Author: Christopher J Frisina

State Politics, Medicaid Expansion, and Public Health

Since the Supreme Court ruled against the Affordable Care Act’s mandatory Medicaid expansion in 2012, twenty-nine states and the District of Columbia have expanded the program to individuals at or below 138% of the Federal Poverty Index (FPI), or approximately $16,000 for an individual per year. Resistance to the expansion has largely come from states with Republican governors and/or legislatures. However, in December, three GOP governors moved to expand Medicaid in their states – Utah, Tennessee, and Texas. Indiana received Federal approval for its Medicaid plan the last week in January. While a big move in support of the President’s signature health care law, the proposals come with drawbacks that may negatively affect the effectiveness of the expansion.

The Utah expansion does not rely on Federal programs to insure its citizens. Adapting the Arkansas expansion plan, the Utah plan allows the State’s citizens to purchase private insurance with Federal funds rather than enrolling in the Federal Medicaid program. Utah’s program will cover nearly 100,000 residents over the next four years. Residents under 100% FPI continue their enrollment in traditional Medicaid while the “expanded” individuals (between 100-138% FPI) receive assistance to purchase private insurance or enroll in an employer-offered plan. The Utah plan touts $15 monthly premiums. However, the plan also poses a $50 penalty for every Emergency Room visit for a non-emergency situation in an effort to bring down health care costs. Notably, this adapted Medicaid expansion had to be approved by the Centers for Medicaid and Medicare Services (CMS).

Tennessee liked the plan behind Utah’s expansion. Medicaid expansion under these terms has been deemed a compromise between Republican and Democratic ideals. Gov. Bill Haslam has specifically stated that his 2015 proposal is not an expansion of the Medicaid program, but the “unveil[ing] of Insure Tennessee.” Early estimates predict that nearly 200,000 Tennesseans will be eligible for State assistance under the proposed expansion. Notably, Tennessean hospitals are largely in favor of the Expansion. The Tennessee Expansion does more than focus solely on making available funds to purchase private insurance, but also shifts bill-payment to an outcome-based method rather than fee-for-service. Representatives in Tennessee on all sides of the Expansion debate support the Governor’s decision to make insurance available through the proposed means. The proposals must still be approved by the Tennessee legislature and CMS.

The biggest potential win for the President’s health law is the state of Texas. Former Governor Rick Perry has been one of the most vociferous opponents of the Medicaid expansion. However, Governor-Elect Greg Abbott addressed the extremely controversial topic with state lawmakers in Houston. Working with CMS to expand Medicare could mean nearly $10 billion in Federal funds for Texas over the coming years. Texas has the most of any state to gain from the Medicaid Expansion. Nearly 950,000 Texans live between 100-138% FPI. The Kaiser Foundation believes these Texans represent approximately twenty-five percent of all Americans living in the “gap.” The Texas legislature has rejected the “traditional” Expansion, but the Governor-Elect’s meetings may indicate an alternative similar to those in Utah and Tennessee, though his office has yet to comment.

The approval of Indiana’s plan may encourage even more states to expand their Medicaid services. The Indiana plans extends coverage to nearly 350,000 low-income individuals and families. The plan requires enrollees to contribute to a health savings account, an effort to keep “personal responsibility” as part of the expansion. However, the plan comes with high penalties for missed payments, including up to six-month exclusions from the program. The plan also increases reimbursement rates, which were cut across the board by the Affordable Care Act. Indiana’s plan has already caught the attention of the Wyoming legislature.

The twenty-two states that are yet to expand the Federal program need to act quickly. The Affordable Care Act only covers 100% of any state’s expansion through 2016, covering only 90% of associated costs thereafter. Understandably, political and ideological differences will hamper Medicaid expansion in many states. However, Utah’s adaptation to the Medicaid expansion may allow well-meaning legislatures to not only follow their ideals but also act in the best interest of their citizens. In Tennessee, for example, the proposal allows the State legislature to provide expanded coverage while encouraging Tennesseans to take an active role and have more personal responsibility for their own health care.

Rising Pharmaceutical Costs Hit the Generic Market

In 1984, the 98th Congress passed the Drug Competition and Patent Term Restoration Act, better known as the Hatch-Waxman Amendment, creating a statutory scheme wherein generic drug manufacturers will be able to put their products into the market using the pioneer (or branded) drug’s scientific safety and efficacy data. In return, the pioneer manufacturer is awarded five-years of market exclusivity before the generic may enter the market. Congress intended to allow the pioneers to recoup their capital spent on research and development as well as turn a profit, but then have prices decrease dramatically as generics enter the market. It worked as intended! The generic drug industry has been booming since its inception.

However, in recent years, drug prices have been increasing and increasing quickly. In 2013, Tetracycline, an extremely common generic antibiotic that most all of us have likely taken throughout our lives, cost only five cents per pill. In 2014, the very same antibiotic cost $8.59 per pill. This increase constitutes a 17,714 percent jump in just one year! The drastic jump in prices stands in the face of Congress’s intention with the Hatch-Waxman Amendment, but can the increase be explained by the market?

In the cases of Tetracycline, the price jump resulted from a drug shortage. Generic companies lacked the necessary raw materials to produce the drug in significant quantities. The shortage of Tetracycline continued for nearly two years. However, the Food and Drug Administration (FDA) announced that the producers now have adequate materials to produce the drug. There were also manufacturing issues associated with the shortage that have also been fixed.

The larger issue may be the market itself. When an all-star branded drug is on the market, the generic manufacturers line up to enter the market. When four or five generics enter the market, the prices drop significantly. However, without several generics of a single drug on the market, prices do not drop as dramatically. Supplies can drop for any number of reasons. Companies may simply leave the market. An FDA-inspection may lead to a temporary shutdown of a plant. Regardless, less competition means higher prices and, for the consumer, tough choices when it comes to medical care. For example, only three companies currently produce digoxin, a cheap and easy to make cardiac drug that has been around since at least 1785. At the beginning of the year, a month of digoxin cost approximately $50 (one consumer reported $1.15 for a three-month supply), but now customers are seeing prices nearing $1000 per month. Notably, the World Health Organization lists digoxin as an “essential medicine.”

Some voices, however, have expressed concerns about nefarious business practices. In 2013, the Supreme Court ruled that the Government and private parties may sue pioneer companies who pay competitors to stay off the market. The practice has caught the attention of the Federal Trade Commission (FTC) and state officials. An antitrust investigation of Lannett by the state of Connecticut found that the manufacturer had not violated any law or regulation. However, many of these price adjustments happen naturally, leaving the FTC without any options to combat the problem.

The problem has caught the attention of Congress, who requested explanation for drug price increases fourteen drug manufacturers (constituting ten of the nearly 12,000 generic drugs on the market). However, without any legal mechanism to act against the companies, Congress may have few options to deal with the issue. Sen. Bernie Sanders and Rep. Elijah Cummings have proposed a bill to require generic manufacturers to rebate Medicaid if drug costs increase faster than inflation. The CEO of Generic Pharmaceutical Association believes the legislation to be “misguided.” Whether the bill passes or not, it appears to do little to help consumers attain better access to their needed medication. Until action is taken or anticompetitive practices can be definitely proven, more and more patients will have to decide whether they can afford their medication this month.

The Drug-Resistant Threat: Incentivizing New Antibiotics

In 2012, Margaret Chan, Director-General of the World Health Organization (“WHO”), suggested that we are entering a “post-antibiotic era,” meaning that “[t]hings as common as strep throat or a child’s scratched knee could once again kill.” (Forbes)  The evolution of antibiotic resistant bacteria has led to the deaths of at least 23,000 annually in the U.S..  Terrifyingly, most of the infections causing these deaths, or deaths complicated by an antibiotic-resistant infection, occur within “healthcare settings such as hospitals and nursing homes.” (CDC – Threat Report)  Unfortunately, pharmaceutical companies have been loath to invest in antibiotics to combat the growing problem simply because it is not profitable, causing a steady decline in new antibiotic drug approvals. (CDC – US Threat)

The problem has not gone unnoticed by the Food and Drug Administration (“FDA”) or Congress.  For FDA’s part, the Agency, along with the Centers for Disease Control (“CDC”), has attempted to improve public awareness of the capabilities of current antibiotics, detailing when and how the drugs should be used. (CDC – Get Smart)  Furthermore, the Agency increased labeling requirements for antibiotics, instructing physicians when to prescribe antibiotics – “only to treat infections that are believed to be caused by bacteria” – and encouraging physicians to discuss proper use with their patients.  Finally, the FDA has created guidance documents for pharmaceutical companies “to evaluate how an antibacterial drug works for the treatment of different types of infections.” (FDA – Resistance)

On the legislative side, Congress passed the Generating Antibiotic Incentives Now Act (“GAIN”) in 2012.  The Act requires the FDA within two years of its enactment to create a list of “qualifying pathogens”, which will then be reviewed every five years.  “Qualifying pathogens” are those that the FDA has identified as posing a serious threat to public health.  The antibiotics that treat these qualified pathogens are known as “Qualified Infectious Disease Products” (“QIDP”).  GAIN also creates incentives for QIDP development.  The GAIN Act provides that any QIDP be eligible for fast track designation and receive priority review for marketing approval rather than proceeding through the standard and cumbersome New Drug Approval process.  Once the drug is approved, the Act grants the QIDP developer an additional five years of market exclusivity on top of that already guaranteed by the Hatch-Waxman Amendments, allowing the branded company to recoup more of its losses before generics enter the market.  (FDA – Innovation Act and PEW Heath Report).  As of October 2013, sixteen antibiotics have been designated as QIDP, with two possibly being approved in 2014. (PEW Heath Report)

Incentivizing antibiotic development may be problematic to implement, primarily because of cost.  We are not used to paying for expensive antibiotics.  A standard course for a current brand-name antibiotic costs around $3,000 per patient.  Compared to current cancer treatments that may cost up to $100,000 per patient, even the most expensive antibiotic is relatively cheap. QIDPs, however, will fall into a category of drugs used to treat rare diseases, which tend to cost nearly $200,000 per patient.  Because QIDPs do not have high potential for profits, the U.S. Government has turned to funding initiatives to assist new antibiotic development.

The FDA’s and CDC’s new policies and Congress’s GAIN Act have already made great steps to encourage the industry to invest in antibiotics.  On July 9, 2013, the FDA issued a proposed rule to establish the “qualifying pathogen” list.  The FDA has granted 24 QIDP designations for upcoming antibiotics.  (FDA Reviewing FDASIA)  Despite these efforts, more can still be done.  The Government needs to create more incentives for the industry to develop these drugs alongside guaranteed moneymakers.  While funding initiatives may encourage pharmaceutical companies, the best encouragement is more likely larger Medicare and insurance reimbursements for existing drugs, granting the industry a better opportunity to remake the money spent in development of the more expensive QIDPs.  (Forbes)  Insurance providers, interest groups, and physicians need to be more active in informing their patients of what to expect from the developing drugs: what the drugs can do, what they cannot do, and just how expensive they are going to be.  In the end, if Margaret Chan is incorrect and this is not the end of the antibiotic era, it is certainly the end of the cheap antibiotic era.