The Life and Death Struggle between the FDA and GlaxoSmithKline

“Medicine is for the patients…the profits follow.”

So said George Merck II, then CEO of pharmaceutical giant Merck & Company, sometime during the first half of the 1900s. Merck, in those days, hoarded cash for investment in research and development and followed a corporate philosophy that focused first on improving the human condition. Merck believed a selfless approach would be in the company’s self interest.

What a contrast is revealed in the headlines these days. Merck’s travails with its arthritis drug, Vioxx are well documented. But this week’s Time Magazine report documenting GlaxoSmithKline’s efforts to thwart the Food and Drug Administration’s investigation into its diabetes drug, Avandia, should outrage consumers.

The Importance of Leadership in Turnarounds

Health care reform, an  aging population, fewer doctors and nurses, more expensive technology, lower reimbursements, increasing compliance costs and on and on. Healthcare providers will be facing an increasingly difficult environment over the next several years. Many will face the need to conduct a “turnaround” or “workout.”

Here’s the scenario. Over some period of time a hospital’s operating performance has deteriorated. Margins have declined, capital investment has been constrained, liquidity has remained the same or declined, the rating agencies have been lukewarm and, in the words of a former president, a malaise seems to have settled over the hospital.

Tax-Exemptions Under Attack!

Spencer Tracy’s hometown, Wauwatosa, a Milwaukee, Wisconsin suburb has successfully challenged the tax-exemption, at least as it applies to property taxes, of local powerhouse Covenant Healthcare System.

The strategy is interesting. Here’s what happened.

The City assessed property taxes against one of Covenant’s ambulatory clinics asserting that it was a doctor’s office and not really an extension of the tax-exempt hospital. Covenant challenged the assessment in court and ultimately, a Wisconsin Court of Court of Appeals, overturning the trial court, found that the St. Joseph Outpatient Center was indeed operated as a doctors’ office and not as a hospital and therefore does not qualify for property tax exemption under Wisconsin law.

This trend of attacking the property tax exemptions of exempt hospitals began more than a decade ago.  As states and localities, hit hard by the recent economic downturn, search high and low for more revenues, exempt hospitals should expect this trend to accelerate. 

Health care executives should be alert to this trend, review the organization’s operations to insure this exposure is minimized and, if necessary, consider establishing a tax reserve if the requirements of generally accepted accounting principles are met.

The full case may be viewed at http://www.leagle.com/unsecure/page.htm?shortname=inwico20100810a44

Accentuating the Positive

Much has been written and said about the “downside” of the recently passed reform of the health care “system”. It’s the end of capitalism in America, the budget-busting doom of the country, tantamount to child abuse and, yes, it’s the end of life, liberty and the pursuit of happiness as we know it. Literally, it’s the end of life, at least for Nana once the death panels are set up.

But, isn’t there an upside? Would access to an annual routine physical exam as a covered benefit under Medicare, with no co-payment, qualify as a positive outcome? What about closing the “donut” hole? How about eliminating the denial of insurance coverage for pre-existing conditions. Isn’t the focus on primary care and preventive medicine a good thing? Especially with our nation leading obesity stats?

Tom Eblen, writing in the Herald-Leader last week pointed out a new report from Kentucky Voices for Health that highlights the positive impact health care reform will have on Kentuckians. While acknowledging that there are big questions that are unanswered such as what impact the law will have on rising costs, Eblen points out that there are many positives, especially for a poor state like Kentucky.

His piece was followed up in the H-L opinion pages in a letter from Judy Myers, a member of the Board of Directors of the Friedell Committee for Health System Transformation (full disclosure…I am a member of this group). One of Judy’s sentences resonates with me: 

“I am concerned that resistance — coupled with insufficient vision and knowledge of what is possible — may lead us to squander this opportunity.”

She is absolutely right. Rather than predicting the end of times, we need to look for the opportunities that the reform presents to our cash and health-poor state. That’s why I am an advocate for reforming Medicaid through the use of a managed care (or better said, ‘managed health”) approach. And, her point of view reflects a feeling on the part of many that our legislators and members of the administration should be more concerned about the welfare of all Kentuckians than their own political welfare.

In the end, we need to start substituting the connective “and” instead of “or” when we look at our opportunities. The question usually is can we have better health or lower costs? Let’s ask how we can have better health AND lower costs?

That frame of reference may lead us to a much different place.

One Person’s Expense is Another Person’s Revenue

Last year, while the health care reform debate was raging, the Health Enterprises Network brought the noted Princeton economist, Ewe Reinhardt to Louisville to discuss health care reform. Dr. Reinhardt opened his talk with a discussion of economies. While he acknowledged the differences in ideology, he rightly pointed out that much of the political difficulty surrounding the reform issue on capital hill could be traced to a basic economic fact.

One person’s (out-of-control) cost is another person’s revenue.

Deborah Yetter’s article in this mornings Courier-Journal, “Medicaid Cuts: Can Kentucky Limit the Pain?” uses Main Street in tiny Bedford, Kentucky to drive the point home. She spoke with Bob Yowler, pharmacist and owner of Morgan Drugs, who described the importance of his store’s Medicaid patients to his business and to the local economy. Morgan Drugs employs 12 people, which isn’t a trivial number in Trimble County which has a population of about 8,000 and an unemployment rate of 14%.

There is no denying that the Commonwealth faces a daunting task in terms of trying to balance the health needs of Kentucky’s poorest citizens with available revenues. However, one cannot ignore the devastating economic impact of slashing the $5 billion program by 20%. Little Bedford might not scare you, but cut 20% out of the Medicaid budget in Louisville and every single health care provider, supplier, pharmacy, and vendor will be laying people off in droves.

So, legislative leaders, especially those that aspire to the governor’s office,  may want to watch the rhetoric on this issue. Even forgetting the negative economic impact of our nation-leading poor health status, there is a business case to be made that expanding Medicaid is in the best interests of the Commonwealth. We simply need to look at new models and approaches, not the tactics employed by political Chainsaw Al.

Deja Vu All Over Again

I have commented before on the Humana/University of Louisville Physicians dispute (see Our Entitlement Mentality). Pat Howington’s story in this morning’s C-J yet again shines a light on disputes between providers and health insurers, this time Humana and ULP. (Read Pat’s story by clicking here.)

If you have never done so, it’s interesting to read the comments associated with the article on the website. Here’s an example or four:

Someone named Acebass (obviously a crack angler) commented as follows:

“Only in America could this happen, because all the other countries have universal health care where patient health trumps cost.”

It’s a shame we have to pay for everything.

Writer52 commented:

“Out of network reimbursement typically involves paying off a massive deductible, being reimbursed at a lower rate, and paying a fee that is not discounted…often much higher than the “in-network” fee. Policy holders get shafted while the Humana execs and stockholders reap the benefits. BTW, it is in Humana’s interest to prolong this…after all, they are saving a bundle by not reimbursing the doctors during the period in which there is no contract!”

Now, to be clear, while I am 52, I am no writer, so don’t blame me for that one.

spndsmom wrote:

“The difference is a little more than just the 10% in in-network vs out of network. Last year, my daughter had to have surgery in the middle of the Norton/Anthem squabble. She had the surgery at Kosair. Now, there was a wonderful humanitarian article ran that stated Anthem would graciously pay Kosair bills at in-network rates, so as not to further burden families of ill children. Guess what? I got billed for well over $100,000.00 which was the difference between what they billed and what Anthem paid. There was no “agreed upon” billing rate or “usual and customary” writeoffs so we were balance billed the ENTIRE remainder of the bill. Don’t believe the “in-network” talk – it is meaningless. Norton asserted their “right” to balance bill patients for anything the insurance company did not pay because they had no contract with Anthem. Read the fine print people. This is a bigger financial disaster for patients than it appears on the surface.”

Ok, I have to take exception to this one. While I believe that spndsmom received a balance bill, I am certain that Norton would have made it right if it were brought to the attention of the business office, and perhaps, even if it weren’t. But that doesn’t matter as most people will believe what spndsmom posted.

Employers aren’t spared either, majjam posted the following:

“The Humana plan that my employer thoughtfully provides does not allow for out of network care, so it isn’t a matter of an extra 10% for some of us. So, the doctors that I have searched long and hard for that treat my lung cancer are out of my reach for right now.”

Thoughtfully? I detect a sarcastic tone here majjam.

The point is that everyone gets a black eye in a dispute like this one. There can be no denying that these types of disputes come at a real cost to patients and ultimately to employers paying for the care. And, there is no end in sight given the increasing financial pressures felt by all providers and especially by physicians.

So, hang on folks. The party’s just getting started.

Dying as you Lived

I don’t have much to add to this essay by Atul Guwande just published in the New Yorker. (click here) It will take you a while to read his essay on hospice (end of life) care, but it will be well worth your time to read and understand the real cost of the demagoguery of “death panels.”

SEIU in Kentucky…Run Away! Run Away!

Those familiar with the Kentucky hospital industry were probably quite surprised to see the article in the Herald-Leader (click here) outlining layoffs underway at King’s Daughters Medical Center in Ashland, Kentucky.

Those of you who follow the Louisville market would find KDMC to be an interesting place. It dominates the Ashland market with nearly 21,000 inpatients annually. It is horizontally integrated and has successfully joined the care continuum in that area of the state. They are even a player across the river in Huntington.

Most impressive though is its profitability and financial position. Last year, KDMC generated $28 million in operating income (that doesn’t include investment income) on $555 million in total revenue. That performance isn’t an aberration. KDMC has consistently been one of the top performing hospitals in the Commonwealth. It’s balance sheet is quite healthy with nearly $240 million in cash reserves and $197 million in long-term debt and interest rate swap obligations. On a relative basis, KDMC eclipses all the Louisville area hospitals in terms of profitability. KDMC’s first quarter (the three months ended December 31, 2009) wasn’t bad either as it earned $5 million from operations on $155 million in revenue.

Something happened since the holidays though. According to the Herald Leader, in an article largely taken from KDMC’s press release and an article in the Ashland Daily Independent, the hospital rounded up the usual suspects, attributing its recent declining financial performance to increasing charitable care and bad debts. (I tried to find quarterly data for March 31 and June 30 and was unsuccessful, so I could not independently verify that performance was indeed declining.)

Kaiser’s Drew Altman – Health Care Reform Wins for Conservatives

Drew Altman, President and CEO of the Henry J. Kaiser Family Foundation says the details emerging from the health care reform legislation includes much to the liking of conservatives. His essay can be found by clicking here.

In the piece, Altman cites the trend towards shifting more of the responsibility for paying for care to the individual. As an illustration, the percentage of workers paying a deductible greater than $1,000 has increased from 10% in 2006 to 22% in 2009. Kaiser’s research and forecasting shows that trend is expected to accelerate under the new law.

So, one of the key principles of conservatism, personal responsibility, was somehow embedded in the legislation. An interesting perspective from Altman.

Community Health Systems Offer at Odds with Pessimistic View of Kentucky Health Care

Last Tuesday, I noticed this snippet from the Lexington Herald-Leader (click here) briefly outlining the Kentucky Hospital Association report on how (in its view) Kentucky fares under health care reform. I admit that I have not seen the report. I did try to read it, but after searching the public KHA website and using the google machine, I simply couldn’t find the report. In summary though, according to the Herald-Leader, KHA sees Kentucky as a loser, with its hospitals losing $1.2 billion in revenue over the next 10 years.

That reports seems a bit at odds with Community Health System’s attempt to acquire Jewish Hospital & St. Mary’s Healthcare as reported in Business First.