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Bucks Blog: Consumers Help Slow Growth in Health Spending

June 18, 2013 by Leave a Comment

Growth in health care spending is expected to slow next year, in part because of a shift in consumer behavior, a report from PricewaterhouseCoopers’s Health Research Institute predicts.

The institute, the research arm of PricewaterhouseCoopers’s health care consulting practice, forecasts overall medical inflation of 6.5 percent in 2014 — down from the institute’s estimate of 7.5 percent for this year. The growth rate — which reflects changes in the actual cost to treat patients, and is influenced mostly by the cost of products and services as well as the number of services used — is often a crucial factor used by insurance companies in setting health insurance premiums.

The estimate is based on medical costs in the large employer market, which covers about 150 million Americans who have insurance through their jobs.

The net growth in spending — after employers tweak their packages of health benefits, such as by raising deductibles for workers — is expected to be about 4.5 percent.

The slower growth is notable, said Ceci Connolly, the institute’s managing director, because in the early 1990s, double-digit medical inflation was the norm. But changes in the health care delivery system — some driven by consumers, who are bearing more of the cost of their medical care — as well as some provisions of the new Affordable Care Act, are helping to slow the rate of increase.

As employers have shifted health care costs to workers by increasing their deductibles — the portion of care they must pay for, before their plan starts paying — consumers are becoming more interested in prices. “When consumers move into high deductible plans, they behave differently,” Ms. Connolly said. “They’re starting to become savvy shoppers.”

They are asking, for instance, whether care can be provided at a retail clinic rather than at a hospital, and requesting lower-cost generic drugs.

When the recession began, consumers started to cut back on medical care or to seek lower-cost options, like retail medical clinics, Ms. Connolly said. But even as the economy has improved, consumers have stuck with the clinics, which typically offer convenient hours as well as lower cost, she said.

According to the report, a visit to a retail clinic costs about $76, compared with about $120 for a visit to a traditional physician’s office.

Consumers are likely to continue seeking more affordable ways to get care, since medical costs aren’t falling, they’re just not going up as fast. Patients can also expect to get more direction from their employers about where to seek medical care, as companies contract directly with “high-value” health systems — those that are seen as delivering quality care at lower cost — to treat their covered employees who need complex care, like heart surgery, the report found.

Have you altered the way you seek medical care because of rising costs? What changes have you made?

Article source: http://bucks.blogs.nytimes.com/2013/06/18/consumers-help-slow-growth-in-health-spending/?partner=rss&emc=rss

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Economix Blog: Uwe E. Reinhardt: The Culprit Behind High U.S. Health Care Prices

June 7, 2013 by Leave a Comment

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Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Elizabeth Rosenthal’s eye-opening article about health care costs in The New York Times on Sunday was a reminder of how much more Americans pay for given procedures than citizens in health systems abroad. What was probably more surprising to most readers was the huge price differentials for identical procedures — not only across the United States, but even within American cities, where prices for a given procedure can vary tenfold.

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These price differentials, it should be noted, have never been shown to be related either to the cost of producing health care procedures or to their quality.

The question, not addressed in the article, is who bears the blame for this chaotic, private-sector price system. The only fair answer is: American employers. Who else could it be?

I have been critical of employment-based health insurance in this country for more than two decades. In the early 1990s, for example, at the annual gathering of the Business Council, I bluntly told the top chief executives assembled there, “If you want to find the culprit behind the health care cost explosion in the U.S., go to the bathroom and look in the mirror.” After years of further study, I stand by that remark.

I can imagine that some would look instead to the usual suspects – Medicare, Medicaid and possibly even the Tricare program for the military – but that would be a stretch. The argument would be that the public programs shift costs to the private sector, causing the chaos there. Few economists buy that theory.

Most health-policy analysts I know regret that employers appointed themselves their employees’ agents in the markets for health insurance and health care, developing in the process the ephemeral insurance coverage that is lost to the family when its breadwinner loses his or her job.

Employers were able to capture that agency role during World War II when they successfully walked around the prevailing wage controls simply by having Congress exempt fringe benefits from the wage cap. Employers were able to retain their agency even after the wage controls ended by having Congress exempt employer-paid fringe benefits from the taxable income of employees, a tax preference not granted Americans who purchased health insurance on their own. Retaining their tax-preferred agency role has been of great help to employers in the labor market.

Alas, in their self-appointed role as purchasing agents in health care, American employers have arguably become the sloppiest purchasers of health care anywhere in the world. The chaotic price system for health care is one manifestation of that sloppiness.

For more than half a century, employers have passively paid just about every health care bill that has been put before them, with few questions asked. And all along they have been party to a deal to keep the chaotic price system they helped create opaque from the public and even from their own employees. Only very recently and very timidly have a few of them dared to lift the veil a little.

Employers may protest that they rarely purchase health care for their employees directly. The actual purchases are made by the employers’ agents, private health insurance carriers. But the latter are merely the conduits for the employers’ wishes. When agents perform poorly, one should look first for the root cause at the principals’ instructions.

One reason for the employers’ passivity in paying health care bills may be that they know, or should know, that the fringe benefits they purchase for their employees ultimately come out of the employees’ total pay package. In a sense, employers behave like pickpockets who take from their employees’ wallets and with the money lifted purchase goodies for their employees. Far too many employees have been seduced into believing that their benevolent employer pays for most of their health care.

The result of this untoward pas de deux is the system Ms. Rosenthal describes.

One consequence of this opaque pricing system has been that, according to the 2013 Milliman Medical Index, the average cost of health care of a typical American family of four under age 65, and insured through an employer-sponsored preferred provider plan, is now $22,000, up from about $10,000 a decade earlier. It is a staggering amount, not only by international comparison, but also when compared with the distribution of family income in the United States, with a median income of $50,000 to $60,000.

Another result has been that, according to a recent analysis published in the policy journal Health Affairs, a decade of health care cost growth under employment-based health insurance has wiped out the real income gains for an average family with employment-based health insurance. One must wonder how any employer as agent for employees can take pride in that outcome.

Yet a third consequence of the rampant price discrimination baked into this pricing system is that uninsured Americans with some financial means are often charged the highest prices for health care when they fall ill, exposing them to the prospect of financial bankruptcy.

How long must the opaque and chaotic health care pricing system of employment-based health insurance in the United States persist? I can envisage two alternatives.

The first would be an all-payer system on the German or Swiss model, perhaps on a statewide basis, with some adjustments for smaller regional cost differentials (urban versus rural, for example), as is now the practice in the Medicare price schedules. In those systems, multiple insurance carriers negotiate jointly with counter-associations of the relevant health care providers over common price schedules, which thereafter are binding on every payer and every health care provider in the region (an analysis in Health Affairs offered more details). One can easily link such a system to the growth of gross domestic product.

The second alternative would be a marriage in which the financial risks of ill health are shared up to a point and raw, transparent price competition for the remainder. In such a system, called “reference pricing,” a private insurer, as agent for an employer or for a government program, would cover only the price charged for a medical procedure by a low-cost provider in the insured’s market area, forcing the insured to pay out of pocket the full difference between that low-cost “reference price” and whatever a higher-cost provider in the area charges for the same procedure.

Such a system, of course, presupposes full transparency of the prices charged by alternative providers in the relevant market area.

Because an all-payer system is highly regulatory, I predict the private health care market in the United States will sooner or later lapse into full-fledged reference pricing. It would entail ever more pronounced rationing of quality, real or imagined, by income class.

But such tiering has long been the American way in other important human services – notably justice and education. Why would health care remain the exception?

Article source: http://economix.blogs.nytimes.com/2013/06/07/the-culprit-behind-high-u-s-health-care-prices/?partner=rss&emc=rss

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Economix Blog: Older Workers Could Benefit if Companies Drop Insurance

February 15, 2013 by Leave a Comment

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

As I’ve written before, older workers, once unemployed, have an extraordinarily difficult time finding re-employment. But they may get one unexpected employment booster next year: the health insurance exchanges put in place by the Affordable Care Act.

That theory was just proposed to me by John Challenger, the chief executive of Challenger, Gray Christmas, a global outplacement and executive coaching company. Here’s how it would work.

Once individuals are able to buy insurance on exchanges, employers may be tempted to “get out of the health care business,” as Mr. Challenger put it. In other words, they will dump their workers onto the individual market. For most workers, this is probably a less-than-desirable outcome. But for older workers, it might be a blessing.

One potential reason that older workers have so much trouble finding work, after all, is that employers do not want to be responsible for their health care. Health care spending rises steadily by age; in fact, the health care costs of an older person are around five times those of a young adult. If employers are no longer on the hook for those health care costs, that is one less negative to be held against older job candidates.

Of course, those older workers would still have to find their own insurance, but the Affordable Care Act forces younger people to subsidize older people on the exchanges. Under the law, a health insurance plan’s oldest subscriber can be charged no more than three times as much as a plan’s youngest subscriber (even though, as mentioned, the oldest subscriber’s costs are probably closer to five times as much).

It’s worth noting that the exchanges might increase demand for older workers, but could also reduce their supply.

If older people no longer need to be on someone’s staff in order to afford health insurance, they could decide to drop out of the job market altogether, or at least decide to go into business for themselves. We have already seen this phenomenon among Medicare-eligible workers. A recent Rand study documented a spike in entrepreneurship at age 65, when people newly qualify for Medicare and so have less to risk if they leave their employers and start their own businesses.

Article source: http://economix.blogs.nytimes.com/2013/02/15/older-workers-could-benefit-if-companies-drop-insurance/?partner=rss&emc=rss

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Economix Blog: Uwe E. Reinhardt: Health Care as an Economic Stabilizer

February 15, 2013 by Leave a Comment

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Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

It has become customary to see our health care sector as a burden on society. In some ways it is. We have developed a complicated system of financing the sector – one guaranteed to put stress on the budgets of many households and governments at all levels.

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Furthermore, we have structured the system so that prices for virtually any kind of health care in the United States are at least twice as high as prices for the same things in other countries. It is the main reason that health spending per capita in the United States is about double what most other nations spend. (Earlier this week, the Congressional Budget Office reported a sharp slowdown in the growth of health care costs, leaving budget experts trying to figure out whether the trend will last and how much the slower growth could help alleviate the country’s long-term fiscal problems.)

From a macroeconomic perspective, the health care sector has functioned for some time as the main economic locomotive pulling the economy along. In the last two decades, it has created more jobs on a net basis than any other sector.

Oddly, not much is made of the job-creating ability of the health care sector in political debate over health policy, in contrast to discussions of military spending, where employment always ranks high among the arguments against cuts. In October 2011, for example, Representative Buck McKeon of California, the chairman of the House Armed Services Committee, made that point, among others, in a commentary in The Wall Street Journal, “Why Defense Cuts Don’t Make Sense”:

And on the economic front, if the super committee fails to reach an agreement, its automatic cuts would kill upwards of 800,000 active-duty, civilian and industrial American jobs. This would inflate our unemployment rate by a full percentage point, close shipyards and assembly lines, and damage the industrial base that our war fighters need to stay fully supplied and equipped.


Not surprisingly, in its “Defense Spending Cuts: The Impact on Economic Activity and Jobs,” the National Association of Manufacturers makes the same point.

For what it is worth, economists do not view “job creation” as an industry’s valuable output. Instead, when Industry A creates jobs and with them additional output, economists ask where the workers filling these jobs would have worked instead and whether the value of their output there would be smaller or larger than the output they produce in Industry A.

But health care has one additional feature I stumbled upon while writing a recent paper: from a macroeconomic perspective, it serves as an automatic stabilizer that offsets fluctuations in the growth of growth domestic product. Corporate and personal taxes and transfer payments such as unemployment benefits or additional enrollment in Medicaid are classic forms. They actually change countercyclically with changes in G.D.P., but health spending levels remain fairly stable as G.D.P. fluctuates.

The chart below presents the year-to-year changes in total national health spending, in total private fixed investments and in the rest of the G.D.P. from 2000 to 2010. The second chart depicts the fraction of year-to-year changes in G.D.P. accounted for by year-to-year changes in national health spending, a component of G.D.P. In that chart, no column is shown for 2009, because from 2008 to 2009 private investment plummeted by $421 billion and total G.D.P. fell by $353 billion, while health spending rose by $107 billion.

The health spending data in these charts comes from Table 1 of the Centers for Medicare and Medicaid Services publication “National Health Expenditures,” which provides national health spending data for the years plotted in the graph. The data on G.D.P. and fixed private investments come from the President’s Economic Report 2012, Tables B-1 and B-18.

It can be seen that total private investment fluctuates considerably over booms and busts. By contrast, health care spending remains fairly stable over time. It does tend to growth less rapidly in times of deep recessions, but it has not declined in the United States.

The next chart depicts the fraction of year-to-year changes in G.D.P. that is accounted for by year-to-year changes in national health spending, a component of G.D.P. In that chart, no column is shown for 2009, because from 2008 to 2009 private investment plummeted by $421 billion and total G.D.P. fell by $353 billion while health spending rose by $107 billion.

One must wonder what would have happened in the presidential elections of 2004 and 2012 if health care had not buoyed G.D.P. in the recession of 2000-1 and the recession that began in 2008.

One does not have to be a blind devotee of the Yale economist Ray Fair’s economic model of presidential elections, which relies on only a few variables to predict vote shares, to believe that one or both elections might have had different outcomes, even though both Presidents Bush and Obama inherited the recessions over which they presided.

Article source: http://economix.blogs.nytimes.com/2013/02/15/health-care-as-an-economic-stabilizer/?partner=rss&emc=rss

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Economic View: Too Much Wishful Thinking on Middle-Class Tax Rates

December 29, 2012 by Leave a Comment

Let’s start with the problem: the budget deficit. Under current policy, the federal government is spending vastly more than it is collecting in tax revenue. And that will be true for the next several decades, thanks largely to the growth in entitlement spending that will occur automatically as the population ages and health care costs increase. As a result, the ratio of government debt to the nation’s gross domestic product is projected to rise, substantially and without an end in sight.

That can happen for a while, or even a long while, but not forever. At some point, investors at home and abroad will start questioning our ability to service our debts without creating steep inflation. It’s hard to say precisely when this shift in investor sentiment will occur, and even whether it will strike in this president’s term or the next, but when it does, it won’t be pretty. The United States will find itself at the brink of an unprecedented financial crisis.

Republicans and Democrats agree on the nature of the problem, but they embrace very different solutions. My fear is that both sides are engaged in an excess of wishful thinking, with a dash of mendacity.

If Republicans had their way, they would focus the entire solution on the spending side. They say that reform of the entitlement programs can reduce their cost. The so-called premium-support plan for Medicare, from Paul D. Ryan, the 2012 Republican vice-presidential candidate, would let older Americans use their health care dollars to buy insurance from competing private plans. (Interestingly, it’s similar to the system envisioned for the nonelderly by President Obama’s Affordable Care Act.) The hope is that competition and choice would keep health care costs down without sacrificing quality.

The premium-support model may well be better than the current Medicare system, but its supporters oversell what it would be likely to accomplish. The primary driver of increasing health care costs over time is new technology, which extends and improves the quality of life, but often at high cost. Unless the pace or nature of medical innovation changes, this trend is likely to continue, regardless of structural reforms we enact for Medicare.

Democrats, meanwhile, want to preserve the social safety net pretty much as is. They balk at any attempt to reduce this spending, including even modest changes like altering the price index used to calculate Social Security benefits. They focus their attention on raising taxes on the most financially successful Americans, contending that the rich are not paying their “fair share.”

Fairness, like beauty, is in the eye of the beholder. Unfortunately, people’s judgment is often based on anecdotes that distort rather than illuminate. The story of the undertaxed Warren Buffett and his overtaxed secretary looms larger in the public’s mind than it should.

Here are some facts, so you can judge for yourself:

In 2009, the most recent year for which data are available, the richest 1 percent of Americans paid 28.9 percent of their income in federal taxes, according to the Congressional Budget Office. (That includes income taxes, both individual and corporate, and payroll taxes.) Members of the middle class, defined as the middle fifth of households, paid 11.1 percent of their income in taxes.

Some of this difference in tax rates is attributable to temporary tax changes passed in response to the recent recession. But not all. In 2006, before the financial crisis, the top 1 percent paid 30 percent of their income in taxes, compared with 13.9 percent for the middle class.

These data suggest that the rich are not, as a general matter, shirking their responsibilities to support the federal government. To me, the current tax system looks plenty progressive. Others may disagree.

One point, however, cannot be disputed: Even if President Obama wins all the tax increases on the rich that he is asking for, the long-term fiscal picture will still look grim. Perhaps we can stabilize the situation for a few years just by taxing the rich, but as greater numbers of baby boomers retire and start collecting Social Security and Medicare, more will need to be done.

Which brings us back to the middle class. When President Obama talks about taxing the rich, he means the top 2 percent of Americans. John A. Boehner, the House speaker, talks about an even thinner slice. But the current and future fiscal imbalances are too large to exempt 98 percent or more of the public from being part of the solution.

Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans. This could involve higher tax rates or an elimination of popular deductions. Or it could mean an entirely new tax, such as a value-added tax or a carbon tax.

To be sure, the path ahead is not easy. No politician who wants to be re-elected is eager to entertain the possibility of higher taxes on the middle class. But fiscal negotiations might become a bit easier if everyone started by agreeing that the policies we choose must be constrained by the laws of arithmetic.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to Mitt Romney in the 2012 presidential campaign.

Article source: http://www.nytimes.com/2012/12/30/business/on-middle-class-tax-rates-too-much-wishful-thinking.html?partner=rss&emc=rss

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Bucks Blog: Underestimating Health Care Costs in Retirement

October 6, 2012 by Leave a Comment

Paul Sullivan writes this week in his Wealth Matters column about an often-overlooked expense in retirement: the cost of health care. One study Paul mentions, by Nationwide Financial, found that people near retirement routinely overestimated the percent of health care costs covered by Medicare.

Financial experts told Paul that people nearing retirement should take a hard look at their retirement savings and consider whether those savings would be enough to pay for health services.

For those of you already retired, what has been your experience with health care costs? Have you found that Medicare and other insurance cover less of the expense than you expected? How have you dealt with that? And do you have advice for other Bucks readers?

Article source: http://bucks.blogs.nytimes.com/2012/10/05/underestimating-health-care-costs-in-retirement/?partner=rss&emc=rss

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New Models of Hip and Knee Implants Not Better, Study Finds

December 23, 2011 by Leave a Comment

The study, which draws on data from Australia’s orthopedic registry, covered implants introduced from 2003 to 2007 and was published this week. The findings are significant for patients in the United States because many of the new designs, like so-called metal-on-metal hips, are widely used here. Those implants, which have both a ball and cup made of metal, are expected to fail prematurely in tens of thousands of patients rather than lasting 15 years or more as artificial joints are supposed to do.

The Australian study showed that not a single new artificial hip or knee introduced over a recent five-year period was any more durable than older ones. In fact, 30 percent of them fared worse.

The Australian study concluded that both patients and taxpayer-financed health care programs were paying a high cost because surgeons were using newly designed implants, introduced with little test data, over existing designs that had track records.

“Not only has the introduction of this technology been potentially detrimental to patient care, but the current approach may be an important driver of increased health care costs,” the review concluded.

Dr. Stephen E. Graves, the director of the Australian registry and a co-author of the study, said he believed that surgeons, hospitals and regulators should closely look at the review’s results. In the case of the all-metal hips, some experts say they believe that replacing them may cost companies, insurers and taxpayers billions of dollars.

“There needs to be a careful re-evaluation of current deficiencies in regulation,” Dr. Graves said in a recent e-mail.

The Australian review is part of a special issue of a medical journal, The Journal of Bone and Joint Surgery, devoted to studies that examine the benefits and the limitations of orthopedic registries. While America does not have a registry, the Food and Drug Administration is financing efforts to see whether data from sources like overseas databases and registries run by hospitals here can be used to better monitor device performance.

Many experts argue that such efforts are essential because 700,000 Americans undergo hip or knee replacement every year, and that number is expected to increase sharply as the population ages.

In a registry, information about a patient is entered into a database when he or she receives an implant. Then, when that patient undergoes surgery again to replace that device, more data is added. By looking at large numbers of patients followed in a registry, researchers can tell whether certain device models are failing prematurely at significantly higher rates.

But researchers in England, which has a registry, pointed out in another article in the same medical journal that a product-related disaster had likely already occurred before it was detected in a such a database. As a result, some experts say they believe that there must be greater scrutiny of implants either before or after they go on the market to detect problems earlier.

Another review in the same issue found that the results of published studies that accompany the introduction of new implants could bear little resemblance to registry findings about a device’s success once it went into broader use.

That problem occurs, the review by Australian researchers found, because surgeons involved in the original published reports are often involved in its development and may have a financial stake in them. In addition, such reviews tend to be short term.

Some surgeons say they believe that one type of all-metal implant known as a resurfacing device is permitting some patients to remain more active. However, data indicates that such benefits are limited to one group of patients, namely larger, middle-aged men.

This month, bipartisan legislation was introduced in the Senate that could force manufacturers to track the performance of implants like artificial hips after they have been approved for sale. Proponents of the bill acknowledge that the measure faces an uphill fight.

Both device producers and their allies in Congress have maintained that any additional F.D.A. regulations would slow the development and marketing of innovative products that benefit patients. For his part, Dr. Graves, the Australian official, said he believed that such arguments were misleading.

“The purpose of regulation is not to impede innovation but to ensure safety and effectiveness of medical devices,” he stated. “This protects patients, but it also protects companies.”

Article source: http://feeds.nytimes.com/click.phdo?i=2ec292aa0b22873b3c2cd93f3be388af

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Economix Blog: New Leader for Urban Institute

December 20, 2011 by Leave a Comment

Sarah Rosen WartellCenter for American ProgressSarah Rosen Wartell

Sarah Rosen Wartell, a housing expert and economic policy analyst, will become the president of the Urban Institute in February, the Washington-based research organization said Tuesday.

Ms. Wartell is the co-founder of the Center for American Progress, the progressive policy research organization and advocacy group, and currently heads its housing finance program. She will succeed Robert D. Reischauer, the former head of the Congressional Budget Office, at the helm of the 43-year-old nonpartisan institute.

In an interview, Ms. Wartell said that she hoped to bolster the institute’s profile and make its research more relevant to policy debates. “Urban has this really remarkable collection of scholars and analytical tools and models,” she said. “My goal is to protect what Urban is – a place of tremendous and renowned scholarship and research – while trying to make its studies more accessible and visible, so that policy makers of all political stripes can use them.”

She cited the influential Tax Policy Center, a project of the Urban Institute and the Brookings Institution, as an example. “It has done a very good job of doing relatively quick turnaround analysis of tax policy,” she said. “They’re a go-to site, and people, whether proponents or opponents of a proposal, rely on it.”

Before helping to found the Center for American Progress in 2003, Ms. Wartell served in the Clinton administration as deputy assistant to the president for economic policy and as deputy director of the National Economic Council. She also worked in the Department of Housing and Urban Development.

Ms. Wartell said she hoped to continue working on housing finance issues while managing the Urban Institute, which has 10 centers on policy topics including health care costs, poverty, criminal justice, immigration and unemployment. “How we rebuild housing finance in the wake of the conservatorship of Fannie Mae and Freddie Mac,” she said. “That’s obviously not going away as a problem.”

Article source: http://feeds.nytimes.com/click.phdo?i=311daee3eee1cad55476929f624cd80b

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Amgen and Watson to Work Together on Generic Drugs

December 20, 2011 by Leave a Comment

LOS ANGELES — Amgen, the biotechnology company, is planning to develop generic versions of some best-selling drugs.

Amgen said on Monday that it would team up with Watson Pharmaceuticals, a leading generic drug manufacturer, to develop and sell lower-price copycat versions of several biologic cancer drugs.

The companies did not specify which drugs they would develop. But the most likely candidates are the blockbuster products sold by Roche and its Genentech subsidiary — Herceptin for breast cancer, Rituxan for lymphomas and Avastin for various cancers.

Amgen and some other biotechnology companies have long tried to impede the development of generic competition to their drugs, which can cost tens of thousands of dollars a year a patient. They have argued that biologic drugs, which are made in living cells, cannot be precisely copied, unlike drugs made in chemical factories.

But now that pressure to lower health care costs has made such generic competition unavoidable, some of the biotech companies are starting to view it as a natural extension of their business — as long as the cheaper versions they produce are of other companies’ drugs, not their own.

Two weeks ago, Biogen Idec, another leading biotech company, announced a joint venture with Samsung to develop such drugs, which are usually called biosimilars. That partnership will not make copies of any of Biogen’s drugs, and Amgen’s deal with Watson will not copy any Amgen drugs.

While Amgen executives indicated earlier this year that a biosimilar business might make some sense for the company, Monday’s announcement was its formal entry.

“We have purposely been keeping it under wraps as long as we could,” Scott Foraker, who was quietly appointed to head biosimilars at Amgen about a year ago, said in an interview.

Mr. Foraker said Amgen was not being inconsistent, in that it had always said biosimilars have a role, as long as the patent protection on the innovative drug was respected.

Amgen and Watson will split the costs of development roughly in half, with Watson providing up to $400 million in cash or in-kind services. Watson would receive royalties and milestone payments on sales of the drugs.

Mr. Foraker said the deal would allow Amgen to develop biosimilars “in a way that was smart, that didn’t distract the organization from our main innovative business.”

Paul M. Bisaro, chief executive of Watson, said the company had looked at more than 150 potential partners. “We structured the deal with the pre-eminent biologic development company in the world,” he said.

The 2010 law overhauling the health care system orders the Food and Drug Administration to develop rules for the approval of biosimilars. Those rules have not yet emerged, so there is still uncertainty about how extensive clinical trials will have to be.

Amgen and Watson said Amgen would do most of the development, manufacturing and commercialization initially. That is because it is anticipated that biosimilars will need to be marketed, unlike generic drugs.

But over time, the biosimilar market could become more like the market for conventional generic drugs, with competition mainly on price. That would allow Watson to play a greater role.

“Over time, the commercial relationship modifies,” Mr. Bisaro, said. “We both have strengths that make sense for each other no matter how the markets develop.”

Fred Wilkinson, executive vice president of Watson, said his firm would serve as the “conscience” of the partnership, making sure it truly adhered to the idea of making low-cost drugs.

Mr. Bisaro said the drugs might reach the market in the United States around 2018 or 2019, when patents expire. In certain other countries, the drugs could get to the market sooner.

The deal is not exclusive. Watson this year bought a company, Eden Biodesign, that is developing a biosimilar version of a fertility hormone. And Mr. Foraker said Amgen has plans for other biosimilar drugs.

Article source: http://feeds.nytimes.com/click.phdo?i=e76c12a4251e05c1a4c338671ea2e524

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Health Care Is Inexorably Changing, Despite Legal Uncertainty

November 15, 2011 by Leave a Comment

For the nation’s health care system, there may be no going back.

No matter what the Supreme Court decides about the constitutionality of the federal law adopted last year, health care in America has changed in ways that will not be easily undone. Provisions already put in place, like tougher oversight of health insurers, the expansion of coverage to one million young adults and more protections for workers with pre-existing conditions are already well cemented and popular.

And a combination of the law and economic pressures has forced major institutions to wrestle with the relentless rise in health care costs.

From Colorado to Maryland, hospitals are scrambling to buy hospitals. Doctors are leaving small private practices. Large insurance companies are becoming more dominant as smaller ones disappear because they cannot stay competitive. States are simplifying decades of Medicaid rules and planning new ways for poor and rich alike to buy policies more easily.

But how to pay for these changes, and what will happen to the 30 million uninsured Americans the law intends to cover, will be up in the air if the mandate at the heart of the law — the requirement that individuals buy health insurance or face a penalty — is struck down.

The election results of 2010 and stiff state opposition to the mandate also complicate the picture. Hospital administrators, insurers and doctors are counting on federal subsidies and coverage expansion that would result in a surge of patients with insurance to offset cuts in government programs that many fear could soon become draconian. Large health systems could then use their newfound clout to demand higher prices from private insurers even as federal and state governments pay less.

Other changes influenced by the legislation may leave some patients and doctors lost in the new land of giants. As medicine moves from a cottage industry to one dominated by large organizations, some patients with insurance will probably find their choices more limited. But their care may be better coordinated, as hospitals, doctors and even insurers join to streamline services.

“The system is transforming itself,” said Charles N. Kahn III, president of the Federation of American Hospitals. “But the success of these changes depends a lot on whether there is sufficient funding.”

Hospital systems are anticipating a major influx of federal funds and patients as a result of the law. In Maryland, for instance, the Johns Hopkins Hospital and Health System recently bought two suburban hospitals and is spending several hundred million dollars on computer systems to link its clinics and hospitals across the state. It has hired hundreds of primary care doctors and nurses, forged partnerships with urgent care clinics and expanded home health service to serve an expected flood of new patients.

“If the law is struck down, health care reform will have to continue one way or another,” said Patricia Brown, president of Johns Hopkins HealthCare.

Across town, Baltimore Medical System, a community health center, expects to expand its medical staff by 50 percent over the next three years to accommodate an anticipated increase in patients to 70,000 from 47,000.

“We are looking for new clinicians on a constant basis,” said Jay Wolvovsky, the system’s chief executive, who said that hiring would stop if the law were overturned and federal funding were in doubt. “We wouldn’t be able to expand and we’d be stuck where we are.”

In states like Texas, the law is deeply unpopular, and the medical association has a “Calendar of Doom” listing the timeline for important provisions of the law and other government rules. Still, changes in delivering medical care are taking hold, including a move away from small doctor practices that were predominant for more than a century.

Texas medicine will never be the same no matter what happens with the law, said Louis J. Goodman, the association’s chief executive, and older doctors blame a cascade of new rules and changes well beyond the new health law. “There’s a feeling among doctors here that government is crushing them,” Mr. Goodman said.

And even though critics say the law does little to reduce the costs of care, its passage touched off myriad efforts to pare widespread waste.

“The interest from the doctor and hospital community has accelerated,” Tom Richards, a senior executive at Cigna, said of efforts to exact savings and improve care.

Article source: http://feeds.nytimes.com/click.phdo?i=40a8075a5adfa1bc2dc61dd259c0f9ba

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