Happy Father’s Day. The House and Senate are in session this week, and the U.S. Supreme Court has seventeen more decisions to announce before the justices can go on their summer vacations.

On Friday, OPM released an FEHBP carrier letter explaining that the agency was removing the Program wide exclusion of gender reassignment treatment coverage costs for 2015. This action comes on the heels of a recent Medicare coverage decision that was reported in the Washington Post. Like the Medicare decision, the OPM carrier letter allows carriers to make their own coverage decisions. Advocate perspectives are presented in this Washington Blade article.

The Federal Times offers a U.S. map displaying states winners and losers in federal employment over the past three years during which the federal government shedded 60,000 jobs.

The New York Times included a couple of interesting health care mergers and acquisition articles this morning. The more interesting of the two concerned Allergan the company that sells Botox. The article explains how Allergan’s CEO built the brand. On the M&A front, the article explains that

Since April, Allergan has been trying to fend off a takeover attempt by Valeant Pharmaceuticals International, a serial acquirer of specialty drug makers. Valeant, based near Montreal, has partnered with William A. Ackman, an investor whose hedge fund holds about a 10 percent stake in Allergan. If their takeover bid is successful, Valeant intends to increase earnings by paying taxes in Valeant’s home country, Canada, where corporate rates are significantly lower. It also plans to cut jobs and Allergan’s research budget.

The other article concerns Medtronic, a medical device company, which is reportedly close to acquiring a competitor Covedien for over $45 billion.

The potential acquisition, which would most likely be structured as a so-called inversion, would also relocate Medtronic to Covidien’s home in Ireland. Such a move would lower Medtronic’s corporate taxes since Ireland’s tax rate is substantially lower than the one in the United States.

Fierce Health Payer reports on an interesting speech from Prime Therapeutics chief customer experience officer, Ingrid Lindberg. Ms. Lindberg advised insurers to improve the customer experience by

focus[ing] on doing a good job at insurers’ core business. “You have to meet peoples’ basic needs,” Lindberg explained. For insurers, that means they can’t start trying to delight consumers if they’re not even paying claims in a timely manner. “Just pay the claim,” she said, and then insurers can enhance the consumer experience after they meet that baseline.

For example, instead of simply denying a claim or request from a consumer for a medical service, they could suggest another possibility. They could say, “‘You can have this instead’ or ‘Did you know this service could save you money?'” Lindberg said. The most important part is that insurers must “remove ‘no’ from the vernacular.”

Ms. Lindberg  also “has banned all acronyms, industry jargon and anything over a 5th-grade reading level from all internal and external communications at Prime Therapeutics.”

AIS Health discussed on a recent Magellan Rx annual drug trend report  Magellan Rx notes that injectable drugs are increasingly being administered at hospitals rather than at doctors offices or other lower priced facilities.

Of the top 10 medical benefit drugs based on spend, seven have seen an increase in hospital administration between 2009 and 2012, while two have seen decreases and one has remained the same. The No. 1 drug, Remicade (infliximab), shifted from a 23% hospital infusion rate in 2009 to a 32% rate in 2012. During that four-year period, Remicade’s total per-claim cost rose from $3,711 to $4,389. Herceptin (trastuzumab), the No. 7 drug, saw its hospital administration more than double, from 23% to 49%, with the cost per claim rising from $2,562 to $3,301. Five drugs — Neulasta (pegfilgrastim), Rituxan (rituximab), Eloxatin (oxaliplatin), Herceptin and Alimta (pemetrexed) — experienced double-digit increases.

AIS explains that

As a result, Magellan Rx Management recommends a variety of strategies when it comes to managing the utilization of hospital outpatient facilities for medical pharmacy products. Some of the tactics it has developed with its medical pharmacy customers are to:

•     Change reimbursement in the hospital outpatient facility to be based on a drug pricing benchmark, such as average sales price or average wholesale price. 
•     Change benefit design so that the member’s out-of-pocket incentive aligns with the plan’s network strategy.
•     Preserve office-based community providers through shared savings or innovative payment models.
•     Include hospital outpatient facilities in utilization management programs and enforce the site of service policy upfront during the drug prior authorization process to assign the physician office or home as the rendering provider.
•     Implement a program to help members understand their benefits by site of service and choose a lower cost, convenient site for their injectable administration.

Makes sense to the FEHBlog.

In this year’s first quarter, for instance, the drug generated $2.3 billion in revenue. Wall Street analysts say prescriptions have slowed more recently because they expect Gilead to launch a more potent, all-oral combination treatment this fall and physicians have, for now, delayed prescribing to new patients, a practice known as warehousing. * * * 

Meanwhile, several other drug makers are racing to develop their own treatments – AbbVie, Bristol-Myers Squibb, Johnson & Johnson and Merck, which earlier this week agreed to pay $3.85 billion for Idenix Pharmaceuticals in hopes of catching up to Gilead. But whether any of these companies will attempt to trigger a price war remains to be seen.

Time will tell.

In the next three-to-five years, more than 60 percent of employers plan to “gate” employees to richer designs, where employees are required to complete a “task” to access richer design options. About one in five employers gate their employees today.

“Gating strategies are becoming an increasingly attractive incentive technique among employers as they look to improve the health of their employee populations,” said Jim Winkler, chief innovation officer of Health & Benefits at Aon Hewitt. “For example, employers may offer a basic high-deductible plan to their entire workforce, but make a richer PPO option available to those employees who complete a health risk questionnaire or biometric screening.”

In addition, 68 percent of employers plan to adopt reference-based pricing—where employers set a pricing cap on benefits for certain medical services for which wide cost variation exists with no discernible differentiation in quality. Just 10 percent of employers have adopted reference-based pricing as a health tactic today.

Fascinating. The FEHBlog is keen on reference based pricing.

Express Scripts, the large prescription benefits manager, reports on a study finding that “Forty percent of U.S. narcotic prescriptions in 2011-2012 were written by only five percent of opioid prescribers.” Now that’s troubling. Here’s a link to Express Scrpt’s web site providing insights on narcotic use and abuse in the United States.

In that regard, the Wall Street Journal has a new blog on the prescription drug industry called Pharmalot.

Finally Government Health IT reports that “Personal wellness tracking devices—called wearables—sit directly at the center of two powerful trends that are transforming the healthcare industry: the consumerization of healthcare and explosive data proliferation.”

While the details—such as which wearable is “cool” this year—change quickly, the overall movement towards empowered, informed consumers is not likely to end any time soon, according to a whitepaper on healthcare data analytics. Healthcare providers will continue looking to data for the answer to serve those patients’ needs most effectively.  

Health plans too.

The St. Louis Business Journal notes that Humana is considering the sale of its prescription benefits management business valued at $7.1 billion and Express Scripts, which is based in that fair city, would be a likely bidder.

The Motley Fool reports that Aetna, Cigna, and United Healthcare are jumping on the smartphone app revolution in order to connect to their customers. Smart move.

Finally, Kaiser Health News reports that surgeons are not yet playing a major role in accountable care organizations.

That’s according to a case study and survey published this week in the journal Health Affairs. The authors conducted case studies at four ACOs in 2012 and sent a survey to all 59 Medicare ACOs in the first year of the program, with 30 responding.
“I’m a surgeon, so I was really curious as this model probably continues to gain steam, what’s this going to mean for me?” said lead author James M. Dupree, a urologist at Baylor College of Medicine. “We found that thus far, very little of the strategic attention seemed to be devoted to surgical care and the integration of surgeons into the ACO.”

That’s odd.  The article explains

“Dermatologists, endocrinologists, all the different specialties want to know how they fit in, but generally ACOs are not prioritizing the specialties. They’re focusing on the lowest hanging fruit, and generally the specialties aren’t the lowest hanging fruit.” It’s easier to focus first on things like reducing expensive hospital admissions by managing the care of patients with chronic illnesses, including diabetes.
Another reason, [Dr. Dupree] ys, is that it’s hard for an ACO to figure out how to share savings with specialists like surgeons. With a primary care physician, it’s relatively easy to figure out their share of the ACO’s savings by factoring in the number of patients they see. “It’s harder with specialists who may only see a handful of patients a week,” he said

Rome of course was not built in a day.

One of the first items for Ms. Burwell is to consider is a June 4, 2014, letter from her advisory group WEDI urging an the adoption of an industry roadmap for implementing the ICD-10 code set now set for October 1, 2015. Heallthcare Data Management reports that

Last week, the Centers for Medicare and Medicaid Services announced that the partial code freeze for ICD-9-CM and ICD-10 will continue through October 1, 2015. And, last month, CMS canceled limited end-to-end testing that had been scheduled for late July, when a small sample group of providers were to have been given the opportunity to participate in end-to-end testing with Medicare Administrative Contractors and the Common Electronic Data Interchange contractor.
“We believe the canceling of the limited July ‘end-to-end’ testing sent the wrong message to the industry. Rather than delay this critical form of testing until 2015, we recommend expediting and expanding this form of trading partner testing,” states [WEDI Chairman Jim] Daley.

Agreed.

Sun Life Financial, an insurance company, released yesterday an interesting report on its health plan stop loss claims experience.

The U.S. business group of Sun Life Financial, Inc. (NYSE: SLF, TSX: SLF) today reported a tenfold rise in the number of individual $1 million or more catastrophic claims paid by the company over the past four years. These findings are based on a study released today by Sun Life Financial U.S., the largest independent writer of stop-loss insurance in the U.S., with $915 million of in-force premium as of December 31, 2013.

The most significant rise related to complications surrounding dependent infants, including premature births, failure to thrive newborns and congenital anomalies, according to Sun Life. While there was no single explicit driver for the increase in these particular complications, Sun Life continues to monitor the underlying business, specific claims, and potential trends related to health care costs and demographics. The Company also notes that these diagnoses often stemmed from normal pregnancies that unexpectedly turned into catastrophic claims, reinforcing the need for protection against “unpredictable” catastrophic claims.

Agreed again.

The Hill reports that the Senate will vote today on whether to end debate on Sylvia Burwell’s nomination to serve as HHS Secretary.

On Monday, at the annual Health Datapalooza HHS announced the internet release of 2012 hospital charge data. 

The data include information comparing the average charges for
services that may be provided in connection with the 100 most common
Medicare inpatient stays at over 3,000 hospitals in all 50 states and
Washington, D.C. Hospitals determine what they will charge for items and
services provided to patients and these “charges” are the amount the
hospital generally bills for those items or services. With two
years of data now available, researchers can begin to look at trends in
hospital charges. For example, average charges for medical back problems
increased nine percent from $23,000 to $25,000, but the total number of
discharges decreased by nearly 7,000 from 2011 to 2012.

Kaiser Health News offers a consumer perspective on the data release. A Fierce Health Finance editor, Ron Shrinkman, cogently observes that 

Hospitals have resisted price transparency in small and large ways. That makes sense, because being opaque about what you charge presents specific business advantages–such as the ability to charge whatever you want, particularly in the case of patients who lack insurance and have virtually no bargaining power.

As I noted a couple of weeks ago, price transparency is slowly taking place in the hospital sector. But reference pricing could become a threat to price opacity, and possibly the greatest threat to opacity of them all.

Speaking of costs, a Reuters article offered an FDA official’s informal perspectives on expensive specialty drugs.  Here the upshot which rings true with the FEHBlog:

By law, Dr. Richard Pazdur, the U.S. Food and Drug Administration’s cancer drug czar, is not allowed to consider the cost of treatments his agency reviews, only whether they are safe and effective.

But Pazdur is not blind to escalating drug prices and the growing debate over how to place an appropriate value on cancer drugs, which can cost $100,000 a year or more a year.

“It’s very difficult for me to talk about,” Pazdur said in an interview at the American Society of Clinical Oncology meeting in Chicago, where the issue of value has been a consistent theme among the world’s top cancer doctors.

Instead, he recounts a story about buying his first house in Detroit in 1982. “I was very nervous. I asked the realtor if I was paying the correct price. She said to me, ‘Rick, the price is what anybody is willing to pay for it.'” In his view, the same applies to cancer drugs.

“Everybody knows that these are expensive drugs,” he said. “Obviously, we can’t just continue going on with escalating prices of drugs. That’s not a regulatory decision or anything profound from the FDA. It’s just the reality of the situation.”

Pazdur said the solution will likely take “a national dialog” involving all stakeholder – insurers, patients, doctors, lawmakers.

An FDA regulatory pathway to biosimilar drugs also would help.

The Senate is in session at the Capitol this week while the House has a district work session according to the Hill’s Floor Watch blog. OMB Director Sylvia Burwell’s nomination to serve as HHS Secretary will be taken up later this coming week.

The Hill also has an article about the Sovaldi pricing battle. The article notes that the health insurance trade association’s (AHIP) spokesperson, Robert Zirkelbach, has moved over to be the spokesperson for the prescription drug trade association, PhRMA.  AHIP has hired Brendan Buck, a former spokesperson for the House Speaker, to be its new spokesperson.

In a bit of good news, the New York Times reports that the Food and Drug Administration on Friday approved a generic version of the anti-inflammatory painkiller Celebrex. “Teva [Pharmaceuticals now] has exclusive marketing rights to three doses of the drug for 180 days. Mylan received approval for the lowest dose of the drug, 50 milligrams. Celebrex was Pfizer’s fourth-best-selling drug last year with sales of $2.92 billion.” According to the Times article, generic drugs are priced 30% to 60%  lower than the brand name drugs. It has been over four years since Congress in the Affordable Care Act authorized the FDA to create a regulatory pathway for generic versions of specialty drugs known as biogenerics or biosimilars. Fierce Biotech reports that in mid May, the FDA broke its silence on the issue with nonbinding draft guidance on such a regulatory pathway. The article notes that “the industry is hardly standing pat. In the four years since Congress authorized the agency to sort out an approval pathway for biologic copies, many makers of proprietary drugs have started investing in their own biosimilar operations, including Amgen, Merck, and Biogen Idec.”  The European Union started approving biosimilars early in the last decade.

The FEHBlog can’t call it a TGIF update because the 2015 FEHBP benefit and rate proposals technically are due tomorrow May 31 and carriers must be busy tying up loose ends on those proposals.

It is not an easy time to be a health plan. The Affordable Care Act and related federal laws are causing providers and consumer groups to really feel their oats. For example, BNA reports about a class action lawsuit filed by “Psych Appeal Inc.” against United Healthcare contending that the insurer applied its medical necessity limitation to residential treatment facility care and nutritional counselling in a manner that violates ERISA and the federal mental health parity law. UPI reports that a consumer advocacy group has filed an ACA Section 1557 discrimination complaint against several Florida insurers contending that they structured their prescription drug copays to discriminate against people with AIDS/HIV. These are examples of a multitude of complaints.

In defense of the insurers, the federal mental health parity act is extremely complicated. For example, it is entirely possible to violate the implementing parity rule by simply mirroring the cost sharing arrangements for medical surgical and mental health benefits. What’s more the current rule (that will change in this respect next year) permits the difference that the lawsuit appears to challenge.   The consumer groups are testing the ACA’s expanded individual non-discrimination provision. Also on the horizon is the ACA regulator’s proposed rule implementing Section 1557.

The FEHBlog noticed an interesting 2013 pharmacy market analysis on Drug Channels.net. Here are the highlights:

•     Total outpatient prescription growth was 0.2% in 2013, a slowdown from the 1.2% growth in 2012.
•     Chains rebounded, in the biggest single-year market share increase in at least 10 years.
•     Supermarkets continued their comeback, returning this format’s share to 2005 levels.
•     Mail prescriptions took their biggest dive ever, shrinking sharply in both absolute size and market share.
•     Independents experienced another year of small declines, but the format’s share now equals that of mail pharmacy.

• Buck Consultants projects that cost increases for all types of medical plans are anticipated to be down by between 0.1 and 0.5 percent in 2014. 
• Milliman released its 2014 Medical Index (MMI) which had similar findings:

As measured by the 2014 MMI, the total annual cost of healthcare for a typical family of four covered by an employer-sponsored preferred provider plan (PPO) is $23,215 (see Figure 1). Key observations are:

• The MMI has more than doubled over the past 10 years (107% increase from 2004 to 2014), growing from $11,192 in 2004 to $23,215 in 2014.
• Although healthcare costs continue to rise, the overall annual rate of increase in the cost of care for the family of four is at its lowest level since we first calculated the MMI in 2002. During those years, the annual increase in cost ranged from a high of 10.1%, in both 2003 and 2004, to a low of 5.4% in 2014. The rate of increase dropped by nearly a full percentage point, from 6.3% in 2013 to 5.4% in 2014. As discussed later in this report, this significant decline was likely due to a confluence of forces rather than any single event.
• In almost every year of the past 10, growth rates have decelerated. Figure 2 shows the most recent five years of that deceleration.
• In each of the past four years, employees have assumed an increasing percentage of the total cost of care. The total employee cost (payroll deductions plus out-of-pocket expenses) increased by approximately 32% from 2010 to 2014, while employer costs (premium contributions) increased by 26%.

Of course the outlier is specialty drug costs. Reuters reviews insurer efforts to control those costs.  The Wall Street Journal reported today that a large Blue Cross insurer Wellpoint is planning to reward oncologists with a $350 payment for each patient maintained on an Anthem approved (not developed) treatment protocol or pathway. “The new WellPoint payments are supposed to ensure that ‘best drugs and best protocols will be compensated,’ said Sam Nussbaum, the insurer’s chief medical officer. ‘We’re creating revenue neutrality so better care can be given.'”

The FEHBlog trusts that all of his readers have enjoyed the long weekend. The Hill’s Floor Action blog reports that while the Senate is out this week, the House will be in session for one day —  Wednesday — to consider appropriations bill, among other measures. The Hill also suggests five reasons why OMB Director Sylvia Burwell is sailing through the confirmation process which should wrap up on the Senate floor next week.

CNBC reports that the major prescription benefits manager Express Scripts is pulling together a coalition to spur competition against hideously expensive drugs like Sovaldi. Express Scripts’ “strategy is to leverage [the coalition’s] buying power to push Gilead to lower the price by letting the drugmaker know they’re prepared to drop Sovaldi when rival drugs come onto the market over the next year.” Good luck.

Finally, on a topic of general interest, the ACA’s employer shared responsibility mandate, the New York Times reports on new IRS guidance explaining that if employers with 50 or more full time employees contribute toward individual health insurance coverage for their employees (inside or outside the exchange) – a common practice that the IRS had condoned as lawful and tax exempt for over fifty years — the employer would be liable for a $36,000 annual penalty for each employee who buys employer subsidized individual coverage. In the IRS’s view the subsidy constitutes unlawful group coverage which is subject to a $100 per employee per day of violation penalty under the ACA.