Executives at drug company Actavis knew they had to move fast to avoid a plunge in sales of their top-selling drug, Namenda, a treatment for Alzheimer’s disease which would lose patent protection in July.

When that happened, generic knockoffs would flood the market and doctors and pharmacists could switch patients to the lower-cost equivalents.

With $1.5 billion in annual sales at stake, Actavis took action: Late last year, it touted a new, extended-release version of the drug, called Namada XR, which can be taken once a day and carries patent protection until 2029. Such a move is not unusual, but Actavis took the campaign a step further by limiting distribution of the original tablet to a single mail-order pharmacy and requiring doctors to submit a note stating the old drug was “medically necessary” for patients.

Those efforts are the focus of a closely watched antitrust lawsuit that pits the international drugmaker against New York’s attorney general, who says Actavis’ strategy was designed to force patients to switch to another drug and discourage them from moving to soon-to-be-released generics. The suit calls the strategy anticompetitive and illegal.

Actavis was trying to “squeeze every last dollar out of their Namenda franchise … with no concern about the effects … on highly vulnerable Alzheimer’s patients,” Attorney General Eric Schneiderman argued in court papers.

Brought by a regulator, rather than a rival drug company, the lawsuit signals growing activism by government “at a time when patients, physicians and payers are hyper-aware of rising drug costs,” wrote Fenwick & West attorney Michael Shuster in an article about the case on the firm’s website.

New York won an injunction in December that blocked the firm from limiting access to Namenda, a ruling appealed by the drugmaker and now before the U.S. Court of Appeals for the Second Circuit. A decision could come as soon as next month and may help define how far drugmakers can go to protect brand-name profits from generic rivals when their patents expire.

Dublin-based Actavis, which bought Namenda-developer Forest Labs last summer, said it has not violated any laws. It describes its moves as a common-sense business decision to shift customers to what it describes as a better, more convenient product.

Actavis argues that the injunction benefits its generic rivals —and stymies future drug innovation —by forcing it to devote scarce resources to manufacturing and distributing a product that it wants to withdraw.

What’s Anti-Competitive?

Efforts by drugmakers to bolster their market share in the face of generic competition are not new.

But two things stand about this case:  Although five drugmakers say they will bring generics to market in July, there are currently no alternatives to Namenda or Namenda XR, since no other Alzheimer’s drug works the same way. The drugs, which have the same active ingredient, slow the progression of symptoms in some patients, but are not a cure.

The other concern is the company’s effort to limit sales of its older drug before its patent expired. Patients who switched to the new drug were less likely to have their pharmacists or doctors substitute generics when those became available, critics say.

Jerry Avorn, a professor at Harvard Medical School and author of Powerful Medicines: The Benefits, Risks and Costs of Prescription Drugs, takes issue with the drugmaker’s effort to require patients who wanted to stay on the older drug to get a doctor’s note citing medical necessity.

“If there’s a legitimate concern about a drug, then doing [that] is understandable,” he said. “But it’s not OK to do it because a company wants to make it harder to get a more affordable drug.”

In press statements at the time, Actavis said it expected only about 3 percent of patients would get such a note to stay on the twice-a-day version.

In the U.S., drugmakers get years of patent protection for FDA-approved products.

But once their patents and exclusivity expire, generic equivalents approved by the FDA can compete —often driving down prices by 80 percent.

Generics are seen as the bright spot in efforts to slow spending on health care.  Because generics are lower-cost, most states have passed “substitution laws” allowing pharmacists to switch patients automatically to equivalent generics, unless a patient’s prescription forbids such a change. Insurers also push generic use by setting lower copayments for generics.

‘Forced Switch’ Vs. Soft Switch Tactics

Many companies have tried to outrun or thwart generic competition, sometimes by finding ways to extend patents, such as by reformulating drugs as extended release, or changing from tablets to capsules.  In other cases, they have paid generic firms not to launch – a tactic called “pay-for-delay” that the Supreme Court recently ruled could violate antitrust laws in some cases.

“This industry is under a lot of scrutiny because the cost savings in the generic world are pretty high for the public,” said attorney David Rosen, head of the FDA practice at Foley & Lardner in Washington, D.C.

Aggressively marketing of replacement drugs is also common.  Nexium, for example, became one of the world’s top-selling drugs after AstraZeneca launched a hugely expensive campaign touting it as “the new purple pill” after the patent expired in 2001 on its profitable older version of the drug, Prilosec which was a similar shade.

“Soft switches,” which are marketing campaigns touting a new version of a drug, generally don’t result in successful antitrust claims. But “forced” or “hard” switches, where older versions of drugs are taken off the market or otherwise restricted before generics establish a foothold, have been more problematic.

One question posed in the New York case is whether Actavis’ actions constituted a “forced switch.”

Actavis argues that patients and their families could still choose the old drug. The company also argues it did not violate antitrust laws because limiting distribution of Namenda would not stop generic rivals from coming to market in July.

“Withdrawing an old drug to better promote the new one is common throughout industries and fosters incentives to innovate,” its brief says. The injunction to stop it “breaks dangerous new ground,” because no court before has “nullified a manufacturer’s valid patent rights and commandeered its factory to aid future competitors.”

Briefs supporting Actavis’ position were filed by some antitrust attorneys, economists and the pharmaceutical lobby.

Consumer groups, including AARP and Consumers Union, as well as some doctor groups and health insurers, have backed the New York attorney general’s position.

Actavis, by not relying mainly on a marketing campaign but trying to sharply limit production and distribution of Namenda before generics hit the market, “crossed a line between persuading and coercing individuals into taking the Namenda XR,” the retiree group AARP argues in an amicus brief.

America’s Health Insurance Plans, the insurance trade group, argues in court papers that the tactic taken by Actavis would drive up health care costs, particularly if other drugmakers took similar actions.

For patients and their families, the decision about whether to take Namenda is already complex because the treatment only slows progress of symptoms and doesn’t work in many patients, said Cheryl Phillips, a medical doctor and senior vice president at the advocacy group, Leading Age.

For a company to restrict access to such a drug simply to stave off competition, after families have chosen to use it, adds an additional burden and “is not an appropriate medical approach,” she said.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

Despite months of news coverage, most people say they have heard little or nothing about a Supreme Court case that could eliminate subsidies helping millions of Americans afford coverage under the federal health law, according to a poll released Thursday.

But when respondents were told about the case, King v. Burwell, about two-thirds said that if the court strikes down the subsidies, then Congress or state officials should step in to restore them, according to a survey by the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

Majorities of Democrats (81 percent) and independents (67 percent) favor Congressional action, while Republicans (56 percent) prefer Congress not act on the issue (with 39 percent favoring action). Over half of respondents said they were not confident Democrats and Republicans in Congress could work together on the issue.

The justices on March 4 heard arguments in the case that will decide whether the Affordable Care Act makes the subsidies available in all states, or just to people buying coverage through state-run insurance marketplaces. Residents of about three dozen states rely on the federal exchange. If subsidies are eliminated on plans purchased through the federal exchange, more than 9 million people could lose the financial help that dramatically reduces the cost of their coverage, according to an Urban Institute study.

But 53 percent of respondents said they have never heard of the case and another 25 percent said they had heard only a little.

Many people may also be in for a surprise when they do their taxes: only 53 percent know they are required to report whether they have health coverage. Those who don’t could face a fine of 1 percent of their income, or $95, whichever is greater.

There was some good news for the Obama administration: 41 percent of respondents said they had a favorable view of the health law, the highest proportion since 2012. Meanwhile, 43 percent held an unfavorable view. That is the narrowest split since fall 2012. The Affordable Care Act was signed into law by President Barack Obama on March 23, 2010.

The poll of 1,503 adults, conducted between March 6 and 12, has a margin of error of plus or minus 3 percentage points.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

Departments of Justice and Health and Human Services announce over $27.8 billion in returns from joint efforts to combat health care fraud

California tax authorities have stripped Blue Shield of California, the state’s third largest insurer, of its state tax exemption and ordered the company to file returns dating to 2013, potentially costing the company tens of millions of dollars.

At issue in the unusual case is whether the company is doing anything different from its for-profit competitors to warrant its tax break. As a nonprofit company, Blue Shield is expected to work for the public good in exchange for the state tax exemption.

The California Franchise Tax Board actually revoked the exemption in August, but the move only became public when it was reported Tuesday by the Los Angeles Times. The board said the rationale behind its decision was “not public information.”

One likely explanation, however, is the $4.2 billion the company is holding in financial reserves. That’s four times larger than the national trade organization, Blue Cross and Blue Shield Association, requires members to hold in surplus to pay out member claims.

Over the past decade, the company has contributed a fraction of that amount — about $325 million — to its charitable foundation. (Kaiser Health News receives financial support from the Blue Shield of California Foundation.)

At the same time, Blue Shield’s premium rates are similar to comparable for-profit competitors, and the company’s former chief executive earned a hefty $4.6 million per year.

Blue Shield of California’s director of public policy, Michael Johnson, resigned last week as after raising concerns internally that the company was not doing enough for the public good. This week he went public with his concerns, faulting the insurer in particular for what he considered paltry annual contributions to its foundation.

“We’re talking about a $10 billion public asset, and the only real return the public is getting is $35 million in charitable contributions each year? That’s just a lousy deal,” he said. “It’s time to cash in that asset.”

“For over 70 years, Blue Shield has been a tax exempt entity, subsidized by taxpayers in order to provide benefits to the public,” Johnson added. “But it’s demonstrated that it’s either unwilling or incapable of serving the public good.”

He argued it is time for the company to be converted to a for-profit owned by private investors, and the assets should be transferred to the public. There’s a precedent for that – in the 1990s, Blue Cross of California, at the time a nonprofit insurer, converted to a for-profit company. Some of the assets held by the nonprofit were used to create large foundations in the state, including the California Endowment and the California HealthCare Foundation. But the difference in that case was that the conversion was the insurer’s choice – it wanted to become a for-profit company.

Blue Shield has challenged the Franchise Tax Board’s decision, insisting that it does meet the requirements for a tax exemption in California.

“Blue Shield of California is a mission-driven not-for-profit health plan with a demonstrated commitment to the community,” the company said in a written statement. “A longtime supporter of health care reform, we limit our net income to 2 percent of revenue and have devoted $325 million to our foundation’s efforts to improve the health safety net and combat domestic violence.”

Blue Shield is already paying federal taxes. Following complaints from rival insurers, Congress passed a tax reform law in 1986 that essentially stripped nonprofit Blue Cross and Blue Shield plans of their federal tax-exempt status.  The plans unsuccessfully argued against the move, saying they deserved the status because of their efforts involving charitable, community-based health care.

Following the change in the law, “non-profit Blues plans have paid billions of dollars in federal income taxes,” said Marie Cocco, a spokeswoman for the Blue Cross Blue Shield Association.

For consumers, the important question is whether Blue Shield is operating any different for-profit insurers, explained Anthony Wright, executive director of California Health Access. “Many consumers would say no.”

Before the Affordable Care Act kicked in, he added, Blue Shield denied coverage to people with pre-existing conditions and offer reduced benefit plans just like for-profit competitors.

Wright added that revoking the company’s tax exemption would be unlikely to raise premiums for consumers but would potentially add significant funds to the state’s coffers, which could be used to bolster the health care safety net and expand insurance options for Californians who remain uninsured.

“It’s good for the state and it’s good for taxpayers, ” he said.

Gerald Kominski, a professor of health policy at the University of California Los Angeles, said that the decision to revoke Blue Shield’s tax exemption “sends a very, very strong message to large nonprofits to be sure that you’re functioning as a nonprofit, that you’re not shielding assets or revenue from taxation and that you’re generally serving the public good.”

Julie Appleby contributed reporting.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

More than a dozen insurers offer plans on the New York health insurance marketplace, and depending on where they live, shoppers may have more than a hundred products to choose from. But despite being spoiled for choice in many ways, there’s one popular feature that most New Yorkers can’t find in any of the health plans offered on their state exchange: out-of-network coverage.

Except for offerings by a few insurers in far western New York and the Albany area, the only options available elsewhere in the state, including the entire New York City metro area, are health maintenance organization-style plans that cover care provided only by doctors and hospitals in the plan’s network. People who go out of network for anything other than emergency care are generally going to be responsible for the entire bill.

Although New York may not be the only place where HMOs are the sole marketplace option for many consumers, it’s an unusual situation. According to figures from McKinsey & Co., in 2015 just 1 percent of people who were eligible to shop for coverage on the exchanges across the United States had only HMOs to choose from. Four percent could choose either HMOs or EPOs,  the acronym for exclusive provider organizations that, like HMOs, don’t generally provide non-emergency out-of-network coverage.

New York officials didn’t respond to requests for comment.

Experts point to a number of factors that contributed to the New York marketplace’s dearth of plans such as preferred provider organizations that typically have some coverage for  out-of-network doctors and hospitals. In those plans, consumers generally have to pay more out of pocket than they do for in-network care, because deductibles and co-insurance charges are higher.

Some experts say New York’s difficult history in the individual insurance market — which includes people who don’t buy coverage through work — is a key reason insurers are wary of offering products with out-of-network benefits.

In 1992, a new state law required insurers on the individual market to cover anyone seeking a plan, regardless of their health. (A handful of other states also had similar requirements long before the health law made this mandatory for all states in 2014.) A few years later, the state required that two standardized HMO plans be offered in the individual market, only one of which offered out-of-network benefits, says Peter Newell, director of the health insurance project at the United Hospital Fund of New York, a research and philanthropic organization.

But it was difficult to maintain a customer base that wasn’t too costly for the insurers to cover since healthy people were not required to buy insurance. “That out-of-network product attracted a lot of high users of medical care, and prices went through the roof,” says Newell. Many insurers left the individual market at that time, and because of the high costs, enrollment on the individual market plummeted from more than 100,000 in 2000 to under 20,000 in 2012, according to a 2012 study by Health Management Associates for the New York Department of Health.

Following that experience, “insurers are a little gun shy” about offering plans with out-of-network coverage on the exchange, says Newell.

Health law requirements also give insurers pause, say experts. Obamacare requires insurers that sell plans on the individual and small group markets to cover a comprehensive set of essential health benefits.

“It’s a very broad, comprehensive package of benefits,” says Leslie Moran, senior vice president at the New York Health Plan Association, a trade group. “There were concerns about being able to maintain an affordable product. You’d attract only very expensive patients, and the ability to price it moving forward was a concern.”

While that could be a concern in every state, in New York another requirement has likely discouraged insurers from offering PPO-type plans, says Sabrina Corlette, project director at Georgetown University’s Center on Health Insurance Reforms, who has co-authored reports about state efforts to implement the health law.

In New York, the exchange required that any insurer that sold plans with out-of-network benefits outside the marketplace had to also sell plans with out-of-network benefits inside the marketplace.

Rather than offering PPOs both on and off the exchange, most insurers opted not to sell PPOs at all. “They were worried about adverse selection, so they only offered HMO-style plans,” Corlette says.

Having access to out-of-network benefits is generally high on consumers’ wish list, but it can be a double-edged sword, say consumer advocates. When beneficiaries go outside the network, even if the plan pays some of the bill, the doctor or hospital can refuse to accept the insurer’s rate and, depending on the state, may demand that the consumer pay the balance.

“It’s not much of a consumer protection because they can be balance billed,” says Lynn Quincy, associate director for health policy at Consumers Union, referring to that practice.

Last year New York passed a law that aims to protect consumers from surprise out-of-network bills. Among the provisions is one that beefs up the adequacy standards for plans’ networks, so consumers will be less likely to need out-of-network care in the first place.

“I’m OK with consumers being offered a plan that’s in-network only as long as the network is robust,” says Quincy.

Please contact Kaiser Health News to send comments or ideas for future topics for the Insuring Your Health column.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

MOUNT VERNON, Texas—Despite residents’ concerns and a continuing need for services, the 25-bed hospital that served this small East Texas town for more than 25 years closed its doors at the end of 2014, joining the ranks of dozens of other small rural hospitals that have been unable to weather the punishment of a changing national health care environment.

For the high percentages of elderly and uninsured patients who live in rural areas, closures mean longer trips for treatment and uncertainty during times of crisis. “I came to the emergency room when I had panic attacks,” said George Taylor, 60, a retired federal government employee. “It was very soothing and the staff was great. I can’t imagine Mount Vernon without a hospital.”

The Kansas-based National Rural Health Association, which represents around 2,000 small hospitals throughout the country and other rural care providers, says that 48 rural hospitals have closed since 2010, the majority in Southern states, and 283 others are in trouble. In Texas along, 10 have changed. 

“If there was one particular policy causing the trouble, it would be easy to understand,” said health economist Mark Holmes, from the University of North Carolina, whose rural health research program studies national trends in rural health care. “But there are a lot of things going on.”

Experts and practitioners cite declining federal reimbursements for hospitals under the Affordable Care Act as the principal reason for the recent closures. Besides cutting back on Medicare, the law reduced payments to hospitals for the uninsured, a decision based on the assumption that states would expand their Medicaid programs. However, almost two dozen states have refused to do so. In addition, other Medicare cuts caused by a budget disagreement in Congress have also hurt hospitals’ bottom lines.

But rural hospitals also suffer from multiple endemic disadvantages that drive down profit margins and make it virtually impossible to achieve economies of scale.

These include declining populations; disproportionate numbers of elderly and uninsured patients; the frequent need to pay doctors better than top dollar to get them to work in the hinterlands; the cost of expensive equipment that is necessary but frequently underused; the inability to provide lucrative specialty services and treatments; and an emphasis on emergency and urgent care, chronic money-losers.

‘Another Disaster’ 

Rural health care experts caution that national and state officials need to address the problems for rural hospitals or they could face a repeat of the catastrophic closings that followed changes in the Medicare payment system 30 years ago. That 1983 change, called the “prospective payment system,” established fixed reimbursements for care instead of payments based on a hospital’s reported costs. That change rewarded large, efficient providers, but 440 small hospitals closed before the system was adjusted in 1997 to help them. Those adjustments created the designation of critical access hospitals for some small, isolated facilities, which are exempted from the fixed payment system.

“And now, beginning in 2010, we’ve had another series of cuts that are all combining to create another expansion of closures just like we saw in the ‘90s,” said Brock Slabach, senior vice president of the Rural Health Association. “We don’t want to wake up with another disaster.”

The current surge in closures means federal officials need to come up with new legislation to halt the recent cuts to small hospitals in order to “buy time” to figure out how rural hospitals should effectively operate in the future, said the association’s chief lobbyist, Maggie Elehwany. “It is important to stop the bleeding right now.”

In Mount Vernon, a town of 2,678 people nestled in grassland and dairy country about two hours east of Dallas, family practitioner Jean Latortue has taken out a lease on the now-vacant hospital building to convert it into an outpatient and urgent care clinic at his own expense. Reopening may be a risky move, he acknowledged, but the need is there.

“The community went into panic mode,” he said. “I figured I had to step up.”

The non-profit ETMC Regional Healthcare System, based in Tyler, Texas, closed the Mount Vernon hospital and two others of its then-12 rural hospital affiliates because it could no longer sustain operating losses that had persisted for five years.

“There was no ill will,” Franklin County Judge Scott Lee said in an interview from his Mount Vernon office. “They were losing money. We had a good working relationship for years, and they had a business decision to make.”

Mount Vernon’s Issues 

Perry Henderson, senior vice president of affiliate hospitals for ETMC, a major health care provider in East Texas, noted that rural hospitals have many uninsured patients, and Medicare accounts for “60 to 70 percent of the business,” while in “Dallas or Houston it’s a fraction of that.”

Mount Vernon, with lakefront properties that are attractive to retirees, has its share of elderly patients. Henderson also noted that many rural hospitals also have to deal with large numbers of agricultural accidents. Farming, another Mount Vernon staple, is one of the country’s most dangerous occupations. Finally, he added, country roads bring large numbers of traffic accidents. When there’s no hospital, emergencies mean longer trips to get help.

Henderson and other experts cite three reasons for the rash of closures nationally. Sequestration, the across-the-board federal budget cut that arose out of the legislative impasse between the Obama administration and congressional Republicans, has resulted in a 2 percent reduction in Medicare reimbursements since 2013.

“If Medicare is 50 percent of your revenue and you lose two points,” North Carolina’s Holmes said, “it can be a killer.”

Rural hospitals took a second hit from the federal health law’s reductions in “disproportionate share hospital” payments to hospitals with large numbers of indigent and uninsured patients. Federal officials made the cuts assuming that the law would assure that more patients had insurance.

It hasn’t worked well in rural areas, the Rural Health Association’s Elehwany said, because annual deductibles for the new insurance plans, which come out of consumers’ pockets, “are running between $2,500 and $5,000,” and people can’t pay them.

And in communities such as Mount Vernon, this problem is exacerbated because Texas, along with 22 other states, has refused to expand Medicaid, a key provision of the Affordable Care Act.

“That’s a big deal,” ETMC’s Henderson said. “That’s when we had the hurt.”

Latortue, who came to Mount Vernon as an ETMC hospital doctor in 2008, appears undaunted by the challenges of reinventing the hospital, which was treating an average of eight inpatients a week when it closed. Still, he said, “I’m very busy, and patients need to be seen—we’ll be all right.”

He intends to provide both outpatient services, including lab work, at the new clinic, and emergency care, stabilizing patients until they can be transferred to the Titus Regional Medical Center in Mt. Pleasant, 16 miles away, or to a smaller facility in Winfield, eight miles away. He also plans a wellness clinic to treat obesity and will offer Botox and laser cosmetic services. A cardiologist and a gastroenterologist will make weekly visits, and he is also looking for an ob-gyn.

Latortue got a favorable lease from the town of Mount Vernon and inherited an X-ray machine and other equipment from ETMC, but he still took out $150,000 in loans for remodeling and needs another $60,000 to $70,000 for equipment.

Still, none of this will replace the hospital, and his patients know it. “I live right behind the building,” said Mary Hunter, a very fit grandmother of 73. “I’ve had very good health until my blood pressure spiked last week,” she said. “We retired in 2006 and moved here, partly because of the hospital. And now it’s gone.”

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

A total of 16.4 million non-elderly adults have gained health insurance coverage since the Affordable Care Act became law five years ago this month – a “historic” reduction in the number of uninsured, the Department of Health and Human Services said Monday.

Those gaining insurance since 2010 include 2.3 million young adults aged 18 to 26 who were able to remain on their parents’ health insurance plus another 14.1 million adults who obtained coverage through expansions of the Medicaid program, new marketplace coverage and other sources, according to HHS’ report .

Officials say the percentage of people without coverage has dropped by about a third since 2012: from 20.3 percent to 13.2 percent in the first quarter of 2015.

“The Affordable Care Act is working to drive down the number of uninsured and the uninsured rate,” Richard Frank, HHS assistant secretary for planning and evaluation, told reporters. “Nothing since the implementation of Medicare and Medicaid has seen this kind of change.”

Latinos, who traditionally have been least likely to have health coverage, have seen the largest drop in their uninsured rate, according to the report. The Latino uninsured rate fell 12.3 percentage points, from 41.8 percent to 29.5 percent. The uninsured rate for African Americans fell by nearly half, from 22.4 percent to 13.2 percent. The rate for non-Latino whites fell by just over five percentage points.

States that expanded the Medicaid program to 138 percent of the poverty line also saw large reductions in their low-income uninsured populations – an average of 13 percent among people with incomes under the new Medicaid threshold. States that have not expanded the program still saw a decline, though not as large, of about 7 percent.

HHS officials said they expect to have better state-by-state breakdowns and estimates of the number of children covered later this year. The ACA turns five on March 23.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.