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john kitzhaber
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A former emergency room physician, John Kitzhaber was governor of Oregon from 1995 to 2003. One of his top gubernatorial priorities was reining in the state's skyrocketing Medicaid costs. He believed that one way to spend state health dollars more effectively was to make the public aware of the true costs and benefits of available drugs. In this interview he describes his efforts to push a bill through the state legislature to create a Consumer Reports-style preferred drug list to give doctors an unbiased, objective source of information about prescription drugs. This interview was conducted on Oct. 11, 2002.

There was quite a bit of contention with the bill. Tell me the story.

We'd actually worked with the pharmaceutical industry for almost a year, trying to find some consensus of approach to this, and really got nowhere. We introduced the bill, and they had about 24 lobbyists in Salem. That's more than one for every four legislators. It was a real full-out effort, and they managed to keep the bill bottled up in committee. It never had a public hearing, which is pretty remarkable in a state like Oregon that prides itself on public process. So it sat there all session, just in committee.

In the end, it was the eleventh hour--

I wrote a letter to the legislative leadership, and told them that if they didn't put the bill on the floor, I was going to veto the entire budget for the Department of Human Services -- over a billion dollars -- and call them back in two weeks to rebalance the budget, and then get on the state plane and go around the state explaining how the leadership was in the pocket of the multinational drug companies.

Imagine how difficult it would be for you, as a consumer, to buy a toaster or a car or an appliance without Consumer Reports. It gives you objective information to compare those products. That doesn't exist in the drug market today.

Miraculously, the bill showed up on the floor. Actually, late on the last night of the session, it passed by a comfortable margin in both houses.

That sounds like a desperate measure.

It was really tragic that the PhRMA lobby was afraid to even have these ideas debated publicly. They have a viewpoint, and it needs to be expressed. But that's not how democracy works out here in Oregon.

Why was PhRMA resistant?

I think the resistance in our specific case is that what our process does is force the drug companies to compete on the basis of cost for two drugs that are clinically equivalent. [That] is essentially how Chevrolet competes with Ford, or Intel competes with Hewlett Packard. That's a functional marketplace, and we don't have that in the pharmaceutical market right now.

Why was this bill so important to you? Why go to those desperate measures?

For a couple of reasons. First of all, pharmaceutical costs are the single fastest-growing part of our health care budget. As costs increase in the U.S. system, the way we deal with it is we squeeze people out. We deny access to other people. So the fact that these drugs were going up was resulting in other people not getting access to anything, like insulin, like penicillin, the miracles of medicine that were discovered 25-30 years ago. The size of the increase was stunning. Between the last budget cycle and this budget cycle, pharmaceuticals went up over 60 percent. So it was a huge issue in terms of managing costs in order to expand access to Oregonians.

Secondly, we believe that using an evidence-based approach -- that is, using medical interventions that actually have a health benefit -- makes a lot of sense. If we could do this for pharmaceuticals, you could apply the same thing to surgical procedures, to diagnostic tests, to the medical device industry.

Why isn't medicine out there evidenced-based anyway?

We've got a system in this country where most people rely on a third party to pay their care, and it sort of insulates people from the real cost of health care. If you have first-dollar coverage, if you don't have to pay co-payments or deductibles -- which many people don't in this country -- for you, health care's free. I think we also have begun to view a health care benefit as an economic commodity, as opposed to something that actually produces health. I'll give you an example.

I have a young man that works for me that had pain in his wrist. He went to see his doctor and came back with a prescription for Celebrex, which is an enormously expensive anti-inflammatory drug that costs about $75 a month. There's no clinical evidence to suggest that Celebrex is any more effective than across-the-counter ibuprofen, Advil, at $7 a month, for an otherwise healthy young man with no history of gastrointestinal problems. The difference is $68 -- $68 that contributed to the escalation in health care cost, but didn't produce a health benefit.

The system is riddled with those kinds of things. Given the size of the medical budget, we need to begin to demand that what we provide in health care actually produces a health benefit.

It's like triage. There's only so much you can do, and you have to pick the right thing. Does that tie in with your days as an emergency room doctor?

The fact is there is a finite budget for medical care, and in this country, we decry rationing. We define "rationing" as not giving somebody a service that they need, a transplant or something, usually some esoteric service that catches the eye of the media.

The fact of the matter is the way states manage health care costs is we change income eligibility requirements for our Medicaid program -- that is, we reduce the number of people who are eligible. Well, they're denied everything. It's rationing people. We do that all the time in this country.

So what we focus on is the new technologies, the expensive technologies, the things that can perhaps prolong life on the margins. By focusing huge resources there, there are a growing number of people, tens of millions of people, who don't have access to fundamental, basic, cheap health care that we know works -- like immunizations, for example, like antibiotics for a middle ear infection.

What we're trying to do in Oregon is just smoke that out. Let's just get it out on the table and be honest about what we're doing, and then guide it by some policy that we're willing to defend publicly.

Who are the uninsured in Oregon? The very poor? A wide swath of people?

It's a wide swath, and it's no different in Oregon than it is in most parts of the country. Most of them, 70 percent-75 percent, are working families and their dependents who don't qualify for Medicaid. Now that's our program for the poor. But to qualify for Medicaid, you have to fit into a category established by Congress, like certain categories of pregnant women, or families with dependent children on welfare. If you're a single adult and you're poor, you don't qualify for Medicaid, no matter how poor you are.

So we've created a system where we have the "deserving poor," who fit into a federal category, and the "undeserving poor" who don't. Now the "undeserving poor" pay taxes that help support the people in Medicaid, and also help support wealthy retirees on Medicare. So it's a system that has policies and subsidies that simply, I think, are not politically sustainable if you were to make them explicit.

So most of these people are folks who are trying to make a living, who don't qualify for Medicaid, who aren't 65 so they can't get on Medicare, and don't have workplace-based coverage. You know, it's over 40 million people now in this wealthy country of ours.

The states have to balance their budgets. They've been much more active on the prescription drug issue.

Yes. States, virtually all of them, have a constitutional requirement to operate on a balanced budget. So unlike the federal government, we can't deficit-spend. We do have a zero sum. Medicaid is a federal program that's run by the states. If you participate in Medicaid, it's optional. States don't have to do it, but we all do. You get big federal matching dollars.

So in Oregon, for every dollar we spend on Medicaid, the feds send us $2, but there's a hook. In order to get those federal matching dollars, you have to comply with their very rigid requirements on benefit levels and on eligibility. So the only tools we have to manage cost is to change the income eligibility, to basically ration people, or to cut provider reimbursement rates. And at some point, providers stop seeing the Medicaid clients.

We have just these very crude tools to manage the costs. The reason prescription drugs are so important at the state level is because they're eating up the Medicaid budget. In a very real sense, as prescription drug costs go up, we shove people out of the system altogether.

Why have the states taken the lead, rather than waiting for the federal government?

Because the federal government isn't going to do anything. I think this debate in Congress about adding a prescription drug benefit to Medicare, which is needed, is hollow at best. And it's the same whether you're a Democrat or a Republican.

All they're debating in Congress is how to pay for prescription drugs. They ought to be asking, "Why do these drugs cost so much in the first place?" They ought to be asking, "Why do well-off people who are retired get publicly subsidized health care, paid for in part by working families who can't afford health care for themselves or their families?"

They're not getting at the real issue here. The only difference between the Republicans and the Democrats is how you pay for it. The Democrats want the public to pay for it, the government to pay for it. The Republicans want private sector insurance to pay for it. And it's unsustainable. They're not asking the right question. ...

Why is it only Oregon and one or two other states doing this?

I think a lot of states have tried things like this, but very few states have actually got anything through their legislature. Many of the states that have are immediately sued by the drug companies. Maine was sued, Michigan was sued, and they're deciding whether to sue us here in Oregon. I mean, the political power of these large pharmaceutical companies, which translates to money to hire lobbyists, is enormous.

What is PhRMA afraid of? They're scientists. Why are they resistant? They tell us they think the Oregon process is great.

Well, maybe they tell you that now, but they've been trying to derail this train from day one. They're afraid of a functional marketplace. I mean, here's how it works. They spend massive amounts of money in advertising. Merck spent $160 million last year advertising one of their major drugs, which is more than Anheuser-Busch spends to advertise Budweiser. It's more than PepsiCo spends to advertise Pepsi Cola.

So there's this huge targeted advertising campaign, which creates a market demand without a clinical context. It creates a demand for a particular brand-name drug, without any consideration of the fact that there may be other drugs to treat the same condition that are just as effective or more effective for less cost.

So when a person shows up in a physician's office demanding the latest drug they saw on television -- because that's where they're getting their information -- the doctor doesn't have good objective research information on which to base his or her clinical decisions. In fact, I can tell you this as someone who practiced medicine for a long time. A lot of the information doctors get is market research provided by the drug companies' representatives, the same people that fill your cupboards with samples and take your staff to the NBA game.

Imagine how difficult it would be for you, as a consumer, to buy a toaster or a car or an appliance without Consumer Reports. It gives you objective information to compare those products. That doesn't exist in the drug market today. Really all we're trying to do in Oregon is to create a Consumer Reports for prescription drugs, for providers and for consumers.

The drug list has a pretty easy exemption process. It's not mandatory. So why would they pay attention to this information? Isn't it just adding to the flood of information they're already getting?

Well, it's interesting. I think it's a fair question. We designed this bill to make sure that we didn't substitute government regulations or rules for clinical judgment. The ultimate treatment decision is in the hands of the provider. So if you're, let's say, a physician, and someone comes in and there's a clinical reason that you believe they should have a drug that's not on our preferred drug list, all you have to write is "Do not substitute" or "DNS" right across the face of the prescription, and we pay for whatever the other drug is. So that was a question.

The first two months of experience we've had suggests the physicians are using this information. I'll give you one example. One of the drugs that we evaluated are called long-acting opiate analgesics. They're opium-based pain medications. One of the most expensive is OxyContin. It's brand-name, heavy advertising, high usage. In the first two months, prescriptions for OxyContin dropped significantly, and prescriptions for morphine sulfate LA, a long-acting morphine sulfate, which is our preferred drug, went up significantly.

So I believe that physicians really want this kind of information. Physicians are trained to science, and they want good information. They just don't have access to it, and that's what we're trying to develop.

Is this switch enough to make any difference in the budget?

To put it in perspective: If you could hold drug costs to the CPI in Oregon, the Consumer Price Index, the sort of general rate of inflation in other goods and services, you'd save about $50 million a budget cycle, which is enough to expand coverage to 18,000 to 20,000 people. That's significant.

I don't want to suggest that controlling pharmaceutical costs is the answer to what ails the U.S. health care system. It isn't. It's a big piece of it. But the real power here is, if you can begin to actually link health care with health, which really is the objective here -- it's not giving people access to health care; it's getting a health benefit for the health care you buy. If we can do that with pharmaceutical drugs, and get physicians and providers and consumers more used to the same kind of smart purchasing they do in the rest of their lives, there are huge implications in terms of dealing with the wide variation in practice patterns -- two different physicians treating the same illness far differently in terms of the resources that are being used.

So there's huge implications here for increasing quality, for reducing medical errors, for expanding access, in cutting costs.

You mentioned variations in practice patterns. That extends to surgery and devices, etc. What's the rationale for bringing your attention on the pharmaceutical industry rather than on other places where there's waste in medicine?

Well, you've got to start somewhere, and pharmaceutical costs are the single fastest-growing cost in the health care budget. Until recently, they were the major reason that insurance premiums went up. In the Oregon Health Plan, pharmaceutical costs exceed the cost of physician services. So it's a very logical place to start, and it is sort of a common denominator.

Pharmaceuticals are part of just about every medical practice involved. So that's why it was important for me to emphasize that this isn't the silver bullet, but it's a very good place to start. It's timely, people are concerned about it, and it will have an immediate, I think, short-term beneficial effect. But then we've got to take this same kind of stuff and begin to develop standardized best practices for surgery, for the treatment of a variety of medical conditions.

A big reason why pharmaceuticals are such a high cost is because they're a bigger part of medicine, and they often replace costly procedures. Do you buy that argument?

Yes, I do, to some extent. There are many pharmaceuticals, which, without their use, you would run up significant costs elsewhere in the system. Management of hypertension, for example, can keep people from having a heart attack. Even the new cholesterol-lowering drugs that we evaluated, I think, are very, very important.

The problem is that much of the research that goes on in the pharmaceutical industry today is trying to create a competitor for something that's already on the market. Let's take Vioxx and Celebrex, two very important prescription drugs, both of which essentially do the same thing. They treat inflammation. Whereas you've got a drug like ibuprofen, Advil, that's across-the-counter, that in most cases can do exactly the same thing.

So there's no real relationship between these new brand-name heavily marketed drugs, and reducing health care costs by the use of those agents, when there are other agents that do exactly the same thing. That's where I think the argument falls apart.

The "me too" drugs -- isn't it unfair to hit the pharmaceutical industry on that? Coke and Pepsi are the same thing, and nobody objects. Isn't the pharmaceutical industry allowed to make a profit?

Absolutely. I have no problem with them doing the research for the "me too" drugs. What I have a problem with is their resistance to creating a functional market where people can actually make informed choices. I don't know if you are aware of the fact that when we determine the price of a drug at the state level, we base it on what's called the average wholesale price, or AWP. We don't actually know what we're paying for the drug at the time we buy it, until months later, when a variety of drug company rebates are calculated. It's also against federal law to release that information to the states.

Now, imagine if you're going out to buy a bottle of Coke or a bottle of Pepsi. You really don't know how much you're paying for that product until two months later. Apply that to a car, or a house. If we could create a market where consumers could say, "Yes, Merck's got a drug that does X, and Glaxo has a drug that does X, and someone else has one, and here's one across-the-counter," and they have good information that they can rely on that's developed through a public and a transparent process, to say, "OK, looks like all these do about the same thing. Now, how much do they cost?" That's all we're talking about. That's all we're talking about, and that's what's being resisted.

The other component is price. Eli Lilly says they need these blockbuster drugs with high prices to pay for years of research that allows them to come up with wonderful new drugs. It allows them to pay for all the failures.

You got to put this in a context. First of all, a lot of the money that supports pharmaceutical research is public money. It's federal money. You pay it and I pay it, and we don't get much of a profit from it.

The other thing you need to appreciate is that you got to put this into a larger context; that the dramatic escalation in drug cost results in people losing access to things that you and I take for granted today. Our system responds to cost increases by reducing access. There's no other part of the medical budget that's going up this fast. There's no other business sector in this country that has managed the kinds of profits that they have through this recession, and you ought to ask the question about that. You ought to say, "Why?"

There's a direct connection between the dramatic increase of prescription drug costs and the 1997 repeal by the Food and Drug Administration on the ban of direct-to-consumer advertising. It's just linear.

You don't think there's any benefit to direct-to-consumer advertising?

Sure. I'm not saying you shouldn't advertise. Chevy advertises. Ford advertises. But you can also go to Consumer Reports and get a good sense as a consumer of what they're really worth, and what you're getting for that expenditure. You can't do that with drugs today.

Some of the drugs that were left off the list are some big names, like Lipitor, which is actually pretty effective.

This is a drug, part of the class called statins, that include Zocor and Mevacor, and Lipitor is obviously a very popular, highly advertised drug. These drugs lower cholesterol. But the objective is not to lower the cholesterol. That's a means. The objective is to keep you from having a heart attack or a stroke. There are no studies done to see whether Lipitor, out into the future, actually reduces the incidence of stroke. Mevacor, which we did include, does have those kinds of outcome studies. So if at some future date the drug companies actually do outcome studies, linear outcome studies on Lipitor, and it shows that it does have a significant beneficial effect -- not just lowering the cholesterol but the clinical outcome you're trying to get from lowering the cholesterol -- it will be re-evaluated and maybe come back on the list, if the price is right.

Will what you're doing in Oregon change the way drug companies do research, forcing them to do these head-to-head studies?

I think head-to-head studies ought to be done, publicly funded, and ought to be very open and transparent. I don't think they should actually be done by the drug companies. I think they should be funded by a neutral, objective third party.

You were saying head-to-head research needs to be done at a larger level. There have been calls for a national institution to do this. Why hasn't it happened?

Well, I can give you a theory. I mean, I'm not a member of the United States Congress, and have no aspirations to go there. But you know, the influence of the pharmaceutical industry is very insidious. I'll give you an example.

When I tried to get a resolution through the National Governors' Association to essentially say that since Medicaid is the single largest purchaser of pharmaceuticals in the world, we should get the same volume-based discounts as anybody else, the resolution was vigorously opposed by the pharmaceutical industry. I discovered that the Human Resources Committee of the National Governors' Association is stacked with governors who come from states that have huge pharmaceutical companies. It was the strangest set of bedfellows -- Governor Carper, Governor Whitman, and I think, Governor Hunt -- and it never even got any consideration.

It's hard to find a scientist these days that doesn't have part of his or her research financed by the pharmaceutical industry. I believe that there has been opposition to these kinds of appropriations from Congress. I think it's very, very, very insidious, and I don't think you're going to see that kind of thing coming in the near-term future. I think you're going to have to develop a coalition of states, or even a consortium of states and international groups that are doing the same kind of thing, to try to begin to generate that body of evidence. ...

There seem to be three groups who are aware of pharmaceutical costs: big governments, companies who have to pay for benefits, and then senior citizens.

I think the coalition that you need to put this together, at the bare bones, needs to include the medical community. [I'm] not going to suggest that there aren't other people who write prescriptions. But just in terms of the political dynamic, you need the medical community, physicians; you need the AFL-CIO, and you need the AARP; and you need the business community. If you can reach a meeting of the minds of those four groups, I think you can move mountains. That doesn't mean you leave everybody else out, but that's the core of it. ...

So you're pessimistic about this happening on a federal level?

In the short-term future, I am. Look at what's being debated back there. You got the "How do we pay for the existing drug budget in Medicare?" not why they cost so much. We're debating a patient bill of rights for people who already are enrolled in managed care systems. We're not debating why 40 million Americans don't even have access to the health care system at all. What about their rights? It's a debate that's driven by polls, I think primarily, and with a two-year event horizon: the next election. ...

Clarification on Medicaid. Is it true that you don't get directly the volume discounts? You have to apply for this rebate -- is that the way it works?

Yes, I believe that is. There are people who are more knowledgeable about that than I am. It's a rather complicated system, and it's different for the fee-for-service part of your Medicaid budget and the managed-care part of your Medicaid budget.

But you don't get an automatic discount just because you're a big purchaser?


It's complicated. You got a formula, a reduction, which you're rebated.

Yes. That's really what we were trying to get through to at the National Governors' Association, the resolution I mentioned. If you were to pool all the Medicaid purchasing in this country, it really is literally the single largest purchaser of pharmaceutical drugs in the world. You would think that you would get volume-based discounts from that, but that doesn't automatically happen.

Then there's this other very perverse federal law that prohibits the release of that cost information to the people who are buying the drugs. It's very difficult to create a market competition environment based on quality and efficacy with those kinds of constraints.

What's your vision of where this is going? Oregon is ahead of the rest of the country with this evidence-based idea for drugs.

I think we need to move fairly rapidly to get other states directly involved in this. Maybe a California or a Texas, larger states, so that we reach a critical mass of work here. I don't think the states need to be doing this separately. I think we need to try to develop coalitions among states.

We've got people here at the conference who are very interested in doing that. There's something called the Reforming States Groups that is actually having regional meetings. They focus them on adjacent states, clusters of states basically. We're trying to see if we can organize states to begin to participate in this. Maybe we give them the information that we have, and then they review it themselves. They don't need to certainly accept our work on face value. But I do think it's very credible. They could take it as a starting point.

This is a problem that's faced by every governor, by every legislature, by every state in the country. So we do have a community of interest here. ...

Do you think [the pharmaceuticals] can beat you in the courts? Maine is tied up in the Supreme Court. Do you think you're safe from legal challenge in Oregon?

Oh, you know, [in] this world today, all good ideas go to court. None of us are safe from legal challenge. But I think we are on very sound legal footing in terms of what we're doing here. We're not concerned about that, except the expense. One part of the strategy is just to drag states to court, because you have a deep pocket on the plaintiff side, and states have limited budgets. That wears states down as well. We are being sued right now by the makers of OxyContin. ...

Do you think we're having a health care crisis in America?

Well, it depends how you define "crisis." We have an enormous, serious problem with health care in this country, in terms of both cost and access. There's a growing number of kids who are disenfranchised from the system. ... To me, health care is sort of a basic human need, and the lack of having it goes well beyond just health care. It goes into a lot of the chronic problems we struggle with as a society. ...

Drug companies say that any effort to mess with business as usual will affect their ability to innovate. Try and connect evidence-based research to innovation -- is it good for it, bad for it?

I would think that evidence-based research would help it. Let me make a distinction here between public dollars and private dollars. What people do with their after-tax dollars in this country ought to be their business. They can buy whatever brand-name designer drug, new innovative drug they want. That's fine. What we're talking about is how you spend limited public dollars, and how you assure that there's accountability for how those dollars are being spent.

I would argue that, if the public is going to be subsidizing in any way -- even through what we pay for health care for a person who's financed by the federal government or by the state government, that's the public subsidizing something -- if we're going to subsidize that, it ought to be something we need, and it ought to be something that contributes to the objective of health. ...

Comment on what's going on in Maine.

... I think Maine's done some very creative and innovative things. Actually a lot of states have, and I certainly don't want to discredit them. They're trying to figure out a way to get the cost down. We're trying to get the cost down, too, but we're starting at a different place. Instead of just looking at the cost of the drugs, we're asking ourselves what health benefit we're getting from those drugs.

My personal bias is that, that really is the heart of the debate; that we've got to begin to challenge health care benefits as an economic commodity versus what we actually get for that. That's where the ethical issues come in. That's where the real tough political issues come in.

But we've demonstrated with the Oregon Health Plan, with the very tough decisions we've made in terms of what to leave on and what to leave off our list, that the public's willing to make those choices and those decisions, if they're given the opportunity to do that. So I think you have to start on the benefit side. ...


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posted june 19, 2003

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