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Addressing Healthcare Costs – More Rhetoric or Is It Real This Time?

May 30, 2018
Posted by: Gerald “Pharmacist Jerry” Finken, RPh, MS

Dale Carnegie

In 1936 Dale Carnegie published his book, “How to Win Friends and Influence People”.  His inspiration for the book was a University of Chicago survey on the prime interests of the residents of Meriden, Connecticut. Take a guess at the top two prime interests. Well, the first was health. The second was people —understanding each other, getting along, how to influence, etc.  Mr. Carnegie’s book gave us practical and useful advice for the second. But what about the first?  A practical guide to understanding health, and its costs, plus practical and useful suggestions, surely would be very useful today.

That said, for the first time, in a long time, I believe the spotlight is in the proper place.  For example, when President Trump recently announced that he would be addressing drug prices, rather than singling out the pharmaceutical industry as the sole cause of price increases, he rightfully included the insurance industry, distributors and the PBMs as part of the problem. He also noted his plans to reduce drug prices.

In several of my other blogs I have stated my opposition to reducing drug prices. The reason: if we reduce drug costs by 50% it will have little to no direct impact on the overall healthcare spending. So, what to do?

On May 14, 2018, Health and Human Services Secretary Azar’s outlined a blueprint to reduce drug pricing that would enable patients to afford their medication.

I think Secretary Azar had it right when he suggested pricing transparency and removing the “gag rule” on pharmacists would have a meaningful impact on drug pricing and provide immediate cost savings for patients.  However, he also indirectly argued that eliminating rebates all together would immediately “drop what the manufacturers get paid on many Medicaid drugs by 30-40%”. See statistic here.

How would this work? If the price of a medication was $10, the manufacturer would be paid $6.00-$7.00.  So, the drug manufacture would earn as it does now, except that the manufacturer would no longer offer a rebate of $3.00 – $4.00 to the payer.  This would mainly affect what the PBMs and insurance companies charge and directly affect how much the government would have to pay.  The key is that the patient would know the real price of the medication, whereas today the patient is only made aware of the fictitious “marked-up” price.

In my opinion, while these solutions would have an impact and are well-intentioned, they are also misguided. My advice to Washington: rather than focus on the 10% — the overall healthcare percentage the US spends on drugs – it should start focusing on the 90% — the real drivers of healthcare costs such as hospital stays, emergency room visits and unnecessary procedures. Washington should arrange for insurers and the government to cover 95-100% of drug costs, which would eliminate medication out-of-pocket expenses for patients.  Do this and the political issue of high drug costs would disappear overnight, patient compliance and adherence would immediately improve, and emergency rooms and hospitals visits would instantly begin to drop.

If all the drugs were paid for, we would no longer read about the struggles of so many patients having to choose between buying their medications or buying food.  We also wouldn’t read how opting for food instead of medication led to an emergency room visit or a hospitalization.  Instead, we would read more about the real catastrophic bills where a patient and their insurance company needed to pay $115,000 for a three day hospital stay which includes $15,000 for four tiny screws (see story here) or how patients and their insurance company paid $70,000, or three times more than the standard Medicare rate, for a simple, overnight procedure with no complications (see story here). If the insurance industry and the federal government can cover 90% of these catastrophic bills, they should easily be able to cover all prescription costs which keep patients out of hospitals.

Let’s take this one step further: Paying for all medication should be coupled with the federal government negotiating the price they pay on all aspects of healthcare. This negotiation should, however, be directly with the provider such as the drug company and not the payer such as the PBM or plan provider.  The profits of those entities should be negotiated separately.

Let’s get it right and for the long term and follow Dale Carnegie’s advice: “Check up each week on the progress you are making.  Ask yourself what mistakes you have made, what improvement, what lessons you have learned for the future.” Do you agree?

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