Block grants and breathing

Block grants offer a fixed sum of money that may be indexed to a predetermined growth rate. They provide the granting entity with a predictable cash outflow. They don’t offer flexibility to accommodate changes in subgroup patient mixture or new technologies that are more effective and more costly than current best choice treatments.

Cystic Fibrosis is a cluster of genetic mutations that makes breathing very difficult. Individuals with CF can’t clear the mucus that coats their lungs as effectively as people without CF. There have been drug regimes, breathing treatments, and other interventions that help this process. That course of treatment is only modestly effective in prolonging life and improving quality of life. For a certain subset of genetic mutations, a drug, Kalydeco, directly attacks the faulty mechanism and dramatically improves the quality of life and probably the length of life of patients.

Kalydeco and another CF drug by the same company are effective but extremely expensive.

However, there looks to be a major technological development. The same firm that makes Kalydeco has some very promising clinical trial results as reported by Stat:

data from three clinical trials testing three different triple combinations of cystic fibrosis drugs. Patients genetically resistant to all treatments now on the market showed unprecedented gains in lung function on all three experimental therapies.

The Vertex data point everyone will be gawking at: a 10 percentage point improvement, adjusted for placebo, in FEV1, an important measure of lung capacity…

Kalydeco lists at more than $300,000 per year. Orkambi, another Vertex cystic fibrosis drug, costs $270,000 per year. If the triple combinations are approved and priced similarly, concerns about the high cost of care will multiply, said Dr. David Cornfield,

If there was a block grant that included treating CF patients using 2016 or 2017 treatment regimes as the baseline, the CF component is a composition of a portion of the patients receiving expensive but effective drugs and half the patients receiving less expensive and less effective treatment regimes.

If there was a block grant with a baseline of 2016 costs and an inflation adjustment, and the triple drug therapy is approved in 2018 or 2019, the block granted Medicaid entity has a tough choice. Its CF costs will increase in both the short term and long term. Almost all of the patients with CF would move to the much more effective and much more expensive pharmaceutical treatment regime.

The Medicaid agency would not receive any additional federal funding to deal with the increase expense. It would either need to cut expenses elsewhere or go back to the state government with far more constrained fiscal capacity and ask for more money. Utilization management won’t change the costs much, care management won’t change costs much, it has no ability to negotiate as there are no near substitutes and the Medicaid agency is obligated by law to pay for medically appropriate care.

A block grant without extremely generous growth factors effectively locks in the treatment options to the baseline year (assuming prices grow no faster than the block grant grows on a per capita, risk adjusted basis). A block grant system locks the standard of care for CF into the standard of care available at baseline with substitution occurring as drugs go generic.

22 replies
  1. 1
    kindness says:

    Block Grants is a euphemism for pushing the States be the bad guy/hit man.

    Far too many Republican run states would love that.

  2. 2
    boatboy_srq says:

    This is the downside to the Pollyannish mantra of the Reichwing that technology will fix everything. The assumption in that is that technology doesn’t cost anything, which is patently untrue, and even admitted by the same people as they turn around and insist that tech innovators will make money. They consistently fail to make allowances for the innovation they worship coming with a price tag.

  3. 3
    Ohio Mom says:

    Or, some Republican’s kid will have CF and somehow an exception will be written into the law.

    One thing I’ve always wondered is how dialysis got its own little set of rules. Obviously I’m all for everyone who needs dialysis getting it, and it’s easy to see why insurance companies are happy with the current arrangement.

    But what is the history — which Congressmen championed this, what was their inspiration? Why can’t advocates for other chronic conditions get similar dispensations?

  4. 4
    rikyrah says:

    Block grants are a scam. I honestly believe that. Don’t trust it, because it depends upon who the Governor is. I’d always prefer to take the chance on the feds. Might not always work out for me, but the odds are better.

  5. 5
    Another Scott says:


    A tangent from your block-grant emphasis: I wonder if it’s time to think about having the medical system interact with the drug invention system more like the way the federal government interacts with (or at least intends to interact with) large defense contractors.

    Namely: The USA needs certain kinds of military hardware that can only be made in the USA. They’re very expensive items, take decades to develop and produce, and there is no other customer unless the federal government says that they can sell it overseas. Companies accept that arrangement and those restrictions in exchange for limited competition (once the contract is awarded) and reasonable payments for expenses and a profit. Yes, there are well known problems with this model, but on the whole it has worked pretty well for 70+ years.

    Maybe the US government should say: Our society needs new drugs and treatments. We can’t expect a small population with the condition (and their private insurance companies) to pay the full cost of developing and testing these new medications, and we can’t only develop new treatments and medications that have the potential to supply your upper management with hookers and blow for the next 25 years. You need to make a profit, but you don’t need to make it on each particular unique pill. Here’s what we’ll do. If you win an open and transparent contracting process, you agree with us to enter into a long-term (say 10 year) contract with us to work on new therapies for CF for $X. We will pay (say) 90% of your reasonable R&D expenses, and in return you will deliver to us tested interim therapies annually. (Other details…) And we’ll pay a Y% profit (assuming other details). Final pricing to the public will be set by the FDA. Deal?

    I’m sure the vulture capitalists who only want some magical drug that successfully treats a disease but doesn’t cure it (gotta have repeat customers!) would hate it, but all the other drug companies out there who want to stay in business for the long term and actually want to help people might find it compelling.




  6. 6
    MattF says:

    There’s another problem– when you’re dealing with a small number of cases and each one is very expensive, the variance matters– and the variance is relatively greater for small numbers of cases than for large numbers. To get technical, variance scales with the square root of the number of cases– so, 10000 +/- 20 cases scales to 100 +/- 2 cases. If the cost per case in the cheaper case is less by more than a factor of 100, there’s relative predictability problem.

    ETA: Terminology problem. It’s not ‘variance’, strictly speaking. But the numbers are correct.

  7. 7
    Another Scott says:

    @Another Scott: Oh, to be clear, I realize that the CDC and so forth do have contracts and do pay companies to develop drugs. (See Dean Baker’s discussions about patents and drug prices and government funding.) I’m just wondering if the main business model needs to be more encompassing, rather than working that way at the margins.


  8. 8
    boatboy_srq says:

    @Another Scott: That runs right up against the new FundiEvangelist Xtianist mantra that only the wealthy are Saved™. Especially the “reasonable payments for expenses and a profit” part. There’s no limitation on greed, there’s no value in reasonable compensation, and – like the MilInd complex – Big Pharma isn’t all that concerned about who they kill so long as they get paid. Tying that monster to – well, where, HHS? – only guarantees that another GOTea maladministration will insist on continuing compensation even if there’s no publicy-visible results.

    Remember that AstraZeneca twisted the molecule in Prilosec and added one atom to create Nexium just so they could get a new patent.

  9. 9
    boatboy_srq says:

    Unmoderate me please? grumble grumble pharma product naming grumble spam filter grumble.

  10. 10
  11. 11
    opiejeanne says:

    Block grants are simply cruel.

    My girls had a friend named Adam who had CF but you’d never know it when he was 6 or 7. When he was born the average lifespan was 4 years, although there were a few people who had lived to age 40. Adam was a wonderful, joyful, lively child. He took dance lessons at my girls’ studio and lived a few doors down from us; he came over to play and all three would race around our yard like mad. When he grew up he went to UCI with my older daughter, majored in dance and they were in classes together. He was a talented dancer and went on to perform professionally.
    He married but the marriage broke up due to the strain of his CF. At the end he was performing while attached to an oxygen tank.
    He died last year in his mid-30s but would not have lived past childhood if not for excellent insurance, and at the last thanks to Obamacare because dancers are not usually well-paid nor do dance companies offer much in the way of benefits.

  12. 12
    dr. bloor says:

    @Another Scott:

    I’ve been kicking around the same sort of model in my head–somehow subsidizing or buying out the IP piece and licensing for production at a reasonable, negotiated rate.

  13. 13
    Davebo says:

    The answer is Medicare for all and negotiated drug purchases by Medicare.

    $300,000 per year for drug treatment of any kind is obscene. And CF isn’t one of those incredibly rare diseases.

  14. 14
    Interrobang says:

    I had a friend who died of cystic fibrosis when she was 13, 30 years ago. Although she was and I am Canadian, so the specifics of this discussion don’t apply to that situation, the prohibitive costs of some of these specialised drugs very much do, because if the province is paying for some of these drug regimens (and they usually do, through a programme called Trillium, or the Ontario Drug Benefit for disabled people), it means healthcare costs go up for everyone, and/or that the province won’t (be able to/want to spend the money to) cover the latest and greatest treatment. I think the situation is the same with the NHS in the UK. So finding some sort of solution benefits more than just the US.

    I really like Another Scott’s idea above. I would add to it, let other countries’ governments in on the contract(s), like a co-development deal (they do this with film and tv all the time, I know), so that more people can reap the benefits. A joint US-Canada-UK-EU pharmaceutical dev deal could be a powerhouse.

  15. 15
    MattF says:

    @boatboy_srq: You say:

    Remember that AstraZeneca twisted the molecule in Prilosec and added one atom to create Nexium just so they could get a new patent.

    Well, that’s the sort of thing medicinal chemists do. Maybe it sounds trivial, but small changes to a molecule can have a significant physiological effect. That said, I can think of other things the chemists could have done that would be more productive scientifically. It’s all about incentives.

  16. 16
    MattF says:

    Oops. Looks like I fell into the same trap as boatboy_srq. Commenting on a moderated comment is risky! Help!

  17. 17
    boatboy_srq says:

    @MattF: True. But in Another Scott’s model there needs to be a more effective compensation scheme or regulatory requirement to discourage this kind of behavior unless minimal-lift incremental improvements are all that’s required. Otherwise Big Pharma gets wealthy(er) twiddling their thumbs at the state’s expense. We already agree that the state shouldn’t be a vehicle for wealth transfer upward; following Another Scott’s model for pharma innovation without such constraints virtually guarantees that the state becomes a funnel for wealth from patients to producers with far less work involved on the actual product than is desirable.

  18. 18
    David says:

    This post has pulled me out from lurking. My wife takes Kalydeco. It is amazing stuff. I say that as a scientist who has been working at one top 5 pharma company or another for 15 years and is married to a doctor at a top tier academic medical institution. Kalydeco is expensive, but so are the hospitizations that she hasn’t had since she started on this medicine. So is lost economic activity.
    When she was young her parents were told not bother making her go to school because she wouldn’t live long enough for it to matter. As a society we need to have some frank conversations about how we allocate dollars and who does and doesn’t get medicine.
    Block grants are not the problem. They might encourage more efficient spending (Australia has demonstrated gains for CF patients being closely tied into to dietitians). The problem is using block grants as a cynical ploy to pay for tax cuts for families that don’t need them (like mine).

  19. 19
    dr. bloor says:

    @Davebo: It’s more complicated than that. If the government uses a price control sledgehammer on innovative treatments, you’re not going to get innovative treatments of the sort that allows CF patients to live longer with a better quality of life.

    Scott’s idea above is the sort of framework for a potential win-win-win outcome. Telling Pfizer et al to fuck off won’t get anywhere.

  20. 20
    Bob Hertz says:

    I am far from an expert in drug policy, but I question the statement by the good Dr Bloor above. Will we truly get no innovation if we hold down the maximum price for any drug to $50,000, or whatever Germany is permitting?

    Also see Dean Baker’s proposals for large federal awards to the inventors of new drugs. A relatively paltry $20 billion in such awards, and then forcing all new drugs to sell for generic prices, would be very progressive.

    Finally, with regard to Medicaid I do need to bring up an unpleasant reality.
    If you could pin down some Republicans in private, they would tell you that the poor people and minorities and (in CA, undocumented aliens) on Medicaid do not deserve expensive drugs. Their lives are not worth that much to an Ayn Rand devotee.

    I get roasted on blogs whenever I bring this up, but so be it.

  21. 21

    […] proposals that would put us on the road to block grants for Medicaid. In his Balloon Juice post, Block grants and breathing, Anderson explains how block grants would play out over time for individuals who have cystic […]

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