States not only have the arduous task of providing health care for the most vulnerable of society — the poor and the disabled — they have to do so while providing money for myriad other needs. Medicaid is often one of the programs squeezed when the economy takes a nosedive, as was evident during the 2000–2002 recession. With that in mind, will states be able to balance their budgets as more and more biotech drugs enter the market? And what happens when the next recession comes?
John Santa, MD, MPH, assistant director for health projects at the Center for Evidence-based Policy at Oregon Health & Science University, thinks states will need to make hard decisions. Santa is part of the Drug Effectiveness Review Project, a collaboration of public and private organizations and 15 states, that reviews evidence comparing the effectiveness and safety of drugs in the same class to help facilitate public policy decision making. “States are in very tough situations. They are better off now than they were two or three years ago, but they are worried about whether health care costs — which are increasing 15 percent annually for them — will cause resources to be shifted away from education, law enforcement, and roads. That kind of cost shifting is very real.”
The federal government pays for a least half of each state’s Medicaid costs and, in some cases, up to 80 percent. Combined Medicare and Medicaid drug spending accounts for 49 percent of all prescription drug spending. As with commercial plans, the majority of biotech drugs covered by Medicaid programs fall under the medical benefit. Also as with the commercial market, there is a movement in Medicaid to migrate specialty drugs to the pharmacy benefit.
LIMITED OPTIONS
States use utilization-control measures typically used in commercial managed care plans, such prior authorization and formularies. However, states’ options for managing biotech drug costs are somewhat limited. Unlike employers, where health care costs can be shifted to workers or coverage can be dropped, Medicaid must provide broad access.
The result? Access to biologic therapies is, in some cases, better for Medicaid enrollees than in the commercial population.
“There are some ways to shift costs. But it would be very limited in comparison to employers because this population does not have the money,” says Neva Kaye, senior program director at the National Academy for State Health Policy. To date, she says, states generally have not put together specific strategies to manage biotech therapies. “Copayment increases are not a way to manage high-priced drugs, because Medicaid cannot charge a $250 copayment. Under federal regulations, copayments have to be minimal, which means roughly $3 to $5.”
Santa thinks states will need to take a more evidence-based approach to managing biologic therapies. “There are a lot of controversies about oncology biotech drugs, where you have an expensive drug that does something unique but the results are only marginally better than conventional treatment. The effectiveness is an important piece and it must be based on evidence.”
It is Santa’s belief that because states have few ways to manage drug costs, they will instead manage access by limiting eligibility. “Ironically, we are much more likely to preserve access to biologics for an increasingly small number of people. Eventually, the only people that are going to be able to afford all health services are the very wealthy and the most vulnerable. Everyone else is going to be uninsured or de facto uninsured. That is where we are headed.”
Reimbursement Influences Oncologists’ Drug Choices
According to findings published recently in Health Affairs, higher reimbursement for some chemotherapy drugs encourages physicians to use more expensive products. The study, conducted by researchers from the University of Michigan and Harvard University, analyzed chemodrug choices made by physicians for more than 9,000 patients with metastatic lung, breast, or colorectal and other gastrointestinal cancers. They found that although higher rates do not measurably affect a physician’s decision to use chemotherapy drugs, the way in which a physician is paid may influence the choice of drug used.
Coauthor Joseph Newhouse, PhD, professor of health policy and management at Harvard, wrote that because there is little evidence to say that one chemotherapy drug works better than another, “Physicians have more control over the agents chosen.” One government study cited showed that some physicians receive discounts as high as 86 percent on some chemo drugs, with the markup translating into profitability. Oncologists have said that markups make up for cuts in payment for other services.
8 Companies To Share Trial Data
In an effort to shorten the time and expense of clinical drug trials, the FDA has brokered an innovative agreement in which eight major drug companies will share toxicology data from clinical trials in the early stages of research. The idea is that by sharing information, researchers can determine which therapies won’t make it through phase 1 testing, freeing developers to focus efforts on therapies that are viable.
In a separate business development involving the federal government, the Supreme Court heard arguments to determine whether naturally occurring phenomena can be patented. The case, involving a common lab diagnosis for a vitamin B12 deficiency, could affect biotech significantly — making patents more difficult to obtain for some biologic therapies.
Profitability of U.S. public biotech companies
SOURCE: BURRILL & CO. ESTIMATES
As a Whole, Biotech Moves Closer to Break-Even Point
The biotechnology industry is closing in on an important milestone: profitability. Ernst & Young’s latest scorecard on the state of the biotech industry reports that publicly traded biotech companies lost $2.1 billion last year, an improvement from $4.9 billion in 2004. The figure is significant because it is the first time industry losses were below 5 percent of its combined revenue (see box above).
While biotech as a whole may be nearing profitability, less than 50 public companies are in the black. That leaves hundreds still working to get out of the red.
Chit Chat…
Novartis’s $5 billion purchase of Chiron received final stockholder approval April 19. $48 a share was the magic number — $3 higher than Novartis’s previous offer, which had met resistance from some Chiron stockholders. Novartis subsequently laid off 111 workers at Chiron’s Emeryville, Calif. headquarters. … In general, big pharma is moving away from acquiring biotechs to bolster pipelines, choosing licensing deals instead. Datamonitor reports that large pharmaceutical companies are becoming more dependent on licensed products and projects — so much so that 26 percent of sales by 2010 will be from licensed products. … On that score, Novartis inked two big licensing deals, one with SGX Pharmaceuticals worth up to $515 million and another with Idenix worth $525 million. GlaxoSmithKline signed a $700 million alliance with Sirna Therapeutics, which will license its RNA interference technology to Glaxo. And Merck landed two biotech-licensing deals, shelling out $25 million up front and up to $450 million more in milestones to license to Neuromed’s painkilling therapies, while negotiating a $350 million deal with NicOx to develop antihypertensives through exclusive access to NicOx’s nitric oxide-donating technology. … Biogen Idec finally sold its psoriasis drug, alefacept (Amevive), to Astellas Pharma for $60 million. Amevive rang up only $49 million in sales last year. … Pfizer is purchasing Rinat Neuroscience, a biotech that has been developing therapies for pain, Alzheimer’s and other neurological diseases.