Category Archives: Policy and politics

E-cigarettes: the California Cooler of the 21st century

Just a harmless, tasty treat?

Just a harmless, tasty treat?

If like me you came of age in the 1980s you remember the California Cooler, a sweet wine/juice combo that made it easy for kids to start drinking alcohol even if they couldn’t handle the “adult” taste of beer, wine or liquor. They were very popular at the time but I don’t recall anyone ever saying they were a healthy alternative to anything.

Fast forward 30 years to the e-cigarette era. New data show 13 percent of high school students use e-cigarettes. From the Boston Globe (E-cigarette use spikes among American teens)

In interviews, teenagers said that e-cigarettes had become almost as common at school as laptops, a change from several years ago, when few had seen the gadgets… A significant share said they were using the devices to quit smoking cigarettes or marijuana, while others said they had never smoked but liked being part of the trend and enjoyed the taste — two favorite flavors were Sweet Tart and Unicorn Puke, which one student described as “every flavor Skittle compressed into one.”

Policymakers are confused. E-cigarettes seem safer than smoking, and at least some people must be using them to try to quit. But my view is that at least for kids they lower the barriers to unhealthy behaviors by making drug use more like having a candy or soft drink. The FDA banned nicotine lollipops. Why is this different?

I’m concerned about this delivery method for nicotine, but I’m also worried about marijuana. E-cig entrepreneurs have been busy finding ways to use the devices to deliver THC, and there is a big rise in marijuana laced foods, so-called edibles or medibles. Let’s not fool ourselves and our kids by pretending these drugs are harmless treats.

Image courtesy of patrisyu at FreeDigitalPhotos.net

By healthcare business consultant David E. Williams, president of Health Business Group.

Sovaldi: a near-perfect example of price discrimination

The controversy over the pricing of Gilead’s Sovaldi for Hepatitis C is a textbook example of price discrimination in action. I hope that my quick review of some of the principles involved will help explain what’s going on.

Gilead sells Sovaldi for high prices in the US: up to $85,000 or so for a course of treatment. The price is a little lower in Europe, substantially lower still in middle income countries and less than  $1000, or 1 percent of the US price in poor countries such as India. Such stark differentials set up major financial incentives for people in richer countries to obtain the product in poorer countries. With more than $80,000 per patient at stake, grey marketers could easily make millions of dollars and even an individual patient from a rich or middle income country would find it financially worthwhile to go to a low income country to procure the medicine.

This isn’t just theoretical. I was approached by a consultant representing large US employers who were exploring pharmacy tourism that would send patients abroad for their drugs.

Gilead has responded by taking steps to limit diversion of product. Patients must present IDs showing they are residents of the country to be eligible for the low-income country price. Patients can only get one bottle of medication at a time. Naturally some folks, including Doctors Without Borders, are complaining about the burden on patients and caregivers, and accusing Gilead of being greedy and maximizing profits.

Although the anti-Gilead people have a valid perspective, my sympathy is mainly with Gilead. The concept of price discrimination: charging different prices to different customers based on willingness or ability to pay, maximizes a monopolist’s profits but it also maximizes societal benefit. As the simplified chart below illustrates, Gilead makes the most money if it can sell the medication at different prices in different countries. That also leads it to sell the highest quantity of product, meaning more people can be treated.

 

Price discrim

If Gilead were required to charge the same price everywhere in the world –as shown below– it would result in a windfall for consumers in high income countries (“consumer surplus”) and lack of affordability in poorer countries (“deadweight loss”), because patients in poorer countries could not afford to be treated. Even assuming Gilead wanted to maximize its profits in that scenario fewer people would get the treatment.

No discrim

 

Because of the opportunity for price discrimination, Gilead was willing to introduce Sovaldi in rich and poor countries at the same time –something that doesn’t usually happen.

For price discrimination to work, the following conditions must hold:

  1. The firm (Gilead) must have some monopoly power. In this case the monopoly is based on patent rights. Gilead critics can try to undermine this power by encouraging governments to ignore patents.
  2. Markets must be able to be segmented and kept separate. Here that means segmentation by country, but theoretically it could be done down to the individual level so that rich people in poor countries pay the same or more than poor people in rich countries. (In rich countries there are other mechanisms to do this, such as patient assistance programs, but let’s not make this even more complex.)
  3. There can not be leakage between markets, otherwise the price is eroded in the expensive market. That’s why Gilead needs to confirm residency and why pharmacy tourism undermines societal benefit.

Price discrimination maximizes profits and maximizes societal benefits by increasing the number of people who can afford treatment, while rewarding the monopolist for bringing a valuable innovation to market. It’s not necessarily true that patients are harmed when Gilead maximizes its profit.

Allowing and even encouraging price discrimination is good global health policy. It encourages innovation and lessens global disparities.

By healthcare business consultant David E. Williams, president of Health Business Group.

Health Wonk Review is up at Wright on Health

The latest Health Wonk Review blog carnival is posted at Wright on Health. This is the Spring Forward edition, featuring several stories about the Supreme Court’s latest look at Obamacare, plus a smattering of posts on workers comp, health IT, Ebola, and class conflict.

Health Wonk Review: Happy 10th anniversary edition

10 years old and still hitting the mark

10 years old and still hitting the mark

The Health Business Blog turns 10 years old this weekend, so I thought I’d celebrate by hosting the Health Wonk Review. And some fine submissions have come in.

Is that the best you could do? I’m no lawyer, but King v. Burwell, which could overturn ObamaCare subsidies in states that lack their own exchanges, is ridiculous on its face. Of course Congress didn’t intend to deprive people of subsidies based on whether their exchange was state or federal. Managed Care Matters does a nice job of laying out just how lame the plaintiffs are. If they were harmed by ObamaCare it’s hard to see how, and they are ignorant of the law to boot.

Insurance Co-Ops were a late-in-the-day add to the Affordable Care Act, a sop to those who wanted but did not get a so-called public option. It’s awfully hard to start up an insurance company as some of the Co-Ops are demonstrating. InsureBlog says we told you so.

Pricey, pricey, pricey. High cost regions tend to stay that way for a long time, even when controlling for factors such as health status and price variation. Healthcare Economist says that means there are real differences in practice patterns.

Sell to the masses and dine with the classes. A Catholic Health Care CEO sues for defamation after a union advertises his $2.2 million compensation package. Health Care Renewal struggles to understand how an organization that focuses on serving the poor could be comfortable with how the CEO is behaving.

Risk and uncertainty will replace measurement and outcomes as the basis for future healthcare reform. So says the Population Health Blog as it examines the links between the Information Age, health IT, biology, statistics and quantum mechanics.

Speaking of the future, Workers’ Comp Insider suggests a seismic shift in the century-old workers comp system but notes that workers comp has not exactly been a trailblazer.

It’s nice to find an optimistic wonk, but we’ve got one right here at Health System Ed, which marvels about the ONC’s national meeting and its progress on interoperability. But don’t worry, the post includes a dose of skepticism as well.

Some people will do anything to avoid taxes, gain frequent flyer miles and now, avoid ObamaCare. But Colorado Health Insurance Insider shows us why the “easy” ways to game ObamaCare may just turn out to be complex and costly after all.

It says something when a blogger apologizes for a submission that is especially wonky, but if you can make it through Health Affairs Blog’s three-part series on the CMS final 2016 Notice of Benefit and Payment Parameters rule and final 2016 Letter to Issuers in the federal exchange you can’t help but learn something.

Like most providers, The Hospital Leader is dismissive of patient experience scores, confident that patients only respond to big TVs, tasty food and swanky lobbies. And yet a well designed study shows that this quite common opinion is unjustified.

What’s the highest margin activity in the hospital? Becker’s Hospital CFO blog by Copley Raff has the answer: fundraising.  Ka-ching!

Last and likely least, here’s one from my own Health Business Blog. The Pfizer acquisition of Hospira –explained by most observers as Pfizer’s way to get into generics– is really about Pfizer getting back into the “me-too” drug business that was the foundation of its glory days.

Thanks for reading!

Image courtesy of Stuart Miles at FreeDigitalPhotos.net.

By healthcare business consultant David E. Williams, president of Health Business Group.