The New Ways Pharma Subsidizes Care

This episode of Out-Of-Pocket is brought to you by…

Hyperscribe is a breakthrough AI copilot for clinicians using Canvas.

• Agentic order completion (prescriptions, labs, and more)
• Real time audio processing and EMR updates
• Extensive informatics guardrails and full patient context
• Chaining and composition with other agents

Join Canvas Medical founder Andrew Hines and guests on May 14th at 1:00pm Pacific for live demos, exclusive Q&A, AI hot takes, and ice cold code to wash it all down.

👉 Reserve your spot for May 14th at 1:00pm Pacific

—

If you’re interested in sponsoring the newsletter or other OOP stuff, let me know

Pharma, Providers, and the Gray Area

Today I want to talk about the new battlegrounds and avenues by which pharma is subsidizing care delivery.

• Direct-to-consumer launches + admin help
• Group Purchasing Organizations
• Paying for diagnostics
• Paying for side effects
• 340B

Because pharma companies have relatively better profit margins than providers, one thing that’s been explored over the years is “how do we get some of that pharma money and give it to docs/hospitals?”.

We ​talked a bunch in 2021​ about some of the more subtle ways pharma does this - it ain’t Zoloft pens anymore, it’s “sponsored talks”. It’s not conventionally attractive pharma reps anymore, it’s clinically trained but burnt out “medical science liaisons”.

But it’s interesting because we want pharma money to subsidize care while also not influencing how docs prescribe drugs. Anti-kickback statutes very explicitly say that doctors cannot get paid by pharma when they prescribe their drugs. So this is a very hard dance! if it didn’t actually influence prescribing patterns, why would pharma put money here? But it can’t be too direct, it has to be pianissimo influence.

So there are a few different ways you can approach it:

• Make it easier for docs to see new patients, either by referring patients their way or relieving them from other admin tasks. If  they already are high prescribers, then they just need move patient volume.
• Pay for ancillary care related to managing the drug (adherence, side effects, etc.)
• Create programs where they can get the drugs for cheaper. Providers have to buy drugs to have on hand to infuse. This is becoming more popular because the more expensive drugs fall under your medical benefit. We go over it in the healthcare 101 course ​(starts tomorrow!​).

There are some interesting new areas where docs are “helped out” by pharma in ways we find more palatable and there are lots of fights here as you can imagine. But first...

Our Pharma Course! Healthcare 101 starts tomorrow!

Want to learn from people that actually understand how pharma work instead of me? We have a new Pharma Deep Dive course starting 5/12.

If you’re selling to pharma or need to understand what they care about when bringing a drug to market, this is for you.

A few other courses enrolling:

1. Healthcare 101 (enrollment ends today! Starts 4/22) - I’ll teach you how US healthcare works, and I’ll even make it fun not sad.
2. EHR Data 101 (starts 5/6) - Need to know what’s in EHR data? What you can and can’t do with it? This course will help you avoid some of the most common mistakes.
3. How to sell to health systems (starts 5/12) - if you’re a founder that’s never sold to a hospital, you have no idea what you’re doing lol. This course will not only help you figure out which types of providers to go after, but it’s basically consulting to help refine your pitch.

Pharma direct-to-consumer offerings + admin help

For expensive drugs, patients face three big issues.

• Getting access to a doctor in order to get a prescription
• Getting it at a pharmacy that has it in-stock, a big issue in shortage areas like obesity drugs
• Navigating insurance to get it covered. They might require you to try cheaper drugs first, have your doctor justify why it’s necessary, etc.

For doctors, this presents problems too.

• There are patients that could have potentially seen them but couldn’t get to them
• They have to find a pharmacy that’s in stock, and if it isn’t the patient calls them and asks them to transfer the prescription
• The doctor has to take time to navigate insurance requests to get the drug approved, sometimes hiring full-time staff just to deal with this.

Pharma companies see an opportunity here to help. After all, they want these drugs to get into patients hands and for them to get covered. One version of this historically has been “hub services” models, which are amorphously defined but are generally pharma funded services to help patients navigate paying for drugs. 

This is starting to expand into new areas. Companies like ​Phil​, ​Mandolin​, ​Gifthealth​, and ​CareMetx​ works with pharma manufacturers to launch their new expensive drugs. For example when doctors prescribe specialty drugs, they handle everything from simplifying the prior authorization submissions to routing the prescription to the right pharmacy for the patient.

Even in Phil’s case study, they talk about making it easier for patients to actually get the drugs + simplifying workflows for the doctors + giving the pharma companies data back on how the insurance companies are responding to approval requests. 

The new development takes it a step further. There have been several launches recently of “direct-to-consumer” launches from pharma. Eli Lilly has their LillyDirect offering in Jan of 2024, and Novo Nordisk launched NovoCare Europeanly a year later after every possible holiday was enjoyed. 

These programs help patients find a doctor online or in-person, help patients navigate their insurance coverage and prior auths, and handle the shipping of their drug (but only if it’s an Eli Lilly drug). 

In these arrangements, the pharma company is not necessarily paying the providers directly. But they’re indirectly paying them by referring people their way which lowers their customer acquisition cost and providing back-office support for admin/fulfillment stuff which lowers their operating expenses.

Group Purchasing Organizations (GPOs)

I watched this Eric Bricker video recently and learned some interesting stuff about Group Purchasing Organizations (GPOs) that are owned by distributors. Also that man is a national treasure - he must be protected at all costs. 

GPOs basically help hospitals and doctor groups buy materials. One of those materials are drugs that are infused in the office. An interesting quirk is that GPOs are exempt from anti-kickback rules, so they can pay doctors bonuses for different things related to how they practice.

So what happens is that pharma companies will pay the GPOs rebates based on how much Hannah Montana they push (aka drugs distributed). The GPO then passes the rebates to the practice or parent entity which keeps the cash. The Government Accountability Office (GAO) wrote a bit about how this works after looking through a bunch of their request for proposals: 

“For example, a vendor might offer greater discounts to GPO customers that purchase at least 80 percent of a certain group of products from that manufacturer. Commitment requirements can also be tiered, resulting in the opportunity for a customer to commit to different percentages of purchasing volume: the higher the percentage, the lower the price.” - GAO 

Dr. Bricker says that one way groups can ensure they hit those volumes to receive those rebates is to restrict which drugs are on hand to be used by the practicing physicians. He also says in the video that he’s seen some physicians individually get hundreds of thousands of dollars in rebates a year from GPOs. If you’re billing $80-300 per visit, hearing about a multi-hundred thousand $ bonus must sound very attractive!

Comments on the post dispute that individual docs get these rebates (it goes to the clinic/parent entity) and also suggest that this is done because the infusion clinics are underwater on Medicare reimbursement. Not sure if my teacher would approve “LinkedIn comment” as a citation to a fact though.

Honestly I have no idea what these arrangements look like or how these rebates actually get passed through, so if you know and want to tell me more I’d love to learn. But either way it seems like another means by which pharma money makes its way into care delivery.

Paying for diagnostics 

In underdiagnosed areas, pharma has a big incentive to help those people get diagnoses. One way you can do that is just pay for the test, especially in areas if the cost of the test is the barrier (e.g. insurance won’t cover it). 

In the last few years, drug companies that target rare diseases have been offering to cover genetic these tests for patients. But recently the government has been looking at these as potential kickbacks. Ultragenyx is one company that recently settled, and now the DOJ is looking into BioMarin Pharmaceutical for some of their programs.

There seem to be a few questions in this area.

1. Are the tests medically necessary, and would the doctor have ordered them anyway without pharma covering it? It seems like the government is less worried about that in this case.
2. Is the doctor influenced by the sponsoring company for downstream choices? This seems to be where the government has more of an issue. They don’t love the data from the testing programs used to optimize their sales teams in targeting doctors, or that a positive test would definitively lead to more prescriptions of the drug.
3. If you kickback, rewind it back, Lil’ Jon got the beat to make ya booty go. True? 

This gets to an ideological question. If we think the test helps people get a diagnosis and treatment, should we be fine with a pharma company covering the patient’s costs? Even if it means they make more $ themselves (from taxpayers if it’s Medicaid/Medicare).  

Paying for side effects

Another interesting case - Vertex Pharmaceuticals produces a gene therapy called Exagamglogene autotemcel. But furniture started floating when you said that out loud, so the drug brand name is Casgevy.

It’s a one time drug and currently targets adults with sickle cell anemia and transfusion dependent beta thalassemia. The cost is $2.2M for the treatment, if you were wondering how high numbers can go for one patient. 

One part of getting the drug involves getting chemotherapy to essentially nuke your bone marrow that makes the bad blood (feat. Kendrick Lamar). This has potential infertility as a side effect amongst many other things. Most of the patients Casgevy is targeting have Medicaid, but Medicaid explicitly does not cover fertility treatments like egg freezing.

So the pharma companies decided to start creating payment programs that would cover $70,000 of the fertility treatments of Casgevy patients. This is very explicitly an area where pharma dollars are being used to cover care.

But in this case it turns out to be an issue! The courts have basically said that this constitutes as violating anti-kickback and inducement statutes. There’s a belief that patients might choose this treatment because they’re getting an “independent benefit” of egg freezing, that’s unrelated to the treatment (and there’s lots of debate in the case on whether this is actually an independent benefit). 

Which is a bit strange because CMMI has put out the Cell and Gene Therapy Access Model (CGTM) to make it easier for patients in government programs to get these kinds of drugs. One part of the payment model is that things like fertility treatments have to be covered…

340B - Who’s gaming who?

We’ve so far talked about pharma subsidizing providers in ways that are largely beneficial to the pharma company. But there’s also ways that they don’t love. 

For the uninitiated, 340B is a program by which the government essentially requires drug manufacturers to give hospitals their drugs at a deep discount if the hospital sees a lot of uninsured, low income, etc. patients.

Hospitals and pharmacies love the program, Pharma hates the program. You can find many extremely biased pieces online that explain why it’s a god’s gift or a deal with the devil. Here’s ChatGPT’s summary of both sides of the argument.

Most of the critics of 340B will talk about how hospitals don’t need to track if low income patients are actually the ones getting these discounted drugs, how they abuse the program by working with third-party contract pharmacies, etc. But IMO at its core, this is simply a program meant for pharma to subsidize safety net hospitals. The question is just…are the right hospitals that need to be subsidized actually the ones being subsidized?

Conclusion and dinner invite

How and when pharma is allowed to pay for healthcare services is a bit of a gray area and evolving rapidly. It seems like paying for things on a per patient basis is generally going to be viewed as potentially swaying care. But paying into parent entities based on aggregate measures is more okay?

I’m not here to take a moral stance on whether pharma paying providers is “good” or “bad”. It just is what it is.

My qualm with these kinds of arrangements is that they’re purposefully in the background and hard to track on purpose. None of these are ending up in the Sunshine Database which shows doctors getting paid directly by pharma/medical devices.

So instead you now have a system where:

• The parent companies benefit from these arrangements instead of the doctor
• Providers are getting this money but it’s not resulting in reduced prices just increased dependence on these programs
• In the areas where patients would actually be the beneficiaries (e.g. paying for side effects of treatments) we’re blocking this
• There’s still clearly some influence on the how the doctors prescribe or pharma wouldn’t be investing in these campaigns 
• Now it’s just really hard to track it all

I believe a lot of the rules preventing doctors from being influenced by pharma are well-intentioned, but it’s not clear that they’re achieving the goal we’d want them to. It also seems like we’re making up the rules as we go here. It would be cooler if all of this were just dollars that went directly to patients - similar to how patient support programs work.

—

***Just an FYI we have 3 slots left for our dinner with senior healthcare ops people in SF on 5/14 evening. If you’re a healthcare ops person and you’re in charge of thinking through in-sourcing vs. outsourcing vendors, hit us up events@outofpocket.health.

Thinkboi out,

Nikhil aka. GLP-1 the way i’m pushin that weight

Twitter: ​@nikillinit​

IG: ​@outofpockethealth​

Other posts: ​outofpocket.health/posts​

--

{{sub-form}}

‎If you’re enjoying the newsletter, do me a solid and shoot this over to a friend or healthcare slack channel and tell them to sign up. The line between unemployment and founder of a startup is traction and whether your parents believe you have a job.