Health Care Current: December 17, 2013

Pharma innovation: it’s the science, stupid!

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.

Pharma innovation: it’s the science, stupid!

I recently chaired the Financial Times (FT) Global Pharmaceuticals and Biotechnology Conference in London, which brings together senior life sciences executives and other industry stakeholders from around the world for a candid sharing of insights and experiences regarding current industry challenges and opportunities. Throughout, I was reminded of James Carville’s phrase about the economy, paraphrased in the title to this piece. It seemed it applied equally in the context of science at our conference. It occurred to me that the conference theme, “New Businesses, New Markets,” could probably have been expanded to include “New Sciences.” Many of the conference speakers and attendees reaffirmed that the life sciences industry is, well, about the science and that innovation has been exploding as new areas are pioneered.

This year’s session and panel topics illustrated how focused the industry is on scientific innovation. While listening to the speakers give updates and debate the issues in the industry, several points struck me as important:

Science remains at the core of the industry and harnessing new innovation will be key to future success: there are entirely new areas of science being invented today. Advances in disciplines like genomics, proteomics and nanotechnology all have a bearing on the development of new products today. No one company can understand it all. Companies must develop broad networks—relationships with academic institutions, start-ups, non-traditional players, governments and others—if they want to stay at the forefront of scientific innovation in the life sciences industry of the future.

Someone, somewhere, has to be willing to pay for innovation: access is a critical issue, but what about access in the future? Everybody should have a right to the drugs of today, but no one has a “right” to the drugs of tomorrow. The industry’s business model is high-risk. We invest significant sums today in hope of inventing and commercializing something effective 10 or 20 years out. Companies need strong patent protections and an ability to achieve a return on investment or investors will not participate. Given the cost issues in health care, there is no doubt that the current portfolio of products can still be leveraged significantly. But, if we want to develop drugs that will advance the human health of our grandchildren, it has to be attractive to invest.

New drug innovation is a long-term game in a short-term world: the life sciences industry has played a significant role in the improvement of human health over the last 50 years or so; we are all benefiting from the investments that were made by our predecessors. Investments in research and development today may not pan out for decades. This does not sit well with a quarterly performance mindset.

Health care delivery needs to change: there was a clear view at the conference that health care delivery around the world needed to change and was changing. It is also clear that this transformation is directly impacting the life sciences industries via austerity programs, downward pricing pressures and increased use of generics. The need to change the cost equation is understood, but simply mining today’s portfolio is a short-term expedient that is likely to shortchange future generations in terms of human health.

Of course, as businesses, life sciences companies exist to…do business. But, many of us got into this business because there is significant opportunity to do good. The life sciences and health care industry allows us a unique opportunity to care for human beings and human health. To continue doing good for business, however, the world needs to value—and someone needs to be willing to pay for—the scientific innovations that will create new drugs so our great-grandchildren can thank us for helping them live to 150.

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PS – The Financial Times Conference, in association with Deloitte Touche Tohmatsu Limited, was held on December 3-4 in London. For more information, visit our website to learn about the conference, speakers and agenda.

NOTE: There will be no Health Care Current issues on December 24 or December 31, 2013. Distribution will restart in the New Year with the first issue on January 7, 2014.

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My Take

By Reynold W. (Pete) Mooney, Deloitte Touche Tohmatsu Limited Global Managing Director, Life Sciences and Health Care



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Implementation & Adoption

HHS extends pre-existing condition program through the end of January

In a press release issued late last week, the U.S. Department of Health and Human Services (HHS) announced that they would allow individuals enrolled in the federal Pre-existing Condition Insurance Plan (PCIP) to extend their coverage through January 31, 2014, if they have not already selected a new plan. PCIP is a transitional bridge program established to provide people with health conditions, who could not qualify for private insurance coverage or were charged more because of their pre-existing condition, with affordable coverage until health insurance exchanges (HIXs) become available. Administration officials stated that the one-month extension would be paid using existing funds. According to HHS, the additional month aims to give the vulnerable population additional time to enroll in a plan and ensure continuity of coverage.

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HHS Secretary instructs assessment of events leading to launch failure

HHS Secretary, Kathleen Sebelius has instructed HHS Inspector General, Daniel Levinson to conduct a thorough evaluation of the events leading up to the flawed launch of the website last October. During her testimony before the House Energy and Commerce Health Subcommittee last Wednesday, Secretary Sebelius specified that she was interested in analyzing the structural and managerial policies that led to the website glitches. She also asked the Centers for Medicare and Medicaid Services (CMS) Administrator, Marilyn Tavenner to create a “chief risk officer” position to be in charge of producing reports that assess risk factors impeding website performance and providing recommendations to address concerns. CMS was also instructed to expand their employee trainings to improve best practices for contractors. To date, HHS has spent roughly half of the $677 million in funds for information technology costs allotted for

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HHS makes recommendations on how to make EHRs safer

Last week, the HHS released an audit report detailing the use of anti-fraud policies in hospitals regarding electronic health records (EHRs). Since 2011, more than $17 billion in federal subsidies have been given to providers to transition from paper-based health records to EHRs. The audit report was based on a survey of 864 hospitals that have been the recipients of Medicare incentive payments since March 2012 and of four EHR vendors. The report concluded that even though nearly all hospitals had converted to EHRs, not all of those hospitals were using the recommended anti-fraud safety measures. Highlights:

  • All hospitals use some type of recommended user authorization and access control measures
  • 88 percent of hospitals use recommended data transfer safeguards
  • 43 percent of hospitals have started implementation of recommended tools to ensure anti-fraudulent activity regarding patient involvement
  • 24 percent of hospitals have anti-fraud policies regarding copy-paste features in EHRs

HHS recommendations:

  • Audit logs should be used whenever EHR data is viewed or the technology is updated
  • CMS and the Office of the National Coordinator for Health Information Technology (ONC) should coordinate more effectively to develop comprehensive anti-fraud plans
  • CMS should develop copy-paste guidance to reduce fraudulent activity in EHRs

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HHS releases November HIX enrollment figures: 4 percent increase in those selecting plans

A total of 364,682 people have enrolled in HIX plans according to data released by HHS last week, the second of its periodic reports on HIX enrollment. Administration officials stated that there will likely not be new data released until mid-January 2014. According to the report, 16 percent of those who have applied and been determined eligible for have chosen a HIX plan, compared to 10 percent at the beginning of November. Highlights of the report include:

Number of individuals who have selected a health insurance exchange plan per state and breakdown of state-based, state-partnership and federally-facilitated exchanges as of November 30, 2013:

View the map


Individuals with processed eligibility determinations found eligible to enroll in HIX (n=2,307,283)



Source: The Assistant Secretary for Planning and Evaluation, “Health Insurance Marketplace: November Enrollment Report”, November 13, 2013

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On the Hill & In the Courts

Congress reaches budget deal: three-month SGR fix included

Last Tuesday, legislative details regarding a multi-year budget agreement were released by Representative Paul Ryan (R-WI) and Senator Patty Murray (D-WA) who spearheaded the plan. The bill, which will be attached to continuing resolution bill, H.J. Res. 59, will set the 2014 federal spending level at approximately $1.012 trillion, $45 billion higher than what was set prior to the deal.

Budget proposal highlights:

  • The total budget deal is worth $85 billion and will fund the government through 2015 without raising the debt ceiling
  • The deal includes $63 billion in sequester relief over two years, split evenly between defense and non-defense programs
  • There are $28 billion in savings from extending cuts to Medicare providers through 2023, instead of the 2021 date established in the Balanced Budget Control Act of 2011
  • Fiscal year (FY) 2014 defense discretionary spending would be set at $520.5 billion; non-defense discretionary spending would be set at $491.8 billion
  • Discretionary spending in FY2015 will increase by $20 billion, which is approximately one-fourth of the spending that was reduced due to sequestration
  • Revenues will come from spending cuts, as well as higher fees (e.g. airline tickets will have higher fees and government workers will have to contribute more to their pensions)
  • Unemployment insurance will expire starting January 1, 2014, affecting 1.3 million long-term unemployed individuals
  • States can delay payment for suspicious Medicaid claims as long as the delay does not harm a beneficiary's access to care

The House of Representatives voted Thursday to pass (332-94) the bill and included in their version a three-month Medicare Sustainable Growth Rate (SGR) fix. The temporary SGR provision would extend Medicare's current physician payment update of 0.5 percent through the end of March 2014, avoiding the nearly 24 percent payment cut to doctors scheduled to take effect on January 1, 2014. According to the Congressional Budget Office (CBO), the bill would cost $7.3 billion over 10 years. The bill contains off-sets that would save a total of $300 million over 10 years, including sequester cuts affecting Medicare providers that will be delayed until 2023 and adjustments to Medicaid Disproportionate-Share Hospital (DSH) payments. DSH payment cuts will be delayed by two years until FY2016; but, in FY2016, cuts will go from $600 million to $1.2 billion and be extended through FY2023. Finally, another $3 billion in savings would come from adjustments made to inpatient long-term-care services in hospitals.

Industry reaction: In a letter sent to the Senate Finance Committee last Monday, the American Medical Association (AMA) urged members of the committee to support the SGR repeal bill that includes a positive update to physician payments. According to AMA, the proposal to realign and restructure quality incentive and payment programs will create a more effective system that will reward physicians for investing in improving quality services. Although it supports the proposal, AMA indicated it would like to see a "positive" update in physician payments in place of the zero percent proposed. The American College of Surgeons and 15 other surgical societies state in letters that they oppose both the Senate Finance and House Ways and Means committee proposals and would like improvements regarding valuation of services and alternative payment models.

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Around the Country

CMS partially approves Iowa’s Medicaid expansion proposal

CMS has granted Iowa Governor Terry Branstad (R) limited permission to move forward with a Medicaid expansion proposal in which the state would use federal Medicaid funds to purchase the newly eligible Medicaid population private insurance on the state health insurance marketplace (HIX). The original proposal would have made those newly eligible enrollees earning at least 50 percent of the federal poverty line (FPL) responsible for paying insurance premiums if they declined to participate in various “healthy behaviors” (i.e. having an annual health assessment by a primary-care physician). CMS denied that request but will permit Iowa’s Governor to make new Medicaid beneficiaries earning at least 100 percent of FPL responsible for paying premiums of up to 2 percent of their annual income if they do not participate in “healthy behaviors.” Governor Branstand’s office commented that he was still in discussions with CMS regarding premium mandates but is optimistic about moving forward with the expansion. Medicaid law prohibits premiums from being required of anyone earning less than 150 percent of FPL.

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States rated poorly on making physician quality information accessible

A recent report released by the Health Care Incentives Improvement Institute (HCI3) graded most states a ‘D’ or ‘F’ on their transparency of physician quality information report card. Minnesota, Washington and California were the only states to receive a ‘C’ or higher. To grade states, researchers analyzed the number of physicians and other health care professionals that made their quality information publicly available, the specific quality measures being reported, how current the information was and how accessible the information was to consumers. The study analyzed data from the Robert Wood Johnson Foundation’s national directory listing web-based resources and programs in each state. Based on the criteria, the study found that many states had information on primary care doctors but the same information was not available on specialists. With quality measures being used to adjust for physician supplemental payments, reporting information on both primary care physicians and specialist is important to both the payer and the consumer.

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NYDOH gives consumers access to online hospital pricing data

New York State Department of Health (NYDOH) recently released hospital cost data on its website in an effort to make health care prices more transparent. The data consists of median hospital charges in the state for 1,400 hospital services and procedures from 2009-2011. Prices vary from an $8 hospital bill for gastritis treatment at Benedictine Hospital in Kingston, NY (cost to the hospital: $2), to a $2.8 million hospital bill for a blood disorder at the University Hospital of Brooklyn (cost to the hospital: $918,462). The Healthcare Association of New York State and other trade groups expressed concern with the public’s access to this data. They state that the claim pricing information will confuse patients because consumers do not typically pay the hospital “sticker price” after insurance; the data shows the median price; and the cost figures are not reliably compared. Furthermore, hospital groups contend that pricing is very complicated and that the data does not reflect the demographics of the patients that hospitals serve, the complexity of the patients, the hospital’s teaching status or how much reimbursement hospitals receive from government programs.

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Arizona’s Medicaid expansion expected to cost almost $1 billion over the next 10 years

A study released last week by the Health Systems Innovation Network and the National Center for Policy Analysis details the impact of Arizona’s decision to expand their Medicaid program under the Affordable Care Act (ACA). The study concluded that, despite financial incentives provided by the ACA in which the federal government will cover 100 percent of the cost of the newly eligible Medicaid population through 2016 and cover 90 percent of the cost thereafter, Arizona will be responsible for $906 million in costs over the next decade. By 2023, Arizona is expected to have 1.65 million additional Medicaid enrollees and 450,000 fewer privately insured residents due to state Medicaid expansion. The analysis also showed the impact that Medicaid expansion would have on private health insurance. Highlights:

  • The number of individual Arizonans covered by high-deductible health plans will fall 211,000 in 2014
  • The number of enrollees in narrow network preferred provider organizations (PPO) will fall 16,500 in 2014
  • Coverage by government-employer health insurance will fall by 16,600 in 2023
  • Enrollment in generous PPOs will decrease initially and then become more popular by 2023

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Breaking Boundaries

Inhaler could revolutionize vaccination technology

A design company based in Cambridge, UK, Team Consulting, has devised a new concept that could significantly increase the efficacy of inhalers. The single-use, disposable inhaler differs from traditional dry powder inhalers in that it increases the efficiency of drug delivery to the lungs by 30-50 percent. The inhaler is an active, low cost, high-performance dry powder aerosolization engine, which, according to researchers, once fully developed could be integrated into a breath-actuated, single-use inhaler costing less than 20 cents. It could also provide health care workers with an alternative way to store vaccines that is not cold refrigeration, which isn’t always possible in emergency situations. The inhaler has yet to be developed and approved by regulators, but offers innovative technology for other inhaled drugs.

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Soldier controls prosthetic arm using thought

A rehab facility in Epsom, Surrey has helped a soldier who lost his arm in Afghanistan in 2010 become the first person in the UK to control a prosthetic limb using his own thoughts. After a six-hour operation, the soldier had “targeted muscle reinnervation” surgery, which rewired the nerve fibers that once controlled his arm and hand movements to his chest muscles. Electrodes placed on his chest will send signals to the prosthetic limb, instructing it to move. Doctors who performed the surgery noted that it can take up to three years for the rewired nerve fibers to grow into the chest muscle and patients will need time to learn how to use the new limb. The prosthetic limb was paid for by the UK Ministry of Defense and cost nearly $100,000.

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