Tag: 2016 News

Global pressure on health spending is forcing the $1 trillion-a-year pharmaceutical industry to look for new ways to price its products – charging based on how much they improve patients’ health, rather than how many pills or vials are sold.

And according to the article in Reuters Health, some experiments in pricing have already been made.

But shifting the overall industry to a new model requires improvements in data collection and a change in thinking, say drug pricing experts. “Eventually, we are going to get there,” said Kurt Kessler, managing principal at ZS Associates in Zurich, which advises companies on sales and marketing strategies. “But it is a long, tough slog because it’s difficult to get the right data and agree on what the right outcomes are to measure.”

In the past, governments and insurers made room in their budgets for new drugs by switching to cheap generics as patents expired on older drugs. But today generics already account for nearly nine out of every 10 prescriptions in key markets like the United States, and fewer big drugs are going off patent.

That leaves little headroom for pricey new medicines even as they come to market in growing numbers. The U.S. Food and Drug Administration has already approved 16 new drugs this year.

Investors got a wake-up call on the issue last recently when $10 billion was lopped off the market value of Novo Nordisk as the world’s biggest diabetes firm warned of falling U.S. prices.

Pharmacy benefit managers administering U.S. health plans are pushing back hard by excluding some drugs deemed too expensive – including Novo’s – leading to a crunch in areas like diabetes, a disease that now accounts for 12 percent of global healthcare spending.

The Danish group has an unusually high exposure to the U.S. market, but it is not alone in signaling tough times ahead.

The chief executives of Novartis, Eli Lilly and GlaxoSmithKline have all warned recently that pricing will become increasingly challenging across the board.

Accounting for 40 percent of global drug sales, the fate of the U.S. market is front and center in the minds of drug company executives, some of whom privately admit to preparing for a “confrontational” period in relations with politicians.

Novartis CEO Joe Jimenez believes drugmakers must develop value-for-money pricing models, like the performance-based deal the Swiss drugmaker recently struck with two U.S. insurers for its new heart failure drug. Under that deal, payments for Novartis’ Entresto pill are to be calculated in future based on the proven reduction in the proportion of the insurers’ patients admitted to hospital for heart failure, not on the number of pills they consume.

The aim is a flexible pricing system that rebates healthcare providers when a drug doesn’t work as planned and charges more when it works well.

Europe is in the vanguard of such moves. Britain agreed an early performance-based deal for a Johnson & Johnson (JNJ.N) blood cancer drug back in 2007 and Italy also uses patient data to pay for cancer drugs based on actual patient responses.

GSK CEO Andrew Witty sees this outcomes-based approach slowly becoming the norm in more disease areas and geographies. “Whoever wins the election in the U.S., and also in Europe, we will see those conversations play out over the next few years,” he told Reuters. “I am not particularly expecting anything dramatic in 2017. I would say it is worth keeping an eye open for evolution of change, probably in ’18 and ’19.”

The pharmaceutical industry’s European trade association is already discussing ways to shift to outcomes pricing, following price curbs in Germany that have caused some companies to pull products off the market, and effective rationing in Britain, where strict cost-effectiveness rules apply.

Authorities in Asia’s two biggest markets, China and Japan, are also intervening in new ways to cap runaway costs.

Between 2008 and 2015 at least 9,000 companies have left California for a better business environment, according to the 378 page study by Spectrum Location Solutions titled, California’s Forty Year Legacy of Hostility to Business.

Joseph Vranich, president of site selection consultants Spectrum Location Solutions (VLS) in Irvine, places the blame on the Golden State’s “hostile” business environment.

The 2015 Chief Executive Magazine annual survey of business climates was completed by 511 CEOs across the U.S.  States were measured across three key categories to achieve their overall ranking: Taxes and regulations, quality of the workforce, and living environment, which includes such considerations as quality of education, cost of living, affordable housing, social amenities and crime rates.

For the 11th year in a row, Chief Executive Magazine found California to be the “worst state for business in 2015.” This placement is not “near the worst” but actually “THE WORST” ranked as 50 out of 50, the lowest rank possible for each of 11 years. CEO’s comments include: “California could hardly do more to discourage business if that was the goal.” “The state regulates and taxes companies unreasonably.” “California is getting worse, if that is even possible.”

But despite the growing anti-business environment, California’s economy grew for decades due to wonderful scenery and climate, a workforce with technical expertise, and trade access to Asian nations.

But since the start of the Great Recession and accelerating after Brown’s election as governor in 2009, a mass exodus of businesses from the not-so-Golden State to more “friendly” locations like Texas and Nevada occurred.

Between 2011 and 2012, Bureau of Labor Statistics data compiled by Bloomberg News indicated that California lost ground in a related category: the number of business establishments: “There were 1.3 million businesses in California at the end of 2012, 5.2 percent fewer than in the previous year (that’s about 73,000 fewer).” Florida, another state hard hit by the bursting of the real estate bubble, and the state with the second most businesses, added new businesses at the nation’s seventh-fastest rate.

The top 10 states that California businesses have relocated to over the last seven years are in the following order: (1) Texas; (2) Nevada; (3) Arizona; (4) Colorado; (5) Washington; (6) Oregon; (7) North Carolina; (8) Florida; (9) Georgia; and (10) Virginia.

Los Angeles was at the top of the list of the 10 California counties that suffered the highest number of disinvestment events. L.A. was followed by: (2) Orange, (3) Santa Clara, (4) San Francisco, (5) San Diego, (6) Alameda, (7) San Mateo, (8) Ventura, (9) Sacramento, and (10) Riverside counties.

The Report claims that the California government has a “dismissive attitude toward any suggestion that California has become economically uncompetitive.” One example in 2014 when Toyota Motor Corp. announced it will move its Torrance headquarters to Plano, Texas, Gov. Brown revealed his aloofness towards business challenges by saying, “We’ve got a few problems, we have lots of little burdens and regulations and taxes, but smart people figure out how to make it.”

The Wall Street Journal came back with this: “California’s problem is that smart people have figured out they can make it better elsewhere.”

Another example of concerns is evident in a comment by Ehsan Gharatappeh, Chief Executive Officer of CellPoint Corp. of Costa Mesa. In early 2015, when launching a new facility in Fort Worth, he said in testimony in Sacramento “Even if California were to eliminate the state income taxes tomorrow, that still would not be enough to put my manufacturing operations back in California.”

The Report concludes that “business interests have provided an encyclopedic accounting of California’s difficult environment to Gov. Brown and the Legislature to no avail.” Well, SB 863 made workers’ compensation a little bit less costly. But in the big scheme of things will it make any difference and stop dsinvestment in California?

Former State Senator Leland Yee was indicted for corruption in office which included a 2013 incident in which Yee allegedly agreed to take $60,000 — which he believed was coming from a National Football League team owner — in exchange for his and another senator’s vote on a bill dealing with workers’ compensation insurance for pro athletes. Last February Yee was sentenced to five years in federal prison following his guilty pleas.

Yee was ensnared by an FBI investigation that spanned several years and led to the convictions of Raymond “Shrimp Boy” Chow, a reputed Chinatown mobster, Keith Jackson, a former school board president and fundraiser for Lee, and others.

The mobster, Kwok Cheung Chow, AKA Raymond Chow, AKA Ha Jai, AKA Shrimp Boy was sentenced on August 4 to life in prison following his convictions for racketeering, murder, money laundering, and conspiracy charges. Chow, 55, of San Francisco, served as the Dragonhead, or leader, of the San Francisco-based Chee Kung Tong organization.

On January 8, 2016, a federal jury found Chow guilty of criminal activities in connection with the racketeering organization and additional conspiracies. In all, Chow was charged with 162 counts including 125 counts of money laundering, aiding and abetting the laundering of proceeds of narcotics sales, conspiring to deal in illegal sales of goods.

Chow originally was charged with various racketeering related crimes in a criminal complaint filed March 24, 2015. The complaint charged that the purposes of the organization included the illegal trafficking of controlled substances, extortion, and participation in the collection of illegal debts. On October 15, 2015, the charges were formally amended in a Third Superseding Indictment to include murder. Chow was charged with and convicted of arranging the murder of Allen Leung and conspiring with others to murder Jim Tat Kong.

The jury found Chow guilty of every one of the 162 charges leveled against him.

In sentencing Chow, Judge Breyer said, “The murder in this case [of Mr. Leung] that requires the life sentence was particularly callous because it was the removal of an obstacle to your ascension to power. So whether you paid for it, or not, the question is: what is your motivation for doing so? And your motivation for doing so was to take over the leadership role of the tong and corrupt their purposes.”

“Chow was sentenced to serve the rest of his life in prison,” said U.S. Attorney Brian J. Stretch. “We hope that this prosecution and the resulting sentence provides the victims and their families with some measure of satisfaction that Mr. Chow will never again be free to continue with his life of crime.”

“This sentence reflects our commitment to vigorously pursue justice for the victims and community that Mr. Chow preyed off of for so long,” said FBI Special Agent in Charge John F. Bennett. “We hope that the sentence brings some form of closure for the families of Allen Leung and Jim Tat Kong, and shows that type of greed and violence will not be tolerated.”

“This was a case about power and greed,” said Michael T. Batdorf, Special Agent in Charge, IRS Criminal Investigation. “From narcotics trafficking to public corruption and murder, Mr. Chow laundered millions of dollars in drug and other illegal proceeds for a profit. Today’s sentencing closes the chapter on Mr. Chow’s life of crime.”

In addition to the life term of imprisonment, Judge Breyer also sentenced Chow to pay a special assessment of $16,200, to pay restitution in the amount of $15,881.60, and to forfeit $225,000.  The Judge also issued an order enjoining Chow and others from profiting from his life story.  Chow has been in custody since his arrest on March 26, 2014, and will begin serving his life sentence immediately.  

In May 2012, an SCIF claims adjuster became suspicious that claimant Sparkle Sky Bivens was submitting fraudulent disability claims after Bivens failed to document attending certain required medical appointments. The SIU determined it needed to surveil Bivens, but because it has no internal surveilling resources, it hired Paul Chance Investigations, a third party investigator, to surveil Bivens and obtain evidence she was engaging in activities she claimed she could not perform.

Chance deployed a team of four investigators to surveil and videotape Bivens’s activities over several days. SCIF testified that although normally investigations require only one investigator, occasionally circumstances warrant a team of investigators. Chance recommended it surveil Bivens with a team, rather than an individual investigator, because Bivens lived in a crowded area of Los Angeles, heavy with traffic, and Bivens was a fast driver, conditions which would make Bivens a difficult target to follow.

Chance’s investigators eventually caught Bivens on film engaging in activities she alleged she could not do. SCIF submitted the film to a doctor who determined Bivens’s disability claims were unjustified. SCIF consequently terminated Bivens’s disability payments.

After SCIF terminated Bivens’s disability payments, Bivens’s attorney requested SCIF reinstate her disability payments. SCIF spent at least an additional $11,000 looking into reinstating the payments, but concluded its original decision to terminate the payments was correct. At the conclusion of the investigation, SCIF determined Bivens had defrauded SCIF in the amount of $4,000.

On July 10, 2013, the People filed a complaint for three counts of insurance fraud and one count of grand theft of personal property. Bivens reached a plea agreement whereby Bivens pleaded guilty to one count of felony insurance fraud in exchange for reducing her felony to a misdemeanor if she completed 250 community service hours and repaid SCIF the $4,000 she stole. Bivens completed her community service and paid SCIF $4,000, and the court reduced her conviction to a misdemeanor.

At the scheduled restitution hearing, SCIF argued it was entitled to $34,154.70 in restitution, in addition to the $4,000 Bivens already paid, due to the investigative costs it incurred determining the falsity of Bivens’s claims. After hearing argument, the court reducing SCIF’s requested restitution amount to $4,000. The People appealed.and the court of appeal sustained the reduction in the unpublished case of People v Bivens.

“Trial courts have broad discretion to order victim restitution and such an order will not be reversed if there is a ‘factual and rational basis for the amount of restitution.’ ”

The trial court had “compelling and extraordinary reasons” for not granting SCIF’s full restitution request because the amount was unreasonably high. SCIF incurred $34,154.70 in investigative expenses, more than 8.5 times the $4,000 Bivens stole. Although SCIF presented some testimony supporting that documenting the necessary evidence to discredit Bivens required a team of investigators tailing Bivens over multiple days, as the trial court noted, this type of expensive, extensive “counter-surveillance” is more appropriate for the likes of the “Medellin Cartel.”

The court of appeal concluded “SCIF makes no compelling argument this amount was “necessary” to uncover the fraud or to more significantly substantiate it. As a quasi-state agency, SCIF has a duty not to create waste, and further investigating a case it already determined to be fraud and had turned over to law enforcement is wasteful.

The workers’ compensation insurance system in California is over 100 years old. More than 220 insurance companies provide workers’ compensation insurance coverage to nearly 700,000 employers and deliver medical and wage replacement benefits to almost 800,000 injured workers and their families annually.

The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) is the licensed rating organization for workers’ compensation and is the California Insurance Commissioner’s designated statistical agent. As such, the WCIRB monitors the health of the workers’ compensation insurance system and makes its data and analysis available to system stakeholders and public policymakers.

The WCIRB has released its 2016 State of the California Workers’ Compensation Insurance System (Report). The Report highlights the cost of California workers’ compensation insurance based on premiums paid by insured employers, shows how premium dollars are distributed among various system components, and details cost drivers in the system. The Report also contains a brief summary of how post-Senate Bill No. 863 (2012) costs are emerging compared to initial projections.

Principal findings of the Report include:

1) Growth in California written premiums has slowed compared to that of prior years as insurer rate increases have moderated, while economic expansion has contributed to increased employer payrolls.

2) California’s insurance rates, which are on average the highest in the country, are largely driven by the greatest frequency of permanent disability claims in the country, high medical costs per claim propelled by a protracted pattern of medical treatments, and much higher-than-average costs of handling claims and delivering benefits.

3) Recent increases in indemnity claim frequency that are counter to trends in other states are largely driven by increases in the Los Angeles Basin area. After adjusting for regional differences in wage levels and industrial composition, indemnity claim frequency in the Los Angeles Basin area was over 30% higher than the statewide average. Comparatively, indemnity claim frequency in the Bay Area was approximately 15% lower.

4) Despite provisions of SB 863, which intended to reduce frictional costs, average allocated loss adjustment expenses in California have increased by 24% since 2012. Within California, average allocated loss adjustment expense costs are over 20% higher in the Los Angeles Basin area compared to the remainder of the state and is the highest ratio of loss adjustment expenses to losses in the country at almost twice the countrywide median.

5) While the difference between California medical costs and medical costs in other states has moderated with recent declines in California average medical severities since 2010, the average California medical benefit per claim remains among the highest in the country with costs more than 60% above the countrywide median.

6) Since enacting SB 863, savings in medical costs resulting from the new physician fee schedule, resource-based relative value scale (RBRVS) physician fee schedule, independent medical review (IMR), and other provisions have more than offset higher-than-projected allocated loss adjustment expenses, resulting in greater overall cost savings than initially forecast.

The Report authors will conduct a live webinar on August 8, 2016 from 10 to 11 am PT to discuss these findings and answer questions. Registration information is online. The webinar is free and open to the public.

For those unable to attend the live webinar, a recording will be posted in the Research and Analysis section of the WCIRB website following the event.

The full Report is available in the Research and Analysis section of the WCIRB website.