Good Ideas Gone Bad in Health Care

Some have suggested I need a new hobby.  For more than 20 years, I have analyzed the impact that the utilization of biopharmaceuticals has on health care outcomes and spending. In that time, I have come across what appear to be good policy ideas that end up being corrupted, don’t deliver the desired outcomes or are just plain wrong.

My interest in the topic of “good ideas gone bad” began in graduate school in the mid-1990s when I came across the research done by Dr. Stephen Soumerai. Soumerai investigated the impact of a three-drugs-per-month limit for Medicaid recipients in the state of New Hampshire. The policy led to the desired outcome of decreasing the use of essential pharmaceuticals, but it also resulted in an increase in nursing home admissions and use of emergency services. So while the state did save a few dollars on pharmaceuticals, it ended up spending more on costlier health services.

Unfortunately, the lessons from Soumerai’s research seem to have gone unnoticed, as we’re seeing unintended consequences as a result of more recent “cost-saving” initiatives.

For years, pharmacy benefit managers and insurers have claimed that garnering rebates and discounts and charging fees to the biopharmaceutical industry are the ideal way to go about formulary management. They proclaim that such practices keep insurance premiums in check. If this assertion is true, then why does the data contradict it?

According to eHealth, the average individual health insurance premium from 2012-2017 has increased by 107 percent. During the same time period, rebates, discounts and fees paid by the biopharmaceutical industry to insurers and PBMs have risen from $74 billion to $153 billion — an increase of 107 percent, according to Drug Channels, while gross retail and non-retail pharmaceutical spending have increased by only 38 percent, according to the Department of Health and Human Services’ Office of the Assistant Secretary for Planning and Evaluation. Clearly, ever-increasing rebates, discounts and fees are outpacing the increase in spending on drugs, but more importantly, they haven’t contained premium increases as promised.

Another worthwhile policy gone awry is the 340B Drug Pricing Program. This initiative was meant to help hospitals that care for a disproportionate share of indigent or uninsured patients. Under the law, if biopharmaceutical manufacturers wanted to participate in Medicaid, they would have to provide outpatient medicines to 340B hospitals at prices discounted by 20 percent to 50 percent.

Over the years, the program has greatly expanded with little oversight, as more than 25 percent of retail, mail and specialty pharmacies are now eligible for the 340B discount. In 2016, according to findings by Drug Channels, more than 50 percent of total hospital drug purchases in the United States were through the 340B program. In an updated report in 2018, Drug Channels stated: “Since 2014, purchases under the program have grown at an average rate of 29% per year. By comparison, manufacturers’ net drug sales grew at an average rate of less than 5% over the same period.”

Evidence regarding exploitation of an important program for monetary gain is ubiquitous. A 2014 report from the Inspector General of the Department of Health and Human Services found that utilization of contract pharmacies may lead to diversion or duplication of discounts, and that most covered entities in the study did not conduct all of the oversight activities recommended by the Health Resources and Services Administration. Such behavior ultimately falsely increases drug spending as noted by the Pacific Research Institute, which found that “abuse of the program drives up the health tab borne by taxpayers and everyone with private health insurance.”

Finally, as the U.S. health care system evolves toward paying for value rather than volume, many have called for consolidation of providers so that they may be able to take on the financial risk necessary for new payment models such as capitation. The large hospital and academic centers have spearheaded the consolidation in the name of payment reform. The result of this shift is best described in a report published by the Community Oncology Alliance in April 2018. The authors of the report concluded that “Overall, 13.8 practices per month have been affected by closings, hospital acquisitions, and corporate mergers since 2008.”

But how has the consolidation through acquisition of physician practices impacted the delivery and cost of biopharmaceuticals administered by physicians? The takeover of physician practices by hospital and academic systems has led to a shift from medicines being infused in a provider’s office to an inpatient setting or under the billing auspices of a hospital billing system.

As summarized by Drug Channels, a study published by Milliman in 2016 found “chemotherapy infusions delivered in physician offices dropped from 84% to 54% in the Medicare population and 94% to 51% in the commercial population.” The result? An increase in cost of biopharmaceuticals because the cost of cancer drugs is 100 percent more when administered in a hospital outpatient setting instead of a physician’s office. Thus, an initiative intended to facilitate new payment models may be leading to artificial inflation of biopharmaceutical spending.

These three examples should be kept top of mind as we scrutinize new proposed delivery or payment models, as well as the recent spate of acquisitions and mergers between health insurers and PBMs. No law is perfect. Policymakers and regulators need to monitor the policies and regulations they put in place to ensure they are reaching the desired result of lowering health care costs rather than inflating them.


Robert Popovian is the vice president of Pfizer U.S. Government Relations.

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