Category Drug Prices

On 6/24/19, the President of the United States issues an executive order requiring Hospitals and Insurance companies to reveal what they are charging or paying for services.

The idea is to make health care cost transparent, which then would lead to consumerism and then medical providers reducing costs to attract more patients. Primarily pressuring the health care industry to become like any other industry.  “The goal is to create a more competitive marketplace where providers are competing for patients on price and quality.” CMS

The Insurance industry immediately pushed back, stating this action would have unintended consequences by pushing prices higher rather than down.  The insurance industry fears that publicly disclosing proprietary network rates (PPO, EPO, HMO) will only lead to medical providers demanding higher reimbursements based on the highest reimbursement rate.

The Department of Health and Human Services will propose regulations requiring hospitals to disclose what the standard charge for medical procedures in an easy to understand format. 

Both, which includes Insurance companies and medical providers will fight this executive order with all their resources because real price transparency could have huge implications on their business models.

If the public can retrieve what each medical provider charges for a specific procedure, that could lead to that patient going to the lowest costing provider, especially with current deductibles and out of pocket maxes.   Quality care should remain a factor, but a provider charging more for that procedure would have to justify why they are charging more. Maybe they have the best doctor in the state performing that procedure, or they have the newest technology, or it might come down to how the staff treats you before and after the procedure.  Price transparency could lead to lower prices and additional services.  

On the flip side If all the medical providers know what each other are charging, this could lead to higher prices by matching the highest price being charged.  

If the public had access to network discounts that the insurance companies negotiate with the medical provider are, it could have a massive impact on carrier selection.  Large employers with self-funded plans would have a clear picture on which insurance company offers the deepest discounts. A large employer typically will be responsible for the initial claims on each member called stop-loss insurance.   If the employer pays the first $150K in claims on each member and they have a crystal-clear picture that Insurance company X has 10% deeper discount than other carriers that can add up to significant savings.

On the flip side, all the insurance companies could arrive at a similar benchmark on reimbursements and then negotiate additional discounts that could go back to the carrier or client in the form of rebates. Thus, losing transparency

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The Trump administration released the American Patient First which is a guide to lower drug prices. The blueprint provides two phases; Phase 1 is actions the President can take to lower prices, Phase 2 is for HHS actions of consideration and solicit feedback.

American Patient First Blueprint

The blueprint is looking at four areas to address, Increased Competition, Better Negotiation, Incentives for lower list prices, & Lower out of pocket costs. This blueprint seems to be geared at mostly at Medicare members, which does make sense as they have been hit the hardest by prescription drug prices. The blueprint is also going after the Pharmacy Benefit Manger (PBM). It even states that PBM’s should have a fiduciary responsibility of providing the best price. As of now, PBM’s are not held to this standard and have openly admitted they do not have the responsibility of delivering the best prices. The blueprint does go into detail about how outdated the PBM model and how they are impacting the public in a negative manner.

Would this Blueprint have any immediate impact on drug pricing? The answer is yes! The PBM’s are already making changes to their business models, and this may be one of the reasons they have agreed to be bought out or merged with other companies. UnitedHealthcare’s PMB Optum was the first to announce they will start sharing manufactures rebates with their full insured clients. Outside of the transparency with PBMS, the rest of the blueprint could take years to have an impact on prices. There is a large emphasis on fast-tracking generic drugs, with the current system manufacture has up to 20 years of patent protection but the clock starts ticking when the drug was in development. Maybe it takes seven years for a generic to come to market. If that is fast-tracked maybe it’s cut in half.

Increased Competition:
Immediate Actions to prevent manufactures gaming the regulatory processes. The FDA has a Risk Evaluation and Mitigation Strategies (REMS) that regulates similar or generic drug coming to market. If manufactures are unable to delay similar or generic version of drugs coming to market, then this could have an impact on costs. What is meant by gaming the system, under the current rules the first company to file for the generic is given exclusivity, which allows an application to be “parked” with the FDA, thus delaying competition.

Better Negotiations:
The Blueprint addressed Medicaid & Medicare Part D & C providers. Medicare provider would be able to negotiate with the drug manufactures, as of right now it appears that those providers are prohibited from doing so. This would also allow for part D plans to change their drug formulary standards. Also mentioned is inflation limits on drug pricing and to make public average sales prices. Addressing price disparities in the international drug markets. One would have to guess that increasing world prices could lower US drug prices?

Creating Incentives to lower Prices:
Current list prices of drugs do not reflect discounts, rebates or concessions paid to the pharmacy benefit manager, Insurance company, health plan, or government program, which leads to the insured paying higher drug prices. If these discounts are made transparent and applied to the insured, it could lead to lower costs. The plan goes a step further by eliminating the rebate program in an attempt to lower out of pocket costs, thus forcing Medicare Part D providers to negotiate with manufacturers to lower prices based on costs being forced onto the Medicare D providers.

Reducing Patient Out of Pocket Spending:
Provide Transparency on drug pricing for all Medicare members. The idea is that the patient would know what the drug costs before they go to the pharmacy to fill it. Eliminating cost sharing for generic drugs for Part D members.

American Patient First impact on Indiana:
Indiana could see prescription drug prices drop but because the PBM’S are no longer retaining the manufactures discount. With the UHC drug program, Hoosier could start to see savings Jan. 1st, 2019. If the Blueprint immediately allows Part D provider to be negative with drug manufacturers, there could be immediate savings for Medicare members. Most of the blueprint is addressing Medicare issues, in the hope it would cross over to the private markets.

With any new regulations, there is always criticism of not doing enough, doing too much, negative impacts to vested parties, this Blueprint was written in manor of having the greatest impact on pricing with the least amount of government regulation. It will be interesting to see if this style of regulation yields positive results.

Tony Nefouse

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