SCGhealth Blog

Drug Costs Are a Key Component In Health Premium Increases

Tuesday, November 29, 2016

Written by: Ben Regalado, contributing writer

The debate on who will lead the country is over. But with the widely unexpected unity of the Executive Branch and Congress, the debate over healthcare costs and the fate of ObamaCare is sure to kick back into gear.

Whatever parts of the Affordable Care Act are modified or repealed, along with the continued shift in payment mechanism from cost-based to value-based (because MACRA is not on the chopping block), it is unlikely there will be a shift in the overall focus, which is finding ways to bring down the rising cost of healthcare. Often these focus on provider utilization, but there is another area that merits examination: medication costs.

With the new administration, what that will occur now is anyone’s guess. One reaction immediately following Mr. Trump’s election was the rise in pharmaceutical stocks (while hospital management company stocks fell) in anticipation of a lack of pressure to pursue regulation of drug costs.

That doesn’t mean the problem is gone however. A BlueCross BlueShield Association study which found that the cost of specialty drugs added a “mere” $87 to a individuals’ health care cost from 2013 to 2014 noted that this represented a 26% increase in specialty drug spending. This was not driven by utilization as much as the price and selection of the drugs.

While admittedly this study by an organization of large insurance companies professing to be concerned about member costs and access and not their own profits, the findings are sobering when laid side by side with this summer’s headlines on rising drug costs such as the EpiPen, Daraprim, and Sovaldi. If repeated, it’s possible studies will show the costs increased even more.

Some will say the key area of focus should be the costs of the drugs themselves, continuing the debate over “Big Pharma” (and little pharma) lining their pockets through various tactics which, while legal, prevent more competitively priced alternatives from entering the market. Others believe that although drug costs are rising, it’s more important to look at the big picture. The impact really is to lower overall spending, as these drugs keep people from costly hospitalizations, surgeries, and resource intensive critical care services.

What can be done differently?

One initiative is to unshackle Medicare and Medicaid from being forced to pay what is charged, regardless of the cost. Oddly, the largest single purchaser of prescription drugs - the Federal government - cannot do what it is able to do with so many other purchasing agreement: negotiate prices. One could argue this amounts to setting prices, as Medicare does for professional services, and that negotiations are done by the private insurers who offer Part D plans. 

Another change would be to persuade the Food & Drug Administration (FDA) to allow faster market access for generic or other competitive alternatives than is currently in place or demand that when a pharmaceutical manufacturer “evergreens” (changes a drug slightly so it stays under patient protection) or “hard stops” (completely replacing a drug about to go off patent with a patent protected alternative) a medication that the newer drug have substantial, demonstrable improvements in therapeutic value to maintain market protection.

Again, however, what will happen is anyone’s guess. For now, the market guesses that nothing will happen to the drug companies, but our President-Elect is nothing but unpredictable.

In the end, then, as with the prescription opioid issue, physicians and other prescribers again hold the key. Amid the flurry of marketing and educational efforts, prescribers should ask:

  • Is there truly demonstrated scientific value to the “new” drugs, or are the new chemical formulations of little or no therapeutic value?
  • How does the cost of the medication impact compliance by my patient? Will limited access prevent the proposed therapy from being effective?
  • How does your selection of a drug impact the potential overall healthcare costs? 

As with politics, all healthcare is local. Indeed, it is right at the patient level. Being a patient advocate is not just something done for their care, but for their economic livelihood as well.

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