Pare and Klepper Commentary -- Specialty drugs: What good is a treatment if it's out of reach?

A commentary by Carolyn Pare, president and CEO of the Minnesota Health Action Group, and Brian Klepper, CEO of the National Business Coalition on Health, was published on Tuesday in the Star Tribune.

The article can be accessed here.

A breakthrough is defined as a sudden, dramatic and important discovery or development. It’s hard to dispute that medical breakthroughs have changed the course of life as we know it. But what good are these breakthroughs if the people who need them can’t afford them? Such is the case with prescription drugs and, in particular, specialty pharmacy.

In the coming years, drug manufacturers will unleash an unprecedented raft of new drugs into the marketplace; some will improve the treatment of common medical problems like high cholesterol and diabetes, while others (those referred to as “specialty” drugs) will be used to treat complex conditions like multiple sclerosis, hepatitis C and cancer. The good news: These “precision therapies” provide new and, in some cases, better treatment options. The bad news: The price tag for such prescription drugs in the U.S. is breathtaking — even scandalous.

Drug companies argue that new products are harder to develop and manufacture, which justifies the additional cost. But U.S. pricing is often three to 10 times that in other developed nations. Is that really acceptable?

Human-resource and benefits leaders from 17 companies who are members of the Minnesota Health Action Group are mobilizing around the specialty-drug-pricing issue by joining a Specialty Pharmacy Care Delivery Learning Network sponsored and led by the Action Group. The goal is to effect market-based change in an informed, united way so Minnesotans can receive the right therapies, in the right place, at the right price and at the right time.

Why should employers care about specialty pharmacy and, furthermore, why should they give their precious time to help drive change? Quite simply, because if they don’t, they will eventually end up paying the price. Don’t believe us? Consider the following:

• The hepatitis C drug Sovaldi made headlines last year when a course of treatment was pegged at $84,000 in the United States, crushing previous cost and use records. The same drug is priced at $900 in Egypt and $51,000 in France.

• U.S. costs for a powerful new cholesterol management drug, PCSK9, are expected to be $7,000 to $12,000 per patient per year, compared with about $1,000 on average for conventional drug therapies. Given the number of patients who might benefit, the market for this one drug could easily reach $100 billion per year, or about 1/33 of what we currently spend on all U.S. health care. All this for a maintenance drug that comes with annual lifelong, recurring costs.

• By 2018, the cost for hundreds of specialty drugs that are flooding the pipeline is expected to account for more than half of the total U.S. drug spend, up from 25 percent in 2006. Spending on this category is growing almost 20 times as fast as non-specialty-drug spending.

Unless something changes, in a few years, we’ll spend more on specialty than nobrian-specialty drugs or, for that matter, on doctors. The likelihood that this trend could financially overwhelm health care purchasers is real.

It’s hard to know how employers and unions will cope with the new pricing. Purchasers should consider a couple of key questions. First, what new measurable value will each new drug bring? This is hardly cynical; one recent study found that cancer drugs approved by the U.S. Food and Drug Administration over the past decade lengthened life by only 2.1 months, on average. Courses of many of these drugs cost more than $100,000. As consumers, we want to know what tangible value we can expect from a purchase. But in health care, that value has proved elusive.
Second, what is the pricing tied to? What makes it more expensive to buy these drugs in the U.S.? Why, exactly, is Gilenya, a multiple-sclerosis drug, almost six times as costly here as it is in Spain?

The battle over specialty-drug pricing could come down to a standoff between drug manufacturers and purchasers. In the past, drug companies have had reason to believe employers and unions were too preoccupied with other matters to take action against specialty-drug costs.

Minnesota Health Action Group members are here to say “enough is enough.” All Minnesota employers should get informed on this issue and join us as we strive to hold drug manufacturers and sellers accountable for rational pricing practices. It’s time, yet again, for business to lead the way in health care innovation.

Benefits managers and financial officers from employers, unions and governmental agencies have been watching their specialty-drug spend and calculating. It’s possible that excessive specialty-drug costs could capsize their benefit plans, making it untenable to maintain good health coverage without severely compromising other important benefits. Just as worrisome, these costs will exacerbate their health care cost burden and cannibalize profits.

Is it possible that, in manufacturers’ zeal for ever-greater profits, specialty-drug pricing could be the straw that breaks the tolerance of the nation’s health care purchasers for excessive health care pricing? If so, maybe health care will finally change.

BenefitsPro: Businesses must be solution to health crisis

NBCH CEO Brian Klepper was a keynote at the recent Human Resource Executive Health and Benefits Leadership Conference.

Covering the conference for BenefitsPro, Kathryn Mayer wrote an article summarizing Klepper's comments which can be found here.

Brian Klepper doesn't just think the nation's health care system is flawed; he thinks it's broken.

But the good news, he said, is there is a solution: businesses. 

Klepper urged benefits managers to meet with their C-suite, talk about just how serious the health care problem is, and band together to take action to fight the health care industry and rein in exorbitant costs.

"The most important people in saving health care and saving America is businesses," he said.

USA TODAY: Feds to require big companies to cover hospitalization

Jayne O'Donnell, reporter for USA Today, wrote an article about efforts to close a loophole in the Affordable Care Act that allows large companies to refuse to cover in-patient hospital stays in any of their health insurance plans.

Comments from NBCH CEO Brian Klepper are included...

Plans that don't cover hospitalization are "preying on vulnerable people who don't have resources," says Brian Klepper, CEO of the National Business Coalition on Health. "The purpose of insurance is to cover the services that most of us cannot afford when we desperately need it."

The full article can be accessed here.

Klepper Q&A in Business Insurance

Joanne Wojcik, a senior editor for Business Insurance, recently spoke with NBCH CEO Brian Klepper about mechanisms underlying America’s health care cost crisis and what employers can do to address them.

Here's a link to the Q&A article.

Two Wins on Transparency and Payment Levels

Brian Klepper

Going forward on the NBCH blog, I will try to post often and in depth on issues related to health and benefits. We'll also consider non-promotional, thoughtful contributions from regional coalition staff and employer members.

Two important items are in today's news that merit your attention. First is Medicare's announcement of its intention to release its Physician Claims data set. Presumably, analysis of these records will permit a better understanding of physician performance and value, critical for patients and purchasers. Public information on performance should encourage more physicians to be more aware of their practice patterns, creating new market pressures for excellence that have been lacking in health care for decades. I have already asked our team to inquire about how to obtain that set.

Also, yesterday the US Senate approved a bill that calls for identifying overvalued procedures in the Medicare fee schedule. After 22 years of an opaque and corrosive relationship between Medicare and the AMA's Relative Value Scale Update Committee (RUC), this is a heartening and unexpected move. The question now will be whether the House affirms. Certainly, we can expect the entire health care industry, except for primary care, to lobby against House approval. Because this change has momentous economic ramifications that are squarely in the public interest (as well as those of purchasers), we should each consider contacting our Congressional representatives to advocate for them to do the right thing.

Here's an article I have first published on the Health Affairs Blog a little more than a year ago that explains why and how RUC came to be such a powerfully negative influence on health care.

The RUC, Health Care Finance’s Star Chamber, Remains Untouchable
Brian Klepper

Posted 2/1/13 on The Health Affairs Blog

On January 7, 2013, a federal appeals court rejected six Georgia primary care physicians’ (PCPs) challenge to the Centers for Medicare and Medicaid Services’ (CMS) 20-year, sole-source relationship with the secretive, specialist-dominated federal advisory committee that determines the relative value of medical services. The American Medical Association’s (AMA) Relative Value Scale Update Committee (RUC) is, in the court’s view, not subject to the public interest rules that govern other federal advisory groups. Like the district court ruling before it, the decision dismissed the plaintiffs’ claims out of hand and on procedural grounds, with almost no discussion of content or merit.

Thus ends the latest attempt to dislodge what is perhaps the most blatantly corrosive mechanism of US health care finance, a star-chamber of powerful interests that, complicit with federal regulators, spins Medicare reimbursement to the industry’s advantage and facilitates payment levels that are followed by much of health care’s commercial sector. Most important, this new legal opinion affirms that the health industry’s grip on US health care policy and practice is all but unshakable and unaccountable, and it appears to have co-opted the reach of law.

The RUC exerts its influence by rolling up the collective interests of the nation’s most powerful medical specialty societies and, indirectly, the drug and device firms that support and benefit from their activity. The RUC uses questionable “methodologies,” closed to public scrutiny, to value medical services. CMS has historically accepted nearly 90 percent of the RUC’s recommendations without further due diligence. In a damning October 2010 Wall Street Journal expose, former CMS Administrator Tom Scully described the RUC’s processes as “indefensible.”

The RUC’s distortion of America’s health care market, ramping up both care and cost, cannot be overstated. It has consistently over-valued specialty services and undervalued primary care services. Ophthalmologists performing cataract procedures are now paid 12.5 times the hourly rate of PCPs involved in a moderately complex office visit, arguably a more complicated activity.

At the same time, the erosion in primary care reimbursement has reduced office visit durations and undermined primary care’s moderating influence over specialty care. These dynamics are almost certainly responsible for the doubling of specialty referrals over the past decade.

The RUC’s excessive valuations of certain procedures — e.g., cardiac stenting, colonoscopies, back surgeries — have created lucrative incentives for over-utilization. 2008 OECD health data showed that, for every inpatient percutaneous transluminal coronary angioplasty (PTCA) performed on patients in the United Kingdom, New Zealand or Switzerland, we do more than four in the US. Then there are data showing a clinically inexplicable 15-fold increase in complex spinal fusions between 2002 and 2007, with adjusted mean hospital charges of $81,000.

All health care interests except primary care win under this arrangement. Everyone else loses. Unnecessary care puts patients at physical risk. Purchasers — taxpayers, employers and individuals — pay twice the cost of care in other developed countries, an economic burden that now threatens to pull the US economy off a cliff. And the role of PCPs gets short shrift.

The Legal Objection To The RUC
The core of the Augusta physicians’ legal challenge was that the RUC is a “de facto Federal Advisory Committee,” and therefore subject to the stringent accountability requirements of the Federal Advisory Committee Act (FACA). This law ensures that federal bodies have panel compositions that are numerically representative of their constituencies, that their proceedings are open, and that methodologies are scientifically credible. In other words, FACA ensures that advisory practices are aligned with the public interest.

The RUC adheres to none of these and is an object lesson in how special interests can be insinuated into and capture regulatory processes, displacing the public interest. For example, when the legal challenge was first filed, only 3 of 29 RUC panelists (10 percent) represented primary care, even though some 30 percent of US physicians practice primary care. RUC meetings are closed to the public, unless an invitation is extended by the Chair, and admission is tied to the guest signing a nondisclosure agreement. Determination of a procedure’s value has been based on as few as 30 survey responses by physicians who know that their reimbursement will be linked to how they have answered the questions.

The Effects Of The RUC’s Influence
There are also several cascade effects. One is our crisis-level shortage of PCPs. All but the most idealistic medical students are steered away from primary care and into the specialties by relative low reimbursement. A PCP can expect to earn $3.5 million less over a 30-year career than a typical specialist. When the comparison is against high-earning physicians, like orthopedic surgeons, the difference is $10 million. Just as our boomer population reaches its years of highest health care use and cost, we’ll have a devastating primary care shortage, which in turn will propel traditional primary care cases into far more expensive and often unnecessary specialty care.

And, as lead plaintiff Paul Fischer MD has noted, the policies promoted by the RUC have degraded many areas of specialty medicine, narrowing care patterns as specialists “practice to the codes” that are most lucrative, and straining the collegiality that, until recent years, characterized most medical care.

One difficulty in challenging the RUC is that, to lay observers, it can appear to be a technical issue, accessible only to people who get down in the weeds. But it is foundational, defining the relative value of care services, which in turn drives pricing, profitability and care patterns.

That said, there are true experts who grasp the gravity of the problem. Among the most compelling are four former Administrators of CMS — Gail Wilensky, Bruce Vladeck, Tom Scully and Mark McClellen — who came together in a remarkable round table discussion last March in front of the Senate Finance Committee, co-chaired by Orrin Hatch and Max Baucus, unanimously agreeing that the RUC has been a colossal error and must be replaced (See the video here.) As Dr. Vladeck commented:

I’m hopeful that some combination of the need to address overall deficit reduction strategies more generally and a different kind of political climate in the relatively near future will create the opportunity for people to say, “We made a mistake in 1997. We created a formula that produces irrational and counterintuitive results, and we’re just going to abolish it and start all over again in terms of some kind of cap on Part B payments. It’s the only way we’re going to get out of this morass.”

A Laudable Effort By Six Primary Care Physicians
America’s health care community should also acknowledge the tremendous effort mounted by the six Augusta, GA PCPs: Robert Clark, Becca Talley, Paul Fischer, Edwin Scott, Rob Suykerbuyk and Les Pollard. These physicians financed the legal challenge out of their own pockets and did so for no other reason than they were convinced of the huge wrong CMS’ relationship with the RUC perpetrates on the American people and on primary care. They are great American citizens who, unlike their primary care societies, took a stand on behalf of the public interest, literally putting their money where their mouths are and paying the price of admission to the legal system.

American health care has many problems that contribute to uneven quality and egregious cost, but CMS’ longstanding relationship with the highly conflicted and unaccountable RUC is among the most outrageous and damaging. Now, with legal remedies exhausted, the avenues of redress are limited.

As Dr. Vladeck noted, perhaps America’s looming fiscal crisis, driven primarily by its health care costs, can compel Executive or Congressional action on the RUC. Only if the CMS Administrator changes her agency’s reliance on the RUC in its current form, presumably with pressure from the White House, Congress and the HHS Secretary, can this problem be resolved. Doing so would be a huge step toward regaining our fiscal balance, not just in health care but for the nation as a whole.