Nov 12, 2018

Axios Vitals

Sam Baker

Good morning ... D.C. readers: Wednesday morning, join Axios' Evan Ryan for a business-leader-stacked conversation on the private sector's role in advancing gender equality.  

The lineup: Arne Sorenson, Marriott CEO; Anne Pramaggiore, Exelon Utilities CEO; Tony West, Uber Chief Legal Officer; and Lilly Ledbetter, the namesake of the Lilly Ledbetter Fair Pay Act. RSVP here.

1 big thing: Pharma's grip on health care profits
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Axios analysis of company financial documents; Chart: Chris Canipe/Axios

Ten companies controlled half of the health care industry's $50 billion of global profit in the third quarter of this year, according to my colleague Bob Herman's analysis of financial documents for 112 publicly traded health care corporations.

  • 9 of those 10 companies at the top are pharmaceutical firms.

The bottom line: Americans spend a lot more money on hospital and physician care than prescription drugs, but pharmaceutical companies pocket a lot more of than other parts of the industry.

By the numbers: The health care industry's $50 billion of profit came from $636 billion of revenue, equating to a cumulative profit margin of almost 8%. Those are the highest figures of the past four quarters.

  • Approximately 63% of the profit total went to drug companies, even though they collected 23% of the revenue — numbers that mirror our past analyses.
  • Pfizer had the highest profit total ($4.1 billion) of any publicly traded health care company in the third quarter. Pfizer also said it will go back to its "normal" routine of raising drug prices after a public skirmish with President Trump.
  • Of the 19 companies that tallied at least $1 billion of third-quarter profit, 14 were drug companies. The others were either health insurers (UnitedHealth Group and Aetna) or involved in the drug supply chain (Walgreens, CVS Health, Express Scripts).
  • The analysis does not include not-for-profit hospital systems, but early returns still show the biggest systems have a lot of money.

The big picture: The health care industry arguably has more financial power now than at any point in its history, and a split Congress likely won't change that in the short term — even though patients are fed up with the system.

2. Gottlieb: Comparative approvals limited to opioids

Food and Drug Administration Commissioner Scott Gottlieb said that if the agency raises the bar for approving new opioids — which he's open to — that new approach won't affect other drug categories.

Why it matters: There's long been a debate over whether new drugs should be approved or rejected in the context of what's already on the market. That might become the new rule for opioids, but Gottlieb made clear that the industry doesn't need to worry about a slippery slope.

  • "I don’t think this same kind of standard would apply in other therapeutic areas. I think opioids are unique," Gottlieb told Axios' Caitlin Owens.

The big picture: Currently, FDA approval is based on whether a drug is safe and effective. Some people argue that they should also be evaluated against existing drugs in the same arena.

  • This is essentially what Gottlieb is considering for opioids — requiring new drugs to add some new, distinct value to the market in order to be approved.
  • It's not surprising that he doesn't want to expand this into other classes of drugs; in his former life as a think tank scholar at the American Enterprise Institute, he wrote a paper laying out his argument against doing so.

The other side: "The F.D.A.’s bar [for drug approval], while meaningful, often isn’t very useful for what physicians and patients really care about every day: how effective and safe drugs are compared with one another," Aaron Carroll, a professor at the Indiana University School of Medicine, wrote in the New York Times in August.

3. How Democrats will use their majority

Health care was a central part of Democrats' successful takeover of the House, and it will also be one of the first areas where they use that newfound power, NYT reports.

What we're watching: House Democrats will likely vote to participate in the legal defense of the Affordable Care Act, against a lawsuit aiming to get the law thrown out.

  • Democrats also will likely use their new House majority to try to stabilize the ACA's insurance markets, according to the NYT, and to investigate the Trump administration's handling of the ACA.
  • If the anti-ACA lawsuit succeeds, expect Democrats to promptly introduce new legislation protecting people with pre-existing conditions.
  • Drug pricing remains a theoretical area of bipartisan agreement, but it's unclear how much could actually get done there.
4. While you were weekending ...
  • CNBC's Christina Farr profiles Quanttus, a company that ultimately filed, but whose alumni are now leading up health care programs at Silicon Valley's biggest companies.
  • In JAMA Forum, former Medicare and Medicaid Administrator Andy Slavitt argues that health care's "triple aim" is under threat.
  • Doctors are facing off against the NRA over gun safety, NBC News reports.
Sam Baker