Health Care Current library
Health Care Current: February 11, 2014
Product messaging in a value-based marketplace
This weekly series explores breaking news and developments in the U.S. health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory and legislative changes.
By Terry Hisey, Vice Chairman and U.S. Life Sciences leader, Deloitte LLP
“All we want are the facts, ma’am”: Product messaging in a value-based marketplace
Jack Webb portrayed one of America’s crime-fighting “good guys,” Sergeant Joe Friday, on the classic television show, Dragnet. One popular episode opens with a list of stats related to the potential outcomes of aggressive driving—3.5 million cars in Los Angeles, 132 miles of freeway, 161 car accidents per day, 37 deaths per month.
Many Dragnet fans watched on the edge of their seats as Sergeant Friday investigated crime scenes and apprehended criminals. Why was he so good at his job? Viewers came to attribute his excellent track record to his common-sense, no-jokes attitude, captured in the famous phrase: “All we want are the facts, ma’am.” Today, Sergeant Friday’s famous phrase has outlived the show and morphed into the pop culture mantra, “Just the facts, ma’am — just the facts.” It also offers the health care industry some wise words to live by.
Many of the health care industry’s old practices and rules are falling by the wayside. In the U.S. and globally, health care reforms are accelerating the transformation to a value-based marketplace—we are seeing changes through the growing adoption of value-based payments, value-based contracting and accountable care organizations. This transformation means that life sciences companies will be having different conversations with different people than they traditionally have. Organizations that only have price as their strategic lever will likely be at a disadvantage because the key question from providers and health plans is shifting from “What’s the product’s cost?” to “What’s the product’s value?”
Patient advocacy groups, hospital administrators, health plans and other health care stakeholders are beginning to play a key role in pharma, biotech and medtech product selection and purchase; current and prospective customers will be on the lookout for innovation and differentiation. With this change comes the call for a new selling language: Stakeholders are saying, “It’s time to do away with the persuasive marketing messages. All we want are the facts.”
So…what are the facts?
Fact: the pharmaceutical industry spends about $27 billion each year on drug promotion and, as of 2012, employed approximately 72,000 pharma sales professionals across the U.S.1 With these traditionally-focused and trained frontline soldiers leading the pack, how prepared are life sciences companies to compete in a value-based future? Do they have in place strategies, governance frameworks, operating infrastructure, high-value product(s) and targeted messaging that will enable them to hold fact-based conversations with increasingly sophisticated and educated customers? Having to rely on the facts will require life sciences organizations to establish enhanced strategy, collaboration and relationship frameworks; integrate comparative effectiveness (CE) data into licensing, forecasts and stakeholder segmentation; and include value demonstration and CE in development plans, endpoints and critical paths for new products.
Fact: Nine in 10 U.S. physicians believe that study methods and approaches must be communicated in detail to allow clinicians to understand, interpret and critique the research.2 For example, hospital decision makers might find value in knowing that product A, while clinically equivalent and generating roughly the same results as products B and C, gets the patient out of the Intensive Care Unit (ICU) one day – or even one shift – earlier. As the keywords “value” and “outcomes” become part of the provider’s lexicon, life sciences companies can support this move with new conversation-starters such as the clinical, safety and economic impacts of products.
Fact: As CE research, outcomes and value begin to drive the conversation, payers could have more bargaining power. Recent interviews with c-suite stakeholders have found that “payers are interested in a broad range of [Comparative Effectiveness Research] (CER) study types, are unsatisfied with the current state of CER and would like to partner with research groups to develop research and treatment guidelines to better leverage CER.”3 Instead of stacking their portfolios with “me-too” products, life sciences companies could see greater demand if they offer products that win from a clinical and economic standpoint. Using big data and analytics to determine the value of specific compounds and products could help life sciences companies understand where they are and where they need to be to effectively compete in a value-based future.
Moving forward, facts may begin to trump messaging in product approval and adoption. Merely claiming product superiority won’t suffice. While not solving crimes like Sergeant Friday did on a daily basis, life sciences companies and other health care stakeholders that use a fact-based approach may be able to collectively solve the challenge of using better insights to provide better care and shifting the conversation to articulate the value associated with that care.
1 The Pew Charitable Trusts, “Persuading the prescribers: Pharmaceutical industry marketing and its influence on physicians and patients,” November 11, 2013.
2 Deloitte Center for Health Solutions, “2013 Survey of U.S. Physicians,” 2013, www.deloitte.com/us/2013physiciansurvey
3 Wang, Halbert, Baerwaldt, & Nordyke, “US Payer Perspectives on Evidence for Formulary Decision Making,” Journal of Oncology Practice, Volume 8, Issue 3S, 2012
Implementation & Adoption
CBO: 1 million fewer people expected to enroll in HIX
Last Tuesday, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) updated estimates of the insurance coverage provision of the ACA in preparation for the February 2014 baseline budget projection. According to the analysis, the ACA will affect the following:
- Insurance enrollment: ACA insurance coverage provisions will increase the number of nonelderly people who have insurance by 13 million in 2014, 20 million in 2015 and 25 million in each subsequent year through 2024. Despite these increases, 31 million are expected to remain uninsured in 2024.
- Insurance exchange (HIX) enrollment: approximately 6 million individuals are expected to enroll in HIXs during the first year rather than the 7 million previously projected. Starting in 2017, between 24 million and 25 million people are expected to obtain coverage each year through exchanges.
- Medicaid expansion: approximately 8 million individuals are expected to enroll in Medicaid and the Children’s Health Insurance Program (CHIP) in 2014 rather than the 9 million previously projected, at an estimated cost of $19 billion. From 2015-2024, the number of Medicaid and CHIP beneficiaries is expected to be 12 million to 13 million more annually than without the ACA, costing a projected total of $792 billion.
- Federal cost: projected net cost of $41 billion to the federal government in 2014 and $1.5 trillion from 2015-2024; this is $9 billion less than previously estimated for 2014-2023. The estimated net cost in 2014 stems from spending on subsidies provided through HIX and Medicaid expansion.
- Full-time jobs: the total number of hours worked will decline by about 1.5 percent to 2.0 percent from 2017-2024; this is equivalent to a decline in the number of full-time workers of about 2 million in 2017 and about 2.5 million in 2024.
- Employer sponsored insurance (ESI): between 6 million and 7 million fewer people will have access to ESI coverage each year from 2016-2024.
Note: The new baseline estimates rely on analyses completed by the early part of December 2013 and account for administrative actions that were taken before then.
Health insurers may be disappointed to see a decrease in the number of individuals expected to enroll in HIXs despite their efforts to reduce the costs of covering older, sicker and poorer individuals by recruiting “young invincibles.” While an enrollment decrease of one million could seem insignificant to some, this could result in premium increases for plans offered during 2015 open enrollment. Medicaid enrollment projections continue to fluctuate as more states consider expanding their programs through alternate methods such as HIXs (i.e., Arkansas plan). It will take longer to observe the effects that Medicaid expansion has on the quality of Medicaid programs and the cost to the states; preliminary data from some of the states who have expanded their Medicaid programs suggest they are seeing early successes regarding costs of emergency room visits and preventative care use.
White House Reaction: in a statement by Press Secretary Jay Carney, the White House refuted claims that the CBO analysis proves the ACA will cause individuals to lose their jobs: “individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families….At the beginning of this year, we noted that as part of this new day in health care, Americans would no longer be trapped in a job just to provide coverage for their families and would have the opportunity to pursue their dreams.”
CMS updates guidance to QHPs on federally facilitated HIXs
The Centers for Medicare & Medicaid Services (CMS) released a draft letter containing operational and technical guidance to issuers planning to offer qualified health plans (QHPs) and stand-alone dental plans (SADPs) on federally facilitated exchanges (FFEs) and federally facilitated Small Business Health Options Program (FF-SHOP). The guidance goes into effect for 2015 and beyond. Highlights for plan year 2015:
- 2015 open enrollment will begin on November 15, 2014 as compared to 2014 when open enrollment began on October 1
- QHP application submissions will be accepted from May 26 through June 27, 2015
- Issuers will be required to submit a provider list that includes all in-network providers and facilities for all plans; CMS will no longer utilize issuer accreditation status, identify states whose review processes are at least as stringent as ACA standards or collect network access plans as part of its evaluation of plans’ network adequacy
- CMS intends to propose a new rule for evaluating QHP applications to ensure there is sufficient inclusion of essential community providers (ECPs); insurers will have to demonstrate that at least 30 percent of available ECPs in each plan’s service area participate in the provider network
- Employee choice at a single level of coverage selected by the employer – bronze, silver, gold or platinum – is required for FF-SHOPs; qualified employers in FF-SHOPs will also be able to offer employees a choice of all stand-alone dental plans offered through the FF-SHOP or a single stand-alone dental plan
The letter also outlined areas where states performing a plan management function in an FFE are able to use an alternative approach from those outlined in the guidance. CMS aims to limit some of the narrow networks offered in plans during the 2014 open enrollment by requiring QHPs to expand from 20 percent to 30 percent of ECPs in the network. Some insurers are in opposition of limiting the number of narrow networks on their plans, claiming that it helps to lower the median cost of plans that the insurer offers. CMS will accept comments on the draft until February 25, 2014.
PCORI awards $1 billion in funding for comparative effectiveness studies
Over the next two years, the Patient Centered Outcomes Research Institute (PCORI) has committed $1 billion to support comparative effectiveness research (CER) projects. Last week, the organization announced eight new funding opportunities for a total of $206 million to be designated for new projects, including two from the Pragmatic Clinical Studies Initiative. These include pragmatic clinical trials, large simple trials or large-scale observational studies that compare two or more interventions using real-world settings to produce evidence to evaluate patient-centered outcomes.
According to PCORI Executive Director Joe Selby, “We’re dramatically increasing the amount of funding we’re investing in patient-centered CER and expect to commit roughly $1 billion over the next two years to support this work. Having put in place the foundations necessary to promote patient and stakeholder engagement and to conduct and disseminate high-quality CER, we’re prepared to make substantial investments in a range of projects, including the kinds of bigger, longer comparative studies that can address complex questions and provide more definitive answers.”
Just last week, the Center for American Progress (CAP) criticized PCORI for not meeting target goals in funding for comparative effectiveness projects. For more information on CAPs assessment and PCORI’s response, see the February 4 Health Care Current. PCORI will accept submissions from interested researchers until March 7, 2014.
HHS updates HIPAA laws to grant patients direct access to lab results
Last week, the U.S. Department of Health and Human Services (HHS) issued a final rule amending the Clinical Laboratory Improvement Act (CLIA), which regulates nearly 250,000 testing labs, to specify that laboratories may provide copies of completed test reports to patients and/or authorized third parties. The rule, which updates the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule, provides patients the right to access test results directly from laboratories regulated under the law and removes exceptions for CLIA-certified laboratories and CLIA-exempt laboratories. According to HHS’s analysis, compliance with the new regulations is likely to cost labs a total of $59 million a year during the first five years, but this can be offset by charging patients for copies of lab results. According to the Federal Register, the final rule is expected on April 7.
This measure is in line with several others made recently by the federal government and other players in the health care industry attempting to increase transparency by allowing consumers, employers and others access to previously unavailable information. Most notably, HHS made a decision to publish a database of payments for the most-utilized hospital services and CMS removed a 30-year-old rule prohibiting the release of physician reimbursement data. The rule will preempt existing laws in 13 different states and lift federal exemptions in 26 others, thereby removing significant barriers for patients that seek access to the same information available to their physicians. This new dynamic may empower patients to more actively participate in managing health conditions and allow for faster and more efficient means of receiving a second opinion prior to making decisions requiring medical procedures or treatment.
Read Dr. Harry Greenpun’s take on transparency in health care in the January 28 Health Care Current.
On the Hill & In the Courts
Congress agrees to bipartisan SGR replacement bill
Last week, Representative Michael Burgess (R-TX) and Senator Max Baucus (D-MT) formally introduced the Sustainable Growth Rate (SGR) Repeal and Medicare Provider Payment Modernization Act of 2014 to the House and Senate, initiating the final steps toward replacing the current Medicare physician payment formula. Members from the Senate Finance, House Ways and Means and House Energy and Commerce committees reached an agreement after months of negotiation and input from stakeholders. Highlights of the bill:
- Provides physicians with an annual update of 0.5 percent from 2014 through 2018
- Provides a 5 percent bonus to providers who receive a significant portion of their revenue from an alternative payment model (APM) or patient-centered medical home
- Establishes a Technical Advisory Committee to review and recommend physician-developed APMs based on criteria developed through an open comment process
- Specifies that by July 1, 2016, the Medicare Payment Advisory Commission has to submit to Congress a report on the relationship between physician and other health professional utilization and expenditures
- Posts quality and utilization data on the Physician Compare website to enable patients to make more informed decisions about their care
- Allows qualified clinical data registries to purchase claims data for purposes of quality improvement and patient safety
Congress has yet to agree on how to offset the cost of replacing the SGR, which CBO has projected at $126 billion over the next 10 years. It is not yet clear when the House and Senate will vote on the bills.
FDA’s draft guidance agenda includes social media, biosimilars and quality control
Last Monday, the U.S. Food and Drug Administration’s (FDA) Center for Drug Evaluation and Research (CDER) released an agenda outlining areas of focus for the new and updated guidance for fiscal year 2014. Notable areas of focus include the following:
- Biosimilarity: provide questions and answers regarding implementation of Biologics Price Competition and Innovation Act of 2009, clinical pharmacology data demonstrating biosimilarity to a reference product and inclusion of interchangeability and labeling of biosimilar products
- Advertising and social media: disclose risk information in consumer-directed print advertisements and promotional labeling for prescription drugs, regulatory submissions of promotional labeling and advertising material, TV advertisements and internet/social media platforms to layout limitations and independent third-party postings
- Quality control of facilities, production and processes: outline drug quality agreement contracts, GxP consideration for cloud computing systems in product manufacturing and clinical studies, interim good manufacturing practices for human drug compounding outsourcing facilities, quality systems approaches to manufacturing practice and submission of reports
- Drug tracing: implement parts of the Drug Supply Chain Security Act to establish a federal drug tracing system, adverse event collection and reporting and regulatory submissions in electronic format
Guidance is also being developed for areas such as biopharmaceutics, drug safety, electronic submissions and drug labeling which could have significant implication or modify requirements for pharmaceutical and medical device manufacturers and distributers alike.
Congress challenges validity of ACA risk-corridor payments
Debates regarding the ACA risk-corridor payments to insurers have emerged following the release of a U.S. Congressional Research Service (CRS) memo. The ACA established the risk-corridors program from 2014 through 2017 to protect QHPs in the individual and small-group markets from losses and to protect the government from large gains or losses due to inaccurate health plan rates set in the initial years of insurance market reforms. One point of contention has focused on which part of the federal government budget will provide the funds. According to the CRS memo, although the ACA directs HHS to pay insurers in case of losses, it does not indicate where the government payments will come from or whether the agency needs to receive a budget allocation in order to make those payments. Based on this analysis, it does not appear the payments would constitute an appropriation, but the memo also notes that a revolving fund could be created through separate legislation or during the annual appropriations process. Based on the report, House Energy and Commerce Committee chair Representative Fred Upton (R-MI) asserted that the administration does not have the authority to pay insurers under the risk-corridor program since the ACA does not specify a method for obtaining the funds.
CBO’s budget analysis released last week projected that risk-corridor payments from the federal government to insurers between 2015 and 2017 will total $8 billion and collections from insurers will total $16 billion, with $8 billion in government savings. Despite a decrease in the number of individuals expected to enroll in HIXs, CBO still expects that the insurers’ payments will exceed costs. Recently, administrative action to prevent plan cancellations also decreased the amount the government would receive in collections from insurers and increased payments to plans, reducing the projection of net savings by less than $1 billion. CMS plans to clarify and confirm any adjustments in the final 2015 notice of benefit and payment parameters rule, which will finalize several aspects of risk adjustment, reinsurance and risk corridors for 2015.
Around the Country
Washington state considers health care price transparency regulations
Washington state officials and Governor Jay Inslee (D-WA) are pushing for new regulations that would create a database to list the price of hundreds of medical procedures at clinics and hospitals, as well as information on the quality ratings of health care providers within the state. Although many large business employers and health care advocates in Washington are in support of the measure, there has been opposition from major health insurance issuers in the state concerned with requirements to share the treatment prices they have negotiated with hospitals.
Catalyst for Payment Reform, an independent, nonprofit corporation working on behalf of large employers and other health care purchasers, gave Washington and 28 other states an “F” on a grading scale of A-F for its cost-transparency laws. Prior to the new proposals, the state last enacted legislation in 1993 requiring procedures for disclosing to physicians and other health care providers the charges of all health care services ordered for their patients. Any health care provider ordering care in a hospital for inpatient/outpatient services was permitted to receive copies of the hospital charges and could chose to inform the patient of these charges.
New York state sees early success with new prescription drug monitoring program
In a joint legislative public hearing on the 2014-2015 executive budget proposal held last week, the Commissioner of the New York State Department of Health announced improvements that resulted from the state’s prescription drug monitoring program (PDMP) system — the Internet System for Tracking Over-Prescribing Act (I-STOP). Since the system was established, more than 66,000 health care professionals have run seven million prescription checks for three million separate patients since August 2013; compared to 5,000 practitioners who checked less than 500,000 patients prescriptions from 2010 - 2013 under the prior PDMP.
Governor Andrew Cuomo (D) enacted the Prescription Drug Reform law in August 2012, which included the implementation of I-STOP on June 12, 2013. The system includes information about controlled substances dispensed by pharmacies on a "real-time" basis and aims to more effectively prevent doctor shopping and drug diversion. The registry allows both health care practitioners and pharmacists to view patients’ controlled substance history and can help identify those that may be abusing or are addicted to prescription drugs. Electronic prescribing of controlled substances (EPCS) will become mandatory for practitioners in the state beginning March 2015. This may better allow for New York and surrounding states to exchange information to further improve monitoring of controlled substances. For more information on drug diversion, read “Overprescribed: health care and the challenge of drug diversion” in the October 22 Health Care Current.
NIH and pharmaceutical companies team to create a new drug development model
The National Institutes of Health (NIH) announced a new private-public relationship with 10 biopharmaceutical companies and non-profit organizations that will work to develop a faster drug-development process for common diseases. The Accelerating Medicines Partnership (AMP) will focus on drug development for chronic conditions such as Alzheimer’s, type 2 diabetes, lupus and rheumatoid arthritis. Drug manufacturers and the NIH will equally invest for a total sum of $230 million over a five- year time span.
Researchers have developed plans for each pilot to identify effective biomarkers or molecular indicators of disease and to establish biological targets most likely to respond to new therapies. The unprecedented partnership will share scientific data, blood samples and specimens among competitors and encourage the government to push innovation in the life sciences industry. All companies have also agreed to only launch market-based ventures once data is publicly available.
Although thousands of biological changes are identified by scientists, only a small portion make it to the drug development process due to high costs and risk of failure; 95 percent of those do not succeed. This venture will allow for early identification of potential biological targets and aims to improve confidence in the success of new drug developments and create competition among pharmaceutical companies to design treatments. Shorter development timeframes and a decreased risk of late-stage drug failures are expected to reduce the cost of delivering new, more effective treatments to consumers.
Public-private partnership to combat bioterror, treat antibiotic-resistant infections
HHS and Rempex Pharmaceuticals (a subsidiary of The Medicines Company) will work together to develop a new drug, Carbavance, to combat two bio-terrorism threats and treat antibiotic-resistant infections. The program will focus on treating melioidosis and glanders bacteria, both of which have 90 percent mortality rate if not treated appropriately. The Biomedical Advanced Research and Development Authority (BARDA) in HHS’s Office of the Assistant Secretary for Preparedness and Response will support the development of Carbavance under a five-year cost sharing agreement with Rempex Pharmaceuticals. BARDA will initially invest $19.8 million and will increase its investment to $90 million over five years. In addition to bioterror threats, Carbavance could be used to treat acquired infections, such as hospital-acquired pneumonia, ventilator-acquired pneumonia or urinary tract infections, all of which can be resistant to antibiotics. This project with Rempex is the most recent in the BARDA program, which is investing in the development of a broad-spectrum of antimicrobials, technologies and platforms for biodefense needs that simultaneously address other public health challenges, such as antibiotic resistance.