Good morning. I hope all of you moms had a wonderful Mother's Day. A special shoutout to my own mom, whose latest act of selflessness was coming to D.C. for the weekend to celebrate and not being upset that I had to spend part of yesterday writing this newsletter. (The payoff is that Vitals assures her that I am alive every morning.)
1 big thing: Pricing power keeps pharma on top
A majority of the health care industry's profits in the first three months of 2019 went to the top 10 companies, and 9 of those 10 companies were pharmaceutical manufacturers, according to Axios' Bob Herman's quarterly analysis of industry financial reports.
The bottom line: Quarter after quarter after quarter shows drugmakers continue to wield the highest profit margins in the industry even though the political and public uproar over drug prices has somewhat dampened their stocks.
- Drug companies are charging more for their patent-protected medicines at prices that are well above what it costs to make them, and/or they are selling more of their drugs overall.
By the numbers: Investors have soured a bit on health care, including pharma, but the numbers don't lie.
- 12 of the most profitable drug companies in Q1 collectively reported more than $29 billion in profits.
- A dozen companies had net profit margins above 30% in the first quarter, 9 of which were pharma firms. Alexion Pharmaceuticals' margin was 52%, one of the highest margins in the industry after accounting for odd, one-time items.
Yes, but: Our analysis does not include financial statements of not-for-profit hospitals, due to their protracted reporting patterns, and there are a lot more hospitals in the country than drug companies.
- Hospitals represent the largest share of health care spending, and an initial look at the not-for-profit systems' Q1 reports shows net income has been increasing.
- Negotiating power over private health insurers has allowed the dominant hospital systems to maintain or grow their wealth.
2. Generics charged with price collusion
Teva Pharmaceuticals and 19 other generic drugmakers worked together to raise prices by as much as 1,000% without losing market share, a new lawsuit brought by 44 states alleges.
- The lawsuit is part of an ongoing investigation led by the state of Connecticut.
Why it matters: Generics are the U.S.' primary cost control mechanism for prescription drugs, and make up the vast majority of prescriptions filled. The allegations in this lawsuit, if true, were ultimately paid for by patients and taxpayers.
Details: Prosecutors accuse the generic companies of divvying up drug markets to create a "fair share" for each competitor. They also communicated about prices, the suit alleges, and agreed to collectively raise or maintain prices for a particular drug.
- In theory, when new generic competitors enter a particular market, prices go down as a way to maintain sales.
- This is how brand drugs that launch with high list prices — which take into account the research and development that went into the drug — eventually become affordable once generics are allowed on the market.
What they're saying: A representative for Teva told Reuters that the company plans to fight the lawsuit: “Teva continues to review the issue internally and has not engaged in any conduct that would lead to civil or criminal liability.”
3. Hospitals honing in on medical device cybersecurity
Hospitals are pushing medical device makers to ensure the security of their products, a response to increased reports of cyberattacks and a growing recognition of their costs, WSJ reports.
- Hospitals are running tests to detect device weaknesses, asking manufacturers to reveal proprietary software to assess vulnerabilities, and sometimes rejecting bids or canceling orders for devices that don't have adequate safety features.
- Some of hospitals' requests have caused tensions with device manufacturers, although there's also collaboration between the two parties.
The big picture: As health care has increasingly digitized, hospitals have become more aware of the threat of cyberattacks — and how that threat is amplified by the increase in health care devices that are connected to the internet.
- Hospitals have both financial and patient safety concerns, especially as the threat becomes more real.
- Health care companies — including hospitals — reported 148 hacks that exposed personal health information last year. Only 5 were reported in 2009.
- The Department of Homeland Security issued 30 advisories last year about cybersecurity vulnerabilities in medical devices — an increase from 16 the year before.
4. The coming long-term care cost crisis
Long-term care is already prohibitively expensive for many seniors, and the problem is expected to explode in scope in the next couple of decades, the NYT reports.
- The problem is especially acute for the group of seniors that have incomes too high to quality for Medicaid or subsidized housing, but too low to afford pricey long-term care.
- In a decade, 80% of seniors that fall into the middle-income category will have less than $60,000 a year in income and assets, according to a recent study. But assisted living plus out-of-pocket medical expenses is projected to cost $62,000.
- Depending on how long-term care is defined, between half and two-thirds of older Americans are expected to need it.
The bottom line: Medicare and Social Security funding is already in trouble, making it hard to imagine where the money for any additional long-term care benefits would come from. Smaller solutions are easier to picture.
- Regardless of whether the U.S. budget has room for it or not, the problem of how to pay for seniors' care is barreling towards us, and it's only going to get worse.
5. While you were weekending
- The Washington Post writes a gut-wrenching account of an Oklahoma hospital's effort to keep serving its community, despite huge financial problems.
- CNBC did a deep dive into PillPack and why Amazon bought it.
- The Sackler family — which owns OxyContin maker Purdue Pharma — has been disagreeing about how to respond to allegations that they were involved in the practices that led to the opioid epidemic, Reuters reports.