Tag Archives: epipen

A Closer Look at the Future of Insurance

There is a growing energy around trying to predict the future of the insurance industry. Much of that energy is aimed at the use of technology and seeing what’s possible when we apply new stuff to our current approach to handling risk.

I’m more interested in the future of handling risk, as that topic gets to the purpose of our industry.

When you look at many of the startup companies attempting to disrupt or reinvent insurance, at the end of the “ultimate” experience, we are still delivering a policy … a hunk of money to replace the financial loss from a seemingly random event.

So what might that future look like? Here are a few possible frames for that answer:

Finding new, emerging risks

Risks are both great and small. Loss of life, health and home are financially catastrophic to most people, and the insurance industry has been keenly focused on these risks for decades or centuries. Smaller risks, like the loss or theft of a phone or credit card, interrupt the continuity of one’s lifestyle but are perhaps not a catastrophe; however, they are a nuisance that insurance can ease. And then there are new, emerging risks that the industry is and should be serving, such as cybersecurity and “overliving” one’s assets.

See also: Shaping the Future of Insurance

Prediction and prevention of risk

There is also a school of thought that suggests the insurance industry should enter the space of prediction and thereby prevention of certain risks. Data is critical to the underwriting of all kinds of insurance and is traditionally used to set rates. This includes weather patterns, health statistics and lifestyle information. Why not turn this data outward and offer products and services that let consumers in on the patterns, perhaps helping them to avoid risk in the first place? This is smart; however, I am not sure the insurance industry is wired to provide services vs. products.

What about power?

Where does the power from the current insurance model come from? While we have many experts who know a lot about the numbers, stats and so forth, the power really comes from the raw material that makes insurance: people and their money.

While the thought of people being the raw material for insurance may conjure up science fiction scenes akin to the classic film “Soylent Green,” it’s actually true. Getting people to pool their money together for common good is a powerful thing. It gives people with few resources the ability to financially hedge against risk even though they are not wealthy enough to replace their own losses.

Where else does similar power exist? One example is utilities. We love to hate our energy companies, water providers, phone service companies and internet providers. But, really, they are doing the same thing — pooling people’s money together to create access to something we couldn’t do individually. You can say the same thing about toll roads, trains and other services we share with strangers every day.

We tend to see these commonly shared amenities as basic human entitlements — civilization, the thing that separates us from the wild.

So in that frame, what is the next “basic” human entitlement going to be relative to risk?

Here’s an idea: We know technology is proliferating at an accelerated pace, and  there will be new ways to extend and improve our lives in the future that we can’t conceive of yet.

What if the cure for cancer or Alzheimer’s disease or the ability to control the weather is owned by a private company? Will average people have any right of access? The recent story about the EpiPen made my blood boil. Mylan, the company that owns the EpiPen, has recently increased its prices more than 400%, shifting the burden to insurers, which then need to push the cost on the consumer — because Mylan can.

See also: The Future of Insurance Is Insurtech  

An August 2016 Forbes article said: “The coup de grâce … [is] that … [this] … will divide the ‘have intervention for anaphylaxis’ from the ‘have nots’ and might die as a result.”

Can insurance companies use their inherent superpower of pooling to create a product that acts like a futures option to access technologies that have not been invented yet? Perhaps to place bets on the right companies that are working hard to figure them out, and designing an investment product that gives them research funding now, for the right to access it at a fair price in the future?

This, I believe, should be the real future of insurance.

EpiPen and the Prescription Crisis

The American prescription crisis is no longer coming. It’s here. And we need to focus on how to address it.

According to a study published in the Journal of the American Medical Association in August, for each person in the U.S., $858 is spent annually on prescription drugs, compared with an average of $400 per person across 19 other industrialized nations. Prescription medications now compose an estimated 17% of overall healthcare expenses.

How did we get here and who is to blame: the manufacturer of the drugs or the American drug distribution channel? Both parties are pointing their fingers at one another, with the flames being fanned by the media and government. Who should the consumer believe?

Unless you are living in a cave, you have heard or read about the EpiPen pricing scandal. The manufacturers’ CEO, Heather Bresch, claims that more than half of the new $608 list price is absorbed by the distribution channel. She says the huge price increases are not her company’s fault and attempts to justify the increased price. Is she right, or is she trying to pin the blame elsewhere for her pricing decisions?

See also: EpiPen Pricing: It’s the System, Stupid  

Drug manufacturers, in general, complain that their net incomes continue to remain flat or even decline. They show their financials as evidence and complain about the ratio of the list price of their drugs vs. the realized price, a figure known as “gross-to-net.” When rebates paid by the manufacturer outpace the price increases by the same manufacturer, it is easy to understand why the figure remains flat or even declines.

The pharmacy benefits manager (PBM) serves as the largest component of the manufacturers’ distribution channel, charging a margin/fee as well as collecting a rebate for their services. Somehow, they have redefined the laws of nature by figuring out how to consistently convince their clients that they are saving money, while showing Wall Street steady revenue growth.

The crisis is here, and as an employer you should be up at night wondering how this crisis of prescription costs affects you. The numbers don’t add up, and you are paying for the deficit.

U.S. Healthcare Actually Isn’t Broken

The header image was part of an article by Bloomberg that was written more than two years ago (May 2014). The data itself goes back nine years. Mylan’s price gouging was front and center recently, this week, but the gouging issue has been percolating for years. It has erupted before, and it will erupt again. Everyone’s squawking, and legislators are “looking into it,” but it won’t be solved this year — or even this election cycle. Here’s why:

Mylan’s pricing controversy with EpiPen is the same controversy that plagues much of U.S. healthcare. As a country — and as individuals — we don’t like it when there’s a BIG, obvious imbalance between the cost of healthcare and the need for it at scale, especially for kids. Our indignation is righteous.

The EpiPen delivers about $1 of a drug (epinephrine) easily and quickly to avoid a life-threatening condition (anaphylactic shock). The company that manufactures the EpiPen (Mylan) has raised the price dramatically through the years, especially relative to the cost of either the drug or the delivery mechanism. We can’t really claim ignorance here; EpiPen is one of the drugs from that Bloomberg chart in the header. As hard as it may be to believe, the reason for all the increases isn’t complex or complicated at all, it’s simple. Mylan raise prices because it can — and the EpiPen is a BIG moneymaker for the company.

But the EpiPen controversy isn’t unique to Mylan. It’s the exact same controversy in that Bloomberg chart and the one sparked by Martin Shkreli last year (with the drug Daraprim). Shkreli was my pick for the No. 1 quote in my Top Ten Healthcare Quotes for 2015:

I probably would have raised the price higher … is probably what I would have done. I think healthcare prices are inelastic. I could have raised it [Daraprim] higher and made more profit for our shareholders, which is my primary duty — and again — no one wants to say it, no one’s proud of it — but you know this is a capitalist society, capitalist system and capitalist rules, and my investors expect me to maximize profits.

Not surprisingly — Shkreli was publicly supportive of Mylan’s pricing increases. However, Ralph Nader referred to Mylan as “greed on steroids.”

See also: EpiPen Pricing: It’s the System, Stupid  

Valeant Pharmaceuticals is another company like Mylan and Turing, and they, too, have generated similar controversies through the years with their price increases.

The pattern is well-documented and easy to see.

But there’s a really hard truth to these hemorrhoidal flare-ups of price gouging. We resent it, but not enough to understand it, and that’s a big problem. There’s also a collective problem in trying to make real, substantive changes.

Real change is difficult — and it requires a deeper understanding. We need to go beyond the headlines and understand how drug pricing fits into our whole healthcare system design. All too often, we simply throw up our hands and falsely conclude that our healthcare “system” is broken. The hard truth that we must face head-on is that it really isn’t.

We think it’s “broken” because we don’t understand the evolutionary design of our healthcare system. There’s an urgent immediacy to our culture that makes history too long, too boring, too difficult — but it always bites us. As the author Michael Crichton said:

If you don’t know history, then you don’t know anything. You are a leaf that doesn’t know it is part of a tree.

In fact, there’s another quote — by another author — that I like to use to highlight our specific challenge with that deeper understanding of our healthcare system.

On the release of his book Flash Boys, author Michael Lewis was interviewed by Steve Kroft on “60 Minutes,” and a quote from that interview was both the inspiration and influence for my book Casino Healthcare:

If it wasn’t complicated, it wouldn’t be allowed to happen. The complexity disguises what’s happening. If it’s so complicated that you can’t understand it — then you can’t question it.

What Lewis was referencing was high-speed trading on Wall Street, but the quote could just as easily be applied to all of U.S. healthcare. In fact, it’s tailor-made. Our healthcare system has become so complicated that we can’t understand it. But that complexity is also by design as a way to avoid the hard questions.

See also: Our Real Problem With Drug Pricing  

We desperately want someone — or something — to just fix healthcare. We thought Obamacare might do so — and some truly believed it could — but Obamacare is really just a single step out of our healthcare wilderness, the same wilderness we’ve been wandering around in for decades. At different times we’re angry, lost, confused, frustrated and hurt — and it winds up being more of a ghoulish nightmare than a wilderness.

But the hard truth in this wilderness is that in our Casino Healthcare (including big-side stories like EpiPen), all the players are complicit. Payers, providers, pharma, politicians and suppliers are all aligned to a primary objective: their objective. These objectives are unique to them individually, but they’re the same collectively. It’s the for-profit business of revenue, stock price, shareholders, risk capital and campaign contributions. Safety, quality and equality in our system are secondary objectives, even though there are many that push hard for the full attention they deserve (myself included).

Mylan is simply doing what for-profit companies are legally required and expected to do : work in the best interests of their board, their investors, their stockholders — and, yes — themselves. Like her or not, the CEO of Mylan is doing exactly what she is paid (very well) to do. If she were fired tomorrow, any replacement would simply dial back the pricing to avoid the heat and slowly ratchet it back up when our anger and frustration moved on. It always moves on.

We don’t like to hear it, but we’re complicit, too, just in a different way. We’re complicit in our ignorance because we don’t dig deeper, we don’t understand the whole design, and the media flare-ups do die down. Valeant, Turing and now Mylan are like accidents on the freeway. We slow down, we’re stunned and aghast at the horror — and then we move on.

See also: How Quote Data Can Optimize Pricing  

So, no, the EpiPen story isn’t rare or all that different. It’s not just a delivery mechanism for epinephrine, it’s an important lens into the whole healthcare debate. It just happens to be the latest in a long line of stories that will continue to repeat until we make systemic changes to the way U.S. healthcare is designed. We can make those changes. We should make those changes, but the first step for all of us is to understand that the system we have — now running at $3.4 trillion per year, more than $10,000 per capita — isn’t broken at all. It was designed this way, and we just need a whole new design. Not a partial one, not just around the edges, but at the core — one that’s not optimized for revenue and profits but one that’s optimized for patient safety, quality and, yes, real equality first.

EpiPen Pricing: It’s the System, Stupid

Drug manufacturers can’t catch a break, but are they the real culprit?

Sure, we could wave our finger at Heather Bresch, CEO of Mylan, but didn’t we just do this to Martin Shkreli from Turing Pharmaceuticals and Michael Pearson from Valeant? The key question isn’t, who’s the offender du jour? Instead, it’s why do these pricing “scandals” keep happening, and is our best offensive strategy public shaming?

Complaining about Mylan is pointless because, as a publicly traded company, it is doing exactly what we would expect it to do to meet the profit and growth expectations of investors. Why is it Mylan’s responsibility to compete against itself? If this were the financial services industry, Bresch would be hailed as a genius.

The real issue here is market failure because of the lack of effective competition. Until we solve this underlying market dysfunction, we’ll just experience the same event again and again, much like Bill Murray in Groundhog Day, just with different names and companies. Maybe the best way to explain the real problem is, “It’s the system, stupid.”

So, what’s the hubbub about?

The EpiPen is a decades-old technology first developed for the U.S. military and paid for by the American people. An EpiPen is a branded auto-injector that delivers a metered dose of epinephrine, a cheap and generic lifesaving drug that has been in use for more than a century. A single dose vial can be purchased for less than $2. Assume another couple of dollars for the auto-injector, add some enormous margins and, voilà, the selling price is $635. This is profitable capitalism — effectively a monopoly.

See also: A Radical Shift in Pricing Cancer Drugs?  

A monopoly for an inexpensive generic drug encased in plastic? Really?

A fair and competitive market requires three things: 1) real supply options, 2) the freedom to choose any of these options and 3) regulations that prevent monopolies and promote the public good. Let’s analyze how the EpiPen fares on each.

First, supply options. Are there alternatives to Mylan’s version of an epinephrine auto-injector? Yes. Two pharmaceutical companies, Amedra and Lineage, manufacture less expensive, directly competitive products.

Screen Shot 2016-08-29 at 12.10.00 PM

Next, how easy is it for us to choose these EpiPen alternatives? This is where the friction starts. Unfortunately, most physicians aren’t aware of the available options because most pharmacy benefit managers (PBM) and health plan formularies exclude them, making choice virtually impossible. To understand why, let’s consider who really makes drug-purchasing decisions. A drug purchase starts with a prescription written by a physician. So are physicians responsible for the EpiPen monopoly? Partially. Rather than prescribing EpiPens, physicians should prescribe epinephrine auto-injectors, of which there are multiple options in the market.

What’s the consumer’s and taxpayer’s next line of defense? Wasn’t this why an intermediary, such as a plan or a PBM, was hired in the first place? Yes. Then, why does our advocate, the intermediary, steer us in the direction of the highest-cost option?

Unfortunately, the financial incentives don’t work the way we think they do. Intermediaries don’t make decisions based on what is best for the actual payer. Rather, they participate with manufacturers in complex rebate schemes (really kickbacks, even if they don’t meet the legal definition), allowing them to collect steep profits on brand drugs.

Bresch states that Mylan pays rebates in excess of $300 to intermediaries who aren’t passing them back to the payer. This isn’t altruism; instead, all drug manufacturers know the intermediaries keep large portions of their rebates. This profit incentive is the mechanism that kicks competing drugs out of PBM and plan formularies, locks out competitors, drives market share and creates monopoly (or near-monopoly) conditions.

Let’s review how drug purchases are made in today’s dysfunctional system:

  • Consumer: Follows the physician’s choice as long as someone else is paying for it.
  • Physician: Prescribes what she is familiar with. She’s not paying for it, so what does she care?
  • Manufacturer: Designs incentives to maximize market share and profitability—and gets a monopoly if all works as planned.
  • Intermediary: Steers consumers to drugs that maximize their profit.
  • Payer: Stuck without data about what works, out-of-control drug spending and no real options.

As John Quelch from Harvard Business School & T.H. Chan School of Public Health, puts it, “Monopolistic pricing is a political issue, especially in healthcare. If the industry cannot self-regulate, increasingly empowered consumers will have their elected officials do the job for them.”

I believe breaking significant healthcare monopolies is not only legal, it’s a regulatory obligation. While policymakers have responded, their strategy unfortunately seems to rely heavily on public shaming. A more useful role for them would be to break existing significant monopolies and create legislation to prevent the formation of new ones. The healthcare industry isn’t going to fix itself. Long-lasting, effective change will only occur when external economic and regulatory pressure mandates it.

Are we dreaming an impossible dream? Not at all.

See also: New, Troubling Healthcare Model  

After we get past the completely understandable anger of millions of Americans, healthcare is no different than many other industries once driven by dysfunctional systems that resulted in similar monopolistic behavior. In fact, our path forward could be easier because of successful precedents in our recent past.

Not too long ago, the travel and financial services industries were also plagued by a dearth of information available to the consumer, a lack of choice to real buying options and lax regulatory oversight. Not only was the fix possible; it happened a lot faster than anyone expected!

Together, we can do the same for healthcare.

See also: Keep the Humanity in Healthcare  

Imagine a world where: we have a functional market because we reward companies that have innovative solutions; the people who actually pay for these products and services have true control; and the ugly veil on pricing and business model opacity is finally lifted.

We need to ensure the dollars we spend directly (and through taxes) are used to solve these problems rather exacerbate them. As Quelch points out, we are either going to have to solve this problem or the government will step in. I believe it’s better we fight to fix it instead of relying on the government to make our healthcare decisions for us. The government needs to ensure a level playing field exists for all, and we need to innovate and offer better solutions for less.

As much fun as it is to shame Mylan, a much better way to punish the company would be to buy the lower-cost alternatives from Lineage and Amedra. That is how a real market system works.