The Payers Pity Party

AHIP (America’s Health Insurance Plans – the trade organization for the insurance industry) is holding it’s annual conference this week in Washington, DC. This year one of the issues they’ll be highlighting  (not necessarily “debating”) is “high-priced” pharmaceuticals. Well, it’s their party – and they can cry if they want to.

It’s an interesting point of departure to note that the word “innovation” appears exactly once in the conference program. Since this is an event for payers it isn’t surprising but it is disappointing. Sins of omission are seldom fun – especially when those sins weigh the profits of payers over the needs of patients.

The only panel to discuss the value of innovation does so in a more than slightly slanted manner. Consider the title of the session, “Can We Afford New Advances in Biomedical Innovation?”  And if the title doesn’t give you a clue as to the position of the organizers, consider the balance of the speakers – an EVP from CVS, a lobbyist from AARP, a thought leader who believes that “innovation “is too expensive,” and a representative from the biopharmaceutical industry, the industry that actually is primarily responsible for discovering, developing and funding innovation in US and across the globe.

Ignoring the value of innovation may be convenient, but it’s neither honest nor helpful to the broader public policy debate. Karen Ignagni, the President of AHIP, recently lead the charge against Sovaldi (an innovative medicine for Hepatitis C), accusing the drug’s developer — Gilead Sciences Inc. — of exploitative pricing. “The company in this case is asking for a blank check,” she said. “It will blow up family budgets, state Medicaid budgets, employer costs and wreak havoc on the federal debt” – a good and oft-repeated sound bite that is now widely acknowledged to be 100% wrong.

New, better medications are actually the best and swiftest way for this country to cut down on our health-care expenses. By more effectively combating disease and improving patients’ lives, drugs reduce long-term medical costs and bolster the overall economy.

Consider one pre-Sovaldi “best practice” treatment for Hepatitis C, the drug Pegasys. This requires one injection a week for 48 weeks — and very few patients see the treatment through to completion, so much of that treatment, both physician time and drug cost, is wasted. Nor is it that much cheaper: At about $7,000/month, the full course of treatment is over $70,000 — barely less than cost of the three months needed for Sovaldi to work a cure. And the price of not using Sovaldi is very high. One in three patients with the Hepatitis C virus eventually develops liver cirrhosis, and managing these patients is costly. A “routine” liver transplant (where the liver is from a cadaver) costs close to $300,000; a “living donor” transplant is even more expensive. But why let the facts get in the way.

It’s easy to point to “high-priced” drugs. It’s a savvy media strategy when your memberships’ focus is on short term savings and quarterly profits versus long-term patient outcomes (data recently published by the PwC Health Research Institute shows that the use of Sovaldi will actually drive down overall spending within a decade).  It’s “savvy” because AHIP plays to an easy to articulate argument that the media and the general public is ready to accept, “healthcare costs are driven expensive drugs.” But facts are stubborn things. Consider that pharmaceuticals represent only 11.5% of our national healthcare costs – with on-patent “innovative” medicines representing only 8.5% of our healthcare resources. And their benefits are manifold, returning many times their cost via patient value.

Yet these and many other facts backing pharmaceuticals as a sound healthcare investment have been twisted to suit the agendas of politicians, pundits, and other competing stakeholders. It goes relatively unreported that insurance companies continue to increase their monthly premiums without really explaining why. The industry claims its costs are increasing because prescription drug costs are busting their budgets. But prescription drugs account for only a small part of monthly insurance-premium hikes. From 1998 to 2003, insurance companies increased premiums by an average of $104.62 per person. During that same period, drug costs rose by $22.48.

According to CMS-published data, patients pay less out-of-pocket for pharmaceuticals today than at any time in the past 40 years. This is the result of the proliferation of generic drugs following a strong period of innovation in the 2000’s. However, this is probably news to those patients who are seriously ill and require therapies that do not have a generic alternative. In those cases, patients are often asked to pay a significant amount of their own money for their medicines. If they find that they eventually can’t afford those out-of-pocket costs, they don’t take their medicine, leading to higher health costs elsewhere in the system. But treatment for a severe illness is exactly what should be covered as an insured benefit. Part of the solution to the out-of-pocket cost dilemma may be a more rational insurance design where patient cost sharing for various health services is based on the value of the intervention rather than price, as formularies should help patients and doctors make the best treatment choices, not forgo treatment all together.

Should we blame “Big Insurance”? Out-of-control out-of-pocket expenses cause many patients to stop using prescription drugs for controllable chronic conditions. The unfortunate result is that visits to the ER have jumped by 17 percent and hospital stays have risen 10 percent. And a new Integrated Benefits Institute study shows that when employers shift too much of their healthcare costs to employees, the companies lose more than they save, through absenteeism and lost productivity.

Having one person defend the value of innovation at a high profile event such as the annual AHIP event is stacking the deck against the pharmaceutical industry to be sure – but what’s worse (and far less forgivable) is the disservice it does to patients.

As Harvard University health economist (and health care advisor to President Obama) David Cutler has noted: “The average person aged 45 will live three years longer than he used to solely because medical care for cardiovascular disease has improved. Virtually every study of medical innovation suggests that changes in the nature of medical care over time are clearly worth the cost.”

Healthcare innovation saves lives, saves money, promotes economic growth, and provides hope for hundreds of millions of people (both patients and care-givers) in the United States and around the world. But innovation isn’t easy – and the task of defending it against a cognitively closed audience is certainly a challenging one.

Pharmaceutical innovation faces many roadblocks. Beyond the daunting scientific and regulatory hurdles, the complicated and conflicting dynamics of politics, perspectives on healthcare economics, of friction between payers, providers, and politicians, the battle for better patient education, and the need for a more forceful and factual debate over the value of innovation all create the need for a more balanced and robust debate.

Alas, the AHIP conference will not advance this agenda.



Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest

Morning Consult