Friday, May 11, 2018

The Simple, Obvious, Time Tested Way to Reduce Drug Costs

I give the President great credit for shining his spotlight on the ridiculous place the U.S. finds itself over drug prices. They are way too high, the private market has proven incapable of dealing with it––PBMs have only made the drug market more opaque, and the biggest drug purchaser in the world, the U.S. government, has been politically unwilling to deal with it.

All while other industrialized countries have nowhere near the problem.

What is even more frustrating is to see an easy solution that has worked for years in these other industrialized countries that, rather than being a single-payer government-run solution, is as American-style free market as it could be.

Would any major U.S. corporation spend loads of money on procurement without first going out to bid on both price and performance? Would the Pentagon buy a new ship or aircraft system without going out to bid on both price and capability? Would the U.S. General Services Administration put up a new government office building without first bidding it out to determine which contractor would construct the best facility for the price?

So, if we are looking for market-based solutions to the high cost of prescription drugs, we need look no further than the government-run health care systems in France, Canada, Germany, the U.K., and others.

Rather than pointing the finger at these other nations that "pay too little" for their drugs and then condemn them for it, we might first recognize that they are out marketeering the United States.

These foreign bureaucrats are making American capitalists look like little leaguers when it comes to keeping drug prices under control!

What these other countries have in common is that they use a system called reference-based pricing. While there are differences among them, they generally use the market to set a reference price for each prescription drug that also takes clinical results into consideration––it could be the lowest price from a range of alternative drugs in a class (Italy), an average of all of the drugs in a class (Germany), or an average of a group of the lowest priced players (Spain). The health care system then pays no more than the reference price for a drug in the class no matter which pharmaceutical company the consumer and their physician decide to use.

In the end, the market sets the price and innovation is still rewarded by paying the price the most competitive player wants to charge.

In such a competitive bidding process prices and drug outcome results are completely competitive and fully transparent. If a patient and their doctor want to pay more for an alternative drug, because they think it will do a better job for a particular patient, they know all of the prices and the comparative clinical outcomes upfront. If a drug company is truly able to innovate for an existing class of drug, that drug could be placed in a new class––innovation is still rewarded.

The value of reference-based pricing is limited until there is more than one competitor in a class––drug companies are still rewarded for blockbuster breakthroughs.

But when more than one player comes to market in the same drug class, they compete based both on price and clinical outcomes.

How much more American could that be?

Why does this have to be so hard?

Thursday, March 8, 2018

The CIGNA - Express Scripts Merger––So Much for Price Transparency and Competition

CIGNA just announced that it will buy pharmacy benefit manager (PBM) Express Scripts for $67 billion. In December, CVS said it would buy Aetna for $69 billion.

Already, UnitedHealth, through its Optum data technology and OptumRx pharmacy benefit manager subsidiaries, has detailed health care utilization information on over 115 million consumers, four out of five hospitals, 67,000 pharmacies, 100,000 physician practices, 300 health plans, and government agencies in 34 states and D.C.

Remember the good old days when we complained about the health insurance company oligopoly with just a few players controlling most of the market share in any given market?

We appear to be quickly on the way to a new and different kind of oligopoly controlling an even wider swath of the market with these new health care system aggregators being created.

Wednesday, January 31, 2018

Bezos, Buffett, Diamond, the Latest Newbies on the Health Care Block

I found it incredible that health care stocks tanked on Tuesday in response to an announcement from the Amazon, Berkshire Hathaway, and JPMorgan Chase CEOs that they were, as employer payers, going to become game changers in the health care market.

I have seen this movie before. Dozens of times over the last twenty-five years. The first time was when the leading employers in the Minneapolis-St. Paul market began the same effort in the early 1990s. That, and any other such initiative I have seen over the decades, went essentially nowhere.

But, this week, reporters were agog with the notion that these titans of business were going to wade in and change the health care world. After all, together these companies had a combined population of a million-people covered under their health benefit programs.

That is about as many people as Rhode Island and Delaware Blue Cross combined cover. So, I am not quite sure how these CEOs will bring a game changing critical mass to any provider bargaining table.
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