Unbiased Analysis of Today's Healthcare Issues

How much money do drug companies get for their drugs?

Written By: Jason Shafrin - Jan• 25•17

Let’s say a you fill a 30-day prescription and the list price of the drug is $100.  Let’s say that you pay a $10 copay and your insurer pays $90.  What share of this $100, does the drug company receive.

Most people would guess pretty close to $100, but a recent report by Aaron Vandervelde and Eleanor Blalock finds that the actual much lower.  They find that branded pharmaceutical manufacturers only receive 39% of all revenues paid by patients and insurers.  Even if you take into price concessions granted by pharmaceutical manufacturers, this number still would only be 47%.

So who gets all the rest of the money?   Non-manufacturer entities including amounts realized by participants in the supply chain received $22.  These stakeholders would include the pharmacy benefit manager (PBM), the pharmacy and any drug wholesalers.  An addition 20% of the cost is paid through wholesaler stocking fees, rebates to PBMs, rebates to Medicaid and TRICARE, funds to cover cost patient sharing assistance and the Part D coverage gap, program 340B chargebacks and a federal excise fee on brand drugs.

The share of revenue received by pharmaceutical manufacturers is declining although the trend is modest.  In 2013, pharmaceutical manufacturers received 40.5% of revenue compared to 38.8% in 2015.

Readers should recognize that it is not clear what the “right” level of revenue the pharmaceutical manufacturers receive.  Giving more funds to pharmaceutical firms is likely to increase innovation as they are the groups creating the new treatments.  At the same time, wholesalers, pharmacies, and PBMs do provide valuable services and clearly need to be compensated in one form or another.

The report does note that many of these discounts “are not plainly visible, leading to misperceptions about the relative share of gross and net drug expenditures realized by brand manufacturers.”  At the same time, pharmaceutical firms have been hesitant to share information on these negotiated prices.  To get to a world where we measure treatment value, we need not only good research on treatment benefits, but also additional clarity on drug prices.  This report is a step in the right direction towards better understanding  of the prices paid and the stakeholders to whom these funds go.

Judge blocks Aetna-Humana merger

Written By: Jason Shafrin - Jan• 24•17

A judge blocked a potential $37 billion deal for the merger of large U.S. health insurers Aetna and Humana.  The Washington Post provides some explanation behind the judge’s logic:

Bates wrote in his opinion that the proposed merger would have decreased competition substantially in the Medicare Advantage market in 364 counties. Aetna and Humana had argued that Medicare Advantage plans also competed against traditional Medicare options, but the judge sided with the Justice Department that the private Medicare plans were a separate market. The companies also proposed that divesting some of that business to a smaller insurer, Molina Healthcare, could have addressed those concerns, but the judge did not agree.

In an additional twist, the judge claimed to uncover the reason why Aetna was withdrawing from Obamacare exchanges.

Aetna withdrew from the majority of the exchanges that it had participated in this year, citing financial losses. The judge, however, wrote that Aetna withdrew from 17 counties highlighted in the case “specifically to evade judicial scrutiny of the merger.”

A big question is whether this ruling will stand.  Trump calls himself a more business-friendly president and it is unclear whether an appeal will be more likely to find more favorable judges if any are appointed by the new President.

Dismantling Obamacare: A How to Guide

Written By: Jason Shafrin - Jan• 23•17

President Trump today released an Executive Order that asked the secretary of HHS to:

“…exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay” parts of the law that would place a fiscal burden on states, individuals or health-care providers. Most of the provisions in the ACA can’t just be changed by HHS or the president; they require action from Congress or a lengthy period involving public comment.

Could Trump really unravel Obamacare? Certainly. The first method for doing this would be to end the individual mandate. Without the individual mandate, healthy individuals will likely stop buying insurance as their estimated benefits would be much lower than the cost of insurance. As healthy people leave the market, premiums rise further. This premium rise causes the moderately healthy now to leave the market, and premiums rise even higher. The process can perpetuate itself into an adverse selection death spiral.

Margot Sanger-Katz notes another method Trump could use to unravel Obamacare.

The easiest way for the Trump administration to undermine the health law would be to stop defending a lawsuit brought by the House of Representatives. That suit said that the Obama administration lacked the authority to pay certain Obamacare subsidies. A lower court ruled for the House, meaning that by simply withdrawing from the appeal, the Trump administration could start a process to eliminate those subsidies and cause a collapse of the insurance market. Mr. Trump’s order said nothing about that policy choice.

Without subsidies, the adverse selection death spiral would be even more rapid and the market likely would quickly dissolve.

Is this what Trump wants? Does he propose replacing Obamacare with something else? There are still many, many questions left unanswered. What we do know, is that U.S. health care policy is in the process of some significant changes.

ISPOR Paper of the year

Written By: Jason Shafrin - Jan• 22•17

The ISPOR paper of the year award for best publication in Value in Health was given to Basch et al. (2016) for their study titled Methods for Developing Patient-Reported Outcome-Based Performance Measures (PRO-PMs).  The abstract is below.

Objective: To recommend methods for assessing quality of care via patient-reported outcome-based performance measures (PRO-PMs) of symptoms, functional status, and quality of life.

Methods: A Technical Expert Panel was assembled by the American Medical Association– convened Physician Consortium for Performance Improvement. An environmental scan and structured literature review were conducted to identify quality programs that integrate PRO-PMs. Key methodological considerations in the design, implementation, and analysis of these PRO-PM data were systematically identified. Recommended methods for addressing each identified consideration were developed on the basis of published patient-reported outcome (PRO) standards and refined through public comment. Literature review focused on programs using PROs to assess performance and on PRO guidance documents.

Results: Thirteen PRO programs and 10 guidance documents were identified. Nine best practices were developed, including the following: provide a rationale for measuring the outcome and for using a PRO-PM; describe the context of use; select a measure that is meaningful to patients with adequate psychometric properties; provide evidence of the measure’s sensitivity to differences in care; address missing data and risk adjustment; and provide a framework for implementation, interpretation, dissemination, and continuous refinement.

Conclusion: Methods for integrating PROs into performance measurement are available.

Congratulations to Dr. Basch and his team on the paper.


Trump Links

Written By: Jason Shafrin - Jan• 19•17

In honor of inauguration day, some Trump-relevant links:

Cost-Effectiveness Analysis 2.0

Written By: Jason Shafrin - Jan• 19•17

High drug prices are in the spotlight. While expensive, many of these treatments improve patients quality of life and even extend patient’s life expectancy. How do you balance treatment cost and benefits?

Peter Neumann and Gillian Sanders have a perspective piece in NEJM describing the findings of the Second Panel on Cost-Effectiveness in Health and Medicine.

As prominent groups in U.S. health care ramp up use of cost-effectiveness analysis to measure and communicate the value of new drugs and other interventions, an expert panel has released updated guidelines for such analysis.

Please do read the entire piece.

Can we explain the growth in health care spending with growth in pet care spending?

Written By: Jason Shafrin - Jan• 18•17

A blog post by Austin Frakt of the Incidental Economist says the answer is yes.

In almost every year since the 1960s, health care spending has grown at least as fast as the overall economy, and often much faster. Health economists have long debated why.

Strange as it may sound, how we care for our pets offers some answers.

The pet care markets look a little like the market for human health care. Health spending by American households has grown 50 percent between 1996 and 2012. Pet care spending has grown by a similar amount, 60 percent, though from a much smaller base. (Americans spent more than $15 billion on pet health care in 2015, but $3.2 trillion on human health care.)

An estimated 68 percent of households have pets; those families with higher incomes spend more, which is also true of human care. And they spend more toward the end of humans’ and pets’ lives alike.

The supply of both physicians and of veterinarians has grown at a more rapid rate than overall employment. Since 1996, the number of physicians has grown by about 40 percent. The number of veterinarians is up 100 percent.

Frakt cites an NBER paper by Einav, Finkelstein and Gupta (2017) and gives a few possibilities. First, doctors and veteranarians are highly credentialed individuals with high wages. Second, there is a lot of innovation in the healthcare treatment of both humans and animals. Third, the spending on healthcare for family members and pets are both emotionally charged and individuals have a hard time limiting spending when people or pets become ill. Fourth, in both markets–more so for humans, but increasingly so for pets–individuals value insurance to smooth consumption in the case that they, their family members or their pets become ill.

In the case of health care spending, it looks like a dog can teach a person new tricks.

Single Payer vs. 300 million payer

Written By: Jason Shafrin - Jan• 17•17

Drug prices are in the spotlight of late.  From Pharma bro to EpiPen price hikes to Trump’s most recent press conference high drug prices are getting a lot of attention.  One solution is to have a single payer system whereby the government negotiates drug prices directly with pharmaceutical firms.  Michael Cannon proposes an alternative, the 300 million payer solution.  He writes in USA Today:

To make drugs more affordable, we need not one tough-talking negotiator but 300 million of them. Congress can raise and equip that army by returning to the people the $3 trillion of health care spending that government and employers control, and by eliminating government-imposed barriers to affordable medicine.

When Americans control their health care dollars, they drive health care prices down. In California, cost-conscious patients brought prices for hip and knee replacements at high-cost hospitals down by an average of $16,000, or 37%.

Yet Americans rarely shop around or demand discounts for medical care. Why? We pay directly for just 11 cents of every dollar of medical care. Why shop around when 89% of the savings go to someone else? That will change when consumers control all the money.

Putting more healthcare spending in the hands of consumers is surely a good thing compared to a single payer system.  At the same time, however, this approach does have its flaws.  While it is true that patients can shop for Lasik surgery or breast implants, patients with a more debilitating disease are not able to shop around.  In addition, some patients who must pay for care out of pocket may forego useful preventive care. This could result in higher overall cost if patients are myopic and don’t take into account potential downstream cost.  Additionally, patients actually value having insurance.  Most individuals are risk averse and place a high value of in smoothing incomes across health states.  Thus, simply giving individuals their premiums back will not fully compensate them for the cost shocks that could occur if one falls ills.  While high-deductible plans do provide some form of insurance, it is not full insurance.

Thus, while Cannon’s plan is clearly better than a one-size-fits-all single payer system, it does have its own limitations as well.


Good News-Bad News in Covered California

Written By: Jason Shafrin - Jan• 15•17

First the good news, it appears that the Covered California marketplace is working.  People are selecting lower cost options and forcing insurers to compete.  Gabel et al. (2017) state that

…the average purchased price for all plans was 11.6 percent less than the average offered price in 2014, 13.2 percent less in 2015, and 15.2 percent less in 2016. Premium growth measured by plans purchased was roughly 2 percentage points less than when measured by plans offered in 2014–15 and 2015–16. We observed shifts in consumer choices toward less costly plans, both between and within tiers…

More, generally patients visiting federally funded health clinics in states that had Medicaid expansions saw the quality of care they received improve.  Cole et al. (2017) write that:

states’ decisions about Medicaid expansion have important consequences for health center patients, with expansion improving treatment and outcomes of chronic disease and bolstering the use of recommended preventive services.

On the other hand, many people are not getting the subsidies for which they are eligible, particularly the poor.   Fung et al. (2017) find that:

…31 percent of individual-market enrollees in California who were likely eligible for financial assistance purchased plans that were not silver tier or that were not sold on the state’s exchange and thus missed opportunities to receive premium or cost-sharing assistance or both. Lower-income enrollees who chose plans not eligible for subsidies had two to three times higher odds of reporting difficulty paying premiums and out-of-pocket expenses during the year, compared to those who chose eligible plans. Regardless of how the structure of the individual market evolves in the coming years, efforts are likely needed to steer lower-income enrollees away from financially suboptimal plan choices.

Of course, all of this may be a moot point if Trump fully repeals Obamacare and its health insurance exchanges.

Friday Links

Written By: Jason Shafrin - Jan• 13•17