Breaking the Bank: Three Financing Models for Addressing the Drug Innovation Cost Crisis.

BACKGROUND: The introduction of innovative specialty pharmaceuticals with high prices has renewed efforts by public and private healthcare payers to constrain their utilization, increase patient cost-sharing, and compel government intervention on pricing. These efforts, although rational for individual payers, have the potential to undermine the public health impact and overall economic value of these innovations for society. The emerging archetypal example is the outcry over the cost of sofosbuvir, a drug proved to cure hepatitis C infection at a cost of $84,000 per person for a course of treatment (or $1000 per tablet). This represents a radical medical breakthrough for public health, with great promise for the long-term costs associated with this disease, but with major short-term cost implications for the budgets of healthcare payers. OBJECTIVES: To propose potential financing models to provide a workable and lasting solution that directly addresses the misalignment of incentives between healthcare payers confronted with the high upfront costs of innovative specialty drugs and the rest of the US healthcare system, and to articulate these in the context of the historic struggle over paying for innovation. DISCUSSION: We describe 3 innovative financing models to manage expensive specialty drugs that will significantly reduce the direct, immediate cost burden of these drugs to public and private healthcare payers. The 3 financing models include high-cost drug mortgages, high-cost drugs reinsurance, and high-cost drug patient rebates. These models have been proved successful in other areas and should be adopted into healthcare to mitigate the high-cost of specialty drugs. We discuss the distribution of this burden over time and across the healthcare system, and we match the financial burden of medical innovations to the healthcare stakeholders who capture their overall value. All 3 models work within or replicate the current healthcare marketplace mechanisms for distributing immediate high-cost events across multiple at-risk stakeholders, and/or encouraging active participation by patients as consumers. CONCLUSION: The adoption of these 3 models for the financing of high-cost drugs would ameliorate decades-long economic conflict in the healthcare system over the value of, and financial responsibility for, drug innovation.

Private health plans perspectives: electronic personal health records and electronic prescribing.

BACKGROUND: Patients, payers, public health researchers, medical economists, and policymakers have all called for aggressive deployment of information technologies to support the management of health records and prescriptions. In response, payers of all types have been making investments in electronic systems. OBJECTIVES: To understand, analyze, and quantify current private payer involvement in electronic personal health records and electronic prescribing development and implementation. METHODS: A web-based survey involving 62 private commercial payer respondents representing more than 80 million covered lives and 16 national plans. RESULTS: Responses showed relatively high rates of implementation of electronic personal health records among respondents (20 currently and 9 in the next 24 months), but a unanimity of agreement of disappointing plan members' utilization of these systems. Implementation rates of electronic prescribing systems are even higher. More than half of the respondents reported utilization rates below 10%. CONCLUSION: The disappointing results with the implementations of electronic systems are most likely the result of variables exogenous to the technologies themselves. The low utilization of electronic prescribing is most likely related to the general lack of penetration of information technology into the work flow of most prescriber offices.

Dot-gov: market failure and the creation of a national health information technology system.

The U.S. health care marketplace's continuing failure to adopt information technology (IT) is the result of economic problems unique to health care, business strategy problems typical of fragmented industries, and technology standardization problems common to infrastructure development in free-market economies. Given the information intensity of medicine, the quality problems associated with inadequate IT, the magnitude of U.S. health spending, and the large federal share of that spending, this market failure requires aggressive governmental intervention. Federal policies to compel the creation of a national health IT system would reduce aggregate health care costs and improve quality, goals that cannot be attained in the health care marketplace.

Evidence-based medicine: health care's next holy war.

OBJECTIVE: To review evidence-based medicine (EBM), how it emerged, how it works, and what drug utilization patterns across the United States would look like if we applied EBM methods to this population. SUMMARY: There is a collective presumption about the overuse of pharmaceuticals, unchallenged by any substantive data, that has become part of American folklore: high drug use by people in this country actually represents overuse. This presumption is completely unfounded. On the contrary, a recent analysis carried out by the RAND Corporation indicated that fewer than 70% of people in the United States with chronic illness receive adequate medical treatment. CONCLUSIONS: The flow of almost all medical research strongly supports the conclusion that more medicine is better. EBM has ably pointed out that too many patients receive unneeded diagnostic and surgical procedures. It will also demonstrate that too few patients receive appropriate medical care.

Re-naming and re-gaming: Medicare's doomed attempt to reform reimbursement for injectable drugs.

Hastily crafted provisions in the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003, intended to reform the government's flawed method for reimbursing providers who administer injectable drugs, will exacerbate existing economic and clinical problems instead of resolving them. The new provisions recast Medicare's traditional drug reimbursement system; increase temptations for physicians to overuse injectable drugs; and promise to aggravate the economic problems Congress attempted to fix with the new law. Medicare can resolve these problems by reimbursing providers for injectable drugs based on their actual acquisition cost rather than on estimates embedded in a complex drug reimbursement system.

Access versus excess: value-based cost sharing for prescription drugs.

The preponderance of published medical literature and clinical guidelines compels the expansion of pharmaceutical use among Americans, at the same time that private and public health plans seek to restrict such use. The emerging collision course between the march of medical science and the countermarch of medical policy arises from diverging views about the optimal use of drugs and growing philosophical conflict over the abundance and inequities that characterize the U.S. health care system. The consequent turmoil in the market's approach to managing drug benefits can be remedied through adoption of a value-based (rather than price-based) approach to pharmaceutical spending.

The price of progress: prescription drugs in the health care market.

Pharmacy costs are rising in excess of general and medical cost inflation, leading to calls for price and utilization controls by public and private payers. Such controls would be ineffective and counterproductive because they would attempt to reverse two profound, historic phenomena at work in the U. S. health care system. The added costs associated with breakthrough medicines represent a major structural shift from the provision of traditional medical services to the consumption of medical products; they also represent the creation of economic, social, and public health utility that we value as a society. The balkanization of medical delivery, institutionalized under traditional reimbursement strategies and galvanized by federal law, does not adequately account for or efficiently accommodate this rotation and increased utility. Federal and state laws regulating health insurance and provider risk sharing need to be revamped to encourage rather than constrain the social progress embodied in expensive, breakthrough medical technologies.

Just what the HMO ordered: the paradox of increasing drug costs.

Drug companies argue that newer, more expensive drugs offset other medical costs; health plans counter that they increase pharmacy costs more than they offer a "pharmacoeconomic" benefit. Neither side is universally right or wrong, and neither has the data to support its case. Increasing drug costs for selective therapeutic classes represent the fulfillment of managed care's original promise. Certain therapeutic classes of drugs offer pharmacoeconomic benefit, while others represent induced costs in excess of this benefit. Health maintenance organizations (HMOs) should determine one from the other and incorporate these findings into their plan designs; multitier drug coverage is the best method to achieve this.

Vaporware.com: the failed promise of the health care Internet.

Contrary to the claims of its well-financed promoters, the Internet will not solve the administrative redundancies, economic inefficiencies, or quality problems that have plagued the U.S. health care system for decades. These phenomena are the result of economic, organizational, legal, regulatory, and cultural conflicts rooted in a health care system grown from hybrid public and private financing; cultural expectations of unlimited access to unlimited medical resources; and the use of third-party payers rewarded to constrain those expectations. The historic inadequacy of information technology to solve health care's biggest problems is a symptom of these structural realities, not their cause. With its revolution of information access for consumers, the Internet will exacerbate the cost and utilization problems of a health care system in which patients demand more, physicians are legally and economically motivated to supply more, and public and private purchasers are expected to pay the bills.

Equity, equity, that's our cry. Interview by Richard L. Reece.

On February 11, 1999, Richard L. Reece, MD, interviewed J.D. Kleinke to talk about his new book entitled Bleeding Edge: The Business of Health Care in the New Century. A medical economist and author living in Denver, Kleinke advocates a true partnership between hospitals and physicians--a marriage with both parties contributing equally to the relationship. He believes that "physicians and people who are running the administrative infrastructures of hospitals and other facilities need to recognize that they are equal partners in a death struggle against the insurers for ultimate control of the premium and the consumer." Though physicians are sure to balk at the suggestion that they become "captive" to the hospital, Kleinke explains that, "captivity is a necessary condition before they can work functionally together and take on managed care and contract directly with consumers, employers, and the government." Kleinke discusses five trends that he explores in his book: risk assumption, consumerism, consolidation, integration, and industralization.

Deconstructing the Columbia/HCA investigation.

Every issue raised by the current investigation into the business practices of Columbia/HCA serves as a signpost for the progress and problems inherent in market-driven health care reform. Actions against Columbia/HCA by regulators reveal deeply rooted resistance to the profit-motivated reforms embodied in the company's philosophy: the public's reluctance to accept necessary reductions in excess hospital capacity; the legal and cultural obstacles to the overdue alignment of physician and hospital economic interests; and the myriad reimbursement and accounting problems involved in the vertical integration of health care delivery. The investigation also underscores the antiquation of the reimbursement mechanisms and control systems in place for financing the delivery of care to Medicare beneficiaries.

Release 0.0: clinical information technology in the real world.

The industrialization of medical care delivery, compelled by fifteen years of reimbursement reform, has given rise to a commercial health information technology (HIT) industry. Well financed by Wall Street, the HIT industry offers a variety of ready-made solutions designed to transform a health care organization's raw data resources into useful clinical information. Many of the resulting clinical decision-support products are encumbered by numerous insurmountable intellectual and technical problems and, as a consequence, meet with cultural resistance from physicians. The long-awaited but costly implementation of electronic medical records (EMRs) will make these pioneering but flawed efforts obsolete, if EMR development successfully exploits recent technological breakthroughs and the ongoing consolidation of health care organizations.