Month-end Miscellany

• The Kaiser Family Foundation released a survey of participants in consumer driven health plans. Consumer driven plans have high deductibles and usually are associated with health savings accounts or health reimbursement arrangements. According to a Washington Post article, the surveyed participants are more health care cost conscious than traditional plan participants. However, many of them wish to switch back to a traditional plan. Definity Health, a unit of United Healthcare, that administers consumer driven plans offered a rebuttal.
  
  
• The New York Times offered its perspective on the first two months of Walmart's $4 generic drug program. The article notes that
  

  Wal-Mart, declining to cite overall sales figures for the program, said that in the first seven weeks it had filled 2.1 million more prescriptions of all types — generic and name-brand — compared with prescriptions in the same stores a year ago.

  Those numbers would indicate that in the early going at least, Wal-Mart’s $4 prescriptions are not having a huge impact on overall sales of generic drugs in this country. Nationwide, many of the most popular generic drugs are each prescribed more than a million times in a single week, according to Wolters Kluwer Health, a drug data company.

  In the Tampa area, some independent druggists and a big drug wholesaler say that they have not noticed much effect on their businesses since the September rollout.

• Laura Landro of the Wall Street Journal wrote a fascinating article on steps that the medical profession is taking to prevent the "tragedy of misdiagnosis."
  

  With growing concern about costly malpractice claims from missed, delayed or wrong diagnoses, two of nation's largest health-care providers, the Veterans Administration and managed-care giant Kaiser Permanente, are leading new efforts to improve diagnostic accuracy. They are embarking on system-wide initiatives aimed at the most common lapses in the diagnostic process, including failure to order the right tests, create proper follow-up plans, obtain complete medical histories or perform adequate physical exams.

  To address such glitches, Kaiser and the VA are turning to a variety of new tools, including Web-based "decision support" programs [such as Isabel] to help doctors by offering an array of possible diagnoses they might not have considered or prompting them to perform appropriate tests on patients with certain symptoms.

The New Congress and Prescription Drugs - Part 3

The Associated Press recently ran an interesting story on the prospects for laws expanding the ability of U.S. consumers to import drugs from Canada and other countries in the new Congress. The article notes that

Senator David Vitter [R Louisiana] continues to block confirmation of Dr. Andrew von Eschenbach, President Bush's nominee to lead the Food and Drug Administration [FDA], until federal drug import laws are further relaxed.

As for the FDA, the agency says it can't vouch for the safety or efficacy of imported drugs. This summer, the FDA said testing revealed fake versions of Lipitor and other widely used prescription drugs ordered through Web sites linked to a Canadian pharmacy but shipped from other countries.

Interesting Contratemps

TRICARE is a Defense Department health care program for military dependents and retirees. In 2004, TRICARE remodelled its pharmacy benefits program by subcontracting with Express Scripts for a retail pharmacy network and a mail order pharmacy. The Veteran Affairs National Acquisition Center, which administers the the Federal [Government] Supply Schedule for pharmaceuticals, sent a letter to brand name drug manufacturers ordering them to rebate to the Defense Department the difference between the retail price paid at the retail pharmacy and the "federal ceiling price" because the Express Script's pharmacy network represented a depot contracting system.

The U.S. Court of Appeals explains in The Coalition for Government Procurement v. Secretary of Veterans' Affairs, __ F.3d ___ (Sept. 11, 2006) that

The Veterans Health Care Act (VHCA) was enacted in 1992 to reduce the cost of prescription drugs used in the VA health care benefits programs. As seen, the VHCA is codified at scattered sections of Title 38. The VHCA includes 38 U.S.C. § 8126, which provides in relevant part:

(a) Each manufacturer of covered drugs shall enter into a master agreement with the Secretary [of the VA] under which— (1) beginning January 1, 1993, the manufacturer shall make available for procurement on the Federal Supply Schedule of the General Services Administration each covered drug of the manufacturer;
(2) with respect to each covered drug of the manufacturer procured by a Federal agency described in subsection (b) on or after January 1, 1993, that is purchased under depot contracting systems or listed on the Federal Supply Schedule, the manufacturer has entered into and has in effect a pharmaceutical pricing agreement with the Secretary . . . under which the price charged during the one-year period beginning on the date on which the agreement takes effect may not exceed 76 percent of the non-Federal average manufacturer price (less the amount of any additional discount required under subsection (c)) during the one-year period ending one month before such date (or, in the case of a covered drug for which sufficient data for determining the non-Federal average manufacturer price during such period are not available, during such period as the Secretary considers appropriate), except that such price may nominally exceed such amount if found by the Secretary to be in the best interests of the Department or such Federal agencies[.]
Thus, section 8126(a) limits the price that manufacturers of “covered drugs” may charge for drugs “procured by a Federal agency.” Section 8126(b)(2) lists DOD as a “Federal agency” to which section 8126(a) applies. Accordingly, section 8126(a) requires that manufacturers charge DOD a percentage of the non-federal average manufacturer price (“non-FAMP”) for “covered drugs.” [Fn. The non-FAMP is defined as “the weighted average price of a single form and dosage unit of the drug that is paid by wholesalers in the United States to the manufacturer, taking into account any cash discounts or similar price reductions during that period.” 38 U.S.C. § 8126(h)(5) (2000).]

This price limit is also called the federal ceiling price (“FCP”).

As seen, section 8126 limits “covered drugs” to those obtained through one of two sources: the drugs must be (1) “listed on the Federal Supply Schedule” or (2) “purchased under depot contracting systems.” The Federal Supply Schedule (“FSS”) of the General Services Administration authorizes the VA to award and manage contracts with pharmaceutical companies in order to obtain low prices. See 41 U.S.C. § 259(b)(3) (2000).

This is how the Government "negotiates" pharmaceutical prices.

Needless to say, the drug manufacturers hit the roof when they received the VA order, and they challenged its legality. The VA agreed to suspend enforcement of the order until a court ruling. In its September 11 opinion, the Federal Circuit ruled that the VA had failed to follow proper Administrative Procedure Act rules when it issued the order without first engaging in notice and comment rule making. The Court did not consider the legality of the substance of the order. The ball is back in the VA's court.

Personal Health Records Update

The Federal Times reports this week on FEHB plan carrier efforts to provide their members with computerized personal health records.

Developer of Lexis Nexis Passes Away

The Washington Post yesterday included the obituary of H. Donald Wilson, 82, who was the president of Mead Data Central when the online legal research service Lexis was introduced. The obituary notes that

At first, many lawyers refused to use the software, regarding computer work as a secretarial job. In order to spur adoption of the product, Mr. Wilson gave law students almost free access to electronic files of court decisions, so that when they graduated, the young associates at law firms immediately asked their employers: "Where's your Lexis?" Zurkowski said. Mr. Wilson also realized that tax lawyers and those in other specialized fields were more likely to do their own research, and he focused the company's early efforts in those areas, said his longtime associate, Gary A. Marple, president and chief executive of Lessac Technologies Inc.

I was attending law school when Lexis was introduced at the George Washington University where I studied. I don't remember badgering my first employer for Lexis but the online legal research services are a valuable tool along with the old fashioned books and now the free internet services.

The New Congress and Prescription Drugs -- Part 2

The Washington Post weighs in this morning with a front page article headlined "Success of Drug Plan Challenges Democrats." The article suggests that the success of the Medicare Part D program in controlling drug costs through insurer negotiations and its popularity with seniors creates an impediment to incoming House Speaker Nancy Pelosi's plan to change the Medicare Part D law to permit the Government to directly negotiate prices with drug manufacturers for Part D covered drugs.

In my opinion, Government negotiations is a misnomer in the health care context. The Government does not negotiate prices; it sets prices by law. That is what happens with Medicare Part A (Prospective Payment System/DRGs), Medicare Part B (RBRVS), and Veterans Administration and Defense Department drug programs (Federal Supply Schedule) . Lower prices for the Government may benefit taxpayers, but they also shift costs onto private sector health plans and the same taxpayers who participate in those plans or sponsor those plans as employers.

The Post article mentions a couple of other alternatives to Representative Pelosi's plan:

Rep. Fortney "Pete" Stark (D-Calif.), who is in line to become chairman of a key health subcommittee, said he prefers a middle path, with Medicare setting ceilings from which private insurers could negotiate downward.

But Sen. Max Baucus (D-Mont.), the incoming Senate Finance chairman, is cool to the idea of government negotiation, and has committed only to holding hearings to "determine what the result would be of eliminating" the no-negotiation clause.

The New Congress and Prescription Drugs

The New York Times reports today that prescription drug manufacturers are circling the wagons in response to this month's Congressional elections. The Wall Street Journal offers a freely accessible story on the obstacles that incoming House Speaker Nancy Pelosi faces to achieve her announced goal of restructuring Part D so that the goverment rather than the Part D plans negotiate drug prices. The article explains that the principal obstacles are the closely divided Senate and the President's veto pen. For that reason the Democrats are evaluating several alternative:

Alternatively, Democrats could create a government-run plan that negotiates
with drug makers, and competes with private insurers' drug plans, an approach
favored by Sen. Richard Durbin of Illinois and Rep. Pete Stark, a California
Democrat who will head the Ways and Means health subcommittee.

Another approach Democrats could try would be requiring drug makers to give Medicare beneficiaries their lowest price, as companies must for Medicaid, the
state-federal health-insurance program for the poor and disabled. Or, Democrats
could push Medicare to copy the Department of Veterans Affairs, which maintains
a formulary, or list of approved drugs that are part of its veterans health
program; lower prices, among other factors, can help drug makers get on the VA's
list.

Justice Department Reports on FY 2006 Fraud Recoveries

The U.S. Justice Department announced yesterday that it recovered a record $3.1 billion through settlements and judgments in cases alleging fraud against the federal government during the government fiscal year that ended September 30, 2006.

By industry, 72 percent of the recoveries were in health care, 20 percent in defense, and 8 percent other. Health care fraud accounted for $2.2 billion in settlements and judgments, including a $920 million settlement with Tenet Healthcare Corporation, the nation’s second largest hospital chain. Although Medicare and Medicaid, both administered by the Department of Health and Human Services, bear the brunt of health care fraud, other programs that are affected include the Federal Employees Health Benefits Program run by the Office of Personnel Management, the TRICARE military health insurance program run by the Department of Defense, and health care programs run by the Department of Veterans Affairs, the Department of Labor and the Railroad Retirement Board. Defense procurement fraud accounted for $609 million in settlement and judgment awards, including a $565 million settlement with The Boeing Company, the nation’s second largest defense contractor.

D.C. Circuit Grants Rehearing en banc in the Abigail Alliance Case

On May 30, I blogged about the D.C. Circuit's opinion in Abigail Alliance, et al v. Von Eschenbach, et al, in which the Court held unconstitutional the Food and Drug Administration's practice of restricting the marketing of new drugs until all three stages of testing had been completed. The Wall Street Journal is reporting that the Court has vacated the three judge panel opinion in order to rehear the case before the full court (en banc). This is an unusual action and at least a temporary victory for the Food and Drug Administration.

Generic drug pricing news

When Walmart announced last September its $4 price for roughly 300 generic drugs at Tampa St. Petersburg Florida pharmacy, Target offered to match Walmart's price. (B.J's Warehouse Stores adopted the same policy.) Since then Walmart has expanded its $4 pricing program to 75% of its 3900 U.S. pharmacies.

Today, Target announced that it has expanded its $4 pricing program to all 1,287 of its U.S. pharmacies. Business Insurance noted that "It was not immediately clear which generic drugs were on Target's list. Previously, the discount retailer had matched the list of drugs being sold for $4 at Wal-Mart. * * * Wal-Mart has also added more drugs to its list, such as pravastatin, a generic form of Bristol-Myers Squibb's cholesterol drug Pravachol."

I wondered why I was paying CVS $11 for a 20 day supply of the over the counter antihistamine Loratadine (brand name Claritin). I hopped on the internet and an Amazon supplier selling 150 tablets (same 10 mg dosage) for $9.95 plus $5.95 shipping. Maybe there is something to this pricing transparency concept.

NPI Train wreck in the offing?

May 23, 2007, is the general health plan compliance date for implementing the new HIPAA mandated, ten digit national provider identifier (NPI). Medicare plans to only accept the NPI on claims submitted on or after that date. Government Health IT magazine recently featured an article predicting that various logistical problems may lead to a messy implementation. "As of October [2006], CMS had issued slightly fewer than 1.3 million NPIs, or about 50 percent of the total 2.3 million CMS expects to issue." It also is surprising that HHS has not yet issued the official dissemination policy for the NPI.

HHS Secretary Leavitt encourages employers to voluntarily adopt health care transparency

On August 22, the President signed an Executive Order requiring various government agencies, including the U.S. Office of Personnel Management, and their contractors to support health care pricing and quality transparency and interoperable health information technology. Last Friday, HHS Secretary Mike Leavitt encouraged all employers and health plans to adopt the tenets of the Executive Order. "If we are going to get a handle on health care costs -- and we must -- we first need to know what our costs are and what we are getting for our money," Secretary Leavitt said. "Our nation's private employers are the major source of health insurance for Americans, and they can help us provide the information consumers need to achieve better value for their health care dollars."

Forbe's Prognostications about the Next Senate

Forbes Magazine features an interesting article discussing "What's on Tap for Small Business in the New Senate". The article describes ideas offered by the next Senate's leaders for improving small business access to health care. Among those ideas is the possible resurrection of a Democrat initiative (S. 637) offered by Senators Dick Durbin (D - Ill.) and Blanche Lincoln (D - Ark.) as an alternative to Senator Enzi's (R - Wyo.) association health plan idea that "would create a small firm buy-in system similar to federal employees' health benefits program."

As the current minority blocked consideration of Senator Enzi's association health plan bill (S. 1955) and a similar House enacted bill (H.R. 525) even though the Republicans had a 55 seat majority, enacting such large scale changes strike me as unlikely as the Democrats will have a smaller 51 seat majority in the next Senate. But we shall see.

New OPM Regulations

On Friday, November 17, 2006, OPM promulgated in the Federal Register an interim final regulation updating its employee payroll allotment rules to expressly provide for pre-tax payments for the new federal supplemental dental and vision programs known as FEDVIP and the federal employees health care and dependent care flexible spending account programs known as known as FSAFEDS. The comment period on this regulation is open until January 18.

OPM Releases Updated Significant FEHBP Events Notice

Last week, OPM issued an updated Benefit Administration Letter (No. 06-405) announcing significant plan changes for 2007 Federal Employees Health Benefits (FEHB) Program Open Season. These changes principally pertain to the health maintenance organizations participating in the FEHB Program, which may have joined, expanded or reduced their service areas, added an option, or dropped out for 2007. This letter is always interesting reading.

Interesting Stats

From an AP report about a recent Pricewaterhouse Coopers report on rising health care costs:

American workers have been shielded from the rising cost of health care for decades, with the burden of rising medical costs borne largely by employers and the government, according to the report. Americans spent six percent of their personal budgets on medical costs in 1960, the same percentage of consumer spending as in 2004, it said.

The report notes that in recent years the Government and private sector employers have been shifting costs onto consumers. The report predicts the employer health care costs will climb by more than 10% in 2007 unless further plan changes are made. Business Insurance reported today about a Council of Insurance Agents and Brokers (CAIB) reports that supports PwCs predictions. (Of course, as noted in the FEHBlog, the Federal Employees Health Benefits Program had a 1.8% average premium increase for 2007. The FEHB Program's Open Season began on Monday November 13 and ends on December 11. )

The CAIB survey report relates that 70% of responding brokers had sold a health savings account product to an employer client for the 2006 or 2007 plan year. The Wall Street Journal reported earlier this week that banks are now actively marketing HSAs as well:

Nearly 1,100 banks now offer the tax-favored spending accounts, more than triple the number at the end of 2005, according to market-research firm Information Strategies Inc.

Manufacturers win right for six month exclusivity for generic Zocor sales

The U.S. Court of Appeals for the District of Columbia Circuit ruled today that Teva Pharmaceuticals Ltd of Israel and Ranbaxy Laboratories Ltd of India have the exclusive right to sell the generic version of the anti-cholesterol statin drug Zocor (simvastatin) for 180 days following the expiration of the Merck patent in June 2006. Teva and Ranbaxy had been the first companies to apply for Food and Drug Administration approval of their generic versions of Zocor (the companies applied for different dosage levels). The FDA had argued to the Court that the six month exclusivity period is only available to generic drug manufacturers that challenge the name brand manufacturer's patent rights in court. In this case, the FDA had approved Merck's application to delist their Zocor patents from the FDA's database.

The Court disagreed with the FDA, holding that

the FDA’s requirement that a generic manufacturer’s patent challenge give rise to litigation as a condition of retaining exclusivity when a patent is delisted is inconsistent with the Act, which provides that the first generic manufacturer to file an approved application is entitled to exclusivity when it either begins commercially to market its generic drug or is successful in patent litigation.

The six month exclusivity period is lucrative for generic manufacturers particularly in the case of a blockbuster drug like Zocor. Merck continues to sell brand name Zocor at a price that is lower than that charged before its patent expired. Merck also has made a contract with Dr. Reddy's Laboratories Ltd. of India to sell a so-called authorized generic version of Zocor.

A copy of the opinion in Ranbaxy Laboratories v. Leavitt, No. 06-5154 is available here.

AHIP Releases Universal Access Plan

America's Health Insurance Plans, the trade association for U.S. health insurers and health maintenance organization, released a set of legislative proposals intended to expand health benefits to all Americans. According to AHIP's press release,

The AHIP plan calls for enactment of federal legislation that provides significant financial incentives to states and makes changes to federal tax policy to make health coverage more affordable.Key elements of the AHIP plan include:

• Expanding the State Children’s Health Insurance Program (SCHIP) to make eligible all uninsured children from families with incomes under 200 percent of the Federal Poverty Level (FPL).
• Improving and expanding Medicaid to make eligible all uninsured adults, including single adults, with incomes under 100 percent of the Federal Poverty Line.
• Establishing a Universal Health Account (UHA) to allow all individuals to purchase any type of health care coverage and pay for qualified medical expenses with pre-tax dollars, with federal matching grants for contributions made by working families to the UHA.
• Establishing a health tax credit of up to $500 for low-income families who secure health insurance for their children.
• Establishing a new $50-billion Federal Performance Grant to assist states in expanding access to coverage.

The plan is designed to expand access to health insurance coverage to all children within three years and 95 percent of adults within 10 years. AHIP estimates that full implementation of this proposal would cost the federal government approximately $300 billion over a 10-year period.

AHIP also conducted an opinion survey whose results supports its proposed solution.

Miscellany

• The U.S. Labor Department issued health savings account (HSA) guidance on October 27 (Field Assistance Bulletin No. 2006-02) in the context of Employee Retirement Income Security Act (ERISA) compliance. The guidance provides answers to the questions that employers most frequently have asked the Department since the first FAB 2004-01 on HSAs was issued. Although FEHB Program HSAs and related High Deductible Health Plans are not subject to ERISA, the guidance is worthwhile background reading for anyone interested in these products.
  
• Steve Barr reported in his Washington Post Federal Diary column yesterday that Long Term Care Partners, LLC, the company that provides long term care insurance coverage to federal and postal employees, has launched a website Benefeds.com that beginning Monday Nov. 13, eligible federal postal employees and annuitants can use to enroll in a new federal supplemental dental or vision plan. Long Term Care Partners also manages OPM's new voluntary payments portal which employees will be able to use to make pre-tax contributions for supplement dental and vision and flexible spending account coverage and to their HSAs.
  

More on the Mid Term Elections

The Democrats did win control of the Senate, and the conventional wisdom about a brief lame duck session that I mentioned on Wednesday has proven to be wrong. The Washington Post reports this morning that the new sense of bipartisanship will lead to a longer lame duck session of the 109th Congress. During the lame duck session, Congress may reverse the statutorily mandated 5% cut in Medicare reimbursement to physicians before that cut takes effect on January 1.

Govexec.com continues to prognosticate about the 110th Congress. According to Govexec.com, NARFE's wish list is that the new Congress block any expansions of Health Savings Accounts in the FEHB Program. As you may recall, OPM sent a legislative proposal to Congress last May recommending that Congress amend the FEHB Act to permit the government wide service benefit plan to offer a third HSA option. NARFE also hopes that the new Congress will amend the federal tax code to permit federal and postal annuitants to make their FEHB plan contributions on a pre-tax basis. That proposal has budget ramifications.

NARFE reportedly is banking on the likelihood that Rep. Steny Hoyer will become the Majority Leader in the 110th Congress. Congressman Hoyer, who currently is the minority whip, also has been a proponent of increasing the Government contribution toward FEHB plan coverage (H.R. 633), a proposal which obviously has its own.

IRS Finalizes 2007 HSA contribution maximums

The Internal Revenue Service annually adjusts the maximum dollar amount that may be contributed to a health savings account (HSA) and related high deductible health plan (HDHP) minimum deductible and out of pocket expense limits for Consumer Price Index - Urban changes from August to August. Business Insurance reports that the IRS officially released the 2007 changes today.

The changes, which vary depending upon whether the individual has self only or self and family HDHP coverage, are as follows:

	2006	2007
HSA contribution max. (self only)	$2,700	$2,850
HSA contribution max. (family)	$5,450	$5,650
HDHP Out-of-pocket expense max (self only)	$5,250	$5,500
HDHP Out-of-pocket expense max (family)	$10,500	$11,000
Minimum HDHP deductible (self only)	$1,050	$1,100
HDHP Minimum deductible (family)	$2,100	$2,200

The IRS explains that individuals 55 and older who are covered by an HDHP can make additional catch-up contributions each year until they enroll in Medicare. The additional “catch-up” contributions to HSA allowed for 2006 is $700 and for 2007 it will be $800.

The Mid-term Elections

The mid-term elections results are in for the most part, and of course the Democrats will control the House of Representatives in the 110th Congress, and they may wind up controlling the Senate as well. Reporters at Govexec.com have begun to prognosticate about the impact that the new House leadership will have on federal employees.

There likely will be plenty of time for prognostication as the common wisdom is that the lame duck session of Congress will be very brief, e.g., simply extending the current continuing resolution funding the federal government into January. This would allow the new Congress to take up the appropriations issues as well as many other issues discussed in this blog == health information technology, Medicare, and the Food & Drug Administration's drug review process. For example, likely House Speaker Nancy Pelosi (D Cal.) is a major advocate for CMS directly negotiating drug prices with the drug manufacturers in the Medicare Part D program. Also Rep. Nancy Johnson (D Conn.) who was a major force behind the push to accelerate implementation of the ICD 10 not only lost her Ways and Means Health Subcommittee chair, but she also lost her seat in Congress.

Health Care Policy Resources

On Monday, I gave a talk about U.S. healthcare to 25 Turkish government members. It was the first time that I ever gave a talk through a translator. A very enjoyable experience. In preparing for the talk, I ran across two very useful health care policy resources on the web:

Health United States 2005 by the U.S. Centers for Disease Control

Health Care Industry Report by the U.S. Bureau of Labor Statistics

Tidbits from the BLS report:

• Health care is the largest U.S. industry providing 13.5 million jobs in 2004 out of a total labor force of 150 million
• 40% of healthcare employees work at hospitals
• Over 85% of nonhospital health services establishments employ fewer than 20 workers.

Medicare 2007 Fee Cut to Physicians Only 5.0%

On November 1, 2006, the Centers for Medicare and Medicaid Services announced its final 2007 Medicare Part B physician fee schedule rule. Medicare Part B reimburses physicians based on a resource based relative value schedule (RBRVS). In August CMS published a proposed rule calling for a 5.1% reduction in physician reimbursement levels based on a statutory formula. The final rule reduces that reduction slightly to 5.0%. That change will go into effect on January 1, 2007, unless Congress amends the Medicare law to reverse the reduction as it did earlier this year to reverse the 2006 reduction.

CMS made significant payment policy changes in order to increase payments for direct patient care and for expanded preventive care:

The hallmark of this rule is a stronger emphasis on the physician-patient relationship. The final rule increases significantly the work component for the [relative value units] RVUs for the face-to-face visits (evaluation and management or “E&M services”) during which the physician and patient discuss the patient’s health status and the steps that can be taken to maintain or improve the patient’s health. For example, the work component for RVUs associated with an intermediate office visit, the most frequently billed physician’s service, is increasing by 37 percent. The work component for RVUs for an office visit requiring moderately complex decision-making and for a hospital visit also requiring moderately complex decision-making are increasing by 29 percent and 31 percent respectively. Both of these services rank in the top 10 most frequently billed physicians’ services out of more than 7,000 types of services paid under the physician fee schedule.

* * *

“We believe this increase in the work component will encourage physicians to spend more time with their patients, assessing their health status, and educating them about how to live longer, healthier lives,” said [CMS Acting Administrator] Ms. [Leslie] Norwalk.

Beginning January 1, Medicare will expand its preventive services benefits, as provided for in the Deficit Reduction Act of 2005 (DRA). Medicare will pay for preventive ultrasound screening for abdominal aortic aneurysms (AAA) for at risk beneficiaries as part of the Welcome to Medicare physical. AAA refers to a weakening in the wall of the large artery that takes blood from the heart to the body. Caught early, there are a number of treatment options, but if the AAA ruptures, it can be fatal. AAA affects 6-9 percent of men over 65 and is the 10^th leading cause of death for men over 55. The screening will be available to men aged 65 to 75 who have smoked at least 100 cigarettes in their lifetimes, individuals with a family history of AAAs and any other individuals recommended for screening by the United States Preventive Services Task Force.

The rule expands the number of beneficiaries who qualify for bone mass measurement due to long term steroid therapy. For these beneficiaries, the rule reduces the dosage equivalent required for eligibility by one-third, from an average of 7.5 milligrams per day of prednisone for at least three months to 5.0 milligrams.

The final rule also exempts the colorectal cancer screening benefit from the Part B deductible, eliminating a potential financial barrier to using this benefit. Colorectal cancer is the second leading cause of cancer deaths, and survival is closely related to the stage of the disease at diagnosis. The five-year survival rate when the cancer is detected early approaches 90 percent. Unfortunately, approximately 65 percent of patients present with advanced disease. Once the lymph nodes are involved, chances of survival drop to a range of 35 to 60 percent and with metastatic disease, less than 10 percent.

Also on November 1, CMS announced its final 2007 Medicare Part A outpatient hospital prospective payment system (OPPS) rule.

Hospitals would receive an estimated $32.5 billion in CY 2007 under the final rule that revises policies and payment rates under the OPPS for outpatient services provided to Medicare beneficiaries. The final rule affects outpatient services furnished by general acute care hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities, long-term acute care hospitals, children’s hospitals, and cancer hospitals. As provided by statute, the rule includes a 3.4 percent market basket update to Medicare payment rates for services paid under the hospital OPPS for CY 2007. After taking into account other factors that affect the level of payments, CMS estimates that hospitals will receive an overall average increase of 3.0 percent in Medicare payments for outpatient department services in 2007 due to the changes in this final rule.

While the market basket update accounts for increases in the costs of providing a service, much of the growth in outpatient spending results from increases in utilization and complexity (volume and intensity). CMS estimates that between 2005 and 2006, hospital outpatient expenditures increased by nearly 12 percent, mainly due to growth in the volume and intensity of services. CMS projects that the expenditures under the OPPS in CY 2007 will be approximately 9.2 percent higher than the estimated CY 2006 expenditures. That rate of growth in expenditures is of great concern to CMS, not only because of its impact on all taxpayers, but especially on beneficiaries whose monthly premiums cover 25 percent of Part B expenditures.

In order to promote greater value in the purchase of hospital outpatient services for Medicare beneficiaries, the final rule ties OPPS rate increases to the reporting of quality measures beginning in 2009. The final rule announces CMS’ plans to develop additional quality measures that are specifically appropriate for hospital outpatient care, and will require hospitals to report the outpatient-specific measures beginning in CY 2009.

The final Medicare OPPS rule is scheduled to be published in the Federal Register on November 9, 2006, and the final PFS rule is scheduled to be published there on December 1, 2006.

Off label drug usage problem

The Food and Drug Administration approves a label for every drug marketed in the United States. "The FDA approved label is the official description of a drug product which includes indication (what the drug is used for); who should take it; adverse events (side effects); instructions for uses in pregnancy, children, and other populations; and safety information for the patient. Labels are often found inside drug product packaging." While physicians may prescribe FDA approved drugs for off-label uses, it is illegal for the manufacturer to market one of its drugs for an off-label use.

John Carreyrou writes in the November 3, 2006, Wall Street Journal that while off label prescriptions may not be illegal, they can be dangerous to the patient's health. He uses the powerful painkiller Actiq, which he describes as a highly addictive "narcotic lollipop" with an active ingredient fentanyl that is 80 times more powerful than morphine. Cephalon markets Actiq. The San Francisco Chronicle features today a first person account of Actiq abuse.

Actiq was approved for marketing in 1998. Its sales volume climbed from $15 million in 1999 to $412 million in 2005.

The Wall Street Journal story explains that

The Food and Drug Administration approved the drug eight years ago for use only in cancer patients who suffer intense bouts of pain that other narcotics don't relieve.

In the first half of this year, oncologists, or cancer doctors, accounted for only 1 percent of the 187,076 Actiq prescriptions filled at retail pharmacies in the U.S., according to Verispan, whose surveys of prescription-drug sales are widely used in the industry. Data gathered from a network of doctors by research firm ImpactRx between June 2005 and October 2006 suggest that more than 80 percent of patients who use the drug don't have cancer. Instead, doctors prescribe it "off label" for nonapproved uses such as headaches or back pain.

Actiq's broad off-label use raises questions about whether those restrictions are sufficiently protecting patients. "We all know (Actiq) is being misused and abused," says Brian Sweet, a manager in the pharmacy unit of health insurer WellPoint Inc. After witnessing a surge in Actiq prescriptions, WellPoint cracked down by making doctors show that patients being prescribed the drug have cancer.

The U.S. Attorney for the Eastern District of Pennsylvania is investigating Cephalon's marketing practices, according to the Journal.

CDC Recommendation on Meningitis Vaccine

The AP reports that the U.S. Centers for Disease Control have announced that there is no longer a shortage in the meningitis vaccine, Menactra, manufactured by Sanofi Pasteur. Last year, after the Food and Drug Administration approved Menactra for marketing, the CDC recommended that three age groups -- college freshmen, teens entering high school and children aged 11-12 -- receive the vaccine. In May 2006, the CDC delisted preteens due to a vaccine shortage. That shortage now has been resolved and the CDC has reinstated its recommendation that children aged 11 - 12 receive the vaccine.

CVS / Caremark merger

Steven Pearlstein assesses the CVS / Caremark merger in the Washington Post this morning. Analysts predict that the merger will survive government antitrust review. Both companies announced strong third quarter earnings yesterday. The merger is expected to close next year.

AHIC Meeting News

Joseph Conn reports in Modern Healthcare.com that the American Health Information Community (AHIP) at its October 31 meeting gratefully accepted the Health Information Technology Standards Panel's work product: "22 standards and eight implementation specifications to support data transmissions in three areas selected by AHIC: to move lab data into electronic health-records systems; to populate personal health records with a patient's medication history and basic information to facilitate registration; and to speed the transfer of healthcare information from providers to public-health authorities for biosurveillance." He also reports controversy over the lab data transfer standards.

Pay for Performance

Dr. Elliot Fisher, a professor of medicine at Dartmouth, wrote an interesting opinion piece on Medicare's pay for performance programs in the Nov. 2 issue of the New England Journal of Medicine. Dr. Fisher provides a medical community perspective on the long term goals for pay for performance inside and outside of Medicare.

Thirty Safe Hospital Practices

Laura Landro reports in the Wall Street Journal today that "a coalition of health-care purchasers, quality groups and government agencies working with the National Quality Forum, the leading government advisory body on health-care quality measurement and standards, have agreed for the first time to endorse a single set of 30 'safe practices' that all hospitals should use to prevent death and injury to patients." That's progress.

CVS and Caremark Announce Merger

What was hinted at this morning became reality this afternoon when CVS, a major pharmacy chain which has a prescription benefit manager affiliate Pharmacare and a major PBM Caremark announced their merger. Caremark shareholders will receive 1.67 shares of CVS stock for each of their Caremark shares. The new company will be called CVS /Caremark and it will be headquartered in Woonsocket, Rhode Island (gateway to the Taunton). The stock swap deal is valued at $21 billion and the projected 2006 revenues for the combined company are $75 billion. The Wall Street Journal notes that CVS has been very acquisitive this year and that PBM stocks have been down since September when Walmart announced its $4 generic prescription price. The proposed settlement in the AWP price fixing litigation has added to the PBM stock woes as discussed in the blog last week.

The AP reports that

Glenn Garmont, an analyst with First Albany Corp., said before the announcement that the deal was likely spurred in part by the fear that Wal-Mart, "will emerge as a fierce new competitor following its introduction of selected $4 generic drugs."

Wal-Mart announced last week that it is extending its $4 for a one-month supply of 314 different generic prescriptions to make the program available at 1,008 stores in 27 states.

However, [CVS CEO Tom] Ryan and [Caremark CEO Tom] Crawford said Wal-Mart's action didn't affect their decision to merge.

"We've been working on all this for some time," Crawford said. "This didn't have anything to do with Wal-Mart."

Garmont said such a deal between Caremark and CVS "would spawn others, and we view all PBMs ... as potential take-out targets."

Still, some analysts said the deal might face antitrust concerns. Barry Barnett, a health care consultant for PricewaterhouseCoopers, said regulators might be concerned that Caremark might unfairly funnel business to CVS pharmacies at the expense of other drug stores.

Several years ago Caremark acquired Advance PCS, one of the original PBMs. Earlier in its history, PCS had been owned by a drug manufacturer Eli Lilly, a drug wholesaler McKesson, and a pharmacy chain Rite Aid. None of those arrangements were profitable, as I recall. Another major PBM Medco recently split away from its drug manufacturer parent Merck a few years ago following considerable antitrust scrutiny. So the experience of this new combination will be worth following.

Big PBM News

The Wall Street Journal and the New York Times are reporting this morning that a major pharmacy chain CVS (which has its own prescription benefit manager operation) and one of the largest PBMs Caremark are in merger talks.

Caremark and CVS confirmed the talks in this joint press release:

NASHVILLE, Tenn. and WOONSOCKET, R.I., Nov. 1 /PRNewswire-FirstCall/ -- Caremark Rx, Inc. (NYSE: CMX) and CVS Corporation (NYSE: CVS) confirmed today they are engaged in discussions relating to a possible merger of equals transaction. There can be no assurances that any agreement will be reached or that a transaction will be consummated. There will be no further comment until the discussions are concluded.