Some election-year topics are hotter than others, and now
that impeachment seems to be behind us, many expect that the topic of health
care access will heat up.
Not that this hasn’t gained plenty of press and airtime in
the past few months. The Democratic presidential campaign has focused on the
potential of “Medicare for All” to either spur the discussion of improving health
coverage or kill it altogether. And the reasons are not simply about money. It’s
also about a relatively quick closure of a massive industry and the jobs it
would lose.
As of 2018, the Kaiser
Family Foundation indicated that 16% of all adults 18 to 64 years of age
were uninsured. Broken down by states, around one-fifth of nonelderly adults were
uninsured in Texas (24%), Oklahoma (20%), Florida (19%), Georgia (19%), and Mississippi
(19%). Far fewer are found in states that expanded their Medicaid programs
under the Affordable Care Act. Underinsurance is a separate issue; this
includes those families with unaffordable deductibles or especially who have coverage
in plans that offer limited benefits and exclude benefits for preexisting
conditions. The percentage of the population who are underinsured is growing.
And let’s put aside the rhetoric that such a move would amount
to a socialist takeover of the country. Universal health coverage is an
important, worthwhile goal. The real question remains how to close the remaining
access gaps in our system and do so in a way that covers more people faster
than we gain uninsured amidst rapidly rising health insurance premiums, cost
sharing, and deductibles.
As many analysts have pointed out, gaining fully universal coverage
through such a plan will either cost trillions more than the bloated amount we
already spend on health care (over
$3.6 trillion in 2018), or it will cost a somewhat small percentage more than we already spend. The Sanders campaign
believes it will save money over the long term, but there haven’t been as much
support for this viewpoint. If it is phased in over a relatively short 4 years,
that means that all health insurance employees and executives will need to find
new occupations by 2024. I haven’t been able to locate consistent figures; the
US Bureau of Labor Statistics does not specify numbers for “health service managers”
that include health plans, insurers, PBMs, but of course many may overlap with
physician, pharmacist, and other medical professional counts. However, if I could
count all of the at-risk employees of UnitedHealthcare, CIGNA, CVS Aetna,
Humana, and the regional health plans, the number of people affected could approach
or surpass 750,000.
There are a number of different options, some of which have
been well addressed and others have not.
The Public Option. This may have been an opportunity missed during the Obama Administration. The “public option” was originally planned as part of the Affordable Care Act but was dropped from the legislation to assure its passage. The public option was supposed to be a government-managed health insurance choice, apart from the private exchange plans. This has been raised again by certain Democratic presidential candidates, and there is polling evidence that it has more support than Medicare for all.
When first considered in 2009, the benefits of the public
option were twofold: (1) the administrative costs of this nonprofit health plan
would very likely be less than that for private health insurance, resulting in a
lower cost alternative; and (2) with sufficient growth, it could force private
plans to accept higher medical loss ratios to compete. The potential
implication is that private insurance plans that have to show profits would not
be able to compete in reality, and the public option would become a de facto national health insurance. And
it may have driven private health insurers into narrow areas, such as integrated
plans like Kaiser Permanente, which could still remain viable.
The public option remains available. If it was implemented
in 2012, when the ACA took effect, consider how the coverage, cost, and
deductible situation might have been different today.
Universal Catastrophic Care.This option has not been well
described. It resets the definition of health insurance. In this iteration, it
is more a type of reinsurance—it prevents most consumers who experience the
need for expensive care from suffering medical bankruptcy. An added benefit is
that it would help individuals and their dependents more easily navigate their
acute care needs.
The problem for underwriters is that general health care
delivery is not truly something that can be insured. Unlike auto insurance, it
is a service that the majority of people utilize at some point of time, and the
costs associated with that care are not limited. As it is, most people pay
thousands of dollars per year on auto insurance, and do not file claims in a
given year. Health care, however, is a service that most people utilize at some
point during the year, and some repeatedly. First-dollar coverage for many
services, including preventive care, raises rates. A wide array of services
covered raises rates. Increasing provider charges raises rates.
Under this scenario, individuals would be responsible for
paying for (or obtaining private health insurance to pay for) medical care up
to a specific expenditure. Everyone can buy this insurance through their own
resources or through government subsidies (based on a sliding scale). In simple
terms, a person with incomes qualifying for Medicaid pay nothing out of pocket;
a person earning $500,000 must pay themselves, again up to the level defined as
catastrophic care. Beyond that level, the government pays all costs. Simple.
In our next post, we’ll detail more closely how the catastrophic care option can work.
It is well known that the cost for specific procedures in US hospitals is not only far higher than in most Western countries, but it may be far greater from hospital to hospital in the same geographic area. And this may not include an apples-to-apples comparison of all of the components of care. As a result, it is well accepted that the cost of US health care is too high, outcomes are generally no better than in other Western countries, and the search for better value continues.
A unique, jumbled health care financing scheme has ruled the nation for many years. Hospitals and clinicians are paid in various ways in this country: reimbursed for most every service provided, prepaid in a form of capitation (fixed rates no matter how much service they provided), fixed rates for specifically defined “episodes of care,” and per-diem rates for hospitalization (a fixed rate for each hospital day, which includes most routine care and testing).
FEE-FOR-SERVICE PAYMENTS STILL DRIVE COSTS
Except for fee-for-service (FFS), these payment mechanisms attempt to place some risk on physicians, hospitals, and most onerously on patients. In the 1960s through the 1980s, FFS was dominant. Providers were deeply satisfied with their remuneration and their autonomy (until the rise of managed care in the late 1980s and early 1990s). Steep cost increases have been well publicized overall. Disease treatment has improved of course with the introduction of new technologies, but our ability to manage the costs of their increasing utilization in practice is a tremendous challenge (consider biologic drugs, genetic therapy, robotic surgical procedures, new diagnostics). Today, hospitals and payers play a perverse FFS game of enormous charges vs. low reimbursements, with the patient often caught in the middle.
CAPITATION: EFFICIENT BUT DISLIKED
Capitation placed the most risk on providers, and this was used most commonly in primary care practices. Doctors contracted with health plans to receive a fixed, per-member payment. Regulators feared that the physicians might underutilize resources while treating their patients, in order to optimize their capitated income. That is, clinicians might not send patients to higher cost specialists, elect to not give them the most effective (but higher cost) treatment, or not refer the patient for necessary testing. One challenge with contracting for the “right” capitation rate was to factor in an appropriate add-on payment to cover the cost of those with expensive-to-treat illnesses (i.e., risk adjustment). That is one reason why capitation rarely included drug costs.
However, capitation did remove the incentive to overtreat patients, by exposing them to excessive testing. It is efficient, maybe too efficient: It helped establish the concept of assembly line medicine. Practices had to reduce patient visit times to squeeze more patients onto their appointment schedule—a necessity if they were to optimize revenues. Inevitably, it leads to burn out and dissatisfactionwith their practice. Capitation still exists today, but outside of more extensive utilization across the country or a more sophisticated form (e.g., the patient-centered medical home), it seems potential value may be limited.
PER-DIEM PAYMENTS
Prospectively arranged per-diem rates are commonly used by Medicare and private insurers, but the per-diem might not account for some carved-out services. Hospitals may be incentivized to provide more of these specific services than necessary, bloating their charges. To counter this incentive, per-diems may be charged fordifferent types of patients(e.g., cardiac, obstetrics, intensive care).
However, this form of inclusive payment made it easy for health plans and insurers to deny hospital claims for additional days of care. This led to hospitals claiming that patients were discharged earlier than warranted medically. Inevitably, hospitals would seek ways to justify longer hospital stays (and thus additional per-diem payments). Somewhat surprisingly, this resulted in more layers of administrative complexity and costs (to determine the appropriateness of stays), and less surprisingly, how to collect denied charges from payers.
BUNDLED AND GLOBAL PAYMENTS
From a health plan or purchaser’s standpoint, arranging fixed rates for a full episode of care was thought to be the most efficient way to pay for care. It would remove the incentive for excessive charges, and compel providers to be as efficient as they can with their own resources. In other words, it aligned all incentives on both the payer and provider sides.
Medicare or a private payer would prospectively contract for a set amount for knee replacement surgery and care. This would encompass all charges, including the orthopedic surgeon, surgical facility, joint replacement device, medications, anesthesia, nursing care, and even rehabilitation care (i.e., a global payment). On the other hand, these payments could be “bundled” to incorporate just surgical and operating facility expenses or other groups of related services. The terms global or bundled payments are often used interchangeably.
Medicare pioneered this movement, with the initial introduction of a type of global payment called diagnosis-related groups(DRGs) in the 1980s. These single payments were based on the average costs to treat a similar type of patient, regardless of additional services rendered. This approach was considered an appropriate way to reduce or at least minimize costs, because the incentive would allow providers to care for patients more efficiently.
CONFUSING RESULTS
The Centers for Medicare and Medicaid Services (CMS) instituted a program in 2016 that forced the use of a bundled-payment model for hip or knee replacement in 75 random metropolitan areas. In this program, hospitals received bonuses or paid penalties based on their Medicare spending over the time of hospitalization plus 90 days postdischarge. This is referred to as holding upside and downside risk. This program was dubbed Comprehensive Care for Joint Replacement. Medicare hoped it would save a bundle using bundled payments compared with standard reimbursements in other geographic areas.
And save it did, but on a very small scale. A study published in the New England Journal of Medicine revealed only modest savings for Medicare. Researchers reviewed costs for over 650,000 knee and hip replacements in both the areas designated to receive bundled payments and those not receiving bundled payments. The average savings amounted to $812 per patient for the bundled payment providers, or a 3.1% decrease compared with the control group. The researchers believe that the greatest factor in the decrease was that few patients in the bundled payment group were discharged to post–acute care centers. When hospitals that earned bonuses were paid out, the savings were smaller still. In other words, the savings did not accrue from the most expensive portion of the care—that provided in the hospital.
The researchers did find compelling evidence that there were seemingly no differences in health outcomes between the two payment groups. But then again, it seems that the care provided in the hospital may not have really been different.
Participation in this program was mandatory in the first 2 years, unlike other alternative reimbursement programs spurred by CMS, which are voluntary in nature. In fact, the Comprehensive Care for Joint Replacement program was changed to voluntary status at the end of the 18-month study period. Today, HHS Secretary Azar is considering converting participation from voluntary to mandatory. A recent GAO report supports this, saying that if a program is voluntary, providers that fare poorly will quickly drop out. Yet, the results from study’s mandatory participation period failed to yield anticipated savings.
WERE THE PAYMENTS TOO GENEROUS IN THE FIRST PLACE?
The savings were disappointing if you consider that hospitals had both upside and downside risk. The only real difference in hospital behavior was the lower use of post–acute care in those receiving bundled payments. It might well be that the problem was that the bundled payments were too generous in the first place. However, by lowering this amount greatly (and thus compelling greater savings), the outcry from providers forced to participate would have been deafening.
Yet, this is one of the main problems: health care costs are unjustifiably high in the US. On the other hand, can one argue that since the savings were so modest, traditional reimbursements to providers may not be so high after all? Well that just seems wrong, based on our knowledge that US health costs are much higher than elsewhere around the globe.
It’s difficult to appraise what the total cost should be, as some studies include hospital costs only and not the total episode of care. Therefore, it may take some more experimentation to fine-tune how to extract more savings.
Consider though, if global payments cannot reduce our medical expenditures significantly, what can?
The rebates given to pharmacy benefit managers to secure a drug’s place on the formulary have become a difficult barrier to coverage for new products. The rebate income for these PBMs is sometimes passed on to health plans, insurers, and employer purchasers, but more often it is not.
A big issue is that managed care organizations tend to become addicted to millions of dollars in rebate “income,” and this mindset prevents serious consideration of new medications at competitive costs.
For biosimilars, Pfizer and Merck have had a difficult time dislodging Janssen, maker of Remicade®, from its preferred formulary position, despite lower prices based on wholesale acquisition cost (WAC). Janssen has simply matched the net cost (through increasing rebates), while keeping its WAC costs high—tempting plans with ever-increasing rebate revenue. The health plans don’t see the benefit of incurring the administrative costs of moving masses of patients from the preferred product to a new one, or seeing this revenue stream interrupted, without an overall further improvement in net costs.
Managed care plans have long said that discounts of 25% or more will be necessary to release the rebate stranglehold of preferred products. In the case of infliximab, this has not yet occurred, based on recent minor inroads made by Merck’s Renflexis® biosimilar, despite larger discounts. Until greater competition is available, which drives down the WAC prices (and then average sales prices [ASPs]), barriers to accessing new medications will remain. In fact, when competition does increase, makers of the originator products, like Janssen, can simply ratchet up their rebates to maintain a hold on sales (and a billion-dollar plus profit).
Perhaps the best way around this is to force a change in the marketbasket. This can be accomplished in a couple of ways. The first, by instituting separate tiers for biosimilars and reference agents, takes the biosimilars out of the 1 of 2 preferred drug contracting restrictions, and allows patients to access biosimilars as well as preferred brands.
A second way is to reconsider biologic agents according to indication-based contracts or mechanism-of-action (MOA) based differences. Therefore, the marketbasket is modified to consider anti-TNFs separate from interleukins, allowing preferred agents in each separate category. This would allow, for instance, for more effective psoriasis agents to be well covered, and maintain the preferred position of Humira® and Enbrel® for appropriate patients.
A third way is to work out some innovative value-based contract, in which the manufacturer and health plan/insurer reaches an agreement on (usually) the expected outcomes of drug use and additional rebates or performance guarantees if the medication fails to deliver on this performance. The most important consideration in this agreement is the practicality of measuring an outcome of interest or ensuring adherence.
The rebate trap seems to be ensnaring more manufacturers of new biologics and biosimilars. Without greater consideration of the overall good, this trap can cause systematic problems for the pharmaceutical industry and discourage drug innovation and accessibility.
Years ago, the undeclared rule of law was that a Pharmacy and Therapeutics (P&T) Committee’s deliberations must be free of cost concerns. This rule is increasingly being overturned.
The P&T Committee, as a formulary decision-making body, was supposed to decide a new agent’s fate based only on the clinical evidence for efficacy and safety. According to the standard protocol, once the P&T Committee’s decided to add a product to formulary, it was then the pharmacy contracting executives’ responsibility to simply get it for the best price available. This created a handy shield to prevent public complaint that a health plan or insurer was really making decisions based treatment cost.
The preeminence of 2 trends has caused payers to rethink this firewall. First, over the course of 25 years, multitiered copayment designs have become the standard. The very idea of a 3-tier plan, for instance, is to prefer products that medical and pharmacy executives believe patients should be incentivized to use, based on some facet of value. In practical terms, if tier 1 is for generics only, what is the difference between tier 2 (preferred brands) and tier 3 (nonpreferred brands)? The clinical difference between a preferred drug and, say, “me-too” agents on tier 3 is often insignificant. Most often, it comes down to which offers the best net price. Medicaid and exchange plans seem to be reverting to 2 tier plans (generic and covered brands), but these, too, are based on perceived value.
The second trend is the movement towards value-based benefit design (VBBD). At its simplified core, VBBD tries to determine whether certain drugs have more value (in terms of proof of clinical effectiveness, safety, or cost) compared with others. As a result, formulary decision makers are increasingly seeking comparative-effectiveness information or head-to-head study results to help determine the value of a new treatments. This information is added to P&T Committee discussions (sometimes included, if available, in drug information monographs). The result of which is a determination of whether prior authorization or step edits may be warranted to access the drug and what those criteria might be. P&T Committee members will have a hand in those decisions as well.
It only then makes sense to integrate the discussion of a drug’s cost into that of its clinical merits at the P&T Committee level, rather than to keep the greater value picture separate from formulary decisions.
The double-digit growth of specialty pharmacy spending has injected new urgency into the conversation about value for payers. The P&T Committee is (still) the arbiter of value for the pharmacy benefit and for specialty pharmaceuticals. That is why at least two-thirds of P&T Committees are now fully invested in cost considerations. The old firewall has been breached.
SM Health Communications provides writing, consulting, and market research services for the long-term care and payer markets. Its proprietary P&T Insight™ virtual P&T Committee program is the leading mock P&T Committee product in the field. For more information, please visit www.smhealthcom.com or contact Stanton R. Mehr, President, at stan.mehr@smhealthcom.com.
This is one of the prickliest topics in the health care industry, and it has been as long as I can remember. One of the publications I worked with was called Product Management Today. Long defunct, this periodical followed the pharmaceutical industry quite closely. As a result, we were familiar with Tufts University’s Center for the Study of Drug Development. This was the first organization to publish what was considered credible figures as to what it cost to bring a drug to market.
In the early 1990s, that number was published in the Journal of Medical Economics to be about $231 million. Remember, these were generally small molecules, and the drug industry consisted of dozens of big manufacturers identifying their molecular targets, characterizing them, and cultivating them through the clinical trial process. In 2003, this number was revised upward to somewhere north of $800 million. In 2016, the Tufts team recalculated the numbers, and it found essentially a 10-fold difference (not accounting for the inflationary change in the value of the dollar between 1991 and 2016). They indicated that it costs $2.7 billionto bring a product to the market today, which also considers the cost of failed drug development. In other words, they added the opportunity cost to a pharma company for a drug that was withdrawn or failed clinical trials (any stage). In their 2016 analysis, they took as their drug sample, 106 investigational drugs, 87 being small-molecule compounds and the remaining 19 biologics. I’m guessing that if biologics represented more than 18% of the sample, the total average estimate could have been even greater.
The cost to produce a biosimilar is considerably less. This is partly the result of the lesser clinical trial requirements compared with new chemical entities. Although this figure has not been convincingly calculated, I’ve heard it cited to be anywhere up to $250 million. This seems to be reasonable, based on the development requirements. Unfortunately, several biosimilar manufacturers have to wait to market their agents because of patent litigation, and that in itself represents a cost.
Today, the results of another study was released, which offers a very different number. Published inJAMA Internal Medicine, authors from Oregon Health and Sciences University and Memorial Sloan Kettering Medical Center found that the cost to produce 10 cancer medications was really $648 million (range, $204 million to $2.602 billion)—add another $110 million or so for opportunity costs. This included 5 drugs that received fast-track approval. Not only did the researchers use US Securities and Exchange filings that cited manufacturer-reported costs, but they limited the analysis to only manufacturers without a previous approved drug on the market. The drugs evaluated included several monoclonal antibodies, so it was reflective of complex molecule development.
I’d like to point out another question that perhaps skews the calculation. Rarely these days does “big pharma” get involved with new drug identification and characterization. True, they are often involved in the expensive clinical trial phase, but do we read in the paper weekly that a drug discovery company has licensed or sold the product to a big pharma entity (or even sold the company itself)? And what is the guarantee that they are not overpaying for the price of the drug or the company?
The upshot of this is that the 10 companies evaluated in the more recent study had cumulative revenues resulting from their new agents of $67 billion from the time of approval (until December 2016 or the time it sold or licensed the product to another company). The range per product was ranged from $204.1 million to $22.3 billion. It sounds overall, that they were good buys for the big pharma companies but not necessarily for the health care system.
In other words, whether it cost $648 million, $800 million, or $2.7 billion, the research and development costs for these new agents are made back in a year or less. It is hard for us to listen seriously to pharma companies who use the cost to develop the agents, or their having to eat the cost of failed agents, as credible justification for the prices being charged.
The federal government agreed on October 10 that the Aetna and CVS Health merger can be consummated. That deal came with the caveat that the sale of Aetna’s Medicare part D business to WellCare is finalized.
Internal relationships between managed care plans and pharmacy benefits managers are not new. In fact, United Healthcare spawned Diversified Pharmaceutical Services, one of the first PBMs some 40 years ago. That PBM was eventually bought by Express Scripts. Today, OptumRx is United’s PBM. Today, CIGNA is closing its deal to purchase Express Scripts. Other regional or national health plans have established relationships with PBMs, for at least one valuable service: negotiating drug pricing with manufacturers. However, over the course of time, they have also taken advantage of several of the available services the PBM provided, like pharmacy network development, mail-order pharmacy, specialty pharmacy, and claims administration. This side of the Aetna and CVS Health merger is less inspiring.
One of more interesting aspects of the arrangement is not the PBM side of CVS but rather Aetna’s opportunity to leverage the community-based health clinics that CVS drugstores offer nationally.
Most people realize that flu and Herpes zoster vaccinations are available through community pharmacies. Generally, the drugstore has a partitioned area in which patrons can receive their flu shots. Like other large drugstore chains, CVS has built such a network—its Minute Clinic® within select locations. (These facilities may vary in terms of services offered or personnel on site. For example, according to CVS Health’s website, my local CVS pharmacy is supposed to offer Minute Clinic services, but it has no private area nor have I ever seen nurse practitioners or physician assistants onsite.)
The idea behind CVS Health’s strategy is largely embraced today. People need alternatives to the long appointment waits for routine care that may be evident through primary care practices. Urgent care clinics somewhat fill this gap, but the convenience of local drugstores cannot be topped (outside of access to full telemedicine services, which is years away).
Furthermore, the overhead associated with pharmacy-based clinics may be lower than facilities, particularly considering the menu of services they offer. In this model, access to pharmacy services is as good as in a hospital or integrated delivery network setting.
The only problem with this strategy is a familiar one—the limited workforce of healthcare providers. CVS Health states that its Minute Clinics are staffed with nurse practitioners and physician assistants.
The idea of using clinical pharmacists to collaborate with prescribers in the course of providing basic medical care has been around for decades. Beyond their utility in medication therapy management, a practice that has experienced slow growth since the early 1990s, clinical pharmacists can be a very useful resource in limited care settings. A major barrier to expansion of these services has been a lack of reimbursement from payers. Organizations like the Academy of Managed Care Pharmacy, American Pharmacists Association, and the American Society of Health-System Pharmacists have supported the expanded use of clinical pharmacy.
However, Aetna is a major payer. If Aetna is considering more fully integrating the community pharmacy–based clinic model into its provider networks, it may also be wise to plan for wider use of clinical pharmacy services. These services may be cost effective, help improve patient access to care, and result in high patient/member satisfaction. To achieve these outcomes, Aetna will have to align reimbursement for these services.
As fascinating as the scenario offered by Aetna and CVS Health merger seems, there may also be a more tantalizing opportunity: Beyond significantly growing the use of medication therapy management services, might this also serve as an initial step towards pharmacist-provided direct patient care supported by a national payer?
CONFUSING RESULTS
Internal relationships between managed care plans and pharmacy benefits managers are not new. In fact, United Healthcare spawned Diversified Pharmaceutical Services, one of the first PBMs some 
ent through primary care practices. Urgent care clinics somewhat fill this gap, but the convenience of local drugstores cannot be topped (outside of access to full telemedicine services, which is years away).