Five Important Questions on Health Care Costs

No one disputes that addressing ever-increasing health care costs in the United States is an important societal and policy goal. The rise in out-of-pocket costs leaves patients and families vulnerable to significant financial hardship. Ultimately, the solution is to evaluate and reward the most cost-beneficial interventions in health care. Unfortunately, policymakers today are deluged with an array of incomplete or biased set of data points which may lead them to draw incorrect conclusions that could possibly hinder the development of biopharmaceutical cures of the future.

In order to see the whole picture, I offer policymakers five questions they should ask about data and policies presented to them regarding the pricing, cost and value of biopharmaceuticals.

One, what is the net increase in the cost or price of a medicine over a period of time? There is a litany of data points bandied about by stakeholders that do not take into consideration the substantial amount of rebates provided by the industry to both private and public payers. For instance, according to Drug Channels, approximately $115 billion was given back to payers in 2015 in the form of discounts or rebates. This amounts to approximately 30 percent of total U.S. biopharmaceutical expenditures annually. The rebates are even more substantial for public payers. For example, based on data from the Medicaid and CHIP Payment and Access Commission, gross fee for service Medicaid expenditures ($21.4 billion) for drugs was reduced by 67 percent (to $8 billion) after application of federal and supplemental rebates in 2015. To get even more granular, based on IMS Institute for Healthcare Informatics, the net price growth for “brand name” biopharmaceuticals was 4.9 percent in 2013, 5.1 percent in 2014, and 2.8 percent in 2015, which is very much in line with other segments of the health care industry and the economy in general, and certainly not the double-digit growth reported by payers. Hence, when presented with data, policymakers need to ask about the net amount of price and/or cost increases after discounts and rebates have been applied.

Two, how do policies that restrict access to key medicines impact overall health care costs and patient outcomes? Every year, pharmacy benefit managers announce an ever-expanding list of medicines that they will no longer cover as part of their formulary. In some cases, the exclusions require patients who are stable on a certain medication to switch to a new therapy, which often leads to non-compliance. Other times patients must go through a set of therapies that they may have failed previously on due to institution of byzantine-like step therapy provisions. Pharmacy benefit managers claim these policies will save money from the drug budget and help their bottom line. But is this a healthy choice for patients? Policymakers should hold pharmacy benefit managers accountable for negative effects on overall health care costs and, more importantly, patient outcomes based on their formulary exclusion policies.

Three, are certain participants within the health care system artificially inflating drug costs? According to a report published by Memorial Sloane Kettering Cancer Center, there is almost a 100 percent markup when a medicine is administered in a hospital setting versus a physician’s office (~16 percent markup). With the acceleration of hospitals purchasing physician practices since the institution of the Affordable Care Act, policy leaders need to inquire whether shifting the administration and billing policies from a privately owned physician’s practice to a hospital system contributes to the increase in drug costs. Policymakers should ask if these purchases are taking place and, if so, how best to ensure that appropriate market dynamics are maintained.

Four, identify patients who may require intense biopharmaceutical interventions. We know that a small percentage of patients consume most of the health care in the U.S. The American Health Policy Institute looked at claims data from 26 large employers and found that 1.2 percent of their insured populations are high-cost claimants who are responsible for 31 percent of total spending. Policymakers ought to demand that payers identify the high-risk patients and work with biopharmaceutical companies to ensure appropriate access to medicines.

Five, demand full disclosure of all data points and methodology. For example, an often cited study by payers is the Kaiser Family Foundation survey from 2015 which states that 72 percent of consumers find drug costs to be unreasonable. However, payers fail to divulge that in that same survey the same percentage of consumers (72 percent) also stated that they find prescription drugs are easy to afford. Another example can be found in a recently published slide from the Kaiser Family Foundation that appears to illustrate that Medicare recipients under the age of 65 spent 30 percent of their health care expenditures on drugs, while  Part D patients (65 years and older) only spent 12 percent of their health care expenditures on medicines. What the slide fails to tell you, however, is that Medicare recipients under the age of 65 are typically the patients who suffer from chronic conditions such as End State Renal Disease that require significant biopharmaceutical intervention. Cherry-picking the data to make a point doesn’t help lawmakers understand what the real issues are in health care spending so they can begin to find constructive ways to work through them. It is extremely important for policymakers to challenge and hold not only biopharmaceutical companies but also reporters, researchers, academicians, and most importantly payers to disclose all of the data and their research methods related to important health care utilization and outcomes information.

Ultimately the question everyone should be asking is why do we have a system that disincentives the utilization of the most cost-beneficial health care intervention – biopharmaceuticals? Why are patients required to pay a greater percentage of the costs associated with a medicine as compared to an emergency room visit? Why are patients required to pay a higher dollar amount out of pocket for a medicine in aggregate nationally compared to hospital expenditures when drugs costs are 1/3 of hospital expenditures in the U.S.?  More to the point, policymakers should inquire as to when a hospital admission cured a patient’s lung cancer or a pharmacy benefit manager managed a patient’s blood pressure!


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