5 Policies to Create a Fair Health Care Market

March 30th, 2022
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This week, actuaries with the Centers for Medicare and Medicaid projected health care spending will grow to reach almost $6.8 trillion by the year 2030 and consume nearly 20% of the country’s gross domestic product, or one in every five dollars spent. A significant portion of that spending is paid by private and public employers, which in turn, acts as a drag on both business growth and household incomes.

As innovative employers seek market solutions to wrangle health care costs while improving the quality of care they offer working Americans, they also recognize that the government has a role to play in ensuring they have a functional marketplace in which to purchase health care on behalf of their companies and employees. They have been eager to see action on the part of the Centers for Medicare and Medicaid Services (CMS) Innovation Center and Health and Human Services to help tamp down the ever-climbing health care costs that come out of their budgets – action they have yet to see.

Here are five policy areas employers want to see implemented.

1. Addressing Market Consolidation and Anti-Competitive Practices

Health care system consolidation is not a new problem, but it has gained attention over the past several years, particularly in light of a slew of megamergers proposed during the COVID-19 pandemic. In an executive order signed in July 2021, President Biden directs the Department of Health and Human Services to move forward with price transparency requirements, and directs the Department of Justice and Federal Trade Commission (FTC) to review and revise guidelines for challenging future consolidation by health systems. New guidelines would make it more likely that the FTC will intervene to stop anti-competitive mergers among health systems, improving the competitive landscape and combating rising health care costs that land on employers and other large purchasers, as well as consumers.

In addition, Congress should prohibit anti-competitive practices that have enabled some health systems to gain market power and raise prices. These practices have included anti-tiering and other contract terms that were the target of a successful lawsuit against Sutter Health System in California. The Healthy Competition for Better Care Act (S 3139), a bipartisan bill introduced by Senators Braun and Baldwin, would take on these practices. Federal legislation is also needed to prohibit drug manufacturers’ practices such as “patent evergreening” and other “patent thickets” to ensure that branded products will face healthy price competition from generic drugs and biosimilars in line with the intent of current laws.

2. Universal “Site Neutral” Payment

Medicare, along with other payers, often pay substantially more for the same care if it is delivered in a hospital outpatient department, rather than in a physician’s office, even when the service is identical. The higher payment rates put independent physician practices at a disadvantage and encourage more industry consolidation. What’s more, the higher prices charged by practices owned by a hospital system tend to be hidden from patients, causing unexpected – and often excessively elevated — out-of-pocket costs.

Universal site-neutral payments – the same pay for the same service — would save the health care system more than $350 billion (and as much as twice that) if adopted by all payers. It would also balance the playing field for independent physician practices.

3. Support for Physician-Led Accountable Care Organizations and Alternative Payment Models

All the evidence suggests that physician-led Accountable Care Organizations and alternative payment models, including those that pay clinicians prospectively to manage patient care, are more successful than hospital or payer-led models. Large employers and purchasers are interested in seeing CMS take an active hand in promoting these efforts. Policymakers can support the success of physician-led ACOs by helping them create the infrastructure needed to take on financial risk, invest in high-value care and develop partnerships with other organizations to provide comprehensive care. This includes providing financial incentives for quality performance to encourage providers to redesign care to improve health outcomes. CMS and leading payers need to communicate clear outcomes objectives and attach significant rewards and penalties providers’ performance.

In addition, a recent PBGH survey of large employers found that nearly six in 10 see low investment in primary care as a barrier to better employee health. Roughly 90% said they would be in favor of reallocating funds to primary and preventative care. One way to finance this effort, which employers would like to see CMS support, is to redirect money paid to health plans for care coordination to physician practices engaged in advanced primary care.

4. Renewed Push for Build Back Better – Including Prescription Drug Price Relief

President Biden’s nearly $2 trillion Build Back Better (BBB) proposal included provisions on drug pricing, but the effort was stymied. On Jan. 19, 2022, President Biden suggested in a press conference that the Senate would break the BBB bill into pieces, attempting to pass provisions that have support of all 50 Democratic Senators.

The current legislation would allow Medicare to negotiate on the price of certain high-cost sole-source drugs after their patent and market exclusivity periods have expired. It would also impose strict inflation caps on all high-cost sole-source drugs. Importantly, those inflation caps would apply to all purchasers, not just Medicare. If enacted, this provision would save employers, other health care purchasers and consumers tens of billions of dollars over the next decade.

5. Holding Drug Makers and Third-Party Organizations Accountable for Drug Prices

Policymakers have been looking at opportunities to increase transparency and accountability of pharmacy benefit managers (PBMs) and others in the drug supply chain. The Trump Administration’s Transparency in Coverage rule, which is being implemented by the Biden administration, albeit on a somewhat delayed timeframe, includes significant new drug price transparency requirements of health plans and PBMs. Not surprisingly, the Pharmacy Care Management Association (which represents PBMs) has sued the administration to stop implementation of certain sections of the rule. If implemented, the rule would require PBMs to report on negotiated rates and historical net prices for covered prescription drugs. Combined with the Consolidated Appropriations Act (CAA), which ultimately requires PBMs to provide the information employers need on prescription drug spending to meet their obligations under the law, would be impactful.

Importantly, no explicit statutory authority exists for policymakers to regulate PBMs directly. What is needed is for policymakers to establish direct oversight authority for PBMs in all markets. AND we need PBMs to be held to the same fiduciary standards that self-funded employers are held to. Only then will we get the accountability we need.


What the Texas Ruling on the No Surprises Act Means for Employers

March 2nd, 2022
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Health care providers have sued the Biden Administration over implementation guidance for the No Surprises Act in at least six district courts around the country. Last week, a federal district judge in Tyler, TX was the first to rule on one of the cases and sided with plaintiffs – the Texas Medical Association– effectively upending a vital portion of the rule implementing the decision.

At issue are two questions:

What does this all mean for employers and purchasers? Here, the short, medium and long-term consequences.

Short-Term Consequences

The law’s rules implementing the independent dispute resolution (“arbitration”) process went into effect March 1, 2022. The Texas Medical Association ruling goes into effect immediately and has nationwide impact. Even if other district courts rule in favor of the Administration, this decision will remain in place until overturned on appeal or until the Administration produces a new implementing rule under the formal rulemaking process.

The most notable short-term impact of the rule will likely be wide variation in arbitration outcomes. The rule provided detailed and specific guidance to arbitrators on how to weigh various factors in resolving payment disputes. That guidance sought both to anchor arbitration decisions around the market rate for services (known in the rule as the “median contracted rate”) and to provide all parties with predictability, minimizing variation in arbitration outcomes. With that section of the rule vacated, each individual arbitrator will have to exercise their own judgment in weighing factors as disparate as the market payment rate, training and experience of the clinician, teaching status of the facility and whether the participants engaged in good faith efforts in resolving a payment dispute.

The upshot for employers: Expect wide and unpredictable variation in outcomes from surprise billing arbitration.

Medium-Term Consequences

The lack of predictability in arbitration decisions will likely lead to a greater use of arbitration as parties seek to identify which arbitrators are likely to rule in their favor and which factors most impact arbitration decisions. The proliferation of arbitration will increase administrative costs for all parties, most of which will be directly or indirectly passed onto employers and purchasers. The opposite would be true if a more predictable IDR process had remained in place. While its  reasonable to expect some initial testing of arbitration by providers, once a pattern of decisions emerges, the incentive for both parties will be to settle payment disputes before arbitration rather than go forward with a costly and burdensome arbitration process.

The upshot for employers: Expect a significant number of surprise billing claims to go to arbitration, rather than be settled outside of arbitration.  

Long-Term Consequences

Nearly half the states in the country implemented surprise billing protections before enactment of the federal No Surprises Act, though these state laws do not impact ERISA plans –the vast majority of large employer plans — which are regulated strictly at the federal level. The state-level experience shows the importance of the instructions provided to arbitrators and how those decisions impact long-term cost growth.

Laws enacted in New York, New Jersey and Texas direct arbitrators to consider the offer submitted by the party closest to the 80th percentile of billed charges (already a highly inflated figure). Not surprisingly, early data indicate that arbitration is leading to very high payments to out-of-network providers. In New Jersey, median arbitration decisions are more than five times the market rate for services in the state. In Texas, where state law was implemented more recently and data is less available, the Texas Medical Association reports that the use of arbitration was significantly higher in 2021 than in 2020, a likely indication that providers are finding that going to arbitration results in higher profits than settling payment disputes before arbitration, or going in-network. To entice physicians to go in-network, health plans will have to substantially increase the market rate for services by the types of providers most likely to engage in surprise billing – emergency physicians, anesthesiologists, and pathologists.

The upshot for employers: If arbitration decisions tend to favor providers, expect to pay significantly more for certain providers to go in-network.

The Bottom Line

While the ultimate impact will depend significantly on how arbitrators tend to decide arbitration claims, unless the Texas Medical Association ruling is overturned or removed  by future rulemaking, the likely impact is higher costs for employers, employees and their families.

An arbitration system that fails to anchor decisions around the market rate will likely lead to more decisions being made in favor of providers with offers well above the market rate, and those decisions will lead to substantially enhanced leverage for providers in contract negotiations. Why go in-network at market rates, when you can stay out of network and achieve significantly higher prices through arbitration?

To cope with this dysfunctional system, self-insured employers will be forced to increase their own in-network payment rates for specialties capable of surprise billing, driving up costs and ultimately harming employees and their families.

What the Biden Administration’s Drug Pricing Reforms Mean for Employers

March 1st, 2022
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The landmark drug-pricing reforms included in President Biden’s now-stalled Build Back Better initiative will likely reemerge later this year, either as stand-alone legislation or as part of a revised budget proposal, experts say.

Policy specialists taking part in a recent PBGH roundtable on drug costs noted the reforms continue to enjoy broad, bi-partisan support and will help address a top concern of the American people in an election year. Although employer advocates are disappointed the proposals don’t go further in helping non-government purchasers address drug costs, they agree the policies mark a significant first step.

“It changes the paradigm and equips the government with a whole new set of tools that can be altered over time to increase their reach and impact,” said roundtable participant Richard Frank, Ph.D., a senior fellow in economic studies at the Brookings Institution.

Added James Gelfand, executive vice president for public affairs with the ERISA Industry Committee: “This is the first time Congress has taken up policies that big pharma doesn’t like. Congress has its foot in the door now and is saying `we’re going to create a way of affecting drug prices.’”

Rebates for Excessive Price Hikes

The primary focus of the proposals is on reducing costs to the Medicare program. However, a key provision would require manufacturers to pay rebates if drug prices charged to both Medicare and private payers increase faster than the rate of inflation. The rebates would be paid to the Medicare trust fund and would total 100% of revenues earned from price hikes that exceed inflation.

The proposal targets virtually all drugs covered by Medicare Part D and single-source drugs and biologics covered by Part B. Observers believe the penalty will help reduce out-of-pocket spending for both commercial plan members and Medicare beneficiaries and also constrain premium increases.

Desiree Hoffman, assistant legislative director for the United Auto Workers, said escalating drug prices and the continually rising cost of employer-sponsored health insurance, are major concerns for America’s workers, both union and non-union.

“With waging declining over time, employees are really feeling the squeeze,” she said. “The high cost of employer-sponsored health care is an issue we frequently face at the bargaining table.”

Shawn Gremminger, PBGH’s director of health policy, said it will be essential in the months ahead for supporters to ensure the rebate is not watered down—either in the legislative or rule-making processes—and, critically, that it continues to apply to both government and private payer pricing.

In addition to the inflation rebate, privately insured people also will benefit from a provision requiring all insurers to limit patient cost-sharing for insulin products to no more than $35 per month. The move should lower costs for all insulin users. According to the Kaiser Family Foundation, average yearly out-of-pocket insulin spending for Medicare beneficiaries increased by 79% between 2007 and 2017, from $324 to $580.

Negotiating Medicare Drug Prices

Beyond the inflation rebate, among the legislation’s most significant reforms is a provision that would enable the Centers for Medicare and Medicaid Services (CMS) to begin negotiating prices for a limited number of high-cost drugs that lack generic or biosimilar competition.

Drugs targeted for negotiation would be selected from 50 with the highest total Medicare spending. The number of drugs impacted would gradually increase from 10 in 2025 to 20 in 2028. CMS has previously estimated that an earlier version of the negotiation proposal could reduce Medicare enrollee cost-sharing expenses by more than $102 billion by 2029.

Two other key provisions in the administration’s Build Back Better proposal include a $2,000 cap on out-of-pocket spending for Part D enrollees and a reduction in beneficiaries’ portion of total drug costs below the cap from 25% to 23%.

PBM Transparency Key to Reducing Employer Drug Costs Today

In lieu of new government policies that could bring down drug costs, roundtable participants offered suggestions on how employers can begin taking greater control of their prescription drug spending today.

Marianna Socal, M.D., an associate scientist at Johns Hopkins University, said central to reduced drug prices is greater transparency relating to the actions of the pharmacy benefit manager (PBM). As it stands now, she said, PBMs are often incentivized to cover more expensive drugs if they’re likely to receive a greater rebate from the manufacturer.

“We need solutions to disentangle these misaligned incentives, not only at the top when the price is set but also when we negotiate (through PBMs).”

Gelfand of the ERISA Industry Committee agreed, noting that employers often don’t know what prices they’re paying for drugs beyond a single, aggregate amount.

“If I’m paying $8 million for cancer drugs, I need to know if it was the same price each time the same drug was used,” he said. “Did the price differ when it was given in the hospital versus when it was filled by a retail pharmacy or a by a mail order pharmacy? It becomes very difficult to fix the problem if you can’t identify it.”

Waste-Free Formularies

He and others said it was essential for employers to more closely scrutinize their formularies to determine if they’re promoting biosimilars and other appropriate drug substitutions. Gelfand said PBGH’s efforts to assist purchasers in developing and implementing waste-free formularies can be enormously beneficial when it comes to rationalizing drug purchases and spending. According to Socal, purchasers can save 10-15% of total per-member-per-month costs by implementing waste-free formularies.

Frank of the Brooking Institution said employers must overcome their traditional reluctance to leveraging their bargaining power with PBMs and intervene more directly in both formulary design and PBM-manufacturer negotiations.

“On the face of it, PBMs and manufacturers dislike each other because each is constantly pushing for a better deal. But in the end, they’re both playing the same game,” Gremminger said. “So the challenge will be to shift PBM incentives so they align with the needs of the purchasers and workers.”

5 Federal Policies for Employers to Watch in 2022

January 28th, 2022
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Federal policymakers, like the general public, are desperately searching for an end to the COVID-19 pandemic and a return to normality. However, with the country in its fifth wave of coronavirus cases and hospitals full to the point of breaking, the ongoing pandemic clouds and shapes the health policy landscape. Here are the five federal policy areas employers and purchasers should watch in 2022:

1. COVID Regulations and Legislation Affecting Employers

In 2020, Congress required health plans to cover the cost of COVID diagnostic testing when administered by a clinician, but the law did not set a maximum price for COVID testing, leading to sporadic price gouging. More recently, the Biden Administration finalized guidance requiring health plans to cover up to eight at-home tests per person per month. The guidance allows health plans to set a maximum reimbursement of $12 per test for tests bought over-the-counter if the plans also provide free tests to enrollees. Employers, health plans and vendors have acted quickly to implement the rule, but some employers have expressed concerns about implementation, price gouging and the overall cost to employers, which would exceed $4,000 for a family of four over 12 months. We are urging the administration will continue to revise the guidelines based on feedback from employers.

It has now been more than ten months since enactment of the American Rescue Plan Act – the last major COVID relief legislation. Congressional leaders have floated the possibility of another COVID relief bill. Specific provisions have not yet been identified, but it seems likely that  it would provide economic relief to struggling businesses, including health care providers. PBGH has recommended that any further health care provider relief be tied to a moratorium or limits on mergers and acquisitions, which have historically increased costs without a corresponding increase in quality. Large employers and their employees have been forced to pick up the tab for an increasingly consolidated market.


2. A Renewed Push for Build Back Better – Including Prescription Drug Price Relief

President Biden’s nearly $2 trillion Build Back Better (BBB) proposal included provisions on drug pricing, but the effort was stymied by concerns from  Sen. Joe Manchin (D-WV), who announced in late December 2021 that he would not vote for the bill as currently constructed. Senate Democratic leaders have left open the possibility of coming back to BBB later this year.

On Jan. 19, 2022, President Biden suggested in a press conference that the Senate would break the BBB bill into pieces, attempting to pass provisions that have support of all 50 Democratic Senators. The timing of this effort is unknown, but likely in the next several months.

Happily, for employers and purchasers, Sen. Manchin’s opposition to the bill is unrelated to the provisions on drug pricing. Not only has Sen. Manchin expressed continued support for meaningful drug pricing reform, but he has also suggested he would prefer the provisions be strengthened to encompass more high-cost drugs. The current legislation would allow Medicare to negotiate on the price of certain high-cost sole-source drugs after their patent and market exclusivity periods have expired. It would also impose strict inflation caps on all high-cost sole-source drugs. Importantly, those inflation caps would apply to all purchasers, not just Medicare. If enacted, this provision would save employers, other health care purchasers and consumers tens of billions of dollars over the next decade.


3. New focus on PBMs and Drug Supply Chain

Policymakers have been looking at opportunities to increase transparency and accountability of pharmacy benefit managers (PBMs) and others in the drug supply chain. The Trump Administration’s Transparency in Coverage rule, which is being implemented by the Biden administration, albeit on a somewhat delayed timeframe, includes significant new drug price transparency requirements of health plans and PBMs. Not surprisingly, the Pharmacy Care Management Association (which represents PBMs) has sued the administration to stop implementation of certain sections of the rule. If implemented, the rule would require PBMs to report on negotiated rates and historical net prices for covered prescription drugs.

Separately, the Consolidated Appropriations Act (CAA), enacted in December 2020, requires self-insured employers to report on drug costs. Specifically, the CAA requires them to report the 50 most frequently dispensed prescription drugs, the 50 most costly prescription drugs to the employer’s plan and the 50 drugs leading to the greatest increase in cost for the plan during the previous year. Further, they must submit information regarding the impact on premiums of rebates, fees and other renumeration to drug manufacturers. While the CAA’s new requirements don’t directly call out PBMs, ultimately PBMs will be required to provide the information employers need to meet their obligations under the law.

Lawmakers are now discussing whether to directly require PBMs to report on drug price information to federal authorities. Even more aggressively, some lawmakers are considering legislation that would extend fiduciary responsibilities to PBMs and other contractors of group health plans. This would go a long way to holding drug supply chain “middlemen” accountable for ensuring drug discounts are passed on to employers, other health care purchasers and consumers.


4. Addressing Market Consolidation and Anti-Competitive Practices

Health care system consolidation is not a new problem, but it has gained attention over the past several years, particularly in light of a slew of megamergers proposed during the COVID-19 pandemic. In an executive order signed in July 2021, President Biden directs the Department of Health and Human Services to move forward with the price transparency requirements noted above, and directs the Department of Justice and Federal Trade Commission (FTC) to review and revise guidelines for challenging future consolidation by health systems. New guidelines will make it more likely that the FTC will intervene to stop anti-competitive mergers among health systems, improving the competitive landscape and combating rising health care costs that land on employers and other large purchasers, as well as consumers.

Congress has also taken notice of the problem. Last fall, Sens. Mike Braun (R-IN) and Tammy Baldwin (D-WI) introduced legislation to ban anti-competitive contracting practices between hospitals and health plans. Their bill, the Healthy Competition for Better Care Act, would bar health plans from entering into contracts that include anti-competitive provisions, including “anti-tiering / anti-steering” and “all-or-nothing” requirements.


5. Post-COVID Telehealth Policy

Many policymakers and other stakeholders are actively considering overdue changes to telehealth policy. Responding to the closure of in-person settings early in the pandemic, Congress and the Administration reacted swiftly by waiving many telehealth restrictions, which are now beginning to expire.

Many bills have been introduced in Congress on telehealth over the last year, and there appears to be a growing consensus around addressing several key issues. Importantly for employers, lawmakers are considering options to allow telehealth services to be delivered across state lines. Currently, state licensing requirements limit the ability of clinicians to deliver telehealth to people outside of the state in which they are licensed. Revising licensing requirements could significantly increase the number of telehealth providers available to employees and their ability to shop around for the services they need.

Price Transparency Offers Opportunity to Employers and Purchasers

November 10th, 2021
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What is hospital price transparency?

A landmark federal rule requires the nation’s 6,000 hospitals to make pricing data available publicly. This requirement includes plan-specific negotiated prices, not just the “chargemaster” prices, for every item or service.

The rule was supposed to help consumers and purchasers shop more intelligently for health care services. However, due to variable compliance and huge discrepancies in how the data is presented by reporting hospitals, it has been difficult to benchmark or compare data across hospitals.

Why haven’t hospitals complied?

Hospitals that have been slow to comply with the transparency rule have faced a penalty of only $300 per day. This is a very small financial hit to hospitals – large or small.

In early November, the administration finalized a rule to increase to the penalty that takes hospital size into account, raising penalties as high as $2 million a year for large hospitals that fail to make prices public. This increase in penalties will go into effect in January 2022.

What does this mean for employers?

Employers can use this information to drive value-based purchasing.

Employer Opportunities:

Health Plan Opportunities:

Bottom Line: Price transparency means health care purchasers have access to more information to determine value and improve affordability for their employees and members.


Congress Must Keep Its Promise to Lower Drug Costs for All Americans

October 26th, 2021
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The Danger:

The reconciliation bill currently being debated in Congress would reduce future prescription drug costs for everyone in the United States. It does this by limiting how much drug makers can raise prices for medications that have no market competition. Some members of Congress seem to think only people on Medicare deserve lower drug costs and are working to eliminate price protections for working Americans younger than 65.

The reconciliation bill in its current form would save employers and Americans with private health insurance nearly $250 billion over 10 years.* But if Congress only applies cost savings to people on Medicare, 180 million Americans will get no relief from high drug prices, and may be left to pay even more.

The Drug Companies Told Us They’ll Raise Prices:

Economists continue to debate the extent to which drug makers would increase prices for working Americans to make up for the profits they’ll lose if drug prices are reduced only for Medicare and not private insurance — a practice called “cost-shifting.” But PhRMA already told us in formal comments to the Department of Health and Human Services drug manufacturers would likely increase prices in the commercial market:

“… Government experts found that proposals to extend Medicaid rebates to other government programs will likely increase Medicaid spending and negatively affect other drug payers, such as employers in the commercial market.”

A Call for Congress:

Congressional leaders have made public promises to bring down prescription drug costs for all Americans. They need to keep those promises. Any drug price legislation must protect working people and their families, not just those with Medicare coverage. Americans with private insurance are already paying too much for their prescription drugs and need relief.


* EmployersRx estimate based on analysis by Council for Informed Drug Spending Analysis, with inflation caps based on drug prices in 2021.


About EmployersRx:

The Employers’ Prescription for Affordable Drugs (EmployersRx) is a coalition of the Purchaser Business Group on Health, National Alliance of Healthcare Purchaser Coalitions, The Erisa Industry Committee (ERIC), American Benefits Council, Silicon Valley Employers Forum and HR Policy Association. EmployersRx supports public policies that drive down the cost of drugs while preserving true innovation as part of a value-based health care system. Learn more at EmployersRx.org.

Seeing Through Pharma’s “Free Market” Façade

October 26th, 2021
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Throughout this year’s drug pricing debate – and for many years before – the brand-name pharmaceutical industry has resisted public policy efforts to reduce their sky-high prices by arguing any intervention is a violation of the free market.

It is a seductive argument, because it successfully puts drug manufacturers on the “right” side of a core value for most people in our country. A 2015 poll by the libertarian magazine Reason found that nearly seven-in-ten Americans say they have a net favorable view of a free-market economy. Less than one-third report having a favorable view of a “government managed economy.”

PBGH represents nearly forty of the largest employers and health purchaser organizations in the country, including many Fortune 500 companies. It should come as no surprise, then, that we tend to agree with the American public. We support free markets and, whenever possible, try to find free-market solutions to health care problems.

Here’s the problem with the drug industry’s top talking point: It’s a lie. The fact is, the pricing system that the drug industry is trying to defend isn’t a free market. Heck, it isn’t even a market. It is, in fact, a government-sponsored monopoly.

Government policy has deliberately sanctioned prescription drug monopolies, which have then been exploited by drug manufacturers to charge outrageously high prices. For brand-name drugs, a drug company’s monopoly is granted by the government for a specified period through patents by the Patent and Trademark Office and market exclusivity through the Food and Drug Administration. Granting drugmakers a time-limited monopoly represents a conscious trade-off by policy makers. In effect, the government seeks to give drug makers a financial reward for innovation while protecting consumers in the long run by allowing generic competition after the expiration of the patent and market exclusivity.

Unfortunately, this delicate balance has been badly abused by the drug industry. This is where the drug industry’s “free market” façade becomes a cruel joke. Instead of allowing the free market to come into play when their drugs’ patents and market-exclusivity periods expire, drug companies instead devote enormous energy to maintaining their monopolies through any number of anti-competitive schemes, including “patent thickets” (holding dozens of patents on a single product, thereby deterring competition), “patent evergreening” (making minor changes to formulations, delivery mechanisms, etc. to stave off competition), “product hopping” (forcing patients to switch to “new” formulations of older products with new patents before a generic manufacturer can introduce a competitor to the older product), and “pay for delay” schemes (brand name drug makers paying generic manufacturers not to introduce a competing product).

One would think that an industry that claims to support free-market competition would agree to stop these objectively anti-competitive practices. Instead, the drug industry has time and again worked to stop policies that would enable a free market to thrive.

This year, Congress is considering major legislation to allow Medicare to negotiate the price of drugs that face no competition (i.e., those with a government-sponsored monopoly) and limit price growth on those drugs on behalf of all Americans.

That last clause is critical to PBGH and our members. As we said above, we prefer market-based solutions to health care problems and have long supported bills that would stop patent abuses and lead to more competition for prescription drugs. But if Congress is going to enact policies to directly bring down the price of drugs with no competition, it is absolutely vital that everyone, including the roughly 180 million people who have health coverage in the private market, gain access to those lower prices. If government price negotiation is limited to just Medicare, we believe the bill will actually harm our member companies, their employees and their families, as drug companies will seek to make up for lost revenue to Medicare by raising prices on the rest of us.

It is no small irony that the drug industry is using talk of “free markets” to defend government-sponsored monopolies. We will continue to support the pro-market bills that stop drug company gaming of the patent system. And we hope that if the current drug bill is enacted, by taking away pharmaceutical manufacturers’ ability to engage in monopolistic pricing, the net result will be the thing that we all (claim to) believe in – a free market with more competition and lower prices for everyone.

Late Pressure to Change Surprise Billing Rules Could Derail Savings

June 2nd, 2021
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An eleventh-hour bid by private equity companies, hospitals and other provider interests to alter the implementation guidelines of the No Surprises Act threatens to torpedo Congress’ objectives of protecting patients from exorbitant, surprise medical bills and constraining soaring health care costs.

Two of health care providers’ most prominent political allies recently signaled they’ll push to modify the rules surrounding the act’s centerpiece arbitration process in a way they assert will help ensure “fair and clear” dispute resolutions. But we believe the effort is simply an attempt to create a backdoor opportunity for physicians and hospitals to continue collecting high, out-of-network rates.

How the arbitration guidelines ultimately shake out will likely have a major bearing on whether the legislation succeeds in protecting patients from often unaffordable medical bills and reduces costs for large, self-insured employers. The rulemaking process must wrap up in December 2021, with the law scheduled to take effect in January 2022.

New Factors Must Be Considered Before Reaching a Price

As originally drafted, the No Surprises legislation stipulated that when determining a fair out-of-network price in instances where payers and providers cannot agree, arbitrators would concentrate on the median, in-network rate used by the health plan for a specific service. The intent was to keep rates paid for out-of-network services in line with those negotiated between health plans and in-network providers.

But late changes to the law added an array of new variables arbitrators must now take into account when determining an appropriate payment. These range from particulars about the episode of care and the providers’ level of training to the type of facility in which the services were provided.

Another conspicuous change stipulates what arbitrators cannot consider when calculating an equitable price: The late language actually bars them from taking into account rates paid by government payers, including Medicare and Medicaid—a move clearly designed to help preserve above-market prices.

Setting the Stage to Keep Medical Bills High

The more pressing concern, however, is that despite the act’s original intent of using median, in-network rates to settle out-of-network payment disputes, provider allies now assert these core benchmarks should impart no greater influence in setting a price than any of the other factors inserted late in the bill.

In an April 29 letter to regulators, Senators Maggie Hassan (D-NH) and Bill Cassidy, MD (R-LA) stated that giving each arbitration factor “equal weight and consideration” will help ensure that neither party has undue leverage in contract negotiations and will “allow for fair and clear determinations that reflect the specific circumstances of each dispute.”

But PBGH and other act supporters understand that requiring arbitrators to equally consider the full range of variables will effectively reduce the median, in-network rate to merely a baseline price, which can then be subjected to multiple upcharges or add-ons, depending on which of the other variables may be applicable.

What’s more, there’s no language in the legislation that ensures the new variables will cut both ways; that they could also be used to pull the price down below the market median. The upshot is that many of added variables already are reflected in payment codes, so considering them as part of arbitration is unnecessary and redundant.

PBGH and others see the attempt to alter the arbitration rules for what it is: A last-ditch gambit by provider interests—including private equity companies currently engaged in physician-practice buying sprees—to preserve the outsized profit-making potential out-of-network charges have long provided. As such, we’re actively communicating with regulators and political leaders to head off this end run and ensure implementation of the No Surprises Act aligns with the law’s intended and desperately needed cost-cutting objectives.



The Real Cost of Health Care: Hospitals Dragging Their Feet on Price Transparency

May 17th, 2021
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This year’s landmark federal rule requiring the nation’s 6,000 hospitals to begin making pricing data available publicly was supposed to help consumers and purchasers shop more intelligently for health care services. But whether that’s actually occurring seems questionable.

According to news reports and PBGH’s own analysis, wide variation in how hospitals are presenting price information make provider-to-provider comparisons difficult. Worse yet, hundreds of hospitals have coded their price lists in ways that ensure the data is invisible to Internet search engines. The Wall Street Journal reported the practice is so widespread among both hospitals and payers that the Centers for Medicare and Medicaid Services (CMS) recently issued guidance prohibiting it.

Only 35% of hospitals complying

Then there are the hospitals that haven’t complied with the transparency rule at all, apparently willing to accept a $300-per-day financial penalty in lieu of publishing their price lists. A recent study in Health Affairs found that 65 out of 100 hospitals sampled were “unambiguously non-compliant.”

Among those that have posted prices, the numbers frequently have sparked more questions than answers. Case in point: Prices for caesarean sections provided by Sacramento-based Sutter Health varied by a factor of 10—from $6,241 to $60,584—depending on which Sutter facility did the procedure and/or which insurance company paid for it.

Hospitals point to COVID-19 challenges

The transparency final rule, which was initially published in December 2019, codified an executive order issued by President Trump the previous June that had identified hospital price transparency as a means of encouraging provider competition and reducing costs. The American Hospital Association (AHA) filed suit to block the rule’s implementation and sought an emergency stay, but a federal judge upheld the legality of the regulation in December 2020 and the law took effect on January 1.

The rule requires hospitals to post their entire list of standard charges, or chargemaster, along with discounted cash prices, payer-specific negotiated prices, and de-identified minimum and maximum negotiated charges. They also must publish pricing for 300 specific shoppable health services, 70 of which have been predefined by CMS.

Hospitals believe the Department of Health and Human Services (HHS) should exercise discretion in enforcing the rule, given the challenges facilities face due to COVID-19. Insurers, for their part, have argued that the rule will cost them vastly more than anticipated, require the sharing of trade secrets, and compel the disclosure of “staggering” volumes of data.

But key elected officials are not in a sympathetic mood. Bipartisan members of the House Committee on Energy & Commerce in mid-April urged the HHS to conduct vigorous oversight and enforce full compliance. They suggested the possibility of increasing the civil penalty amount and conducing regular hospital audits. Notably, the current penalty of $300 per day, or $109,500 annually, amounts to about 0.0033% of the average hospital’s net patient revenue of $334.5 million in 2018.

A vital tool for purchasers  

The price transparency rule was primarily envisioned as a tool to help consumers make better purchasing decisions. But it will likely prove most valuable to health care purchasers and employers, assuming standardized, accurate pricing data eventually is available nationwide.

That’s because the lack of visibility into pricing historically has been a source of enormous frustration for employers. Without pricing or care quality information, purchasers are effectively flying blind when it comes to decisions about employee health benefits. This knowledge vacuum has been exacerbated by gag clauses and other tactics some providers have used to prevent payers from sharing price or quality information with purchasers.

Equipped with payer-specific discounts and the other details required by the rule,  purchasers should be able to determine:

Greater hospital transparency could also contribute to improved health plan and pharmacy benefit management pricing visibility.

A multi-pronged approach

As important as price transparency is, it represents only one tool for addressing the enormous problem of over-priced, variable-quality health care. New payment models that align Medicare and Medicaid with private sector purchasers are necessary to ensure that efficiency and quality are consistently prioritized across the system.

And while well-functioning markets continue to represent the best way to get lower prices and higher quality, policymakers need to revise marketplace rules to ensure that drug manufacturers, hospitals and physicians don’t use anti-competitive practices to gain market power and raise prices.

Finally, protecting patients from surprise medical billing must be a key priority. Certain physician groups, often backed by private equity firms, can’t be allowed to exploit their monopoly positions to extract high prices from health plans and self-insured employers.


Democrats Gamble on Two Budget Reconciliation Bills

February 17th, 2021
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Faced with Republican resistance on the size and scope of their proposed COVID-19 response legislation, the $1.9 trillion American Rescue Plan, Capitol Hill Democrats are attempting to do something no Congress has succeeded in doing since 2006 – pass two budget reconciliation bills in a single year – a particularly difficult challenge given Democrats controlling both chambers by the narrowest of margins.

The budget reconciliation process is designed to expedite consideration and passage of certain types of legislation – namely, those that impact the federal budget deficit. Unlike most other legislation, budget reconciliation bills cannot be filibustered in the Senate, meaning they can pass with a simple majority. In general, this means that the party with the Senate majority can pass the legislation without relying on bipartisan support. The rules around passage of budget reconciliation legislation are complex, but most importantly, all of the bill’s provisions must directly impact federal spending, meaning many policies of interest are off the table.

Congress is already well on its way to passing the American Rescue Plan, which was considered by committees of jurisdiction last week and is expected to be passed by the House this week. The legislation includes several priorities identified in a PBGH-led letter signed by more than 25 employer / purchaser organizations, including increased funding for production and distribution of COVID tests, vaccines and personal protective equipment. In addition, the bill provides subsidies for laid off or furloughed employees to cover 85% of COBRA premiums. The Congressional Budget Office estimates that the COBRA subsidies will help provide continuous coverage for 2.2 million people. Unfortunately, the American Rescue Plan fails to address other priorities identified by employers and purchasers, including capping prices on vaccines, testing, PPE and COVID services, and policies to increase the availability of telehealth both during and after the pandemic.

Following expected House passage next week, the American Rescue Plan will likely be taken up immediately by the Senate and could pass in a matter of weeks. Congressional leaders have set March 14 as an unofficial deadline for enactment, as that is when current funding for enhanced unemployment insurance payments is set to expire.

Congressional Democrats will likely have a heavier lift passing their second reconciliation bill later this year. While the American Rescue Plan is focused on COVID response and relief and thus enjoys strong public support, the next bill will potentially incorporate many unrelated priorities, including health care policy, infrastructure spending and tax reform. It is as part of that bill that congressional leaders have said they will seek to move more controversial health care priorities, including new coverage options, such as expansion of Medicare or a public option, and policies to bring down drug costs by allowing Medicare to negotiate for the price of brand-name drugs and to cap inflation on existing drugs.

While reconciliation’s rules mean that Democrats could avoid having to negotiate with Republicans on these priorities, it would require unanimous support among all 50 Senate Democrats to be enacted – a difficult task under all circumstances.