Taxicab Confessions: Harvey's Health Reform Plan

President Obama, Peter Orszag, Doug Elmendorf, Senators Kennedy, Baucus, Dodd, and Grassley, HHS Secretary Sebelius, and Rep. Waxman, I hope you're listening.

You all should know, that at the very least, the health care reform debate is having a strong impact on the average citizen. They are following the debate closely and developing opinions on possible solutions. How much so? We at the In Vivo Blog and The RPM Report recently experienced it firsthand.

After a lovely rooftop event for health care watchers sponsored by Hill & Knowlton, we hopped in a cab at a respectable hour on our merry way home. Our cabbie, Harvey, somehow deciphered that we write a lot about health care. I believe what tipped Harvey off was us calculating exactly how PhRMA's $80 bil. deal would be scored by CBO, our love of the epic Senate HELP markup, and the lively debate over exactly what the final health reform bill will look like.

Harvey wanted to know more and more about our thoughts on where everything is headed. We explained as best we could in lay terms about the various pieces of legislation and where the different sides stood on the debate.

Here's the thing: Harvey knew a heck of a lot about health care policy. For example, we pointed out that a major issue in health care is payment reform and incentivizing doctors and hospitals to get paid for quality outcomes rather than volume of services.

"Exactly!" Harvey shouted. "The problem with the health care system today is that it has moved away from being about the patient. Health care reform must re-focus on the patient and the quality of care. It's not about volume of services."

As we reached our final destination after a long day of Congressional activities, Harvey said: "Do you mind if I pull over? I want to finish this conversation about health reform."

Um...sure...we'd love to talk more about it.

He then asked us whether there were any innovative projects out there that were focused on quality. We named a few: Geisinger, Billings, Intermountain Healthcare and the Medicare Physician Group Practice project.

"Wait, wait," Harvey interupted. "Let me get a pen." He got his pen and pad out. "How do you spell Geisinger?"

"G-E-I-S-I-N-G-E-R."

"And where is Geisinger?" Harvey asked us.

"Pennsylvania."

"And what do they do that's different from other hospital systems?"

We then explained Geisinger's system where they essentially hold to a tried-and-true quality system that has an important compliance component and if they make a mistake, they take on th extra costs.

"You know," Harvey began after our conversation about Geisinger and specifics about Intermountain and Medicare, "I think I have come up with the solution to reforming the health care system in this country."

Hmmm. I think Harvey could tell we were skeptical.

Harvey's proposal (slightly paraphrased):

"You create a number of "free" hospitals in each state. The number and location of hospitals would be dependent on the size and population distribution of a given state. The doctors who work at each hospital are paid a flat salary. Care at these hospitals would be completely free. The only pre-requisite is that patients would be completely restricted from suing. There would be no liability."

Twenty minutes after we had pulled over, he concluded: "That's the only answer I can see to the problem."

Sure, there aren't a lot of details to Harvey's plan but there's a larger lesson: Everybody appears to be engaged in the health care reform debate, so much so, that even our trusty cabdriver Harvey is coming up with innovative approaches to care.

While we don't expect to see the Harvey Provision in the Kennedy, Baucus, or Waxman bill, it's telling that the debate is trickling down to those who don't have a direct interest in health care policy and demonstrates that there is public momentum behind reform at the moment. Of course, things change quickly.

So President Obama and Chief of Staff Emanuel, Harvey is ready to brief you on his health reform plan if things stall in Congress. But you may want to leave the afternoon free for it.

Quick Takes from Obama Press Conference

Here's our quick takes from the Obama press conference earlier today on health reform:

1) Health care reform represented the anchor leg of Obama's prepared comments at his press briefing, following his comments first on the situation with the protests of the Iranian election and then the importance of an environment bill. We believe that's meaningful and that the White House is very serious about passing sweeping health care reform legislation, much more so than an environment bill.

2) Obama made it as clear as he ever has before: the bill must be deficit neutral or better over a decade. He will not sign a bill that isn't. What does that mean? The final bill will have to be scored at $1 trillion over 10 years. In other words, if a bill is scored as costing $1 trillion over 10 years and covers 75%-80% of the uninsured, we believe that's a bill that gets signed with a Rose Garden ceremony. The administration, or the next one, can work incrementally to cover the remaining 20%-25% of the uninsured.

3) If the only thing that stands between a health care reform bill and no health care reform bill is a public plan option, the President will sign a bill without a public plan. That was our read of his comments: "Ultimately, I may have a strong opinion but it's too early," to make a decision on the plan, Obama said.

4) Obama demonstrated a real and deep understanding of complex health care issues during the Q&A and we believe that is a positive for health care providers. Why? Because when it's time to make extremely tough decisions on reform, Obama will know exactly how deep the cuts that doctors, hospitals, insurers, and drug/medical product makers are sacrificing for reform and how policy decisions will be impacting the overall system.

5) Obama also showed real teeth when it came to the public plan debate. When asked a tough question about the potential for employers to drop their coverage and send people to a cheaper public plan and the inability of private insurers to compete with a government option, he put all of the onus on the private insurers. He essentially said that any private plan worth its salt should be able to compete ably with a public plan assuming 1) the rules are the same and 2) the public plan is not continually subsidized by taxpayer dollars--it has to be premiums paid by enrollees.

If you're interested in health care reform, you can follow our twitter feeds at http://twitter.com/Ramsey_Baghdadi and http://twitter.com/RPMReportMike.

Rangel-ing Over Drug Promotional Expenses: A Tussle That Might Not Scare Pharma Too Much

The advertising, broadcast and medical publishing sectors were thrown into a tizzy on June 16 when reports from Capitol Hill said that removing the tax deductibility of drug promotional expenses remains a live issue in the funding discussions around health care reform.

They should have been ready. There have been reverberations for over a year that pharma’s critics on Capitol Hill might try to raise some money for health care reform from the drug industry’s marketing budgets. White House Chief of Staff Rahm Emanuel has previously talked about giving manufacturers a choice between deducting R&D expenses or promotional expenses.

So it shouldn’t have come as such a shock when House Ways & Means Chairman Charles Rangel (D-NY) said on June 16 that his committee was looking seriously at removing the deductibility for drug promotional spending. But the thought of losing such a lucrative and solid stream of funding has a way of focusing the attention of the sectors that count on pharma promotional budgets: think of the nightly news programs on TV. Their ad sales staff must be in a panic.

The $37 billion price tag that Rangel casually attached to the possible change quantified the challenge and gave it a magnitude that made it more threatening.

The $37 billion figure is presumably calculated as a ten-year revenue estimate, the format that dominates government projections. It does not, however, appear to relate directly to any discreet part of promotional spending like DTC, which is generally estimated at about $4 billion per year.

Eliminating ten years of DTC expenditures would add up to a figure in the ballpark range to Rangel’s number, but that does not mean the government would collect that amount of money. The government revenues would come from the reduced taxes on the expenditures, not from the reduced expenditures. The total expenditures do not translate directly into new tax revenues.

To achieve $37 billion in new tax revenues at the current corporate tax rate would require removing the drug industry business deductions on somewhere around $106 billion in expenditures over the next ten years.

We’ll have to wait a while to find out where the calculation comes from. Removing the tax deductibility of promotional spending was not included in the June 19 draft of the House Democratic health reform proposal.

There is one quick hint in the bill about what promotional expenses being considered for losing deductibility. The June 19 draft contains a penalty provision for companies that do not live up to new sunshine disclosure provisions for gifts to doctors. If companies get caught failing to report gifts or misreporting gifts, then they would lose the ability to deduct “any expenditure relating to the advertising, promoting, or marketing (in any medium)” of a drug or device during the year of the violation.

That can’t be a penalty if elsewhere the bill would take away the deductibility of all promotional spending. Therefore, the Democrats do not appear to have in mind a full-out assault on the deductibility of promotional spending. Which means if you are a business that relies on promotional spending from pharma, now is the time to get to the Hill to draw the line between the dollars that support your efforts versus the dollars that support other forms of promotion. The definition could have a big impact.

Did Critics Force Pharma To Cut Back Spending Too Early?

Maybe Rangel and company hoped to get some of the saving from the lavish pharma entertaining budgets. But in what may now appear in hindsight as a strategic miscalculation, the industry critics have already forced pharma to stop some of that entertaining voluntarily – getting rid of what could have been a nice source of health care funds.

Pharma’s voluntary cutbacks over the past five years in the most unseemly marketing practices, in fact, gives a hint why Rangel’s comments may not scare the industry so deeply.

Forcing pharma companies to think more carefully about their marketing expenditures (as tax disadvantaged expenditures will be more painful) may provide the cover that some industry execs want to trim back marketing and sales budgets. This is similar to arguments by pharma execs for decades that they did not like having to fund expensive sampling/giveaway programs but were afraid to stop until their competitors stopped.

An across-the-board rule like taxing ad expenditures would force all the industry companies to reassess promotional budgets and force an assessment of new ways to build customer loyalty and interest in their products.

In Vivo Blog and its affiliate The RPM Report have been touting the new post-market control programs (the REMS of the 2007 FDAAA Act) that are being required more frequently by the Food & Drug Administration as an alternative to fill the gap for discredited promotional activities. There are other, less costly ways that the current detail forces and TV ads for pharma to build its ties to the medical community and patients. Rangel and his tax approach may just be hastening the era of those changes.

That may be why we are hearing that some influential strategists within pharma are not putting a fight with Rangel at the top of the 2009 health care reform fight. Privately, they say there are much more important fights and issues in health care reform to waste too much time and effort fighting the deductibility of promotional expenses. This may be a legislative argument that pharma is not afraid to lose. They won’t say that openly, but don’t expect much effort and money directly from the drug companies to be devoted to the promotion fight.

Of course, if pharma reacts in a prudent way to higher promotional costs and cuts back those expenditures effectively, then the government will not have promotional tax dollars as one of its sources of revenues for health care reform. That would mean that the government would under-estimate the sources of funding for a new health care program. Would that be the first time?

Health Care Reform: Too Big To Fail

The House health reform discussion draft (pre-cursor to the bill) is 852 pages. Senate bills will eventually be hundreds and hundreds of pages as well. Those are some big bills.

The seemingly endless pages of legislative language represent hundreds of different policy options the two chambers of Congress are considering as part of health care reform.

The number of bills kicking around in the House and Senate, their size and complexity, the high estimated costs (way over $1 trillion over 10 years) from the Congressional Budget Office, and the markup of Ted Kennedy's bill moving at a snail's pace all have contributed to one conclusion as the process hits the most sensitive phase to date: health care reform appears doomed to fail.

Here's the reality for Democrats: Health care reform is too big to fail.

The party--from the White House to elected officials in Congress--has made health reform the linchpin of its domestic policy agenda. The President and key committee chairmen on down have staked their political futures and credibility on health care reform.

That's why the troubling start--higher than expected costs, delays, controversy over key provisions--has triggered real panic among Democrats.

We're not going to minimize the problems health care reform faces in the present. But the big picture should not be lost.

First, for Democrats, it is imperative to have one bill done by the month-long August recess deadline imposed by Obama. We wrote about this in "The Pink Sheet" and The RPM Report. Here's an excerpt:

"Democratic leaders are trying to move quickly to meet a deadline imposed by the White House to have a bill passed before Congress leaves for its month-long August recess.

"We've got to kick that deadline down the road," said Alaska Republican Lisa Murkowski. Republicans repeatedly referred to the deadline as "arbitrary."

Democrats' fear is two-fold: First, lawmakers fear that the lag in itself will slow momentum for health care reform.

Significantly more important, however, is fear among party leaders that the recess would give Republicans a full month in their home states rallying support against Democratic proposals, as well as time for other opposition groups to conduct grass roots campaigns and public polling.

Moreover, if a clear-cut agreement isn't reached by the recess, Democrats themselves will be left to answer tough questions from their constituents on the fence about the legislation, or multiple pieces of pending legislation, without being able explain the reforms, benefits, cuts, or revenues contained in a final bill.

The approach recalls the 1993 health reform experience when many crucial Democratic elected officials struggled to communicate the complicated Clinton bill to voters in their districts and home states during the long delays in the legislative process, and thus, subsequently suffered politically from the fallout."

Second, the strategy by Republicans to delay progress of Democratic proposals in Senate committees should not cloud the fact that Democrats have historic advantages in both the House, Senate, and the White House.

The numbers to remember: 79, 59+1, and 60.

The first, 79, is the margin Democrats enjoy in the House. The second, 59+1, is the number of Democrats (we'll count independents who vote with Democrats) plus Al Franken, who could be seated as the junior Senator of Minnesota at anytime, in the Senate. The sum of the equation gives Democrats the filibuster-proof 60 votes they desperately need to move forward.

That's not the same "60" we mean by the last number. That 60 is Obama's approval rating; 60% of all Americans approve of the job he's doing, according to an average of polls from Real Clear Politics.

Now, there is the strong argument that Democrats themselves don't all agree on health care reform and certainly wouldn't vote in lockstep along party lines to pass sweeping legislation that impacts one-sixth of the economy. Presently, that's absolutely the case and was reinforced by comments on the Sunday morning talk shows.

However, we bet that health care reform--particularly universal coverage--is so important in defining the future of the Democratic Party that they will have no other choice than to come together. If they don't, Obama will make that case to them in the final stage of the legislative process.

And if those three numbers (79, 59+1, and 60) aren't enough, there's always a fourth number, 51. That's the simple majority it would take to pass reform as part of the budget reconciliation process in the Senate, with healthy margins assured in the House.

Democrats themselves point to 51 as a course of last resort. But the only way to get to 60 votes in the Senate may be to make sure you have 51--a threat of inevitability that would persuade conservative Democrats and moderate Republicans to sign on to a sweeping health reform bill.

We believe the 51-vote strategy is one of last resort, but one Democrats will resort to if necessary if the choice is between that and no health care reform. Put simply, Democrats have placed too much of the Party's future in the health reform basket to abandon it now.

Which one, two, or five Democratic Senator(s) wants to be known as the reason Obama's health care reform plan was torpedoed and likely delayed at least another four years if not another 15?

So while reform has hit some roadblocks, those roadblocks were predictable. For Democrats, health reform has become too big to fail.

Of course, that's what they said about Lehman Brothers.

Knowing the Score: Doing Our Part to Keep Hope Alive

Okay, everyone in Washington was a bit taken aback by the first official "score" of a health care reform proposal. Keeping score, of course, is at the very essence of everything in our nation's capital, but in this case "score" refers to the budgetary impact of a piece of legislation, as analyzed by the Congressional Budget Office.

Since (for the time being at least) everyone agrees health care reform has to be budget neutral, the score is a very big deal indeed. Every dime of added cost has to be offset by some kind of payment cut or (gasp) new tax.

No one thinks it will be cheap to expand coverage to the 46 million (and growing) uninsured population in the US, but neither does anyone know for sure exactly how much it will cost. (Or, what is more important, how much CBO thinks it will cost, which is what matters when it comes to how much you have to budget to pay for it.)

So, when CBO reported back that the first bill--admittedly little more than a rough draft from the senate Health Committee--would cost $1 trillion dollars over 10 years while reducing the population of the uninsured by just 16 million, it caused a fair bit of consternation.

With all due respect to folks like Utah Republican Senator Bob Bennett--who is fond of saying that high quality health coverage is cheaper than the mismash of inadequate coverage we have today, so that there really is a "free lunch" on health care reform--well, there is in fact no free lunch. At least not in CBO's eyes. You can't just provide subsidized insurance for the masses, wave your arms and get to universal coverage. It costs money. Lots of money.

And with that, the health care reform push stalled--at least for a week--while everyone reconsiders how best to proceed.

Never fear: The IN VIVO Blog is here. Time for some outside the box thinking on alternatives that can reduce the population of the uninsured without breaking the bank. Here are our modest proposals:

1. Bus the uninsured to Canada. Figure 1 million buses of 46 people each, plus a driver and gas money. Got to be less than $1 trillion.


2. Start another war. Commit ground forces. End the war. Spend the savings on health care.


3. Harvest the organs of the uninsured. Sell them to the wealthy.


4. Relocate the 46 million uninsured to McAllen, Texas. Give Texas back to Mexico. (Or just let it secede).


5. Have President Obama go on Oprah to promote downloadable internet coupons for free health care. Blame unexpectedly high demand for program failure.


6. Steal John McCain's insurance card. Make 46 million copies. That way everyone can have coverage just like a member of Congress.


7. Replace glue on postage stamps with a cocktail of Lipitor, Prozac and Provigil. Sit back and wait for heart attacks to go down, productivity to go up.


8. Take Obama's $900 billion set aside for health care to the roulette table at the Mandalay Bay. Put it all on black.(Ed. Note: Wesley Snipes approves!) If red comes up, nationalize the casino. Repeat at other Vegas hotels until you have $3 trillion in winnings.


9. Maybe the swine flu can take case of the problem?


10. Tax snarky bloggers until you have enough money or they stop.

Baucus CER Deal Under Stress

With a little help from its GOP friends in the Senate, the pharma industry could still fashion a bad agreement on CER out of the positive discussions that have been underway for over a year with Senate Finance Committee Chairman Max Baucus (D-MT).

Sens. Orrin Hatch, R-Utah, and Mike Enzi, R-Wyo., are temporarily keeping the Baucus approach to comparative effectiveness -- which could be called CER soft -- out of the Senate Finance Committee’s health care reform bill.

Hatch and Enzi are two of the longtime stalwarts of policy affecting the drug industry. They have a go/no-go status on CER because of a de facto arrangement with the ranking GOP member on Senate Finance, Charles Grassley, R-IA, who ceded decision-making on CER legislation in his committee to his colleagues on the Senate Health, Education, Labor & Pensions Committee.

CER is now traveling through the legislative process under a new pseudonym: patient-centered outcomes research, part of Baucus' amusing and practical effort to move his bill under whatever name seems most acceptable and non-inflammatory on Capitol Hill. The Baucus proposal for CER remains a separate legislative bill. The plan is to attach that bill to the developing Senate package for health reform, being melded together by the Senate Health, Education, Labor and Pensions Committee, Senate Budget Committee and Senate Finance.

Representing more adamant critics of CER, Enzi and Hatch are pushing for consideration of three issues. The danger of bringing the issues up again now is that the Baucus CER approach could fail to get on track to join the main activity on health care reform and less favorable approaches to CER could slip into the gap. In the name of layering on several more specific protections against the use of CER reviews to control treatment choices, the GOP members are risking creating an open field for other CER proposals to supplant the work that Baucus has been doing on the issue since early last year.

The Baucus staff preparing the CER bill have won praise from industry stakeholders for working with affected industries on the CER scheme. There may be more willingness by those seeking more protections against CER to seek changes to the Baucus bill because a separate approach is gaining interest in the House, sponsored by Oregon freshman Kurt Schrader (HR 2502). That effectively gives the proponents of a soft CER approach a second alternative to push.

Age Discrimination Leads List of Recent Complaints

At the top of the list of CER changes being sought by the GOP is an assurance that there will not be age discrimination in treatments based on CER determinations – i.e. that no decisions whether to accept CER information for treatment selection will be made based on the age of the patient alone. This is a major concern of one of CER’s most obdurate critics in the Senate, John Kyl, R-AZ. Kyl raised the issue earlier in the spring in April and re-introduced it on June 15 as S 1259 along with six GOP co-sponsors, including minority leader Mitch McConnell (Ky).

The GOP HELP members also suggested language to prevent establishment of a quality-adjusted life years threshold by the Centers for Medicare and Medicaid Services to determine coverage for a treatment.

Finally, the GOP took up the cause of some CER critics who argue that a new CER institute might establish a different, and confusing, level of evidence for approving or rejecting medical products that would supplant and damage the substantial evidence standard used by thee Food & Drug Administration. That could be further impacted should a recently introduced bill that opens the door for comparative effectiveness research to be put on drug labeling become law (“The Pink Sheet,” May 25, 2009, p. 4).

The GOP concerns slow down a process of incorporating CER into the Senate bill that had appeared to be moving along smoothly. The push for changes just before the Finance Committee’s self-imposed deadline for beginning consideration of CER on June 17 may also be a small part of a developing GOP effort to slow down the overall effort to get Congressional health care reform bills through each chamber before the August.

The current Baucus version of the comparative effectiveness bill, the Patient-Centered Outcomes Research Act of 2009, was introduced June 9 with co-sponsorship from Senate Budget Committee Chairman Kent Conrad, D-N.D. It is an update of legislation introduced in the last Congress and maintains the creation of a public-private entity to drive research and offers a set of standards that must be met in order for comparative effectiveness research to be incorporated into coverage decisions (“The Pink Sheet” DAILY, June 9, 2009).

If Senate Finance cannot resolve the GOP complaints and get the bill moving again, the only comparative effectiveness option that would be debated in the Senate would be the HELP proposal which would undo the extensive work between Finance Committee staff, the pharma and insurance industries and other stakeholders on the proposal. The HELP proposal is much less detailed and puts HHS in the driver seat in terms of guiding comparative effectiveness research (“The Pink Sheet,” June 15, 2009, p. 13).

Starting After the 4^th Is Not a Critical Blow To Legislative Schedule

While the comparative effectiveness options are not necessarily holding up the overall health care reform bill, they could be a contributing factor to why the committee has pushed back the markup on the full package until July.

Senate Finance will not start public consideration of the full health reform effort until after the Fourth of July recess. The delay is widely being attributed in Washington to a high preliminary score from the Congressional Budget Office on the most recent version of the Finance Committee proposal.

Reports are circulating that the Congressional Budget Office has scored the bill at $1.6 trillion, a number higher than the initial score of the incomplete HELP Committee health care reform bill. The Finance Committee held off introducing the draft chairman’s mark following the negative feedback that arose in the wake of CBO’s scoring of the HELP bill. The two-week delay in the Finance Committee consideration of health care reform does not preclude finishing a bill before the August recess, advocates say. The Senate leadership still has room in August to delay recess to get a vote if Finance starts consideration immediately after the Fourth of July break.

Senator Enzi, in a press release, commended the Finance Committee’s deliberative process that included members from both sides of the aisle, while criticizing the HELP Committee's start of consideration of its bill.

image from flickr user te.esce used under a creative commons license

Turning Off The Runway Lights At HHS

If the wide variety of health care reform proposals swirling around Washington ever coalesce into legislation that is signed into law, HHS will have dozens of new responsibilities. But sponsoring fashion shows would no longer be one of them, if Sen. Coburn has his way.

The fiscally conservative Republican from Oklahoma is sponsoring a health reform amendment to prevent HHS from using funds to sponsor fashion shows; the amendment will be considered during markup of the Senate Health, Education, Labor and Pensions health care reform bill, known as the “Affordable Health Choices Act,” which begins June 17.

Coburn has long had a beef with HHS spending money on the lights and glamour of the runway, as expressed a number of times on his web site, including in a statement protesting HHS sending dozens of employees to a conference at a beach resort where the entertainment included a “sizzling fashion show.” He also has questioned why money is being spent on social events, including fashion shows, to raise awareness of the search for an HIV vaccine when that money could be used to actually conduct research on a vaccine.

As Coburn put it in a 2008 press release: “Who knows what scientific discoveries could be unlocked at a bar or fashion show! But with your tax dollars, we will find out!”

image from flickr user maddsmadds used under a creative commons license

Everyone’s Holding Hands For Health Reform; DNC is Holding Out Its Hand

Just as we were enjoying President Obama’s unflagging effort to promote health reform as a collaborative, hand-holding effort drawing from both sides of the political aisle, we received this fund-raising email from the Democratic National Committee.

In an effort to drum up the same contagious enthusiasm and grassroots networking that sustained the Obama campaign, the DNC, over the president’s signature, sounded the alarm on health care reform, blasting an email to millions of supporters today asking them to “donate whatever you can” to the “campaign for real health care reform.”

“Today, spiraling health care costs are pushing our families and businesses to the brink of ruin, while millions of Americans go without the care they desperately need,” Obama wrote to the masses. “Fixing this broken system will be enormously difficult. But we can succeed.”

Using the now familiar we will prove them wrong tone, Obama called health reform the “biggest test of our movement” since the election, stressing that opposition will be “fierce.” The public call to arms comes one day after Obama spoke at the American Medical Association in an effort to warm doctors to an overhaul to the health care system (covered here in The Pink Sheet).

“To prevail, we must once more build a coast-to-coast operation ready to knock on doors, deploy volunteers, get out the facts, and show the world how real change happens in America.”

A link to make a donation brings recipients to “Organizing for America,” a web project of the DNC that bears the web address barackobama.com.

“It doesn't matter how much you can give, as long as you give what you can.” Obama wrote. “Millions of families on the brink are counting on us to do just that. I know we can deliver.”

Will Obama’s second effort to mobilize the masses pay off?

– Lauren Smith

image from flickr user plamoe used under a creative commons license

Don't Mess With McAllen

We are prepared to make one bold prediction about health care reform in 2009: Whatever else happens, the health care system in the city of McAllen, Texas is going to experience big changes.

These are heady days for that hitherto little talked-about Texas city, which suddenly finds itself as the unlikely poster child for why we need health care reform in the US. McAllen can thank Atul Gawande, who focused on the city in an article in the June 1 New Yorker. If you haven't read the article, you should. It sure seems like everyone else has.

And we do mean everyone, starting with (apparently) President Obama and heading on down from there through the entire list of key figures in driving health care reform 2009.

Gawande got quite a shout-out for his article during a comparative effectiveness research conference hosted by Brookings June 9. Sen. Max Baucus mentioned it during his opening keynote, saying he was pleased to learn that President Obama himself also read it. He paused to ask if Gawande was in the room so that he could compliment him in person. (He wasn't).

Then Peter Orszag, head of the Office of Management & Budget and perhaps the single most important person shaping the health care reform agenda at the outset of the Obama Administration, delivered his opening keynote—and basically presented the Gawande article in Powerpoint form (and, much as we love the New Yorker, there is nothing like the White House seal next to an excerpt to make it seem that much more authoritative.)

Why is everyone talking about this article? Well, it probably helps that Gawande is himself part of the policymaking circle, at least as an "emeritus" member. He was on the Clinton health care reform task force in 1993, so he's hardly the typical ink-stained wretch (or is it pixel-dimmed?) when it comes to how his journalistic endeavors are perceived.

We've already mentioned him in the context of teeing up the health care reform debate, where an earlier New Yorker article offered some intellectual underpinnings for the notion that US health care reform will have to build on the US system, rather than import ideas from other nations. No US politician would dare suggest that there are any valuable models for health care to import from Europe; apart from Vermont's Bernie Sanders, most legislators in the US don't like being called "socialists. So that article helps make it okay that Orszag's omnibus overview of health care reform options (prepared while he was the head of the Congressional Budget Office) includes just one reference to an international model (and that is from Canada, which doesn't really count does it?).

But even without those connections, you can appreciate why everyone is talking about the latest article. In it, Gawande does the impossible—taking the hopelessly abstract ideas of regional treatment variations and overall health spending trends, and turning them into a specific, concrete, real-world case study: McAllen, Texas.

The article starts with the notion that McAllen is an outlier, generating much higher per capita health spending than the nearby city of El Paso. And yet, there are no obvious demographic differences between the two communities. Moreover, there are also no apparent improvement in health outcomes. (Indeed, by all indications, the community of McAllen ends up getting, if anything, worse care than El Paso, despite all the spending.)

The genius of the article, though, is how Gawande demolishes—one by one—the various possible explanations for the difference. (Our favorite: where he deals with the reflexive answer—also raised during the Brookings event—that overutilization is driven by fear of liability. After all, doctors in McAllen have no reason to fear liability any more than doctors in El Paso. Its not that liability isn’t a problem, just that it can’t explain the difference--which even the doctors Gawande interviews end up admitting.)

By the end of the article, the only conclusion left is that McAllen has fallen into a culture of overutilization, one that is at the very least enabled by a payment system that rewards entrepreneurial physicians who come up with ever-more instensive (and expensive) interventions for patients.

Is that in fact the reason for soaring health care costs (without commensurate improvements in outcomes) across the US? We have no idea.

There are certainly alternate explanations, including one possibility raised in a Wall Steet Journal editorial June 8, which suggests that apparent variations in health care costs are an artifact of the data: federal Medicare spending may vary considerable from locale to locale, but—the editorial argues—high Medicare rates may be matched by lower spending from other sources, meaning net costs overall do not in fact vary as much as Orszag and others suggest. You can see where the Journal editorial board is taking this argument: Medicare spending takes over markets and drives out more efficient private competition.

A reporter at the Brookings event asked Orszag about that hypothesis, and Orszag almost lept off the podium to respond. Cost patterns vary no matter who the payor is, Orszag said, citing large employers and Medicaid databases for further evidence that it is not just a Medicare phenomenon. He promised that he would have a "longer response" to the editorial soon.

Which brings us to our final point about McAllen, Texas. Again, we have no idea what the real cause of variation in health spending is, but this we do know: the people driving the health care reform debate are much more inclined to believe Atul Gawande than they are the Wall Street Journal's editorial board. Biopharma industry executives should bear that in mind as they plan their summer reading.

Rebranding Health Care Reform

News flash: The debate over comparative effectiveness research is over!

No, nothing actually happened--its just that the sponsors of legislation to create a new comparative research agency have responded to the controversy surrounding the issue by re-branding it. As we report in "The Pink Sheet" DAILY, Sen. Max Baucus has introduced a new bill that follows closely on his comparative research proposal from 2008--but now calls it "Patient-centered outcomes research" instead of "comparative effectiveness research" or "comparative clinical effectiveness research." Or, "cost-effectiveness research"--except no one in politics EVER calls it that.

Baucus joked about the change during a keynote address at a policy conference hosted by Brookings June 9 that focused on comparative effectiveness research. (Brookings obviously didn't get the memo on the new branding.) The Finance Committee chairman quipped that he would call it "Fred" if it helped defuse the emotion around the issue.

And there is alot of emotion. As our colleagues at On The Road note, libertarians protested the Brookings event, comparing President Obama's health care reformers--and Obama himself--to Nazis.

Anyhow, CER is out, P-COR is in.

Re-branding is fun, of course. In fact, we think its well under way in the effort to create an abbreviated pathway for approval of biologics, where what was once a debate about "generic biologics" was rebranded as "follow-on biologics." That satisfied innovator companies concerned about the implication of interchangeability inherent in the word generic.

Now policy makers are concerned about evergreening, so "follow-on" isn't quite right anymore. Which is why the European term "biosimilars" is now coming to the fore.

Still, we can't help but think that Congress should get some professional help in all this. After all, no one does branding as well as pharma. So maybe comparative effectiveness could become "National Organization to Direct Research for Understanding Good Science" (NO-DRUGS).

That's CER industry could get behind....

Big Pharma’s Political Paradox: The Good News is the Bad News

What’s wrong with this picture?

If you said, “It almost looks like Pharmaceutical Research & Manufacturers of America CEO Billy Tauzin and Families USA Executive Director Ron Pollack are in the same room, working together on something,” well, you are almost right.

The photo is indeed of Tauzin and Pollack at a Capitol Hill press conference unveiling an ad urging immediate action on health care reform. (You can read our coverage of the unlikely partnership here; you can watch the ad here.)

But there is nothing wrong with that picture: indeed, for the brand name trade association it is a sign that something may finally be going right. Families USA has not, to put it mildly, been a friend of PhRMA over the years, attacking industry pricing practices and serving as the head cheerleader for the failed effort to impose price negotiation in Part D in 2007.

So Tauzin’s efforts to build common ground with some of PhRMA’s toughest critics are clearly working.

Pollock didn’t exactly say he thinks drug prices are a non-issue—but when asked whether the groups had common ground on drug prices, he turned the podium over to Tauzin to respond. The implicit message: drug pricing will not be a central issue in the coming health care reform debate. No replay of the Clinton Care experience of 1993-94, when drug industry “profiteers” were portrayed as one of the key villains in the reform debate.

In that sense, this is a picture worth more than a thousand words.

So what’s wrong with this picture? Simple: it is the latest demonstration that industry's policy successes increase with its commercial failures.

One reason PhRMA is finding it easier to round up allies is that it simply isn’t credible to blame the drug industry for soaring health care costs anymore. Given the small slice of health care spending devoted to drugs, PhRMA would argue it was never credible to blame drugs as a driver of overall spending. But with prescription drug spending now growing more slowly than overall health care spending (the latest statistics are here), there is no one who can seriously argue that reining in drug costs would significantly impact the bigger trend line.

That is the silver lining in the generally dreadful performance of the drug sector commercially: it takes the heat off the industry politically. And, with another patent “cliff” still ahead of PhRMA, there will be even less political pressure on drug costs in the next few years.

Gee, if only drug sales would disappear altogether, politicians might even start to like drug companies.

You see the problem: higher drug spending is defined as a priori a bad thing, a problem that needs fixing. Lower drug spending means there is no problem. It doesn’t feel that way in the board room, does it?

This, we submit, is the single biggest policy problem facing the biopharma sector: the industry’s success (measure in rapidly growing sales) is perceived as a policy crisis requiring a governmental response. Someday, somehow, that paradox has to be addressed.


Still, there is no question that PhRMA can benefit from the fortuitous timing. Given those perceptions, it is much safer for industry to have a health care reform debate during a time of commercial weakness.

We can only hope that when the industry comes back stronger than ever, its new-found allies think that is a development worth celebrating.

“Reflections By a Guy Who is Headed Out of Town”: The Bush Legacy for Biopharma

When we got our “exclusive” invitation to cover President Bush discussing his legacy in domestic policy from the American Enterprise Institute, we were flattered that the White House has finally recognized the importance of the IN VIVO Blog in the world. Sam Donaldson, Ted Koppel and Wolf Blitzer—who cares what they think. Its about time they started courting the real thought leaders in Washington.

Sure, our skeptical colleagues in the Fourth Estate may have suggested alternative theories. Like: “It’s tough getting any press to cover a lame duck President, especially one this unpopular.” Or “Everyone who matters is in Chicago for the Obama press conference.” Or “I knew FDC-Windhover’s strict no-shoe-tossing policy would pay off.” Or “Is he still President?”

But we weren’t about to let envious colleagues stop us from answering the call of our President. So we set off to the Mayflower hotel downtown, allowed a very polite Secret Service agent to pat us down while a German Shepherd sniffed our laptop bag (thank goodness it wasn’t the other way around!) and dutifully took our seats to hear what lessons the President has learned that would be of interest to our loyal biopharma readers.

After all—all kidding aside—President Bush’s legacy includes signing the two most important laws affecting the pharmaceutical industry in a generation: The FDA Amendments Act of 2007 and the Medicare Modernization Act of 2003.

Not surprisingly, Bush didn’t say a word about the more recent bill. FDAAA was never embraced by the administration, since it was ultimately packaged by Congress as a rebuke to the management of FDA under Bush. But it signals nothing less than a new era in drug regulation, and that alone will ensure that the Bush legacy matters for years to come.

The President did discuss the Medicare law, and especially the Part D prescription drug benefit that was its centerpiece. Bush’s reflections on the legislative debate and its ultimate outcome underscore why many in the biopharma sector will miss him when he’s gone—and why even some who won’t may ultimately owe him a huge debt of gratitude during the upcoming healthcare debate.

Bush explicitly declined to offer advice or policy prescriptions for the incoming administration, joking that his appearance was nothing more than “reflections by a guy who is headed out of town.”

But his analysis of the key lessons of Part D—as an alternative to price controls, as an endorsement of market-based health care, as proof of the power of competition, choice and consumerism in health care—has obvious resonance for the upcoming health care reform debate. (You can read more about Bush’s thoughts on Part D in “The Pink Sheet” DAILY, and on how Part D may play in the health care reform debate in an upcoming issue of The RPM Report.)

There were plenty of other things Bush said that resonate as well, things that weren’t explicitly relevant to biopharma companies—but easily could have been.

Such as:

“No matter how tough the issue might look, if we require a solution, go after it. The job of the President is to tackle the problem.” (On immigration reform, not health care reform…)

“These aren’t normal circumstances. That’s the problem.” (On the financial bailout, not biotech financing...)

“It is going to be harder to attract good people to government service if their
integrity is challenged at every level.” (On judicial nominees, not FDA Commissioner Andy von Eschenbach....)

“Technology will help change our habits.” (On hybrid cars, not personalized medicine....)

“Part of the problem is…that the regulatory scheme is such that people would risk a lot of capital and then have to seek permission for final approval late in the process
and would find themselves tied up.” (On nuclear power plants, not drug approvals…)

Why Big Pharma Should Vote Democratic

This Super Tuesday, pharmaceutical CEOs should ask themselves one question before they decide which way they will vote in 2008 if they are indeed single-issue voters:

Are you in favor of an expansion of the government subsidy to almost 50 million Americans to buy your products or would you prefer a drastic curtailing of the government subsidy under the popular Medicare Part D drug benefit?

If you’re in favor of the former, you should punch the Democratic ticket in November. If the latter is your desired outcome, then hop on the McCain Straight Talk Express.

The prospect of a Democratic administration with a Democratic-controlled House and a split Senate has a number of drug industry stakeholders nervous about the next four years. After all, the centerpieces of Senators Hillary Clinton’s (NY) and Barack Obama’s (IL) domestic policy agendas are universal health care proposals. And when Big Pharma hears “universal health care” it tends to be synonymous with national, government-run, single-payor system aka price controls.

But here’s something Big Pharma should keep in mind: neither Clinton nor Obama are proposing a single-formulary system. What they are proposing, though, is providing health care coverage for the 47 million and counting Americans without it.

In case you missed it, here was my first take on the Clinton and Obama health care proposals. Clinton has explicitly stated that buying coverage would be mandatory under her plan; Obama says he will wait to analyze affordability of a coverage proposal before mandating that individuals buy insurance.

“This should not be scary,” Clinton senior health policy advisor Chris Jennings told Wall Street investors at the Stanford Group health care conference in January. “This should be viewed as an incredible opportunity.” Obama health advisor Gregg Bloche echoed Jennings’ remarks at the meeting saying, “companies that innovate are going to thrive in the environment under the Democratic plans.”

There’s little doubt that under a universal, government-administered coverage system, there will be downward pressure on pricing, whether it’s through market competition or government “tinkering.” But Jennings and Bloche say whatever drug companies give up in margin, they’ll more than make up for in a jump in market share.

It would be hard to argue that the drug industry hasn’t reaped a windfall from providing roughly 40 million seniors with drug coverage under the Part D program. A universal coverage program would roughly double the number of Americans receiving some form of a drug benefit who previously were not.

Some senior company executives clearly see the advantages of working together with Democrats—should they win the White House—on health reforms. “It is really going to take a bipartisan view to be able to accomplish [universal health care],” Merck CEO Richard Clark said during the Morgan Stanley Pharmaceutical CEOs Unplugged conference in January. “I hope we are able to provide some recommendations, particularly around the uninsured and how that should be solved, just as we provided recommendations around Medicare” and the creation of the prescription drug benefit.

Eli Lilly SVP for corporate affairs and communications Alex Azar is urging the biopharmaceutical leadership to rally around a united position that preserves core industry business principles under more direct involvement by the government in health care. “We have to show that we’re willing to engage and to propose constructive alternatives,” the former HHS deputy secretary told attendees at The RPM Report’s FDA/CMS Summit in December. “Our industry brings some credibility to this discussion.”

For the most part, Republicans are looking at incremental improvements in health care that go hand-in-hand with the free-market principles underlying Part D ie. competitive insurance plans and allowing individuals to cross state lines to buy insurance from different providers if they don’t like the deal they’re getting locally.

Not too scary.

But under a Republican administration, the odds of a Medicare reform bill would be a near-certainty as the government looks for savings to fix the looming physician reimbursement cuts. In that climate, drug prices under Part D would be a tempting target for savings.

Moreover, the presumptive Republican nominee, Senator John McCain (AZ) does not look eager to become best friends with the pharmaceutical industry. During a New Hampshire debate before the primary in January, for example, McCain cast the industry in a not-so-flattering light while discussing why Americans can’t import drug from Canada. Former Massachusetts Governor and Presidential candidate Mitt Romney jumped in, “Don't turn the pharmaceutical companies into the big bad guys.” McCain responded: “They are.”

The drug industry is clearly reading the bi-partisan tea leaves. The pharmaceutical industry has given $4.6 million to Democrats thus far in 2008 compared to $4.5 million for Republicans, a 51-49 split, according to the Center for Responsive Politics. During the last election cycle in 2006, donations to Democrats totaled $6.1 million compared to $13.2 million, a 31% to 67% difference (independent donations make up the remaining 2%). The last Presidential election in 2004 saw the pharmaceutical industry give two-thirds of their donations to Republicans ($12 million) compared to one-third ($6.1 million) to Democrats.

You get the picture.

For all of the undecided In Vivo Blog readers, maybe the HealthCentral.com political PoliGraph will help you choose where you stand. Try it, it’s fun.