In the wake of the news

Quick takes on: Non-profit insulin; why CBO's estimates of future health care costs were so far off the mark; and COVID vaccine price collusion.

Non-profit drugmaker to stay in the insulin game

California’s Gov. Gavin Newsom is following through on his plans to launch a generic version of insulin. Over the weekend, Newsom picked the non-profit CivicaRx to produce insulin at a price below the price cuts recently announced by the three major drug companies that sell insulin: Eli Lilly, Novo Nordisk and Sanofi.

Regular readers of GoozNews will recall that I expressed concern that these industry price cuts might be aimed at dissuading non-profit and other generic manufacturers from entering the market for a life-saving drug that is used by about 8 million diabetics. Once that was accomplished, they would be free to resume their routine price gouging.

But Newsom’s promise to spend $50 million to acquire insulin for state residents — the equivalent of an advanced purchase contract for CivicaRx — should be enough to keep the non-profit in the game. A spokesman for CivicaRx told Kaiser Health News that it plans to offer its vial of insulin for $30, which is about half of what the Big Pharma companies said they planned to price their products later this year.

Other states could borrow a page from California’s playbook. With the drug companies and pharmacy benefit managers blaming each other for the exorbitant prices they charge for drugs, including those already off patent, innovative states could use their purchasing power to provide alternatives that can be offered at a price not much more than the cost of manufacturing, which is what all generics should cost.

How bad were the CBO’s estimates on health care costs?

Pretty darn bad, admitted Congressional Budget Office director Phillip Swagel in a letter to the Senate Budget Committee late last week. Chairman Sheldon Whitehouse (D-R.I.) had asked the agency, whose main job is projecting how much any proposed legislation will cost over the ensuing decade, how its 2010 estimates for spending and savings in the Affordable Care Act compared to what actually occurred between 2010 and 2019.

The legislation, better known as Obamacare, included new spending to subsidize purchase of individual and small group health insurance plans, and new spending on an expansion of Medicaid to cover people earning up to 138% of poverty. But it also included cuts in reimbursement to hospitals and other providers, and established numerous programs aimed at providing lower cost and more effective care through Accountable Care Organizations, bundled payments, and other experiments.

Back in 2010, CBO predicted the federal government would spend $11.7 trillion on Medicare and Medicaid over the next decade after those changes. That estimate meant the legislation, in CBO’s view, would have little impact on the rate of spending growth.

But in his letter to Whitehouse, Swagel admitted the government only spent $10.6 trillion between 2010 and 2020, which was 9% less than the original projection. In the final year of the projection, 2019, the government spent $1.2 trillion on Medicare and Medicaid, which was 17% less than the 2010 projection.

“Most of the projection errors resulted from an overestimate of spending per beneficiary and not an overestimate of the number of beneficiaries,” he wrote. He pointed to several factors that resulted in lower government costs: less spending on drugs, better management of heart disease, less Medicaid spending on long-term services.

Throughout the last decade, I repeatedly pointed out in my columns in Modern Healthcare that spending was trending lower than either CBO or the Medicare actuaries anticipated in their annual projections. The proof was in the ultimate measure of health care spending growth: the share of the nation’s gross domestic product devoted to the sector.

When Obamacare passed, it had recently surpassed 17% of GDP, up from 13% when President George W. Bush took office. It was a level of increase widely seen as unsustainable.

Yet through the last decade, overall spending on health stayed between 17% and 18% of GDP. And in the most recent CMS actuaries’ report, it fell to 18.3% of GDP for 2021 after spiking to 19.7% in 2020 due to the huge increase in health care spending during the first year of the COVID-19 pandemic and the sharp drop in overall economic activity.

I believe that number will drop back into the 17%-18% range when the next report comes out later this year. That mean, in essence, that health care spending has not grown faster than the overall economy for more than a decade. Somebody ought to give President Obama, or should I say Obamacare, a medal.

What are the odds?

When Moderna CEO Stéphane Bancel appears before Sen. Bernie Sanders (I-VT) and the HELP committee today, he will be asked to justify the company’s decision to put a $110-$130 price tag on the next round of COVID vaccines. He will no doubt repeat arguments he’s already made to financial analysts and others: It’s the value it brings to patients, stupid.

He’s also likely to repeat claims that Moderna has been short-changed to the tune of $3 billion on previous payments by the government compared to what Pfizer/BioNTech collected for its vaccine. Moderna, which benefited from substantial government aid and patents in developing the vaccine, also signed lower-priced advance purchase contracts than Pfizer.

No doubt Sanders will pound on the executive for this obvious act of collusion. Moderna’s announcement of its price increases came just three months after Pfizer had announced a similar price hike. If you want to read about an alternative to drug industry greed that ought to get some attention from his committee, you can read this recent GoozNews post.

And you can watch the hearing here. It should be quite entertaining. It starts at 10 a.m. Eastern time.