PharmExec Blog

The Potential Pain in Deficit Reduction

The US National Commission on Fiscal Responsibility’s draft report report signals US embrace of a fixed annual global budget for health care spending — experience in other countries suggests this will add to pressure for further cost controls on medicines beyond what is ordered up in Obamacare.

Last week, Erskine Bowles and Alan Simpson, co-chairs for President Obama’s bipartisan National Commission on Fiscal Responsibility—formed as an attempt to create a long-term plan to reduce the national deficit—released their preliminary report. Intended as a model for discussion and a way to test the waters before the full Commission report is due next month, proposes to cut federal spending to an overall target of no more than 20.5 percent of GDP by 2040.

Health outlays are given relatively mild treatment in the report.  It proposes no new structural changes to the subsidized Medicare and Medicaid programs, even though most experts agree that a significant overhaul is needed if serious reductions in the deficit are to be achieved. Instead, the chairs rely heavily on existing projections of cost savings as the comprehensive new reform bill is implemented. It also builds on pilot projects linked to cost efficiencies to be drawn from operation of the new health insurance exchanges at the state level that will be introduced in 2013-2014.  In essence, the report carefully avoids throwing a new spanner into the machinery of Obamacare.

There are some add ons to reform that did not make it into the legislation approved by Congress in March, including comprehensive medical malpractice reform. Bowles and Simpson also propose a rise in the rebate floor for Medicare Part D — payments are already slated to rise from 15 per cent to more than 20 per cent — as a way to capture additional savings.  Many of the estimated 30 million new eligibles for insurance cover expected after 2014 will qualify for Medicaid drug coverage; higher rebates will reduce big pharma’s potential revenue gain from this covered population, undermiining one of its key objectives in reform.

Another significant proposal is to strengthen the role of the new Independent Payment Advisory Board, which in the Obama reform bill has the power to mandate – subject to a congressional option to intervene – reductions in both private and public sector payments for Medicare in line with larger indicators like inflation and GDP growth.  Finally, the chairs favor the US joining the rest of the industrialized countries by endorsing an annual global target for total federal healthcare spending after 2020, at no more than GDP plus 1 percent.

Although it is unclear whether these ideas will find their way into law, the direction is clear: health care spending will be subject to formalized cost constraint rather than being left to mediation by market forces. Medicines have never benefited from the reliance on global budgets, because medicines are easy to single out and can be viewed as discretionary commodity purchases, where more of the burden can be shifted to the patient. In other words, global budgets place the industry in the difficult position of being “lender of first resort” when governments start seeking ways to meet their targets, which also are distinguishable by being overly optimistic.

Perhaps the biggest negative of all is the Bowles-Simpson blueprint injects a further note of uncertainty into the long pharma planning cycle.  Companies will have to try to factor in the likelihood of the final Commission report advocating something radically new in controlling drug and health care costs, precisely at a time when the GOP Congress is proposing to rollback or repeal major elements of the Obama reform package.  A predicatable pathway to a new ideal state of US health care new seems more remote than ever.

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  1. Jennifer Kimball
    Posted November 21, 2010 at 4:24 pm | Permalink

    The CDC- Falling for Economics Over Disease Prevention

    Jennifer I. Kimball, Be.L.

    Meningococcal meningitis and meningococcal septicemia are the leading cause of death by infectious disease in early childhood. And although long standing efforts to eliminate the disease from our country have been gaining ground in recent years, the Obama administration has effected a troubling cutback in this effort, which casts a terrible shadow over the future for infant and toddler populations and raises an incessant, ethical question to plague the heart of our Healthcare System: ‘Could this have been prevented?’

    For the past ten years, the U.S. Center for Disease Control (CDC) has made a priority of not only preventing individual cases of meningococcal disease but of eliminating the disease in infants and toddlers altogether through the development and administration of vaccines. This campaign was prompted by CDC statistics that indicate that 41% of cases in infants less than one year old are “preventable.” In fact, in 1999 the CDC published a report from the Working Group on Bacterial Diseases which described meningococcal disease thusly: “It is an important condition for which effective interventions are under development and, in a few years, it may well be a candidate for elimination.” A 2005 peer-reviewed analysis conducted by CDC’s own expert staff further concluded that, compared to the prevailing strategy of vaccinating adolescents, toddler and infant vaccination “would prevent more meningococcal cases and a similar number of deaths…over the same period of time.”

    However, according to an ACIP meeting presentation in October 2009, not long after President Barack Obama took office, ACIP’s Meningococcal Working Group changed course and considered not recommending a routine infant vaccination for the prevention of the disease. According to this presentation, cost-effectiveness was a key consideration for the Working Group. Its rationale: “Although additional cases could be prevented by either an infant or toddler vaccination strategy, they do it at higher cost.”

    And the costs considered are not those found at the pay window. They are calculated, in part, by determining that infants have a lower economic and productivity value to society than adolescents and adults, and are too expensive to care for over the reminder of their lives if stricken by this dangerous disease. If the patient survives, the cost of treating and caring for meningitis victims over a lifetime can easily cost hundreds of thousands of dollars–and up. In short, infant mortality is a healthcare bargain.

    Meningococcal vaccine costs about $80 to $110 per dose, an overall average price, has been widely used for some time now in adolescents, and will soon be licensed by the FDA as safe and effective in infants and toddlers. Peer-reviewed studies have found that infant vaccination would reduce the societal costs of this disease by 40 percent. But there is indecision as to whether to keep children safe from deadly disease?

    Though CDC’s 2005 peer-reviewed cost analysis and later public presentations have stated “Routine infant [meningococcal conjugate] vaccination would prevent the most cases…” the ACIP Meningococcal Working Group remains to favor saving money over infants. And as to their purpose, the stated role of the ACIP is to provide advice to the CDC that will lead to a reduction in the incidence of vaccine preventable diseases in the United States, and an increase in the safe use of vaccines and related biological products.

    But are they economists too? Well no, they are not trained as such. But under the new directives of Obamacare and resultant powers awarded to the Secretary of HHS, it appears that this committee has taken on the role of advising on ways to cut costs that are, in their opinion, unduly burdensome or out of proportion to the good that can be achieved. And this is not only inaccurate, it ethically negative. For starters it is a diametric opposition to the Committee’s mission to prevent disease. In addition, such a change in focus knowingly and by choice allows the disease to perpetuate itself and regain a hold in our population, and at a time when it is very possible to eliminate it. But most importantly, it is a violation of the most fundamental ethics in healthcare.

    On a most basic level, traditional ethics in the United States healthcare industry instruct us to, first and foremost, practice Beneficence – to do the good that is possible — and Non Maleficence – to avoid harm. In the ethical-moral aspect of Beneficence a decision to deny or to suspend a known life saving treatment or means of prevention finds no justification in a decision to save proportionate resources or costs. And the real costs are proportionate, only targeted to alleviate budgetary concerns. Cost reductions cannot be achieved by life reductions. We are human individuals first. We are family members and members of a larger society. The state and its role to safeguard the people exist because the person first existed.

    The ACIP is set to meet in on this issue throughout 2011 and will, by a vote, decide the future of infant meningitis and septicemia in our families and communities. It will decide whether or not our children are worth saving. It will decide the future of vaccine research and development for the protection of America.

  2. Jennifer Kimball
    Posted November 23, 2010 at 7:12 pm | Permalink

    Dear Pharm Exec Blog,

    Please allow me to retract comment sent to you from this e-mail address previously. While waiting for moderation, the content was picked up as an Op-ed.

    Please forgive me for this. I love your journal and blog and look forward to any opportunity to offer comment or post.


    Jennifer Kimball

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