Author: Tyrone Squires, MBA, CPBS

This author has written 1311 articles

Are Employers the Culprits Behind High U.S. Health Care Prices?

Elizabeth Rosenthal’s eye-opening article about health care costs in The New York Times on Sunday was a reminder of how much more Americans pay for given procedures than citizens in health systems abroad. What was probably more surprising to most readers was the huge price differentials for identical procedures — not only across the United States, but even within American cities, where prices for a given procedure can vary tenfold.

These price differentials, it should be noted, have never been shown to be related either to the cost of producing health care procedures or to their quality. The question, not addressed in the article, is who bears the blame for this chaotic, private-sector price system. The only fair answer is: American employers. Who else could it be?

I have been critical of employment-based health insurance in this country for more than two decades. In the early 1990s, for example, at the annual gathering of the Business Council, I bluntly told the top chief executives assembled there, “If you want to find the culprit behind the health care cost explosion in the U.S., go to the bathroom and look in the mirror.” After years of further study, I stand by that remark.

I can imagine that some would look instead to the usual suspects – Medicare, Medicaid and possibly even the Tricare program for the military – but that would be a stretch. The argument would be that the public programs shift costs to the private sector, causing the chaos there. Few economists buy that theory.

Most health-policy analysts I know regret that employers appointed themselves their employees’ agents in the markets for health insurance and health care, developing in the process the ephemeral insurance coverage that is lost to the family when its breadwinner loses his or her job.

Employers were able to capture that agency role during World War II when they successfully walked around the prevailing wage controls simply by having Congress exempt fringe benefits from the wage cap. Employers were able to retain their agency even after the wage controls ended by having Congress exempt employer-paid fringe benefits from the taxable income of employees, a tax preference not granted Americans who purchased health insurance on their own. Retaining their tax-preferred agency role has been of great help to employers in the labor market.

Alas, in their self-appointed role as purchasing agents in health care, American employers have arguably become the sloppiest purchasers of health care anywhere in the world. The chaotic price system for health care is one manifestation of that sloppiness.

For more than half a century, employers have passively paid just about every health care bill that has been put before them, with few questions asked. And all along they have been party to a deal to keep the chaotic price system they helped create opaque from the public and even from their own employees. Only very recently and very timidly have a few of them dared to lift the veil a little.

Employers may protest that they rarely purchase health care for their employees directly. The actual purchases are made by the employers’ agents, private health insurance carriers. But the latter are merely the conduits for the employers’ wishes. When agents perform poorly, one should look first for the root cause at the principals’ instructions.

One reason for the employers’ passivity in paying health care bills may be that they know, or should know, that the fringe benefits they purchase for their employees ultimately come out of the employees’ total pay package. In a sense, employers behave like pickpockets who take from their employees’ wallets and with the money lifted purchase goodies for their employees. Far too many employees have been seduced into believing that their benevolent employer pays for most of their health care.

The result of this untoward pas de deux is the system Ms. Rosenthal describes.

One consequence of this opaque pricing system has been that, according to the 2013 Milliman Medical Index, the average cost of health care of a typical American family of four under age 65, and insured through an employer-sponsored preferred provider plan, is now $22,000, up from about $10,000 a decade earlier. It is a staggering amount, not only by international comparison, but also when compared with the distribution of family income in the United States, with a median income of $50,000 to $60,000.

Another result has been that, according to a recent analysis published in the policy journal Health Affairs, a decade of health care cost growth under employment-based health insurance has wiped out the real income gains for an average family with employment-based health insurance. One must wonder how any employer as agent for employees can take pride in that outcome.

Yet a third consequence of the rampant price discrimination baked into this pricing system is that uninsured Americans with some financial means are often charged the highest prices for health care when they fall ill, exposing them to the prospect of financial bankruptcy.

How long must the opaque and chaotic health care pricing system of employment-based health insurance in the United States persist? I can envisage two alternatives.

The first would be an all-payer system on the German or Swiss model, perhaps on a statewide basis, with some adjustments for smaller regional cost differentials (urban versus rural, for example), as is now the practice in the Medicare price schedules. In those systems, multiple insurance carriers negotiate jointly with counter-associations of the relevant health care providers over common price schedules, which thereafter are binding on every payer and every health care provider in the region (an analysis in Health Affairs offered more details). One can easily link such a system to the growth of gross domestic product.

The second alternative would be a marriage in which the financial risks of ill health are shared up to a point and raw, transparent price competition for the remainder. In such a system, called “reference pricing,” a private insurer, as agent for an employer or for a government program, would cover only the price charged for a medical procedure by a low-cost provider in the insured’s market area, forcing the insured to pay out of pocket the full difference between that low-cost “reference price” and whatever a higher-cost provider in the area charges for the same procedure.

Such a system, of course, presupposes full transparency of the prices charged by alternative providers in the relevant market area.

Because an all-payer system is highly regulatory, I predict the private health care market in the United States will sooner or later lapse into full-fledged reference pricing. It would entail ever more pronounced rationing of quality, real or imagined, by income class.

But such tiering has long been the American way in other important human services – notably justice and education. Why would health care remain the exception?

By: UWE E. REINHARDT

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Spending on Specialty Medications Will Rise 67%: Report

Spending in the U.S. on specialty drugs used to treat serious diseases is projected to increase 67 percent by the end of 2015, according to a forecast  by pharmacy benefit management firm Express Scripts.

Specialty medicines are those used to treat chronic, complex diseases such as cancer, multiple sclerosis and rheumatoid arthritis. They are prescription drugs that require special handling, distribution and administration. Many specialty medicines are biologics that are delivered via an injection or an infusion and are used to treat chronic, complex diseases.

Prescription drug spending on eight of the top 10 specialty therapy classes will continue to increase over the next three years, according to the report. This is due to both the introduction of new biologics and physicians delaying treatment of patients until the new drugs are on the market.

According to the forecast, overall spending on traditional prescription drugs – mostly pills used to treat common conditions such as high cholesterol and depression – will decline four percent by the end of 2015, largely because of the availability of generic medications. Only two of the top 10 traditional drugs — for diabetes and attention disorders — are likely to have spending increases over the next three years, but those increases will be significant.

Express Scripts said it expects that cancer, multiple sclerosis and inflammatory conditions such as rheumatoid arthritis — all specialty conditions — each will command higher drug spending than any other therapy class except diabetes by the end of 2015.

Hepatitis C drug spending likely will quadruple over the next three years, the largest percentage increase by far among therapy classes.  This increase will be caused in part by new interferon-free medications expected to gain FDA-approval in 2014.

“As we see what’s on the horizon, it’s time for employers and health plans to act so they can continue to offer an affordable pharmacy benefit for their members,” said Glen Stettin, M.D., senior vice president, Clinical, Research and New Solutions at Express Scripts. “New specialty treatments are making a real difference in the lives of patients, but the very high cost of these drugs creates difficult decisions for plan sponsors on which medicines to cover.”

Biosimilars, which are  less-costly alternatives to biologics, could become available once the patents expire on currently marketed biologics, a development that could help mitigate the rising cost of specialty medications.. Express Scripts recently projected that the country would save $250 billion between 2014 and 2024 if the 11 most likely biosimilar candidates were launched in the U.S.

Diabetes became the costliest prescription drug therapy class in 2011, and according to the new projections, it will continue to hold that distinction at least through 2015. Over the next three years, Express Scripts expects spending on diabetes medications to rise an additional 24 percent because of high prevalence and a robust pipeline of new therapies.

Despite the availability of generic equivalents for many attention disorder therapies, the data projects spending in the category to increase approximately 25 percent over the next three years, driven by increased utilization among middle-aged adults and wide geographic variation in diagnosis.

Express Scripts said its research shows that prevalence, medication use and associated medical and pharmacy costs for attention disorders is highest in the South. However, the Northeast region of the U.S. experienced rapid growth in attention disorder diagnosis, and that region’s associated costs grew nearly 60 percent from 2008 to 2010.

“In the absence of new therapies, to see such an increase in a traditional drug category suggests there is significant opportunity to better manage attention disorders,” said Dr. Stettin.

As part of its analysis, Express Scripts incorporates historical prescription drug cost and utilization trends from its own pharmacy claims data, the pipeline for emerging therapies, anticipated patent expirations, and other clinical and demographic factors.

Source | Insurance Journal

U.S. Medical Price Tag Far Higher Than Others

Deirdre Yapalater’s recent colonoscopy at a surgical center near her home here on Long Island went smoothly: she was whisked from pre-op to an operating room where a gastroenterologist, assisted by an anesthesiologist and a nurse, performed the routine cancer screening procedure in less than an hour. The test, which found nothing worrisome, racked up what is likely her most expensive medical bill of the year: $6,385.
That is fairly typical: in Keene, N.H., Matt Meyer’s colonoscopy was billed at $7,563.56. Maggie Christ of Chappaqua, N.Y., received $9,142.84 in bills for the procedure. In Durham, N.C., the charges for Curtiss Devereux came to $19,438, which included a polyp removal. While their insurers negotiated down the price, the final tab for each test was more than $3,500.
“Could that be right?” said Ms. Yapalater, stunned by charges on the statement on her dining room table. Although her insurer covered the procedure and she paid nothing, her health care costs still bite: Her premium payments jumped 10 percent last year, and rising co-payments and deductibles are straining the finances of her middle-class family, with its mission-style house in the suburbs and two S.U.V.’s parked outside. “You keep thinking it’s free,” she said. “We call it free, but of course it’s not.”
In many other developed countries, a basic colonoscopy costs just a few hundred dollars and certainly well under $1,000. That chasm in price helps explain why the United States is far and away the world leader in medical spending, even though numerous studies have concluded that Americans do not get better care.
Whether directly from their wallets or through insurance policies, Americans pay more for almost every interaction with the medical system. They are typically prescribed more expensive procedures and tests than people in other countries, no matter if those nations operate a private or national health system. A list of drug, scan and procedure prices compiled by the International Federation of Health Plans, a global network of health insurers, found that the United States came out the most costly in all 21 categories — and often by a huge margin.
Matthew Ryan Williams for The New York Times
A poster illustrating diseases of the digestive system at a doctor’s office.
Americans pay, on average, about four times as much for a hip replacement as patients in Switzerland or France and more than three times as much for a Caesarean section as those in New Zealand or Britain. The average price for Nasonex, a common nasal spray for allergies, is $108 in the United States compared with $21 in Spain. The costs of hospital stays here are about triple those in other developed countries, even though they last no longer, according to a recent report by the Commonwealth Fund, a foundation that studies health policy.
While the United States medical system is famous for drugs costing hundreds of thousands of dollars and heroic care at the end of life, it turns out that a more significant factor in the nation’s $2.7 trillion annual health care bill may not be the use of extraordinary services, but the high price tag of ordinary ones. “The U.S. just pays providers of health care much more for everything,” said Tom Sackville, chief executive of the health plans federation and a former British health minister.
Colonoscopies offer a compelling case study. They are the most expensive screening test that healthy Americans routinely undergo — and often cost more than childbirth or an appendectomy in most other developed countries. Their numbers have increased manyfold over the last 15 years, with data from the Centers for Disease Control and Prevention suggesting that more than 10 million people get them each year, adding up to more than $10 billion in annual costs.
Largely an office procedure when widespread screening was first recommended, colonoscopies have moved into surgery centers — which were created as a step down from costly hospital care but are now often a lucrative step up from doctors’ examining rooms — where they are billed like a quasi operation. They are often prescribed and performed more frequently than medical guidelines recommend.
The high price paid for colonoscopies mostly results not from top-notch patient care, according to interviews with health care experts and economists, but from business plans seeking to maximize revenue; haggling between hospitals and insurers that have no relation to the actual costs of performing the procedure; and lobbying, marketing and turf battles among specialists that increase patient fees.
While several cheaper and less invasive tests to screen for colon cancer are recommended as equally effective by the federal government’s expert panel on preventive care — and are commonly used in other countries — colonoscopy has become the go-to procedure in the United States. “We’ve defaulted to by far the most expensive option, without much if any data to support it,” said Dr. H. Gilbert Welch, a professor of medicine at the Dartmouth Institute for Health Policy and Clinical Practice.
In coming months, The New York Times will look at common procedures, drugs and medical encounters to examine how the economic incentives underlying the fragmented health care market in the United States have driven up costs, putting deep economic strains on consumers and the country.
Hospitals, drug companies, device makers, physicians and other providers can benefit by charging inflated prices, favoring the most costly treatment options and curbing competition that could give patients more, and cheaper, choices. And almost every interaction can be an opportunity to send multiple, often opaque bills with long lists of charges: $100 for the ice pack applied for 10 minutes after a physical therapy session, or $30,000 for the artificial joint implanted in surgery.
The United States spends about 18 percent of its gross domestic product on health care, nearly twice as much as most other developed countries. The Congressional Budget Office has said that if medical costs continue to grow unabated, “total spending on health care would eventually account for all of the country’s economic output.” And it identified federal spending on government health programs as a primary cause of long-term budget deficits.
While the rise in health care spending in the United States has slowed in the past four years — to about 4 percent annually from about 8 percent — it is still expected to rise faster than the gross domestic product. Aging baby boomers and tens of millions of patients newly insured under the Affordable Care Act are likely to add to the burden.
With health insurance premiums eating up ever more of her flat paycheck, Ms. Yapalater, a customer relations specialist for a small Long Island company, recently decided to forgo physical therapy for an injury sustained during Hurricane Sandy because of high out-of-pocket expenses. She refused a dermatology medication prescribed for her daughter when the pharmacist said the co-payment was $130. “I said, ‘That’s impossible, I have insurance,’ ” Ms. Yapalater recalled. “I called the dermatologist and asked for something cheaper, even if it’s not as good.”
The more than $35,000 annually that Ms. Yapalater and her employer collectively pay in premiums — her share is $15,000 — for her family’s Oxford Freedom Plan would be more than sufficient to cover their medical needs in most other countries. She and her husband, Jeff, 63, a sales and marketing consultant, have three children in their 20s with good jobs. Everyone in the family exercises, and none has had a serious illness.
Like the Yapalaters, many other Americans have habits or traits that arguably could put the nation at the low end of the medical cost spectrum. Patients in the United States make fewer doctors’ visits and have fewer hospital stays than citizens of many other developed countries, according to the Commonwealth Fund report. People in Japan get more CT scans. People in Germany, Switzerland and Britain have more frequent hip replacements. The American population is younger and has fewer smokers than those in most other developed countries. Pushing costs in the other direction, though, is that the United States has relatively high rates of obesity and limited access to routine care for the poor.
A major factor behind the high costs is that the United States, unique among industrialized nations, does not generally regulate or intervene in medical pricing, aside from setting payment rates for Medicare and Medicaid, the government programs for older people and the poor. Many other countries deliver health care on a private fee-for-service basis, as does much of the American health care system, but they set rates as if health care were a public utility or negotiate fees with providers and insurers nationwide, for example.
“In the U.S., we like to consider health care a free market,” said Dr. David Blumenthal, president of the Commonwealth Fund and a former adviser to President Obama. ”But it is a very weird market, riddled with market failures.”
Consider this:
Consumers, the patients, do not see prices until after a service is provided, if they see them at all. And there is little quality data on hospitals and doctors to help determine good value, aside from surveys conducted by popular Web sites and magazines. Patients with insurance pay a tiny fraction of the bill, providing scant disincentive for spending.
Even doctors often do not know the costs of the tests and procedures they prescribe. When Dr. Michael Collins, an internist in East Hartford, Conn., called the hospital that he is affiliated with to price lab tests and a colonoscopy, he could not get an answer. “It’s impossible for me to think about cost,” he said. “If you go to the supermarket and there are no prices, how can you make intelligent decisions?”
Instead, payments are often determined in countless negotiations between a doctor, hospital or pharmacy, and an insurer, with the result often depending on their relative negotiating power. Insurers have limited incentive to bargain forcefully, since they can raise premiums to cover costs.
“It all comes down to market share, and very rarely is anyone looking out for the patient,” said Dr. Jeffrey Rice, the chief executive of Healthcare Blue Book, which tracks commercial insurance payments. “People think it’s like other purchases: that if you pay more you get a better car. But in medicine, it’s not like that.”

After CMS Releases Chargemaster Data, Hospitals Mull Price Changes

Few big moves expected…

 
Days after the Centers for Medicare & Medicaid Services released hospital chargemaster data for dozens of the most common procedures performed, providers are mulling whether to cut their prices or do nothing at all.
 
Bruce Lamoureux, chief executive officer of Providence Alaska Medical Center, told Kaiser Health News he was reconsidering the prices his facility charges. “There are some instances where our charges for a particular procedure are, in one case, half of a different provider’s, and in a different case, twice a different provider,” he told Kaiser. Lamoureux added that listing prices gives consumers more bargaining power.

By contrast, Rick Davis, CEO of Central Peninsula Hospital in Soldotna, Alaska, told Kaiser he believes his prices are fair and doesn’t expect them to change.

 
C. Duane Dauner, president of the California Hospital Association, observed in a statement that since Medicare is paid based on DRGs and the state’s Medicaid program is paid on negotiated contracts, the chargemaster data release by CMS is “less relevant and may confuse patients as well as the public.”
 
And on a national level, hospitals indicate it would be a gargantuan effort to change their prices so they’re in line with Medicare payments.
 
“I can promise you that if you got into the weeds here, you would immediately discover that it ain’t as easy as it sounds,” Chip Kahn, CEO of the Federation of American Hospitals, the lobby for for-profit facilities, told the Huffington Post. “If someone decided tomorrow to do it, everybody could do it. But I’m telling you, it would cost billions of dollars–probably small billions, not big billions–because it’s not a minor task.”
 
May 13, 2013 | By 

A Federal Agency (CMS) has Requested Copies of our Purchase Invoices for Wholesale Prescription Drugs

The Centers for Medicare & Medicaid Services, the largest purchaser of prescription pharmaceuticals, is eliminating or at least leveling the playing for itself and patients.  CMS is collecting wholesale invoices from pharmacies across the country (see below).  
 
CMS will use a combination of calculus, statistics and probability to determine a national average acquisition cost for every prescription medication on its formulary.  It will then send out an RFP stating these are the prices (based upon the calculated acquisition costs) we’re willing to pay for prescription drugs listed on our formulary – take it or leave it!  
 
If you’re a self-insured employer or a broker this is exactly what you should be doing for clients and employees alike.  It doesn’t matter the size of your organization.  If you pay for PBM services accept nothing less than full transparency.  
 
In this case, that means paying only true acquisition costs for all prescription drugs and not a penny more.  If you need help in calculating and/or verifying acquisition costs get off your butt and send me an e-mail I’ll be happy to help.  In the meantime, read the letter sent to us by CMS. 
Information asymmetry occurs when one party has significantly more information than another.  More important, the party with more information takes advantage of its position.  In business, this often leads to a lack of transparency and abhorrent price disadvantages for purchasers.  
 
It’s quite simple, don’t do business with any PBM that isn’t willing to: (1) share all their price lists/wholesale invoices and (2) provide full audit rights.  If you would like a copy of the original letter simply send me an e-mail and we’ll get one out to you.

New Report Shows Drugstore Lobby Agenda Raises Rx Costs for Small Businesses and Government Programs

Federal and state policymakers should avoid enacting laws that undermine payers’ ability to use mail-service pharmacies, preferred pharmacy networks, and other innovative pharmacy benefit management (PBM) tools, the National Center for Policy Analysis (NCPA) asserts in a new report,”Unnecessary Regulations that Increase Prescription Drug Costs.”

“This report shows policymakers that appeasing the drugstore lobby means higher prescription drug costs for small businesses, consumers, and government programs,” said Pharmaceutical Care Management Association (PCMA) President and CEO Mark Merritt.

Click here to read the NCPA report which highlights a number of regulations and laws that could increase prescription drug costs, including:

Barriers to Competition: State Boards of Pharmacy Conflict of Interest Background: The report highlights how some states are seeking to transfer regulatory authority of drug plans from the state’s insurance commissioner to the state’s Board of Pharmacy.

NCPA: “Because state pharmacy boards are controlled by pharmacists, giving them authority over drug plans creates conflicts of interest that could undermine drug plans’ ability to negotiate lower prices with pharmacy networks.”

Barriers to Lower Cost Mail-Service Pharmacies Background: Employers and payers use a variety of incentives to encourage patients to use efficient mail-service pharmacies to address chronic illnesses, such as diabetes. Mail-service pharmacies will save Medicare seniors, employers, unions, government employee plans, consumers, and other commercial-sector payers $46.6 billion in prescription drug costs over the next ten years.

NCPA: “Unfortunately, some states are enacting laws that interfere with the ability of drug plans to reward enrollees that use the plan’s mail order option by barring drug plans from offering lower prices for mail-order dispensing. This unnecessarily raises costs for consumers, insurers and employers. Obviously, these laws mostly aim to benefit local community pharmacies rather than consumers.”

Barriers to Competitive Pharmacy Networks Background: A new study finds that the extraordinary number of pharmacies in the United States offers an opportunity to save $115 billion over the next decade through the greater use of preferred and limited pharmacy networks. However, some states have in place so-called “any willing pharmacy” laws and regulations that force plans to contract with pharmacies that don’t meet their quality standards or geographic access needs.

NCPA: “These any-willing-pharmacy laws are costly to taxpayers, employers and patients alike. The Federal Trade Commission notes that these laws reduce the drug plans’ bargaining power, leading to higher drug prices and higher premiums for consumers.”

Barriers to Efforts to Combat Fraud Background: Health care fraud is a problem that increases overall health costs and is especially burdensome in Medicare and Medicaid. Billions of claims are submitted to millions of providers, making fraudulent claims easy to disguise. PBMs and companies processing electronic payments are effective at discovering irregularities that lead to fraud.

NCPA: “Regulations requiring Medicare drug plan administrators to pay claims within 14 days make it difficult to detect fraud before a claim has been paid. At the very least, drug plans need the authority to delay paying questionable claims to providers suspected of fraud. Plans also need greater authority to exclude or suspend suspected fraudulent providers from networks and conduct routine audits of participating pharmacies.

“Congress and state legislatures should avoid well-meaning, but ill-conceived, regulations intended to protect consumers, which often have the opposite result. A better way to ensure desirable outcomes is to promote a competitive environment free of market distortions that favor one party over another.”

Barriers to Lower Cost Dispensing Fees Background: Dispensing fees paid to drugstores and pharmacists that are mandated and set by states are much higher than in commercial drugs plans. The average Medicaid dispensing fees range from $1.75 in New Hampshire to $10.64 in Alabama, averaging about $4.81 per prescription across the country. By contrast, privately managed Medicare Part D plans negotiate fees with pharmacies of about $2 per prescription.

NCPA: “Dispensing fees in state-managed, conventional Medicaid plans are set by the state. State officials and state legislatures often yield to political pressure and set dispensing fees that are much higher than what private drugs plans could negotiate if allowed to do so. When the fees are set too high, taxpayers pay pharmacies more than they would in a competitive market.”

PCMA represents the nation’s pharmacy benefit managers (PBMs), which improve affordability and quality of care through the use of electronic prescribing (e-prescribing), generic alternatives, mail-service pharmacies, and other innovative tools for 215 million Americans.

SOURCE: Pharmaceutical Care Management Association

Small Pharmacies Getting Squeeze from Goliath PBMs

A bipartisan bill introduced by Rep. Jules Bailey and Rep. Greg Smith would regulate pharmacy benefit managers, which local pharmacists say are driving them out of business.


March 27, 2013 — Central Drugs Pharmacy has been open for 110 years in downtown Portland, and it specializes in dispensing drugs for those who suffer from HIV.
But owner Shelley Bailey told two legislative committees that if abusive business practices by pharmacy benefit managers are not curtailed, she may have to close its doors. She said that pharmacists have been struggling with reimbursements that are completely unpredictable and punitive audits that are often unfounded.
While insurers pay a pharmacy benefit manager through a global payment for all the drugs purchased, pharmacists are left buying generics off a commodities market that is wildly volatile, and they are compensated by the pharmacy benefit manager according to a secret formula that pharmacists say by its very design can compensate them below the actual cost.
“You sign the contract and hope, you hope you’re going to get paid enough to stay open,” said Chris Brown of PayLess Drugs, a West Coast long-term care pharmacy chain with locations in Portland and Eugene..
Bailey said she was paid $8.60 by a PBM in December to dispense a generic prescription, but in January, she got less than one-fifth that price from a different PBM.
“For that same prescription, for that same patient, for that same insurer, we were paid $1.60 by the new PBM that the insurer chose to partner with,” Bailey said.
A pharmacy benefit manager, or PBM, is an intermediary company that stands between insurers and pharmacies and manages prescription drug plans.
Just two companies — Express Scripts and CVS Caremark — control three-quarters of the prescription drug market, towering over little pharmacies like Central Drugs and even large chains like Walgreens that have no choice but to accept their terms with little protection under current law.
Express Scripts, the largest of the pharmacy benefit managers, has 30,000 employees and reported $46 billion in revenue in 2011, with $1.3 billion in profit, and those dollars represent earnings before the PBM merged last year with Medco Health Solutions — an even larger company, with $79 billion in revenue in 2011 and $1.5 billion in profit. Express Scripts’ chief executive officer, George Paz, was the sixth-highest paid CEO in the country last year, with a salary of $51.5 million, according to Forbes.
“I don’t believe in businesses putting their thumb on the scale,” Brown said. “Last year, Walgreens dropped out of Express Scripts. They lasted six months. They came back…If Walgreens, the nation’s largest pharmacy chain, can’t negotiate effectively with a PBM like Express Scripts how can you realistically expect community pharmacists and pharmacies? All we want is disclosure.”
Generic drugs account for 75 to 80 percent of all drugs that are dispensed in Oregon. Bailey purchases generic prescription drugs off a commodities market that varies wildly, and said PBMs decide how much they will reimburse pharmacies according to a secret averaging formula known as a Maximum Allowable Cost.
The PBMs use an averaging formula because generic drugs have multiple vendors, each with its own price. But pharmacists don’t know the formula and their reimbursement rate might lag well behind the commodity price of the drugs.
When generic prices go down, Bailey said PBMs lower their reimbursement rates immediately so as not to overpay the pharmacies, but when prices go up, it may be weeks before they’ll update their reimbursement rates, pocketing the extra money that they would otherwise be paying pharmacists.
Unlike other states, neither the insurers nor the pharmacists have knowledge of the pricing formula in Oregon, and pharmacists do not know what they’ll be paid until after the drugs are dispensed.
“We only know after we’ve dispensed the prescriptions how much we have lost,” said Anne Murray of Murray Drugs in Heppner, the only pharmacy in 5,000 square miles of Eastern Oregon.
Legislature Responds
A house health task force headed by Rep. Jules Bailey, D-Portland, and Rep. Greg Smith, R-Heppner, produced House Bill 2123, which would help local pharmacies by bringing PBMs under the regulation of the Oregon Board of Pharmacy, rein in frivolous audits and offer transparency in generic prescription drug prices. Ground rules would be stipulated before audits could be conducted, the number of claims would be capped at 200, and PBMs could not recoup their costs for clerical errors.
“PBM companies are an important entity in our healthcare system … [but] they’ve really come down hard and abused pharmacies,” said Rep. Bailey, who is not related to Shelley Bailey.
The PBMs, along with some insurers, are fighting the legislation, saying it will lead to higher prices for consumers and potential anti-trust implications.
Realizing their concerns, Rep. Bailey said he had invited PBMs to be part of the legislation, but “PBM companies chose to walk away from the table.”
He said the legislation offers some consistency in how pharmacy benefit managers can operate and brings their regulation more in line with what dozens of other states are already doing. It is nearly identical to a bill that recently passed in North Dakota.
“Oregon is really the outlier. They like to say that Oregon likes to be first or last,” Rep. Bailey said. “We’re bringing up the rear.”
“I live in remote and frontier Oregon,” Smith said. “We need good, viable access to healthcare. It’s so important to step up and support our rural pharmacies. I feel that the PBMs are squeezing out our small pharmacies.”
At a Senate Health Committee earlier this month, representatives from Express Scripts and CVS Caremark said they each have about 100 million customers. Since 49 million of the 316 million Americans have no health insurance — those two companies alone have a market share that controls 75 percent of the prescription drug plans for the remaining 267 million.
With that kind of leverage, Shelley Bailey and other pharmacists told legislators that PBMs have been able to act aggressively against local pharmacies, not only paying them unpredictably but hitting them with frivolous audits over clerical errors that did not affect finances.
“We were audited for $48,000 by one of the PBMs in this room because they claimed one of our pharmacists had not signed the prescriptions,” she told the House Health Committee. “We won that audit, but it took me over 200 hours to fight the PBM just to keep the money we had been paid for the drugs we sold.”
PBMs Resist Regulation
Lobbyists from the PBMs argued against every aspect of HB 2132. Peter Harty of CVS Caremark told legislators that pharmacy board regulation invited anti-trust concerns since they’d be regulated by the pharmacists they do business with, charges that drew disdain from Rep. Jason Conger of Bend:
“Do you find it ironic that other pharmacies are already regulated by the Board of Pharmacy?” asked Conger. “I just don’t find it a compelling argument seeing that our other Oregon pharmacies are already regulated by the Board of Pharmacy. They might share your concerns, but they haven’t raised it.”
Harty’s compatriot at CVS Caremark, Eric Douglas, told the Senate Health Committee that publishing a printed list of all the prescription drug prices would require reams of paper, which Amy Bricker of Express Scripts said would be outdated as soon as it was printed.
Bricker argued that the maximum-allowable cost pricing mechanism allows Express Scripts to pass along savings in prescription drugs to consumers, but customers do not see lower co-pays. The global payment that Express Scripts accepts from insurers also does not line-item individual drugs.
“MAC transparency will not lead to elevated charges for insurers or payers,” Shelley Bailey said.
On the auditing issues, Cindy Laubacher of Express Scripts told the House Health Committee that restricting their freedom to administer audits similar to what occurred against Central Drugs was a way of inviting fraud.
“The bill is filled with impediments to even determining if fraud exists,” said Laubacher. “Audits are about recouping overpayments.”
Conger was similarly skeptical of Laubacher’s testimony:
“With 30,000 employees, that’s a lot of resources to conduct audits,” he said. “But we just heard testimony from a small business owner who spent 200 hours dealing with an audit that produced nothing. I understand the need to conduct audits, but I have to admit that sounds pretty abusive.”
Mail Restrictions in Limbo
A fourth measure in the bill would have required PBMs to give the same discounts that customers receive from mail-order pharmacies for long-term prescriptions, many of which are owned by the PBMs who have a financial incentive to use them.
Rep. Bailey’s office said that section of the bill was removed from HB 2123 since it’s already included in Senate Bill 363.
“The Senate bill basically is meant to preserve the choice of the patient to select their pharmacy,” said Michael Millard of the Oregon State Pharmacy Coalition. This requirement is a part of PBM laws in New York and Pennsylvania, but not the North Dakota bill that served as the blueprint for HB 2123.
Laubacher told the Senate committee that mail-order services are not only less expensive than brick-and-mortar pharmacies, but they’re a better alternative for people with chronic care needs – many of whom have limited transportation.
“Requiring that there be no incentive to choose mail order will have our clients end up paying more,” said Lisa Trussell of HealthNet Health Plan.
The Fate of The Legislation
Sen. Alan Bates, D-Medford, the sponsor of SB 363 told The Lund Report he was unsure if the bill would actually leave the Health Committee, but he wanted it to have a hearing.
Bates, a doctor in Medford, said he was concerned about PBMs automatically enrolling patients in mail-order pharmacies and continuing to ship them medications long after they stop using the drugs.
“There’s nobody between the patient and pharmacy to look out for errors, and my local pharmacist does that,” Bates said. “I don’t see a huge savings for mail-order pharmacies.”
Bates had a second measure, Senate Bill 402, that will likely die as it is redundant with HB 2123.
HB 2123 is expected to pass the House Health Committee but Bailey’s legislative aide, Megan Beyer, said the final version is still being amended and will likely reappear before the committee in April for a vote.

Insurance Commissioner Refuses to Enforce Obamacare

The Oklahoma Insurance Department will not be participating in a collaborative effort with the Center for Consumer Information and Insurance Oversight (CCIIO) to enforce the Affordable Care Act (ACA), according to a letter released by Oklahoma Insurance Commissioner John D. Doak .

“It is unfortunate that health insurers are being forced into a system of dual regulation by the overreaching Obama administration,” Doak said. “My position on this has never wavered and I welcome every opportunity to try to overturn Obamacare.”

The letter was sent to CCIIO Deputy Administrator and Director Gary Cohen indicating that the Oklahoma Insurance Department does not have the authority to enforce federal law. In the letter, Doak wrote, “I execute my duties collaboratively with the governor and legislature of Oklahoma to meet the needs of the citizens we represent and the requirements of the Insurance Code of the Oklahoma Statutes.”

“The Oklahoma Insurance Department regulates the health insurance policies sold in the state and responds to consumer questions and complaints. Our consumer assistance team receives over 30,000 phone calls and our website receives over 1,000,000 visits each year. We will continue to serve these consumers by adhering to our duties under the State Constitution and Statutes. The consumers are the ones who are going to bear the costs of these unnecessary federal regulatory burdens,” stated Doak.

In addition to adding new fees to health insurance products increasing prices both inside and outside the exchange, the ACA requires plans to add expensive and often unnecessary coverage benefits. These costs will impact young adults most severely due to the law’s requirement that older Americans pay no more than three times the premium of young adults. A survey of insurers by the American Action Forum found that average premiums for young, healthy adults may triple going into 2014.

The Oklahoma Insurance Department consumer assistance team is available to help consumers with issues regarding their current health insurance at 405-521-2828 and toll-free statewide at 800-522-0071.

About the Oklahoma Insurance Department

The Oklahoma Insurance Department, an agency of the State of Oklahoma, is responsible for the education and protection of the insurance-buying public and for oversight of the insurance industry in the state.

For more information contact:

Kelly Collins

(405) 522-0683

kelly.collins@oid.ok.gov

SOURCE Oklahoma Insurance Department