Untitled Document

March 31, 2008

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1. McKesson Goes to the Head of the Class (Action)

Facts and Background

A district judge on Wednesday certified as class action a lawsuit against McKesson Corp. that claims the drug distributor inflated the wholesale prices of prescription drugs, causing consumers to overpay for several years. The class was certified under federal racketeering statutes, which allows any awarded damages to be tripled, and is speculated to have the potential to be the largest class action lawsuit in US history.

Opinion

First DataBank settled, McKesson didn't. Guess who's regretting their action? Still, FDB people testified that McKesson was unaware that its "survey" involved only McKesson, so there's no smoking gun so far. It's possible that FDB was currying favor with McKesson without that company's involvement.

Musings

The suit claims that Mckesson and First DataBank conspired to raise the price of prescription drugs by increasing the ratio of two basically fictitious "prices" by 5%, with FDB showing a steep Average Wholesale Price jump in 2002.
First DataBank was alleged to have gone along with the practice to encourage McKesson to use its pricing data, surveying only McKesson's prices instead of what it claimed was a survey of national wholesalers.
The supposed benefit to McKesson was to give its retail drug chain customers higher margins, with an internal McKesson manager's memo reporting that the pharmacy profit for dispensing Lipitor jumped from $6.86 to $17.18 because of the change.
First DataBank settled in October 2006, rolling AWPs back 5% and agreeing to stop publishing AWPs. The AWP rollback was estimated by a plaintiff's expert witness to reduce drug costs by $4 billion in 2007 alone.
It's a big potential payout because the original suit by unions and employers claimed $7 billion in overpayment.
First DataBank, a Hearst Corporation subsidiary, bought its only real competitor, Medi-Span, in 1998, but the Federal Trade Commission found that Hearst withheld key merger documents and fined the company $4 million, disallowed the merger, and required Hearst to return $19 million in profits generated by the proposed acquisition. Medi-Span is now owned by Dutch company Wolters Kluwer Health.

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2. Philips Needs Milk of Magnesia After Eating Tomcat

Facts and Background

Royal Philips Electronics announced Wednesday that it had acquired cardiology software vendor TOMCAT Systems Ltd. of Belfast, Northern Ireland. No financial details were released.

Opinion

Philips just keeps buying, which we've been predicting given their cash position, profitability, and competitive situation in healthcare.

Musings

According to TOMCAT's website, it's been winning in 75% of deals.
TOMCAT has 25 employees.
Oddly, TOMCAT still dabbles in other sectors, selling software to gas companies.
TOMCAT was already being used by customers to connect to Philips Xcelera and Xper Information Management.
It also provide cardiology department management functions.
Other recent Philips healthcare acquisitions: Respironics ($5 billion), Visicu ($430 million), Emergin, Lifeline Systems ($750 million), Health Watch ($130 million), and Raytel Cardiac Services ($110 million).

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3. Survey: Old People Don't Want to Pay for Health I.T. or Any Damned Thing Else

Facts and Background

The AARP Foundation announced results of a December study examining the attitudes of people 65-plus about technology, with seniors willing to try a variety of high technology devices, but 80% of them saying them wouldn't pay more than $50 a month for them.

Opinion

This is a splash of cold water for all the Everything 2.0 startups that keep reciting how enlightened and different today's retirees will be in willingly spending discretionary income on healthcare services. They're just as cheap as their elders, it turns out, even if they do listen to the Rolling Stones.

Musings

It wasn't just the seniors who are cheap, according to the survey. Their families don't want to pay for technology used in their care, either.
Technologies they don't want to pay for included chair sensors, remote physiologic monitoring, smart pill bottles, and computer games.
In other words, they're willing to pay less for healthcare technology than they spend on cell phones, cable TV, and lawn service.
They vote, too, usually against school bonds and for senior entitlements, so guess who'll end up paying?

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