Perspectives

Health Care Current: January 20, 2015

Doubling down: The new focus for pharma

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.

Doubling down: The new focus for pharma

Steve Jobs was said to have built his career around the mantra of focus and simplicity. Both are important for companies in any industry. While the life sciences sector seems to be in a perpetual state of change and adaptation, one trend over the past year or so has caught my eye. And it pertains to exactly that: focus and simplicity versus breadth and portfolio diversity.

Amidst all the change and adaptation in the sector, “pure play” business strategies are rising in popularity and redefining the way many life sciences businesses compete in the broader health care market.

Over the last year, many of the major life sciences companies have begun re-aligning to develop specific and separate operating companies—ones that play to their market strengths. In essence, these companies are concentrating more than ever on what they do well, and more importantly, what their customers, alliance partners and investors think they do well. They are “doubling down” in select areas that they have primary “brand permission” and divesting other areas.

The move toward refining the business model and focusing on fewer, more specific therapeutic areas hasn’t been driven primarily by changes in national health care policy and legislation or by regulatory pressures. It’s also not strictly a result of new strategies forced by the Great Recession. There are other factors at work. For example, the cost of research and development (R&D) is increasing as companies strive to replace products that are approaching their patent cliff. This trend is fundamentally rooted in the basic and increasing need to show value—to become identified and known for a specific brand in a particular market. It can be hard to do this really well when a company has many competing priorities for several different types of businesses and they’re not necessarily known as a market leader in all of them.

Some companies are spinning off new enterprises and businesses that are targeted to specific therapeutic areas or types of customers. Others are forming separate standing companies so that efficiencies and savings can be achieved across the entire value chain. This is crucial in a time when national health care expenditures continue to grow (the latest calculations project more than 5 percent growth in health care in 2014) and consumers face even more out-of-pocket spending.1

There is a lot to gain for those who make the move toward a more pure play strategy. Having deep therapeutic area expertise can help drive more effective conversations with health plans around pricing, reimbursements and market access. Smaller, more flexible companies could avoid some of the complexity and bureaucracy challenges that are more prevalent in larger companies and which often overshadow the benefits of scale. More agile companies may also be more apt to place emphasis on simpler systems and data interoperability. Companies that achieve the most successful outcomes may be those that match pure play strategies with a focus on patient support, disease management and demonstrating positive outcomes to health care providers that are moving from volume to value.

Is this a smart move for organizations, or could it be too big a risk for some? It may be too soon to say definitively, but it could be a game-changer for many companies. Deloitte’s recent research, Measuring the return from pharmaceutical innovation, discovered there is a compelling business argument for focusing on a specific product or line of research. Interviews with industry leaders on their business strategies found at companies with four or fewer therapeutic areas were the ones with the best ROI on their R&D investments.

We found that often when companies went beyond four therapeutic areas, their return actually diminished. Our take was that it could be a sign that a company’s mission was unclear or perhaps too fragmented, or that their brand recognition wasn’t as crisp.

So, while breadth and scale continue to be a successful model for some well-known life sciences enterprises, it doesn’t work for everyone. Business leaders leaning toward a pure play approach to the marketplace should consider the following:

  • Does the business have the brand recognition in the given therapeutic field to out-perform the competition?
  • Has organizational leadership undertaken sufficient risk assessment before making the move?
  • Is there enough capital available to sustain the transition to a pure play business model?
  • Is there leadership in place committed to making this change in competitive approach?

These are important, timely questions to address. The fact is, for companies that believe their value rests in being sharply focused businesses as part of a larger whole or operating on their own, this path can make sense in a shifting industry environment.

It may be a bit early to tell whether it’s a trend that works for many companies reconsidering their business model and whether it’s a good development for the industry, for individual organizations and for the consumer overall. That said, there is one thing on which many can agree. As Jobs said, “Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it in the end because once you get there, you can move mountains.”2

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Sources:
1 Andrea M. Sisko, Sean P. Keehan, Gigi A. Cuckler, Andrew J. Madison, Sheila D. Smith, Christian J. Wolfe, Devin A. Stone, Joseph M. Lizonitz, and John A. Poisal, Health Affairs, “National Health Expenditure Projections, 2013–23: Faster Growth Expected With Expanded Coverage And Improving Economy,” September 2014
2 Business Week, “Steve Jobs: ‘There’s Sanity Returning,’” May 1998

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My Take

By Homi Kapadia, Vice Chairman, U.S. Life Sciences Leader, Deloitte LLP

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Urban Institute analyzes potential impact of SCOTUS subsidies case; premiums could rise 35 percent

The U.S. Supreme Court will hear oral arguments for King v. Burwell on March 3, 2015. The case will impact millions of individuals in the U.S. who obtained coverage through the federally facilitated marketplace (FFM). The plaintiffs argue that the Affordable Care Act (ACA) prohibits individuals living in states that did not establish their own marketplace from receiving tax subsidies toward insurance premiums. The administration argues that the ACA allows subsidies to go to individuals in all of the states, regardless of their marketplace structure.

Earlier this month, researchers from the Urban Institute released an analysis that projected a significant loss of coverage if the ruling goes against allowing the subsidies in the FFM. Approximately 8.2 million individuals would become uninsured (a 44 percent increase in the current uninsured rate), and the non-group market in these states would be 69 percent smaller, falling from 14.2 million to 4.5 million. The tax subsidies are available to individuals and families whose income falls between 100 and 400 percent of the federal poverty level (FPL) – a measure of annual income that the U.S. Department of Health and Human Services (HHS) uses to determine eligibility. The FPL for an individual in 2014 was $11,670, and the FPL starts at $15,730 for a family of two or more. Cost-sharing reductions are also available to individuals and families whose income falls under 250 percent of the FPL. $28.8 billion in tax credits and cost-sharing reductions for 9.3 million people would also be eliminated:

A decision to prohibit insurance subsidies for individuals in the FFM states would also affect the individual and employer mandates. If an individual is unable to afford insurance (which many could claim without access to the subsidy) they would not be required to purchase coverage. According to Urban Institute, without the subsidies and the individual mandate, healthier individuals would be less likely to purchase coverage. This could cause premiums in the individual market to increase. The researchers predicted the average premium would increase 35 percent, from $4,100 to $5,600, in 2016 as a result.

(Source: Linda J. Blumberg, Matthew Buettgens, John Holahan, Urban Institute, “The Implications of a Supreme Court Finding for the Plaintiff in King vs. Burwell: 8.2 Million More Uninsured and 35% Higher Premiums,” January 2015)

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Implementation & Adoption

2015 open enrollment update: Nearly 6.8 million enrolled in FFM plans

Last week, HHS released its eighth weekly report on the second open enrollment period for the FFM:

  • Nearly 6.8 million consumers have selected plans since the start of open enrollment on November 15, with more than 163,000 plan selections during week eight (January 3-9)
  • More than 82,000 users visited CuidadoDeSalud.gov, the Spanish-language FFM, during this period bringing the total to 643,172
  • Of the 37 states using the FFM, Florida and Texas had the most plan selections during this period at more than 1.1 million and 859,000, respectively

Covered California, a state-based marketplace, has had 217,146 new consumers enroll in plans since November 15. Kentucky and Colorado both reported approximately 114,000 plan selections during this enrollment period.

Background: Open enrollment ends on February 15, 2015. Approximately 7 million individuals were covered by marketplace products as of October. The Congressional Budget Office (CBO) enrollment forecasts have been the de facto benchmark against which actual results have been measured. CBO projected last spring that 13 million people will be covered by insurance products sold through the state-based marketplaces and FFM in 2015. On November 10, 2014, HHS announced lower expectations, projecting that enrollment would reach a net of around 9 to 9.9 million in 2015 (see the November 11, 2014 Health Care Current).

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Medicare begins paying primary care physicians to coordinate care for patients with multiple chronic conditions

As of January 1, 2015, Medicare will pay primary care physicians for care coordination to patients with multiple chronic conditions. Primary care physicians will earn $40.36 per month for each qualifying patient. This policy was finalized in the final 2015 Physician Fee Schedule that was released on October 31, 2014 (see the November 4, 2014 Health Care Current).

Historically, Medicare has not paid for services that are not face-to-face. This new fee will pay physicians to coordinate care with specialists without requiring physicians to directly interact with patients in a clinical setting. Examples of services that will be included under the coordination fee are check-ins over the phone and helping avoid negative treatment interactions. To qualify, primary care physicians must make and regularly revisit a care plan for the patient, coordinate with other health care professionals that are treating the patient and provide medication management.

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Study: Multi-state plans may increase consolidation and decrease competition

The Multi-State Plan (MSP) Program, an option in federal and state marketplaces, was included in the ACA as a policy to increase competition and consumer choice in the health insurance market while reducing costs, using the experience of the Federal Employees’ Health Benefit Program. Researchers from the Mercatus Center at George Mason University found, however, that the program is likely to decrease competition and increase consolidation. Several factors contribute to this:

  • The MSP Program directed the Office of Personnel Management (OPM) to contract with at least two health plans to implement the program, but OPM only contracted with one in 2014. There has been little evidence of increased competition. 
  • The program increases the role of the federal government in regulating the health insurance market. OPM may override state insurance standards and licensing requirements and can also require health plans to meet stricter requirements. This could lead to disputes between OPM and states and other agencies like the Department of Health and Human Services (HHS) as the program develops. 
  • Both small and for-profit health plans could be at a competitive disadvantage. The law requires one of the two plans contracted with to be a non-profit health plan. It also stipulates that plans must offer coverage in all 50 states within four years, making it more difficult for small health plans to meet the requirements.

Background: The ACA authorized the OPM to contract with two insurers to phase-in health plans over four years through the marketplaces. In the individual market, MSP Program plans had to be available in 60 percent of the states (31 out of 50) by 2014, 70 percent by 2015 and reach 100 percent by 2017. More than 150 plans were offered in 2014 through the MSP by the Blue Cross Blue Shield Association (BCBSA) across 30 states and the District of Columbia. Residents in different states have varying levels of access to plans. In 2015, residents in states such as Alaska and Pennsylvania can choose from multiple plans, but many states have fewer than five plan options to choose from. Residents in at least three states would have had access to only one type of insurance plan in 2014 if the MSP Program did not exist.

Analysis: On November 24, 2014, OPM released proposed regulations regarding the MSP Program. OPM has proposed to expand the eligibility requirements and relax standards that health plans must meet in order to offer coverage through the program, partially as a way to encourage greater competition in the program. Included in this is a proposal to allow health plans to join together in a consortium to offer plans across states. OPM also proposed allowing health plans to change their approach to selecting benefits packages for their plans. The comment period for the proposed rule ended on December 24, 2014, and OPM has yet to issue a final rule.

(Source: Robert Emmet Moffit, Neil Meredith, Mercatus Center at George Mason University, “Multistate Health Plans: Agents for Competition or Consolidation?” January 13, 2015)

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CMS hospital transitions program has not seen large improvements in readmission rates

The Community-based Care Transitions Program (CCTP) has been operating since 2011 to improve transitions of care for Medicare beneficiaries. CMS awarded agreements to 101 community-based organizations (sites) and will measure whether they improve quality of care, reduce readmissions to hospitals and achieve cost savings in Medicare. In a recent analysis of 48 of the sites, Econometrica, Inc. and IMPAQ International researchers looked at the results of the CCTP so far:

  • Compared with 2010, 30-day readmission rates did not improve at most sites; only four of the 48 sites had improvements in their readmission rates in 2012
  • They had no statistically significant impact on 30-day emergency department visits 
  • They had an 18 percent increase in 30-day observation day use rates – when a hospital holds the patient to see if additional treatment is needed – in hospitals participating in CCTP

 

The researchers analyzed findings from the initial 10 months of the CCTP. They found that many sites faced challenges as they began to implement their programs:

  • Many had to broaden their patient criteria (cause for Medicare eligibility) for participation in the program, citing issues with finding beneficiaries to enroll
  • High turnover rates among employees were common, and one of the most frequently cited challenges was hiring appropriately skilled workers
  • Most of the organizations had quality-monitoring programs in place, but fewer than half used the information they got from those programs in quality improvement programs
  • Most of the organizations established relationships with hospitals for their projects; seven organizations said they had longstanding relationships with hospitals
  • Many of the organizations faced challenges in identifying at-risk patients and with managing programmatic information 
  • One-third of the organizations indicated they are adding more hospital partners and expanding their patient eligibility criteria over the next year

(Source: Econometrica, Inc., “Evaluation of the Community-based Care Transitions Program,” 2014)

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Lawmakers introduce bill to repeal medical device tax

Last week, Senator Orrin Hatch, Senate Finance Committee Chair, introduced a bill to repeal the excise tax on medical devices. Four Republican and five Democratic senators co-sponsored the bill. Representative Erik Paulsen introduced a similar version of the bill in the House, which has more than 250 co-sponsors.

Industry reaction: Several trade groups have applauded the bill and sent reassurance of their support in a letter to Congress last week. The Advanced Medical Technology Association, Medical Imaging and Technology Alliance, Medical Device Manufacturers Association and nearly 1,000 organizations and associations announced their support of the effort to repeal the tax. They argued that the tax:

  • Has stifled innovation and cost the U.S. high-paying jobs because the increased effective tax rate for medical technology companies takes away from spending on R&D, clinical trials and other manufacturing investments 
  • Gives global competitors a competitive advantage because they do not face similar taxes in other countries
  • Does not consider the impact of health care reform on the medical device industry. Other sectors such as health plans have benefited from coverage expansions through health care reform, but there is no evidence to suggest that medical device manufacturers have more customers

Analysis: The tax is 2.3 percent on sales of medical devices. The manufacturer or importer of the device (as opposed to providers using the devices) is responsible for paying the tax, which has been in effect since January 2013. Retail devices – those sold to consumers directly – are exempt from the tax. By 2020, the tax is projected to raise $20 billion to support the ACA. The medical device tax has been a debated issue since the ACA was passed. Some medical device manufacturers, and trade groups that represent them, have argued that the medical device excise tax impacts them negatively. Opponents of the tax claim that some firms have had to raise their prices to compensate for the tax and have sold at lower volumes than in the past, while others have continued selling at their previous price, but have paid the tax out of whatever profits – if any – they would otherwise make on the sale.

There are also compliance costs and impacts to the supply chain that go beyond the cost of the tax alone. For example, some companies had to revise computer systems to compensate for the new tax and had to build in additional time for paying the tax and including it on their quarterly tax filings. These costs may be inhibiting companies from investing in other areas of their business such as human capital or R&D. The tax may also raise certain fairness issues, as it is applied across all companies – whether they are making a profit or experiencing economic losses. Thus, some have argued that this could be slowing the pace of innovation in the medical device industry, since the cost is borne heavily by start-up firms who typically face issues in accessing capital to develop and bring to market new products.

There appears to be strong support for the legislation in the House and Senate, and it is expected to pass both chambers. However, the question remains as to whether President Obama would sign the measure; in the past he has expressed concern that the repeal would raise taxes on middle-class and low-income individuals and families. If he vetoes the bill, it is not clear whether support for it on Capitol Hill would be sufficient to produce the two-thirds vote to override in the House and the Senate.

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On the Hill & In the Courts

Lawmakers outline framework for 21st Century Cures legislation

Today, we have cures or treatments for only 500 of the more than 7,000 known diseases. Led by House Energy and Commerce Committee Chair Fred Upton and Representative Diana DeGette, the 21st Century Cures initiative has focused on “getting more cures and treatments to patients more quickly.” Over the last year, the committee has hosted hearings and roundtables with stakeholders to identify ways to “close the gap” between regulation and medicine.

In January, the 21st Century Cures initiative is expected to release a discussion draft of legislation resulting from this initiative. Last week, Upton and DeGette outlined the primary focus areas for the upcoming legislation in an op-ed on CNN:

  • Clinical trials: Using technology advancements such as genetic screening can help clinical trials target specific patient populations and make trials more effective. Paperwork associated with conducting trials can also be more streamlined. 
  • Consumer/patient focus: The initiative used the Food and Drug Administration’s (FDA) Patient-Focused Drug Development program to gain insights from patients. The legislation will target biomarkers and patient-reported outcomes as ways to enhance patient engagement. 
  • Information dissemination: Researchers need better access to genomic and other clinical data. The legislation will aim to foster collaboration and information sharing among researchers and also to remove barriers that may deter developers and entrepreneurs from building new apps and products. Interoperability, security and privacy are all areas that need to be addressed in legislation. 
  • Investments in education and training: The legislation will focus on connecting emerging scientists with funding, training, support and education to enable future research and development efforts.
  • Unmet medical needs: The premarket process is lengthy and complex, and real-world evidence needs to be better captured in the post-development market. Incentive and reimbursement structures could be better designed to encourage researchers and developers.

Analysis: The 21st Century Cures initiative is an example of cross-sector collaboration in the health care industry. Historically, the health care ecosystem has been large, fragmented and unwieldy, but the gap between disease and medicine and the move to value-based care have combined to create unique opportunities for integration across the industry. The initiative is focused on some of the most difficult challenges in health care: increasing consumer engagement, enhancing reliance on real-world evidence, developing incentive and reimbursement models and utilizing advanced data analytics. An overarching challenge that lies across these areas is how and where to invest in education and training—not only how to educate stakeholders as to what real-world evidence is, but also how to train clinicians, pharmacists and more to use it in their everyday practice. Government agencies such as CMS, FDA, NIH and more have been major catalysts in this effort, helping to facilitate conversations between the various stakeholders. One of the key questions now will be how to continue moving these efforts forward so that momentum is not lost.

Deloitte’s recent report, Path to 21st Century Cures – A Call to Action, identified ideas for achieving a translational approach to the value chain—connecting the processes and eliminating the discrete steps. The report identified “accelerators” along the chain to help bring life sciences discoveries to market faster and at a pace that keeps up with the explosion of new science knowledge:

(Source: Fred Upton and Diana DeGette, CNN, “Can we find cures for 7,000 diseases?” January 13, 2015)

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Safety-net clinics see overall increase in patient visits; uninsured patient visits decline and Medicaid patient visits increase in expansion states

Researchers published findings in the Annals of Family Medicine that show how Medicaid expansion has affected the patient mix and volume of visits for community health centers. In states that expanded the program, the number of uninsured patients that have visited community health centers has declined. The researchers used electronic heath record data from 156 clinics in nine states—five expanded Medicaid and four that did not—to find:

Background: Community health centers are safety net clinics. They receive federal funding and may not deny services based on a person’s ability to pay. In the U.S., there are 1,300 community health centers with 9,200 clinic locations serving 22 million patients.

(Source: Heather Angier, Megan Hoopes, Rachel Gold, Steffani R. Bailey, Erika K. Cottrell, John Heintzman, Miguel Marino, and Jennifer E. DeVoe, Annals of Family Medicine, “An Early Look at Rates of Uninsured Safety Net Clinic Visits After the Affordable Care Act,” 2015)

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Around the Country

New York passes telehealth bill

Earlier this month, New York Governor Andrew Cuomo signed a bill into law requiring health plans to pay physicians and hospitals for services performed via telehealth at the same rate as in-person visits. The law is retroactive to January 1, 2015 and requires commercial and Medicaid health plans to provide beneficiaries with coverage for telemedicine services for the same coinsurance, deductible and coverage conditions as other services normally provided in person. The law also differentiates between telehealth and telemedicine. Telemedicine is defined as real-time, audio/visual communication between a patient and provider that is conducted at a distance. Telehealth can refer to phone calls, remote monitoring devices and other electronic tools and services that are used to diagnose, consult, educate and treat patients.

The legislation was sponsored by State Senator Catharine Young and is intended to expand access to health care services across the state. The Iroquois Healthcare Alliance, which represents 54 hospitals and health systems in the state, supports the bill and believes that greater use of telehealth will help improve patient outcomes. It will also allow many rural patients to stay in their communities and receive the care they need.

Related: The emerging telehealth system and clinical video telehealth scheduling software at the U.S. Department of Veterans Affairs’ (VA) are used to improve access to VA health services for veterans. In the past, veterans seeking health care traveled to VA hospitals or medical centers. Even though the VA has more than 700 community outpatient clinics, which are closer to where many veterans live than medical centers, many of these clinics cannot all provide the specialty services that VA patients need. Telehealth is a way to provide these patients with access to the specialized services that VA medical centers provide without having to travel there. If specialty care is needed, the clinic provider may need to refer the veteran to the VA medical center. This travel can be inconvenient and difficult for many.

The VA is now recognized as a leader in the field of telehealth – its telehealth programs remain among the largest and most comprehensive in the nation, with more than 690,000 veterans participating in more than 2 million virtual appointments in the last year. The telehealth program includes store-and-forward technology, which involves the acquisition and storing of clinical information that is then forwarded to (or retrieved by) another site for clinical evaluation and clinical video telehealth, which uses the telehealth technology to make diagnoses, manage care, perform check-ups and provide care. For many veterans who live far from VA health care facilities, these services are critical to accessing timely, convenient health care.

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Targeted, tailored smoking cessation programs may help smokers quit

It has been more than 60 years since the landmark Surgeon General’s report came out detailing for the public the direct correlation between smoking and lung cancer. Since that report, smoking has been linked to many other cancers and diseases. Many smokers report trying to quit several times before their final quit attempt works. New evidence shows that individuals metabolize nicotine at different rates, and this may impact what method of smoking cessation treatment they should use. The researchers, who published their finding in January’s Lancet Respiratory Medicine, identified a biomarker that could be translated into clinical practice to develop more targeted tools for smokers that may increase their chances of quitting sooner.

In the study, people who are considered “normal” metabolizers of nicotine were significantly more likely to quit with the help of the prescription drug CHANTIX® (varenicline)‎, made by Pfizer, compared to the nicotine patch at the end of treatment, and at 6 months post treatment. Medications like varenicline can increase levels of the hormone dopamine and reduce cravings. The study suggested that people who were considered slow metabolizers of nicotine would most likely benefit from the nicotine patch. Although varenicline was also effective at helping slow metabolizers quit, there were more overall side effects reported with the drug in this group.

When nicotine levels drop, smokers who are trying to quit are at risk for cravings and relapse. In the study, smokers who were seeking treatment to quit were grouped as slow metabolizers of nicotine (662) or normal metabolizers (584) and randomized to 11 weeks of either the nicotine patch plus a placebo pill or varenicline plus a placebo patch. All participants received behavioral counseling. Blood testing after treatment had started assessed participants’ nicotine metabolite ratio. At the end of the treatment phase, participants’ smoking behavior was assessed to determine abstinence rates.

Past research shows a strong association between being tobacco free for seven days and remaining tobacco free for six months or longer, and is considered highly predictive of long-term quitting success. The study showed that varenicline was a better treatment option than the patch for normal metabolizers of nicotine, while the efficacy was the same for slow metabolizers. Because the slow metabolizers reported more side effects from the drug, the authors concluded that they may get more benefit from the patch. Extending the duration beyond 11 weeks could lead to higher quit rates from the tailored treatment.

Analysis: These findings support the use of the nicotine metabolite ratio as a useful biomarker for guiding treatment choices for smokers. Although smoking rates have declined in the last two decades, the Centers for Disease Control and Prevention (CDC) released findings last week that show close to half of U.S. adults over 40 who have trouble breathing due to asthma or chronic obstructive pulmonary disease (COPD) still smoke. According to the U.S. National Heart, Lung, and Blood Institute, COPD affects millions of people and is the third leading cause of death in the U.S. The CDC report suggests that even when people may be motivated to quit smoking because of health concerns, kicking the habit can be difficult.

For years, the evidence base on effective tobacco cessation programs has been growing, and FDA-approved drugs, counseling, motivational interviewing and ongoing support have been shown to work. Findings like the recently published study in the Lancet Respiratory Medicine are promising, demonstrating that tailored treatments may lead to improved success rates.

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Breaking Boundaries

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