Business of Health Care

The Chronic Disease Burden

Hunter Schouweiler — Thu, 03 May 2012 14:00:19 +0000

Over the past few decades, chronic disease has been on the rise, and it has put an ever-growing strain on the healthcare system, physically and financially. According to the World Health Organization, “chronic diseases are diseases of long duration and generally slow progression⁴.” Currently, chronic diseases cause 7 out of 10 deaths in the United States each year, according to the CDC. Chronic diseases also account for 4 out of the top 5 leading causes of death⁶. Furthermore, 133 million Americans live with at least one chronic². In other words, 45% of the U.S. population has one chronic condition, and 26% of the population has multiple chronic conditions⁶.

The future of our nations health looks bleak, without a focused nation-wide intervention. The CDC reports that the percentage of children and adolescents, with a chronic condition, has risen from 1.8% in the 1960’s to over 7% in 2004². Obesity has been one of the most rapidly emerging conditions in the U.S., as 1 in every 3 adults and 1 in 5 adolescents are obese². By 2023, there is expected to be a 50% increase in cancers, mental disorders, and diabetes, a more than 40% increase in heart disease, as well as a 30% rise in hypertension and pulmonary conditions⁶.

Chronic diseases not only place a burden on the healthcare industry and the populations’ quality of life, but also cause a heavy hit to the nations’ pocket book. In 2009, the journal, Health Affairs, published an article estimating that chronic diseases accounted for 75% of the 2.2 trillion dollars spent on healthcare³. Furthermore, as the number of chronic conditions one has rises, per person out-of-pocket spending also rises dramatically³.

The unfortunate fact is that many of these chronic conditions are preventable with a change in lifestyle. Nonetheless, there are still 43 million American adults (1 in 5) that smoke. Also, 1 in 5 high school students smoke². Moreover, 1 in 3 U.S. adults report failing to meet recommended guidelines for aerobic physical activity, according the 2008 Physical Activity Guidelines for Americans². Another startling statistic is that 60% of U.S. children and adolescents eat more than the recommended daily amount of saturated fat, and only 24% of adults and 20% of high school students eat the recommended number of servings of fruits and vegetables².

The Affordable Care Act of 2009 aims to make preventative care more accessible and affordable for Americans by requiring plans to cover certain preventative services. Meaningful Use is another mechanism used to tackle to burden of chronic diseases, as electronic medical records will be used to document physicians’ attempts to educate patients on the risk factors of various chronic diseases. Furthermore, the Affordable Care Act requires multiple preventative services for women, from mammograms to cervical cancer screenings¹. Additionally, the act makes many preventative services free for patients on Medicare¹.

While a new focus on preventative care could most certainly lead to healthier individuals and granting patients better quality of life, it is uncertain whether preventive care is cost effective. There are some preventative services that have been shown to be cost effective, mostly due to the large health benefits that result from the services. However, many other preventative care services have shown to be cost ineffective. An article, from the New England Journal of Medicine, states; “[s]weeping statements about the cost-saving potential of prevention, however, are overreaching. Studies have concluded that preventing illness can in some cases save money but in other cases can add to health care costs⁵.” A more effective, yet more challenging way to reduce healthcare spending and costs, related to chronic conditions, would include Americans changing their lifestyles. There not only needs to be accountability from medical professionals to keep the population healthy, but there also needs to be accountability on the part of every American to keep themselves healthy. The lifestyle choices of the American population have added a significant burden to the healthcare industry and to their own quality of life. In order for this trend to be countered, Americans need to make a conscious decision to begin living healthier lifestyles.

References:

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Technology Startups: Incubator Organizations Support Innovative Solutions for the Healthcare Industry

Lisa Bower — Wed, 11 Apr 2012 14:00:52 +0000

The United States spends more on healthcare than any other country in the world, with expenditures nearing $2.6 trillion in 2010. Despite these high costs, our system produces healthcare outcomes that are only average, provides poor access to care for many, and has frustrating inefficiencies, with low levels of customer satisfaction. President Obama has introduced the Affordable Care Act to potentially mitigate some of these problems, though the legitimacy of the bill is currently under review by the Supreme Court. Whatever shape health reform takes, innovative solutions in how we deliver and manage care are essential. The country is now, more than ever, eager for creative thinking to address our healthcare crisis, making it the perfect time for healthcare startups to shake up the industry.

Technology startups are one of the hottest trends in healthcare. They are especially attractive since many can offer quick solutions at a low cost, in comparison to more capital-intensive investments such as in medical devices and drug discoveries. Tech products are able to get into a customer’s (patient, physician, insurer, etc.) hands after only a few months of development and companies can then evolve their product based on customer needs. Technology startups have the capacity to tackle a variety of healthcare’s unique problems by introducing products that improve health outcomes, assist consumers navigate the system, make healthcare more affordable, or improve the productivity and efficiency of health care services.

Healthcare tech companies have already shown that they are a forced to be reckoned with through such companies as ZocDoc, which was launched in 2007. ZocDoc is a convenient, free way for consumers to find a doctor and book an appointment instantly online. Its website allows patients to see real-time availability of doctors in their area, confirm who accepts their insurance plan, and read reviews of physicians from other patients. The service also benefits participating doctors and dentists by attracting new patients and lessening the productivity lost from last minute cancellations by filling those available appointments with ZocDoc users. While ZocDoc began as a just a startup, they have since expanded their business tremendously. The company now offers nearly six million appointments from among over 40 medical specialties, is used by over 800,000 patients per month, receives $250 per month from each participating medical group, and has received $95 million in funding from companies like DST, Goldman Sachs, Khosia Ventures, and Founders Fund. ZocDoc truly underscores how technology can transform a simple idea that aims to improve our healthcare system into a thriving company.

Tech startups continue to emerge throughout the country, recognizing and taking advantage of the fact that their ideas could fill a void in our healthcare system. However, transitioning from an idea to a thriving company, like ZocDoc, is a challenge. One model for supporting healthcare startups that has been gaining significant momentum in the past few years is the “incubator” organization. These organizations are based on a simple premise: the best way to transform a fractured healthcare system is to provide entrepreneurs with the education and critical resources that they need to build viable business solutions. Three major incubator organizations that focus on supporting healthcare technology startups and preparing them for venture capital include San Francisco-based Rock Health, New York-based Blueprint Health, and Chicago-based Healthbox. Each of these programs follow the incubator model by empowering early-stage companies with the capital and mentorship that they need to stimulate innovation.

The Midwest incubator, Healthbox, recently completed its first incubation period that lasted from January through March. Through a competitive application process of nearly 200 applicants, Healthbox chose just ten entrepreneurial teams from around the country and abroad to participate in its three-month program. When reviewing applications, Healthbox has a ‘stage-agnostic’ mentality, meaning that they are open to working with seed stage ideas to more developed ideas. Healthbox functions by providing each of its companies with unrivaled access and exposure to industry leaders and investors, workshops conducted by experts in disciplines that are relevant to early stage healthcare businesses, and $50,000 in capital. Unlike the other two major incubator programs, who provide companies with $20,000, Healthbox provides a significant amount more, recognizing that healthcare startups are much more complicated to navigate and not as intuitive as other businesses. In exchange for their investment, Healthbox receives 7% equity in each company.

A unique offering of Healthbox is also its dynamic workspace. Healthbox’s inaugural batch of companies was situated in an open loft-space in Chicago’s River North community. They are constantly brainstorming ideas of how to make the environment more creative and to get entrepreneurs to think outside of the box, whether that involves moving desks around or bringing employees’ dogs to work! Nina Nashif, the Founder of Healthbox, firmly believes that “spontaneous collaboration leads to interesting ideas.”

Healthbox graduated its first class of entrepreneurs at a productive capstone ‘Investor Day’ in Chicago’s South Loop on April 4^th. Each company had 12 minutes to pitch their ideas to a targeted group of angel and venture investors, in hopes of receiving funds to further their business. Ideas presented included a portable hand-washing device to increase compliance and reduce hospital-acquired infections, a cloud-based system to identify patients at high risk of readmission, and nationally accepted prepaid cards for pre-determined goods and services to increase member participation in preventative health initiatives. With the platform provided by Healthbox, the future for all ten companies is looking bright. Healthbox also announced at its Investor Day that they will be expanding to Boston this summer. Applications are now open for its second class that will run from August through October.

Many aspects of healthcare in America are in desperate need for creative solutions, demonstrating that there is no better time than now for healthcare technology startups to take the industry by storm. Startups have the potential to make healthcare more accessible and affordable, improve health outcomes, and advance the efficiency of our system. Incubator organizations, like Healthbox, provide a promising model for jumpstarting and cultivating innovative ideas and solutions. However, it must also be noted that taking on the multi-billion dollar healthcare industry will not be an easy task. Startups will face a variety of challenges, including complicated regulations, competition, and the bureaucratic nature of its stakeholders. Nevertheless, if successful, these tech companies have the potential to dramatically impact healthcare’s status quo.

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Health Care Reform Economics Part 2: Value-based Purchasing and Pay for Performance Programs

Hunter Schouweiler — Tue, 03 Apr 2012 14:00:41 +0000

Healthcare costs in the United States were 2.6 trillion, in 2010⁵. Healthcare expenditures as a portion of GDP have been on the rise, as well. Furthermore, the United States spends more per capita on healthcare than any other country, but is not among the top performing countries in regards to health outcomes. Hence, consumers have spoken out on the fact that they are not obtaining enough value for their dollars spent on healthcare.

The impetuses of increasing cost and inconsistent quality have spurred at trend in value-based purchasing and pay for performance programs. In Crossing the Quality Chasm, the Institute of Medicine recommended that the government should implement a payment structure where provider compensation was strongly aligned with quality goals¹. Since this report in 2001, there have been multiple CMS pay for performance pilots, as well as other versions of pay for performance by other health plans, specifically HMOs. Pay for performance has transformed the traditional reimbursement structure with the goal of aligning financial reward and performance on quality and efficiency measures, as well as patient safety.

Most recently, CMS has finalized it new rules for its pay for performance program, which was mandated by the Affordable Care Act². This trend in pay for performance reimbursement models, not only marks a major transition from traditional provider payment, but also looks to change the behaviors of providers to improve quality and decrease costs. In a report published by the LeapFrog Group, from 2003, only 55% of patients obtained evidence-based recommended care¹. Pay for performance programs seek to incentivize providers to increase their adherence to evidence-based medicine and best clinical and medication safety practices. In effect, the change in behavior aims to decrease acute care episodes, such as hospital stays and emergency room visits. Furthermore, many pay for performance programs have measures related to chronic conditions in an effort to optimize and better manage chronic conditions.

Switching focus to the effects on the patient from pay for performance programs, patients or consumers are looking to become more empowered as cost and quality data on providers becomes more transparent. Patients will be able to use this information to make informed decisions about where they will receive care and spend their money. Along with the advent of the Internet and freely available medical information, consumers have become more involved in their medical decisions. These forces will continue to change the level of asymmetric information that exists between the patient and physician in regards to the cost and quality of the physicians clinical care.

There have been many interesting trends in pay for performance programs. Many versions of pay for performance programs, which were not CMS pilots, were run by HMOs. A report from the Harvard School of Public Health stated that 52% of HMOs reported using a version of pay for performance programs in their plans³. These programs were initially focused on physicians. However, the same report found that, from 2003 to 2006, pay for performance programs including hospitals increased from 32% to 50% 3. This trend seems logical, as hospital expenditures were 31% of national healthcare expenditures, in 2010⁵.

While pay for performance programs theoretically pan out to be excellent incentive programs for providers, uncertainty remains in regards to the implementation of a the incentive program on a national scale. First of all, the incentives must be significant enough to induce behavioral change on the part of providers. From a report from the Harvard School of Public Health, current pay for performance programs’ incentive bonuses range from 5% to 10% for physicians and 1% to 2% for hospitals³. Hence, if administrative costs to collect, track, and report pay for performance measures are greater than the incentive payments, physicians and hospitals will not buy into the programs.

Furthermore, CMS recently commented that they will be using the 2013 reporting period to begin collecting data for determining initial fee schedules and incentive payments, which has brought much unrest in the provider community, as this leaves less than one year for hospitals to improve various performance measures that will affect reimbursement⁴. Providers that begin the programs below par will have to improve their measures before observing realized gains from the programs. Finally, there has been much debate over what the performance measures will represent. Providers can be graded on the outcomes of their patients or on their adherence to certain evidence-based protocols and safety guidelines. The former raises the issue that the provider has little control over patients’ own health management after leaving the provider.

Value-based purchasing and pay for performance are leading the reform effort on the payer side of healthcare. These programs seek to improve quality and decrease costs by focusing on proven clinical practices and processes related to patient care that lead to better outcomes. While challenges remain in regards to the implementation of pay for performance, the concept of value-based purchasing has a promising future, and it will be interesting to see how providers and patients react in the face of these upcoming changes to the reimbursement structure.

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Meet A Healthcare Startup: Transforming An Idea Into Reality

Ryan Golden — Mon, 02 Apr 2012 21:41:46 +0000

The BusinessofHealthCare.org is proud to present our next event! The fourth event will be an open house featuring five exciting healthcare startups: Cara Health, SwipeSense, CareHubs, PUSH Wellness, and Corengi.

If you’re in the Chicago area and interested in health care start ups, please come talk to the entrepreneurs behind these start ups. You will be able to learn about their experience, how to launch a successful firm, and what it takes to grow an idea into a company that can change and improve health care delivery.

Thursday, April 5th, 2012 at 5:00 PM

710/711 Armour Academic Facility

Rush University

For additional information about the companies please visit Healthbox.

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The Future of Healthcare: The Basics of Accountable Care Organizations

Vikas Gandhi — Fri, 23 Mar 2012 14:00:42 +0000

Moving forward in today’s healthcare world, everyone’s main concern and focus is on the primary goal of balancing the “healthcare triangle”- this allusive triangle consists of access, cost, and quality; balancing these factors for the consumer is a task that has been difficult for almost every health system. Delving deeper into this problem and probing for a solution, Dr. Elliot Fisher, Director of the Center for Health Policy Research at Dartmouth Medical School, introduced the concept of Accountable Care Organizations (ACO) in 2006. Since then, this model of care quickly became widespread, reaching its apex in 2009 when it was included in the Patient Protection and Affordability Care Act.

The definition of an ACO bears a salient resemblance to the definition and history of HMO, a term coined in 1970. As was the case with the HMO, the ACO has been promoted primarily for its alleged value as a cost-cutting tool. In laymen terms, as explained by the Centers for Medicaid and Medicare Services (CMS), an ACO is a “local health care organization and a related set of providers (at a minimum, primary care physicians, specialists, and hospitals) that can be held accountable for the cost and quality of care delivered to a defined population.” The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. According to CMS estimates, ACO implementation is estimated to lead to a median savings of $470 million from 2012 – 2015.

Many existing policies of performance measurement and payment development focus on individual providers; they risk reinforcing the fragmented care and lack of coordination experienced by patients with a serious illness. The main goal of the ACO is to deliver coordinated and efficient care. ACOs that achieve quality and cost targets will receive a financial bonus, and under some approaches, those that fail will be subject to a financial penalty. In order to meet the requirements of this incentive system, an ACO needs to be able to (1) care for patients across the continuum of care, in different institutional settings, (2) plan prospectively for its budgets and resource needs, and (3) support comprehensive, valid and reliable measurement of its performance.

Proponents of the ACO model like the idea that an ACO makes the people and organizations that actually provide care, accountable for the quality and the cost of that care. Earlier health reform initiatives involved insurers and made them accountable. The concept driving ACOs is that it is providers, not insurers, who are best fit to make the changes that will address the cost and quality problems resulting from the present system of disjointed care. Currently, many patients are getting their health care separately, rather than having the different components work together like in an ACO. As stated in the Washington Healthcare News, “the underlying thinking behind ACOs is that by placing accountability at the provider level, we will be able to meaningfully influence and deliver integrated patient-centric healthcare in this country.” In other words, what the ACOs attempts to do is pay providers to work together, share accountability and avoid supplier-stimulated demand. At this point, participation in an ACO is voluntary; however, providers should understand that in the wake of recent reform legislation, reimbursement will likely soon be tied to this type of healthcare structure. Those not participating will face decreased reimbursement moving forward.

From the patient’s perspective, an ACO does away with the frustration of disconnected care: lost or unavailable medical charts, duplicated medical procedures, or having to share the same information repeatedly to different healthcare providers. ACOs are designed to lift this burden from patients, while improving the joint venture between patients and doctors in making health care decisions. Medicare beneficiaries whose physicians participate in an ACO will still have a full choice of providers and can still opt to see doctors outside of the ACO. Patients choosing to receive care from providers participating in an ACO will have access to information about how well their doctors, hospitals, or other providers are meeting quality standards. This continuity of care is what makes an ACO unique and appealing to not only health systems, but patients as well.

An important and impetrative question to answer as health systems move forward with this model, is how will ACOs be paid? In Medicare’s traditional fee-for-service health plan, physicians and hospitals are paid more when they order and administer more tests; this drives up costs due to the rising rate of healthcare. According to Kaiser Health News, “ACOs wouldn’t do away with fee for service but would create savings incentives by offering bonuses when providers keep costs down.” Doctors and hospitals would have to meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. According to CMS, for each “12-month period, participating ACOs that meet specified quality performance standards will be eligible to receive a share of any savings if the actual per capita expenditures of their assigned Medicare beneficiaries are a sufficient percentage below their specified benchmark amount.” In other words, providers would get paid more for keeping their patients healthy and out of the hospital, which is attractive to both the suppliers and consumers of healthcare.

With everything pertaining to healthcare reform, there is always public scrutiny that follows. One criticism against the formation of an ACO is the lack of specificty regarding how it should be implemented. Even though more health systems are moving towards this model of care, as of right now, people are still unsure of how to go about executing the model. Every health system differs in size and resources, so skepticism ensues in regards to the adaptability. Another major concern for health systems is the cost. The American Hospital Association has estimated ACO formation to incur high startup costs as well as large annual expenses for maintenance; this is another problem that smaller hospitals may sustain when trying to incorporate this care model. Lastly, since this model is “new territory”, it may draw resistance from stakeholders. Staff members may be resistant to assuming new responsibilities or delegating work they used to perform. In some cases, the organizations may face challenges in recruiting and training employees with the appropriate skills for these roles. All of these inquiries regarding an ACO are possible risks and barriers moving forward.

Since its recent inception, Accountable Care Organizations have been the pressing issue in today’s healthcare forum. The “healthcare triangle” seems to becoming more imbalanced as time passes, but this new model of care hopes to rectify the situation moving forward. This care model is beginning to revolutionize the payment plan for providers and hospitals, and is creating better access and care for consumers. With healthcare reform in our midst, more hospital systems are turning towards ACOs to help increase their diminishing reimbursement rates. This delivery system will subsequently help reshape healthcare and will slowly become the face of the future.

Work Cited

“Centers for Medicare & Medicaid Services.” Centers for Medicare & Medicaid Services. Web. 22 Mar. 2012. .

Gold, Jenny. “Accountable Care Organizations, Explained.” Oct. 2011. Web.

Rivard, Chris, and Chris Pritchard. “Accountable Care Organizations and the Future of Healthcare.” Aug. 2010. Web.

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Hot off the Press: Petition To Patent A Chicago-Style Hot Dog Dealt A Major Blow After Yesterday’s U.S. Supreme Court Prometheus Ruling

Samyukt Bajaj — Wed, 21 Mar 2012 05:00:42 +0000

So what does the title reference to a Chicago-style hot dog and a recent landmark Supreme Court ruling have in common? Well, both involve an absurd attempt to establish a monopoly by patenting a process that ought to be un-patentable. Equating the two may not make sense yet, but it may help to first start with a brief discussion of what patents are and the basis on which they are granted. Then we’ll delve into the Prometheus and Myriad Genetics cases (also discussed in an earlier posting). Finally we’ll revisit my argument that if mapping naturally occurring genes is a patentable process, then so is my soon-to-be-world-famous method for making a Chicago-style hot dog.

Per the U.S. Patent and Trademark Office (USPTO), a patent is an intellectual property right granted by the government to an inventor that essentially establishes a monopoly for a limited time. There are three types of patents: (i) a utility patent granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof; (ii) a design patent granted to anyone who invents a new, original, and ornamental design for an article of manufacture; and (iii) a plant patent granted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plant. The purpose of patent law is to encourage creativity and innovation, and in exchange the inventor is granted an exclusive right lasting for 20 years. This exclusivity helps inventors recoup the costs associated with developing the invention. So far, all this should make logical sense — you work hard to come up with something unique and in return you get to benefit from it for a finite period of time.

So how does the Prometheus case fit in? Without getting too technical (a more technical analysis is available here), the case involved patents covering methods to determine the proper dosing of thiopurine drugs for autoimmune diseases by correlating dosage levels of the drugs with the levels of certain metabolites in a patient’s blood. Basically, the patents involved three steps: (i) the administration of the drug to a patient by a doctor, (ii) instructions to the doctor to measure the resulting metabolite levels in the patient’s blood, and (iii) the description of metabolite concentrations, which informs the physician about needed dosage changes by indicating if dosage is too high (making it harmful) or if it’s too low (making it ineffective). Yesterday, the U.S. Supreme Court invalidated the patents noting that the relationship between the levels of certain metabolites in blood and the effectiveness of a thiopurine drug dosage are laws of nature and are not patentable. Justice Breyer said it best: “The question before us is whether the claims do significantly more than simply describe these natural relations. To put the matter more precisely, do the patent claims add enough to their statements of correlations to allow the processes they describe to qualify as patent-eligible processes that apply natural laws. We believe that the answer to this question is no.” In essence, the court ruled that a process describing a naturally occurring relationship or interaction is not patentable.

Patents involving gene sequencing are no different. In the Myriad Genetics case, which may be reviewed by the Supreme Court and is addressed in a prior blog, Myriad was sued for its patents on the BRCA genes. Mutations of these genes are responsible for hereditary breast and ovarian cancers and anyone intending on researching or developing treatments using the BRCA genes (and arguably mutated genes would be included as well) may not do so because of the patents – unless of course they pay Myriad a hefty licensing fee. There is no doubt that Myriad spent a lot of money and many years sequencing, but consider that Myriad did not discover the concept of genes, neither did it discover how to sequence them, and nor did it discover the BRCA gene. So if all that Myriad did was map out the nucleotide order of the BRCA genes – a naturally occurring genetic phenomenon – then how can it be conferred a valid patent, particularly given the recent Prometheus ruling? Put another way: if I did not create the hot dog or the bun that it sits in, nor did I create the condiments, so will mapping a unique (but admittedly tasty) way to arrange them – the Chicago-style way – be sufficient to hold a valid patient on that process?

This tongue-in-cheek analogy is illustrative of the ridiculousness of the argument in favor of patenting genes. Myriad has argued that it did not use naturally occurring DNA, but instead the genes were isolated from cDNA, complementary DNA, which does not naturally occur in nature, but was created in a laboratory. This argument is a red herring and attempts to skirt the main issue that, in essence, the Myriad patent is describing a process that is a naturally occurring relationship or interaction and therefore should not be patentable. Based on its ruling in Prometheus, the Supreme Court should overturn the ruling in the Myriad Genetics case and invalidate its patents on the BRCA genes. If not, the result will be higher costs on the entire healthcare system, a stifling of medical advancement, and the possibility that thousands of Americans could someday be barred from – or worse, have to pay an extra fee for – enjoying a Chicago-style hot dog.

Additional sources:

http://www.marshallip.com/media/pnc/3/media.413.pdf

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Gene Sequencing: Deserving of a Patent?

Renée Durack — Mon, 19 Mar 2012 14:00:19 +0000

With the onset of the Human Genome Project, mapping human genes and identifying links within an individual’s gene sequence that may lead to specific disease has grown in demand. Today over 20% of the human genome has been claimed through United States patents. These patents give ownership rights of the gene sequences in scenarios of diagnostic testing and the creation of new drug therapies.

It is under current debate that those who have discovered these important gene sequences be given patents since this information is vital for moving forward in discovering treatments and potential cures for these specific diseases. Knowledge such as what the streptococcus bacterium looks like under a microscope, and thus being able to diagnose and test treatments on it, does not require the researcher or physician to pay a patent royalty to the initial scientist who identified this particular organism as streptococcus. This discovery is considered a public good and can be utilized without having an impact on other’s in the market. Yet, if a researcher is interested in developing genetic breast cancer treatments, they must do so through the patent owner, Myriad Genetics, of the BRCA1 and BRCA2 gene sequences. Essentially, human DNA is being categorized in the same manner as any manipulated plant or chemical based pharmaceutical rather than just common scientific knowledge or a naturally occurring phenomenon. This has resulted in a large debate since some feel that by patenting this valuable knowledge, other researchers are unable to explore other implications of the genes or test alternative therapies on the diseases they lead to (Lovgren, 2005).

While giving those who have identified certain potentially disease-linked gene sequences does place a barrier on others using this discovery to begin further research or testing of new products, gene patenting can be defended based on economic principles of supply and demand. Identifying certain genetic links requires a great deal of research and testing, which ultimately results in a high cost to the research institutions involved. This cost in today’s market is likely much higher than in the early stages of biological discovery, when incentive was potentially not the prime motivator. Securing a patent ultimately means that these researchers should see a return that is at least equal, ideally more, than the cost required to make the discovery. If the patents were not given, there would be a saturation of competition over the particular gene sequence. Once the link is discovered, any number of researchers could use this information to start developing other, likely very similar, therapies or diagnostic tests. The profits associated with the discovery would be spread out among these competitors, thus decreasing the overall demand and return for the initial researchers. Ultimately there would be very little incentive to innovate, or in this case, understand what is occurring inside the human genome.

The reason why patents may be giving to gene sequence discovery over other types of typically common medical knowledge such as the shape of streptococcus or other phenomena that occur in nature is that the potential for future innovation is very much unknown when concerning therapies made for specific genes. Understanding these gene sequences is a clear means to an end when discovering treatments on how to alter these genes, and thus treat these life-threatening diseases. Through a patent, this mean is protected and the researcher has the freedom and benefit of a potential return on the potential end therapies and treatments.

The interest, and willingness to invest, in gene sequencing is also high creating a market where a patent is important to allow these profit incentives to exist. Although these patents temporarily restrict access to other researchers and potential developments involving the gene sequencing and can easily still be categorized as a public good, in this century, promotion of further gene sequencing links will result in continuing strides in science and medicine as a whole, so it is crucial that the research to achieve this is incentivized through patent protection.

Works Cited

Lovgren, S. (2005). One-Fifth of Human Genes Have Been Patented, Study Reveals. Retrieved February 19, 2012, from National Geographic: http://news.nationalgeographic.com/news/2005/10/1013_051013_gene_patent.html

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Austerity Measures in Europe Lead to Decreased Profits for Pharmaceutical Companies

Lisa Bower — Mon, 12 Mar 2012 14:00:42 +0000

Profits for pharmaceutical companies have been steadily declining as austerity measures across Europe led to cuts in health care spending. The pharmaceutical industry is being hit disproportionately hard since European governments, faced with the cruel reality of budget cuts, are looking for quick cost-savings strategies. The New York Times article “Austerity in Europe Puts Pressure on Drug Companies” points out that governments are not willing to pay as much for medications and are putting pressure on companies to prove the effectiveness of their drugs on health care outcomes. Because of these new demands, pharmaceutical companies must now reorganize their business to sustain their financial health. To better understand the decision-making process being faced by both European governments and drug companies during this time of instability, the principles of pharmacoeconomics and trade-offs are applicable.

Before the wave of austerity measures in Europe, drug companies faced relatively low resistance from governments when setting prices and introducing new products. However, in light of economic downturn, this paradigm has changed. European governments are now shifting their decision-making process to one that is more deeply rooted in the principles of pharmacoeconomics. Pharmacoeconomics, a specific form of health economics, relies on cost effectiveness analyses to assist physicians, hospitals, insurers, patients and healthcare professionals in making important decisions as to what drug therapies should be chosen, with the main goal of decreasing healthcare expenditures whilst optimizing health outcomes. For example, since January 2011, Germany will only pay higher prices for those brand name drugs that clearly demonstrate a unique benefit and/or improved outcome in relation to other available medications — otherwise the less expensive generics are utilized. Pharmaceutical companies must prove the added value of their more expensive drugs through additional research that documents better health outcomes compared with the less expensive treatments. This new mindset may lead to cost-sensitive governments relying more heavily on generic drugs that are chemically identical to brand-name products, but are often 60% cheaper (Getzen, 2010).

To further cut costs while maintaining quality, governments have increased their use of cross-referencing. This entails comparing drug prices in other European member states to ensure that a ‘fair price’ is being charged. Portugal is one example of a country that utilizes cross-referencing by benchmarking the price they will pay for drugs, relative to the average of the five cheapest prices of a drug in other EU countries.

The effect of these cost-cutting strategies have been detrimental to drug companies. According to Business Monitor International, in the last year, pharmaceutical sales to pharmacies and hospitals declined 3.1% in Italy and nearly 9% in Spain. A dominant Swiss pharmaceutical company, Novartis, also posted a 7% decline in net income for 2011 despite a 16% increase in sales

With less flexibility to set prices and decreasing profits, pharmaceutical companies are recalibrating their business strategies through several trade-offs. For instance, in order to sustain similar profits, drug companies have chosen to lay off employees. Pfizer cut 6,000 jobs last May alone. This included sales representatives, as well as some valuable research and development (R&D) employees who are the leaders in drug creation. In times of hardship, companies must find more efficient ways to run their business with less manpower.

The other central area where pharmaceutical companies are cutting back is in the number of new drugs for which they invest research money. The trade-off here is that in order to contain costs, drug companies face the risk of missing out on new drug discoveries. For most pharmaceutical businesses, just one or two blockbuster drugs are responsible for most revenues, demonstrating that the development of new drugs can be crucial (Getzen, 2010). In addition, less research and development can hurt society overall because new drug discoveries can reduce morbidity and mortality relative to existing treatments. Further, with reduced funds, drug companies may focus most investments in R&D for drugs that are guaranteed to generate profits, which are usually the safer medications that are only slightly altered from those already on the market. If this were the case, drug companies would then stop investing in the risky, highly innovative drugs because they have a lower likelihood of success. When these riskier drugs are successful, however, they can have a higher-payoff in terms of both profits and providing more effective treatment for patients.

Austerity measures have put pressure on both European countries and pharmaceutical companies to reevaluate their business practices. The financial conditions have seriously highlighted the government’s increased need for cost-effectiveness analyses of drugs and the use of cross-referencing. Drug companies must also deal with several opportunity costs as a result of the changing economic environment, including laying off employees and investing less money in research and development endeavors. Moreover, the struggle has not yet ended. Analysts predict that the health cuts will persist through at least 2014. The European economic crisis will continue to force restructuring of the paradigm under which governments and pharmaceutical companies do business (Novak, 2012).

References

Getzen, T. (2010). Health economics and financing (4^th ed.). Hoboken, NJ: John Wiley and Sons, Inc.

Novak, S. (2012, February 23). Austerity in Europe puts pressure on drug companies. New York Times. Retrieved from http://www.nytimes.com/2012/02/24/business/austerity-in-europe-puts-pressure-on-drug-companies.html?pagewanted=all

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The FDA’s Regulatory Impact on U.S. Drug Supplies

Nicole Calabrese — Fri, 09 Mar 2012 15:00:10 +0000

An article in the New York Times this past week reported that the United States was forced to import two chemotherapy drugs from abroad because U.S. companies could not produce enough of the required drugs in a sufficient amount of time. Shortages of both of these drugs “threatened the lives and care of thousands of patients” (Harris, p.1). The cause of the shortages can be traced back to the closing of a laboratory in Ohio. The laboratory could not guarantee product safety, and consequently, they were forced to stop production.

One way the government encourages pharmaceutical firms to continue to invest in research and development of new drugs is through patent protection (Getzen, p.271). An outcome of the patent system is that one pharmaceutical company is often granted the exclusive right to produce a drug for up to 20 years. Additionally, the preciseness that is required in the synthesis of chemotherapy drugs limits a company’s ability to mass produce these drugs. It is understandable then, why a single factory closing can cause such a disruption in supplies.

Government intervention in the pharmaceutical industry began as early as the 1930s when a company produced a sulfa solvent that killed more than a hundred people (Getzen, p.257). As a result of this incident, the Food, Drug, and Cosmetic Act was created, and the FDA has been involved in regulation of the industry ever since. One way in which the FDA significantly affects the pharmaceutical market is through their lengthy drug approval process. On average, the entire process, from the initial research stages to when the drug is introduced to the market, takes more than ten years (Getzen p.261). Patents are one way in which companies are reimbursed for their opportunity cost (the time and money they spent developing this one drug could have been spent elsewhere). Once the company’s patent for the name brand drug has expired, other companies can begin to manufacture generic versions of the drug which are chemically and biologically equivalent but cheaper. For a time, generic drugs were put through the same rigorous testing that name brand drugs were subjected to. However, with the passing of the Drug Price Competition and Patent Term Restoration Act in 1984, generic manufacturers now only have to prove that the drug is “bioequivalent” to the name brand (Getzen p.258). This has helped significantly in integrating more generic drugs to the market.

Despite the progress made by the act in 1984, the New York Times cites the FDA’s infinitely long backlog of applications for new generic drugs as part of the cause of this particular shortage. The FDA has decided to hasten the approval of an application by a company to manufacture a generic form of one of the chemotherapy drugs in scarcity. However, the generic drug industry believes that the FDA’s Generic Drug Office is so unequipped to handle the amount of applications, rather than wait for Congress to address the problem, they have proposed to provide the agency with $299 million in annual fees to speed up the review process rather than face another shortage. Many physicians fear that this is only the beginning of shortages the U.S. will face in the upcoming months.

Sources
Gretzen, T. E. (2010). Health economics and financing (4th ed.). United States Of America: Hamilton Printing Company.

Harris, G. (2012, Shipments from abroad to help ease shortage of two cancer drugs. The New York Times, pp. 1-2.

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How to Make Your Idea into a Successful Company – Nina Nashif

Ryan Golden — Thu, 08 Mar 2012 00:53:00 +0000

For the third Business of Health Care lecture, we are proud to present Nina Nashif, a Managing Director at Sandbox Industries which is the exclusive fund manager of the Blue Cross Blue Shield Venture Fund.

In this lecture, Nina shared some of the exiting work being done at Sandbox and Healthbox, one of the first business accelerator programs in the healthcare industry to provide a platform that supports innovation among seed-stage companies. As its founder, Nina led the Healthbox team to select ten startups out of over 150 applications from 28 U.S. States and 8 countries. Healthbox will provide these select companies with seed capital, mentoring, and access to an expert network.

Nina has an entrepreneurial management background with more than ten years of global business experience. Prior to joining Sandbox, she was on the executive leadership team of Sg2, a private healthcare analytics and consulting firm, and led the international division based in London, England. She has worked with both the public and private health care sectors in the United Kingdom, United Arab Emirates, Thailand, Singapore, Hong Kong and Australia.

Video:

Slides:

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