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The burgeoning movement known as “Health 2.0″ makes some pretty big claims about the power of social networks and Web services to transform the sprawling mess we like to call the U.S. healthcare system. One of the central principles is that providing individuals with better information about medical treatments and procedures will make them better “medical consumers” capable of exerting market pressure that can improve quality and lower prices.

There’s nothing at all wrong with that notion in the abstract, although there are plenty of reasons to doubt whether “empowering patients” this way will really produce significant change. Among them are the fact that the majority of medical costs in any given year are run up by a small minority of the population, many of whom are often so sick that they aren’t in any sort of position to shop around for the best deals. Measuring the quality of healthcare is also a thorny problem that no one seems to have really gotten a handle on at this point.

Still, anything that helps better inform patients and enables them to make the best medical and financial decisions possible has to be applauded, and that’s a direction that many Health 2.0 startups seem to be headed in. I’ll be writing more about a number of these efforts over coming weeks and months, because some of them are already starting to shed some interesting light on medical and insurance practices that were previously all but invisible.

One of them is a Nashville, Tenn., startup called change:healthcare. The company is probably best known for its site MedBillManager, a subscription service intended to help people with complex or “consumer directed” health plans — such as those with high deductibles — cope with their medical finances. Until late last year, change:healthcare also offered a physician and hospital site called FindYourDoc.com, which also presented some preliminary information on medical costs at some hospitals. That site has been down while the company integrates its offerings under the change:healthcare brand and unveils a new emphasis on letting people share and compare their medical costs. I’ve held off reviewing either service until the integration is done, which change:healthcare says will happen by March 1. The company raised $1 million last October, which we wrote about here.

In the meantime, though, change:healthcare has produced a couple of interesting case studies that illustrate how widely the cost of drugs and medical tests can vary within a single geographic area — a fact of which most people (myself included) are almost wholly unaware. This is the sort of information that could be very useful to the uninsured and anyone without a comprehensive, major-medical style health plan that covers just about everything — the very sort of plan that is quickly going out of style at the moment.

To gauge the variation in drug prices, change:healthcare conducted a phone survey last November of six well-known pharmacy chains in four different Nashville neighborhoods, asking each for the price of six prescription drugs: Copaxone, an injectable multiple-sclerosis drug; the antidepressant Zoloft; the fibromyalgia drug Lyrica; Lipitor, a statin that lowers cholesterol; the sleep aid Ambien; and the allergy/asthma drug Singulair. The survey turned up some surprisingly wide disparities among the pharmacy chains, such as the fact that a Lyrica prescription costs more than twice as much at Rite-Aid as it does at Walgreens. No single pharmacy was consistently the cheapest, and prices could vary considerably even at different branches of the same chain. Kroger, for instance, charged twice as much for Singulair in one Nashville neighborhood (Green Hills/Belle Meade) as it did in another (Franklin).

These are obviously price disparities that can only exist because of the system’s opacity and, to be fair, the lack of incentive for many insured individuals to shop around for the best prices in the first place. All this leaves pharmacies free to take advantage of information asymmetries, even to the extent of cutting deals with pharmacy-benefit managers that disadvantage anyone who’s paying full freight for their prescriptions. You can see the full results of the survey here at change:healthcare’s blog (scroll down for the PDF link).

The second survey involved looking at the cost of a simple medical test for streptococcus infection, the sort of thing anyone with a sore throat and a fever might need. Here, change:healthcare not only found wide price gaps among 13 different Nashville-based healthcare providers — all selected randomly from a list of general practitioners produced by a major insurer — it was actually unable to get information from five of them for a variety of reasons. (Two phone numbers were incorrect, one office turned out to be a sleep-disorder center, another suggested a walk-in clinic, and the last insisted that the caller select the doctor as a primary care physician before they’d provide the test.) The cost of the test ranged from a rough estimate of $50 to potentially as much as $259. The full study is available here.

To be sure, two small case studies don’t necessarily prove anything about the state of healthcare pricing on a national level, much less lend support for the notion that giving individuals better information will restrain overall healthcare costs. What’s more, they’re provided by a company with a vested interest in building demand for services that will help individuals compare healthcare costs, so some perspective is definitely in order. Still, these results are indicative of the irrational pricing that undoubtedly affects many areas of medicine, which is likely to impact increasing numbers of Americans as insurance coverage grows ever more miserly. At least, that is, in the absence of some sort of comprehensive nationwide healthcare reform, although that’s a subject to revisit another day.

Welcome back, American readers, from what we hope was a long and leftover-filled weekend. The news was slow, but here are a few stories you might have missed while still in your post-dinner food coma.

Frustrated by your teenager? Scan his brain — Actually, that probably wouldn’t help, although Arthur Toga has given it a try. Sort of. Toga, director of UCLA’s Laboratory for Neuro Imaging, has scanned the brain of his daughter Elizabeth ’s every year or so since she was six. The results of those scans, plus similar scans of Toga’s other two children, have produced one of the longest chronological sequences of brain development ever attempted. That and other work have produced some fascinating findings on the way child and adolescent brains develop, “transforming our understanding of what it means to come of age,” WSJ science columnist Robert Lee Hotz wrote in his Friday column. Unfortunately, as Toga himself attests, knowing more about your teen’s neural development doesn’t necessarily help you deal with adolescent rebellion.

Gates takes on genetic genealogy — Harvard scholar Henry Louis Gates, that is, who recently launched his own DNA-ancestry company, African DNA, after he became convinced that existing firms that claim to help African-Americans trace their country of origin were potentially misleading customers. An NYT story yesterday uses Gates’ experience to expound on the limitations and potential pitfalls involved in genetic genealogy, a subject we touched on here. As it turns out, however, the WSJ wrote substantially the same story a week earlier, which you can check out here (subscription required).

Healthcare economics 101 — The NYT editorializes on the high cost of U.S. healthcare in a lengthy piece, one that touches upon many of the usual suspects — patient demand for the latest, most expensive treatments, the overspecialization of the medical profession, perverse insurance incentives and high overhead costs associated with the fragmented and inefficient insurance industry — that we’ve noted in occasional pieces (here and here, for instance). The NYT’s proposed solutions, however, are a real mixed bag. More evidence-based medicine to ensure that drugs, devices and surgical procedures actually work is certainly a good idea, as would be wider deployment of IT and electronic medical records. It’s far from clear exactly what the NYT editorial board is expecting from the greater use of “managed care,” which particularly in its for-profit incarnation became a synonym for extracting greater investor returns at the expense of patient care.

And finally the editorial simply dissolves into incoherence. It favors letting Medicare negotiate lower drug prices, for instance, but doubts that doing so would produce big savings. So why bother? Paying doctors closer to what they earn in other countries — far less than the U.S., that is — would save money, but might be politically impossible. So is it part of the solution or not? Consumer-driven healthcare could reduce what people spend on unnecessary care — but they might also cut necessary care. And so on. Ultimately, the paper’s august editors conclude that there is “no silver bullet” for the problem, and that a “wide range of contributing factors needs to be tackled simultaneously.” While that’s almost certainly true, the NYT has managed to turn a challenging and timely subject into an object lesson on how not to write a convincing editorial. It might as well have been titled: “Confused about healthcare costs? So are we.”

Healthcare economics 201 — Meanwhile, an NYT news story brought the surprising news that the Medicare “doughnut hole” — a big financial gap in the program’s prescription-drug coverage — may actually have a silver lining by encouraging wider use of generic drugs. Similarly, Rite-Aid drugstores have started selling a genetic paternity kit made by Sorenson Genomics, and psychiatrist Daniel Carlat writes in the NYT Magazine about how he came to grips with the often-subtle influence wielded by pharmaceutical drug reps.

Not too long from now, your genes are likely to be at war with your health insurer — and your genes may well have the upper hand.

Within the next few years, it should become fairly easy and inexpensive to get a rough-and-ready readout of your own genetic code, one that you can scan for information on which diseases you’re most likely to contract, which drugs will help you the most, and ultimately even how your children might turn out. In other words, a brave new world of genetic transparency is on its way, one that promises to empower individuals to an extent that’s still difficult to grasp. (For some preliminary thoughts on that subject, see here, here and here.)

At the same time, there is a persistent, if not growing, fear that individual genomic information will be available to insurance companies, who would undoubtedly use the information to restrict coverage for those with “bad” genes — or even to deny it altogether. Anyone who doubts the bedrock economic incentives that drive such insurance decisions should take a look at Jonathan Cohn’s terrific book Sick — not to be confused with the Michael Moore movie of similar name.

This fear is the primary driver behind the Genetic Information Nondiscrimination Act, which would bar insurers and employers from discriminating on the basis of genomic information or services. GINA, as the bill is affectionately known by its supporters, passed the House by an enormous margin earlier this year, but is currently held up in the Senate by an obstreperous Oklahoma senator, even though President Bush has pledged to sign it. (There’s more info here, here and here.)

Assuming GINA eventually passes as expected, what happens as personal genomics turns into a reality? One main consequence is that insurance companies suffer, because suddenly consumers will — for perhaps the first time ever — hold an information advantage over them. Say your own genome scan shows that you’re not predisposed to cancer, heart disease or diabetes — you might very easily opt for a low-cost, high-deductible healthcare plan that wouldn’t have to do much more than cover you in the case of an unexpected accident. By contrast, if you find you’re particularly likely to develop early-onset Alzheimer’s disease, as you enter middle age you might not only load up on health coverage, but also pick up a long-term care plan to ensure you’re not a burden to your family.

These sorts of informed choices cost insurers money, because their business model assumes that people will buy insurance they don’t need in order to subsidize the costs of those who do end up needing it. (That’s the fundamental logic of insurance, not a critique.) Extrapolate this far enough forward and it basically leads to the death of both health and life insurance, neither of which can survive without some pooling of risk — however much that’s been undermined by insurers’ recent willingness to slice and dice their applicant populations into profitable and unprofitable segments — and fundamental uncertainties that prevent individuals from cherry-picking the policies they buy. Insurers will doubtless try to devise proxies for genetic information, a prospect envisioned in this recent Economist article, but given that GINA outlaws insurance discrimination even based on the knowledge that someone has taken a genetic test, it’s difficult to see how effective such measures could be — although they might be very successful in spawning a new wave of ill-will against insurance companies.

I’m not about to shed crocodile tears over the plight of insurance companies, not least because the evidence that they’ve brought any sort of efficiency to the healthcare system is so thin on the ground. The possibility of their impending demise should at least give us pause, though, in part because so few Americans have given much thought to what ought to replace the private-insurance system.

Of course, the government is likely to rush in to fill any void, and in my view that’s not such a terrible outcome, since at least it’s big enough to spread risk properly across the entire population. (Genomics only minimizes risk — it doesn’t eliminate it.) And there’s still the question of what to do with those who’ve drawn bad numbers in the genetic lottery, for whom government support may be the only answer.

Others, of course, will likely disagree, although I’d point out that ideas such as the Economist’s preferred notion of “health savings accounts” — in which you’d save for future healthcare costs the way you save for retirement — seem unlikely to work terribly well when a single unexpected medical crisis can wipe out a family’s life savings. That means startups like Red Brick Health — also touted by the Economist — probably aren’t going to do the job, either. While this all may seem like far-off speculation to many, chances are good that we’re all hurtling into an uncomfortable (but not necessarily bad) new world far faster than we realize.

(UPDATED: See below.)

Three months ago, the California Public Employees’ Retirement Fund committed $700 million to a newly formed San Francisco private-equity firm called Health Evolution Partners, promising that the resulting investments would aim to improve healthcare efficiency and to bring down soaring medical costs. At the time, however, the partners were purposefully vague about exactly how they planned to proceed. (See our coverage here.)

Today, HEP began to outline exactly how it intends to begin transforming the healthcare system. In a speech in New York, HEP founder David Brailer, formerly national coordinator for health information technology in the Bush administration, said the fund will devote $500 million to direct investments in late-stage healthcare companies, reserving the remaining $200 million for startup investments in partnership with a syndicate of existing venture investors. In an interview with VentureBeat Life Sciences, Brailer didn’t identify any members of that venture syndicate, but said HEP would likely announce its first partner this year.

Brailer said HEP’s investments in later-stage companies will likely be in the $10 million to $80 million range, although in practice, he said, the range will likely be “tighter.” The fund doesn’t intend to make direct investments in startup firms at first, and instead plans to invest up to $100 million in venture funds raised by its syndicate partners. Over time, HEP may also co-invest another $100 million alongside its partners.

HEP plans to target its investments to companies whose services, technologies or IT strategies hold the potential to upend established healthcare practices in ways that reduce spending. “This is about getting more value out of existing spending, not increasing spending,” Brailer said.

Brailer said HEP would assess potential investments by assigning companies a “health value” score that would be calculated by a coalition of organizations “anchored” by HEP. That metric will score three main parameters — whether a company can produce cost efficiencies that won’t simply be absorbed by another component of the healthcare system; whether it is improving the efficiency of medical treatments by boosting patient compliance or by targeting treatments more precisely to the patients likely to benefit; and whether its business emphasizes giving consumers more power to make decisions about their own healthcare.

HEP plans to make those scores public for companies in its portfolio, and eventually hopes to encourage major healthcare buyers to require companies to disclose their scores as well. Brailer stressed that while high health-value scores will influence HEP’s investments, the fund still intends to emphasize traditional measures of financial performance.

Although Brailer said HEP would be open to investing in a variety of healthcare-related sectors, he said the largest efficiency opportunities appeared to lie in healthcare services, information, devices and diagnostics. Diagnostic tests, for instance, might indicate whether patients will really benefit from expensive cancer chemotherapy, potentially saving money by restricting the treatment for those most likely to respond. Some medical devices might substitute for surgery or expensive, long-term drug treatment. Information systems could make doctors more efficient and “disrupt” existing wasteful processes, Brailer suggests.

HEP doesn’t seem likely to show much interest in biotech or pharmaceuticals, however. Brailer said he considers those industries “overcapitalized” and questioned whether the heathcare system is really benefiting from a steady onslaught of pricey new drugs. “Over time, we may be asking a lot of questions about these drugs.”

Of course, another term for what HEP hopes to encourage is “healthcare rationing,” albeit a version driven by market forces and — one hopes — solid medical evidence. It’s hard not to be encouraged by an effort of this scale that aims to actually reverse the seemingly endless spiral of medical costs, which as I’ve described earlier, has no shortage of dire consequences for the average American worker. But it will be interesting to see if this sort of rationing draws anywhere near the sort of opprobrium as previous free-market efforts to rein in healthcare spending — such as, for instance, the practices of HMOs during the 1980s and 1990s.

HEP’s press release on the subject is here; a PDF background document on its strategy is here.

UPDATED: Added links to HEP’s press materials and revised slightly throughout.

(UPDATED: See below.)

Venture capitalists are throwing scads of money at online health-information startups, figuring that at least one of them might eventually emerge a powerhouse in community-building, health-related search, electronic medical records, or even some combination of the three. Today, the NYT’s Steve Lohr weighs in to argue that the biggest battles in this space might just involve the two familiar names Google and Microsoft.

Of all these opportunities, electronic health records probably have the greatest potential to transform and improve U.S. healthcare, although they’ve so far made little headway in our fragmented medical system. Lohr covered that issue far more thoroughly in this June piece. Here, his Google-Microsoft story is kind of heavy on atmospherics and light on detail, and devotes lots of space high up to the looming clash between online titans, consumer fears about trusting big companies with their health records, and the opportunity created by the slowness of doctors and healthcare providers to adopt electronic records themselves.

When the story does get down to details, however, they’re fairly interesting. Google sees creating, maintaining and providing access to electronic health records as the core of its online health strategy. A prototype of Google Health that Lohr viewed takes a consumer-oriented tack, promising people the ability to control their medical information and to give access to “health care providers, family members or whoever they choose.” Additional pages include:

a “health profile” for medications, conditions and allergies; a personalized “health guide” for suggested treatments, drug interactions and diet and exercise regimens; pages for receiving reminder messages to get prescription refills or visit a doctor; and directories of nearby doctors.

Microsoft, by contrast, seems to be taking its classic technology-first approach. Steve Shihadeh, general manager of Microsoft’s health solutions group, emphasizes the “grand scale” that will be required to handle “data storage, software and networking” necessary to implement a workable electronic-records system, and brags that Microsoft software is already present in hospitals, clinical labs and doctors’ offices and that the most popular electronic-records systems already in place were also built with Microsoft software and programming tools. It’s not clear to me if that’s a boast or a threat, actually, although it’s sure got a familiar Microsoft cadence to it.

Shihadeh adds that Microsoft is building a “broad consumer health platform” and dismisses electronic medical records as “just scratching the surface.” Microsoft’s health effort is due to be launched this fall, while Google’s has apparently been put off until next year.

It’s entirely possible that both giants may fall on their respective faces, of course. Neither has made much headway in health-specific search, an area where companies like Healthline have done well, although the NYT does note a recent Juniper report that found 58 percent of people looking for online health information started with a general search engine like Google.

More to the point, Lohr fails to even raise two important questions. The first is exactly how much control these companies envision handing consumers over their electronic health records. Could, for instance, an individual on the Microsoft service pick up her records and take them to Google? Maybe it’s passé to think of tech giants trying to “lock in” their customers with proprietary formats in this Web 2.0 age, but Microsoft’s seeming inability to stop touting its software ubiquity can’t help but make me wonder what the Redmond giant has in mind. Bear in mind also that competing health-record setups at hospitals and doctors’ offices aren’t particularly compatible with each other, either — another factor that has slowed adoption.

The second question is what, if anything, Google and Microsoft plan to encourage the healthcare system itself to adopt electronic records. Consumers, for instance, might embrace either service — or both — and yet have nowhere to take their nifty new portable records, simply because three-quarters of all doctors don’t use them. Fixing that means finding a way to overcome the financial disincentives most small medical practices face in installing and maintaining electronic-record systems, and that could tax the resources — not to mention the patiences — even of these tech titans.

UPDATE: Google Someone apparently took the occasion of the NYT piece to “preview” some elements of Google Health on the Web. See, for instance, these screenshots and related descriptions at Google Blogoscoped.

Dan Kaplan also has a post on Google’s nascent health initiative up at the main VentureBeat page, although he’s considerably more optimistic about the business opportunities here than I am. Medicine does move a lot more slowly than the tech industry, or you’d have considerably more than 25 percent of doctors’ offices wired for electronic health records already. What’s more, the expansion in healthcare’s share of GDP is almost all slated to come in the cost of treatment and compensation for healthcare workers, with relatively little slated for technology. Tech companies may yet find a way to make money from the healthcare sector, but outside a few niches, the pickings have been pretty slim so far.

Extend Health, a Burlingame, Calif., provider of “defined contribution” health plans designed to cut costs for business, raised $15 million in a second funding round. Investors included Psilos Group Partners and Revolution Health Group.

Although it’s not all that obvious from its release or its Web site exactly what Extend Health does, the phrase “defined contribution” is a big clue. Most health-insurance plans today are “defined benefit” plans — you or your employer (or both) pay premiums, and in turn you get a set level of coverage. Defined-contribution plans, however, are like 401(k) retirement plans — your employer simply determines how much they’ll contribute to a health-coverage plan, whether or not that’s enough to cover your medical bills. (This is the main notion behind “health savings plans” and the like.)

This page from Extend Health’s Web site, for instance, is particularly telling. Each of the company’s three programs are explicitly designed to save companies money by shifting healthcare costs and risks to their current and former employees or the government. That’s certainly an understandable business model, even if it seems likely to make the country’s healthcare crisis worse rather than better. There’s also growing evidence that these sorts of plans are highly unpopular with employees, and that few people choose them unless they have no other choice.

Extend Health, which used to be called Extend Benefits, also announced a new advisory board filled with luminaries including former Medicare chief Mark McClellan and former House majority leader Dick Gephardt. The company was founded by Steve Case’s Revolution Health group.

(UPDATED: See below.)

Catching up on a few life-science related items you may have missed over the weekend:

If you prick a cyborg, does he not bleed? — The WaPo’s Joel Garreau brings us this fascinating story about Peter Houghton, the first permananent recipient of a “left ventricular assist device” — a mechanical replacement for a failing chamber of his heart. Houghton’s heartbeat no longer goes lub-dub — instead, it whirrs as an impeller pushes blood through it. He has an electrical socket in his skull that connects his heart device to a camera bag filled with batteries. Worst of all, he’s become “less sympathetic in some ways,” he tells Garreau. “You’re an invented person trying to cope with it, trying to deal with the emotional context of it…. You become coldhearted. The thought doesn’t agree with me, the fact that it happens. But I don’t know what to do about it.”

The psychological problems of this latter-day cyborg are real, although as the story points out, no one knows if they’re the result of surviving a life-threatening illness, the machinery, the drugs Houghton must take, depression, advancing age or the absence of unknown hormones produced by the heart. Houghton spent some time contemplating suicide, but backed away in part because he couldn’t overcome his fear of actually choosing a method. (Antidepressants also seem to have helped.) He’s writing a book titled Cyborg Life and has even tried his hand at poetry:

A roller coaster.
Better than being dead, I think.
Three days out of five.

Provenge and the private eye — Pharmalot’s Ed Silverstein brings us the interesting tale of a plaintiff’s private investigator who stalked the editor of Cancer Letter, a newsletter that ran leaked letters critical of Dendreon’s cancer vaccine Provenge, which we’ve written about at length here and here. (The FDA asked Dendreon for more Provenge data, despite the previous endorsement of its advisory panel.) The plaintiffs — representatives for patients who want the FDA to reverse its Provenge decision — are now suing FDA officials and one of the two advisory-panel member whose critical letters ended up in Cancer Letter; they’re trying to figure out who leaked them to the newsletter.

Earmarking, a habit that’s hard to kick — The NYT’s Robert Pear reports a nice piece detailing how members of Congress — mostly Democrats, apparently — are steering Medicare money to select hospitals through the practice of “earmarking,” or inserting language that directs funding to a particular lucky recipient. Despite the Democratic leadership’s promise to make earmarking more transparent by listing them openly — something I’ve grappled with in a biotech-related context here — Pear found earmarks worth hundreds of millions of dollars hidden away in a House bill designed to expand health insurance for lower-income children.

Amgen’s Sharer called on to resign — Also from Pharmalot comes news of an Internet petition demanding the resignation of Amgen’s CEO, who has overseen a sharp decline in the biotech giant’s stock price amid accusations that the company has pushed overuse of anemia drugs which have been linked to various severe side effects. It’s likely to be about as effective as most Internet petitions, but it certainly doesn’t improve the climate for the embattled biotech.

American life expectancy outpaced by 20% of the globe — This AP story (courtesy of the Boston Globe) reminds us of a major cost of our dysfunctional healthcare system: We’re not living anywhere near as long as people in other countries. In fact, the U.S. has been sliding for years in global rankings of life expectancy. A baby born in the U.S. in 2004 can expect to live 77.9 years, ranking the U.S. 42nd in the world. Twenty years ago, we were 11th. UPDATE: Apparently we’re slipping in other respects as well. This WaPo story notes that Americans are no longer the world’s tallest people, either — the Dutch and other Europeans are now looking down on us. This observation isn’t entirely frivolous, either, since height is a proxy — albeit somewhat indirect, but still meaningful — for general health.

How to get, and keep, health insurance — Those not fortunate enough to work for a large company who provides health benefits already know that the individual-insurance market can be a scary place, at least if you’re not young and healthy. In most states, insurers have no compunction about denying you coverage for a variety of pre-existing conditions or if you take common prescription drugs, such as statins that lower “bad” cholesterol. What’s more, many insurers also ask if you’ve ever been denied insurance in the past, which if you answer truthfully — and lying is a bad idea — makes you a prime candidate for subsequent rejection again.

So it was quite a relief to find this LA Times advice on getting and keeping health insurance. Some of the advice is California-centric — it appears, for instance, that state law may require employers to extend your insurance for up to 36 months if you leave or are fired — but it’s still a good rundown of your rights and the pitfalls you can face in trying to protect your health and that of your family. For non-Golden State residents, there are plenty of other resources available — try, for instance, healthinsuranceinfo.net, which provides state-specific information compiled by the Georgetown Univeristy Health Policy Institute.

Between the sweeping job cuts across Big Pharma, falling stock prices, stalled drug approvals, safety problems with drugs like Avandia and an expected avalanche of generic competitors to billion-dollar brand-name drugs, it’s certainly starting to look like the traditional drug industry’s best days are behind it.

In fact, good news is pretty much in short supply no matter where you turn. Consider just this litany from this AP story (courtesy of the Baltimore Sun) I linked to a few days ago:

J&J’s plan to cut up to 4,800 jobs follows news of tens of thousands of job cuts at Pfizer Inc., Bristol-Myers Squibb Co., AstraZeneca PLC, Merck & Co. and Schering-Plough Corp.

Pfizer, the world’s biggest drug company, is eliminating 10,000 jobs, 10 percent of its work force. Merck is shedding 7,000 jobs, AstraZeneca is slashing 7,600 positions, Schering-Plough has furloughed about 1,100 manufacturing workers, and Bristol-Myers Squibb will cut an unspecified number of jobs by year’s end.

Now ponder yesterday’s installment from the NYT’s Stephanie Saul:

The nation currently spends $275 billion a year on prescription medicines. But over the next five years, analysts forecast a golden era for generic drugs, as patents begin to expire on brand-name medications with more than $60 billion in combined annual sales. That will open the door to copycats that may be 30 percent to 80 percent cheaper.

Or just look at the NYT’s graph of generic-drug approvals, part of which I’ve reproduced at the left.

It’s hard not to feel just a tingle of Schadenfreude in all of this. Whatever your feelings about the drug industry, there’s no question that it has lectured us for years that high U.S. drug prices and its ceaseless hawking of pills were crucial to sustaining a steady supply of innovative new medicines. It has insisted that ever-rising drug prices make possible the vast sums the industry devotes to R&D every year. And it has steadily and effectively beaten back every consumer measure that might have jeopardized its ability to set high U.S. drug prices, arguing that Medicare price bargaining, legal imported drugs and any federal effort to ensure “reasonable” prices for drugs largely derived from taxpayer-supported research could mean the end of our pharmaceutical Golden Age.

And yet it’s all coming undone anyway, because it turned out that most of the big drug companies weren’t anywhere near as innovative as they claimed. Instead of turning their still-enormous cash flows into ground-breaking new drugs, pharma companies are for the most part stalking the landscape, looking for the next promising biotech drug to snap up — at least when they’re not defending their existing blockbusters against safety problems or firing sales reps who apparently went too far in hawking their drugs.

For a graphic illustration of just how much Big Pharma productivity has suffered over the past decade, consider the graph at left, which is from this Economist piece that argues that the entire industry need to rethink its business model. That seems like a no-brainer to me; as Ogan Gural points out over at Life Sciences Daily, the blockbuster model is “rapidly leading to extinction.”

Among other things, Ogan cleverly notes that all blockbusters have an Achilles’ heel, one that renders the entire model suspect so long as our understanding of human biology and drug side effects remains limited:

[T]he massively indiscriminate target populations and the long-term, chronic administration that makes these blockbusters in the first place also renders them extraordinarily susceptible to safety issues. It boils down to simple statistics: if you give a drug to enough people for a long-enough time, you’re bound to get some safety problems. Hence the solution to the business problem has been for companies (such as Roche acquiring various diagnostics firms) to embrace personalized medicine which also holds the promise (but not the entire key) to solving the safety problem.

Biotech, of course, has been largely spared in this bloodbath — Amgen’s troubles excepted — because the industry’s companies tend to focus on disease “niches” instead of trying to come up with one-size-fits-all drugs. If, in fact, personalized medicine does start to take off — something that’s been a long time in coming — we can probably expect the balance of power to shift even further in biotech’s direction.

Merrill Goozner has some additional thoughts on pharma’s troubles here; he thinks that the dominance of drug companies in our public healthcare discourse is coming to an end as attention shifts to the debate over general healthcare reform.

Patients, patients everywhere, yet not a doc to treat – From Massachusetts to Colorado, there’s an increasingly acute shortage of primary-care physicians. In Massachusetts, where the nation’s only universal healthcare plan is gearing up, hundreds of thousands of newly insured individuals are having trouble finding doctors. According to this report, new patients wait an average of 52 days to see an internist or family doctor for a routine visit, and with up to 500,000 people set to get insurance this year, the head of the Massachusetts Medical Society is predicting a crisis of healthcare access. There’s more here and here, just for starters. Google “Massachusetts doctor shortage” for much more.

Things aren’t much better elsewhere across the country. In Colorado, a new report finds that close to a third of the state’s primary-care docs are 55 and over, and that relatively few younger docs are entering the field to replace them. (See the PDF report itself here.) Meanwhile, those on the lowest rungs of the economic ladder are also finding it increasingly difficult to get treatment because so many doctors have either stopped accepting Medicaid patients or severely limited their numbers. The WSJ Health Blog has more, including another post about two Illinois clinics sued by the state for allegedly colluding to stop seeing new Medicaid patients.

The reason for the doctor shortage is actually pretty simple: Salaries are much, much higher in specialties such as surgery and radiology than they are for your workaday general practitioner — sometimes by a factor of two or more, the NYT reports — and the workload is often less. Primary-care physicians also perform fewer complex medical procedures, which limits the reimbursement they can seek from insurers or Medicare.

The rest is pretty much just supply and demand — and a useful reminder that real fixes for the nation’s busted healthcare system are going to demand some fairly dramatic changes. Some radicals like Alan Garber, a Stanford healthcare expert quoted in the NYT, would like to see doctors paid fixed salaries and bonuses based on how healthy they keep their patients, which would level the playing field among physician specialties and create incentives to treat and prevent illness instead of just treating it with the most expensive procedures available. Just imagine how excited the American Medical Association would be about that.

States can’t do healthcare reform alone – While we’re on the subject, this piece by Ezra Klein in the Washington Monthly makes a compelling argument that states can’t provide universal healthcare on their own. It’s a complex argument, but much of it boils down to the fact that states typically can’t sustain the heavier healthcare costs brought on when recessions throw more people out of work and the health insurance they get from employers. Klein notes the “cruel irony” that state healthcare spending typically gets cut during downturns, just when people tend to need government help the most. Only the federal government, he suggests, has the resources to maintain and even expand healthcare programs when times get tough. (For the internecine warfare that broke out among liberal progressive bloggers shortly after Klein’s article was published, see here, particularly the comments.)

First thing, we kill all the ad salesmen – Although free-market types like to talk about drug advertising as providing a “useful source of information” to consumers, the reality is a lot more complex. Advertising essentially creates demand for many drugs, leading patients to visit their doctors waving magazine ads or asking about “the little purple pill” (a fantastically effective campaign earlier this decade for the heartburn drug Nexium). Needless to say, very little of this has anything to do with keeping people healthy, and quite a lot to do with boosting drug sales.

Over at BrandweekNRX, Jim Edwards pens a farewell post offering 10 drug-advertising reforms that would do a lot to make pharmaceutical-marketing programs more informational and less manipulative. With Congress having apparently passed on letting the FDA regulate drug ads more thoroughly, though, the odds of any of these idea passing into law seems remote at best.

Additional oddball note: Jim’s replacement at BrandweekNRX is none other than Peter Rost, former Pfizer marketing exec-turned-scathing critic of the industry that once paid him. Rost has an odd sense of humor and can certainly carry on at times, but he’s entertaining, muckraking, and always worth a read.

Hospitals as charity cases? – One of the tradeoffs involved in running a hospital as a nonprofit entity, a status that grants some pretty hefty tax breaks, involves providing charity care to the indigent. It turns out, though, that many hospitals are pleading poverty themselves. A recent IRS report, noted in the WSJ Health Blog, found that nearly a quarter of nonprofit hospitals spent less than one percent of their revenue on care for the disadvantaged, while half spent less than three percent. Now moves are afoot in Congress to require nonprofit hospitals to devote at least five percent of revenue to charity care. For more, follow the link.

Briefly noted:

• Congress is struggling to increase funding for a federal program that insures poorer kids, against a veto threat from President Bush. The NYT and the WSJ Health Blog have more.
• A severely brain-damaged man regained his speech after treatment with pulses of electric current, the NYT reports.
• Medicare relaxed proposed guidelines that would limit the use of anemia drugs like Amgen’s Aranesp in cancer patients, after safety problems emerged; Amgen promptly challenged the watered-down guidelines.
• Researchers reported finding a genetic link to multiple sclerosis; surprisingly, there’s also one for “restless legs syndrome,” which some cynics considered a pharmaceutical-company invention.
• Older docs square off with their younger colleagues — and academics, patients, and others — over whether it’s a good idea to limit the work hours of notoriously sleep-deprived residents in comments at the WSJ Health Blog.

The Health Wonk Review, a selection of the blogosphere’s best posts on health policy, is published every two weeks by a blogger volunteer. The latest edition is now up at David Williams’ Health Business Blog.

Among the featured posts are:

• An analysis of Big Pharma’s apparent intimidation of drug-safety critics such as Steve Nissen, the cardiologist who first highlighted potential safety problems of the diabetes drug Avandia;
• A look at how different countries handled late-stage kidney disease, and why spending more doesn’t relate to better outcomes;
• A how-to on negotiating your MRI bill down by 50 percent;
• A critique of the Massachusetts universal-coverage plan;
• And a post on the scariness of the individual-insurance market.

Check it out. I’ll also highlight similar roundups for biotechnology and — if one exists — medical devices when they come up.

(UPDATED: See below.) Ever since the Clinton health plan went down in flames 13 years ago, discussion of significant reforms to the U.S. healthcare system has been largely academic. Until now.

Suddenly, serious talk about the ills of U.S. healthcare — and what to do about them — seems to be everywhere. Democratic presidential candidates are falling over themselves to propose their own reform plans (see the Clinton plan, the Edwards plan, and the Obama plan at the links). A slew of recent books on the subject have hit the shelves over the past year, and of course Michael Moore’s new documentary Sicko is on its way. Perhaps most significantly, the mainstream media is starting to dig into the subject with increasingly tough stories on the underlying structural problems of the healthcare system and their consequences.

The big problems, of course, are easy to tick off. Healthcare costs continue to rise unchecked at a rate of more than 10 percent a year, more than four times the inflation rate. Higher costs are perhaps the single biggest reason the number of uninsured Americans — 44.8 million, or 15 percent of the population — continues to rise. Worse, rising costs are also eroding the system of employer-provided health insurance. Not only are businesses finding it increasingly expensive to provide insurance to their employees, but workers with health problems — who can face serious obstacles to obtaining individual insurance — appear to be more likely to take jobs at employers with generous health plans, which drives up costs at those businesses even faster. The natural response: Employers either force employees to pay a larger portion of their premiums or cut back healthcare benefits — or both. (For a good summary of these issues from a reformist perspective, click here.)

One reason costs are high, obviously, is that advances in medical technology and procedures allow doctors to do more and to do it better, but at a price. That’s one major reason that venture investment in biotechnology and medical devices is at an all-time high. On the other hand, there’s plenty of evidence that we’re not getting the biggest bang for our buck with all this spending. For one thing, the fragmentation of the U.S. healthcare system into competitive fiefdoms of insurers, hospital chains and medical practices — that is, doctors — is stunningly inefficient. For another, a number of medical-outcomes studies suggest that many of the most expensive procedures often do very little to improve patients’ health or quality of life, meaning that a lot of this spending is effectively wasted. Overall, in fact, the U.S. spends close to twice as much on healthcare as a share of GDP compared to other industrialized nations, yet produces worse health outcomes by (admittedly rough) measures such as infant mortality and life expectancy. (See this 2006 OECD data — it’s a PDF file — for details.)

So, what do we do about all that? Some reformists favor a much larger role for government in healthcare, as is the case in most, if not all, other OECD countries. Whether the government takes over the system completely or simply extends a program like Medicare to the entire population, such a change would heavily restrict the role of private healthcare insurance and would likely impose serious cost controls. Another group of free-marketers argue for a concept called “consumer-driven healthcare,” in which consumers shoulder responsibility for a greater chunk of their own healthcare spending, theoretically driving down costs by being more parsimonious and by shopping for the best deals. (Universal coverage is possible under either plan, although how acceptable it will be and whether anyone can afford it are separate questions.)

Although I’ll do my best to be fair to both sides — and to any others that might emerge as I dig deeper — I should say up front that my own sympathies tend toward a government intervention of one sort or another. The evidence of the last 40 years — there’s a very helpful summary in Maggie Mahar’s excellent book, Money Driven Medicine, which I wrote about briefly in an item here — suggests that market forces not only don’t work, but may actually be counterproductive, in much of healthcare. Sick patients are generally in a terrible position to bargain with doctors and insurers over procedures and fees — often enough, they’re confused, ill or injured, and in need of relatively immediate treatment, all of which gets in the way of comparison shopping. What’s more, as Mahar notes, many medical decisions tend to be supply-driven. When new medical technologies are available, doctors and patients tend to use them, regardless of their cost and frequently even without firm evidence as to how well they work. It’s hard to imagine how “empowering patients” will do much to change that, although it’s one of the issues I hope to explore. (It’s also worth noting this recent WSJ article, also cited below, on what may be an emerging backlash against consumer-driven plans.)

Why go into all this here? Two reasons, basically. First, the political momentum for major changes is clearly building — you don’t have to look farther than the universal-coverage plans in Massachusetts and California to see that. Biotechs and medical-device companies could be some of the first hit if reforms include any sort of overt cost-control measures, as I suspect they ultimately will. In fact, about three weeks ago Amedica, a medical-device company in Utah, listed “healthcare reform” among the risk factors to its business when it filed for an IPO — the first time I’ve ever seen that. (I wrote about it here.)

Second, outcomes research and life-science ventures might well be part of the solution. I may be a skeptic about consumer-driven healthcare, but many VCs believe in it fervently and have funded businesses to drive it forward. Medical IT businesses can contribute to the digitization of medical records, which could do a lot to prevent medical errors and encourage specialist cooperation. Similarly, it’s possible that medical breakthroughs such as personalized medicine or new treatments that actually cure chronic diseases like diabetes or arthritis could bring costs down. I’ll believe it when I see it, but let me dream.

My third reason is more personal — it’s that I find the subject fascinating and critically important for millions of Americans. I’ve touched on the debate a few times already, although often somewhat obliquely, with earlier posts on evidence-based medicine, Andy Grove’s prescription for U.S. healthcare, and a roundup item on Health Evolution Partners, a private-equity fund ostensibly devoted to reducing healthcare costs. Watch this space for more.

Let me leave you with some recent examples of the attention healthcare-reform issues have drawn in the mainstream media. A recent NYT special section on “The Business of Healthcare,” for instance, featured several very good stories on subjects near and dear to my heart: Steve Lohr on the expense of electronic health records and the economic disincentives that face doctors who try to adopt them; Alex Berenson on how healthcare economists measure the value of medical treatments; Andrew Pollack on how biotech drugs are manufactured and how that plays into the biogenerics debate; and Matt Richtel on the flood of venture money headed into medical devices. The whole section is worth a read, although the NYT doesn’t seem to have “bundled” it together online the way it arrived in the print edition a few days ago.

Meanwhile, the SF Chronicle’s David Lazarus recently laid out the political strategy behind attempts to extend universal healthcare to Californians, while the WSJ explained recently how the Massachusetts universal-coverage plan came together (subscription required). The Boston Globe’s Liz Kowalczyk describes efforts at a variety of hospitals to encourage cooperation among otherwise competing medical specialists. Another WSJ article looks at the issue of medical errors and whether doctors themselves may be responsible for many of the problems associated with artery-unclogging stents.

Finally, two consumer-directed healthcare stories. The WSJ reports that the plans are increasingly unpopular with consumers who’ve enrolled in them, and that dissatisfaction may cause them to “stall out.” Meanwhile, the WaPo references a new study of consumer-directed plans that found they could double — or more — out-of-pocket costs for maternity care.

One glaring exception to this run of generally excellent stories is this Steven Pearlstein column in the Washington Post, which somehow manages to blithely conclude that:

[J]ust about every important interest group acknowledges that today’s health-care model is politically and financially unsustainable, that universal coverage is inevitable, and that everyone is going to have to accept major changes in how they do business and how things are priced and paid for.

Really? From my perspective, just about every special interest in the field — insurers, hospitals, doctors, pharma/biotech companies, and other associated hangers-on — still seems to be holding out for the best deal it can possibly cut for itself. If there’s an emerging consensus among these players on the inevitability of reform, they’ve been awfully quiet about it.

Let me also lay out some older links to Web-based commentary and debates that I compiled when I first thought about writing this item almost two months ago. (I put it off to better educate myself on the subject.) Sorry if these are a bit musty, but I figure it’s better to put them out later rather than never. As I get deeper into this, I’ll post some fresher stuff.

The New Republic, for instance, recently hosted a high-toned debate between TNR senior editor Jonathan Cohn — author of a new book on the human costs of the U.S. healthcare crisis — and Manhattan Institute fellow David Gratzer, who has previously published his own free-market take on healthcare reform. Cohn kicked things off with an article-length summary of his book’s American-healthcare critique; for the debate itself, it’s probably best to click here for the final installment and then use the top-of-page links to get to the earlier rounds (TNR’s new Web design, alas, doesn’t seem to be big on navigational aids).

Cohn also debated another consumer-driven healthcare advocate, Michael Cannon of the Cato Institute, at a forum provided by the Kaiser Faily Foundation. You can watch the video, download a podcast or just skim a transcript of it here.

Over at the Economist’s FreeExchange blog, one of the magazine’s anonymous correspondents has taken on a legion of commenters over several common — and, in his or her opinion, wrong-headed — reasons frequently offered in support of switching over to some form of government-run universal healthcare system. Among the Economist’s complaints: “me-too” drugs are nothing of the sort, pharma’s marketing costs are irrelevant to the broader healthcare debate, and medical innovation could easily suffer if reforms end up forcing down prices of medical products and services.

Elsewhere in the blogosphere, Merrill Goozer critiqued the fears that reform will crimp innovation at his blog GoozNews in this recent post. Other, somewhat older commentary, is offered by Matthew Holt (here, here and here), Ezra Klein, Uwe Reinhardt, and Robert Laszewski (hat tip to Jason Shafrin of the Healthcare Economist blog for several of these links).

If you’ve read this far, you clearly care a fair bit about this issue. Let us know what you think in comments.

UPDATED: I’ve written through the item to correct a number of awkward wordings and other minor errors I should have caught the first time around.

Flip switch for stem cells – Three research teams reported a technique for “reprogramming” skin cells into embryonic stem cells, those primordial bits of protoplasm that can propagate themselves indefinitely and, under the right conditions, transform themselves into any type of cell in the body. Deriving embryonic stem cells normally requires destroying an embryo — the main reason research with the cells remains limited, as does federal support for the work.

Teams from Kyoto University, MIT and a Harvard-UCLA collaboration all confirmed a report last year out of Kyoto that skin cells could be reprogrammed by implanting four genes that produce proteins called transcription factors, which control the effects of other genes. Adding those four factors kicked off an intracellular chain reaction that reverted the skin cells to a primordial, “pluripotent” state characteristic of embryonic cells.

There are, of course, a number of caveats, the most significant of which is that the work so far has only succeeded in mouse cells. Extending it to human cells may be tricky, in part because they will likely require additional transcription factors. What’s more, at least one of the transcription factors used in the mouse experiments appears to contribute to cancer; so may the type of virus used to transfer the transcription-factor genes into skin cells. As a result, it’s not yet clear whether the embryonic stem cells produced this way could be used to help regenerate damaged tissue or organs in humans, such as dopamine-producing neurons for Parkinson’s patients or insulin-secreting pancreatic cells for diabetics. All that said, it’s a very encouraging step forward, both in terms of advancing understanding of stem-cell biology and the potential for altering the ethical landscape for the work.

For more, see the WSJ and the NYT.

The trials of Avandia, continued — The fracas over the controversial