The doctors are seeking a declaration by the court that the company's alleged use of shell business structures to retain de facto ownership of ER staffing groups is illegal.
If Envision Healthcare files for bankruptcy, a group of emergency room doctors would seek permission to continue their federal lawsuit that claims the private equity-backed company is violating California's ban on corporate control of medical practices.
"I anticipate that we would ask the bankruptcy judge to let our case proceed," said David Millstein, an attorney representing the Milwaukee-based American Academy of Emergency Medicine Physician Group. "Among other things, Envision's practices violate the law, are continuing, and need to be addressed."
Still, the future of the lawsuit is uncertain since it's unclear how a judge might rule.
On May 9, The Wall Street Journal reported that Envision planned to file for Chapter 11 bankruptcy protection, possibly as early as this weekend. That would allow the company, based in Nashville, Tennessee, to reduce its debt while reorganizing its business. The Journal said Envision failed to report quarterly financial results by a March 31 deadline and missed an interest payment in April.
Envision spokesperson Aliese Polk declined to comment.
The emergency doctors' lawsuit does not ask for monetary damages, so the Milwaukee group would presumably not have a financial claim against Envision. Instead, the doctors are seeking a declaration by the court that the company's alleged use of shell business structures to retain de facto ownership of ER staffing groups is illegal. A trial in San Francisco had been scheduled to start next January, but the date has been pushed back.
The doctors believe that a victory in their case would lead to a ban on that business strategy across California — not just in ERs run by Envision but also by TeamHealth, another private equity-owned medical staffing firm, and in other medical services the two companies provide, including anesthesiology, hospital-based medicine, and gynecology.
Many doctors, nurses, consumer advocates, and even some lawmakers, hope a legal victory would spur prosecutors and regulators in other states to take the issue of medical practices controlled by corporations more seriously.
Envision runs 467 emergency departments across the country and TeamHealth operates 511, according to Ivy Clinicians, a startup job search website for emergency physicians. Together, the two companies control more than 17% of emergency departments, the data shows.
Envision was acquired by the investment firm KKR in 2018 for $9.9 billion, making it the largest private equity deal in health care during that decade. The deal saddled Envision with about $7 billion in debt. Last September, analysts at S&P Global Ratings estimated that the company's debt was 29 times its earnings in 2022, a staggeringly high figure that raised alarms about its ability to pay its obligations.
At the same time, Envision's revenue picture has deteriorated. The federal No Surprises Act, which protects patients from unexpected bills sent by out-of-network providers, sapped a key source of revenue. The pandemic shrank patient volumes, and burnout among health care workers fueled staffing shortages that have jacked up labor costs. A fierce battle with insurance giant UnitedHealthcare over payments for patient care also hit Envision.
"The financial profile of the company is just not strong enough to manage the debt they have on the balance sheet, and I think that's really what the bottom line is," said David Peknay, a director at S&P Global Ratings.
More than 139,000 kidney patients sought treatment at dialysis clinics around the state last year, a rise of about 46 percent from about 95,000 eight years earlier.
The number of Californians who are getting care at dialysis centers has jumped in recent years — but not because kidney disease is more prevalent.
The reason is that people are living longer with end-stage renal disease, said Anjay Rastogi, a professor of nephrology at UCLA’s David Geffen School of Medicine. The number of new cases has generally leveled off in recent years, Rastogi said.
“The same number of patients are being put on dialysis, but they stay on dialysis,” he said.
More than 139,000 kidney patients sought treatment at dialysis clinics around the state last year, a rise of about 46 percent from about 95,000 eight years earlier, according to data from the Office of Statewide Health Planning and Development (OSHPD).
Rastogi said dialysis patients are living longer because treatment of medical conditions that are frequently associated with kidney failure, such as cardiovascular disease and infections, has improved.
“Previously, there was very high mortality of patients on dialysis,” said Rastogi. In a way, he said, the higher number of dialysis patients “shows that we do a better job,” of managing them.
The number of stand-alone clinics in California where patients receive dialysis has also increased over the past eight years, from 420 in 2009 to 543 last year.
The state’s dialysis industry is largely controlled by two for-profit corporations: Denver-based DaVita Kidney Care and Germany’s Fresenius Medical Care, which together own nearly three-quarters of the clinics in California. As the demand for dialysis has grown around the country, both companies have expanded by acquiring smaller dialysis providers.
Dialysis is on the radar screens of state lawmakers — and organized labor — this year. A California bill that will be considered by the legislature this month would require minimum staff-to-patient ratios at dialysis centers, as well as more time between patients for staff to prepare, and regular inspections.
The labor union behind the legislation, Service Employees International Union-United Healthcare Workers West (SEIU-UHW), says the rule would protect the safety of patients.
The union has also co-sponsored a state bill that would require dialysis centers to spend at least 85 percent of their revenue primarily on direct patient care. If the clinics didn’t meet that spending threshold, they would be required to issue refunds to non-government insurers.
SEIU-UHW says it intends to use the November 2018 ballot as a backup plan for the two dialysis bills. If the staffing ratio bill does not become law, the union hopes to advance an initiative for the ballot that incorporates both bills. If the staffing ratio bill is signed into law, the union plans to put a more narrowly focused proposition on the ballot, asking voters to cap what dialysis centers spend on items not related to patient care.
Dev GnanaDev, MD, struck a controversial business deal after the board decided to reinstate the license of a doctor who engaged in sexual misconduct with patients.
The president of the Medical Board of California is facing questions from critics about a business deal he struck after the board decided to reinstate the license of a doctor who engaged in sexual misconduct with patients.
In 2012, Dr. Dev GnanaDev, new to the board and not yet president, was part of a disciplinary panel that voted to reinstate Dr. Hari Reddy. The Victorville family physician had lost his license in 2003 after the board found he had engaged in sexual misconduct with four female patients, including a minor.
About a year after the 2012 vote, GnanaDev sought a donation from one of Reddy's relatives to start a new medical school in California's Inland Empire, GnanaDev confirmed. Dr. Prem Reddy, Reddy's brother-in-law, agreed to put $40 million into the nonprofit venture.
Prem Reddy is founder and CEO of Prime Healthcare, which operates 44 hospitals in 14 states, including the medical center where Hari Reddy now works.
GnanaDev declined to say how he voted in Hari Reddy's case, citing board policy. The medical board said the vote tally and how each board member voted is not public information.
The sequence of events has led a pair of vocal board critics, Marian Hollingsworth and Eric Andrist, to question whether there was a relationship between GnanaDev's vote and the subsequent medical school donation.
Hollingsworth and Andrist called for an investigation Monday at legislative oversight hearing to review the performance of the medical board. In a report they submitted to legislators, which was broadly critical of the board, they detailed the Hari Reddy case and demanded the board be transparent about the vote.
"This smacks of conflict of interest," Hollingsworth told the Joint Sunset Review Oversight Hearing, which is held every four years. "Please help reorganize this agency so that exceptions and conflicts do not get in the way of protecting California consumers from truly dangerous doctors."
State Sen. Jerry Hill (D-San Mateo) called the events, as described to him by a reporter, "alarming." Hill, who is chairman of the Senate committee that took part in the oversight hearing, was contacted before the hearing and had been previously unaware of the circumstances.
"It certainly is worth looking at to see if there is a conflict that presented itself," Hill said, adding that the board's voting information should be public and "readily accessible."
GnanaDev and Prem Reddy both deny any connection between Hari Reddy's case and the medical school.
"I don't know why someone thinks there was a conflict here. It's just mind-boggling," GnanaDev said in an interview.
At the time of the 2012 vote on Hari Reddy's license, GnanaDev said he wasn't even considering starting a medical school yet and knew Prem Reddy only in passing. He did know Hari Reddy, because Reddy had been a resident at Arrowhead Regional Medical Center in San Bernardino County, where GnanaDev was chief of surgery. But he said he followed protocol and disclosed that to the board before the vote.
GnanaDev said that when he later decided to start the school, it was out of a desire to contribute to an underserved community. He filed paperwork to incorporate the school in August 2012. He asked several wealthy donors for funding but came up short. "Then someone mentioned that Prem Reddy was thinking of starting a medical school, and why don't you guys get together?"
GnanaDev said he approached Reddy for a donation in the spring of 2013. During his meetings with Prem Reddy, GnanaDev said the subject of Hari Reddy's medical license never came up.
Elizabeth Nikels, a spokeswoman for Prime Healthcare and Prem Reddy, said any implication that the medical school had anything to do with Hari Reddy's medical license was "outrageous." She added that Prem Reddy was not aware of GnanaDev's role on the medical board until discussions for the medical school were well underway.
"Dr. Reddy's selfless commitment to education and health care is the only reason for his sizable endowment to establish the medical school in San Bernardino County," she said. "Any suggestions to the contrary are completely untrue and unfounded."
Hari Reddy did not respond to multiple requests for comment by telephone and email.
Hari Reddy has long worked for facilities run by his brother-in law's company. At the time the sexual misconduct took place, he was working at the Desert Valley Medical Group, a Prime Healthcare facility. After his license was revoked, he worked for Desert Valley Medical Group as a clerk and in other jobs that did not involve patient care, according to the medical board. And he is currently a hospitalist, a doctor who cares for hospitalized patients, at Desert Valley Hospital. (Hari Reddy is married to Prem Reddy's sister; the couple happens to have same surname.)
The case against Hari Reddy is detailed in board documents. According to the findings of administrative law judge in 2003, Hari Reddy repeatedly called an 18-year-old patient at home and made sexually explicit comments; he attempted to kiss a 16-year-old patient; he "cupped each of [a third patient's] breasts with his hand"; and in the case of a fourth patient, he placed a stethoscope on her nipple, leaned against her and asked seductively, "Is there anything else I can do for you?"
Hari Reddy's license was revoked by the medical board in 2003. After seeking unsuccessfully to have it reinstated in 2008, Reddy asked again three years later. This time, an administrative law judge concluded that it was safe for him to practice, provided he be closely supervised for three years.
In February 2012, the case came before the medical board's five-member disciplinary panel, which makes final decisions on behalf of the board. It was GnanaDev's first time on the panel, as he had just been appointed to the board by Gov. Jerry Brown. The panel voted to reinstate Hari Reddy's license, and increased the time of his administrative probation to seven years.
Although the board would not say how GnanaDev voted, he did not recuse himself. The panel required a quorum of four doctors, and with the absence of the panel's usual fifth member, everyone had to participate for a vote to occur.
Andrist, the board critic, said he was bothered not just by the lack of transparency in the vote and the potential conflict of interest but the substance of the decision itself. "That doctor was dangerous…What mother would want to take her daughter to see him?"
Referring to everything that troubled him about the case, he said: "If this is happening with one doctor, who's to say it isn't happening with other doctors?"
As the country plunged into recession between 2008 and 2012, something unexpected happened: An earlier small decline in the number of new cancer cases became a much bigger one.
The authors of a study published last month by the Cancer Prevention Institute of California believe they have a plausible explanation for the trend: People who lost their incomes or health insurance during that time were less likely to get routine screenings or visit the doctor.
The researchers' analysis of data from the California Cancer Registry, published in the journal Cancer Causes & Control, shows that in the state's 30 largest counties, cancer diagnosis rates during the recession and subsequent recovery dropped by 3.3 percent annually for males and 1.4 percent for females — much faster than the average decline of 0.7 percent for males and 0.5 percent for females documented over the previous decade.
The largest drops were seen in the rates for prostate, lung and colorectal cancers. The declining rates of most cancers were especially noteworthy given the growing population of aging Baby Boomers, since cancer is more common later in life.
If people did delay getting screened for early-stage cancers during the recession, "might we then start seeing an uptick of late-stage cancers?" wondered Scarlett Lin Gomez, the study's lead author and a researcher with the Cancer Prevention Institute of California.
Dr. Jennifer Hastings, who was not involved with the study, expects that to be the case. She is director of the transgender health care program for Planned Parenthood Mar Monte, which serves 29 counties in California and 13 in Nevada. The clinics screen for breast, cervical and colon cancer.
Hastings said doctors at her clinics started seeing more patients with advanced cancers and other serious illnesses starting in 2014, as previously uninsured people obtained coverage under the Affordable Care Act and began seeking care.
"There was great surprise about how sick people were," she said. With the fate of the Affordable Care Act now in limbo, Hastings said she's very concerned about those people losing coverage.
Michelle Quiogue, a family doctor with Kaiser Permanente in Bakersfield and president-elect of the California Academy of Family Physicians, said she frequently sees patients make medical decisions based on the cost of care.
"Even when people have insurance, they will delay care if the cost share is too high," Quiogue said.
During the recession, a number of her patients lost their job-based health insurance and stopped coming in for regular check-ups, she said. They didn't return until they gained insurance under the Affordable Care Act.
Lisa Schlager, vice president of community affairs and public policy for Facing Our Risk of Cancer Empowered, a Tampa, Fla.-based nonprofit advocacy group focusing on hereditary ovarian and breast cancers, said it's common for people to wait to seek treatment because they don't have insurance or don't have the money to pay medical bills or high deductibles.
Schlager recalled a woman who was between jobs when she felt a lump in her breast. The woman decided to wait until she found a new job — then waited a few more months before her employer-sponsored insurance kicked in. By the time she went in for an exam, her cancer had advanced. She died of it.
"It's sad, but it's a reality in our country that money a lot of times drives the medical services that people receive or seek out," Schlager said.
However, the state of the economy is not the only factor that can explain the drop in cancer diagnoses during the recession.
Dennis Deapen, director of the Los Angeles County Cancer Surveillance Program and a professor at the University of Southern California's Keck School of Medicine, offered some alternative explanations for the declines in diagnoses of certain cancers, including prostate, lung and colorectal.
"It struck me that there's good reason that those particular cancers would have been declining over that period, regardless of economic factors," he said, noting that prostate cancer diagnosis rates, which dropped 6.3 percent annually during the study period, "have been plunging for years."
That's largely attributable to evolving guidelines for prostate cancer screening.
In 2008, the U.S. Preventive Services Task Force recommended against routine screening for prostate cancer among men over 75; in 2011, it recommended against the routine use of prostate-specific antigen screening in healthy men. Prior to that, Deapen said, prostate cancer was actually over-diagnosed.
Lung cancer diagnosis rates also have been dropping in recent years, at least partly due to a decrease in smoking, especially in California, he added. And colorectal cancer has declined because improved screening techniques have allowed for the removal of precancerous polyps.
Deapen said the diagnosis of some other cancers, including melanoma, is more likely to be influenced by economic factors. Melanoma often is discovered because a patient asks a doctor to check a mole, or the doctor independently notices it during a medical visit.
"If you've lost access, that doesn't happen," Deapen said. The incidence of melanoma flattened or showed slight declines during the recession years, compared with annual increases in the previous decade.
Deapen said he is interested to find out whether increased access to health care under the Affordable Care Act will have the opposite effect of the findings described in the study, allowing more people to get diagnosed — and treated — earlier.
He cited evidence that the ACA led to earlier diagnosis and saved lives. Without solid details about a replacement plan, he said he wasn't ready to comment on whether that trend might be reversed if the law is repealed.
A Kaiser Health News investigation shows that the system intended to help desperate patients is being manipulated by drugmakers to maximize profits and to protect niche markets for medicines already being taken by millions.
This article first appeared January 17, 2017 onCalifornia Healthline. It was produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.
More than 30 years ago, Congress overwhelmingly passed a landmark health bill aimed at motivating pharmaceutical companies to develop new drugs for people whose rare diseases had been ignored.
By the drugmakers' calculations, the markets for such diseases weren't big enough to bother with.
But lucrative financial incentives created by the Orphan Drug Act signed into law by President Ronald Reagan in 1983 succeeded far beyond anyone's expectations. More than 200 companies have brought almost 450 "orphan drugs" to market since the law took effect.
Yet a Kaiser Health News investigation shows that the system intended to help desperate patients is being manipulated by drugmakers to maximize profits and to protect niche markets for medicines already being taken by millions. The companies aren't breaking the law but they are using the Orphan Drug Act to their advantage in ways that its architects say they didn't foresee or intend. Today, many orphan medicines, originally developed to treat diseases affecting fewer than 200,000 people, come with astronomical price tags.
And many drugs that now have orphan status aren't entirely new. More than 70 were drugs first approved by the Food and Drug Administration for mass market use. These medicines, some with familiar brand names, were later approved as orphans. In each case, their manufacturers received millions of dollars in government incentives plus seven years of exclusive rights to treat that rare disease, or a monopoly.
Drugmakers of popular mass market drugs later sought and received orphan status for the cholesterol blockbuster Crestor, Abilify for psychiatric conditions, cancer drug Herceptin, and rheumatoid arthritis drug Humira, the best-selling medicine in the world.
More than 80 other orphans won FDA approval for more than one rare disease, and in some cases, multiple rare diseases. For each additional approval, the drugmaker qualified for a fresh batch of incentives. Botox, stocked in most dermatologists' offices, started out as a drug to treat painful muscle spasms of the eye and now has three orphan drug approvals. It's also approved as a mass market drug to treat a variety of ailments, including chronic migraines and wrinkles.
Altogether, KHN's investigation found that about a third of orphan approvals by the FDA since the program began have been either for repurposed mass market drugs or drugs that received multiple orphan approvals.
"What we are seeing is a system that was created with good intent being hijacked," said Bernard Munos, a former corporate strategy advisor at drug giant Eli Lilly and Co. who reviewed the KHN analysis of several FDA drug databases. It's "quite remarkable that it has gone on for so long."
And the proportion of new drugs approved as orphans has ballooned. In 2015, 21 orphan drugs were approved, accounting for 47 percent of all new medicines, up from just 29 percent in 2010; in 2016, nine more orphans won approval, 40 percent of the total.
When a drugmaker wins approval of a medicine for an orphan disease, the company gets seven years of exclusive rights to the marketplace, which means the FDA won't approve another version to treat that rare disease for seven years, even if the brand name company's patent has run out. The exclusivity is compensation for developing a drug designed for a small number of patients whose total sales weren't expected to be that profitable.
But the exclusivity is a potent pricing tool. Drugmakers can charge whatever they want by shielding their medicine from competition. The market exclusivity granted by the Orphan Drug Act can be a vital part of the protective shield that companies create. What's more, manufacturers can return to the FDA with the same drug again and again, each time testing the drug against a new rare disease.
Critics have assailed drugmakers in the past for gaming the orphan drug approval process. But the extent to which companies have been winning approval for drugs that aren't what advocates call "true orphans" hadn't been documented until the Kaiser Health News investigation.
Munos said he was "shocked" by the sheer number of mass market drugs being repurposed as well as those approved multiple times.
Even agency officials said they weren't aware of the scope of the issue. After reviewing KHN's findings for two weeks, Dr. Gayatri Rao director of the FDA's Office of Orphan Products Development said she "appreciated the work" and expressed interest in studying how often drug companies are "repurposing" a drug for a new rare disease, or taking "multiple bites of the apple."
"We are going to look into this," she said, adding that she could consider a regulatory change.
Rao pointed out that the "repurposing" of drugs does have scientific and patient benefits. For example, cancer drugs approved for one type of malignancy can be tested and approved for others. Gleevec, a drug that revolutionized the treatment of chronic myeloid leukemia, now has nine orphan approvals.
But in a 2015 commentary published in the American Journal of Clinical Oncology, Dr. Martin Makary at the Johns Hopkins University School of Medicine focused on cancer drugs including Gleevec, arguing that the drug was never meant to serve an orphan population. Instead, Makary and his team wrote, drugmakers purposely identify small patient populations to gain additional approvals — a process he described as "salami slicing."
"By salami slicing the disease into subgroups, it allows them to get the orphan drug approval with all the government benefits and even some of the subsidies," Makary said. The prices of such medications often rise because they have seven years without competition for a new set of patients, Makary added.
The FDA has taken a different view of repurposing.
"We always talked about how we permit the second bite of the apple, third bite of the apple, as one small way to incentivize repurposing," Rao said, noting that industry and patient groups have been pressing the FDA for even stronger incentives. "Now, all of sudden, it seems like, wow, this practice may be driving up prices."
Novartis, which owns Gleevec, said in an email statement that the company is advancing research and following the science to "bring the right treatments to the right patients based on unmet need, not the size of the patient population."
Two KHN reporters spent six months analyzing data and talking to lawmakers, patients, advocates, doctors and companies to understand how the FDA's orphan drug program has evolved amid a national uproar over soaring drug prices. President-elect Donald Trump vowed on the campaign trail to bring down prescription drug prices and during a Jan. 11 press conference said the drug industry is "getting away with murder."
The investigation examined how drugmakers use the law to their advantage — often with the guidance of former FDA officials — and have made the development of medicines that were once thought to be business backwaters into one of the pharmaceutical industry's hottest sectors.
Orphan drugs now account for seven of the 10 top-selling drugs of any kind, ranked by annual sales, according to EvaluatePharma.
"Orphans are wicked hot," said Dr. Tim Coté, a former FDA official who now runs a consulting firm that advises drugmakers on orphan drugs.
No one disputes that orphan drugs have helped or saved hundreds of thousands of patients suffering from debilitating or even fatal rare diseases. Exactly how many is difficult to estimate because the FDA doesn't track such information.
And drug industry officials say companies should be rewarded, not punished, for making those treatments possible and for pursuing new drugs that aren't always an economic success.
Research and development is "long, costly, risky," said Anne Pritchett, vice president, policy and research at industry lobbying group PhRMA. "When you look at cystic fibrosis it was 25 years to the development of an effective therapy … I think we would be concerned about anything that would undermine the current [orphan drug] incentives."
Former U.S. Rep. Henry Waxman, D-Calif., a champion of the 1983 Orphan Drug Act takes a different view.
"The Orphan Drug Act has been a great success because many people with diseases that affect very few people now have drugs available to them," Waxman said. "But it's been in some ways turned on its head when it becomes the basis of manipulating the system for the drug company to make much more money than they would in an open, competitive market."
Booming Business
On a late summer day, Tim Coté sat in a corner office of his Sandy Spring, Md., consulting firm, Coté Orphan. He leaned into his computer microphone to dispense insider knowledge about the orphan drug approval process on a webcast hosted by FDAnews, a trade news organization. Listeners paid about $300 a head, but Coté said he wasn't paid for doing it.
The FDA is more flexible in evaluating drugs for rare diseases, he said, explaining that "about half of them get through with just one pivotal clinical trial. Not so for common diseases." The FDA, citing a report from the National Organization for Rare Disorders, said about two-thirds of orphan drugs were approved with one adequate and well-controlled trial with supportive evidence. It typically requires two or three such trials to approve a mass market drug.
Coté also told the webinar audience that clinical trials for orphan drugs are usually smaller and the approval is a "different scientific and regulatory experience."
Coté knows his stuff. He was Rao's immediate predecessor as chief of the FDA's Office of Orphan Products Development. It's not unusual for government officials to leave FDA and other regulatory agencies and obtain jobs as consultants or industry executives.
Coté's website, headlined "The Inside Track," notes that he oversaw applications that led to the approval of at least 150 orphan drugs when he was at the FDA and that his firm is now the largest submitter of orphan drug applications.
"We write the entire application," the website for Coté's company notes, adding that his staff of 25 includes regulatory scientists with deep knowledge and experience in FDA's "unwritten rules" regarding orphan drugs.
Many of Coté's more than 300 clients are small biotech companies begun by researchers or even passionate parents who found investment backing. Parents Ilan and Annie Ganot, for example, started Solid Biosciences to find treatments and potentially a cure for their son with Duchenne muscular dystrophy.
Coté guides them through the regulatory process since most don't have the expertise. He can offer his expertise and develop an application that makes it easier for the FDA to designate and approve the drug.
"When you make the FDA smile, the value of your asset goes up. And that's how the game is played," he said in an interview, adding quickly, "It's really not a game because people's lives are what is in balance."
Coté and other ex-FDA officials play a vital role in helping drugmakers choose rare disease targets and get through the FDA approval process.
A small cottage industry has grown around the Orphan Drug Act. Dr. Marlene Haffner, who preceded Coté in the FDA's orphan office, started her own consulting firm, too, to advise small and large companies on orphan drug applications. A third company is Camargo Pharmaceutical Services, led by industry veterans and former FDA officials, which advises companies focused on repurposing drugs for orphan approval. The firm tries "to be in front of the FDA a lot — three to four times a month," said Jennifer King, Camargo's director of marketing. Fees for consulting on orphan drugs industry wide range from $5,000 to $100,000, depending upon what services are provided, Coté said.
Getting through the orphan approval process involves a series of steps.
First, drugs must be designated by the FDA as potential candidates for approval. A company has to demonstrate that its drug is a promising treatment for a disease that affects fewer than 200,000 patients. If the FDA agrees and makes the formal designation, financial incentives kick in, including a 50 percent tax break on research and development (R&D) and access to federal grants.
When drugs get orphan designation, companies often reap other financial rewards. Shares in publicly traded companies often rise on the news — sometimes soaring as high as 30 percent. That happens, in part, because orphans have a track record of being approved at much higher rates than drugs for common diseases.
The 50 percent R&D tax credit pays off, too. In 2012, one of the biggest orphan drug companies, BioMarin, received $32.6 million from a combination of federal and state of California tax credits. BioMarin spokeswoman Debra Charlesworth confirmed that the orphan credit made up the "vast majority" of that deferred tax benefit. She also noted that credit "has successfully fueled an industry that didn't previously exist" and led to more rare disease research.
Industry-wide, orphan drug tax credits cost the federal government $1.76 billion in fiscal 2016 — roughly what President Barack Obama asked Congress to spend to fight the Zika virus before a $1.1 billion expenditure was approved. And, because so many orphan drugs are under development, the U.S. could grant nearly $50 billion in tax credits from 2016 to 2025, estimates the Treasury Department.
There's a lot of creativity behind figuring out how to make a drug an orphan.
In Coté's webinar and in multiple interviews, he described many ways companies can win orphan status. They can test their drugs on children with adult diseases, such as schizophrenia, or find drugs for ailments like malaria that are uncommon in America.
"African sleeping sickness: horrible problem in Africa but not here, not in the U.S.," Coté told his webinar audience. "So a drug development effort that was aimed toward some of these tropical diseases can actually get all the benefits of the Orphan Drug Act."
Another popular strategy is to create "follow-on drugs" that represent incremental steps forward.
About 30 percent of Coté's clients are companies looking to improve upon some other orphan drug "which just made billions and billions," he said in an interview.
Repurposing an already approved drug is another strategy his firm promotes. In a video posted on his website in July, Coté explained the advantages for companies that can move directly into a clinical trial without much preparatory work because the drug's safety has already been demonstrated.
"All you gotta do is establish that the product can work in this new orphan indication," he said, adding tips on how to do it and still make money.
'That Is Not A True Orphan Drug'
Turning mass market drugs into orphans has been a familiar path for some of the most popular drugs ever discovered.
AbbVie's Humira is the best-selling drug in the world, and most of its sales are in the U.S. where revenue reached $7.6 billion through the third quarter of 2016 and $11.8 billion worldwide, according to the company's latest financial report.
Humira was approved by the FDA in late 2002 to treat millions of people who suffer from rheumatoid arthritis. Three years later, AbbVie asked the FDA to designate it as an orphan to treat juvenile rheumatoid arthritis, which they told the FDA affects between 30,000 and 50,000 Americans. That pediatric use was approved in 2008, and Humira subsequently was approved for four more rare diseases, including Crohn's and uveitis, an inflammatory disease affecting the eyes.
The ophthalmologic approval would extend the market exclusivity for Humira for that disease until 2023. When asked why AbbVie sought multiple orphan designations and approvals for Humira, the company declined to comment.
Peter Saltonstall, executive director of the National Organization for Rare Disorders, said that Humira is "not a true orphan drug." But, he said, the company has "the ability to go out and get orphan designation. That's the way the law reads right now … they can do whatever they want to do."
It is difficult to say exactly how or if orphan exclusivity affects the price of Humira, which is a complex biologic drug and also has been protected by numerous patents. The drug has long been AbbVie's top seller, accounting for 63 percent of its revenues, according to its most recent financial filing.
EvaluatePharma notes in its recent report that Humira, as well as a handful of other top drugs, receive less than 25 percent of their sales from orphan uses. Still, if Humira's orphan uses accounted for just 10 percent of annual sales, the revenue would surpass $1 billion.
By stacking up a series of orphan disease approvals, one seven-year exclusivity period leads into another, maximizing the length of a company's monopoly. Sigma-Tau Pharmaceuticals, for example, had some form of orphan exclusivity over its metabolic disorder drug for more than 20 years. The drug, Carnitor, received a second orphan approval four months before its first exclusivity was set to expire. And it won its third orphan approval, for an IV formulation of the drug, just one day before its second exclusivity period was set to expire in December of 1999.
"The sequence and timing of regulatory filings for Carnitor reflect the time required to conduct large controlled clinical trials, as well as evolving medical strategies and regulatory pathways pursued by different sponsors over many years," said GianFranco Fornasini, senior vice president of scientific affairs at Sigma-Tau.
The FDA's Rao said each new exclusivity period is disease-specific and once any seven-year period runs out, generics can come in. Gleevec, for example, won FDA approval to treat several kinds of rare cancer. All but one of its orphan exclusivity periods had expired by 2015, allowing two generics to enter the marketplace. But Gleevec still has exclusivity until 2020 to treat newly diagnosed Philadelphia chromosome-positive acute lymphoblastic leukemia in patients who are also on chemotherapy.
It's also true, Rao explained, that some of the drugs that go through the orphan process may not specifically treat a rare disease. For example, a very toxic cancer drug might may not work well in earlier stages because its risks outweigh the benefits. But the company may propose that it will help a smaller group of later-stage cancer patients and win orphan approval just for that group.
Former FDA orphan drug director Haffner said her FDA office worked on rules defining how companies could legitimately pursue approval for a small group of patients with a specific unmet medical need.
"People have played games with the Orphan Drug Act since it was passed," said Haffner, who first took a job with drugmaker Amgen after leaving the FDA and then became an independent consultant. "It's the American way, I don't mean that in a nasty way. But we take advantage of what's in front of us."
In 2013, the FDA clarified the Orphan Drug Act's regulations and said it wanted to avoid the possibility that some companies could "potentially 'game' approvals by seeking successive narrow approvals of a drug."
In reality, Rao said, the regulations did not really change "much of what our practice was." The agency wanted to address what Rao said were "common misconceptions" and frequently asked questions so officials changed wording in the regulations to better define exactly what could be considered an orphan drug.
Breaking down larger, broader diseases into smaller groups is still allowed under certain conditions and companies can still win multiple orphan approvals for a single drug — even if the total population served rises above the 200,000 mark.
Amgen Inc.'s Repatha won marketing approval and exclusive rights in 2015 for the orphan disease homozygous familial hypercholesterolemia, which affects a population of about 300 people in the U.S. On the very same day, the drug was approved as a mass market drug to treat up to 11 million people with uncontrolled levels of LDL cholesterol, said Amgen spokeswoman Kristen Davis.
Dr. Steven Nissen of the Cleveland Clinic, who ran a broader trial on Repatha, said, "It's certainly not considered by any of us to be an orphan drug."
Safeguarding The 'Prize'
Considering the long history of what's happened, Tim Coté acknowledges that there are "some loopholes" in the Orphan Drug Act. Perhaps 3 percent or less of approved orphans were not in the "spirit" of the law, he said.
But Coté, rare disease advocates, patients and people in the drug industry expressed fear that changing the Orphan Drug Act or questioning its success would hurt the development of drugs for rare patients.
Former U.S. Rep. Jim Greenwood, R-Pa., now president of the Biotechnology Innovation Organization, an industry trade group, said that concerns about high prices for orphan drugs aren't justified. The incentives, he said, should not be altered because rare diseases are "tragically killing and brutalizing mostly children."
Greenwood seemed unaware that dozens of orphan approvals stemmed from the repurposing of mass market drugs, like Humira or Enbrel, another drug developed first for rheumatoid arthritis. Still, he said, "I would argue that the risk of losing incentives in the system far outweighs the benefit of trying to save a few pennies on the health care dollar."
It's a sentiment that Coté and other advocates share. While talking about the $311,000 annual price tag for cystic fibrosis drug Kalydeco, Coté said any parent whose child has the disease would be a big fan of the drug.
"The price point is justified because actually it has a dramatic effect on the children. Dead children … people are willing to pay a lot to prevent that," Coté said. "And that's a real good thing that we have this drug. OK?"
The first drug to specifically target the underlying biochemical defect of cystic fibrosis, Kalydeco is approved to treat a subset of patients who have specific mutations in their genes. Development of the drug was financed by the Cystic Fibrosis Foundation, which sold its rights to sales royalties from Kalydeco and other cystic fibrosis drugs for $3.3 billion in 2014.
Others, including Henry Waxman, are far more critical and have tried to do something about it over the years. Waxman proposed multiple bills to rein in corporate profits by amending the orphan drug law that he sponsored, but none succeeded.
The FDA has also tried but failed, to keep corporations in check.
In 2012, drugmaker Depomed Inc. filed suit against the FDA for refusing to give its drug Gralise seven years of market exclusivity as a treatment for pain related to shingles.
Rao said the agency wanted to see proof that Gralise was clinically superior to other drugs, noting there "were a bunch of other generics on the market" with different formulations and dosing requirements. Grasile's active ingredient, gabapentin, is the same one as in Pfizer's mass market blockbuster Neurontin, which is also approved for treatment of shingles pain.
The FDA approved Gralise but denied seven years of exclusivity.
In response, the drugmaker sued the agency and won its case, arguing that according to the law, they didn't have to prove their drug was clinically superior to gain the monopoly.
Today, the drug is one of Depomed's top products with sales of $81 million in 2015. And, in a recent proxy statement, Depomed listed "protecting Gralise exclusivity" as a corporate objective under the category of "enhance and protect future cash flow." Its orphan exclusivity ends in 2018. Depomed spokesman Christopher Keenan said Gralise wanted patent exclusivity to block competition. But, Keenan said, "Had the patent effort failed on all fronts, the Orphan Drug Designation would have been very important."
After reviewing KHN's analysis, Rao said she wants to better understand why drugmakers are applying for multiple approvals and has asked for a case-by-case review of all orphan designations granted in 2010 and 2015. She said the agency lacks the resources to run an analysis of the entire orphan drug database.
"Our goal is to try to get it right," she said. "There are over 7,000 rare diseases, likely more, the vast majority of which have nothing … I want to ensure that we continue to keep our eye on that prize."
Contributors: John Hillkirk, Scott Hensley at NPR, Diane Webber, Marilyn Thompson (editors); Elizabeth Lucas (data editing); Joe Neel at NPR (radio editing)
Interactives, video and presentation: Lydia Zuraw, Emily Kopp, Meredith Rizzo at NPR (digital presentation); Francis Ying (videos, motion graphic); Heidi de Marco (videos, photos, audio); Alley Interactive (database lookup)
Covered California's executive director Peter Lee called an emergency meeting with his employees to remind them that the Affordable Care Act remains in place. He says he hopes to work with the new administration to craft a sensible replacement for Obamacare.
Before Election Day, California's insurance exchange was slated to meet soon to map out its "long-term vision" for health reform.
That conversation has suddenly shifted to whether the largest state-run marketplace has much of a long-term future itself.
President-elect Donald Trump and Republican Congressional leaders have vowed to quickly repeal the health law that keeps federal premium subsidies flowing to California. And those subsidies will largely determine whether the Covered California exchange continues to exist or whether its mission is significantly scaled back.
The dramatic turn of events prompted Covered California's executive director Peter Lee to switch his focus to the near-term. On Wednesday, he called an emergency meeting with his employees to remind them that the Affordable Care Act remains in place, and that their top priority is to help consumers sign up during the ongoing open enrollment period.
"We are very mindful this is a new reality, but the key message is we are open for business," Lee said in an interview Thursday with California Healthline. "The subsidies are in place. The penalty is in place. The reasons why health insurance is a good thing haven't changed."
Lee said he doesn't expect post-election uncertainty to hamper open enrollment, which ends Jan. 31. But Lee said the California exchange may adjust its advertising in January if there's evidence of widespread confusion or sign-ups start to slip.
Some consumer groups and Democrats are gearing up to fight the repeal of President Barack Obama's signature law, saying it would be irresponsible to take coverage away from more than 20 million Americans and gut important consumer protections like the prohibition on denying coverage for preexisting conditions.
Lee struck a more collaborative tone, saying he hoped to work with the Trump Administration and Republican leaders in Congress to craft a sensible replacement for Obamacare. He said Covered California, as the nation's largest and most successful state-run exchange, offers ample evidence of how to build a competitive insurance market that puts consumers first.
"We hope to be an important part of the national dialogue for changing and building on what has worked. The premium subsidies are a critically important component of making health care more accessible," Lee said. "It is going to be incumbent on policymakers to get beyond the Obamacare labels and look at the underlying policies that make sense for consumers."
Health-policy experts expect Congress to allow for a lengthy transition period that keeps the current framework and policies in place while a replacement plan is worked on.
Katherine Hempstead, who directs the Robert Wood Johnson Foundation's work on health insurance, said Republican leaders appear committed to ensuring access to coverage in some form but she's not sure it will rely on government-run exchanges like Covered California.
"You could have a well-regulated individual market and not necessarily have an exchange," Hempstead said. After repeal, "how comprehensive will the coverage be? Are some plans subsidized? There are a ton of complicated questions."
The incoming Trump administration on Thursday issued a brief statement on health reform that was short on details. It made no mention of exchanges and focused instead on traditional Republican ideas of enabling people to purchase insurance across state lines and establishing high-risk pools for sicker consumers who are expensive to insure.
"The Administration's goal will be to create a patient-centered healthcare system that promotes choice, quality and affordability," the statement said.
Consumer advocates said Trump's approach would mark a major setback for millions of Californians.
The Trump plan "is explicit in both repealing federal patient protections against health plan abuses, but also pre-empting state consumer protections," said Anthony Wright, executive director of Health Access California, a consumer advocacy group.
Under the Affordable Care Act, California went beyond what other exchanges did and chose to actively negotiate with insurers over rates and didn't allow every company to sell in its marketplace. It also simplified the shopping process for consumers by requiring insurers to have standard copays, deductibles and other benefits for each level of coverage.
Those moves pushed health insurers to compete more directly on price. Covered California's rates are going up 13.2 percent, on average, next year. Still, that's better than the 22 percent average rate hike in exchanges nationwide.
Covered California is an independent agency created under state law, but its core function is running a federally subsidized insurance market.
About 90 percent of Covered California's 1.4 million enrollees receive federal premium subsidies based on their income. The worst-case scenario for consumers and the exchange is a full-scale elimination of that funding, with no replacement.
Without subsidies, health insurers would have little reason to participate in Covered California and abide by its rules because they could sell directly to consumers outside the exchange.
But Republicans in Congress have talked about offering similar tax credits to individuals based on their age, not their income. Consumers could use those tax credits to buy coverage, but the program may not be as generous as Obamacare.
In May, Covered California examined what reduced subsidies may mean for enrollment. As part of a broader review of future enrollment trends, an outside consulting firm analyzed the impact of capping premium subsidies at 250 percent of the federal poverty level. That would be about $60,000 for a family of four. Subsidies end now at 400 percent of poverty, or $97,200 for a family of four.
About 300,000 people, or 20 percent of enrollment, would lose subsidies at that lower level of financial assistance, according to consultants PwC. Some of those people would re-enroll in the private insurance market on their own, but overall enrollment in Covered California could drop by up to 260,000 people.
About 1.2 million Californians would lose subsidies if they are abolished and not replaced, according to the report.
Elimination of the individual mandate to purchase health insurance long unpopular among many Republicans — would also diminish enrollment. The consultants said that dropping the mandate would reduce the incentive to get coverage and lead to a "steep fall in enrollment of about 400,000" in Covered California.
Despite all this upheaval, Lee said Covered California's board will proceed with its scheduled discussion next week with national experts and state leaders on a long-term vision for reforming the health system and improving patient care.
"The question today is how we adapt to a new administration," he said. "We are planning for the future."
Policymakers could choose to implement a public option now as a backstop against a potential future scenario in which private insurers scaled back their California plan offerings.
The "public option," which stoked fierce debate in the run-up to the Affordable Care Act, is making a comeback — at least among Democratic politicians.
The proposal to create a government-funded health plan, one that might look like Medicare or Medicaid but would be open to everyone, is being reconsidered at both the federal and state levels.
Amid news that two major insurers were pulling out of Affordable Care Act exchanges, 33 U.S. Senators recently renewed the call for a public option. The idea was first floated, then rejected, during the drafting of the federal health reform law, which took effect in 2010.
Democratic presidential candidate Hillary Clinton includes a public option in her campaign platform, and President Barack Obama urged Congress to revisit the idea in a JAMA article published in August.
Dave Jones, the elected regulator of California's private insurance industry, endorsed the idea of a state-specific public option in an interview last month with California Healthline, though he did not specify how it might work.
California may be uniquely poised for a public plan — but the state may not need one, according to Gerald Kominski, Director of the UCLA Center for Health Policy Research.
"It would look just like an insurance plan," except that the state would pay for medical care, potentially set up the network of doctors and hospitals, and make rules about paying providers, Kominski said. Private industry could be involved in these or other aspects of running the health plan, much as they do in Medicare Advantage and managed care Medi-Cal.
Creating a public option in California may not be necessary at present, since the state currently has sufficient competition in the private insurance market, Kominski said. But he said policymakers could choose to implement a public option now as a backstop against a potential future scenario in which private insurers scaled back their California plan offerings.
California Healthline interviewed Kominski to better understand how a public option could work in California and on a national level. The interview was edited for length and clarity.
Q: When we talk about a public option, do we mean a health plan for which the government takes the risk, sets the coverage rules and pays out the claims — and enrollees pay premiums just as they would to an insurance company?
That is what the public option would be. But that still leaves out the answer to a lot of questions about how actually that would occur. How would a government agency essentially become the insurer? So we have two examples. We have the Medicare program and we have the Medicaid program.
Medicare establishes the rules. It contracts with insurance companies to pay the bills. And that's the way that Medicare has operated for over 50 years.
Now we have Medicare Advantage plans, where the contracting is not to pay bills but is basically contracting with insurers to bundle the services. And rather than pay the doctors and hospitals, the government pays the insurer and puts the insurer at risk.
Q: Insurers have opposed this idea in the past, and they're opposing it again now that it's being raised by members of Congress.
Private insurers could participate as administrators or providers on behalf of the state. But here's one concern that I have with that model: California has four large insurance companies in the exchange that account for about 90 percent of the market.
Let's say the state of California wanted to create a public option and hire an insurance company to administer that product for it. What would be the reason or the incentive for any of those companies to agree to be the plan administrator for the public option when the public option would be competing with the product that they're already offering? They would be competing with themselves.
Q: Some provider groups may be opposed to a public option because they say that government programs like Medi-Cal pay very little and they believe a public option plan would also pay little. Is this necessarily the case that a government program would pay low rates?
It's not necessarily the case, but it is in fact what we observe in the Medicare and the Medicaid/Medi-Cal programs.
Q: Do you think a publicly subsidized or operated program would run the risk of having narrower provider networks because of lower payments to providers?
I don't want to pre-judge that. If the anecdotal evidence that I've been told over the last couple years is indicative of what's going on statewide, then Covered California plans are already paying somewhere around Medicare rates.
Q: Do you think a public plan would help bring down costs in the health care system by negotiating for lower payments to hospitals and doctors?
I think that is possible in other areas of the country, where there are markets with one or two health insurance plans in the exchange. I think California has one of the most competitive ACA marketplaces. And so would the public option in California dramatically reduce premiums? I think the answer is no. It would have little or no effect.
For some people, the advantage is that we think that the public option's going to be around because the state's not going to back out of its commitment, whereas private insurers come and go in the marketplace.
Q: Do you think we need a public option in California for any other reason?
In my opinion, a public option isn't necessary in California, but it might nevertheless be worth exploring as a longer-term mechanism for guaranteeing access and an alternative to relying solely on the private insurance market.
Q: Is there something about California's health care system that uniquely primes the state for a public option?
I think so. One of the things that's unique about California is the high percentage of managed care enrollment. The public option in California would probably include or be based on a managed care model and Californians are pretty receptive to that model.
Q: So if the public option could include private insurance, why are the insurers so opposed?
Well, the simple answer is they don't want more competition. And again it goes back to, why was this battle so intense during the development and enactment of the ACA back in 2009 and 2010? The insurance industry said we cannot compete with a plan, a government plan, that pays doctors and hospitals using Medicare fees or fee schedules.
You remember the fundamental rule of business is you don't want more competition. You want the market to yourself.
Q: Do you think it would be more effective or easier to implement a public option at a state or national level?
Well that's where you can't ignore the political environment. And so the short answer is in the current political environment, doing something at the national level is extremely difficult. Even though there might be arguments to develop a public option at the national level, it's very challenging in the current political environment to get the agreement.
Q: Is there something that's more efficient about a national public option?
Potentially. It's economies of scale. You know, the larger your potential market nationally, the lower the potential costs per person. You just get administrative savings and efficiency. But it's not easy to create a national program. One issue that's challenging is how to put together a national network of doctors and hospitals that would participate. That's a lot of work.
Q: Do you think the idea of a public option is more viable now than it was when it was debated before and ultimately stripped from the Affordable Care Act?
A: Well, I think that what makes it more attractive right now is the fact that we've got two large insurance companies that are pulling out of the exchange marketplaces. And because of that … the idea of a public option to provide stability and protection for people in the exchanges has resurfaced. And I think with good reason.
One new law essentially sets a reimbursement rate requiring insurers to pay out-of-network doctors 125 percent of the amount Medicare pays for the service or the insurer's average contracted rate, whichever is greater.
Gov. Jerry Brown signed off on a variety of bills in September that aim to protect patients and health care consumers.
The following laws are set to go into effect in 2017.
AB 72: "Surprise medical bill" legislation by Assemblyman Rob Bonta (D-Oakland) was among the most-talked-about measures of the year in Sacramento. It promises to better protect consumers against unexpected medical bills.
Patients can receive such bills when they use a hospital or clinic considered in-network by their insurance plan but are treated by a provider who does not contract with the insurer such as radiologists, anesthesiologists and pathologists. With the goal of keeping patients out of the fight between providers and insurers, the new law essentially sets a reimbursement rate requiring insurers to pay out-of-network doctors 125 percent of the amount Medicare pays for the service or the insurer's average contracted rate, whichever is greater.
"With his signature, Governor Brown has enacted some of the strongest patient protections in the nation against surprise medical bills. This issue has been debated but has gone unresolved for decades," Bonta said in a statement.
SB 482: Amid a national opioid epidemic, Brown approved legislation that requires doctors to check a patient's prescription history in a state database before prescribing any potentially addictive drugs.
The bill, by Sen. Ricardo Lara (D-Bell Gardens), calls for doctors to consult California's prescription drug monitoring database when prescribing controlled substances. Failure to do so under the new law could result in disciplinary action, although there is no way to ensure that doctors actually use this tool before prescribing.
The new law is meant to put a stop to "doctor shopping" — the practice of visiting multiple doctors to obtain prescription for opioids.
SB 586: The legislation, a compromise between the Department of Health Care Services and children's advocates, aims to slow down and improve plans to overhaul the way the state's most medically fragile children receive care.
Currently, severely ill children with conditions like cancer or cerebral palsy receive care through an 89-year-old state program known as California Children's Services. The Department of Health Care Services announced its plan last year to move these children into Medi-Cal managed care plans to streamline their care. Parents and child advocates argued that the transition was too quick and poorly planned, and could interrupt care for these children. The bill adds changes demanded by parents and advocates to improve case management and coordination for children affected by the transition.
The bill, introduced by the head of the state's Senate Health Committee, Sen. Ed Hernandez (D-West Covina), allows DHCS to implement the transition to 21 counties by July 2017. The remaining counties will follow. The full transition of the state's 190,000 children should be complete by 2022.
Ann-Louise Kuhns, president and CEO of the California Children's Hospital Association, said the new law "both protects the high quality of care assured by the California Children's Service program and promotes a careful, phased integration with managed care."
SB 908: This bill will allow consumers to learn when their health insurance premium rates have been considered "unreasonable" by state officials. Current law requires that unreasonable rate hikes be posted online by one of the two state agencies that regulate insurers — the Department of Managed Health Care or the California Department of Insurance. But consumers don't check online, the bill's supporters argued.
The new law will require insurers to notify individuals and small businesses directly in writing — at least 60 days before the rate changes — so that consumers can shop around if they choose.
"This law will discourage unjustified health plan rate hikes and empower consumers to make informed decisions about the coverage they are choosing," said Anthony Wright, executive director of Health Access California, a Sacramento-based consumer advocacy group.
SB 1076: This law, sponsored by the California Nurses Association, was designed to protect hospital patients in "observation" care. It requires that observation units meet the same staffing standards — nurse-to-patient ratios — as those in the emergency room.
Outpatient services are not covered by the same patient protection regulations as inpatient units, and many times patients are left in an observations status for a long period of time, according to supporters of the law. In addition, such treatment is not counted toward the three days of hospitalization that Medicare requires for a patient to be covered for nursing home care once they are discharged from the hospital.
The new law will also require that hospitals report summaries of the care they provide during observation status to the Office of Statewide Health Planning and Development for data collection.
Researchers at the University of California, San Francisco have put a price tag on that waste: almost $1,000 per procedure examined at the academic medical center.
It's long been a problem for the nation's hospitals: A staggering number of medical supplies — from surgical gloves to sponges to medications — go unused and are discarded after surgeries.
A recent study by researchers at the University of California, San Francisco has put a price tag on that waste: almost $1,000 per procedure examined at the academic medical center.
The research, published in May in the Journal of Neurosurgery, examined 58 neurosurgeries performed by 14 different surgeons at UCSF Medical Center, a leading academic hospital.
Among the most unused and discarded supplies were sponges, blue towels and gloves. The most expensive item wasted, according to the study, was "surgifoam," a sponge used to stop bleeding. One such sponge can cost close to $4,000.
The researchers projected that wasted supplies could cost $2.9 million a year in UCSF's neurosurgery department alone.
And that might be an underestimate: Nurses reported they were less likely to open disposable supplies when they knew they were under observation for the study. Unopened supplies can be reused, but once they are opened they must be used or thrown away.
As health care costs continue to skyrocket, it is important to look for ways to contain them, said Dr. Michael Lawton, a neurosurgeon at UCSF and one of the study's authors.
Lawton, who was also one of the 14 surgeons observed in the study, said he performs about 400 surgeries per year. If nearly $1,000 per procedure is being wasted on potentially reusable supplies, about $400,000 could be saved per year — for just one surgeon.
"These savings could translate into teaching and research opportunities, and also allow more patients to come in" for treatment, Lawton said.
James Yoon, one of the principal UCSF researchers on the study, said they weren't only looking at costs but also at the environmental impact of wasted supplies.
Operating rooms in the U.S. produce more than 2,000 tons of waste per day, he said. Some of it is biological and must be safely disposed of. Part of the research involved identifying which surgeries generated the most waste. Spinal procedures, for example, are among the most wasteful, the researchers found.
They also learned that the length of a surgeon's experience bore no relation to the volume of squandered supplies. More experienced surgeons were not necessarily more frugal.
There is little agreement on how hospitals should address operating room wastefulness. Each hospital or hospital system handles waste in its own way, Yoon explained.
The researchers also recommend price transparency for surgeons. A "feedback system," Lawton explained, would allow them to compare where they stand relative to their peers in terms of cost per procedure. While not available yet, such a system could encourage better management of operating room supplies, he said.
Another potential way to limit waste is to review surgeons' "preference cards" — the list of instruments and other items they request for each procedure, Yoon said. Removing unnecessary items from the list and clarifying which ones should be opened at the beginning of a procedure could help save supplies, he explained.
All three of UCSF's hospitals have been working to reduce waste, said Gail Lee, the director of sustainability for the hospitals and the UCSF campus.
Some medical devices, whether used or unused during surgery, can be reprocessed by an FDA-approved third party company and sold back to the hospital for about half the original sales price, Lee explained. This allows hospitals to save money and cut down on the volume of disposable supplies that end up in landfill.
This strategy saved UCSF hospitals about $1.1 million over the past year, Lee said.
In fiscal year 2011-12, UCSF hospitals diverted 14,000 pounds of would-be waste from landfill by reprocessing both surgery and patient care devices. By last year, that amount had more than quadrupled to 62,000 pounds, Lee said.
"We continue to do better each year," she said, "but we recognize there is always opportunity to improve."
