Health Business Blog

Novice’s guide to hospital pricing

HealthLeaders has a very good article today by Anthony Cirillo of Fast Forward Strategic Planning and Marketing Consulting, LLC that provides guidance to hospitals who are waking up to the reality of price transparency. Price transparency is coming, and the author suggests a few ways for hospitals to prepare. For those hospitals that may not pick up on the nuances behind Mr. Cirillo’s points, here is my blunter summary.

1. Look at existing best practices. Some hospitals are ahead of others. Tellingly, of the two examples given, one is in Thailand
2. “Align price with value.” In other words if you are going to charge a premium price make sure it doesn’t look like a ripoff. On the other hand if patients don’t have real alternatives go ahead and stick it to ‘em
3. “Develop price packages based on customization.” Offer a big broad set of high-end options and let customers subtract what they don’t want, like the post-partum pedicure. Guess what? Customers will trade down a little but still spend more than they would have otherwise. (Cadillac did something like this in the 80s when they were trying to push their crappy diesel engines to improve CAFE results. The diesel was standard but could be deleted in favor of a gasoline V8 as a ‘cost saving’ option. The idea was that the Cadillac buyer wouldn’t want to look cheap and would take the diesel. True enough but they also didn’t want to look stupid, smell bad, and put up with the noise either. These sorts of tricks can only be taken so far.)
4. “Prepare to tell your price story.” That means figure out how not to back down when asked for discounts. A good place to look as an examples is Roche, which is not embarrassed by the high prices it charges for cancer drugs and believes there is room for more increases.

Good luck hospitals! It will take you awhile before you figure out how to place this game well.

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Too hot to handle

The stolen VA laptop with 26.5 million personal records on it has been turned in to the FBI, according to Modern Healthcare. The laptop was taken during what was most likely a routine burglary and the thief may have realized it was better to abandon it than fencing it for $50 and risk getting busted. Or maybe he has made a deal with the person who turned it in to try to get a piece of the $50,000 reward that has been offered.

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A little more Canada bashing

Looks like someone hasn’t followed through on the cost-benefit equation here. From the Montreal Gazette:

Quebecers hoping to be screened for colon cancer are facing up to a year-long wait for diagnostic tests that could save their lives…

[E]xperts suggest that colonoscopy screening could prevent up to 90 per cent of colon cancers. That’s because polyps that could develop into cancer are removed during the scope.

Canada spends about $500 million a year treating colorectal cancer, [Professor of Medicine William] Paterson said. Surgery can be arranged within weeks of a cancer diagnosis, he said.

“Treatment is not a problem. But that patient may have waited a year to get a colonoscopy and maybe they wouldn’t have had to have the surgery if they’d had access to a colonoscopy at the appropriate time,” Paterson said.

But not everyone agrees that emphasis should be placed on improving the screening rate:

Paul Brunet, director of the provincial patients’ rights committee, questioned the benefits of colon cancer screening when “it’s more urgent to give people treatment once they get the diagnosis. Because even then there are delays.”

Here’s a suggestion for you non-aggressive Canadian types. If the guideline is to get a colonoscopy when you turn 50, request one at 49 instead.

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Adaptive trials move toward the mainstream

My friends at Cytel (CEO Ranganath Nayak and I used to work together at BCG) made the cover of the current Bio-IT World, where they are written up in Real-Time Trials. Cytel provides tools to help pharmaceutical and device companies with adaptive trial designs, which have the potential to substantially reduce the number of patients and/or time needed to conduct a clinical trial. That could be a major contributor to reducing the costs of drug development and to increasing the number of drugs in clinical development.

A problem with traditional (non-adaptive) clinical trials is that they require the designers to specify sample size and duration upfront, when there are still many uncertainties. As a result some trials are larger and longer than necessary to achieve their objectives. Other trials –especially by cash-strapped smaller companies– end up being too short or too small. The idea of adaptive trials is to analyze early trial data and use it to modify trial design –in a statistically valid way– while the trial is still in process.

Naturally, FDA is nervous about allowing such trials to proceed. It’s happening, though in the medical device arena, where about 10 percent of trials are already adaptive, and large companies like Pfizer and Novartis are dipping their toe in the water on the pharmaceutical side, even in the absence of clear guidance from FDA. (Ironically, the only example of a drug approved with an adaptive process is the extremely non-innovative Pravigard Pac, an attempt by BMS to extend the commercial life of Pravachol by co-packing it with baby aspirin.)

Companies like Cytel provide the sophisticated tools and expertise needed to pull off adaptive trials. There’s some debate in the article about whether companies can do the work internally or whether they need to rely on outside parties. It’s pretty clear to me that there’s some need for outside help: the math is complex and the FDA is more likely to trust a third-party to avoid the temptation of too much inappropriate peaking at the data.

I got a kick out of the following paragraph in the article:

“The value of an adaptive trial is really significant,”” predicts Gary Lubin, the hype-averse cofounder of Merck Capital Ventures. Lubin says adaptive designs could accelerate go/no-go decisions by five or six months. “The use of modeling will become an important part of designing these protocols. A lot of money will be spent in these [modeling and adaptive] areas.”

“Hype-averse” Gary may be, but the journalist probably should have mentioned that Merck Capital Ventures is an investor in Cytel.

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A good ride while it lasts

Genzyme’s Cerezyme was a pioneer in two ways: by providing a great treatment for Gaucher’s patients, and for demonstrating that health plans would be willing to pay six-figure prices for annual treatment. The financial aspect was great: Genzyme could reap tremendous profits on a small patient population while the health plans could show they were generous –thus rebutting the criticisms of managed care stinginess. With so few patients affected, the implications for health plans were negligible.

After that everyone in biotech took notice and started charging huge sums for so-called specialty drugs. Serious diseases –some rare, others less so– got a taste of effective, but very high cost treatments. PhRMA brags of the number of drugs in development for rare disease, but the companies’ motivations are financial, not charitable. The strategy has become so popular that specialty drugs now account for 25 percent of all pharmaceutical spending.

Inevitably, payers are looking at things differently now. More or less all have identified specialty drugs as big cost drivers and are doing their best to hold costs down, according to a survey by MedPanel. They are using traditional cost management tools such as increasing co-pays and deductibles, but I have my doubts as to how effective these will be. Can a Gaucher’s patient afford to pay a significant percentage of Cerezyme’s costs? Can they stop taking the drug?

I expect specialty drugs to be the issue that eventually causes the US to confront the reality that the health care system can’t afford everything. I also wouldn’t bet that the specialty drug companies will enjoy their current degree of pricing freedom forever.

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Lagging edge

The New England Journal of Medicine published a correction of an earlier article that had indicated Vioxx was safe if taken for less than 18 months. Maybe NEJM read the simple proposal presented here last month suggesting that the Journal give more scrutiny and opportunity for debate on prominent articles. From the Wall St. Journal:

…Gregory Curfman, executive editor of the journal, said that based on an analysis done by biostatistician Stephen W. Lagakos at the behest of the publication, “the risk could have begun at any point, including time points earlier than 18 months.”

“Behest” is an interesting word. Did the Journal actually pay for the analysis?

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Grand Rounds is up at Medviews

Check out Grand Rounds, the best of the week’s medical blogging, at Medviews.

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Poor Mr. Rosenbaum

Every once in a while –usually when a newspaper reporter dies– the media tell the true story of the stunning incompetence of our health care system. Here is an example:

Firefighters, ambulance technicians, police officers and the nurses and doctors at a Washington hospital committed “multiple individual failures” in responding to the ultimately fatal beating of a journalist near his home last January, an official inquiry concluded on Friday.

Describing “alarming levels of complacency and indifference” in emergency medical care in the nation’s capital, the District of Columbia’s inspector general reported sloppiness and mistakes by almost everyone who initially responded to the lethal attack on David E. Rosenbaum, a retired reporter for The New York Times. Mr. Rosenbaum, 63, died two days after he was found lying semiconscious on a sidewalk near his home on Jan. 6.

The report concludes:

The inspector general said the multiple failures “suggest an impaired work ethic that must be addressed before it becomes pervasive.”

That’s ironic on a number of levels, especially the implication that this was an isolated incident.

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You’ve got virus!

Imagine this scenario: a sex partner notifies you and others on his “contact” list by email that he is infected with HIV and suggests you get tested. Apparently it would take too long to call everyone on the list, so email is the path he takes. Now your employer (who’s allowed to read your email) knows you’ve been exposed. But, hey look on the bright side, the email contains a link to information about your possible disease!

This is the approach being taken in Oregon and elsewhere using a system called inSPOT. Keep an eye on your inbox!

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Differently bad

The Wall St. Journal printed a series of letters debating the merits of an academic paper suggesting the Canadian health care system is cheaper and better. Defenders of the US system cite waiting lists, lack of equipment, and general difficulties of access to put down Canada. The paper’s authors cite health statistics showing Canadians are healthier despite spending half the US per capita figure on health care.

The truth is that both countries’ systems are lousy. Canadians are routinely denied care that would be considered appropriate and necessary in the US. The results can be fatal . And yes, rich Canadians do come to the US for care or bribe their surgeons to get to the head of the line. But Canada still seems to achieve equivalent or better results on average. We have plenty of access problems in the US, too. And it’s not just for people low on the socioeconomic ladder. Try getting a timely appointment with a specialist in Massachusetts, where spending is higher than anywhere in the world. And the rate of errors in the US –and Canada– borders on and in some case crosses over into the criminal category.

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