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Follow the money: A possible solution from D.C.?
Changes may be coming regarding the high costs of medicines.
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Do you read financial news? You know, the Wall Street Journal, Investor’s Business Daily or at least the business section of your local rag? You really should. There is all kinds of stuff in there that is important and affects your everyday practice experience no matter what kind of practice you may have.
As you know, I have long railed against the outsized influence and immoral financial practices of the largest health care organizations in the U.S. Big vertically integrated providers (think your local massive medical system with Man’s Best University Hospital Clinic providing “most excellent better than anyone else care”), pharmaceutical and device companies, as well as insurance companies and pharmacy benefit managers (PBMs) all behave in cynically self-serving ways that make paying for health care a fraught experience for everyone.
Although medicines represent only some 20% or so of health care expenditures in the U.S., it is perhaps the area that causes the greatest amount of angst among patients. Not only have we seen a dramatic rise in the list prices of medications, the actual cost to patients has seemingly risen even faster. Why is this so? In my “follow the money” series earlier this year, I attempted to explain how the game works. Part 3 was about how PBMs have been responsible for this most recent increase in patient costs.
By way of review, a health insurance company contracts with a PBM (either in-house or outsourced) to negotiate drug prices with pharmaceutical companies. This once resulted in “off-the-top” discounts from the list price, and the co-pay your patient ponied up was some percentage of that discounted price. Think down payment on a new car after negotiating down from MSRP. One transfer of funds from the insurance company to the pharmaceutical manufacturer with the PBM taking a fee to manage the transaction. The PBM business was a high-volume/low-margin gig.
That is not how it works anymore.
A PBM now pays list price to the pharma company, and money actually moves from one to the other. This makes top-line sales numbers for the pharma company look really good. Before this happens, though, the pharma company has negotiated to pay a rebate back to the PBM, ostensibly for the privilege of a more advantageous position on the formulary. These rebates are a percentage of the drug price; the higher the price, the greater the absolute amount of money flows to the PBM. In this perverse way, the system encourages higher prices. Because your patients pay a percentage of the “negotiated” price, this is how they end up with an astronomical co-pay.
There is a little more history that you need to remember before we talk about what might be happening in D.C. Does the term “safe harbor” ring a bell? Remember the Stark regulations and all of the sturm und drang about how important it was to reign in any possibility that doctors would be influenced by the possibility of making a profit? Safe Harbor work is so important to the law firms that we use as consultants that every associate has “SA” surrounded by a heart tattooed on their left ankle. Anyone who owns an optical shop or an interest in an ASC is operating a safe harbor under the Stark regulations. Fee-splitting is explicitly prohibited, but the co-management of postoperative care and the designation of 20% of the surgical fee to pay for it is considered a safe harbor.
You and I have very little juice in D.C. That is why it was actually possible that it might have been illegal for any kind of eye doctor to sell eyeglasses to a Medicare patient and why you actually have to think twice about who picks up a check when you have dinner with a co-owner of your ASC, lest someone accuse you of receiving a kickback for doing surgery there. Not so for the health insurance and pharmaceutical industries, though. You, like me, might say that there is a very fine line between a “rebate” and a kickback. When the statutes were enacted, they included a safe harbor for rebates between big pharma and PBMs.
Change may be afoot. The high cost of medicine is such a burden for almost all Americans that everyone in D.C. dives in front of cameras so that they can be seen wringing their hands in dismay. Until Wednesday, July 18, this resulted in nothing but empty platitudes. As reported by the Wall Street Journal, on that Wednesday evening the Department of Health and Human Services sent the White House Office of Management and Budget a proposal that, if enacted, will hopefully make these rebates illegal. By removing the safe harbor that protects pharma rebates the “current business model evaporates and [PBMs] become what they were — low-margin claims processors” that negotiate prices, not self-serving rebates.
This is hardly a panacea for us, the doctors who take care of dry eye disease and other types of patients who need to take medicines that cost a lot of money. That PBM is not going to all of a sudden stop playing games with the formulary, and it is not going to stop doing mean-spirited financial management such as “step therapy” or predatory preauthorization requests. Removing the perverse incentive to raise prices is simply step one in the process necessary to rationalize drug pricing. Your patients would then enjoy an instant decrease in their cost because the price from which their co-pay is calculated would go down.
Let us not forget that this is simply a proposal right now. It must pass through the gauntlet of lobbyists that big pharma and the health insurance industries will throw at it before it even gets a chance. What can we do as doctors and patients? For sure, if you are the kind of person who reaches out to their elected officials, this is a truly big deal and potentially an historic opportunity to effect real change in the cost of medications. If you are more like me, I view this as an important opportunity for our elected professional representatives to engage D.C. for the good of our patients and our profession. The folks at the American Academy of Ophthalmology really love to hear from regular docs who just take care of patients.
Tell them I said hi.
- For more information:
- Darrell E. White, MD, can be reached at SkyVision Centers, 2237 Crocker Road, Suite 100, Westlake, OH 44145; email: dwhite@healio.com.
Disclosure: White reports he is a consultant to Allergan, Shire, Sun, Kala, Ocular Science, Rendia, TearLab, Eyevance and Omeros; is a speaker for Shire, Allergan, Omeros and Sun; and has an ownership interest in Ocular Science and Eyevance.