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Economic Slowdown Responsible for Delayed Decrease in Health Care Spending

May 22, 2013 by Leave a Comment

What causes health care spending to go up and down?  A recent study by the Kaiser Family Foundation has found that the economy has a dramatic effect on the changes in health care spending.  Health care spending is very comparable to any other consumer good:  when the economy is good, we spend more on health care; when it is poor we spend less.  The study found, however, that those changes in health care spending are not immediate and lag behind the economy by as much as six years.

Changes in Rate of Increase

Policy analysts have been perplexed at the reduced rate of  increase in health care spending  in recent years.  CMS’ Office of the Actuary has reported the decline in health care spending to be about 3.9 precent per year since 2009.  The Congressional Budget Office has lowered its forecast of future spending by Medicare and Medicaid in future years based on this recent reduction in the increase in health care spending.  In 2012, national health expenditures amounted to an estimated $2.8 trillion.   Because this number is so large, a small change in the growth rate can result in a savings of hundreds of millions of dollars. The Kaiser Family Foundation pointed this out by saying a “lowering of the growth rate by one percentage point on average over the next decade means that total health spending would be almost half a trillion dollars lower than expected 10 years from now.”

Economy Predicts

From 2001 to 2003, health care spending peaked at an average annual increase  of 8.8 percent.  Since that date, the rate of health care spending has decreased. The Kaiser Family Foundation research found that “inflation in the current year, as measured by the Gross Domestic Product (GDP) deflator, as well as inflation in the prior two years” and “the growth in real GDP in the current year as well as the GDP growth in prior five years” was a way to predict the rate of increase in health care spending.  Its analysis found that these factors accounted for 85 percent of the variation in health care spending from 1965 to 2011.

Time Lag

“More surprising” writes the Kaiser Family Foundation is that these effects can take up to 6 years before they start influencing the rate of health care spending. The researchers speculated that the causes for this delay might include: (1) the use of insurance which protects people from the full cost of health care for a period of time; (2) consumers cutting back on health care spending only after they have cut back on spending on other items and services; (3) employers delaying  immediate changes to their health care policies for a year or two after economic changes; (4) the inability of hospitals, which account for a large percentage of health care spending, to address changes in their spending for a while after the economy changes; and (5) legislated changes as a result of economic changes may not be implemented for a number of years.

The analysis indicated that the health care spending should have decreased by 3.6 percentage points from the peak. In reality, the average decrease in health care spending was 4.2 percent during that time period, 2008 to 2012.  From these figure it can be surmised that the economic downturn was responsible for 77 percent of the decrease in health care spending.  What accounted for the other 23 percent? Kaiser attributes changes to the health care system, like higher deductibles and other cost sharing mechanisms to slow the use of services, as well as increased use of managed care and delivery system changes.

Future Growth

In the future, the Kaiser Family Foundation’s analysis predicts that a health care spending increase of 3.5 percent by 2019 can be expected due to growth in the economy.  Adding in other factors, the analysis predicts that the increase in health care spending could remain relatively flat for the next couple of years and then grow by 7.1 percent at the end of the decade. It is unlikely that double-digit increase in health care spending is likely to return, writes the Kaiser Family Foundation.

“There is a very strong statistical link between business cycles and inflation and health spending,” said the Kaiser Family Foundation.  The analysis warns though that, “because the effect of economic activity on health prices and utilization is gradual and highly lagged,  it is not always easy to discern the relationship just by looking at a single year.”

Filed Under: Centers for Medicare and Medicaid, Congressional Budget Office, Government Document, Health care spending, HHS

India’s Supreme Court Denies Patent to Novartis for Minor Change to Drug

April 8, 2013 by

The Supreme  Court of India denied Novartis AG’s request to overrule a 2006 decision of the Indian Patent Office denying a patent to Novartis for Gleevec, a drug for treatment of leukemia. Bloomberg reports  that scientists  believe that Gleevec “turns the deadly blood cancer into a chronic disease.”  Gleevec was Novartis’ best-selling drug in 2012, with sales of $4.7 billion, according to Bloomberg.

Evergreening

Novartis challenged a segment of Indian patent law that restricts multiple patents for a drug and denies patent protection for newer versions of known substances already patented in medicines, according to a Washington Post report.  The Washington Post reported that Pratibha Singh, a lawyer representing three Indian drug companies in the case, said, “the Supreme Court has said that product was known prior to 1995, and a new patent cannot be granted because it is just a little modification on the old one.”  Singh continued, “the court held that merely because it [the new version] is more soluble or more stable, it does not qualify by itself for patent protection.”

Bloomberg reported that Novartis argued that the molecule imatinib, on which Gleevec is based, required years of research and modification to make it an effective, safe leukemia treatment. Justices Aftab Alam and Ranjana Prakash said “repetitive patent is not permissible on the same drug,” and that “the drug is neither new nor complies” with provisions of patent law, Bloomberg reported.

Other drug and pharmaceutical manufacturers are facing similar issues in India. The Washington Post reports that the Indian Patent Appeals Panel allowed a cheaper generic version of Bayer AG’s anti-cancer drug, Nexavar, to enter the market. It also revoked the patent of Pfizer’s cancer drug, Sutent; the company has appealed.

The New York Times reports that “in the United States companies can get a new patent for a drug by altering its formula or changing its dosage.”  Even minor changes,  such as changing the dosage of a medicine from once a day to twice, qualify for a new patent in the U.S.. As an example the Times pointed to AstraZeneca, which got new patent protection when it made slight alterations to the chemical structure of Prilosec and renamed it Nexium.

International Action

Other countries are adopting  an approach similar to India’s, the New York Times reports. “Argentina and the Philippines have passed laws similar to the one enacted in India,” and Brazil and Thailand have been compelling brand name manufacturers of AIDS drugs to accept competition from generics, on the ground that the public health requires the generics to be available.

Reuters reported that the U.S. Trade Representative’s Office is looking into the decision of the Indian Supreme Court.  In the United States, which is in the process of negotiating the terms of a new Pacific Rim trade agreement, the pharmacy industry is lobbying to require the other countries that want to participate in that agreement to enforce tough patent requirements, the New York Times reported.

Costs

Indian exports of generic medications amount to about $10 billion per year according to the New York Times, and the Washington Post reported that “80 percent of the world’s nearly 8 million HIV-infected patients rely on Indian generic medicines.” In India the generic version of Gleevec costs $175 for 30 pills, while the same dose for the brand name Gleevec costs $2,200, according to the Washington Post.  Novartis said in the Washington Post article that it has programs to distribute medications to patients who cannot afford them, pointing out that 16,000 patients in India receive Gleevec free of charge.

Filed Under: Biotech, Drugs, Health care spending, News, Patents

Home Health Agency Owner and a Physician Found Guilty of Using Recruiters to Commit Health Care Fraud

April 5, 2013 by

Two people were convicted of conspiring to defraud Medicare by a jury in Louisiana, and in Texas, a former physician pled guilty to conspiracy to commit health care fraud that resulted in claims totaling more than $19 million to Medicare and the Medicaid program. The activities that lead to the conviction of a home health agency owner and its director of nursing resulted in $17 million in fraudulent bills to Medicare. All three individuals face fines of up to $250,000 and ten years in prison for their crimes.

Louisiana Home Health Agency

Louis Age, the owner of South Louisiana Home Health Care Inc., and his former wife Verna Age, who served as South Louisiana Home Health Care’s director of nursing, paid recruiters to obtain Medicare beneficiary information from people. Mr. Age trained his daughter, Ayanna Age Alverez, to pay recruiters kickbacks for obtaining the information.

Louis Age hired physicians, including Dr. Michael S. Hunter, to sign referrals and certifications for home health services that were not medically necessary. Verna Age falsified and directed others to falsify certification evaluations and other forms to make it appear that home health services were necessary. During the trial, Medicare beneficiaries testified that they did not need the services that South Louisiana Home Health billed to Medicare.

Alverez, Dr. Hunter and Mary L. Johnson a recruiter for South Louisiana Home Health, previously pled guilty and are awaiting sentencing. Sentencing dates have not yet been set for Louis and Verna Age. Louis Age was also convicted of conspiracy to pay health care kickbacks and faces and additional $250,000 penalty and another five years in jail. Another co-defendant, Milton L. Womak, died in July 2012.

Texas Doctor

Donald Gibson, II entered a plea of guilty to the charges of conspiracy to commit health care fraud relating to medically unnecessary diagnostic testing and physical therapy. Gibson ordered, prescribed, and authorized medically unnecessary diagnostic tests and other procedures, such as tests for allergies, pulmonary function tests, vestibular tests, urodynamic tests, physical therapy and other tests.

A co-defendant, Sunday Joseph Edem, pled guilty to the same charge on February, 25, 2013. Edem operated medical clinics under the names of others to conceal his financial interest in the business. Gibson and Edem conspired to pay recruiters for referring Medicare and Medicaid beneficiaries, paying beneficiaries for showing up at the medical clinics, and submitting false claims to Medicare and Medicaid.

Edem is scheduled to be sentenced on May 28th, 2013 and Gibson is set for sentencing on July 1, 2013.

Filed Under: Department of Justice, Fraud & Abuse, News
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