Sticker Shock: Are Generics the Solution to the Drug Pricing Dilemma?

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In recent years, the media has been teeming with grim news about the soaring costs of prescription drugs. Headlines went viral regarding the high price of staying alive with insulins for type I diabetes and the abrupt price increases of life-saving heart medications Isuprel and Nitropress [1,2]. These surges not only affect new treatments but they also affect generics used to treat chronic conditions, such as diabetes and high cholesterol.

As a whole, spending on prescription drugs has been the fastest growing component of the healthcare dollar [3]. In 2016, brand-name drugs comprised only 10% of all prescriptions dispensed in the U.S., yet accounted for 72% of drug spending [4]. This triggered heated debates and highlighted the discrepancy between manufacturers’ retail prices and what consumers actually pay.

Manufacturers reported that high costs and business interests are responsible for climbing drug prices. The average industry cost to bring a prescription drug to market is $2.6 billion, largely owing to years of investment in research, manufacturing costs, subsidies, and regulatory fees [5]. Pharmaceutical companies have to recover these costs to continue operations and fund future research and development (R&D).

The government has historically granted patent monopolies lasting up to twenty years as a mechanism to incentivize innovation and research. In order to best leverage this monopoly, drug manufacturers price brand-name drugs high enough to recoup R&D and marketing costs as well as their anticipated loss of their market share upon patent expiration. This is understandable as most of these companies are managed by corporate directors with fiduciary duties to the company, a concept that has become synonymous with increasing shareholder wealth.

Furthermore, there appears to be a significant inequality between other countries and the U.S., where the majority of these costs is recovered by high prices. Countries such as Norway, U.K., and India have established price caps and are willing to decline costly medications, resulting in manufacturers subsidizing their drugs to these nations and even providing these drugs to developing nations at little-to-no charge [6].

This led to consumers voicing concerns that prescription drugs are becoming inaccessible and burdening the entire health care system. According to a recent AARP report, the annual cost for one brand name drug used to treat a chronic condition averages $5,800 [7]. This brings the annual cost of treatment for the average older adult taking four prescriptions drugs to over $26,000. These costs leave consumers looking for cheaper alternatives, particularly generics, or taking unhealthy steps such as missing appointments or decreased compliance.

Generics are a bioequivalent version of brand-name drugs that are sold after a manufacturer’s patent expires. This allows other drugmakers to enter the free market and sell the same compound at a lower price, leading to a price reduction of approximately 80-85% due to decreased R&D costs and an abbreviated process for FDA approval [8,9]. For example, they are not required to repeat clinical trials and in turn, do not pass on the high development costs to consumers.

There is a general consensus that when generics enter the market, prices are lower than their counterparts. According to many experts, reducing the cost of healthcare is synonymous with increased generic approvals [9]. In theory, this is the exactly what the doctor prescribed for the healthcare dollar. However, in practice, there is still doubt over whether generic drugs actually help consumers.

The spiraling prices for prescription drugs also stem from a battle over profitability between pharmaceutical and insurance companies, with consumers increasingly footing a larger portion of the bill [10]. Manufacturers accuse insurers of passing the costs to consumers while insurers fault costly drugs and patent protection for affecting coverage.

In the U.S., there are no regulations restricting drug prices. Manufacturers are able to determine the clinical value of a given prescription drug based on their market analysis. For example, when Turing Pharmaceuticals purchased the rights to Daraprim, they abruptly increased the price of the medication from $13 to $750 per pill due to the lack of a generic equivalent [11]. Similarly, Mylan made headlines after drastically increasing the price of the Epipen, enraging consumers by prioritizing its bottom line over public health [12].

Manufacturers then began to fund access programs where insured patients made a small co-payment for access to their product [10]. After all, ten dollars is a small price to pay for a life-saving medication. However, as the cash value of these medications remains exorbitant, they remain inaccessible to millions. In the U.K., these pricing battles between affordability and enabling innovation are not determined by the industry. Rather, they utilize a centralized advisory board to determine the true value of a drug based on its efficacy, safety, etc [13].

Another issue is that insurance companies strike back at manufacturers for high price tags with few alternatives. In the U.S., consumers pay monthly premiums to insurers in order to protect themselves from the unexpected costs of care. In terms of prescription drugs, insurers then utilize pharmacy benefit managers (PBMs) to negotiate large-volume discounts with drugmakers [14]. Manufacturers argue that these discounts should then be advanced to the patient as cost savings.

However, as for-profit entities, insurance companies balance high prices and profit margins by decreasing coverage [10]. Gone are the days of a flat fee for all prescription drugs, instead insurers are now offering greater cost sharing. These mechanisms include higher deductibles, higher premiums, tiered co-pay pricing systems, and co-insurance structures where consumers are responsible for a portion of the total cost [10].

Some insurers are even responding to these market changes by dropping coverage for certain medications. For example, in 2016, Express Scripts responded to limited leverage for price negotiations for new medications by excluding a number of common medications, such as insulin, from their discount drug program [15].

Finally, competition is the major factor in generic price inflation. That is, pricing is dependent on the price and availability of their competitors [16]. There is little argument that when generics enter the market, prices drop significantly. However, generic medications often have supply shortages, causing a rise in the price of longtime medications. For example, six companies were approved by the FDA to produce generic versions of the arthritis medication hydroxychloroquine following patent expiration [10]. As expected, prices initially dropped from increased competition but increased in recent years as some manufacturers ceased production of this older generic drug in favor of more profitable ventures [10]. Greater concerns arise that any stalls in the production cycle for the remaining manufacturers, such as difficulties obtaining the raw materials will impact the supply chain nationwide [16].

Generic medications are a critical component of efforts to hold down healthcare costs. As pricing struggles continue, consumers are looking to the government to control drug prices, insurers to shop for the best deals, and manufacturers to decrease costs. This bears the question: does the push toward generics really help consumers or simply create more problems?

To further explore the drug pricing trends, CHI is organizing the 5th Annual Healthcare Executive Roundtable on October 12, 2017, in Manhattan, New York. The Center for Healthcare Innovation’s “Understanding Value in Consumer-Orientated, Patient-Centric Era” Roundtable is an intimate, invitation-only, expert roundtable discussion for healthcare executives, key opinion leaders, and patient groups to discuss how stakeholders throughout the healthcare ecosystem can address critical issues related to healthcare value, quality, and cost. This year’s Roundtable will focus on several key market forces that affect the current state of healthcare in the U.S. Please visit for more information.

1. Diabetic Sticker Shock: The High Price of Staying Alive. ABC News. Accessed October 6, 2017.
2. Drug Industry on Tenterhooks as Maryland Price-gouging Law Nears. Thomson Reuters. Accessed October 6, 2017.
3. Controlling Spending for Prescription Drugs. The New England Journal of Medicine. Accessed September 27, 2017.
4. The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform. JAMA. Accessed October 4, 2017.
5. Cost of Developing a New Drug. Tufts Center for the Study of Drug Development. Accessed October 4, 2017.
6. Why the U.S. Pays More Than Other Countries for Drugs. The Wall Street Journal. Accessed October 4, 2017.
7. Trends in Retail Prices of Brand Name Prescription Drugs Widely Used by Older Americans, 2006 to 2015. AARP. Accessed October 4, 2017.
8. How Expanding Generic Drugs Can Add to America’s Health Care Woes. Fortune. Accessed October 4, 2017.
9. Why Do Generic Medicines Cost Less than Brand-Name Medicines? FDA. Accessed October 4, 2017.
10. Is There a Cure for High Priced Drugs? Consumer Reports. Accessed October 6, 2017.
11. Drug Goes From $13.50 a Tablet to $750 Overnight. The New York Times. Accessed September 27, 2017.
12. Mylan Raised EpiPen’s Price Before the Expected Arrival of a Generic. The New York Times. Accessed September 27, 2017.
13. Solving the Problem of High Drug Costs. Consumer Reports. Accessed October 6, 2017.
14. Feeling the Pain of Rising Drug Prices? Blame the Middle Man. CBS News. Accessed October 6, 2017.
15. Will Your Prescription Meds Be Covered Next Year? Better Check! NPR. Accessed October 6, 2017.
16. Generic Drug Competition Equals Consumer Price Relief. RealClear Policy. Accessed October 6, 2017.

Creating Stakeholder Dialogue Around Drug Pricing

By | Drug Costs, Healthcare Costs, Healthcare Value, Informed Patient, Rising Cost, Uncategorized | No Comments

The increase in prescription drug pricing and spending has been one of main factors contributing to the high costs of healthcare in the United States. In fact, according to a 2015 report by the National Center for Health Statistics, the national health expenditure for prescription drugs made up 10.1% of the total national health expenditure that reached $3.2 trillion that year [1]. Certain measurements of drug pricing villanize manufacturers an industry with outrageous cost and spending of prescription drugs. For example, patent exclusivity, research and development efforts, and competition in the market are generally blamed for the initial price increases. However, these measurements also cause skepticism and inaccuracies, thus shining a negative light on pharmaceutical companies. Therefore, the outliers misrepresenting pharmaceutical companies and the number of failed drugs need to be addressed in order for patients to have a better understanding on drug pricing.

Two outliers that don’t represent the overwhelming amount of biopharmaceutical companies are Mylan and Turing Pharmaceuticals. In 2007, Mylan Pharmaceutical acquired EpiPen, a handheld device that injects epinephrine to an individual with life-threatening allergic reactions, and increased the price of the drug by 500% [2]. The price rose from $100 to $600 in 2008 without any justification [3]. To no surprise, the company came under fire by the media for its unethical approach. The price increase can be attributed to Mylan’s patent use which allowed them to profit off of the drug without facing competition from a generic drug for a period of time [4]. In a similar situation, Martin Shkreli, founder and CEO of Turing Pharmaceuticals, raised the price of the drug Daraprim from $13.50 to $750 a tablet overnight [5]. What were once ‘affordable’ drugs became unaffordable for the vast majority of users causing outrage and shaming for pharmaceutical companies. Again, there are outliers that don’t represent the overwhelming majority of pharmaceutical companies that are developing new and novel drugs.

According to the 2017 Edelman Trust Barometer, the trust in the healthcare industry is slowly increasing compared to last year [6]. The trust in pharma in the U.S. seems to be “neutral.” With pharmaceutical companies like Mylan and Turing, it’s understandable why Americans might not be fully invested in pharma. When pharmaceutical companies make the headline in the news, it usually is unfavorable.

Furthermore, research and development is key when it comes to developing new drugs and used as justification for drug pricing. As we know, the process of creating a drug involves a lot of trials and errors where high costs are incurred in order to satisfy regulations imposed by the Food and Drug Administration (FDA); thus, it can create opportunities to price the drug even higher than it actually cost to get it out to the market. According to the 2017 Edelman Trust Barometer, 8 out of 10 people believe the pharmaceutical industry puts profit over people [7]. In reality, pharmaceutical companies only realize 39% of initial gross drug expenditures [8]. In addition, companies like Gilead are helping subsidize the cost of its drug, Epclusa, in Australia, which will help approximately 200,000 Australians that face the challenges of hepatitis C [9]. For example, Merck created an HPV vaccination program for cervical cancer in Rwanda [10]. Despite the media’s negative coverage, several other pharma companies have partnered with organizations like the Gates Foundation and UNICEF to provide medications for the developing world [11].

Lastly, it’s critical to address the failed formularies that ultimately lead to higher pricing as these costs must be recouped. The price to develop a drug is over $500 million [12]. According to the Tufts Center for the Study of Drug Development, the cost to develop and win marketing approval for a new drug is $2.6 billion [13]. The variance in the two aforementioned distinguish by fourfold, but it’s really expensive. Aside from this statistic, during clinical research phase studies, only 25-30% of initial drugs move to phase 4 where the drug is trialed by volunteers with the disease of interest [14]. The development of a drug can take a long time, especially when it comes to illnesses like cancer or HIV. During this time, the initial fund to conduct these studies starts to deplete. As patients, we need to understand that these are factors that even pharmaceutical companies have no control over.

As we wait for a viable healthcare reform under the current administration, it’s important to push for one that restores the well-being and decreases the burden of millions of Americans. During the process, there needs to be increased dialogue between patients and providers, such as pharmaceutical companies. All to avoid situations like that of Mylan and Turing. If drug pricing continues to increase, the biopharmaceutical industry will face more scrutiny. There will be increasing tension between patients, pharmaceutical companies, and pharmacy benefit managers (PBM). It’s important for all stake holders to be open and transparent in order to resolve these issues successfully. In an ever changing environment, we must learn to understand the process in order to appropriately resolve issues plaguing our society. We are ever changing.

To further explore the drug pricing trends, CHI is organizing the 5th Annual Healthcare Executive Roundtable on October 12, 2017, in Manhattan, New York. The Center for Healthcare Innovation’s “Understanding Value in Consumer-Orientated, Patient-Centric Era” Roundtable is an intimate, invitation-only, expert roundtable discussion for healthcare executives, key opinion leaders, and patient groups to discuss how stakeholders throughout the healthcare ecosystem can address critical issues related to healthcare value, quality, and cost. This year’s Roundtable will focus on several key market forces that affect the current state of healthcare in the U.S. Please visit for more information.

Work Cited

[1] Health Expenditures. Centers for Disease Control and Prevention. Accessed September 14, 2017.


[2] Mylan Raised EpiPen’s Price Before the Expected Arrival of a Generic. The New York Times. Accessed September 14, 2017.


[3] Mylan finalizes $465 million EpiPen settlement with Justice Department. CNBC Accessed September 14, 2017.


[4] Mylan Raised EpiPen’s Price Before the Expected Arrival of a Generic. The New York Times. Accessed September 14, 2017.


[5] Drug Goes From $13.50 a Tablet to $750 Overnight. The New York Times. Accessed September 20, 2017.


[6] Trust in Healthcare: Making Progress. Edelman. Accessed September 20, 2017.


[7] Trust in Healthcare: Making Progress. Edelman. Accessed September 20, 2017.


[8] Majority of Drug Revenue Not Going to Pharmaceutical Companies. The American Journal of Pharmacy Benefits. Accessed September 20, 2017.


[9] New Hepatitis C Drug to be subsidized in Australia. The Pharma Letter. Accessed September 25, 2017.


[10] Even Pharma’s Good Deeds Are Criticized. Forbes. Accessed September 20, 2017.


[11] Even Pharma’s Good Deeds Are Criticized. Forbes. Accessed September 20, 2017.


[12] R&D Costs For Cancer Drugs Are Likely Much Less Than Industry Claims, Study Finds. NPR. Accessed September 20, 2017.


[13] Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion. Tufts Center for the Study of Drug Development. Accessed September 28, 2017.


[14] Step 3: Clinical Research. U.S. Food & Drug Administration. Accessed September 20, 2017.


Healthcare Value and Patient Engagement

By | Patient Engagement, Patient-Driven Healthcare, Uncategorized | No Comments

As of 2015, healthcare spending in the U.S. reached approximately $3.2 trillion dollars, or $10,000 dollars per person. (1.) Despite high amounts of spending, Americans have seen a decline in life expectancy by one-tenth of a year.  (2.) According to a publication in 2013 by The Common Wealth Fund, Americans had fewer physician visits with 4 per year compared to 6.5 visits for other countries in The Organization for Economic Cooperation and Development. (3.) With the rising cost and poor quality of healthcare, it is critical to analyze the intersection between healthcare value and patient engagement. (4.)

How do we define “value” in health care? The definition for this term can range from improved patient outcomes to coordination of care to patient-centeredness. (5.) However, value-based care is generally defined as safe, appropriate, and effective care at a reasonable cost. It is very important to carefully define value as we move towards value-based care. This allows customers to fully understand the type of care they are receiving. Furthermore, value-based care has emerged as a solution to address rising health care costs. This is a change from the traditional fee-for-service approach where doctors and hospitals are paid for based on the number of health care services they deliver. (6.)

What this entails for hospitals and physicians is more accountability on their part for the well-being of their patients. For example, according to the Harvard Business Review, value-based care will be about costs and patient outcomes like quicker recoveries, fewer readmissions, lower infection rates, and fewer medical errors. (7.) In addition, as we move towards this newer model, we also see an abundance of data that can be tabulated and analyzed to ensure better health outcomes for patients. (8.) If value-based care is to succeed, the need for better patient engagement becomes a key component to that success.

Patient engagement is a set of strategies that are created to keep patients connected and engaged in their own care. Today, this is facilitated through the use of healthcare technology. For example, patients can use patient portals to directly message their provider regarding any questions they have regarding their health. (9.) In addition, people have been using mobile applications on their smartphones to keep track of their health. Ultimately, they can decide whether it is appropriate to visit a doctor based on the information they have in their pocket. (10.) This trend also focuses on preventive measures since this allows patients and providers to be in direct contact.

What patient engagement ultimately allows is for patients to take charge of their health through the use of innovative methods that have become available through technology. It allows patients to avoid spending a lot of money on doctor visits that only require simple checkups. It plays a critical role in lowering the cost of healthcare for patients and ensures better quality of care. (11.) Healthcare value and patient engagement now go hand in hand because both are innovative ideas that are meant to disrupt an industry where traditional thinking triumphs. In today’s society, the need for change is only becoming inevitable.

As a new administration takes charge, the future of our healthcare system has never been so unclear. It will be interesting to see if this value-based approach can reach new heights under the new administration. As leaders in this sector await change, one can only hope that it is the change that we have long desired. It is important for healthcare leaders to advocate for an inclusive and efficient healthcare system. In the end, if we are to succeed, collaboration on both ends of the spectrum is required.  


Works Cited

1.) National Health Expenditures 2015 Highlights. Centers for Medicare and Medicaid Services. Accessed January 25, 2017.

2.) Bernstein L. U.S. Life expectancy declines for the first time since 1993. Washington Post. December 8, 2016. Accessed January 25, 2017.

3.) Squires D. U.S. Health care from a global perspective. The Common Wealth Fund. Accessed January 25, 2017.

4.) Claxton G. Measuring the quality of healthcare in the U.S. Peterson-Kaiser Health System Tracker. Accessed January 25, 2017.

5.) Blumenthal D. Getting real about health care value. Harvard Business Review. Accessed January 25, 2017.

6.) Belliveau J. What is value-based care, what it means for providers? Rev Cycle Intelligince. Accessed January 25, 2017.

7.) Cosgrove T. Value-based health care is inevitable and that’s good. Harvard Business Review. Accessed January 25, 2017.

8.) Porter M. The strategy that will fix health care. Harvard Business Review. Accessed January 25, 2017.

9.) Heath S. How do patient engagement strategies cut healthcare costs? Patient EngagementHIT. Accessed January 25, 2017.

10.) Key facts about the uninsured population. Accessed January 25, 2017.

11.) Barnett J. United States Census Bureau. Accessed January 25, 2017.


The Economist Explores: Why Has Cancer Not Been Cured?

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In a recent article by The Economist, a simple question was asked: Why has cancer not been cured? Despite a forty year war against the disease, that questions has no simple answer. Research has taught us that more than a mutation of genes, cancer is a disease of specific organs. New therapies are increasingly providing personalized solutions to harness the body’s own immune system in fighting cancer, but more still needs to be understood about the molecular mechanisms that drive it.

On September 28th in Boston at the War on Cancer conference, editors of The Economist will gather more than 200 global health-care players, including Flatiron Health, Memorial Sloan Kettering, IBM, MD Anderson Cancer Center and others to discuss the technological advancements improving our ability to fight cancer and expand access to targeted, quality cancer care.

Some of our notable speakers participating in the event include:

  • Amy Abernethy, Chief medical officer and senior vice-president of oncology, Flatiron Health
  • Christina Åkerman, President, International Consortium For Health Outcomes Measurement (ICHOM)
  • Peter Bach, Director, center for health policy and outcomes, Memorial Sloan Kettering
  • Amitabh Chandra, Director, health policy research, Harvard Kennedy School of Government
  • Kathleen Kaa, Global head of pricing and market access, Oncology, Roche
  • Kyu Rhee, Chief health officer, IBM

You can save 15% on the current available rate when you register with our special code: CHI15

Patient-Focused Healthcare Trends

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A little girl at the doctors office sitting on the examining table with a doctor checking her heartbeat with a stethascope with a nurse in the background.

The patient-centric era of healthcare is not only possible – it’s happening now, as the landscape shifts towards a consumer-driven model of care delivery.  Recent examples are abound.

For instance, Novant Health, a leading healthcare provider with 15 hospitals and more than 350 physician practices, started an electronic medical records project called Dimensions in July 2011.  Later in May 2013, Novant began providing email visits and video visits with patients via MyChart, an electronic health records portal for nonemergency health issues.(1) Patients can interface with their physicians through computers and mobile devices.  This program substantially increased the efficiency and quality of healthcare.  Patients without emergency situations no longer needed to wait for appointments and pay high bills for treatments and medications. The integration of digital technologies is a breakthrough that enhances patients’ experiences.

In another case, Wake Forest Baptist also started to offer video visits in May for its 25,000 employees and their families.  Dr. Richard W. Lord, Wake Forest Baptist’s chairman of Family and Community Medicine, states, “There are a limit number of things that are allowed to be done through some of these platforms for video visits. So we wanted to go ahead and get that out and get it started so we could understand the demand for these types of video visits”(2).  These e-visits are redefining the patient-provider interface by reducing overall costs that are passed on to patients, and thus maximizing overall healthcare value for patients.

Additionally, the pharmaceutical industry is also starting to shift its marketing strategy from products to patients. Today’s increasingly well-informed patients are more involved in the processes of selecting and switching therapies.  This paradigm shift drives industry to increasingly focus on patients.  Marketers have already learned that it is essential to educate, communicate, and engage patients throughout their experiences with a disease. (3) They not only need to provide the highest quality of healthcare products for patients, but they also must focus on enhancing patients’ experience with their products throughout the entire therapeutic process.

To make medical research more patient-centric, top journals such as British Medical Journal, Research Engagement and Involvement, and Journal of Participatory Medicine recently introduced patient reviewers.  This trend gives patients a platform and opportunity to speak about their experiences. Patient involvement in all aspects of healthcare is to be welcomed, and patient perspective can play a much larger role in the development of future healthcare product and services.(4)

These are just a few of the many examples of the trend toward focusing on patient experiences and maximizing healthcare value for patients. CHI’s Healthcare Executive Roundtable will further discuss what patient-centric healthcare value means in the 21st century. This consumer-focused Roundtable Discussion brings the best and brightest healthcare leaders from around the globe together to share their ideas and expertise on the intersection of healthcare value and patient-centricity.  Please visit for more information.



ACOs and the Affordable Care Act

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The transition period from any old, familiar system to a new one is difficult. Providers, pharma, patients, payers, and policymakers on all sides of the healthcare industry have encountered hurdles originating from the transition from the old and inefficient healthcare system to the new system born from the Affordable Care Act (ACA). Accountable Care Organizations (ACOs) were designed for healthcare organizations and providers that are already experienced in coordinating care for patients across care settings(1) and to help these providers transition from the past fee-for-service model to the new value-based healthcare model.

The ACA aims to provide healthcare for the U.S. population through expansion of public and private insurance coverage, coverage mandates, subsidies, and creation of insurance exchanges(2). But, in order to do so, the American healthcare system must transition from the fee-for-service model to the value-based model. The fee-for-service-model is an approach to healthcare in which providers are paid for each service (i.e. an office visit, test, or procedure)(3), whereas the value-based model is an approach in which a portion of the provider’s (i.e. hospitals, providers etc.) potential payment is tied to a provider’s performance on cost-efficiency and quality performance measures. While providers may still be paid fee-for-service for a portion of their payments, they may also be paid a bonus or have payments withheld. For value-based contracts, this bonus is not paid unless the provider meets cost efficiency and/or quality targets(4). The new model is now more patient-centric and the previous implicit and explicit costs, which previously fell on the patients, now fall on the providers of healthcare.

The implicit price, or the non-financial costs of transitioning, a challenge facing the ACA, is derived from incentives. Prior to the ACA legislation, the private insurance market allowed patients, providers, and payers to select the best fit for one another. This was a major component of the fee-for service-model. Patients had the incentive to stay healthy, so they did not have to pay money to the providers for treatment (this excludes the cost of medication, etc.). Providers had the incentive to treat as many patients as possible and order more tests to boost their incomes.

However, with the new value-based model, the incentives are shifted. Under the new value-based model, providers have the incentive to keep patients healthier. In fact, providers would prefer to treat only the healthy patients as providers are reimbursed with a set amount. This set amount comes from the ACOs, per patient, based on the old fee-for-service basis(5). Thus, providers want to treat healthy patients to maximize their revenues. Alternatively, the more patients a hospital or member of an ACO treats, the more the entity can counterbalance its revenue loss. Likewise, there is power that comes from belonging to an ACO: The ACO can earn extra revenue through gain sharing, sharing of savings resulting from collaborative efforts to provide care cost-effectively, with Medicare if the overall costs of care for the beneficiaries attributed to it are lower than predicted. This only applies if the ACO also meets stringent conditions of governance (clinicians, not insurers, run them), transparency, and quality performance.(6)

But, much like privatization, this leads to the problem of most providers not wanting to take on the costs of caring for the unhealthy portion of the population. The government purposely created ACOs to address such problems with the ACA. This is why ACOs are a necessary tool to help transition from the old to new model to counterbalance this incentive side-effect.

ACOs are groups of medical providers (i.e. physicians, hospitals, insurance companies) that accept payments based on quality under the Medicare Shared Savings Program (MSSP).(7) They were created in part by the ACA to aid hospitals and providers in providing value-based healthcare treatment. If providers do not spend all the money of the allotted subsidiary, then they are permitted to keep that extra revenue. However, if not, then the ACOs can owe money to Medicare.

Another reason why ACOs are crucial to a smooth transition from the new to old models results from the payment models, which cannot be separated from changes in care delivery. They require increasingly tight hospital-physician alignment, which can be achieved through physician employment, entering into service line co-management arrangements, clinical integration, or other methods. Thus, to operate effectively, there must be better communication and fewer occurrences of asymmetrical information under the value-based model in order to provide the best quality of healthcare possible throughout the transition.

Although hospitals are required to keep track of the number of patients treated for certain physical ailments under the ACA, all hospitals participating in ACOs are required to supply additional metrics to improve clarity. For example, the ACA will require Medicare ACOs to report 33 different quality metrics.(8) This, along with other incentives to keep better track of patient records and become more organized, helps improve clarity and transparency of the healthcare system.(9) Hospitals will have to become very efficient and become very familiar with their cost structure in order to reduce costs as the losses have now shifted from the patient to the ACO infrastructure. With this clarity, it will be easier for consumers, producers, and the government to track changes, learn from mistakes, correct tweaks, and smooth the transition from the past model to the value-based model.

In the end, there appears to be both pros and cons to ACOs as a method of helping the providers, pharma, patients, payers, and policymakers transition from one model to another. With proper implementation, time, and further research, the Affordable Care Act will be improved so it can improve the quality of healthcare for all Americans.

However, a new problem with ACOs has not been addressed yet: How will this affect the patient-centric value-based model? The Center for Healthcare Innovation’s Healthcare Executive Roundtable on October 15, 2015 will address new questions in this uncertain transition period. This consumer-focused Roundtable Discussion brings the best and brightest healthcare leaders from around the globe together to share their ideas and expertise on the intersection of healthcare value and patient-centricity.  Please visit for more information.



Complications in International Drug Pricing

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Drug pricing in the United States is a complicated issue that has recently been the focus of healthcare legislation and oft contention between pharma, providers, and patients. Major sticking points for the consumer are typically the most visible: lower comparative prices internationally, high priced drugs for high-profile indications like cancer, and the perception of large yearly pharma and biotech revenues. One such example is the coverage of drugs for orphan diseases that have skyrocketed, in some cases reaching over $250K for a single treatment.  While these may be off-putting at first glance, there are many social and economic factors that play into the cost of, what may seem to be, unnecessarily high drug pricing. Here, I seek to identify several of the contributing factors to drug pricing and address concerns relating to lower comparative prices overseas.

A major reason for the costing complexities is the overwhelming fact that the drug industry in the United States is simply complicated. In terms of competitive market economics, the consumer and producer of an entity will traditionally set the supply and demand curves. However, in the drug market, payers and government regulation are thrown into the mix and will act to modulate and complicate market pricing. There are other such considerations that affect pricing, such as the amount of money that pharma companies pour into research and development, money spent on clinical trials and the approval process, and costs associated with infrastructure.

That said, many Americans point to international drug prices being cheaper – most notably in Canada and Mexico – as a reason for high relative healthcare spending. Current estimates suggest that roughly 1 to 10 million Americans have purchased drugs from Canada alone. Access to Canadian pharmacies via the internet has likely increased and helped to keep them relevant in the American healthcare dialogue. Further, in the years since 2004, Americans have also turned to purchasing relatively cheap prescription drugs from other countries such as Thailand and India, despite increased risks of these drugs being counterfeit.  It is interesting to note that while Canadians do generally have cheaper brand name drugs, the prices of their generic medications typically run higher than other countries.

A major reason why drugs are cheaper internationally is due to government intervention either setting price caps or negotiating prices with manufacturers. Typically the government only intervenes when they sense that competition within a market does not exist, or they suspect price gouging by participants in the market. Further, government participation within a market, especially as complex as the Pharma industry, would only serve to complicate issues further, as was seen in the Netherlands when generic manufacturers were actually incentivized to increase prices to meet the reimbursement limit rather than letting the competitive market dictate prices. To this extent, Canadian prices are artificially cheaper due to a compulsory licensing period when generics were actually encouraged, contributing to their relatively higher price today.

A very public manifestation of the rising cost of pharmaceuticals in the U.S. is the lower relative cost in other countries. While this is generally true, there are many factors that play into an already very complicated industry, complicated pricing system, and complicated approval processes. Another major factor is government intervention setting price caps or negotiating prices. The discussion of drug pricing is far too extensive for a short blog post, however, I wanted to point out the fact that simple benchmarks between American and foreign drug prices cannot necessarily be drawn. In such a complicated global industry, it is necessary to identify all of the things that go into drug pricing. In future posts, I will continue to look at drug pricing in the United States and identify, among other things, high orphan drug costs and seemingly ever-increasing drug company revenues. For further CHI Research on costing issues, see:


  1. Bhosle, M., & Balkrishnan, R. “Drug Reimportation Practices in the United States.” Ther Clin Risk Manag. 2007 Mar; 3(1): 41–46.
  2. Schoonveld, Ed. The Price of Global Health. Burlington: Gower Publishing Company, 2015. Accessed:

CHI Leads 3rd Annual Understanding Value in a Consumer-Oriented, Patient-Centric Era Roundtable

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The Center for Healthcare Innovation (CHI) is organizing our 3rd annual healthcare executive roundtable.  This year’s roundtable, entitled Understanding Value in a Consumer-Oriented, Patient-Centric Era, will take place on Thursday, October 15th, 2015 at 1:00PM EST in New York, NY, USA.

The healthcare executive roundtable an exclusive, intimate discussion that brings together the top thought-leaders, visionaries, and executives from the patient advocate, provider, payer, pharma, and pharmacy sectors to discuss and increase understanding of what patient-centric healthcare value means in the 21st century.  The healthcare landscape has rapidly shifted towards a consumer, patient-centric model of care delivery.  Today’s patients have become more empowered in their health and well-being, better informed, and more financially invested than ever before.  This paradigm shift has had dramatic implications not only for patients, but also for providers, pharma, and payers, as these latter groups attempt to define and deliver patient-centric healthcare value.  Furthermore, the roundtable explores the relationship between the definition of value and quality, access, and cost issues.  As healthcare costs continue to rise, capitation payment models become the new norm, and incentives shift as a result of moving to a value-based healthcare system, understanding and integrating patient-centricity into healthcare value will become more important than ever.  This consumer-focused discussion brings together the best and brightest healthcare leaders from around the globe to share their ideas and expertise on the intersection of healthcare value and patient-centricity.

Past years’ roundtables have featured executives from: Aetna, AstraZeneca, Bristol-Myers Squibb, Columbia University, GE Healthcare, Genzyme, Humana, inVentiv Health Clinical, Johnson & Johnson, Kaiser Permanente, Merck, Metropolitan Chicago Healthcare Council, Navigant Consulting, New York City Health & Hospitals Corporation, Novartis, NYU Medical Center, Otsuka, Owens & Minor, Pall Life Sciences, Pfizer, Princeton University, Quest Diagnostics, Stanford, TEDMED, Teva Pharmaceuticals, and the University of Pittsburgh Medical Center.

Please visit for more information.

Video Recap of Diversity Symposium now Available

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The video recap of CHI’s 5th annual Diversity, Inclusion, & Life Sciences Symposium is now available at

The symposium is the world’s leading forum focused specifically on diversity, inclusion, healthcare, and the life sciences. It is an interactive and collaborative discussion for life science and healthcare executives, professionals, patient advocates, entrepreneurs, policymakers, researchers, scientists, technologists, and academics to discuss best practices, challenges, and opportunities of topics such as: Understanding Obstacles to Clinical Trials & Healthcare for Underrepresented Populations, Leveraging Employee Resource Groups (ERGs) for Success, and How to Recruit & Develop a Diverse, Talented Workforce. Attendees will gain valuable knowledge, information, and insights, as well as meet new colleagues and connections.

Just some of the organizations represented included: AbbVie, American Diabetes Association, American Medical Association, Astellas, Baxter,, Dell, DePaul University, GE Healthcare, Genentech, Genzyme, GSK, Hospira, inVentiv Health Clinical, Lundbeck, Lurie Cancer Center, MCHC, Northwestern University, Novartis, Pfizer, Quest Diagnostics, Sanofi, Takeda, and the University of Chicago Medical Center.  The symposium was sponsored by Sanofi, Takeda, the Lurie Cancer Center of Northwestern University, and the Clinical Research Exchange. The symposium is hosted by the Chicago offices of Seyfarth Shaw.

Next year’s symposium will be Wednesday, June 8th, 2016.  For more information, please visit

Unintended Consequences of Healthcare & Life Sciences Legislation

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Unintended consequences are the unanticipated and unforeseen outcomes from government action that are not the outcomes intended by the executive and legislative branches. There are three basic categories: (i) a positive, unexpected benefit, (ii) a negative, unexpected detriment, and (iii) a perverse effect substantially contrary to the original purpose of the law or regulation. Examples in healthcare and life sciences include the Orphan Drug Act of 1983 and the emergence of mini-med healthcare plans (total coverage capped at very low amounts). There are likely to be a wide array of unintended consequences resulting from the Affordable Care Act and other legislation in the U.S. and around the world.

In addition to any positive or negative unintended consequences of current or future legislation, the U.S. healthcare system will be faced with a series of dramatic changes unlike anything we’ve seen before.  Patients are more informed, engaged, and financially invested in their healthcare than ever before.  And as a result, provider and biopharma organizations are following patients’ lead and recalibrating themselves as patient-centric, consumer driven organizations.  Moreover, healthcare costs are rising at unsustainable rates.  As these major trends drive healthcare change, there will be a new emphasis on maximizing healthcare value, with a particular emphasis on improving quality, increasing access, and reducing costs.

CHI recently published an executive summary and research report on the Center for Healthcare Innovation’s 2nd annual Unintended Consequences of Healthcare & Life Sciences Legislation Symposium, which took place in Washington, DC on October 15, 2014.  This non-partisan symposium featured some of the world’s leading healthcare, life science, and government experts coming together in a collaborative setting to discuss the most pressing legislation   issues facing the healthcare and life sciences industries in the 21st century.  The executive summary can be found at

This executive summary captures and examines some of the insights, ideas, best practices, and new perspectives from the Symposium and the broader healthcare legislation discussion. It is meant to serve as a summary and a resource of the innovative ideas and insights regarding legislation for healthcare and the life sciences. We hope that you find it to be both thought-provoking and useful, and we welcome your feedback. We thank you for your interest, and hope this can be an asset for you and your organization.