If you ever wanted to know what health economists might do with a billion dollars, the Obama Administration’s  Patient-Centered Outcomes Research Institute [PCORI] is about to tell all:  not right down to the penny, but good enough.  The congressionally funded – but independent – group has just released a document outlining priorities that will fuel a flood of research grants by mid-year. Application of that research will carry a significant impact on the evidence stream that increasingly determines Big Pharma’s access to providers and patients.
An outgrowth of the 2009 economic stimulus package, PCORI has a key role in implementing Obama’s health reform legislation with a mandate to evaluate the “comparative clinical effectiveness” of a vast array of health interventions, from drugs, diagnostics and devices to structural programs geared to prevention or wellness.  Congress authorized $1.1 billion for this task, a figure that dwarfs what other countries currently spend on all forms of effectiveness research.  It follows that the PCORI priorities will carry influence outside the US.  And there is an even larger effect should PCORI end up enabling  research that industry has traditionally eschewed, such as head-to-head drug comparisons and broad, population-based observational studies.

PCORI’s Draft National Priorities for Research, unveiled on January 23, strikes a tentative tone.  It repeatedly states the document is unfinished, and the sub-head to the title refers to  the proposed research agenda as “version one.”  Much of the text is devoted to how PCORI intends to consult widely with a broad array of stakeholders – led by patients, care-givers and their representatives – prior to final action by the group’s governing Board, probably in April.  PCORI staff will initiate the outreach through private meetings and focus groups, but there is also an all-day, open-to-the-public consultation scheduled for February 27 near the PCORI headquarters in Washington.  The comment period on the draft continues to March 15.

The five priorities set forward in the document are also very broad and will likely be read differently by different stakeholders.  The first, comparative assessment of prevention, diagnosis and treatment options, is arguably the most important. In fact, PCORI intends to devote 40 per cent of its time and resources to this area.  The goal here is research to evaluate alternatives to designate those products and practices that produce superior patient outcomes.  Although cost is not an intended path of inquiry, PCORI does have the right under law to fix priorities that take into account “the effect on national health expenditures associated with a health care treatment.”  Hence there is some risk that activities under this priority, which focuses on new technology and product interventions, could range further afield than clinical aspects alone.

Ranking behind this are two priorities that will take another 40 per cent of the PCORI budget:  improving health care systems; and accelerating patient-centered methodological research.  In the first case, this entails examining changes in health services and infrastructure, including the impact on efficiency of changes in the way these services are delivered, and by whom.  The research in methodologies priority will support work to improve the quality and usefulness of clinical data, as well as developing standards for new forms of research like patient registries, observational studies and meta-analyses.   It is hoped these new standards will promote better decision-making around rare diseases – where, it should be noted, current treatments are quite costly, with drugs leading the way.

Some 20 per cent of resources will be spent around the two final priorities:  investigating health disparities; and communication and dissemination. The disparities agenda is politically popular and focuses on revealing areas of implicit bias in the health system, from gender and race to age and social parameters, where practice patterns differ and outcomes can suffer because of them.  Expect from this an upswing in attention to the social determinants of health.  The latter priority is geared to raising patient compliance rates with treatment, improving patient understanding of options they have in treatment and promoting better patient-clinician communication, and evaluating the promise and success of electronic health records and other new information technologies.

The patient interest is the common thread running through each priority.  Patient representatives will not only be formally consulted as specific projects are developed, they will serve on in-progress review committees and will be asked weigh in on results.

Word to the Wise..
While PCORI has taken pains to consult and to avoid stepping into the minefield of cost and “value,” industry has good reason to be wary as its ambitious work plan moves forward.   The high level of inclusiveness given to the patient community may end up politicizing the process and interfere with the integrity and robustness of the research protocols. Raising this is prudent given the level of aggressiveness that patient advocates show in rallying support for their disease.   Even with a billion dollars to spend, prioritization means that while some will be let in, others will be left out.  The temptation will be for some groups to ask Congress to intercede – few scientists or researchers, of any stripe, want that.

Likewise, PCORI’s interpretative skills will be tested if it proceeds with proposals to  “synthesize” existing studies to “create a more cohesive body of evidence.”  There will invariably be disagreements in rendering judgments from different studies and it entails the risk that important clinical decisions will proceed without acknowledgment of methodological gaps and important disease variations in the populations under study.  In fact, PCORI funding for more meta analyses in place of clinical trials raises questions of encouraging population bias, particularly as the technological capacity to expand the data set to millions of people becomes commonplace.   PCORI’s Methodological Committee has not publicly weighed in on this yet, but when it does the discussion is bound to be controversial.

In a country where mere mention of the word “rationing” spawns howls of protest, PCORI is probably right in framing any document it publishes in the vaguest possible terms.  But this may in time damage its effectiveness in facilitating superior health outcomes.  I ask:  can an organization that calls itself “patient centric” still be scientifically pure and empathy free?  In the messy politics of health care, isn’t that the same as being  tone deaf?

PCORI’s online survey to gauge reaction to the strategy document can be accessed here.

Audrey S. Erbes, Principal, Erbes & Associates, outlines the highlights of this week’s event in San Francisco.

One of the few positive notes struck in this week’s 30th Annual J.P. Morgan Healthcare Conference (held in San Francisco) was the announcement by Kevin Willsey, J.P. Morgan’s co-head of investment banking for North America, that the U.S. economy would grow 2.5 percent in 2012. Despite this encouraging note and media reports of a strengthening economy, however, an air of uncertainty permeated the conference halls as attendees moved from session to session.

Willsey conceded that “the elephant in the room remains Europe”, and this imagery reappeared in the opening remarks of Jamie Dimon, J.P.Morgan’s Chairman and CEO. In a Q&A with Maria Bartiromo, Anchor of CNBC’s “Closing Bell,” Dimon referred to a COPD TV commercial and feeling like the patient with an elephant sitting on his chest: concerns of uncertainty, regulation, and the European and U.S. economy weighed on his mind. His remarks provided much needed levity and a feeling of hope that we’d all live to see another day despite the sobering challenges faced by the country and industry.

The major breaking news of an otherwise uninspiring event was Bristol-Myers Squibb’s $2.5 billion purchase of Inhibitex. Apart from that, a welcome surprise among Big Pharma presenters was the newcomer from Roche Holdings AG, CFO Alan Hippe, whose unexpected energy was truly engaging, especially, when he noted there was something wrong when R&D returns had decreased to the cost of capital. Hippe apologetically warned the audience his presentation would be boring with its focus on financials. It was no surprise that “operational excellence” continues to be a key goal at Roche. Against this backdrop Hippe shared a 14% and 8% decline in 2011 sales versus 2010 for the pharmaceutical and diagnostic companies, respectively. But he softened this bad news with reminder that Roche provided an attractive dividend payment with an average yearly growth of 22% between 2004 and 2010.

Other presentations from Big Pharma and Big Biotech, however, were often lackluster — downright boring in some cases — as speakers made stock statements and provided financial data intended to comfort investors that the interest of shareholders was a top priority. Several members of the audience mentioned they could have obtained this information from company websites and noted the similarity in phrases and financial slogans heard repeatedly across presentations.

Pfizer’s Chairman and CEO, Ian Read, stated that the company’s animal health and nutrition businesses were better off outside Pfizer, and that the potential of large revenues from emerging markets to counter lost revenues from blockbuster patent expirations — so key to remarks just two years previously — was no longer a major strategic element. Abbott CFO Thomas Freyman provided lots of details, which he dutifully read, about the planned split of the company into two — pharmaceutical and medical products companies — but failed to answer the obvious question on the minds of listeners: “What was the compelling argument for this decision?” And GSK’s CFO Simon Dingemanns strongly asserted the need that finance drive decisions and become embedded in decision making at his company, a comment both unexpected and somewhat unnerving to some in the audience.

AstraZeneca’s CFO Simon Lowth provided a change of themes as he placed the importance of partnering as a primary plank of his pitch. He portrayed AZ as a “focused, innovation-driven, integrated global biopharmaceutical company.” Lowth’s presentation was engaging as well as refreshing as he addressed the strategic solutions selected by AZ to meet the challenge of a changing macro and industry environment. These included early payor and regulatory involvement in drug development to secure reimbursement and market access, the implementation of new marketing and sales technologies as well as new channels of communication with customers.

NIH Director Francis Collins was perhaps the conference’s “inspirational speaker”, however. He provided some of the passion of past years’ biotech entrepreneur presentations as he shared his excitement for the profusion of new science and described objectives of new NIH Institutes and a $140 million dollar partnership between NIH and DARPA to develop a chip-based approach to drug toxicity. Unexpectedly, former FDA Commissioner Mark McClelland, in a luncheon presentation on Wednesday, also gave hope for some good coming from the Affordable Health Act. He stated strongly that “the law was very unlikely to go away.” He foresaw 2012 as a very important year for financial discussions focused much more on the “value” of health care, regulatory reforms and more effective health care.

The Chinese track offered registrants the chance to hear presentations by new Chinese companies and ask questions of top managers from key companies like Simcere, Biogene and Wuxi. There were inquiries about company business plans and hurdles management faced in China, but whether or not the founders were concerned that the government might take possession of their products and technologies as they have in other industries and whether or not the lack of the rule of law in China was a major worry to them were questions left unasked.

The lack of sufficient funding for new start-ups, perhaps the largest “elephant in the room” and a major cause of feelings of uncertainty among entrepreneurs, also went unaddressed. Yet it was the focus of many quiet conversations in the hallways. Start-up company founders and supporters shared experiences of finding the “VC wells dry,” greater difficulty in winning NIH grants and scrambling to line up alternative funding sources. Some looked to other conferences in town for answers to these important questions.

Greek Prime Minister George Papandreou fell on his sword on November 9 after startling the EU by announcing he was pushing for a referendum on whether to accept its latest €100-bn installment of bailout cash. Three days later, Italy’s ‘colorful’ Prime Minister Silvio Berlusconi was effectively removed from office, despite suggesting that he would stay until reforms to calm the Italian economic turmoil were adopted. (Italian government debt stands at nearly 120% of its GDP).

Now, as widely predicted, Spain’s socialist government has fallen, making way for the conservative Popular Party, whose election win is the biggest for the Spanish Right since the end of Franco’ s dictatorship in 1975. The Party’s leader, Mariano Rajoy, will be taking on the Herculean task of, among other things, addressing the rate of unemployment in Spain, which currently stands at a staggering 21.5 per cent.

As for the Spanish healthcare market, the country is saddled with €5.4 billion ($7.1 billion) of unpaid drug bills, equivalent to about 0.5 percent of its entire GDP. Currently, Spain’s regional governments are paying bills an average of 430 days late.

There have been hints that Big Pharma companies such as Roche might do in Spain what they have done in Greece and cut off supplies to hospitals that have failed to pay their drugs bills. The industry has certainly started to show signs of increasing discomfort as far as the most beleaguered European countries are concerned. Sanofi Aventis’s Head of Global Operations, Hanspeter Speck, recently said “I don’t expect anything good in Europe,” while Richard Bergstrom, Director General of the European Federation of Pharmaceutical Industries and Associations, revealed that what worries him most are the debts of “close to €10 billion ($13.8 billion)” just from Portugal, Spain, Italy and Greece.

So will the new government bring hope for the Spanish health system (and, by extension, its global suppliers)? The Popular Party has stated that private sector involvement in the management of the health system, via public-private partnerships (PPPs), will rise sharply under their watch. The British Medical Journal (11 November 2011) reported that a conservative victory will see spending on healthcare PPPs in the community of Madrid increase by a third, from €371m ($505m) this year to €496m in 2012. More hospitals to be run as public finance initiatives are also expected to open in the same time frame.

Needless to say, moves towards partial privatization have long been controversial in a country with strong socialist ties — PPPs were only passed into law in Spain in 1997. The Federation of Associations for the Defence of Public Health (FADSP) is one body that is vehemently opposed to PPPs — it has argued that the building of hospitals under private finance can increase costs by up to seven times.

Whether this unprecedented injection of private money will boost or further derail the Spanish public health system remains to be seen. Either way, pharma will be watching closely as it waits for its bills to be settled.

More interesting than the numbers themselves are the implications of this growth. The addition of another billion people over slightly more than a decade requires a 40 percent expansion in the global food chain, another 40 percent spurt in the availability of fresh water, and 50 percent more energy—all just to keep pace with the status quo.  Equally important is the skewed distribution of this new population profile. The sub-Saharan Africa and South Asia regions account for most of the increase, while in the northern climes population totals are set to decline, with key economies like Germany, Italy, Japan, and Russia slated to actually have fewer people in 2025 than today. And many of them will be elderly and female—not additive to the resource mix.  The rise is also disproportionately more urban than rural.  Whereas today there are 10 cities around the globe with a population of 10 million plus people, the UNPF projects that there will be upwards of 21 such cities by 2025.

What do the new numbers really mean for the business model and strategic focus in health care and pharma? Several points come to mind.

First, more people has a hidden upside—it’s called human capital. Leveraging the energy of more young people and women can yield rich dividends in economic growth. Good health is a pre-condition for achieving compensating gains in productivity to alleviate the burden of population on resources.  The health dividend also works in addressing the claims of aging populations, a cohort no longer limited to the “mature” industrialized markets. Poor countries are growing older too.

Second, that “bottom billion” of the customer base that underpins Big Pharma’s new commercial model for developing and emerging markets is going to get larger.  Cracking the “reverse innovation” nut for products and processes in a way that addresses their needs will add significantly to the industry’s success ratio in regions with the most substantial prospects for long-term revenue growth.

Third, accelerated urbanization will create new opportunities for more efficient drug distribution and to link drug therapy more closely to the provision of basic health services. The trend offers the ability to demonstrate how access to essential medicines can drive improvements in primary care and overall health outcomes. This is particularly true in maternal and child health as well as the prevention and management of chronic disease.

Fourth, it follows that drug-makers should devote time and attention to contributing to health system reform, focused on understanding how medicines can more efficiently find their way to all patients who need them, not just the affluent 10 percent at the top.  Applying “cheapening technologies” at the root of the supply chain and learning more about basic consumer preferences is central to this.

Fifth, the relationship between health, disease and the degradation of resources and the environment is likely to see more scrutiny. Interventions, tools, and technologies that help mitigate these effects represent a strong potential growth area for companies active in the health space. Quite simply, it argues for a widening of the product franchise for pharma in the years ahead. Cancer prevention and diagnostics along with nutrition management, food supplements, and control of obesity are research targets that come immediately to mind.

Finally, consider the reputational assets to be found here. One of the most prominent statistics cited by the UNPF in recording Monday’s transition to the seven billion society:  a baby born in the US today has a 50 percent chance of living to the age of 100. It’s the best argument I have heard for awhile of the value from investing in medicines innovation.

William Looney, Editor-in-Chief

Sixteen months into the new Healthcare Reform law, many continue to wonder about the status one of the most confused aspects of the new HCR — the elusive Accountable Care Organization, or ACO. And why are ACOs viewed this way? Simply stated, the heated debate over exactly what an ACO is … and what it is not … has not been resolved as of this writing.

And really, if you think about it, this unsettled state of affairs is somewhat odd. The ACO concept is fairly well defined in the HCR Act, and since it is based on years of theoretical research conducted by the Dartmouth Health Care Atlas, you have to wonder, “What can be so misunderstood about the idea?”   The answer is, apparently a lot.  Today, it is clear that even those experts tasked with setting up the new ACO’s (hospitals, doctors groups, healthcare provider organizations, etc.) are struggling mightily to get a handle on this concept.

Questions like, “Aren’t ACOs really just modified PPOs?”; or, “Really, they must be just good old, off the shelf HMOs, right?”;  or how about, “They have to be something new.  Maybe a potent combo of HMO/PPO?”…are being debated daily in healthcare journals, newspapers, policy websites, and, importantly, in the healthcare board rooms of America. As of today, the “answer” to all of this is a thoroughly jumbled mix that is comprised of differences in geography, service area populations, and local medical cultures.

As a result of all this quibbling, there is now a growing portfolio entitled, “This is what an ACO really is.”  And given the variety of answers in that file, probably the more daunting challenge for ACOs is, once you think you actually understand what an ACO actually is, how the heck do you execute one these things in the real world?

A Review of Actual ACO Execution
Probably the most useful way to approach this ACO execution question is to consider those ACOs that are planned or actually up and running; those entities that are “thinking about” an ACO launch; and still others that are not acting at all.  Let’s quickly review a few of each, remembering that the official CMS ACO Medicare launch date is January 1st, 2012, less than six months from today.

Planned & Working ACOs…
As of this writing, we have found a limited number of actual ACOs that are up and running.  However, many groups do seem near an activation stage for later this year.  For example, in a recent membership survey, the publication CIMO (Chief Medical Information Officer) found that 17% of members surveyed reported they were planning to launch their ACO by January 1, 2012.  While not an overwhelming response, this is not an insignificant group indicating planned forward action on ACOs, soon.

Beyond this, certainly the most prominent functioning ACO to date is the successful pilot being run by the California Public Employee Retirement System (CalPERS). Launched in January of 2010, this program is currently delivering care to about  40,000 patients. According to information released by CalPERS in April, (and heavily endorsed by CMS) this ACO approach includes a diverse partnership with the Hill Physicians Medical Group, Catholic Healthcare West, and the Blue Shield of California Health Maintenance Organization (HMO) (An HMO?  We’ll come back to this point, in a moment).  The CalPERS’s ACO goal, similar to that stated in the HCR law, is creating “an integrated health care approach that improves health care quality and reduces costs.”

Early examples of cost savings in this CalPERS ACO pilot include a 17 percent reduction in patient re-admissions; a half-day reduction in the average patient length of stay; a nearly 14 percent drop in the total days patients spend in a facility; and a 50 percent reduction in the number of patients who stay in a hospital 20 or more days.  Overall, CalPERS is saying this ACO is likely to result in $15.5 million in total savings when the pilot ends in December of this year.

So, on the face of it, this all sounds pretty good, even impressive!… Indeed, CalPERS is so enthusiastic about the pilot that it is talking about rapidly expanding the model for its entire public employee population in CA.

So all is happiness and light with this California ACO experience.  Except for one thing.  Let’s go back to the primary service point in the CalPERS program.  Yup.  It’s an HMO (Blue Shield of California Health Maintenance Organization).  So when others are thrashing about trying to determine what an ACO really is, and how to execute it … is what’s old (HMOs), now brand new (ACOs)?? That is, is an ACO really just an HMO?  Indeed, is this significant CalPERS success just another point of disagreement?

Those “Thinking About” ACOs…
It’s pretty clear that those currently “thinking about” establishing ACOs — currently make up the vast majority of the potential ACOs groups.  They know a lot about ACOs; continue to research and ruminate about them carefully; but right now, they aren’t committed to the ACO concept.

Clearly the most notable in this group would be several entities that participated in the CMS Physician Group Practice (PGP) Demonstration project that ran from April 2005 to March 2010.  Ten, large regional organizations including groups like the Marshfield Clinic of Wisconsin; Everett Clinic of Washington State; Park Nicolette Group of Minnesota;  The University of Michigan Hospitals of Ann Arbor; etc … joined CMS with the high hopes of proving that the ACO concept was workable and, in fact, the “next big thing” in healthcare delivery.

However, when the results of the five year project were announced this past winter, it was clear that nine out ten of those participating entities were unhappy with the ACO concept. Indeed, the only member of the pilot group that seemed to be marginally pleased with the outcome was the Marshfield Clinic.

Things got even more interesting this March when CMS announced its “real world” ACO rules would be based on the increasingly controversial results of the five year PGP pilot. When this information was released, the nine pilot groups that did not like the PGP pilot were direct in expressing their displeasure with CMS’s “real world” vision for ACOs. In fact, the nominal winner in the PGP pilot, the Marshfield Clinic, joined the other nine groups in stating there were major problems with the proposed CMS ACO rules.

Jointly, the ten PGP participants sent a letter to CMS expressing concern over many of CMS’s ACO decisions.  Highlights included:

·       In the CMS demonstration, all 10 sites received up to 80 percent of verified savings to Medicare.  In the real world, CMS proposed that only 50 percent or 60 percent savings in the ACO program would go to the ACO.  The 10 found this unacceptable.

·       Additionally, under the CMS “real world” rules, ACOs are to be subject to penalties if they don’t hit savings and quality targets, called a two-sided risk model.  In the demonstration pilots, CMS did not penalize the ACOs for not meeting these goals.  The 10 were not pleased with this rule.

·       Finally, to participate in the “real world” ACO program, sites will have to subject themselves to additional government scrutiny and regulatory burden.  For example, they will have to let CMS review their marketing materials and invite additional reviews of business arrangements by the HHS Office of Inspector General and the Federal Trade Commission.  The response?  As one pilot ACO participant drolly observed, “Everybody invites the OIG over to dinner, right?”

In sum, not an overwhelming endorsement from the PGP participants of the proposed CMS ACO rules…

So, as we back away from those “thinking about” establishing an ACO, you gotta say, there is just a lot of uncertainty out there.  And, really, I’d say, that’s probably a bit of an understatement.

Those who are “Just Saying No”…
In contrast to all the uncertainly of the last group, there is one growing collection of key healthcare entities out there who believe have the ACO conundrum all figured out.  Their approach to this boggy territory?  Well, they are just saying “No” to establishing Medicare ACOs.

Certainly the most important voice among these naysayers is the prestigious Mayo Clinic of Rochester, Minnesota.  Remarkably, shortly after the issuance of the CMS ACO rules in the spring of this year, Mayo responded bluntly, and curtly to the news: “Mayo Clinic is not going to participate in a Medicare accountable care organization under the circumstances proposed.” Dr. Douglas Wood, Mayo’s chairman of health care policy and research, went on to say, “Mayo does not want to significantly change what it believes is its current efficient, patient-friendly program, and so, will not be participating in the new CMS ACO venture, at least as currently structured.”

Shadowing the stunning Mayo rejection came word from the American Medical Group Association, the trade association representing most potential ACO organizers, that 93% of their membership would not be participating in the CMS Medicare ACO concept.

So, in a sense, that was that. The combination of one of the most legendary health centers in the US, along with a major association representing most of the future, potential ACOs, collectively turned their backs on one of the key centerpieces of the new HCR law. We can only imagine the reaction at CMS when these Mayo/AMGA statements were received in Washington, DC.  No doubt, it must have fallen somewhere between a debilitating anxiety attack … and simply running up a crisp white flag.

So, to begin to wrap this up, I think it’s fair to say that even a very strong CMS ACO advocate would have to agree that ACOs are “just beginning to get traction” in the HCR schematic. Beyond the continuing debates over the ACO theory, right now, it’s pretty apparent there just isn’t much ACO infrastructure in place. With the exception of the successful CalPERs ACO, which as we have pointed out is actually premised on a long functioning California HMO, and the prospective 17% of those in the CMIO survey who say they are “planning to implement in 2012,” there is little public  evidence that a broad ACO activation is underway.

Further, the reported difficulties of the participants in the CMS PGP Demonstration project, along with the follow-on negative response to the March 2010 “real world” CMS ACO rules, have caused most organizations that are supposed to be moving towards establishment of ACOs to be either cautiously designing unique ACO approaches that will benefit their organizing group…or finds them “standing down” until the smoke clears around the ACO issue.

Certainly, the happiest folks in the entire ACO swirl right now are the Mayo Clinic and the members of AMGA who have made the call to simply say “no” to whatever it is that an ACO may turn out to be, come what may from CMS.  Obviously, they believe there are significant downsides to establishing ACOs and they are not afraid to walk away from the concept.  All of that said, it really is an amazing stand if you think about its significance to HCR program.

So, where are we with healthcare reform’s ACO’s?  At the least, all of this suggests substantial problems for the formal CMS launch of Medicare ACOs next January, 2012.  In fact, taking a broad look at the facts in hand, I think you would be safe in saying that with less than six months to go before the official CMS ACO start-up date, the ACO concept is actually in fairly deep trouble…And if that’s true, that important fact and what it portends for the overall implementation of the 2010 HCR law must be viewed as a key, critical development for HCR.

Those are my thoughts on the state of affairs with HCR’s ACO concept. I would welcome your thinking on this ongoing, important aspect of the new law…

Tom Norton

The emailed invitation to attend Allergan’s Facial Aesthetics Advisory Panel, which was reproduced, criticized, and circulated on the Association of Healthcare Journalists’ listserv, said the panel’s goal is to “engage in a discussion about current facial aesthetics, trends and innovations, perceived gaps in data, and any questions, concerns or misperceptions your readers may have about products and treatments.” Allergan makes Botox Cosmetic, Juvederm (a dermal filler) and Latisse, an eyelash enhancer.

Reporters agreeing to attend the two-hour event and sit on the panel stand to earn the equivalent of $125 an hour. “As a seasoned reporter in this space, we would greatly value your feedback, and we’d like to offer you a stipend of $250 for your attendance and insights,” the invitation states.

Elizabeth Fishman, associate dean for communications at Columbia University’s Graduate School of Journalism, said in an email that she had “never heard of reporters being offered ‘stipends’ for their ‘attendance and insights’ about a company or product that they cover.” Fishman added that in 10 years at CBS News, she was never offered financial compensation by a third party in exchange for editorial coverage. “To accept any such compensation would be breaking a fundamental CBS News standard, and I am quite sure, would break standards at other news organizations as well,” she said.

The Allergan stipend doesn’t obligate reporters to write about Allergan or its products, and while providing a stipend and free lunch to journalists, in exchange for their attendance at an event featuring discussions about products they potentially cover, is ethically dubious, it’s not illegal. However, companies hoping to gain the trust of patients and other stakeholders, or hoping to simply avoid negative reputational spillover, will want to avoid the kind of public relations exposure that casts them in the role of media briber. Blaming a third party for mistakes doesn’t amount to an abdication of responsibility.

According to a Q1 release, Allergan’s facial aesthetics portfolio, combined with its breast aesthetics products, accounted for 29% of the company’s $4.8 billion in revenues  for 2010. Botox, which is indicated for cosmetic and non-cosmetic uses including chronic migraine, upper limb spasticity, cervical dystonia and other indications, represented 30% of Allergan’s revenues in 2010, according to company data.

A new study from the IMS institute for Healthcare Informatics reveals that the spending increase on prescription medication in 2010 was the second-lowest increase in more than half a century.

According to the IMS Institute for Healthcare Informatics, spending on prescription medications increased 2.3 percent in 2010 — a lower increase than the 5.1 percent growth rate reported in 2009. IMS Institute’s new study, The Use of Medicines in the United States: Review of 2010, reports that total dollars spent on medication in the US reached more than $307 billion last year — and while the volume of prescription medications consumed overall did rise in 2010, the increase was historically low.

“It’s the second-lowest spending growth rate we’ve ever recorded in our 55 year history,” says Michael Kleinrock, director of research development at IMS Institute and one of the primary authors on the report. “The only lower one was 2008. Contrary to the perspective that’s generally understood — that spending growth, sometimes called sales growth, is extremely high — what we’ve actually seeing is that it’s at or below levels of overall healthcare spending, for most of the last five years.”

The report also finds that, in 2010, doctor visits were down 4.2 percent; the number of patients starting new treatment for chronic conditions decline by 3.4 million; average co-pays were down by 2 cents largely due to generics usage; and prescriptions filled under Medicare part D or through Medicaid represented 30 percent of all scrips filled, up 8 percent since 2006.

“What that reflects to me is the delayed impact of the economic crisis,” says Kleinrock. “Specifically when we look at fewer doctor visits, that’s concentrated in older adults, as opposed to seniors or young people. That is reasonably consistent with how the economic crisis impacted that generation more in terms of unemployment, and therefore lost health insurance. It’s a slow impact, because medicines are necessary and essential for patients.”

The Obama Administration’s signal achievement to date — passage of comprehensive health reform legislation — continues to inspire confusion and contradictions across the political spectrum. Despite its scope, the bill is dismissed by many Democrats for what it does not do, while the GOP references “Obamacare” as a decisive step toward the apocalypse of socialized medicine. Howard Dean, 2008 presidential candidate, former Vermont governor and chair of the Democratic National Committee [DNC], added some additional twists to the reform debate in a talk to senior pharma executives hosted by the Gerson Lehrman Group [GLG] in New York last Thursday.

Dean, now of counsel to the law firm McKenna Long & Aldridge, dismissed Obama ‘s position that the 2010 reform would “bend” the cost curve. Why? Because little has been done to change the economic incentive of providers to charge by procedure rather than on the basis of a full episode of care. Fee-for-service remains the payment bedrock of the US system. Until it changes, costs will continue to rise.

Dean reiterated his view that Obamacare will accelerate a transition away from the current employer-based approach to financing health care. “There is a negative incentive in the law for small business to continue providing health benefits to workers,” Dean said. “I expect that once the state insurance exchanges are up and running small businesses will opt to pay the penalty for not providing coverage and simply give workers a bonus or subsidy of a few hundred dollars to help them purchase insurance under the individual mandate.” Conversely, the largest employers are likely to keep to the status quo as they prefer to control their exposure to insurance costs. Hence, like so much of the reform package, the outcome is a mixed bag: there will be less diversity, flexibility and choice in the system as the government role increases, but US industry will be more competitive in global markets due to having to shoulder less of the burden of covering workers for essential health care services.

Perhaps due to his new role as an adviser toMcKenna’s biotech clients, Dean professed some views that are anathema to his own party caucus. These included support for the 12-year period of data exclusivity agreed by the Administration, PhRMA and BIO to advance the registration of follow-on biologics. Dean predicted that despite some backtracking from congressional Democrats to push the protection period down to seven years, the pledge will be kept – at 12 years. Next, while noting the financial impact of malpractice on providers has been overstated, Dean said he parts with his caucus by supporting tort reform, the centerpiece of which should be allowance for arbitration panels as an alternative to the constitutional right of victims to trial.

Finally, Dean pushed for actions to raise the “certainty index” for investors in big pharma and biotech. This includes mediating more directly between the FDA and Congress, the agency’s most hostile stakeholder. “Pressures from Congress against the FDA have created an overly politicized decision-making chain on the licensing of new therapies, to the detriment of the industry’s long-term future in the US,“ Dean said. Other actions he suggested industry pursue focused squarely on educating around the following issues: that medicines actually save money, when assessed in comparison to most other health interventions; explaining how the average price tag of financing a clinical trial has doubled over the past five years; drug companies, not academia or the NIH, do the heavy lifting in bringing new treatments to market; that manufacturing the next generation of large biologics is complex, risky and expensive; and why tax incentives in the US emphasize less productive short-term objectives rather than the long-term payout responsive to biotech’s development cycle of more than a decade. That education should begin with Congress, which is “increasingly anti-science and ignorant about what is needed to seed drug innovation.”

Dean flipped a question illustrative of one of the biggest challenges to implementing health reform: how strictly should evidence be applied to drive decisions on access to the most costly new medicines? The power given in countries like the UK to formal cost-effectiveness evaluation in deciding who gets a new drug is “unlikely to find a receptive audience here,” Dean said in response to a question from J&J. “Action to force suppliers to bear some or all of the risk in meeting the cost of a new treatment is a drag on innovation too. “But is it worth paying $100,000 or more for a new drug that will extend the life of a cancer patient for a few months? This is a societal debate that must involve more players than industry and the insurers.”

However, Dean admitted that politicians like him are unlikely to initiate that discussion, even if as a result some drug investors might find a better place for their money by purchasing a new Porsche.

And the verdict on the staying power of health reform? To Dean it has everything to do with employment. “If the jobless rate falls below eight per cent by early 2012, Obama gets his second term and the reform law is here to stay.”

As for the pharma giants outside Japan, Merck, Abbott, Lilly, J&J, Amgen and GSK have all contributed more than $1 million each to relief efforts, Mark Grayson, a spokesman for PhRMA, told Pharm Exec. He added: “In country offices are responding to product requests.”

But the global industry reaction seems equally preoccupied with the implications of the devastation on the stock market. According to Leerink Swann analyst Seamus Fernandez, of the top pharma companies, Pfizer, Merck, Lilly, Bristol-Myers Squibb, AstraZeneca, GlaxoSmithKline, Novartis and Sanofi Aventis receive 7% to 8% of their sales and 9% to 10% of their earnings per share from Japan. Bristol-Myers Squibb is the least exposed, with 3% of sales coming from Japan, while Novartis has the most exposure.

There are also understandable fears about the longer-term implications of the catastrophe on public spending. The massive cost of the clean-up operation — currently guesstimated as anything between $35 billion and $170 billion — will sharply exacerbate Japan’s existing deficit and result in further pressure on healthcare spending. On Monday, Japan’s central bank pumped $184 billion into the country’s money markets in an attempt to salvage some economic stability, but this was before the extent of the nuclear meltdown was known. Japan already lost its position as the world’s second biggest economy last year (to China). While the fallout from the earthquake will weaken this position still further, it is too early to say at the moment just how far the economic damage will go before recovery kicks in.

In the midst of the potential nuclear meltdown, the disaster in Japan has begun to have a marked influence on US pharma as regards companies developing treatments for radiation poisoning. (Various US producers of such treatments have seen their stock rise in the last couple of days.) One US supplier, NukePills.com, has stepped forward and donated 50,000 tablets of potassium iodide — which shields the thyroid from radioactive iodine — to a disaster-relief team. But, as the Associated Press points out, these pills were “not suitable for US retail sale because of packaging issues and expiration dates.”

More worryingly, the meltdown threat has led to a spike in demand for potassium iodide in parts of North America, the AP reports. This is despite the danger being located over 5000 miles away from California and western Canada. Local health agencies and experts have been trying to quell the fears; the British Columbian health minister was obliged on Tuesday to announce that the region does “not expect any health risk following the nuclear reactor releases in Japan, nor is the consumption of potassium iodide tablets a necessary precaution.” Nevertheless, Alan Morris, President of Anbex Inc. (Williamsburg, VA), a leading supplier of potassium iodide, told AP:  “I can’t tell you how many women are calling up in tears.” His company has since sold out its supply of 14-pill packages.

The irony in all this is that potassium iodide does not even serve as a general radiation antidote. What use it does have, however, would be far better employed on the ground in Japan than in the suburbs of California. Hopefully, that misplaced hysteria will soon blow over and all global healthcare efforts can properly focus on joining Big Pharma and helping to manage the crisis.

To donate to the Japanese earthquake relief fund, visit the Red Cross Japan Tsunami Appeal.

California’s biotech industry has taken its annual pulse of business conditions — and while the prognosis is not for putting the state on the policy equivalent of life support, corrective therapy is clearly needed. The 2011 California Biomedical Industry report, issued on February 1, is a joint effort of the California Healthcare Institute, the BayBio trade association and consultancy PwC. Its signal finding is that maintaining California’s status as the world’s biggest locus for biotech innovation depends on enlightened, world class regulation.  Unfortunately, however, this is not being provided by the bureaucrats in Sacramento or Washington, especially the FDA.  

The report is a public relations tool with statistics that documents how biotech is an essential driver of productivity and high-value growth.  Nearly 14 per cent of the state work force depends on investments in the sector, which employs some 268,000 people [or 783,000 indirectly] at an average salary of $72,000.  Some 16 per cent of total employment is in the area of academic research, a trend that highlights the growing importance of external partners in seeding the innovation that generates a commercial return.  Likewise, 12,000 new jobs were added by companies in 2008-2009, making biotech “the most resilient of the state’s high tech industries.” More important in an era of fiscal retrenchment, the 1,000-plus biotech and device companies operating in California contribute $86 billion to the local tax base.

The report incorporates a survey of CEOs of local biotech companies, in which the mood was mainly upbeat after the punishing financing reversals of the recent recession.  Access to venture capital, a key asset for the state, is returning in strength;  most of those polled expect a steady increase over the next several years, above the $2 billion recorded in 2010. R&D operations are staying in-state, although only 41 per cent of CEOs expect manufacturing investments to remain at par or increase over the next two years.

In terms of threats and challenges, the report and its CEO polling data are definitively frank — there are three.  Foremost is duplicative and unpredictable state and federal regulation in key areas like risk benefit, tax and reimbursement, followed by an unprepared workforce and finally environmental standards that primarily impact manufacturing.  The FDA is cited repeatedly for its tilt toward risk over benefit, which is causing the US to fall behind Europe in the pace and scale of innovation.

Many of the CEOs surveyed believe that China, India and other emerging Asian markets will pose a similar threat in being able to “replicate the California biotech ecosystem” without the drag imposed by FDA.  Global competition for a place at the table is intense, with 80 per cent of the CEOs confirming they had been “courted” by other US states or countries for investment in the past year.

Surprisingly, a conference call on the report hosted by the Institute yielded little on what the industry should do to help resolve the state’s current budget crisis, which is likely to force steep cuts in support for California’s world-class university system.  The outcome is far from academic, as one company represented on the call, OncoMed Pharmaceuticals, exists today because of a university-held patent on its key therapy.

Noting that powerhouse California-based biotechs like Chiron and Genentech also had their early roots in the work of academic researchers, OncoMed CEO Paul Hastings said “we were born from this legacy of public investment in basic science.”

Hence we are back to the central question:  who provides the physical and intellectual infrastructure to let the private sector do its best?