The debate is on, and it is going to get even more nasty, heated, and divisive.
If we’re serious about cutting Federal health care expenditures over the long term, here are two changes that will do just that.
1. Requiring HHS to negotiate with pharma for Part D drug costs would reduce annual expenditures by over $20 billion.
As I’ve noted repeatedly(but unfortunately few in the mass media have), Part D’s perhaps the biggest deficit problem we have – the ultimate unfunded liability is now over $20 trillion. Of course, we could solve the majority of our budget problems by just canceling Part D, but neither the Democrats nor the Republicans ) will do that.
So, as long as we’re stuck with the damn thing, we ought to make it as inexpensive as possible. The best way to do that is to use the buying power of Part D to negotiate with manufacturers to get the best possible price for drugs that you – the taxpayer – are paying for. Believe it or not, the original Part D legislation expressly forbids negotiation with manufacturers for pricing.
In a 2006 House analysis, a report “showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department [emphasis added], 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and Drugstore.com.”
Another study indicated “An annual savings of over $20 billion could be realized if FSS [Federal Supply Schedule] prices could be achieved by the federal government for the majority of drugs used by seniors in 2003-2004…”
Are there problems with this? Absolutely. Reducing prices may impact R&D expenditures and will affect pharma margins – effects that must be balanced against the nation’s long-term financial viability.
2. Stop paying for medical ‘bridges to nowhere’; Require HHS to base reimbursement for devices and therapies on efficacy and effectiveness.
As noted in a recent piece in Health Affairs, “with only very rare exceptions, Medicare does not use comparative effectiveness information to set payment rates. Instead, it links reimbursement in one way or another to the underlying cost of providing services.” CMS is prohibited from considering benefit to the patient when developing reimbursement formulae and levels.
About a third of US health care dollars are spent on treatments that are likely not effective. One has only to look at the history of MRIs, carotid endarterectomy, and angioplasty to identify billions of dollars that have been wasted on treatments that did not help, and may well have harmed, thousands of patients. These treatments, devices, and providers make money for their purveyors and manufacturers, dollars that they are loathe to give up.
It is amazing that we pillory the Feds when they spend taxpayer dollars on services or items that (some opine) don’t work at all or don’t work as they are supposed to, yet prohibit CMS from doing precisely that.
Cutting costs while improving outcomes is absolutely possible. Whether it is politically feasible is another question entirely.
Feb
14
Joe…good call on the pharma Part D. I have one better for you. Why doesn’t the government get in the distribution business. Set up regional mail order facilities and ship the meds to seniors. That way the government would be paying acquisition costs rather than any mark up they see as a payer. I usually fall on the reduction of government involvement, but this might be an opportunity to save a lot of money.
If the “private sector” is the ultimate resolver of economic maladies, how is it that the “cost” of services or supplies continue to escalate each and every year in spite of the inherent virtues of the “free market”?
So what is the difference between a monopoly dominated by “governments” and a monopoly dominated by the “private industry”? Rich’s perhaps “tongue in cheek” recommendation to better manage pharma Part D ain’t a bad way to go. The current middlemen – PBMs and carriers – do not seem to exert any initiative to lower prices in the face of a law passed by the Republican dominated Congress, and signed by President Bush. What we do know is that those “middlemen” are law-abiding “citizens” as defined and blessed by the Roberts’ wing of the Supreme Court, and are not likely to curb their “profits” without a just cause!
Political will and acceptance by the general population are, I think, the main impediments to the cost reduction strategies outlined in this post.
I don’t think CMS could simply dictate prices to drug companies like it does to hospitals and doctors. It would have to negotiate. Its negotiating power would need to be tied to its willingness to keep a drug off the formulary of covered drugs if it can’t deliver sufficient value for money even though it won FDA approval because it’s better than a placebo.
The same is true for medical devices and sophisticated surgical procedures. I’m all for comparative effectiveness and value for money as worthwhile concepts and I would be willing to let people with appropriate expertise make those judgments. Yet, I can already hear the howls of protest from medical interest groups and the population at large objecting to “bureaucrats” interfering with decisions that they say should be between patients and doctors. They don’t seem to care that resources are finite. If the drug, device or procedure is approved by the FDA and the doctor thinks it could benefit the patient, even if only marginally, the patient should have access to it and someone else – taxpayers or insurers should pay the bill. Even the Independent Payment Advisory Board (IPAB) is not allowed to make any coverage and payment decisions that could affect hospitals before 2019. Overall, it’s pretty discouraging, I think.
I’m more optimistic about the increasing interest shown by employers recently in value based insurance design including tiered networks and narrow networks. We need to give patients an incentive to care about costs in the form of alternative insurance products with lower premiums. Tiering, hopefully, will encourage doctors to care about costs as well.