Bob Herman

New skin cancer drug to cost $156,000/yr

Andrew Harnik / AP

The Food and Drug Administration on Thursday approved Bavencio, a drug that treats a rare form of skin cancer called Merkel cell carcinoma. The breakthrough drug also received orphan drug status from the FDA, meaning it has seven years of market exclusivity.

Bavencio's list price: $13,000 per month, or $156,000 per year. A spokeswoman for EMD Serono, the maker of the drug, confirmed the list price to Axios. However, that price does not reflect rebates or discounts. The amount patients will pay depends on their health insurance.

In 2014, Pfizer and EMD Serono's parent company, the German-based Merck KGaA, agreed to jointly develop and sell the drug.


Valeant's ousted CEO made $72.5 million in 2016

Manuel Balce Ceneta / AP

Michael Pearson, former CEO of Valeant Pharmaceuticals, cashed in $72.5 million worth of stock and severance pay in 2016 even as he and the drug company were under federal investigation for accounting fraud and a billing scheme tied to a specialty pharmacy it secretly owned.

Pearson took home $60.5 million in stock and the rest in severance pay and other benefits, Valeant disclosed Thursday to the Securities and Exchange Commission. He also still used Valeant's corporate jet. Joseph Papa replaced Pearson last year, and Papa earned $62.7 million even though Valeant remains mired in trouble.

Valeant's stock has cratered since the middle of 2015, and it has become a pariah in the pharmaceutical industry. Pearson led Valeant since 2008, building the company up on the controversial practice of acquiring drugs and jacking up the prices.


Health care sees dollar signs in surgery centers

Sue Ogrocki / AP

The health care deals that grab the most attention involve pharmaceuticals, insurance or hospitals. But there's quietly been massive consolidation among ambulatory surgery centers — outpatient facilities where physicians perform routine procedures, such as elbow or cataract surgeries, and get patients back home in less than a day.

Why there's been a buying spree: More care is being done in the outpatient setting, since it's less expensive than getting the same care inside a hospital. Yet, surgery centers are very lucrative because they don't handle emergency procedures. The business model resembles a high-profit assembly line: Schedule as many quick, elective surgeries as possible, mostly for people who have better-paying commercial health insurance. Here are some telling 2016 figures from the biggest surgery center chains, according to each company's latest financial filing:

  • Envision Healthcare (260 surgery centers): 31% operating margin on $1.3 billion of revenue
  • Surgical Care Affiliates (197 surgery centers): 19% margin on $1.3 billion of revenue
  • Surgery Partners (99 surgery centers): 17% operating margin on $1.1 billion of revenue

Surgery center companies often jointly own their facilities with local hospitals, but they've also become targets for big players looking to cash in on the outpatient trend. UnitedHealth Group, the parent company of the largest health insurer in the country, scooped up SCA in a $2.3 billion deal. Hospital chain Tenet Healthcare bought United Surgical Partners International in 2015, mimicking how HCA has built up its surgery center fleet. AmSurg was a large surgery center chain until it agreed to merge with Envision last year.

Expect more activity: There are 5,500 ambulatory surgery centers in the United States. Financial analysts with Barclays estimate half are not owned by a chain, leaving "ample room" for deals.


Hospital costs from gun injuries total at least $735 million annually

Colleen Long / AP

Stanford University researchers released a study this week finding that gunshot wounds led to more than $6.6 billion in hospitalization costs from 2006 to 2014 — or an average of $735 million per year. And the researchers said those numbers are "just the tip of the iceberg," since they do not include the costs of when gunshot victims are in the emergency room or are readmitted to the hospital later.

Why this matters: Most health care professionals, including U.S. Surgeon General Vivek Murthy, consider gun violence a public health problem. Tackling the issue is politically difficult, but as the study's lead author said in a news release: "Cost information can be especially helpful when making health policy decisions."

And this affects all taxpayers: More than 64% of gun-related hospital costs are tied to patients who have Medicare, Medicaid or no health insurance.


Why the Trumpcare vote could hurt Republicans no matter how they vote

Rebecca Zisser / Axios

President Trump didn't sugarcoat the political consequences of a vote against the House Obamacare replacement bill on Thursday. "I honestly think many of you will lose your seats in 2018 if you don't get this done," he told House Republicans, per a source in the room.

True enough, but these members also could lose their seats and the House majority if they do vote to pass the bill currently being considered. So they're left with a terrible choice: Vote against Obamacare repeal after campaigning on repeal for seven years, or vote to cover 24 million fewer people and potentially raise premiums for senior citizens.

We asked more than a dozen Republicans, Democrats and health-care industry officials which is the better choice, and unsurprisingly, we came up with a mixed verdict. But there was a consensus on these points:

  • Neither choice is enviable.
  • It's not every day — or maybe ever — that the far-right, the left and nearly every health care group are on the same page. But these three different factions all oppose the House bill. It's mainly establishment Republicans that support it.

Republican leaders reject the idea that there's a downside to the vote, of course. They insist they're on a rescue mission to save the Affordable Care Act marketplaces from collapse (even though independent analysts don't think the infamous premium hikes this year would have been repeated).

Meantime, Democrats feel like they've won the lottery for 2018. "For (Republicans) who vote against it, they have to worry about being primaried. For those who supported it, the town halls may only be a taste of what's to come," said Jim Manley, a former aide to Harry Reid.

The view from the health care industry: Passing the current version of Obamacare repeal-and-replace is worse than getting nothing done. Hospitals, doctors and most health insurance companies hate the bill. The American Hospital Association has already run ads urging people to oppose it. The Alliance of Community Health Plans, a lobbying group for not-for-profit insurers, suggested Republicans start over.

"It's very hard to say with a straight face this bill is good for the health care system by any objective measure," said Billy Wynne, a consultant and former Senate Finance Committee counsel. Larry Levitt of the Kaiser Family Foundation warned: "When every health care industry group is aligned against you, it's awfully hard to get something through."

Hospitals and doctors believe the bill would decimate them and create some insurmountable headlines:

  • Less coverage for children. Dr. Andrew Racine, a pediatrician and chief medical officer of Montefiore Health System in the Bronx, said the GOP bill would undo the work of getting more kids access to care. Roughly 95% of children have some kind of health insurance now, due largely to Medicaid expansion.
  • Bad for hospitals. Mike Abrams, CEO of the Ohio Hospital Association, has met with Sen. Rob Portman and others to show the opposition is policy-driven. If the current bill passes, "50 hospitals out of our 220 are going to be in a very precarious economic situation." That means possible layoffs, closure of low-margin services like baby deliveries or closure of the entire hospital.

The Democratic view: It's bad both ways, but probably worse to vote for it. They say the policy is horrible, and Republicans are likely stripping coverage from the people who elect them — older, rural white people. The ads about age taxes and sick people losing coverage are basically going to write themselves over the next year and a half.

The view from far-right groups: It's worse to vote for this bill — which they're dubbing Obamacare Lite — than against it because it'll make Obamacare's problems worse. An increase in premiums and deductibles over the next couple years will be particularly damning. And they're not going to drop this.

  • James Davis, a spokesman for the Koch network: If Republicans "don't move forward with a plan we can get behind, it's hard for us to stand with them...If we are not standing with you, it can have a tremendous political impact...look at Kelly Ayotte." (The New Hampshire senator lost their support and then lost her seat by a very narrow margin.)

The view from establishment Republicans: It's worse to vote against this bill because they will be breaking promises and losing the base. This, ultimately, is what's causing Trump, House Speaker Paul Ryan and Majority Leader Mitch McConnell to force their members to take such a difficult vote.

  • Chris Condeluci, a former GOP Finance Committee aide, said a no vote will cause the Republican base and Trump voters to view the Republicans "as weak and disorganized."
  • Rodney Whitlock, another former GOP Finance aide: "With the initial score showing 24 [million] people losing coverage, the fact that the House is moving forward shows they are more concerned about the politics of proving they are repealing the ACA than the policy impact of the bill."

High-priced drug watch: H.P. Acthar Gel

Whitney Curtis / AP

Researchers are questioning the value, effectiveness and prescribing patterns of H.P. Acthar Gel, a drug used to treat multiple sclerosis and other conditions that costs $38,000 per year, Business Insider reports. Medicare continues to pay more for the drug every year even though experts believe cheaper alternatives would suffice.

Why this matters: It's another knock against Acthar and its owner Mallinckrodt Pharmaceuticals, which has routinely found itself in the spotlight for high drug prices. The New York Times and ProPublica have reported about Acthar's soaring price and taxpayer spending since 2012.


How technology can blow up a hospital's budget

ProMedica Toledo Hospital in Ohio

ProMedica Health System had a rough 2016. The not-for-profit owner of hospitals, clinics and a health insurance company unexpectedly lost $58 million from operations in 2016, just one year after turning a $107 million surplus, and it had its credit rating downgraded last week. The main culprit? Technology.

ProMedica, a $3 billion system based in Ohio, said the losses were "primarily driven by significant direct expenses" associated with the electronic health record system it purchased from Epic, one of the largest health care technology companies. ProMedica has been implementing Epic's system since 2015 and hopes to finish the installation at all its facilities by this year.

Why this matters: Hospitals have been installing electronic health record systems feverishly since 2009, when the federal government offered big cash incentives to help defray the technology's price tag. But the situation at ProMedica, and numerous other health systems across the country, highlights how electronic health records can easily cost more than the initial price since they require staffing, training and upgrades.


Hospitals have a labor problem

Paul Beaty / AP

Hospitals across the country have benefited from Obamacare's insurance expansions, and they hired physicians, nurses, technicians and others in droves to handle the influx of newly insured patients. But now hospitals face tough choices about what they should do with their increasingly expensive staffs if millions of Americans lose health coverage under the Republican Obamacare replacement.

The latest federal data reinforce what hospital officials say is happening: Hiring is slowing down in the face of the political uncertainty.

Health care's hiring frenzy: There's a legitimate debate about whether the boom of health care employment is actually a bad thing for the economy, since it inherently leads to more spending. But one thing has become clear since Obamacare's exchanges and Medicaid expansion went into effect in 2014: the health care industry has hired a lot of people to care for those populations and the aging baby boomers, and hospitals accounted for a lot of those new jobs.

According to the Bureau of Labor Statistics, health care added:

  • 259,200 jobs in 2014
  • 438,800 jobs in 2015
  • 296,400 jobs in 2016

The problem: The new hires have started to take a financial toll on the hospitals. Physicians earn high pay, while other clinical roles have good salaries and benefits. Labor costs for hospitals consequently have exploded and often have grown faster than the revenue that's collected.

Here are the annual growth rates of employee compensation costs at a handful of not-for-profit hospital systems in 2016. Note: The rate for each system outpaced revenue growth.

  • Adventist Health System (Altamonte Springs, Florida): 7.2%
  • Advocate Health Care (Downers Grove, Illinois): 8%
  • Mayo Clinic (Rochester, Minnesota): 7.4%
  • Memorial Hermann Health System (Houston): 9.4%
  • Methodist Health System (Dallas): 8.8%

The industry is still hiring: But the annual growth rate has slowed. Hospitals know that if Republicans uproot Obamacare, the ranks of the uninsured would grow by 14 million people in 2018, according to the Congressional Budget Office.

Fewer insured patients means more uncompensated care and less money to pay staff. Hospitals would either have to temper hiring through attrition or "remove people from the rolls," said Craig Garthwaite, a health economist at Northwestern University.

Rural hospitals would be clobbered the most: They already operate on much thinner ice, as numerous studies have shown. Any changes to rural hospital revenues could force the organizations to lay off employees or shut down altogether, which continues to happen in some areas.

"Local hospitals in small towns start to close — that's not a great headline if you're sitting in the White House," said Tom Getzen, a Temple University health economist.


Mayo Clinic isn't hurting financially

Mayo Clinic CEO Dr. John Noseworthy, left (Evan Vucci / AP)

Mayo Clinic CEO Dr. John Noseworthy ignited a firestorm this week after the Minneapolis Star Tribune reported that Noseworthy said the esteemed academic medical center would prioritize patients who have private health insurance over those who have Medicare and Medicaid for non-emergency procedures.

It was a damning statement — actively preferring people with better-paying coverage over the old and poor — but it reflected the unspoken policy of the hospital industry. Noseworthy also said this policy needed to happen so his not-for-profit organization "can be financially strong at the end of the year to continue to advance...our mission."

So, we decided to comb through eight years of the health system's financial documents to see if it was in peril. The gist: Mayo Clinic's finances are well above average.

Data: Mayo Clinic financial documents; Chart: Andrew Witherspoon / Axios

The numbers: Mayo Clinic's revenue has grown by more than 6% annually on average since 2009, reaching $11 billion in 2016 (making Mayo Clinic bigger than national companies like Hertz and Biogen). And more importantly, it is making a lot of money from its daily activities.

The changes Obamacare made to the health care system caused some fluctuation over the past eight years, but Mayo Clinic never had an operating margin below 4%. The margin was 8.5% in 2014, the first year of Obamacare's exchanges and Medicaid expansion.

Mayo's numbers are above the norm: The median operating margin for not-for-profit hospitals in 2015 was 3.4% and was lower in past years, according to Moody's Investors Service.

Patients with government insurance, especially Medicare, don't doom all hospitals. As health economist Austin Frakt has pointed out repeatedly, hospitals that lose money on Medicare often have dominant market power (like Mayo), charge higher private prices that are well above the fixed public rates and are inefficient.

Mayo Clinic did not respond to questions about its financial documents and instead sent a statement that touted its uncompensated care. It also said commercially insured patients are needed to fund education and research for the future: "Balancing payer mix is complex and isn't unique to Mayo Clinic. It affects much of the industry, but it's often not talked about. That's why we feel it is important to talk transparently about these complex issues with our staff."


Marathon sells muscular dystrophy drug following pricing outrage

Chris Potter / Flickr Creative Commons

Remember Marathon Pharmaceuticals? The drug company that received federal approval last month for an old drug to treat the rare Duchenne muscular dystrophy disorder, and then set the annual list price at $89,000 that incensed the public? Well, it's passing the controversy off to another company.

Marathon said Thursday it was selling deflazacort (brand name Emflaza) to PTC Therapeutics for $140 million and royalty payments of at least 20% of sales. Marathon could also gain a one-time $50 million bonus based on sales.

Deflazacort is available outside the United States for less than $2,000 per year. PTC, which has been working on a separate Duchenne product, said they would "re-examine" the newly acquired drug's price — far from a certainty that the price will be lowered.