The Incidental Economist

Last night I posted a brief comparison on the MA cost control bills. In the comments, Mike asked about “smart tiers”

First of all, let’s just acknowledge the marketing. Who wouldn’t want socks made with “Smart Wool?” Why eat plain popcorn when you can have “Smart Food?” And now we have “Smart Tiers” in health plans.  Brilliant idea (or, dare I say, smart?)

Second, who gets credit?  It appears that this term was invented right here in Boston (the relevant Google results are all local). Our friends at WBUR’s  CommonHealth attribute the term to House Rep. Steve Walsh and Harvard KSG economist Amitabh Chandra.  (prior “dumb tier” coverage here)

Third, what does the House Bill do?  (full pdf here)

• Health plans can offer differential co-pays, based on the cost and volume of the service
• The hope is that consumers will vote with their feet and go to the less expensive facility for that MRI
• In time, this undermines BigHealthSystem market power and partially unbundles their services
• All of the above with actual market forces instead of government diktat

Fourth, who does it apply to?

• Most of the Smart Tier provisions are limited to the small group insurance market
• MassHealth (Medicaid),  the Connector, and other state plans can also use Smart Tiers
• ERISA plans don’t need the State’s permission to try Smart Tiers
• Short answer:  potentially, everyone except Medicare (for now)

Expect BigHealthSystems to attack this idea. Cautious Boston Globe editorial here; previous TIE coverage on insurance market power here (FAQ) and here (Academy Health blog).

Other smart things:  water; guns; toilets, and candy.

@koutterson

Austin asked for some analysis of the Massachusetts House & Senate bills.  The House Bill has much more powerful cost control elements, with real potential.

House – two striking provisions are pro-health plan and anti-Big Health System:

• Smart tiering – really a way to bust up hospital systems without reversing the mergers. Forces providers to allow unbundling.  This could revolutionize health care antitrust law.
• Directly addresses provider “payment imbalances” with tax on variations above 20%, absent a quality explanation.  Another nuclear weapon.

Senate – weaker on cost control, but 3 unique things worth mentioning:

• The Authority is an IPAB light, but unlike the federal board, it might actually see the light of day, with real people appointed and working.  I can see this transitioning over time.
• Atul Gawande checklists (who can disagree?)
• “Health system benefit” surcharges. Nice work on identifying positive externalities that health plans can’t capture (due to member turnover) and therefore plans have no business model to support (prevention, wellness, Health IT). 2 plausible routes:  allow plans to collaborate or tax them and have the govt provide these goods. The Senate Bill takes the second course. The House bill supports wellness and prevention generally without addressing this fundamental problem of positive externalities.

In both bills:

• Independent super-agency with more data and credibility (Senate, based on Div. of Health Care Finance and Policy; House, on the Div. of Health Care Cost & Quality)
• Encourage alternative payment contracts (bundled, global, alt quality)
• Workforce development
• Transparency initiatives
• University of Michigan Health System’s Disclosure, Apology and Offer program (soft med mal reform)
• Use MassHealth (Medicaid) lives to jump-start local ACOs
• Unlike almost every other state, in MA, the Attorney General is deeply involved, supporting more competitive health care markets.  Kudos to Martha and her excellent team.

@koutterson

Public hearings May 15, 2012 at Senate HELP committee. “De-linkage” proposals are an alternative to intellectual property that separate the market for R&D from the market for pills.  De-linkage has surprising support from academics, health access advocates and drug companies.

Prior TIE coverage here.  Much more extensive materials from Jamie Love/KEI here.
@koutterson

The Prescription Drug User Fee Act (PDUFA) is passed every five years after the FDA and the drug and device industries re-negotiate user fees and regulatory priorities. This year is PDUFA V, the Food and Drug Administration Safety and Innovation Act. It will pass Congress this summer.

I’ve already blogged on the promising antibiotics prize study in the Senate version of the bill, and on missed opportunities in the GAIN Act.

Today, let’s focus on an under-reported story:  how the new “fast track” approval process in Title IX helps the industry negotiate the looming patent cliff. This new “fast track” process changes the ground rules on how the FDA approves drugs. The FDA is being told to approve drugs with less complete studies based on biomarkers, intermediate endpoints, and other time-saving short cuts. Essentially, companies with a product for a “serious or life-saving disease or condition” will be able to get conditional marketing approval with something akin to Phase IIB studies, rather than two or more Phase III studies. Here’s the multi-billion dollar payoff, saving the industry from the looming patent cliff:

• Shorten drug approval times by 2-3 years;
• Reduce pre-marketing clinical trial costs by 20-30%, saving hundreds of millions of dollars; and
• Focus innovation on “serious or life-saving” therapies.

The big risks are safety and efficacy. Bringing drugs to market with less information is akin to experimenting on the public during the first few years the drug is sold. Title IX does a couple things on safety:

• Companies must agree to undertake the full Phase III studies after marketing approval;
• The FDA reviews marketing materials in advance; and
• The FDA can pull the drug off the market if the safety or efficacy data is bad, if the company markets the drug with false or misleading information, or if the post-marketing studies aren’t completed on time.

Title IX is a huge boost to earlier sales of patented drugs, with significant but unknown safety and efficacy risks. Patient advocacy groups (often with drug company financial backing) support allowing patients to take those risks, so long as they are fully informed. If you think that in the real world, patients will make poor choices with these fast-track drugs, then you are likely to oppose Title IX.
@koutterson

UPDATE:  The language in question is still [bracketed] text, meaning the House Committee has not agreed yet on the language.  Markup is today (Thursday) starting at 10 am.

The Prescription Drug User Fee Act (PDUFA) process requires the FDA to meet with drug and device makers and agree on a budget and regulatory agenda every five years (is this a good idea?). This year is the fifth iteration, PDUFA V, a bill which must be passed by summer or else many FDA employees will be furloughed. In other words, this bill will be the only health care bill that will pass before the election.

PDUFA’s “must pass” status makes it attractive for other legislation to hitch a ride. I posted yesterday about the antibiotic prize study in the Senate draft and previously about antibiotic incentives in the GAIN Act which is included in both the House and Senate versions.

One of the most fundamental changes is found only in the House bill, in Section 601. Historically, the mission of the FDA has been to protect the public’s health by evaluating the safety and efficacy of drugs and devices. Now, the FDA will also have a mission more suited to the Department of Commerce:

(B) protects the public health and enables patients to access novel products while promoting economic growth, innovation, competitiveness, and job creation among the industries regulated by this Act; (Section 601, page. 143 of the April 23, 2012 version of the House Bill)

To anyone who carefully watches prescription drug policy globally, this provision is striking. It tells the FDA that its mission isn’t just safety, but also “promoting economic growth, innovation, competitiveness, and job creation among the industries regulated” by the FDA. In other words, help drug and device companies make more money.

I can’t imagine a worse idea for the FDA. Period.

This is a terrible policy change which will dramatically undermine the FDA’s ability to make decisions based only on science and the public’s health.

h/t to Marie Serebrov, Fierce BioTech/BioWorld Today April 23, 2012 (subscription only)

@koutterson

From The Economist:

UPDATE:  based on a 2011 Lancet article, abstract here

@koutterson

We have strong evidence that the patent system is functioning poorly, with low quality patents, indistinct property boundaries and lots of wasteful litigation.  (See Bessen & Meurer’s Patent Failure for a lit review and analysis). In pharmaceuticals, we have ample evidence of drug patent evergreening (see Aaron last week here and here and Scott Hemphill & Bhaven Sampat in the Journal of Health Economics (free version on SSRN)).

For antibiotics, the issues are even worse, and more complex. Infectious disease experts warn that resistance may strand us in a “post-antibiotic” world, with dire effects. Drug companies, owning a time-limited property right, have no economic incentive to manage antibiotics for long-term public health (previous TIE posts summarizing the lit here). Antimicrobial stewardship is important to long-term public health, but to companies it is just another way to depress their sales. Megan reviewed the issues in The Atlantic recently.

One possible way out of this mess is to offer prizes for antibiotic drug development, de-linking the funding for R&D from the market for the pills.  (I’ve written on antibiotic prize funds recently with Hollis and Pogge; see also the extensive literature cited therein). On the front end, companies would be rewarded for producing innovative molecules that actually improved human health. No more billion-dollar rewards for clever marketing of me-too drugs. On the back end, companies would also be rewarded for preserving antibiotics for important human needs – the companies would become partners in antimicrobial stewardship rather than opponents.

So the good news. In the PDUFA V reauthorization legislation currently working its way through Congress, a study of drug prize proposals will be undertaken by the National Academies, including antibiotic prize proposals. The language comes from the prize proposals put forward over the last few years by Senator Sanders (I-VT) and excellent work by Jamie Love at KEI:

SEC. 906. INDEPENDENT STUDY ON MEDICAL INNOVATION INDUCEMENT MODEL.
(a) In General.—The Secretary of Health and Human Services shall enter into an agreement with the National Academies to provide expert consultation and conduct a study that evaluates the feasibility and possible consequences of the use of innovation inducement prizes to reward successful medical innovations. Under the agreement, the National Academies shall submit to such Secretary a report on such study not later than 15 months after the date of enactment of this Act.
(b) Requirements.—
(1) In general.—The study conducted under subsection (a) shall model at least 3 separate segments on the medical technologies market as candidate targets for the new incentive system and consider different medical innovation inducement prize design issues, including the challenges presented in the implementation of prizes for end products, open source dividend prizes, and prizes for upstream research.
(2) Market segments.—The segments on the medical technologies market that shall be considered under paragraph (1) include—
(A) all pharmaceutical and biologic drugs and vaccines;
(B) drugs and vaccines used solely for the treatment of HIV/AIDS; and
(C) antibiotics.
(c) Elements.—The study conducted under subsection (a) shall include consideration of each of the following:
(1) Whether a system of large innovation inducement prizes could work as a replacement for the existing product monopoly/patent-based system, as in effect on the date of enactment of this Act.
(2) How big large innovation prize funds would have to be in order to induce at least as muchresearch and development investment in innovation as is induced under the current system of time-limited market exclusivity, as in effect on the date of enactment of this Act.
(3) Whether a system of large innovation inducement prizes would be more or less expensive than such current system of time-limited market exclusivity, calculated over different time periods.
(4) Whether a system of large innovation inducement prizes would expand access to new products and improve health outcomes.
(5) The type of information and decisionmaking skills that would be necessary to manage endproduct prizes.
(6) Whether there would there be major advantages in rewarding the incremental impact of innovations, as benchmarked against existing products.
(7) How open-source dividend prizes could be managed, and whether such prizes would increase access to knowledge, materials, data and technologies.
(8) Whether a system of competitive intermediaries for interim research prizes would provide an acceptable solution to the valuation challenges for interim prizes.

@koutterson

Tobacco is a deadly product. Public health wants tobacco use curtailed, worldwide. So, when the Kiwis announced their intention to follow Australia and explore “plain packaging” for cigarettes, with a goal of a smoke-free New Zealand by 2025, public health folks cheered. No more tobacco trademarks on cigarette packages. Fewer deaths from tobacco. Of course the tobacco companies are unhappy, but who else would be upset?

Yesterday, New Zealand’s plans were attacked — by the US Chamber of Commerce, the National Association of Manufacturers, and other pro-business, free-trade groups, as a violation of the WTO TRIPS Agreement on global intellectual property (IP).  From their press release:

While there is no question that protecting public health is a legitimate objective, there is also no question that trademarks and other forms of intellectual property stimulate innovation and are essential to building vibrant economies. There is no fact-based evidence which suggests that mandating the destruction of intellectual property (IP) will advance public health. We firmly believe the measure in question could instead undermine public health as a result of unintended consequences, such as an increased influx of counterfeit tobacco products.

New Zealand has made binding commitments under international obligations to protect IP while it has no such obligation to mandate plain packaging of tobacco products. There are numerous methods to effectively regulate the tobacco industry that do not undermine the protection of IP, do not have such damaging unintended consequences, and are consistent with New Zealand’s international trade obligations. New Zealand, as a world leader in the international trading system, surely recognizes the critical importance of abiding by international trade rules and the value of not undermining that system. We do not believe the current international trading system in any way impedes the ability of governments to regulate in the public interest. But, the mandated trademark destruction through government imposed plain packaging does violate international trade rules.

Comments:

1. Tobacco packaging and restrictions on tobacco promotion are part of the agenda of the WHO Framework Convention on Tobacco Control (arts. 11 & 13).
2. The real conflicts here are trade law v. public health law; WTO v. WHO; IP v. public health (sound familiar?)
3. If New Zealand and Australia’s public health actions violate TRIPS, let the WTO Appellate Body decide that case. Why threaten NZ with press releases during the Trans-Pacific Partnership negotiations (in Dallas in early May)?
4. Australia’s plain packaging legislation was before the High Court of Australia for three days this week, also claiming a violation of IP laws. Reports suggest it didn’t go well for tobacco.
5. We are in the midst of a global legal war over tobacco promotion.

@koutterson

Authored by Justice Kagan this week, the first SCOTUS case on generic drug entry under Hatch-Waxman: Caraco v. Novo Nordisk. Justice Kagan approached this detailed statute with humor and logic, and brought all 9 Justices along for the party. Since generic drugs have saved the US health care sector over $1 trillion from 1999 to 2010, this is an important topic.

Novo Nordisk’s molecular patent on the diabetes drug repaglinide (Prandin) expired in 2009, but Novo acquired a “use” patent on the combination of repaglinide with metformin (which is also generic). It was undisputed that Novo holds no patent on the two other FDA approved uses of repaglinide:  repaglinide alone and in combination with thiazolidinediones. When Caraco filed its ANDA for generic approval of these two unpatented uses, Novo responded by amending its use code in the FDA Orange Book to cover all uses of repaglinide for human diabetes.  The Court of Appeals for the Federal Circuit agreed with Novo, essentially extending full patent protection over all uses of repaglinide until 2018.  The Supreme Court unanimously reversed.

If you want the statutory details, see The Orange Book Blog, SCOTUS blog, and FDA Law Blog.

My comments:

1. Novo is still a big winner here. Their patent expired in 2009; it is April 2012 and there is still no generic repaglinide in the US. With annual US Prandin sales of about $230 million, this litigation has paid off for Novo. As Justice Sotomayor points out in her concurrence, unless the FDA acts to remedy use code abuse, similar litigation delays will abound.

2. The use patent at issue was for the combination of two drugs (repaglinide + metformin), both of which are generic.

3. Justice Kagan’s writing style is refreshingly clear, with healthy measures of logic and humor. Most importantly, she insists that the very specific provision at issue (the scope of a counterclaim under 21 U.S.C. § 355(j)(5)(C)(ii)(I)) must be interpreted in light of the overall goals of Congress in the Hatch-Waxman Act. That sends a clear message to the Federal Circuit that hypertechnical readings of this statute will not be tolerated if they are out of sync with congressional policy favoring generic entry. Good news for generic drug companies.

@koutterson

The title says it all. Details from the SHEA:

Research demonstrates bacterial contamination in pharmacy robots

Drug dispensing robots designed to quickly prepare intravenous medications in a sterile environment can harbor dangerous bacteria, according to a report in Infection Control and Hospital Epidemiology, the journal of the Society for Healthcare Epidemiology of America.

During a routine screening in 2010, personnel at Wake Forest Baptist Medical Center in North Carolina discovered Bacillus cereusbacteria in samples dispensed by their machine, the Intellifill IV. “To our knowledge, this is the first published report of a pharmacy robot being contaminated with Bacillus with resultant contamination of intravenous drug product,” the report’s authors write.

h/t to e-drug

@koutterson