Last week the health care policy consultancy, Avalere Health, predicted that within a couple of years, most of the insurance plans obtained through the exchanges established by the Affordable Care Act will require consumers to pay a percentage of the costs—rather than fixed co-payments—for specialty medications (see here). Termed “co-insurance,” these costs can amount to 50% of the costs for a drug to treat a rare or complex condition.
Given that these specialty drugs cost between $50,000 and $200,000 per patient per year, the amounts contemplated are well above the affordability level of most Americans.
In trying to assess what pharma companies plan to do as this situation develops, I spoke with a seasoned consultant who tries to coax his pharma clients into acknowledging the realities of the larger health care world in the belief that his listeners are rational and not obsessed with profit-making to the exclusion of all other motives. He claimed, “Companies will need a two-step solution to address this challenge.”
In the short-term, he believes the pharmas will have to “dramatically ramp up the scope of their cost-sharing support programs.” That essentially amounts to extending generous co-payment cards that would relieve patients of paying $25,000 to $100,000 for a year’s worth of a single medication. Over several years, he even suggests pharmas may need to become payers by offering their own drug insurance plans that will make medications affordable.
As another long-term approach, this pharma courtier counsels his clients to “put together a better value proposition,” meaning that they must develop for each drug a cost-effectiveness profile that would appeal to national boards such as the UK’s NICE and Germany’s IQWiG.
This process involves the pharmas assuming “financial risk around clinical endpoints” in which the price for drugs would vary according to the outcomes that patients achieve, a process known as “value-based pricing.”
Now the process of amping up co-pay cards seems to run directly against what the government, insurance companies and employers want to do in health care. Their intention, exemplified by the Affordable Care Act, consists of obliging all parties that participate in the health care system to share some of the risk. Providers are starting to do it through Accountable Care Organizations and other means. Some are even taking on the functions of traditional payers/insurers. For this reason a few of the larger Pharmacy Benefits Managers, which are agents for payers, have drawn a line in the sand and have excluded from formulary those drugs that use co-payment cards to hide cost considerations from patients. Getting payers to substantially reverse that trend would appear to be a difficult task.
Putting together a better value proposition and pricing drugs according to how well they work seems reasonable, but pharma has historically refused to try that. They have disdained assuming some of the risk, preferring instead to say, “we don’t care what kind of system you develop. Just use our products early and often because that will avert bigger costs down the line.” Their entire rationale for moving more heavily into specialty drugs is to make more money by selling fewer pills.
Pharma’s managers got spoiled by relying on the me-too pillar of their business model and they don’t want to put their products out there to legitimately compete on price and outcomes. The drug industry does not want to share the risk. Instead they prefer to charge unaffordable prices and let everyone else to figure out how to pay them.
Removing consumer/patient price sensitivity from health care may allow pharma to continue charging exorbitant prices for a while, but not for very long. It’s already been decided that health care cannot sustain the enormous margins that one of its sectors insists on maintaining. The entire thrust of the Affordable Care Act was to put payers—public and private insurers, as well as employers—into a position of proactively managing health care. This is their last chance to show that the economic rent they extract from the system is justified by virtue that they can advance the goals of access, quality and cost control. From this perspective, payers have the capability of forcing anyone who wants to play in the system to share the risk.
In response to these arguments, my correspondent claims, “Essentially every provider and supplier in health care behaves badly right now...The drug industry is no better or worse than any other sector in this regard.” In short, he feels that since all the major health care sectors are SOBs, why shouldn’t pharma act likewise?
Essentially my acquaintance claims the task for pharma lies in moving the pea under the right shell. It can do that by “just giving away discounts in the form of negotiated pricing, either to third-party payers or directly to consumers through cost sharing support programs.”
Likely that course for preserving pharma's profit margins is what the industry will adopt. It is ultimately as useful as warming up one's feet in bed by cutting a piece from the top of the blanket and sewing it on the bottom. Nevertheless, given the role of unintended consequences, maybe that’s not a bad approach.
By charging six-figure prices for specialty drugs, pharma will just oblige payers to raise premiums. That will inevitably force the public to recognize that Obama’s Republican-contrived voucher system is little more than a state-managed windfall for corporate interests. A Medicare-for-all system would then constitute the only alternative. In that sense, what my correspondent recommends will make things worse, and worse may eventually lead to better.
I know, that's a dangerous way of thinking about public policy. In 2000 some of us who knew that George W. Bush was worse thought that his election might encourage Democrats to nominate genuine progressives in the future instead of a neuterizing, backpedaling half-ass such as Al Gore. Little did we realize just how bad 'worse' could be. We also forgot that Democrats are all about stuffing neutered half-asses down the country's throat. But the chances for worse leading to horrible in health care seem remote (the normally indifferent public is too engaged on this topic to permit it) and the current, half-assed Obamacare will eventually be perceived as the mere band-aid that it is.
So maybe the idea of pharma using co-pay cards to implement price gouging, that in turn will lead to enormous premiums and then to Medicare for all, is no more than wishful thinking. But the "pragmatic," piecemeal, meliorist approach hardly seems to be effective either. Little in the way of fundamental reform occurs in this country until business as usual crashes and burns and if that is what it takes to bring the U.S. health care system in line with those of the world's leading nations, then maybe that's what has to happen.
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