Obama implores Congress not to “gut” investments in research, so American can maintain its spot as a world leader in medical innovation. That line will earn applause from the pharmaceutical and medical device industries, but it won’t be enough to deliver a health care economy that delivers a “fair shot” to everyone.

The president held out the continued possibility of saving health care costs with Medicare reform. “As I told the speaker this summer, I’m prepared to make more reforms that rein in the long term costs of Medicare and Medicaid, and strengthen Social Security, so long as those programs remain a guarantee of security for seniors,” Obama said. “But in return, we need to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes. Tax reform should follow the ‘Buffett Rule’:  If you make more than $1 million a year, you should not pay less than 30 percent in taxes.”

And he rebutted Republican accusations that his signature 2010 health reform law amounts to socialized medicine. “I’m a Democrat. But I believe what Republican Abraham Lincoln believed: That government should do for people only what they cannot do better by themselves, and no more,” he said. “That’s why our health care law relies on a reformed private market, not a government program.”

Obama makes it clear that he sees the giant health care sector as a place ripe for jobs growth. The American Association of Medical Colleges projects a shortage of 90,000 doctors over the next 10 years. It’s more than double that for the nursing industry, where the American Nursing Association sees a potential shortage of 260,000 nurses by 2025. These shortfalls will only be worsened as an additional 30 million people get health insurance under the 2010 health reform law.

But a national workforce commission established under the health care law has been chronically underfunded by Congress. The training programs that will be needed to fix these shortages have a slim to little chance of getting any funds. Appropriators have no room to give precious federal dollars to new programs while they are slashing old sacred cows in the austere spending environment that has reigned on Capitol Hill since Republicans took the House in 2011.

And while investments in research are nice, what medical device companies want even more is for Congress to take back a $20 billion tax it imposed on the industry to help cover the cost of the health reform law. Stephen Ubl, president of Advamed, a medical device lobbying association, says the tax is already causing layoffs.

Obama doesn’t get a break from hospitals either. The American Hospital Association says a coming 2 percent cut to Medicare and other cuts will cost them 278,000 jobs as revenue drops from Medicare and Medicaid. In the health care world, federal funds are the spigot for job creation, and no State of the Union speech is going to change the spending environment on Capitol Hill.

“Smoking is the leading cause of preventable death in the United States,” said Leighton Ku, Ph.D., professor of Health Policy at the GW School of Public Health and Health Services, who led the research project. “Millions of low-income smokers in the U.S. are insured by Medicaid. In 2004, smoking-related Medicaid expenditures for all states combined was $22 billion, which represented 11 percent of all Medicaid spending.
Investments in comprehensive tobacco cessation services in Medicaid can improve the health of patients, as well as save money for states and the federal government.”

The research focused on estimating the costs of tobacco cessation programs compared to the savings that Medicaid will realize due to fewer inpatient hospital visits for heart attacks and related cardiovascular conditions. Researchers used data gathered from the 2002-2008 Medical Expenditure Survey and the Behavioral Risk Factor Surveillance Surveys to estimate the cost of hospital inpatient admissions for smokers covered by Medicaid. A smoking cessation program in Massachusetts, which offered a wide range of smoking cessation medications, as well as individual and group counseling for Medicaid recipients, proved to be successful and was estimated to have saved an average of $388 per user per year.

The Patient Protection and Affordable Care Act (PPACA) will add millions of new Medicaid recipients in 2014 and tobacco cessation services in Medicaid could soon be offered to a much larger share of the low-income smoking population. Researchers concluded that despite the Medicaid budgetary shortfalls faced by state and federal governments, a comprehensive tobacco cessation program for Medicaid enrollees is an evidence-based policy strategy which should improve public health and reduce health care expenditures.

The full article can be found at: http://dx.plos.org/10.1371/journal.pone.0029665

About the George Washington University School of Public Health and Health Services:
Established in July 1997, the School of Public Health and Health Services brought together three longstanding university programs in the schools of medicine, business, and education that we have since expanded substantially. Today, more than 1,100 students from nearly every U.S. state and more than 40 nations pursue undergraduate, graduate, and doctoral-level degrees in public health. Our student body is one of the most ethnically diverse among the nation’s private schools of public health. http://sphhs.gwumc.edu/

About Partnership for Prevention:
Partnership for Prevention was founded in 1991 by leaders dedicated to making disease prevention and health promotion national priorities and America a healthier nation. ActionToQuit, Partnership’s tobacco control initiative, urges all sectors – health care systems, employers, insurers, government agencies, quitlines, and policymakers – to work together to develop and promote sound tobacco control policies. www.prevent.org

Physicians often gravitate to cost control proposals that do not involve their own role and changing their practices, whereas policymakers may propose solutions that will not significantly reduce costs. In assessing cost control proposals, 2 criteria are fundamental. One criterion is that 2% growth in health care costs over growth in GDP amounts to $52 billion a year; serious proposals are aimed at reducing the growth in health care costs to 1% over GDP growth. Consequently, anything short of $26 billion in savings is not credible. A second criterion is that cost control proposals should transform the delivery of care and lead to improved quality as well as patient and physician satisfaction.

Malpractice Costs.. Physicians frequently cite malpractice premiums and the cost of defensive medicine as drivers of high costs. A recent Congressional Budget Office (CBO) analysis estimated that a package of reforms consisting of a $250 000 cap on noneconomic damages, a $500 000 cap on punitive damages, reducing the statute of limitations (1 year for adults and 3 years for children), and implementing fair-share liability could reduce malpractice premiums by 10% ($3.5 billion per year) and reduce defensive medicine for the entire health care system by 0.3% ($7 billion), for a total savings of approximately $11 billion or 0.5% of national health care spending per year.^3​ No reliable data indicate that other malpractice reforms would generate cost savings.

Importantly, more than 30 states have instituted similar caps and limits. If these measures have reduced costs, they are insufficient to counter other factors increasing costs. In addition, physicians in those states, such as California, do not seem to indicate that the practice environment is better. There is little research on the effects of malpractice caps on quality, although 1 study cited by the CBO suggested that caps lowered the quality of care.⁴ This suggests that limits on malpractice liability would not likely both reduce costs and improve quality.

Insurance Company Profits. Another proposed cost control mechanism focuses on the profits of insurance companies. In 2010, the combined profits of the 5 largest insurers—Wellpoint, United, Aetna, Humana, and Cigna—increased substantially, reaching $11.7 billion.^5​ It may be worthy to reduce these profits, but in the scheme of $2.6 trillion in national health care spending, this amount constitutes just 0.5% of total spending.

Drug Costs. In 2010, the United States spent $262 billion on prescription drugs, 10% of total health care spending.¹ There is a worrisome trend that new drugs and biologics costing tens of thousands of dollars per year do not provide cures, but achieve only modest disease benefit. One approach to cost savings is drug reimportation, which would allow brand-name drugs sold at lower prices in Canada or other countries to be imported into the United States. Assuming the logistical and supply problems were solved, the CBO estimated that reimportation could save approximately 1% of drug costs, an insignificant $2.6 billion.^6​

Another approach might be to substitute generic drugs for brand-name drugs. Between 2004 and 2009, use of generic drugs increased substantially from 57% to 75% of all prescriptions.⁷ Despite this change, costs for health care and for prescription drugs have both increased by approximately 25% during those years. By increasing generic prescription levels to 100%—an unrealistic level—CBO estimated that an additional $900 million could be saved for Medicare Part D in 2009.^8​ Of the $502 billion spent on Medicare in 2009, this would amount to a savings of less than 0.2%. The US Department of Health and Human Services recently concluded that increased savings from expanding generic use “are likely to be small relative to total spending on drugs”⁷—not to mention total health care costs.

“The Million Dollar Baby.” Many physicians believe the US health care system expends excessive amounts on so-called “million dollar babies”—patients who spend long periods in intensive care units and require tracheostomies, gastrostomy tubes, and myriad other interventions. However, an analysis of nearly 20 million commercially insured patients revealed that only 255 patients had consumed more than $1 million each on health care expenditures in 2010. Extrapolating to the entire health care system suggests these patients use 0.5% of all health care costs. Even if all costs attributed to care of these “million dollar babies” could be eliminated, there are not enough of such patients to significantly reduce health care spending. Expanding this group to patients who consume more than $250 000 in health care expenditures each per year would translate into 6.5% of health care costs. But how can these high-cost patients be identified before they get treatment? Furthermore, it would not seem possible to curtail the health care services such patients receive without raising the charge of “death panels.”

Some may suggest that even if each of these individual cost control measures does not save much money, all together the savings might begin to approach $15 or $20 billion. Maybe. However, there are no specific policies that would enable saving money on the care of “million dollar babies” and the probability of policies that would foster adoption in other areas is remote. More importantly, none of these 4 cost control approaches would transform the delivery of care and generate higher-quality care more efficiently. Malpractice reform based on caps to damages has the suggestion of lowering quality, reimportation of drugs and reducing insurers’ profits lower prices but do not affect the delivery of care or quality, and money saved on the “million dollar babies” cannot be anticipated.

Where Are the Cost Savings?

Where is the money in health care? Approximately 10% of the population consumes about 64% of health care expenditures. Who are these patients? “Chronic conditions were closely linked to high expenditure levels: more than 75% of high-cost beneficiaries . . . had one or more of seven major chronic conditions . . . 42% had coronary artery disease, 30% had congestive heart failure, and 30% had diabetes.”^9​ Another reason to focus on these patients is to improve quality—they use the majority of health care services.

There are 2 important aspects about their health care spending and quality of care. First, one estimate suggested that as much as 22% of all health care expenditures is related to potentially avoidable complications such as hospital admissions for patients with diabetes with ketoacidosis or amputation of gangrenous limbs or of patients with congestive heart failure for shortness of breath due to fluid overload.¹⁰ Thus, reducing avoidable complications by 10% could save more than $40 billion per year.

Second, reducing unnecessary medical care for chronically ill patients is about improving tertiary prevention. While some efforts to improve tertiary prevention have failed, others have succeeded. Development and dissemination of additional approaches are needed. Successful efforts seem to entail instituting at least 4 common changes: (1) installing electronic health records and using them to track patients’ health status and physician performance, as well as using decision supports to increase adherence to treatment pathways; (2) using the information for more intensive interactions between patients, caregivers, and clinic staff, including use of care coordinators, 24/7 access, interventions to increase medication adherence, specialized clinic services for recurrent problems of patients with chronic disease such as anticoagulation clinics; (3) reducing use of specialists, and when specialists are involved using those who are more efficient; and (4) providing services not traditionally covered by fee-for-service reimbursement, such as e-mail, wireless monitoring to increase medication adherence, home evaluations to minimize falls, lifestyle interventions to improve nutrition and exercise, and transportation services for office visits. Cumulatively, the savings appear to occur through fewer hospitalizations, emergency department visits, and lower use of specialist services.

The Role of Physicians

For physicians to know “where the money is” and the availability of some successful models for reducing costs has 3 implications. First, physicians must be the leaders and must stop looking to drug companies, insurers, or someone else to initiate and achieve cost savings.

Second, physicians have the responsibility to redesign care delivery to emphasize more tertiary prevention and avoid unnecessary complications. Although this will be hard work, only effective physician leadership can ensure successful redesign.

Third, physicians know well that such care redesign cannot occur without payment reform. Rather than complain about the payment system and reimbursement rates, and the problems of accountable care organization regulations or bundled payment regulations, physicians need to take the initiative. They need to develop and propose bundled payments or suggest revisions to the new regulations on accountable care organizations that will facilitate the redesign of care and tertiary prevention.

Deficit pressures are making cost control inevitable. It will only be successful if physicians stop looking to others to find solutions and focus on approaches that improve the care for patients with chronic illnesses.

Author Information

Corresponding Author: Ezekiel J. Emanuel, MD, PhD, Office of the Provost and Department of Medical Ethics and Health Policy, University of Pennsylvania School of Medicine, 122 College Hall, Philadelphia, PA 19104 (zemanuel@upenn.edu).

REFERENCES

. Recession contributes to slowest annual rate of increase in health spending in five decades. Health Aff (Millwood). 2011;30(1):11–22, pmid:21209433.Free Full Text

. The Long-Term Outlook for Health Care Spending. http://www.cbo.gov/ftpdocs/87xx/doc8758/MainText.3.1.shtml. Accessed November 30, 2011.

. Selected CBO Publications Related to Health Care Legislation, 2009-2010: Effect of Proposals to Limit Costs Related to Medical Malpractice (Tort reform). http://www.cbo.gov/ftpdocs/120xx/doc12033/12-23-SelectedHealthcarePublications.pdf. Accessed November 30, 2011.

. Evaluation of Options for Medical Malpractice System Reform. http://www.medpac.gov/documents/Apr10_MedicalMalpractice_CONTRACTOR.pdf. Accessed November 30, 2011.

. HCAN Analysis Shows Health Insurers Pocketed Huge Profits in 2010 Despite Weak Economy. http://healthjusticenetwork.wordpress.com/2011/03/04/hcan-analysis-shows-health-insurers-pocketed-huge-profits-in-2010-despite-weak-economy/. Accessed November 30, 2011.

. H.R. 2427: The Pharmaceutical Market Access Act of 2003, CBO Cost Estimate: November 19, 2003. http://www.cbo.gov/ftpdocs/48xx/doc4852/hr2427.pdf. Accessed December 7, 2011.

. ASPE Issue Brief: Expanding the Use of Generic Drugs: December 1, 2010. http://aspe.hhs.gov/sp/reports/2010/GenericDrugs/ib.pdf. Accessed November 30, 2011.

. Effects of Using Generic Drugs on Medicare’s Prescription Drug Spending. http://www.cbo.gov/doc.cfm?index=11838. Accessed November 30, 2011.

. The high concentration of US health care expenditures. Research in Action. 2006:19. http://www.ahrq.gov/research/ria19/expendria.pdf. Accessed November 30, 2011.

. Building a bridge from fragmentation to accountability: the Prometheus Payment model. N Engl J Med. 2009;361(11):1033–1036, pmid:19692682.Find Full-TextCrossRefMedline

By comparison, the UC Berkeley study found that individuals in the upper middle and upper classes were less able to detect and respond to the distress signals of others. Overall, the results indicate that socio-economic status correlates with the level of empathy and compassion that people show in the face of emotionally charged situations.

“It’s not that the upper classes are coldhearted,” said UC Berkeley social psychologist Jennifer Stellar, lead author of the study published online on Dec. 12 in the journal, Emotion. “They may just not be as adept at recognizing the cues and signals of suffering because they haven’t had to deal with as many obstacles in their lives.”

Stellar and her colleagues’ findings challenge previous studies that have characterized lower-class people as being more prone to anxiety and hostility in the face of adversity.

“These latest results indicate that there’s a culture of compassion and cooperation among lower-class individuals that may be born out of threats to their wellbeing,” Stellar said.

It has not escaped the researchers’ attention that the findings come at a time of rising class tension, expressed in the Occupy Wall Street Movement. Rather than widen the class divide, Stellar said she would like to see the findings promote understanding of different class cultures. For example, the findings suggest that people from lower socio-economic backgrounds may thrive better in cooperative settings than their upper-class counterparts.

“Upper-class individuals appear to be more self-focused, they’ve grown up with more freedom and autonomy,” she said. “They may do better in an individualist, competitive environment.”

More than 300 ethnically diverse young adults were recruited for the UC Berkeley study, which was divided into three experiments that used three separate groups of participants. Because all the volunteers were college undergraduates, their class identification – lower class, lower middle class, middle class, upper middle class or upper class – was based on parental income and education.

In the first experiment, 148 young adults were rated on how frequently and intensely they experience such emotions as joy, contentment, pride, love, compassion, amusement and awe. In addition, they reported how much they agreed with such statements as “When I see someone hurt or in need, I feel a powerful urge to take care of them,” and “I often notice people who need help.” Compassion was the only positive emotion reported at greater levels by lower-class participants, the study found.

In the second experiment, a new group of 64 participants viewed two videos: an instructional video on construction and an emotionally charged video about families who are coping with the challenges of having a child with cancer. Participants showed no differences while watching the “neutral” instructional video, and all reported feeling sad in response to the video about families of cancer patients. However, members of the lower class reported higher levels of compassion and empathy as distinct from sorrow.

The researchers also monitored the heart rates of participants as they watched the neutral and emotionally charged videos. Lower-class participants showed greater decreases in heart rate as they watched the cancer family video than upper-class participants.

“One might assume that watching someone suffering would cause stress and raise the heart rate,” Stellar said. “But we have found that, during compassion, the heart rate lowers as if the body is calming itself to take care of another person.”

Finally, a new set of 106 participants was randomly divided into pairs and pitted against one another in mock interviews for a lab manager position. To further raise the stress level in interviews, those who performed best were to win a cash prize. Post-interview reports from the participants showed that the lower-class interviewees perceived their rivals to be feeling greater amounts of stress, anxiety and embarrassment and as a result reported more compassion and sympathy for their competitors. Conversely, upper-class participants were less able to detect emotional distress signals in their rivals.

“Recognizing suffering is the first step to responding compassionately. The results suggest that it’s not that upper classes don’t care, it’s that they just aren’t as good at perceiving stress or anxiety,” Stellar said.

Other coauthors of the study are UC Berkeley psychologist Dacher Keltner; Michael Kraus, a postdoctoral fellow in psychiatry at UCSF; and Vida Manzo, a researcher in social psychology at  Northwestern University. The study was funded by grants from UC Berkeley’s Greater Good Science Center and the McNair Scholars Program.

Lower payment for administering combination vaccines is problematic because these shots are considered particularly important as part of an increasingly crowded childhood immunization schedule but may lead to financial losses for medical practices.

“Payers need to understand that physicians need to be paid appropriately for immunization administration,” said Margie C. Andreae, MD, clinical professor of pediatrics at the University of Michigan. “We still have a significant number of practices that are essentially disincentivized to adopt the combination products.”

The immunization administration codes 90465 and 90466 were replaced with 90460 and 90461 as of Jan. 1, 2011. The new codes allow physicians to bill for administration per vaccine component rather than per injection, although they can sometimes be tricky to use and are not allowed in all situations.

Dr. Andreae co-wrote a study published Nov. 21, 2011, in Pediatrics looking at data on 110,040 claims from a subscription billing service used by private practices from June 2007 to July 2009. Researchers found that, on average, physicians received $96.27 per dose from commercial payers to administer Pediarix to children younger than 2. This shot is composed of immunizations against diphtheria, tetanus, pertussis, hepatitis B and poliomyelitis. When giving the equivalent component vaccines — DTaP, HepB and IPV — medical practices earned $119.21, or $22.94 more (www.ncbi.nlm.nih.gov/pubmed/22106084/).

This was primarily because, although the payment for the shots was comparable, practices could bill for the administration of three injections when using the equivalent component vaccines rather than only one when using the combination jab. Researchers say, however, that providing a combination shot can be just as much work for a physician.

“Physicians still have to spend the same amount of time counseling and sometimes even more for the combination vaccines discussing each of the different components,” Dr. Andreae said.

For children on Medicaid, physicians were given $11.16 to provide Pediarix and $24.58 to give these immunizations separately, or $13.42 less. Payments are so much lower for Medicaid children than for those with commercial insurance because the shots are provided at no charge for this population through the Centers for Disease Control and Prevention’s Vaccines for Children Program. Physicians bill for only an administration fee.

By Victoria Stagg Elliott, amednews staff. Posted Dec. 21, 2011.

Patients often pay more for name-brand drugs, even when they’re covered by insurance. Sometimes they have no choice because — unlike Lipitor — many drugs don’t yet have generic competition.

Howard Weintraub, a cardiologist at New York University, says many patients on those drugs come in and beg for free samples. Others simply don’t fill their prescriptions — or they do, but then try to stretch their resources by taking the pricey pills less often than they’re supposed to.

“People come in with their blood pressure not as well controlled, or they come in and their cholesterol’s all of a sudden mysteriously higher. And you realize, OK, the medicine hasn’t stopped working, but you also realize the medicine doesn’t work when it’s still in the bottle,” he says.

Generics already represent 70 to 80 percent of drug sales — a dominance expected to grow in the future. Michael Kleinrock, of marketing research firm IMS Health, says patent expirations over the last half-decade are one of the main reasons why Medicare spent $50 billion less than federal officials projected five years earlier. Kleinrock says the average daily cost of drugs dropped one-third from 2005 to 2010, and should drop another third between now and 2015.

“We’re already at reasonably low cost relative to 10 years ago or so,” he adds. “That said, there’s still actually more to go, which is excellent for consumers.”

The drop in drug costs because of generics is one of the few bright spots in all of American health care. But it isn’t exactly a big bright spot.

“For sure it will be felt, but because the other things are on such a heavy rise, it will only temper where rates are currently,” says Dr. Dennis Liotta, the head of pharmaceutical benefits for Emblem Health, one of New York’s largest insurers.

Liotta says the generic drug savings is significant and especially visible to people with limited means and limited health coverage. But drugs are a relatively small factor in insurance premiums. And while blockbuster drugs like Lipitor are sunsetting, University of Michigan business school professor Erik Gordon says pharmaceutical companies are trying to replace them with new, more targeted drugs — like Pfizer’s recently approved lung-cancer medication.

“The interesting thing is it will work in only 5 percent of lung cancer patients. The other interesting thing is it’s going to cost $115,000 per year, per patient,” Gordon says.

Some analysts say the growing field of costly specialty drugs could undermine the growing savings from generics. But Gordon says drug companies will still have their work cut out for them. It’s getting tougher not only to come up with new drugs, he says, but also to convince insurers and the government to pay for them — unless they make meaningful improvements in health, at a reasonable cost.

A growing crisis in the availability of drugs for chemotherapy, infections and other serious ailments is endangering patients and forcing hospitals to buy from secondary suppliers at huge markups because they can’t get the medications any other way.

An Associated Press review of industry reports and interviews with nearly two dozen experts found the shortages – mainly of injected generic drugs that ordinarily are cheap – have delayed surgeries and cancer treatments, left patients in unnecessary pain and caused hospitals to give less effective treatments. That’s resulted in complications and longer hospital stays.

Just over half of the 549 U.S. hospitals responding to a survey this summer by the Institute for Safe Medication Practices, a patient safety group, said they had purchased one or more prescription drugs from so-called “gray market vendors” – companies other than their normal wholesalers.

Most also said they’ve had to do so more often of late, and 7 percent reported side effects or other problems with those drugs.

Hospital pharmacists “are really looking at this as a crisis. They are scrambling to find drugs,” said Joseph Hill of the American Society of Health-System Pharmacists.

At a hearing Friday before the health subcommittee of the House Energy and Commerce Committee, hospital officials and other experts testified that the worsening shortages are preventing them from giving many patients the best care and are driving up costs.

“Considering the nation’s budget crisis and our skyrocketing health care bill, these markups are nothing more than profiteering at the expense of patients and providers who are struggling to afford vital medicines,” said Mike Alkire, chief operating officer of Premier Healthcare Alliance, a group that helps U.S. hospitals and other health providers improve their patient care and finances.

The shortages could cost hospitals at least $415 million a year, he said, citing data from health care providers across the nation. So far, hospitals have been absorbing the extra costs, but they’ll soon have to start passing them on to insurers and patients, according to the American Hospital Association.

The scarcity of mainstay cancer drugs is not only hurting patients but is halting or disrupting clinical studies of potential new treatments, said Dr. Robert S. DiPaola, director of the Cancer Institute of New Jersey.

“The drug shortages of today can have a ripple effect on the availability of new drugs and treatment combinations tomorrow,” he told the committee.

On Monday, the Food and Drug Administration is holding a meeting with medical and consumer groups, researchers and industry representatives to discuss the shortages and strategies to fight them.

The FDA says the primary cause of the shortages is production shutdowns because of manufacturing problems, such as contamination and metal particles that get into medicine.

Other reasons include theft of prescription drugs from warehouses or during shipment, as well as the “gray market” vendors who buy scarce drugs from small regional wholesalers, pharmacies or other sources and then sell them to hospitals at many times the normal price. These sellers may not be licensed, authorized distributors.

In addition, many companies have stopped making generic injected drugs because the profit margins are slim. Producing them is far more expensive than stamping out pills, and it takes about three weeks to produce a batch. Making things worse, companies don’t have to notify customers or the FDA that they’ve stopped making a medicine. That means neither FDA nor competitors can fill the gap in time.

Only a half-dozen companies make the vast majority of injected generics. Even if other companies wanted to begin making a drug in short supply, they’re discouraged by the lengthy, expensive process of setting up new manufacturing lines and getting FDA approval.

Hospitals that buy scarce medicines from the “gray market” are taking a gamble.

The drugs may be stolen and hospitals can’t always tell whether a medicine was properly refrigerated – as required for many injectable drugs – or whether it’s past the expiration date, said Michael R. Cohen, a pharmacist and president of the institute. The active ingredient might have degraded and the drug might not work well or could even harm the patient, he said.

Cohen attributes at least 15 recent deaths to drug shortages, either because the right drug wasn’t available or because of dosing errors or other problems in administering or preparing alternative medications. But many deaths and injuries go unreported, he said.

In the worst known case, Alabama’s public health department this spring reported nine deaths and 10 patients harmed due to bacterial contamination of a hand-mixed batch of liquid nutrition given via feeding tubes because the sterile pre-mixed liquid wasn’t available.

So far this year, 210 drugs have been added to the list of those in short supply, one less than the total for all of last year, according to the University of Utah Drug Information Service, which tracks the shortages. That’s triple the roughly 70 a year from 2003 to 2006, when shortages began to climb steadily.

“The shortages aren’t resolving. They’re piling up on top of existing ones,” said Erin Fox, a pharmacist who manages the service. She said at least 55 drugs from shortages before this year are still unavailable or scarce.

The average price markup on drugs sold by secondary distributors was 650 percent, according to an Aug. 16 report by the Premier Healthcare Alliance. The figure is based on an analysis of 636 unsolicited sales offers that were faxed and emailed to hospitals from secondary distributors in April and May.

Virtually every offer was for at least double the normal price, the survey found. The drugs with the highest markups were for critically ill patients needing anesthesia or other medicines for surgery or for emergency care, cancer, infectious diseases and pain management.

In an extreme case, one vendor was offering a generic beta blocker for dangerously high blood pressure, normally priced at $25.90 per dose, for $1,200.

The FDA says it must uphold quality standards but also works hard to prevent shortages.

“When FDA detects a contaminant, whether it be shards of glass or metal particles or an infectious agent, we have to take action to protect the public,” said Dr. Peter Lurie, a senior adviser in the FDA commissioner’s office.

When such problems force a company to shut down production, the FDA urges other manufacturers to boost their output and expedites any approvals needed, said Valerie Jensen, associate director of the agency’s drug shortage program. When raw materials used to make drugs are in short supply, the FDA tries to find new sources.

The agency averted 38 shortages last year, Jensen added. Another 99 have been prevented so far this year, Howard K. Koh, assistant secretary for health in the Department of Health and Human Services, told the committee.

Legislation pending in the House and Senate would increase penalties for drug thefts from warehouses and tractor-trailers. Another proposal, which has bipartisan support, would require drug manufacturers anticipating a shortage to immediately notify the FDA.

The pitches hospitals get from secondary distributors generally say they have small batches of specific drugs that are hard or impossible to find. “Are you enjoying this crazy `roller coaster ride’ of pharmaceutical shortages? … I utilize over 60 vendors to locate and procure needed pharmaceuticals to assist when you have shortage needs,” one reads.

Several distributors who sent hospitals solicitations for scarce drugs didn’t return calls from the AP. One representative said he wasn’t authorized to discuss the issue.

Another company, Novis Pharmaceuticals, defended the higher prices, saying secondary distributors have to charge far more because they don’t get the big rebates manufacturers give primary distributors. They also have high costs to locate and transport batches of scarce drugs, although the company, which mainly distributes blood plasma, would not disclose its profit margin.

It’s illegal for companies to collude to create a medicine shortage and raise prices, and there’s no evidence of that. There’s no federal law against price-gouging on prescription drugs, according to the FDA, but it does urge pharmacists to report cases to its Office of Criminal Investigation. An agency spokeswoman said she could not discuss whether any cases are being investigated.

The top three wholesalers say they try to alleviate problems by working with drug manufacturers, updating hospitals on shortages and rationing scarce supplies by giving their regular hospital customers a portion of their normal order. McKesson Corp. and Cardinal Health Inc. say they halt sales to any smaller distributors found to be diverting drugs or otherwise breaking rules. AmerisourceBergen Corp. does background checks on customers.

The hospital association and other groups urge hospitals not to buy from unaccredited vendors, to insist on documentation of the drug’s source if they must, and to report price gouging to state authorities. But only three states – Kentucky, Maine and Texas – have price-gouging laws that specifically cover medicines.

“Something has to be done here,” said pharmacist Michael O’Neal, head of drug procurement for Vanderbilt University Medical Center in Nashville, which has had to purchase medicines from secondary suppliers about 70 times over the past two years.

“This is unethical,” he said. “We’re talking about people’s lives.”

—

Summary of state price-gouging laws: http://www.ncsl.org/default.aspx?tabid14434

Institute for Safe Medication Practices consumer site:http://www.consumermedsafety.org/

The malady makes the nerve cells that control muscles gradually deteriorate. There are no treatments, let alone a cure, Bloomberg Markets magazine reports in its October issue. Worse still, while the gene causing the ailment had recently been discovered, nobody in the drug industry was doing much about it, he says.

“I was fearful and anxious that treatments would be developed, but far too late to save Arya,” says Singh, 42, who founded and runs New York hedge fund TPG-Axon Capital Management LP, which has $8.1 billion in assets. “We didn’t want to find out 25 years later that the science was really there but there isn’t a drug because nobody focused on it.”

Singh, who left Goldman in 2004, has spent almost $100 million of his own money to create and fund the Spinal Muscular Atrophy Foundation. He wants to discover and develop a drug that he hopes will help his daughter, who is one of 25,000 SMA patients in the U.S. Children with severe forms often die within a few years, while those with mild cases can live a normal life span with supportive care. Arya, 11, and starting sixth grade, uses a wheelchair.

‘High-Speed Initiative’

Singh’s foundation is making progress. It’s collaborating with Novartis AG (NOVN), which may bring a drug into human tests as soon as 2013, says Mark Fishman, research chief for the Basel, Switzerland-based drugmaker.

The foundation has pumped $13 million into PTC Therapeutics Inc. in South Plainfield, New Jersey, which has produced a pill that increases the life span of mice with SMA. It also has funded a scientist whose research has led to an injectable drug developed by Isis Pharmaceuticals Inc. (ISIS) of Carlsbad, California. That treatment may enter human trials before year’s end. Singh says he’ll enroll Arya if that drug gets to the testing phase before others.

“The SMA Foundation has converted this from a slow-moving exercise to a high-speed initiative,” says Darryl De Vivo, a pediatric neurologist at Columbia University Medical Center in New York, who has overseen Arya’s care since her diagnosis.

Frustrated with the sluggishness, or nonexistence, of medical research, Singh and a small band of wealthy parents whose children have serious illnesses are spending millions of dollars to fund drug development.

‘Change the System’

These benefactors include hedge-fund managers, private- equity investors and entrepreneurs, many of whom have made their fortunes on Wall Street. The principles they apply in their jobs — managing complicated tasks, making investments and expecting positive results — translate to their new endeavors, says Stacy Palmer, editor of the Chronicle of Philanthropy.

“Business executives have a better understanding of how markets work and have started to ask tougher questions,” Palmer says. Their goal: “Change the system and whatever is slowing it down.”

The new philanthropists are building on a foundation laid by well-known predecessors. John D. Rockefeller in 1901 formed the medical research institute that would become New York’s Rockefeller University after his grandson died of scarlet fever. Billionaire Michael Milken, who pioneered junk bonds, founded the Prostate Cancer Foundation and FasterCures, a think tank to speed progress toward cures in all medical fields.

‘Lots of Shovels’

Microsoft Corp. co-founder Bill Gates and his Bill & Melinda Gates Foundation have focused on malaria, polio and other global health threats. James Simons, founder of hedge fund Renaissance Technologies LLC, and his wife, Marilyn, started the Simons Foundation. It’s the second-biggest funder of autism research, after the U.S. National Institutes of Health, according to recent data.

Benefactors such as Singh are taking a direct role in early drug research. They want to make it easier for companies to produce a medicine or venture firms to fund it. They begin with basic research discoveries, often in obscure illnesses, and advance the work. Instead of handing money to scientists and getting out of the way, they stay involved, hire experts and push researchers to work together rather than compete.

“We have focused on having lots of shovels ready and having the maps ready and having all the supplies ready, so companies are willing to prospect for SMA drugs,” Singh says. His idea: “Make it easy for companies, take the risk down for them so they can get a sense cheaply and easily whether there is something there.”

Arya’s Efforts

Even Arya is doing her bit. In her family’s 11th-floor condominium that looks north over New York’s Central Park, she says she’s excited about holding a bake sale to raise money for SMA research. She has just returned from precautionary tests to make sure a respiratory infection didn’t become serious. Her mother pats her back when she coughs weakly. Then Arya scoots off in her wheelchair to play with her younger brother and sister.

James O’Sullivan, director of foundation services for Rockefeller Philanthropy Advisors, says about half of his 25 medical philanthropy clients at any time are interested in the hands-on approach Singh’s foundation is taking, up from a handful 15 years ago.

“There is a world of difference between 10 years ago and now,” says O’Sullivan, whose New York-based organization advises wealthy patrons. “Today’s donors are much more interested in seeing how their dollars make a difference in a disease.”

New Breed

Victoria Jackson, a cosmetics entrepreneur whose husband, Bill Guthy, co-founded direct marketer Guthy-Renker LLC, is among the new breed. Her daughter, Ali, came down with a central nervous system disorder at age 14 called neuromyelitis optica, which can cause blindness.

Since then, Jackson has spent more than $15 million on her foundation to develop treatments. Ali, now 18, has avoided severe complications by taking immunosuppressants.

Jackson says scientists often work independently with their own agendas, wasting money.

“I manage where every dime goes and make sure there is complete disclosure and collaboration among the researchers,” she says.

Private Investors

Private investors may become crucial as drugmakers cut research and close labs, O’Sullivan says. Pfizer Inc. (PFE), the world’s largest drugmaker, will spend $6.5 billion to $7 billion on research in 2012, down from $9.4 billion in 2010. That makes working with a foundation that already has done some of the grunt work attractive.

“Drug companies want to come in later in the R&D process and provide backing for potential therapies that have more evidence behind them than in the past,” O’Sullivan says.

Singh says his foundation can focus on the science because it doesn’t have to invest huge amounts of time raising money. And with no need to impress donors, the organization can spend on the business of developing lab tests and building the pieces that make it easier for companies to discover SMA drugs.

The foundation’s $16 million in research spending last year almost equals the $19 million the NIH spent on spinal muscular atrophy.

Novartis saved years by taking advantage of advances made by foundation-backed scientists and the laboratory techniques they developed to test compounds for SMA. The company was able to focus on screening for drugs rather than diverting staff to basic research, says Daniel Curtis, a research manager at Novartis.

Rich Donors

The SMA Foundation and its academic partners may reap a benefit if a Novartis drug reaches the market and sells well. Singh’s foundation could get back a multiple of its spending on the collaboration, says Karen Chen, the organization’s chief scientific officer, who declined to give specifics. Any money would allow the foundation to reinvest in science, she says.

As an incentive for Novartis to work quickly, an agreement allows the company to repay nothing if it completes clinical trials fast enough.

Rich donors with a personal stake in a disease, while well- meaning, can divert resources from illnesses that may be closer to a cure or afflict more people, says Arthur Caplan, a bioethicist at the University of Pennsylvania in Philadelphia.

“There can be some kind of distortion of emphasis,” he says.

SMA affects 25,000 Americans versus 5.4 million for Alzheimer’s disease, according to the SMA Foundation and the Alzheimer’s Association.

Head Start

Singh says spinal muscular atrophy is more likely to be treatable than common neurological diseases such as Alzheimer’s, whose origin is uncertain. He says he wouldn’t have spent as much money if he thought an SMA treatment was a long shot. Scientists already know what causes SMA, giving researchers a head start, he says.

Garen Staglin, a senior adviser at San Francisco-based private-equity firm FTV Capital, is tackling diseases that are more widespread, including schizophrenia. Staglin’s International Mental Health Research Organization has raised $135 million for brain research during the past 17 years. It hosts an annual music concert at his Napa Valley, California, vineyard. Dionne Warwick was scheduled to headline a concert in September.

Staglin’s son, Brandon, now 39, was diagnosed with schizophrenia in 1990. Staglin was in France on business and got a call that police had pulled Brandon over as he drove erratically.

“He told me he felt like he had lost half his brain,” Staglin recalls. “He just lost his ability to think coherently.”

‘Run Toward It’

Rather than hide Brandon’s situation, Staglin acted.

“We decided we had two choices: We could either run away from the problem like too many families with these illnesses,” he says. “We wanted to run toward it.”

Another effort, Staglin’s One Mind for Research, is working with former Rhode Island Congressman Patrick Kennedy to get drug companies and brain researchers to collaborate on treatments for Alzheimer’s, autism, schizophrenia and other conditions. This effort is based on the joint-research approach that has long been used in the semiconductor industry.

For Alexander Silver, the motivation is his 4-year-old son, Jackson. Silver, a partner at New York-based private-investment firm P2 Capital Partners, LLC, started the Jackson Gabriel Silver Foundation in 2010 to find a treatment for a rare genetic condition called epidermolysis bullosa. In the disease, a protein that holds skin layers together is missing, and the skin blisters and shears off with any friction. Half of Jackson’s body is covered in high-tech bandages that cost $6,000 a month.

Cutting Red Tape

Silver, 34, who has raised more than $400,000 since 2008 and aims for $10 million or more, predicts a good treatment will come if money flows without red tape to the right projects. His foundation — along with one run by Paul Joseph, a private- wealth broker at Morgan Stanley Smith Barney LLC whose 7-year- old son has the condition — has backed work at the University of Southern California in Los Angeles. The research has produced a potential drug.

The approach has garnered $26 million in venture capital from Boston-based Third Rock Ventures to form a company and move the therapy in human trials.

No Budget on Life

“The skills I developed professionally matter a lot for this,” Silver says. “Just like investing, you are allocating capital to the projects that have the highest probability of success and the lowest probability of failure in the quickest time frame.”

For Singh, the effort to save Arya is a family affair, and he promises to spend as much money as necessary. Singh’s wife, Loren Eng, has a Master of Business Administration from Stanford University and works fulltime leading the foundation.

The eight-member staff includes former researchers from Roche Holding AG (ROG) and Pfizer.

While Arya has a mild form of SMA, she has gotten weaker. She has trouble lifting her arms above her head and needs fulltime nursing. Every cold is a threat because her frail lung muscles put her at risk for pneumonia.

“I don’t think there is a budget on your daughter’s life,” Singh says. “As long as there is a chance of doing something and we have the ability to do it, we will do it.”

‘In Tears’

Singh, who won’t disclose his compensation, says his fund returned 60 percent in the six-and-a-half years since he started it on Feb. 1, 2005. That’s more than double the Standard & Poor’s 500 Index’s 25 percent return during the period.

Arya, the oldest of Singh and Eng’s three children, was born in March 2000 and developed normally at first. She was slow to walk, however, taking her first wobbly steps at 15 months. Within months, she began regressing. A doctor friend saw Arya’s stiff gait at a party in August 2001 and told them to get it checked out right away.

Eng had become pregnant again, and two days before her delivery date, she got an abrupt call from the neurologist confirming the worst about Arya.

“Loren called me in tears,” Singh remembers. “I was saying: ‘What does it mean? What does it mean?’ She said the doctor didn’t say anything. She has SMA. That’s it.” Singh and Eng spent the next days in a frantic race to figure out the prognosis — and to discover whether their second child, Kiran, also had SMA. He didn’t.

‘Untreatable, Incurable, Fatal’

“When we found out about it, we were told it was untreatable, incurable and fatal,” Singh says.

De Vivo, the Columbia University neurologist, met the couple and explained that children like Arya have defects in or are missing a gene called SMN, discovered only in 1995. It directs cells to make a protein necessary for neurons that control muscles.

He introduced them to Columbia colleague Thomas Jessell, a motor neuron biology expert. They also met Gerald Fischbach, a neuroscientist and then dean of Columbia’s health sciences and medicine faculty. All three became key advisers to the SMA Foundation.

“I met them and decided that SMA was a perfect disorder to mount a major attack on,” says Fischbach, who’s now scientific director for the Simons Foundation Autism Research Initiative. “The science was ripe.”

‘Truly Solve It’

At first Singh and Eng had planned to back existing charities, such as Families of Spinal Muscular Atrophy. They gave $750,000 in May 2002 to fund a clinic at Columbia. In 2006, they agreed to give as much as $15 million to help fund a motor neuron research center at the university.

The more they learned, the more they became convinced that, unlike most neurological diseases, SMA might be conquered.

“What struck us as different about SMA was that there really seemed to be a chance to truly solve it — and perhaps even in a time frame that could really help Arya,” Singh says.

A quirk in the genetics of SMA increased their hope. In many inherited diseases, a crucial gene is missing or defective and the protein it makes is absent or doesn’t work. In SMA, the body has a backup gene that produces small amounts of the SMN protein. That’s why children with the disease live at all.

By the time Singh and Eng became involved, an idea with potential to help SMA sufferers was already being discussed in the medical literature: If someone could find a chemical that could safely boost the availability of the backup protein, that discovery could form the basis of a drug. Yet as far as they could tell, no large drug or biotech company was focused on SMA.

‘Terrible Gap’

“You had this terrible gap,” Singh says. “There was no one saying, let us take these interesting discoveries and come up with something that could be a drug.”

The couple started the foundation in 2003. Equipped with PowerPoint presentations that showed why SMA was a lower research risk than most genetic diseases that could yield a drug with $1 billion in annual sales, they approached more than a dozen companies. It was a hard sell.

At the American Academy of Neurology conference in 2004, only three of seven biotech companies they invited showed up.

“There was never an outright no,” Eng says. Instead, “polite conversations went nowhere or calls were not returned.”

To her, it seemed drugmakers were focused on heart disease, cancer or diabetes and their significant commercial markets. The NIH alone spends $5.8 billion a year on cancer research.

‘A Buzz’

Singh and Eng started paying small biotech companies to screen for chemicals that might increase the supply of the SMN protein. They, along with other SMA charities, also funded Adrian Krainer, a researcher at Cold Spring Harbor Laboratory on Long Island in New York. He was working on a technology that had shown some promise, even though the foundation’s scientific advisers said the approach was a long shot.

“There was a buzz; there was this new couple, they are very wealthy, people thought they were in a position to make a difference,” says Krainer, who met Arya in 2002 when she could still walk.

For the next few years, the foundation backed research testing dozens of existing drugs to see if any of them increased the SMN protein. The scientific advisers got together in 2008 for a meeting at the Ritz-Carlton hotel in Half Moon Bay, California.

“It was the most-depressing meeting ever,” Eng recalls. “It was clear we had nothing.”

‘Huge Implications’

By then, Arya was in a wheelchair. At this point, the SMA Foundation had captivated Novartis. In 2002, the company had appointed Fishman, a scientist and former Harvard Medical School professor, to direct research operations.

He says one idea was that success in treating rare genetic diseases might pave the way for dealing with more-common ones. Columbia’s Jessell and Fischbach pitched him on SMA in 2005.

“It seemed tractable from a scientific point of view, with potentially huge implications on health,” Fishman says. “Others weren’t working on it, which is another good reason to do it.”

Still, it wasn’t until November 2007 that Novartis began its effort. It started with neurobiologist Rajeev Sivasankaran and a few assistants. Sivasankaran, 41, designed a quick way to test the more than 1 million compounds in Novartis’s collection of chemicals to see if any had potential for SMA. A compound with some modest effect could become a starting point for a safe and effective medicine.

‘Full-Court Press’

Novartis was lucky. By December 2009, the researchers had found a drug that improved motor function in mice with SMA.

“That got the whole group excited,” Sivasankaran says. The SMA Foundation and Novartis scientists get together every three months to review progress. At a June 1 meeting, researchers from the foundation, Novartis, Columbia and Harvard crowded into a conference room to hear the latest results.

“It is a full-court press,” Fishman says. “We are pushing as hard as we can.”

Still, Novartis human trials are two years off at best, Fishman says.

Meantime, Repligen Corp. (RGEN), a Waltham, Massachusetts-based biotechnology company, in July began an initial safety test of its SMA drug on people. It licensed this drug from the charity Families of SMA, based in Elk Grove Village, Illinois.

More Efforts

Singh’s foundation is closing in with two more efforts. PTC Therapeutics last year found compounds that boost the life span of mice with the disease. The company could begin human trials in late 2012, Chief Executive Officer Stuart Peltz says.

“It is absolutely incredible,” he says. Mice that would otherwise barely be able to move look normal with PTC’s drug, he says.

Singh and Eng say they’re particularly excited by Isis Pharmaceuticals’ progress, based on work by Krainer at Cold Spring Harbor. Isis published data in March showing that its drug could boost motor neuron levels — and survival — in mice with SMA. The medicine, which is injected into spaces around the spine, corrects the defect that causes the backup gene to produce too little protein.

“I have been doing drug development half of my life,” says Roy Vagelos, former Merck & Co. CEO, who has followed the SMA Foundation’s research. “This will be the first time if it works that a family had gotten behind a problem, a genetic defect in their own family, and come up with a solution.”

Arya is very aware of her illness and the battles to conquer it, even though she doesn’t like to talk about it, Singh says. She often asks her parents what her adult life will be like and why she has to be sick.

“Trying to understand what this all means is a big deal now,” Singh says.

Arya’s Homework

For a homework assignment last year on Egyptian mythology, Arya imagined a goddess of illness.

“She thinks of cures for sicknesses and puts hints for these cures in people’s minds,” Arya wrote. “She has a puppy face, puppy paws, human body and is always thinking of cures.” Eng sent a copy of her daughter’s essay to Novartis’s Fishman.

“It hits you right where you live,” he says. “That kind of innocent gratitude is the most wonderful reward you can get.”

To contact the reporters responsible for this story: Robert Langreth in New York at rlangreth@bloomberg.net; Alex Nussbaum in New York anussbaum1@bloomberg.net.

To contact the editor responsible for this story: Michael Waldholz at mwaldholz@bloomberg.net

The standards, which also guarantee free coverage of other preventive services for women, follow recommendations from the National Academy of Sciences and grew out of the new health care law.

“These historic guidelines are based on science and existing literature and will help ensure women get the preventive health benefits they need,” said Kathleen Sebelius, the secretary of health and human services.

The requirements apply to insurance in years starting on or after Aug. 1, 2012. They take effect in January 2013 for insurance plans that operate on the basis of a calendar year.

Supporters of the new requirement said it would go a long way toward removing cost as a barrier to birth control, a longtime goal of advocates for women’s rights and experts on women’s health. But the requirement does not immediately help women who have no health insurance.

It is sure to reignite debate over the federal role in health care at a time when Republicans in Congress are trying to repeal the health care law signed last year by President Obama.

A major goal of the law is to increase the use of preventive services like mammograms, colonoscopies, blood pressure checks and childhood immunizations. The law generally bans co-payments, deductibles and other charges for preventive services recommended by expert professional organizations. The law directed federal health officials to pay attention to the health needs of women in particular when listing preventive services that must be covered.

The new standards require coverage of the full range of contraceptive methods approved by the Food and Drug Administration, as well as sterilization procedures. Among the drugs and devices that must be covered are emergency contraceptives including pills known as ella and Plan B.

Senator Richard Blumenthal, Democrat of Connecticut, said, “These guidelines will save countless dollars and lives, and send a hugely powerful message about the importance of women’s preventive health care.”

Representative Lois Capps, Democrat of California, also praised the requirements, saying they would “ensure that women have increased access to the services they need to be healthy.”

The United States Conference of Catholic Bishops and some conservative groups, including the Family Research Council, have strenuously opposed any requirement for coverage of contraceptives.

Health plans offered by certain religious employers would be exempt from the requirement to cover contraceptive services. This provision is similar to the exemption for churches found in many of the states that already require coverage of contraception, federal health officials said.

Researchers have found that people who have coverage of preventive services, under Medicare or private insurance, use them much less than recommended. Federal officials said they would try to promote their use by publicizing the fact that wider, cost-free coverage is now available.

The National Academy of Sciences said the Obama administration had told its experts not to consider “the cost-effectiveness of screenings or services” in deciding which ones to recommend. Insurers expressed concern that coverage for some of the newly required preventive services could be costly.

Under the federal rules governing preventive services, insurers can use “reasonable medical management techniques” to control costs and promote the efficient delivery of care. The administration said Monday, for example, that an insurer could charge co-payments for brand-name drugs if a lower-cost generic version was available and was just as safe and effective.

In addition to contraceptive services for women, the government will require health plans to cover screening to detect domestic violence; screening for H.I.V., the virus that causes AIDS; and counseling and equipment to promote breast-feeding, including breast pumps.

Other preventive services that must be covered, without co-payments, include screening for gestational diabetes in pregnant women; DNA testing for the human papillomavirus as part of cervical cancer screening; and annual preventive-care visits. Such visits could include prenatal care and preconception care, to make sure women are healthy when they become pregnant.

In a report commissioned by the Obama administration, the academy’s Institute of Medicine said free contraceptive coverage was justified because nearly half of all pregnancies in the United States were unintended, and about 40 percent of unintended pregnancies ended in abortion. Thus, it said, greater use of contraception will reduce the rates of unintended pregnancy, teenage pregnancy and abortion.

Certain health plans that were in place on March 23, 2010, when Mr. Obama signed the health care law, may be able to avoid the requirement to cover preventive services for a while. But as time passes and insurers and employers modify their coverage, the number of plans entitled to such “grandfather status” is shrinking.

The announcement is not a complete surprise. Express Scripts has been looking to buy for some time. In 2007 it tried and failed to win CareMark Rx. With the $29 billion purchase of Medco, Express Scripts is set to become the clear leader in the PBM business, managing the cost of drugs for employers’ health-insurance schemes and pushing consumers to choose cheaper medicine. The deal also comes at an opportune time for Medco. The past three months have brought it grim news, as it lost contracts with the Federal Employee Health Benefits plan, the California Public Employees’ Retirement System and (announced this morning) UnitedHealth, an insurer.

The deal is not guaranteed: antitrust regulators will study it closely. George Paz, Express Scripts’ chief executive, who will lead the combined companies, issued a statement to placate anxious senators: “The merger with Medco will accelerate our efforts to create greater efficiencies in the health-care system and better protect American families from the rising costs of prescription medicine while improving health outcomes.” A merger does not a magician make. But if the deal is completed, the company will indeed be in an enviable position.

Ageing and fattening

The merged group will have the heft to win low prices from drugmakers already weakened by generic competitors. Perhaps more important, it will be as well placed as anyone to deal with the industry’s two biggest challenges: the ever expanding use of medicine, as Americans age and fatten, and the rise of expensive specialty drugs. Already, Express Scripts is forcefully trying to manage consumers’ use of medicines. Your correspondent recently met Steve Miller, the company’s chief medical officer. He buzzed about applying behavioural economics to nudge consumers to buy cheaper drugs, purchase from less expensive mail-order pharmacies and use the drugs themselves properly. Last year Express Scripts even opened a lab to study (in real time) which medicines patients take, whether they use drugs as prescribed and whether the drugs make them healthier.

Express Scripts is also working to manage the rise of specialty medicines, which are advanced biotech drugs. Drugmakers are pouring money into the research of targeted, expensive medicines. Already, spending on specialty drugs accounted for 70% of the rise in drug costs last year, according to Medco. Express Scripts was the first PBM to launch a program to manage spending on this type of treatment. It may yet introduce a similar system for oncology drugs, which are among the most expensive, most controversial treatments. “Companies like ours,” said Mr Paz in his statement, “have a responsibility to provide the leadership and resources required to drive out waste in health care and provide the best care in the world.” Hercules himself would have been stymied by that task. But it will be interesting to watch Express Scripts tackle it.