Why Reduce Health Care Costs?

One rare point of elite consensus is that the US needs to reduce health care costs. Frightening graphs expose America as a spendthrift outlier. Before he decamped to Citigroup, the President’s OMB director warned about how important it was to “bend the cost curve.” The President’s opponents are even more passionate about austerity.

Journalists and academics support that political consensus. Andrew Sullivan calls health spending a “giant suck from the rest of the working economy.” Gregg Bloche estimates that “the 30% of health care spending that’s wasted on worthless care” is “about the price of the $700 billion mortgage bailout, squandered every year.” He calls rising health spending an “existential challenge,” menacing other “national priorities.” Perhaps inspired by Children of the Corn, George Mason economist Robin Hanson compares modern medicine to a voracious brat:

King Solomon famously threatened to cut a disputed baby in half, to expose the fake mother who would permit such a thing. The debate over medicine today is like that baby, but with disputants who won’t fall for Solomon’s trick. The left says markets won’t ensure everyone gets enough of the precious medical baby. The right says governments produce a much inferior baby. I say: cut the baby in half, dollar-wise, and throw half away! Our “precious” medical baby is in fact a vast monster filling our great temple, whose feeding starves our people and future. Half a monster is plenty.

But when you scratch the surface of these sentiments, you have to wonder: is the overall level of health care spending really the most important threat facing the country? Is it one of the most important threats? There are many ways to raise revenue to pay for rising health costs. Aspects of the Affordable Care Act, like ACOs and pilot projects, are designed to help root out unnecessary care.

I am happy to join the crusade against waste. But why focus on total health spending as particularly egregious or worrisome? Let’s explore some of the usual rationales.

Terrible Tax Expenditures and Suspect Subsidies?

Employment-based insurance gets favorable tax treatment, and much Medicare and Medicaid spending is drawn from general revenues. So, the story goes, medicine’s big spenders don’t have enough “skin in the game.” Once health and wealth are traded off at the personal level (as the Harvard Business School’s Clayton Christensen advocates), people will be much less likely to demand so much care. Government can attend to other national priorities, or individuals will enjoy higher incomes and will be free to spend more.

I respect these arguments to a point, but I worry they partake of the “nirvana fallacy.” If I could be certain that leviathan would repurpose all those wasted health care dollars on infrastructure, or green energy, or smart defense, or healthier agriculture, I’d be ready to end tax-advantaged health insurance in an instant. But I find it hard to imagine Washington going in any of these directions presently.

Giving tax dollars back to taxpayers also sounds great, until one processes exactly how unequal our income distribution is. In 2004, “the top 0.1% — that’s one-tenth of one percent — had more combined pre-tax income than the poorest 120 million people.” To the extent health-related taxes are cut, very wealthy households may see millions per year in income gains; the median household might enjoy thousands of dollars per year. Sure, middle income families will find important uses for those funds (other than bidding up the price of housing and education). But at what price? What if the insurance systems start collapsing without subsidies, and more physicians (who are already expressing a desire to work less) start seeking out pure cash practices? A few interactions with the the very wealthy may be far more lucrative than dozens of ordinary appointments.

Consider the math: billing a $20,000 retainer from each of 50 millionaires annually may be a lot more attractive to physicians than trying to wrangle up 500 patients paying $2000 each—or, worse, getting the money from their insurers. There are about 10 million millionaires in the US; that’s a lot of buying power. One $10,000 score by a cosmetic dentist from such a client could be worth 400 visits from Medicaid patients seeking diagnostic procedures. Providers are voting with their feet, and a Medicaid card is already on its way to becoming a “useless piece of plastic” for many patients. Given those trends, simply reducing health care “purchasing power” generally risks some very troubling outcomes for the very people the health care cost cutters claim to protect. No one should welcome a health care plutonomy, where the richest 5% consume 35% of services, regardless of how sick they are.

Is Anyone Underpaid in Health Care?

Health commentators rightly draw attention to big insurer CEO paydays. Top layers of management at hospitals and pharma firms are also getting scrutiny. Wonks are up in arms about specialist pay. Read more

Discount Prescription Program Available To Some Locals

Listen up, Hoboken, Newark, and Orange residents.  There’s a new prescription discount program in town: Coast2Coast Rx Card.  Well, the program isn’t all that new to the area: Newark launched it last year and Hoboken launched it in January.  However, I didn’t learn about Coast2Coast Rx Card until I filled a prescription at my local CVS last month.  Since my prescription wasn’t covered by my health insurance (I always joke to the pharmacist that it kind of defeats the purpose of having health insurance, but I never get any laughs), I was bracing myself for the out-of-pocket cost.  So imagine my surprise when the pharmacist said that I owed $35 instead of $50.  When I pointed out the “mistake,” I was handed a Coast2Coast Rx Card.

While it isn’t a substitute for health insurance, the free Card does offer discounts on prescription drugs, laboratory tests, and imaging tests.  Specifically, the Card boasts such features as:

• 59,000+ participating pharmacies including all major chains and most independents
• Over 60,000 drugs included in formulary
• Save up to 65% on a brand name or generic drugs
• Overall annual savings range from 30% to 45%
• Card is good for an entire family
• Cardholder pays no fees for the card
• No paperwork to fill out — card is ready to use
• There are no health, age or income restrictions; everyone qualifies
• Card has no expiration date and can be used as often as needed
• Card can be used to fill pet prescriptions at participating pharmacies
• Card is primarily for uninsured although insureds can use the card if they have a high deductible
• Insureds can use the card if their drug isn’t covered by their insurance
• In some instances the card can be used during the Medicare Part D “donut hole.”
• Cardholder information is held confidential and is not used for any other purpose.
• The card includes 50%-80% discounts on lab and imaging tests

According to The Florida Times-Union, Financial Marketing Concepts, Inc. (FMC), a Florida-based company, issues the Card on behalf of WellDyneRx, a national pharmacy benefit management company.  In the past three years, FMC has secured agreements with 57 cities and counties in Alabama, Arizona, California, Florida, Illinois, Massachusetts, Mississippi, Missouri, New Jersey, New York, Ohio, Pennsylvania, Tennessee, and Texas (which may or may not look something like this.)  These agreements give FMC a small fee for each prescription filled through the program.  FMC in turn passes along a royalty to the city or county.

If you’re like me, you may already be in the habit of calling pharmacies and comparing the cost of prescriptions, regardless of whether or not your health insurance covers them — and it’s surprising how the cost can vary.  So if you live in Hoboken, Newark, or Orange, be sure to check out whether the Card gives you any discounts.  Can’t hurt.

Antibiotic Resistance on the Rise, Thanks to Capital Misallocation on a Grand Scale

After Makena: Could a Risk Corridors Approach Balance Incentives and Access?

The past few weeks have been worrying ones for expectant mothers who wanted a hormonal treatment designed to stop preterm births. As Rob Stein of the WaPo explains,

A form of progesterone known as 17P was used for years to reduce the risk of preterm birth. . . Because no companies marketed the drug, women obtained it cheaply from “compounding” pharmacies, which produced individual batches for them [at about $20 each]. Doctors and regulators had long worried about the purity and consistency of the drug and were pleased when KV won FDA’s imprimatur for a well-studied version, which the company is selling as Makena.

The list price for the drug, Makena, turned out to be a stunning $1,500 per dose. That’s for a drug that must be injected every week for about 20 weeks, meaning it will cost about $30,000 per at-risk pregnancy. . . . The approval of Makena gave the company seven years of exclusive rights, and KV immediately fired off letters to compounding pharmacies, warning that they could no longer sell their versions of drug.

A day after Stein’s article appeared, the FDA made it clear that it “does not intend to take enforcement action against pharmacies that compound” 17P, “in order to support access to this important drug, at this time and under this unique situation.”

This is a fascinating, and in some ways, troubling response to the accusations of price-gouging by KV. Compounding pharmacists had already averred that “many of [KV's] assertions that the compounding of an FDA approved product is prohibited are not supported by the legal citations it references.” Though the FDA’s letter preserves access to 17P for now, that access could be revoked at any time. As the FDA states on its website:

FDA understands that the manufacturer of Makena, KV Pharmaceuticals, has sent letters to pharmacists indicating that FDA will no longer exercise enforcement discretion with regard to compounded versions of Makena. This is not correct. In order to support access to this important drug, at this time and under this unique situation, FDA does not intend to take enforcement action against pharmacies that compound hydroxyprogesterone caproate based on a valid prescription for an individually identified patient unless the compounded products are unsafe, of substandard quality, or are not being compounded in accordance with appropriate standards for compounding sterile products. As always, FDA may at any time revisit a decision to exercise enforcement discretion.

Moreover, the problem persists for at least one other drug, colchicine. As Arthur Allen explains at Slate,

The colchicine and [17P] stories have their roots in the FDA’s historically complex relationship with the drug industry. Since 1962, the agency has required that all new drugs be proven safe and efficacious before hitting the market. Many drugs marketed before 1962, however, remain on sale without having been formally approved by the FDA and are technically illegal. In 2006, the FDA launched the Unapproved Drugs Initiative, aimed at getting rid of as many of these drugs as possible. . . .

The FDA campaign has two approaches. In some cases, the agency simply warns companies to stop producing and shipping unlicensed drugs by a given date. In other cases the FDA warns a group of companies producing a particular class of drug, notifying them that it plans to crack down on their unapproved substances. The idea here is to give the companies an opportunity to submit their drugs to the rigorous testing required for FDA approval. This is what happened with . . . at least 86 newly approved drugs. The problem is that after submitting such drugs to expensive testing, drug makers typically jack up the prices, in a position to do so under congressional patent incentives aimed at producing innovative drug research. The FDA has no say in how a drug is priced.

As the Post notes, KV says it “is spending more than $200 million to develop the drug and conduct follow-up studies that the Food and Drug Administration demands.” Had it kept its pricing power, it was estimated that Makena would cost the US health care system $4 billion per year. Assuming that 3/4 of that would be revenue to Makena, and it lasted for the full 7 years of exclusivity, that would be a $21 billion return on a $0.2 billion investment. That seems excessive, especially given that KV didn’t develop the drug. On the other hand, if the Makena price were to be reduced one hundredfold, that’s a $0.21 billion return on a $0.2 billion investment. Unless we hit some serious deflation, that doesn’t cover the time value of the money invested in studies and development.

Are there any better models here? Stein’s story says that “experts said the FTC could sue KV if it concludes the company is illegally impairing competition,” but I don’t see the theory there. The FTC has lamented post-merger price hikes for life sustaining drugs (see FTC v. Lundbeck), but has precious little authority over price hikes here. Perhaps liberal constitutional law professors could fuse the “medical self-defense” theory of Eugene Volokh with the expansive Yoo/Vermeule/Posner theories of executive power, and find inherent executive authority here to save preemies? Probably not; the current Supreme Court is only receptive to creative con law from one side of the political spectrum.

Another idea is for legislation to create “risk corridors” for researchers who engage in the FDA’s Unapproved Drugs program, as CMS has for prescription drug insurance plans in Medicare Part D. As Kip Piper explains,

Using a system of risk corridors that compares actual incurred drug benefit costs to estimated costs submitted in bids, Medicare limits the profits and losses of Part D drug plans. Specifically, if a Medicare drug plan’s actual benefit costs exceed expected (bid) levels by a sufficient degree, the plan will receive an additional federal payment to cover a portion of the loss. However, if a drug plan’s actual spending falls sufficiently below projections, the plan must share some of the profit with the feds. Risk corridors apply to actual and expected drug benefits costs but exclude plan administrative costs and federal reinsurance payments.

Unfortunately, estimates of the value of testing unapproved drugs vary widely. The FDA’s director of the FDA’s Office of New Drugs and Labeling Compliance insists on the importance of these programs. But, looking specifically at colchicine, an Austin rheumatologist said “Doing one trial in patients and a few drug interaction studies doesn’t justify marketing exclusivity and a 50-fold increase in price.” As Allen puts it, we need “legislative remedies to improve the drug supply without costing the public an arm and a leg.”

In health care finance, the “cost-shift” hydraulic is a familiar model. When policymakers cut reimbursements for, say, Medicare or Medicaid, providers still have the same income target, and respond by raising prices for the privately insured. One scholar estimated that the privately insured pay over 120% of costs, while Medicare payments are between 95 and 99%. We might think of pharmaceutical patents as another manifestation of “cost-shifting,” from the future (which will enjoy drugs in the public domain) to the present (which must pay the monopolist’s price). Other forms of exclusivity can also lead to that type of cost-shift, as the Makena controversy makes clear. Perhaps the people most benefited by a regime of pharmacovigilance and evidence-based medicine should be asked to pay something for that new reassurance. But they shouldn’t be price gouged. A risk corridors approach might better balance patients’ interests in research on, and reasonable prices for, unapproved drugs.

Symposium on Access to Knowledge in the Age of Intellectual Property

There will be an online symposium on the new book Access to Knowledge in the Age of Intellectual Property at Concurring Opinions this Tuesday to Thursday (Feb. 1 to Feb. 3, 2011). This book, edited by Gaëlle Krikorian and Amy Kapczynski, is available for free download here, and can also be purchased here. Here is a quote from the introduction that gives a sense of the book’s themes:

In a hospital in South Korea, leukemia patients are expelled as untreatable because a multinational drug company refuses to lower the price of a life-saving drug. Thousands of miles away, a U.S. group called the Rational Response Squad is forced by the threat of a copyright lawsuit to take down a YouTube video criticizing the paranormalist Uri Geller. Could we—should we—see these two events, so seemingly remote from one another, as related? Yes—or such is the premise of a new political formation on the global stage, one that goes under the name of the “access to knowledge movement”—or more simply, A2K.

A2K is an emerging mobilization that includes software programmers who took to the streets to defeat software patents in Europe, AIDS activists who forced multinational pharmaceutical companies to permit copies of their medicines to be sold in South Africa, and college students who have created a new “free culture” movement to “defend the digital commons”—to select just a few. A2K can also be seen as an emerging set of theoretical commitments that both respond to and reject the key justifications for “intellectual property” law and that seek to develop an alternative account of the operation and importance of information and knowledge, creativity and innovation in the contemporary world.

Krikorian and Kapczynski have assembled a top-notch group of contributors, and we welcome comments from across the blogosphere.

HHS OIG Notifies Drug Manufacturers of New Enforcement Initiative for Price Reporting Requirements

On September 28, the Office of the Inspector General (”OIG”) released a Special Advisory Bulletin regarding a new enforcement initiative regarding the timely submission of certain pharmaceutical data.  Manufacturers will face civil money penalties (CMP) for failing to comply with reporting requirements.

The Center for Medicare & Medicaid Services (”CMS”) relies on the timely reporting of average manufacturer prices (”AMPs”) and average sales prices (”ASPs”) for the implementation of four different programs: the Medicaid Drug Rebate Program, the 340B Drug Pricing Program (340B Program), the Federal Upper Limit (FUL) Program, and the Medicare Part B outpatient prescription drug benefit.

Under the Medicaid Drug Rebate Program, CMS uses AMPs to calculate the rebates owed to state Medicaid programs.  The 340B Program, which requires manufacturers to sell their prescription drugs to certain safety net health care providers at or below specified prices, also uses AMPs to establish price ceilings.  Medicaid’s FUL Program uses AMPs to act as a prudent buyer of multiple-source drugs.  Finally, the Medicare Part B outpatient drug benefit relies on ASPs to establish Part-B covered drug and biologic payment amounts.

Timely and accurate price reporting is important to the effective and efficient administration of the Medicaid Drug Rebate Program, the 340B Program, the FUL Program, and the Medicare Part B drug benefit.   Manufactures are required to report and certify timely and accurate drug pricing information, including AMPs on a monthly and quarterly basis and ASPs on a quarterly basis.

However, multiple reviews of historical reporting by OIG have demonstrated that voluntary compliance has not been fully effective.  For instance:

• The February 2008 report, “Average Sales Prices: Manufacturer Reporting and CMS Oversight,” found that, “between 41 and 52 percent of manufacturers provided ASPs after the statutorily defined due date.”
• The OIG report, “Drug Manufacturers’ Noncompliance With Average Manufacturer Price Reporting Requirements,” released the same day as the Special Advisory Bulletin, determined that during 2008:
  • 53 percent of the 592 manufacturers that were required to submit quarterly AMP reports failed to provide pricing data by the statutorily defined due date.
  • 78 percent of the 579 manufacturers that were required to submit monthly AMP reports failed to provide pricing data by the statutorily defined due date.

Moving forward, OIG will work with CMS to “identify and penalize noncompliant manufacturers through the CMP process.”  Upon a report from CMS that a manufacturer has not submitted a timely report of product pricing information, OIG will exert its authority to impose CMPs of $10,000 per day upon the manufacturer in an effort to improve compliance.

Of Doughnut Holes and Simple Math, or, “Even if I Pay Half Price For Brand Name Drugs, Won’t That Still Be $4,350 Out of Pocket Until Medicaid Kicks In?”

Forgive me if I sound naïve, or perhaps a wee bit skeptical, but I’m somewhat perplexed as regards the bottom line of PhRMA’s well cheered announcement to offer a 50% discount on name brand prescription drugs to seniors stuck in the money pit known as the Medicare “Doughnut Hole.”  The New York Times has said that the “Federal Saving From Lowering of Drug Prices Is Unclear” and the Washington Post has said that  ”It was not clear how much of the savings would accrue to the government side of the ledger and how much would represent lower out-of-pocket payments for consumers.” Unclear as it may be, it may be worth a look. This is not to say that this move announced by PhRMA is not a step in the right direction, just that a closer gauge of the step, as it appears at present, would seem to be in order.

First things first, in its 2008 fact sheet, “Prescription Drug Trends, September 2008,” Kaiser Family Foundation found (pdf. page 2) that

“The average brand name prescription price in 2007 was over 3 times the average generic price ($119.51 vs. $34.34).

Kaiser also found that “For products with a large number of generics, the average generic price falls to 20% of the branded price and lower.” And that “Approximately three-quarters of FDA-approved drugs have generic counterparts.”

When considering the approximately 25% of FDA-approved drugs which do not have generic counterparts, and which would figure largely in any savings under the new PhRMA discount plan, it is probably important to remember that pharmaceutical companies often  engage in what is known as “pay-for-delay:” the practice of paying generic drug manufacturers not to market generic drugs which would compete with their own branded drugs.

Might I suggest that without a concomitant decrease in the breadth of the lapse in coverage known as the “Doughnut Hole,” or some after purchase rebate scheme which allows the full price of the discounted drug to count towards satisfaction of the Doughnut Hole requirement, the net result for many of the hardest hit  seniors will be fairly limited? That they will still have to pull approximately $4,350 per year out of their pockets?

What’s a Doughnut Hole?

The PhRMA discount goes to the price of brand name prescription drugs after the initial cap is met on the Medicare prescription drug benefit. This initial cap on prescription benefit coverage can result in what CMS refers to as “the coverage gap” or what is often referred to as the Medicare Part D “doughnut hole.”

As we reported in a post back in February,

The Dallas Morning News has offered this explanation of “the doughnut hole”

Seniors with Medicare’s standard drug benefit for 2008 pay the full price once their total drug expenses — both Medicare’s costs and their own out-of-pocket deductibles and co-payments — reach $2,510.

They are then on their own for the next $3,216, until their total drug spending exceeds $5,726. At that point, catastrophic coverage kicks in, and Medicare pays 95 percent of their drug costs.

Some seniors are able to avoid the doughnut hole because they qualify for extra government help or buy extra insurance. But everyone else has to mind the gap, which lawmakers included in Medicare’s drug benefit to hold the line on federal costs.
The WSJ Health Blog reports that in 2009, “The coverage gap will open up after beneficiaries and their drug plans have spent a total of $2,700 on medications…. Seniors are then on the hook for the next $4,350.”

We also noted that “In response to that expense, the Kaiser Foundation has shown that many seniors cease or diminish the use of their medications.”

Some simple, if not rudimentary, math
In order to make a complex matter slightly easier, allow me the liberty of making the numbers even: we’ll use $2,500 for an initial cap, and we’ll use $4,500 for the out of pocket or “on the hook number” — that which one must pay until Medicaid kicks in and pays 95% of the cost. [Because of the wide variation in coverage plans, the actual numbers can vary as well, and there is some fluctuation in the amounts reported.]

Again for even number ease sake, consider someone with a large, constituting catastrophic, $12,000 per year brand name prescription bill. That person, regardless of the discount, will still have to take $4,500 out of his or her own pocket during the Doughnut Hole period of non-coverage-unless the Donut Hole itself is changed or eliminated. Looking at the calendar year, if the Doughnut Hole is not changed or eliminated, with or without the discount, the initial cap ($2500 @ 1000 per month) will be met at around the middle of March. The primary difference with the discount is that instead of making it only to August before Medicaid picks up the tab for the consumer, Medicaid will not kick in until December. Under this scenario, the brand name consumer stands to ultimately save roughly $200 as a result of the 5% Medicaid co-pay,  and Medicaid will have to make a payment for the brand name pharmaceuticals for roughly 3 weeks worth of supply. But the consumer’s out of pocket $4,500 still went to the brand name  pharmaceutical. Read more

House Subcommittee Hearing Scheduled Today: The End of “Pay to Go Away” Deals Between Drugmakers?

A House Energy and Commerce subcommittee hearing was scheduled for today regarding the practice of brand-name pharmaceutical companies paying generic drugmakers to delay the launch of their drugs.  These agreements, sometimes known as “pay to go away” arrangements, allow the brand-name pharmaceutical companies to benefit by keeping the cheaper generic drugs off the market for a period of time,  and essentially holding a monopoly on the drug for longer.  The generic drug company also benefits, as they are paid to simply delay their drug’s entrance into the market.

The Wall Street Journal reported that the FTC has fought these payments for years, Democrats have discussed passing legislation to forbid such deals, and President Obama has promised to stop the arrangements in his budget.  Senator Herb Kohl (D-Wis.) introduced a bill in February to abolish these deals and Rep. Bobby Rush (D-Ill.) introduced a comparable bill in the House last week.

The WSJ states that generic drugs can cost as little as a quarter of the brand-name drug, which can ultimately save billions of dollars in drug costs.  Eliminating the deals that keep the generic drugs off the market would therefore create significant savings to the country’s health care system.  Scott Hemphill, associate Professor at Columbia Law School, told the WSJ that ten brand-name drugs with about $17 billion in annual sales are now protected by the agreements, including Pfizer’s Lipitor.  Pfizer said that this was not the case.

Since 2001, the FTC has filed six suits to stop these deals, with little success.  However, in February, FTC Commissioner Jon Leibowitz said that he believed Obama’s administration was going take action to stop the “pay to go away” deals.  According to Medical News Today:

Leibowitz said “The new administration does seem to recognize that this is a real problem.”  He added that “fixing it … would actually help pay for health care reform.” Leibowitz said FTC will take a two-pronged approach to stopping “pay-for-delay” settlements. First, the agency will challenge the most anti-competitive settlements in court, and secondly, it will support legislation against such deals. Leibowitz said he expects the Obama Department of Justice to be “much more supportive” of legal challenges to the settlements than the Bush administration. He added that it also is possible “the-pay-for delay settlement issue or problem will get resolved in health care reform, and … if that happens, then it will presumably get resolved more expeditiously.”

Biopharmaceutical Companies Continue to Advance and Invest In Rough Economic Times

A recent press release from the Pharmaceutical Research and Manufacturers of America (PhRMA) reports that pharmaceutical and biotech companies continue to invest substantial amounts of money into research & development, despite the dismal current economic situation.  Research from PhRMA and Burrill & Company shows that “pharmaceutical research and biotechnology companies invested a record $65.2 billion last year in the research and development of new life-changing medicines and vaccines — an increase of roughly $2 billion from 2007.”  There are almost 30,000 medicines in development in the country right now.

In a time when most other industries are struggling and the unemployment rate is the highest it has been in 25 years, it is encouraging to see that the biopharmaceutical industry, one whose existence and success directly impacts the health of our nation, is continuing to invest and advance.  For example, this week we saw Merck make a serious investment through its $41.1 billion merger with Schering-Plough.    In addition, as we posted in December, Merck announced its plan to enter the biosimilars market, which will cost an estimated $1.5 billion.

Biopharmaceutical companies are continuing to spend on R & D, and the great majority of their investments are within the US.  According to “The Biopharmaceutical Sector’s Impact on the U.S. Economy: Analysis at the National, State, and Local Levels”, a study out this month by Archstone Consulting and Dr. Lawton R. Burns, this industry creates millions of US jobs and contributed three times as much to the GDP than the average of other industries and sectors in 2006.

Besides the struggling economy, drug companies face other challenges.  As we recently reported, President Obama’s health reform plan may negatively impact pharmaceutical companies through an increased discount to Medicaid (from 15.1% to 22.1% of avg. manufacturer’s price).   Despite the economic crisis and health care reform changes, it is hopeful to hear the industry’s continued commitment to progress. Said PhRMA President and CEO, Billy Tauzin:

America’s pharmaceutical research and biotechnology companies are not immune to the challenges presented by our current economic crisis.  However, the important work that we do every day in the battle with disease cannot stop. The U.S. is the world’s hotbed of medical innovation, and throughout the country, we remain committed today to finding tomorrow’s cures, despite the incredible challenges that are posed by the current economy.

HHS OIG Report Finds Part D Private Insurers Overcharged for Billions, Lack of CMS Oversight

According to a recent report by the Department of Health & Human Services, Office of Inspector General, private insurance companies that operate plans under the Medicare prescription drug benefit have overcharged Medicare beneficiaries and the program by several billion dollars since the program began in 2006.

According to the report, 80% of health insurers that operate plans under the Medicare prescription drug benefit overcharged the program by about $4.4 billion in 2006 alone. In addition, The McClatchy/Raleigh News & Observer reports that the Centers for Medicare & Medicaid Services (CMS) remains unaware of the total impact of the practice because of its failure to perform required audits.

Read more

Donut Holes: How Much is that Prescription in the Window?

The Wall Street Journal reports that the Center for Medicare and Medicaid Services (CMS) has “finalized a rule meant to curb an industry practice that has inflated drug costs for some patients with Medicare drug coverage.”

The new rule regards the way that one calculates the cost basis for Medicare prescription drug benefits for the purposes of reaching the initial cap on coverage. This initial cap on prescription benefit coverage can result in what CMS refers to as “the coverage gap” or what is often referred to as the Medicare Part D “doughnut hole.”

The Dallas Morning News has offered this explanation of “the doughnut hole”

Seniors with Medicare’s standard drug benefit for 2008 pay the full price once their total drug expenses - both Medicare’s costs and their own out-of-pocket deductibles and co-payments - reach $2,510.

They are then on their own for the next $3,216, until their total drug spending exceeds $5,726. At that point, catastrophic coverage kicks in, and Medicare pays 95 percent of their drug costs.
Some seniors are able to avoid the doughnut hole because they qualify for extra government help or buy extra insurance. But everyone else has to mind the gap, which lawmakers included in Medicare’s drug benefit to hold the line on federal costs.
The WSJ Health Blog reports that in 2009, “The coverage gap will open up after beneficiaries and their drug plans have spent a total of $2,700 on medications…. Seniors are then on the hook for the next $4,350.”

In response to that expense, the Kaiser Foundation has shown that many seniors cease or diminish the use of their medications.

The new rule, which will go into effect on January 1, 2010, alters the price basis for how the initial cap amount is met (in 2007 the initial cap was $2,400, in 2008, $2510, in 2009 it will be $2,700, and in 2010, presumably, it will be somewhat higher than that).

WSJ explains that at present the cost of a Medicare beneficiary’s prescriptions for initial cap purposes are not calculated as the amount that was paid to the pharmacy which dispenses the drugs, but by the amount which insurers paid to pharmacy benefit managers (PBMs) who function as administrators of prescription plans and middlemen between insurers and pharmacies.

PBMs may “lock in” a drug price with insurers, and then often negotiate with pharmacies for a lower price. The PBMs then keep the brokered difference. According to WSJ, “the size of that difference is typically secret.” At present, the higher amount the insurers pay to the PBM is the amount that is used to calculate a Medicare beneficiary’s cap calculation. As such, the higher rate can get beneficiaries to the cap-and the subsequent coverage gap- quicker.

WSJ reports that “Under the new rule, plans can still use the lock-in approach. But the amount paid to the pharmacy — not the higher price paid by the insurer — will have to be what is used to determine patients’ pace to the doughnut hole.”

The New York Times reports that “President-elect Barack Obama said Wednesday that overhauling Social Security and Medicare would be “a central part” of his administration’s efforts to contain federal spending….”

At present, Medicare is itself unable to negotiate drug pricing. In Obama’s campaign health plan, he stated that he would

Allow Medicare to negotiate for cheaper drug pricing. The 2003 Medicare Prescription Drug Improvement and Modernization Act bans the government from negotiating down the prices of prescription drugs, even though the Department of Veterans Affairs’ negotiation of prescription drug prices with drug companies has garnered significant savings for taxpayers. Barack Obama and Joe Biden will repeal the ban on direct negotiation with drug companies and use the resulting savings, which could be as high as $30 billion, to further invest in improving health care coverage and quality (footnotes omitted).