Drug pricing 101 (2)

The New Drug Reimbursement Game. A Regulator’s Guide to Playing and Winning

In my former post I was backing a complete review of current drug pricing regulation. Any official that has to perform this task needs some fresh ideas and knowledge and this is precisely what a new book provides. In The New Drug Reimbursement Game by Brita A.K. Pekarsky you'll find the economic foundations for a new drug pricing regulation.
The basic argument:

Higher prices today mean increased economic rent for the pharmaceutical industry (Pharma) otherwise firms would not lobby for them. It is in Pharma’s interest to protect and seek these economic rents. Whether higher prices and more R&D today increase future health remains an empirical question. If higher prices also mean a higher net present value of the population’s health, then it is in the institution’s interest to increase prices. Given the institution’s objectives, the most effective strategy Pharma can use to protect these rents is “the Threat”: lowering prices is against the interest of health funders because it will reduce a population’s future health.

Therefore,

 The regulator’s challenge is to answer the following question:
• “How should rational institutions respond to the Threat?” (A rational response is one that is consistent with a given institution’s stated objective function, whatever this may be.)
This introduction places this research question in the context of current evidence and research, by addressing the following three questions.
• Is it plausible that the Threat exists and that it influences the price of new drugs?
• Is there rigorous empirical evidence that suggests that lower drug prices will result in reduced future health?
• Are economists in agreement as to the value of a decision threshold for new  drugs that accommodates characteristics of the health budget such as allocative and technical inefficiency?

And the conclusion:

When the Institution buys this new drug, it buys the health effects from this drug and the health benefits from future innovation. This is not the case with other health programmes. Therefore, unless the Institution pays a premium for the health effects from the new drug, the population will be worse off because innovation will be suboptimal and the future drug will not be produced.

Unfortunately, when you get to the end you'll miss any consideration about what innovation means. If you look at recent patterns of effectiveness of new drugs, you'll see that the value of innovation is under scrutiny, and most drugs would not pass the test. In my opinion, the regulator has to send signals about the value of health improvement in certain diseases and pharmaceutical companies should focus R+D on such fields and avoid others.
Therefore, a new companion to this book should be written. This is only a regulator's guide to play, but not to win. Take it only as a starting point.

PS. Just FYI, you'll not find the term "Budget impact analysis"  in the book, a close term Programme budgeting marginal analysis PBMA is what you'll find. It is suggested a price effectiveness analysis as a previous requirement for any PBMA, otherwise it makes no sense. This approach seems quite different to  yesterday's news.

Thomas Piketty speech at UPF Oct 2014, it starts at min 8:10. My post, last May.

Drug pricing 101

In his book "Reinventing the bazaar. A natural history of markets", John McMillan says:

Market design consists of the mechanisms that organize buying and selling; channels for the flow of information; state-set laws and regulations that define property rights and sustain contracting; and the market’s culture, its self-regulating norms, codes, and conventions governing behavior. While the design does not control what happens in the market—as already noted, free decision-making is key— it shapes and supports the process of transacting.

If we look at the pharmaceutical market, there are unique features. The government role is at the same time the "market designer" and mostly the monopsonist. The price setting mechanism relies on multiple regulations that evolve according to circumstances. For example, since 2012 there has been no information about patented drug prices accepted for public funding. It sounds quite weird in a moment that everybody is proud of boosting transparency. The debates over the new pricing decree are still more strange. The current mess was explained some months ago in this op-ed. The uncertainty now also embraces pharma-distribution, pharmacists complain about the system.
Such a pricing system is explained in  this presentation (details about pricing in p.6). As far as it is unsatisfactory for everybody, it needs to be rebuilt. My suggestion is that there is a need to start from scratch. John McMillan would say that we have to look for a clever market designer to reinvent drug pricing as soon as possible.

Is this the end, my friend?

The last 25 years of publicly funded health care have been marked by the unique ownership structure known as consortium. Consortia allowed a joint venture between ancient non-profit hospitals created by civil society and the public administration. The underlying rationale for such an ownership structure is strictly related to capital investment demand. Since non-profit foundations could not raise enough funds to fulfill new techonology and population health needs, the public sector funded new investments and participated in the boards of directors.
These sounds quite normal, it is a historic evolution and has a clear and common sense argument. However, public sector has not been able to include depreciation and replacement costs in the tariff and this has created greater need for resources.
Unfortunately, those consortia that had management autonomy and public administration in the boards are now being dispossessed from its original owners -the non-profit foundations- and being converted into public organizations.
This is a clear social plundering commited by the spanish Parliament in a recent law. You may have more details in this article (check p.46).
Is this the end? I think so, unless there is a clear mandate to change current regulation. Its impact maybe enormous: disappearing boards of directors, employees converted into "de facto" civil servants and its equivalent remuneration, and the most important: there is no reverse gear.
It is worrying how politicians can accept such a loss of dynamic efficiency before their very eyes. It is unacceptable that social created capital can be plungered this way. Politicians can stop the end of consortia, they should stop it.

PS. Two years ago I was blogging on the same topic. Unfortunately all the alerts were neglected.

PS. Must read, on ebola by I. Hernández.

I've already said that

It is really saddening to explain the same thing again and again. Seventeen years ago I explained the regulatory mess of parallel trade of drugs in Europe. I did it in an article in Información comercial española (unfortunately not available on internet). Two years ago, I insisted on the same disaster in this post.
Now you can see how mafia style practices of well known drug distribution companies were applied, have a look a this news. Surprisingly (!), there is no specific crime in the penal code for such practices.
I said that arbitragists were accumulating impressive amounts of money with international parallel trade and refusing to supply drugs to local pharmacies.It is quite astonishing that it took so long to understand it for justice. Is there anybody doing something to prevent such practices in the future? Where are politicians? On vacation again?.

PS. The government should cancel the license to these drug distribution firms immediately and ban any possibility of a new license in future. This can be done easily without waiting for any european directive.

PS. WSJ: What Catalonia's independence vote means

Fasten seat belts (4)

The times for drug prescription following prioritisation have arrived. Hepatitis C drugs have paved the way for such a move.There were some informal attempts for certain medicines and it was decided by clinical committees (i.e. for rare diseases), but now it has changed. The government has decided who has to get what and when, this is absolutely new. Have a look at this draft of strategic therapy for Hepatitis C treatment.
Any physician asking for hepatitis C drugs will have to explain the compliance with the criteria and ask for approval.
I said some weeks ago that a new paradigm in drug pricing was starting, right now I have to say that drug prescription priorisation by rules is the new trending topic, at least in our neighbourghood. Wether this prioritisation is based by cost-effectiveness criteria remains to be seen.

On NICE and QALYs

It is quite relevant what's going on with value based pricing by NICE. Recent documents are raising greater controversy and a blog post asks if this is the end of the proposal. Today I suggest you have a look at James Raftery contribution to understand the moment (at least in the UK). No politician is interested in such issues.

Le projet de loi

PROJET DE LOI relatif à la santé

Je regarde le communiqué de presse que la ministre française a préparé pour la présentation de la nouvelle loi et je vois qu'ils ont un long chemin à parcourir, que bon nombre des mesures proposées, nous avons déjà réalisées il y a quelques années et d'autres récemment. Je pense aussi que certaines questions ne sont pas par une loi, nous les avons faites ici avec un plan de santé. Il est bon de voir ce qu'ils font au-delà des Pyrénées, et confirme également que les différences sont significatives dans l'organisation de soins de santé et son financement. Cette loi maintient ces differences.

Efficient health labor markets

Economic, Demographic, and Epidemiological Transitions and the Future of Health Labor Markets

Last April a new working group for human resources strategy in the WHO was created with the following subgroups:
1. Economic, Demographic, and Epidemiological Transitions and the Future of Health Labor Markets
2. Transformative Education
3. HRH Data, Measurement of Impact
4. Positioning of and Accountability for HRH in the Post
5. Public Sector Stewardship/Leadership for Health Systems
6. Addressing Special Needs of LMICs and Fragile States
7. Performance/Quality/ Productivity/Regulation
8. Non-health professionals
The first report has been released recently and it is helpful because:

Summarizes the analysis of available data and studies on health sector employment, taking into consideration the macroeconomic, demographic and epidemiological factors, and the greater mobility of health workforce in a globalizing labor market. Specifically, this paper draws on the key findings from the three background studies that have been commissioned to address the following issues.
1. Examine the macroeconomic context and evidence on the extent to which employment in the health sector contributes to overall economic growth and to productive employment and the general trends in the health labor market 
2. Forecast the health workforce supply and demand to 2030, based on a the estimation of HRH needed to provide essential health services to the population (assuming no change in technology or service delivery model), and the size of health workforce that countries can feasibly produce and employ based on their economic capacities and outlook .
3. Review the trends and impact of globalization and mobility of health workers on national policies on health workforce

Although I'm not a supporter of "wishful thinking" forecasting, I understand that some effort should be made in this direction. WHO is making it with a global perspective, and each country should do its homework. Is there anybody nearby working on that?.
Demand and supply should meet and reach a long-term equilibrium. Regulatory conditions and incentives should be reviewed to achieve better efficiency. This is a precondition for an efficient health system.

PS. Three decades ago I read Marta Harnecker book "The Basic Concepts of Historical Materialism". Then, I could understand the difference between nacionalization and socialization of means of production that Lenin proposed a century ago, and why nationalization was not enough to achieve his political goals. Marx and Lenin forgot the relationship between ownership and efficiency, about how incentives really work. History provides relevant lessons about this oblivion and we should avoid going back in time.

Fasten seat belts (3)

In former posts I have argued that pharmaceutical pricing is forging a new trend. The summary is in this figure (US prices):

The latest FDA approved drug is Harvoni, for hepatitis C. This new drug will compete with Sovaldi, the best drug launch ever made by the same manufacturer, 9.000 million $ in sales in 9 months.
The soaring costs of drugs is also affecting the generics market in US. Have a look at this blog.
As far as the economy is not growing at the same pace, new resources are needed and this may come from reductions on current drug benefits (price or quantity) or less expenditures in non-pharmaceutical goods. Otherwise the option is to delay access. Is this an option for cost-effective therapies?

A milestone for health insurance reform

INFORME Estudio y Propuesta de un Nuevo Marco Jurídico para el Sistema Privado de Salud

If you look at health care financing in OECD countries you'll find an outlier: Chile. This is the country with the largest private financing, 47%. The reason behind such a number is the current system of ISAPRE coverage. A clear explanation of the current situation is shown in this presentation by Camilo Cid, the chairman of the commission for a review of the private health system.
The new chilean government created a commission to get recommendations about what to do with ISAPREs, and the result was that this report was released some days ago.
The trend is clear, opt-out from a single pool is not an option for the future. The Netherlands made the same reform in 2009, Germany constrained its possibilities, and now Chile has decided exactly the same. If there is only a single pool for financing health, this exactly means that the role of the market is going to change at the same time. Insurance price-competition vanishes, and the profit motive is under close scrutiny. Let's see what happens. All this recommendations should be included in the legislation. Anyway, the report is a milestone for the next health reform in Chile. An excellent reference for anyone interested in this topic. Good job.

PS. Values and economic crisis, a report. Have a look at this slide p.31, impressive. Is it possible?

Manuel Castro at Galeria Barnadas 

A healthy recession?

WSJ headlines announce a new economic slowdown. Concerns about the current state of worlwide economy and the financial sector are growing again. A special report by The Economist talks about the third great wave:

A third great wave of invention and economic disruption, set off by advances in computing and information and communication technology (ICT) in the late 20th century, promises to deliver a similar mixture of social stress and economic transformation. It is driven by a handful of technologies—including machine intelligence, the ubiquitous web and advanced robotics—capable of delivering many remarkable innovations: unmanned vehicles; pilotless drones; machines that can instantly translate hundreds of languages; mobile technology that eliminates the distance between doctor and patient, teacher and student. Whether the digital revolution will bring mass job creation to make up for its mass job destruction remains to be seen.

Some years ago  I explained how Iceland economic crisis had no negative effect on health. Now we can confirm the impact in our country in a new report and presentation. The quick answer is that unemployment and poverty have a clear impact on health. As far as the crisis implies raising both determinants, then the result is clear: poor and unemployed population are the target to monitor and improve health. You can discuss over the trend of one specific indicator or its significance. That's a minor issue. In general, average longevity and health is improving, although average doesn't mean everybody. The only way to have a good answer is a cohort study with microdata. I think that somebody should start doing it now, it's crucial.
This report is the best exercise one can do to introduce some common sense in any debate about the crisis and its impact on health: go to the facts and data. Therefore, if somebody talks about negative effects of the crisis on health, now you have to be precise, there is a selective impact.
Some months ago, I considered that what we need is a continuous monitoring of health status in any situation. As far as nobody knows if we are still in crisis, or how many years it will take to recover, monitoring is the right word.
My impression is that we had a crisis in 2008 and a new economic model has emerged. The current situation is unstable, uncertain and unpredictable. That's why the WSJ has anounced a new slowdown today. It's not a crisis, it's a new slowdown (again).

The role of Public Service Mutuals

PUBLIC SERVICE MUTUALS:The Next Steps

Let's start with the concept:

Public Service Mutuals are organisations which:
1. have left the public sector (also known as ‘spinning out’), and
2. continue to deliver public services, and
3. in which employee control plays a significant role in their operation.

This is exactly the same as"Entitats de Base Associativa" for Primary Care (p.38 of this journal). Only 3% of all primary care teams follow such model after 18 years (11 out of 369). Only 2 new firms were created in the last decade. It seems that there are some constraints on their development but hardly anybody is working to remove such barriers and others are creating new ones. I have always considered that this model fits perfectly with the engagement of the health professionals in the system instead of being civil servants.
In the UK, the taskforce created to analyse the situation has set up clear recommendations for the future (p.29). Maybe, right now we should replicate something similar that could reverse the trend.

PS. Another report from the King's Fund.

PS. Excellent documentary on ebola outbreak, yesterday at TV3 30 minuts, you can watch it until October 19th.

Regulation and low-value care

Swimming against the Current — What Might Work to Reduce Low-Value Care?

While reading this NEJM article on strategies to reduce low value care, I was wondering why the author has not included any regulatory tool. He explains demand and supply side strategies, as usual, and forgets the crucial role of government. It says:

Public acceptance of a role for policy in reducing the use of low value care in the United States is tenuous but increasing with growing awareness of the burden that health care spending places on federal and state budgets and with patients’ increasing exposure to health care costs.

This is a fact or an opinion of the author?. It is not an argument to avoid a key instrument widely recognised by scholars. An appropriate regulatory role is crucial to provide information and signaling the value of health benefits. No regulation or bad quality regulation contributes to a perfectly designed and costly mess.

Fasten seat belts (2)

Let me ask you a question: Do you agree that your government spends 12% of the pharmaceutical budget in a new drug? I understand that if the answer is yes, you also agree to reduce 12% of current expenditures in patented drugs, reducing quantity, price or the benefit. Otherwise you have to explain clearly where to find 12% of additional resources.
This is what is happening in the UK NHS on new Hepatitis C drug. Have a look at this site for the details. And by now the decision is that it is "prohibitive" and "unaffordable".
Last Sunday CBS 60 minutes broadcasted an interesting report on "eye popping" cost of cancer drugs. I suggest you spend 15 minutes of your time watching it:



Don't miss the details on "financial toxicity" as WSJ highlights. How this can be true?
Nearby, new drug benefits are approved without any known cost-effectiveness-budget impact consideration. This is an example of  alleged "responsive government".

PS. My former post on the same issue.

PS. On bribes, again.

PS. Today this blog has reached the 100.000 visits. That's excellent!!!. I really appreciate your interest in my posts.