $10 billion in shareholder returns for this patent victory.

We think of patent law as a way to protect innovation, and encourage investors to put their capital into risky businesses like pharmaceuticals, where many promising drugs fail after large investments. 

But I’d argue that in this instance patent law prevents, rather than promotes, innovation.   What rational pharmaceutical chief would prioritize investing scarce resources in research and development when there are such high returns available from investing funds in lobbying and legal schemes to extend patent protection?  As long as Amgen can count on Embrel as a cash cow, the need to find the next big drug is diminished.   

Medicare: A Deal Too Good (Or Too Misunderstood) to Last

Today’s Managing Health Care Costs Indicator is 3:1

 Click to enlarge. Source

The New York Times had a thoughtful article on Sunday about our conflicted view toward government programs.  The reporters interviewed citizens of the exurbs northeast of Minneapolis, where a Tea Party candidate unseated a senior Democratic congressman in 2010.   The government safety net is helping many cling to middle class status – but many citizens think the government should do less, even if it’s painful today, to lower the future deficit.

One thing there is little disagreement about is that Medicare is a good idea.   The current Congressman suggested that Medicare be dismantled for those (like him) under 55 – but most of the interviewees were quite happy with Medicare. Most of them counted on it too.   That’s why most don’t worry too much about the Ryan plan to privatize Medicare becoming law.

Although most Americans think they will pay more in Medicare premiums and taxes than they will get in benefits, Americans get $3 in benefits for every $1 they pay into the system. The rest is paid for out of general tax revenue.  Medicare represents the most rapidly-rising governmental expense, and we baby boomers will be continuing to retire for   years to come.

Medicare clearly needs to either lower its spending, increase premiums for beneficiaries, or increase its draw on general tax revenue.  Medicare has been more successful at holding down costs than commercial health insurance plans – but revenue of only a third of its costs isn’t financially sustainable. Medicare might also be politically unsustainable if its current and future beneficiaries don’t realize what a good deal they’re getting.

Out of Network Rates – And Health Plan Transparency

Today’s Managing Health Care Costs Indicator is $15,000

Today’s USA Today has an article from the Kaiser Health Network on recent employer and health plan tweaks to evidence of coverage which could mean some patients will face enormous new costs for choosing out of plan physicians.

Here’s how this works.

Traditionally, in an HMO product design, there is no “out of network” benefit except for emergency care.   If you see a provider not in the network,  you pay the entire bill.

In a Preferred Provider Organization (PPO) plan design, there is a modest copayment or coinsurance for seeing providers who are in the network.  If you go out of the network, you will have to pay a deductible – and you’ll have to pay a larger share of the remaining costs.

The health plans usually cap the amount they will reimburse based on “usual and customary” rates – which are substantially higher than the health plan allowable rate.  However, health plans are increasingly capping reimbursement based on 150% of Medicare- which is often much less than the health plan allows for in-network providers.

The example given was a mom who expected 80% reimbursement for her son’s $18,000 out-of-network physician fee, but was shocked when Oxford Health Plan (a division of United Health Care) paid only $2500.  The family is left with a huge unexpected bill.

Capping the amount covered for out-of-plan care is sensible.  Otherwise, providers who have opted out of insurance can charge ridiculous rates and much of the cost  would still be borne by the employer and indirectly by many who are staying in network.  Capping the amount at too low a rate, though, simply shifts unmanageable costs onto patients.

It’s most important that patients as consumers know their total out-of-pocket financial responsibility in advance.  Oxford put the explanation of the new fee schedule on page 108 of a 126-page plan document – so it’s no surprise that the family was unaware of this change.   How can patients act a prudent purchasers if nothing in the medical “store” has a price tag?  Further, how can they know they are expected to shop if the plan description is 126 pages long.  Many of us have other things to do beside reading our plan documents.

Source  

There was good news on this front later in the day.  HHS revealed its approach to requiring that health plans divulge their plan design in a standard, readable,  and comparable format.   This is required as part of the Affordable Care Act.    The health plan descriptions aren’t as easy to read as nutrition labels – but they’re a start.

Next – we need to know provider prices!

Commonwealth Fund Identifies Income Divide in Health Insurance Access

Today’s Managing Health Care Costs Indicator is 35%

Click on image to enlarge.  Source 

Yesterday, I  told two stories demonstrating the danger  the current health care financing system poses to those with serious chronic illnesses – threatening them with loss of coverage and 

The Commonwealth Fund published its tracking survey yesterday, which demonstrated that the economically disadvantaged face the same type of challenges in obtaining coverage and care.  Adults who are poor (<133% of federal poverty level) are much more likely to be uninsured. The likelihood of being uninsured for the entire previous two years was 35% among those at <133%FPL, compared to only 3% of those with income >400%FPL.   Overall likelihood of being uninsured for some time over the previous two years was 26% for the entire sample – but this ranged from 57% (<133% FPL to 12% (>400% FPL).  The study included over 2100 respondents, and was adjusted to be a nationally representative sample. 

The Commonwealth Fund study also noted:

·        28% of all respondents were seen in an Emergency Department over the last year. Those who were uninsured during the year were more likely to report going to the ED because they needed a prescription (50% vs. 35%), because they did not have a regular physician (41% vs. 16%), and because they believed that other sites of care cost too much (40% vs. 20%)

·        Those who were uninsured during the year were five times less likely to have colon cancer screening (10% vs. 50%). They were twice as likely not to receive a mammogram (32% vs. 66%)

·        Those who were uninsured said they skipped colon cancer screening because it was too expensive six times more frequently than those who maintained insurance all year. (33% vs. 5%)

·        Almost 2/3 of those with income <133% FPL depended on Medicaid or SCHIP to obtain health coverage (63%), but they were still most likely to have at least one child uninsured (31%, compared to 19% overall)

Income insecurity has gone up dramatically in the United States over recent years.  Few companies continue to offer defined benefit pension plans, and companies are exiting retiree health.  It’s hard for anyone to get a job, and for those without advanced degrees it’s harder still.  Employers are eyeing the expense of their health insurance plans carefully, and considering decreasing their investment to avoid the 2018 “Cadillac tax” nationally, and because they are competing in a world market with companies located in countries where employers don’t foot the bill for healthcare.

The Commonwealth Study shows that health insecurity is a frequent complication of economic hardship.  This leads to low value patterns of health care consumption, including unnecessary ED visits and foregone preventive care. The Affordable Care Act should reduce the coverage problem substantially starting in 2014, as the federal government provides premium support, and assuming the states establish exchanges to make it easy and (relatively) cheap to purchase health insurance. Lack of access to health insurance leads to poorer medical outcomes – including cancers unnecessarily diagnosed at a late stage.   We need the Affordable Care Act and its provisions that will make it far easier for Americans to obtain health insurance coverage.