Veterans Affairs Department Jim Nicholson announced today that his Department has contracted with Systems Made Simple Inc to encrypt all of the Department’s laptop computers and portable electronic devices using GuardianEdge and Trust Digital technology. “Nicholson has also directed advanced enterprise encryption solutions to be explored as a follow-on to the laptop and desktop encryption program, including all VA servers and data centers.” These actions are directed at remedying the problems identified when an unencrypted VA laptop and storage device, including personal data on 26.6 million veterans, was stolen in May 2006. The stolen laptop subsequently was recovered and the FBI has concluded that the personal data was not misused.

This afternoon, Bristol-Myers Squibb and Sanofi-Aventis, the co-marketers of the blockbuster anti-coagulant Plavix filed a motion for an order (preliminary injunction) barring Apotex from marketing a generic version of the drug. The motion was filed in the federal district court in Manhattan, the court where the Plavix patent litigation is pending. The court has scheduled a hearing for Friday August 18. Bristol Myers CEO Peter Dolan posted a public message about this action.

Next Tuesday, August 15, Bristol Myers Squibb is expected to seek an court order (known as a preliminary injunction) blocking Apotex from continuing to sell a generic version of its blockbuster anti-coagulant drug Plavix. A hearing on the motion may be held as early as Wednesday. Meanwhile the U.S. Department of Justice antitrust investigation of an aborted deal between the two companies continues.

The Centers for Medicare and Medicaid Services (CMS) has started the annual merry-go-round of announcing Medicare cuts that Congress subsequently restores. The merry-go-round is created by the Medicare law’s formula for annual changes to payments for physicians and other Medicare Part B services. Last year, CMS announced a 4.4% cut for 2006 that Congress reversed in January of this year.

Yesterday, CMS proposed a 5.1% cut for 2007. The CMS press release explains

The negative update is projected for 2007 because spending on physicians’ services and other Part B services has been growing at a much faster rate than target spending. Expenditures for physicians’ services in 2005 increased 10 percent over 2004, even faster than had been previously projected, mainly due to an increase in the number and complexity (or volume and intensity) of services furnished to Medicare beneficiaries, including more frequent and intensive office visits, and rapid growth in the use of imaging techniques, laboratory services, and physician-administered drugs. * * * Additional details on recent expenditure growth in Part B and the impact of growth in physician-related spending are available on the CMS website . Every year since 2002, in response to this rise in spending, the statutory update formula would have operated to impose payment cuts. In 2002, an update of negative 4.8 percent was applied to payment rates. To avoid further payment reductions, Congress intervened and temporarily suspended the requirements of the formula in favor of specific, statutorily dictated updates for 2003 through 2006. In passing these measures, Congress did not adjust the target, further increasing the gap between actual spending and the targets, and exacerbating the already difficult situation. As a result of continued rapid growth in utilization of services, coupled with legislative action to eliminate the payment reductions, Part B spending has increased more rapidly than had been forecast, and beneficiary premiums for Part B services have increased as well.

The American Medical Association immediately began its grass roots campaign against the proposed reduction. CMS likely will finalize the rule in October.

CMS also proposed changes yesterday to Medicare payments to outpatient hospital departments and ambulatory surgical centers (ASCs). CMS proposes to modify its payment policies for ASCs and increase by 14 the number of procedures that Medicare will cover when performed at ASCs.
Due to proposed changes in outpatient hospital care payment policies, “CMS estimates that hospitals will receive an overall average increase of 3.0 percent in Medicare payments for outpatient department services in 2007.” The CMS press release further explains that

In order to promote greater value in Medicare hospital outpatient services, the rule proposes to tie payment rate increases to the reporting of quality measures beginning in 2007. In the approach proposed in the rule, hospitals that report quality measures for purposes of the update in the inpatient prospective payment system (IPPS) would receive a full update on outpatient payments as well. Those hospitals required to report quality measures for inpatient services in order to receive the full IPPS update, but fail to do so, would receive the OPPS update minus 2.0 percentage points.

The trials of the Veterans Administration (VA) continue as one of its contractors, Unisys, had a desktop computer stolen from its Reston Virginia offices . The computer which did have password protection included the unencrypted protected health information of 38,000 veterans who received healthcare services from the VA in Pennsylvania. Unisys was collecting VA healthcare fees from third party payers. Can anyone identify the HIPAA violation?

The VA is taking remedial action by contracting with ID Analytics to “conduct a computerized analysis across multiple industries to detect patterns of misuse and determine whether or not there is any suspicious activity specifically related to the May 3, 2006, laptop theft which threaten the personal records of 26 million veterans.”

Medco Health Solutions, another one of the big three prescription benefit managers, has announced that it will begin dispensing Apotex’s generic version of the anti-blood clotting drug Plavix tomorrow. According to Marketwatch.com, “Medco members account for 24% of Plavix’s U.S. market share, and more than half of Medco’s Plavix prescriptions are filled through the company’s mail-order pharmacies.” Apotex evidently is trying to flood the market with the generic drug before the brand name manufacturers can get to court under an earlier settlement agreement.

According to a Washington Post report, Health and Human Services Secretary Leavitt informed the National Governors’ Association meeting that President Bush will sign an executive order next month requiring “all providers of federally financed health care [to] adopt quality-measurement tools and uniform standards for their information technology.” The Executive Order is expected to include standards that have been the focus of the American Health Information Community workgroups: “registering patients, reporting lab results, writing prescriptions and providing secure communication channels.” Presumably, federally financed health care will include the Federal Employees Health Benefits Program. The Secretary also “promised that by year’s end, a majority of the 100 largest private employers will sign similar contracts with the hospitals and doctors they use to care for their workers.”

What’s more, HHS also has created a spiffy new HIT website!

Plavix is an anti-blood clotting drug that is prescribed for many conditions. Its manufacturer Bristol-Myers Squibb had Plavix sales of $5.9 billion in 2005, second only to Pfizer’s Lipitor which also lost its patent protection in June.

Apotex, a Canadian drug manufacturer, was the first company to received FDA approval of a generic version of Plavix. Apotex also was engaged in a legal battle with Bristol Meyers and its co-marketer Sanofi-Aventis over the validity of the Plavix patent. Last month, several state attorneys general successfully challenged the validity of a proposed settlement of that case as anti-competititive, and the U.S. Justice Department is now investigating that settlement.

Apotex announced today that it is launching its generic Plavix, and Express Scripts, one of the big three prescription benefit managers, announced that it plans to begin dispensing that generic drug tomorrow. Apotex reportedly has five days to sell the generic drug before Bristol Myers and Sanofi-Aventis can apply for a court order blocking the sale on patent infringement grounds.

The Center for Studying Health System Change has published a study in the journal Health Affairs titled “Specialty-Service Lines: Salvos in the New Medical Arms Race.” The study postulates that during the 1990s hospitals competed primarily based on price due to the strict utilization controls and risk contracting imposed by health plans. The consumer backlash against those controls caused health plans to revert more or less to a fee for service environment in this decade.

The study observes that

In some ways, the first decade of the twenty-first century has seen a reemergence of hospital and physician interactions that were dominant prior to the managed care era, when hospitals competed for physicians’ loyalty by building the best facilities and obtaining the most up-to-date technologies. Contrary to mainstream economic theory, hospitals in more competitive environments had higher costs per case and per day than those in less competitive environments, when other factors were controlled for.

Although public policy attention has focused on specialty services provided by physician-owned specialty hospitals, resulting in a temporary federal moratorium on these facilities, the phenomenon of specialty services is a more pervasive development. Moreover, the rapid expansion of physician-owned ambulatory diagnostic and treatment facilities is threatening hospitals’ hegemony over a number of service lines. Aware of the threat posed by specialist physicians’ ability to raise capital on their own, some hospitals have established joint ventures with physicians, primarily as a defensive move. In short, while hospitals find a competitive need to promote a service-line orientation, an approach that requires the committed participation of key physicians, at the same time they often face growing competition from physician-owned service lines [in cancer treatment, cardiac care, orthopedic care, etc.].

The study concludes

Based on our interviews, hospitals associate some of their recent financial success to the use of service-line strategies. Hospitals still have sufficient control over many profitable service lines and continued contracting leverage with managed care plans, such that rate increases from private health plans make up for losses of business to competing hospitals and physician-owned ambulatory facilities. However, as more care moves to physician-owned ambulatory sites of service through gene therapy, robotic surgery, and other “disruptive technologies,” the role of the hospital in the health care system could change markedly.

Whether health care delivery is controlled by hospitals, physicians, or joint ventures between the two, one thing is certain: It is increasingly organized through specialty-service lines, which are already leading to early signs of increasing health care costs and having as-yet-unquantified effects on the quality of care. These salvos in the new medical arms race bear monitoring as the century unfolds.

This study is worth a read at the beach.

The Los Angeles Times reported last week about a new trend in overseas coverage — employers are sending their plan participants to hospitals in India and Thailand for surgical procedures.

[Dr. Arnold} Milstein, of Mercer Health & Benefits, says hospital quality is not a major worry [at these particular overseas facilities] because over the years, the same agency that accredits most American hospitals for participation in Medicare [JCAHCO] * * * has accredited 88 foreign hospitals through a joint international commission.

Bumrungrad Hospital in Bangkok, Thailand, and Apollo Hospitals in India, for example, are internationally recognized institutions. Despite the Third World conditions outside, the hospitals resemble five-star hotels and are equipped with the latest technology, American patients have reported. Many of the doctors are trained in the U.S., and visiting Americans are pampered around the clock, they have said.

A coronary artery bypass surgery costs about $6,500 at Apollo Hospitals in India, Milstein estimated. The average price in California is $60,400.

The article mentions a North Carolina employer with 2,000 employees that contracted with a medical tourism agency IndUSHealth to arrange for surgical care in India. What next?