Category Archives: Health Care

The health of our citizens

RX Ricing

RX Pricing

 In several prior posts, I have compared what we pay in our country for prescription drugs to other countries. With the advent of such Apps as Good RX and Single Care I have been confused. Why is there such a wide range of prices for the same item? My suspicion is that “cash” payers are paying a price that is more related to the actual cost and some pharmacies only quote the price is paying with insurance. If true, doe this mean that the Insurance providers are paying far too much? If so, what impact does this have on insurance premiums and the overall cost of healthcare in the US?

 

In the process of researching this subject I found the following article. It is rather long, but worth the read,

 Medication pricing: So this is how it works

Publish date: February 1, 2018 By  Dinah Miller, MD

In my last column, I looked at the tremendous variation in prices among pharmacies for two psychotropic medications, aripiprazole and modafinil. The cash price variation could be as much as 45 times more from one pharmacy to the next, which I found to be both outrageous and incomprehensible.

To learn more about pharmaceutical pricing, I contacted Doug Hirsch, the cofounder of GoodRx, a firm based in Santa Monica, Calif., that offers deep discounts on some medications. The company sends discount cards to physicians’ offices – call me if you need some, I have many boxes of GoodRx cards – and has a website (www.GoodRx.com) and an app. It advertises that it is about transparency, and if you’ve ever tried the company’s site or app, the service it offers is remarkable and simple to use.

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You plug in the medication you’re interested in, include the dose and quantity you’d like, and add your ZIP code, then a list of pharmacies with the GoodRx discounted prices is generated for easy comparison shopping. It tells you how far each pharmacy is from your current location and provides the discount codes; the phone, fax, and hours of operation for the pharmacy; and a link to a map with driving directions. And if driving to multiple pharmacies to get the best price on multiple medications seems too difficult, in what is just short of miraculous technology, the app allows people to enter in all their medications and shows the comparative prices for the bundle. In short, GoodRx is to medication pricing what Trivago is to hotel rates. The technology is impressive, and it’s worth noting that the founders of GoodRx previously worked in top positions at Facebook.

I approached Mr. Hirsch with two simple questions. The company offers “up to 90% discount” on the cash price of medications through its app, website, or discount card – all of which can be gotten for free. I wanted to know 1) Who pays for this difference in the medication cost, and 2) How does the company, with 95 employees, make any money? Mr. Hirsch was gracious enough (and patient enough!) to spend the next hour walking me through the steps of medication pricing. It was a lively conversation, so let me share with you what I have learned.

Medications are made by a pharmaceutical company or, for generics, there may be many manufacturers. The medications are sent to a pharmaceutical distributor, such as McKesson, and it, in turn, sells and delivers the products to pharmacy chains, as well as to smaller, independent pharmacies. The pharmacies pay an acquisition cost for medications then set a price for these medications that are considerably – or even astronomically – higher than the acquisition price. This is the cash retail price, or in medicine, what is called the Usual & Customary (U&C) cost of the medication. The price may be neither usual, customary, nor reasonable, and it’s not the price the pharmacy expects to recoup on sales.

Every major insurance company contracts with a pharmacy benefits manager (for example, Caremark, Express Scripts, and Optum) to negotiate the cost of medications with each major pharmacy chain. Physicians are familiar with PBMs, who intercede by requiring preauthorization procedures for certain medications or by instituting stepwise, fail-first, requirements before they will allow pharmacy benefits toward the purchase of medications. When the PBMs negotiate with the pharmacies, they will negotiate for a discount off the pharmacy’s U&C charge for medication, perhaps a discount as much as 75% or 80%. Mr. Hirsch noted, “The discount is not negotiated on a per-medication basis but as an across-the-board average, so for one medication, the insurance price may be 2% discount from the U&C cost, and on another medicine it may be 95%. There is a dramatic variation, more than you’d ever expect.”

GoodRx gathers prices from many places, including partnerships with a number of PBMs. In addition to providing discounted prices for insured customers, the PBMs also include in their negotiations a slightly less-discounted price for cash-paying patients who present with a GoodRx card or coupon. You might be surprised to learn that discounted prices can often be less than the typical patient copay. For patients with a high deductible, for medications that are not covered at all, or for times when the copay is higher than the cost of the medication, it will often be less expensive for patients to use a GoodRx discount instead of their insurance. And whether patients uses either their insurance or a GoodRx discount, part of the cost of the prescription includes an administrative fee that goes to the PBM. When GoodRx cards are used, the PBM pays GoodRx part of that fee. I hope you are still with me, because this is the part of the conversation where I started telling Mr. Hirsch that I was getting a headache.

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You paid how much for that medicine?

I went back to the enormous cost discrepancy that I had discovered a couple of years ago with Provigil (modafinil). Thirty pills cost just under $35 at Costco, while all other pharmacies were charging close to $1,000. Mr. Hirsch explained, “From what I’ve been told, Costco bases their prices on their acquisition costs and then raises them a certain percent. It’s one way to provide a fair price, but that doesn’t mean they always have the lowest price. They are also the only major pharmacy that lists their drug prices on their website.”

I wanted to know what was in it for the PBMs. Why would Express Scripts be motivated to negotiate a discount in price for cash-paying customers outside of the insurance networks, and how did partnering with GoodRx benefit them? The answer, in part, lies with the fact that the website and app allow patients to comparison shop and go to pharmacies with lower prices. If patients use their insurance, the insurance company is paying less; if they don’t use their insurance because they learned the cash cost is less, then the cost burden has shifted from the insurance company entirely to the patient.

What’s in it for the pharmacies? Why would they be willing to accept less money from a patient bearing a discount card? Mr. Hirsch explained, “Pharmacies want to honor their contracts with PBMs, and the U&C prices are set high to enable negotiation so that they still make some profit. Most people couldn’t afford to pay the high U&C, but they can’t lower them for individual cash-pay customers because that would violate their agreements with PBMs, and Medicare and Medicaid, which is a felony. With the GoodRx price, they still make a profit, and people in drugstores buy other items as well.

Dr. Dinah Miller

“I can’t emphasize enough that the pharmacies are very happy to work with us,” Mr. Hirsch went on to say. “They get more patients, and in certain areas, a prescription that costs over $15 may never be picked up. Many pharmacies are frustrated; they want a fair price where they can make a profit, and every year, 200 million prescription orders are left at pharmacies, and the medicines are never picked up. Nonadherence to medication comes at an enormous cost in this country – roughly $300 billion in medical expenses. I started this company because I was trying to figure out a problem with my own medication. We want medications to be affordable.”

GoodRx has 95 employees, and I was still left wondering how they generate income. Mr. Hirsch pinned it down to three sources: the portion of the administration fees the PBMs pay GoodRx, a small amount of advertising, and finally, GoodRx provides technology for the PBMs and charges for this service.

“We started asking how we could gather prices in this bizarre marketplace and address the pricing inefficiencies,” Mr. Hirsch said, “and now I get emails every day expressing gratitude.”

Dr. Miller is coauthor with Annette Hanson, MD, of “Committed: The Battle Over Involuntary Psychiatric Care” (Baltimore: Johns Hopkins University Press, 2016).

COVID-19 compared to the H1N1 Virus

COVID-19 compared to the H1N1 Virus

There has been considerable discussion about comparing the current virus to the 1918 Influenza pandemic. There also has been a lot of misinformation. In 1918 the Spanish flu terminated the lives of an estimated 35 million folks. Despite the name, the H1N1 virus started in Kansas. At the time, no one knew how it was transmitted, and there were no NPIs (Non-Pharmaceutical Interventions) in place. Items like social distancing, closing establishments based on group settings, contact tracing, and other measures were not even considered. Our ability to provide testing and track the sources of the virus was extremely limited. About 35% of all people living at the time contracted the virus, and the mortality rate was estimated at 2%. If our current NPI, testing, and tracking procedures been in place at the time, there is no doubt that the number of cases would have been just a small fraction of what occurred.

We really do not know the actual mortality rate of COVID19. The reported rate in the U.S. is 6%, but that is not accurate. The best estimate based on countries that have done a better job on testing is that it is about 2% or about the same as the Spanish Flu. This is about twenty times the mortality rate of the common flu at .09% (a bit under one in a thousand will die from the flu.)

What is alarming is that, as of May 2020, the USA has 4.5% of the world’s population but almost 29% of the COVID19 related deaths. We can learn a lot from studying both the countries that are doing a better job as well as those few that are doing worse.

Healthcare Revisited – Summary of Preceding Several Weeks’ Posts

Healthcare Revisited – Summary of Preceding Several Weeks’ Posts

Medicare for all is an interesting idea, but I’m not certain it will be as effective overall when compared to some of the other “proven” systems. It will almost immediately reduce some administrative and “profit” factors, but this will only have a small impact on costs. Baselining is the idea of not re-inventing the wheel and makes common sense. By evaluating several effective systems, it allows us to choose the very best aspects of each. In addition to evaluating the systems “process” it will be important to understand how savings can be achieved within each individual component that contributes to costs.

Regardless of which system is chosen (or designed), we will improve our quality of care.

Currently, we have several “special” interests that are making big money from our current system. They will not go along with any system that threatens their activity and profits. They are Insurance companies, drug companies, the legal profession, physicians, and hospitals. Achieving pricing equity even close to the five baseline countries will negatively impact significant industries. For this reason, any new system should include a “phase-in” period which would allow these industries to adjust.

Why do I say that this topic is by far the most important issue facing us today?

“As of 2019, the per capita cost of healthcare in the US has exceeded $11,000 for every adult, child & infant. Our per capita cost is almost three times the average of the EU Countries and more than what is required for a family to provide for other essentials. Nationwide we are spending almost $3.5 trillion a year on healthcare.

If a family of four had to pay their share of this cost, they would be facing almost $44,000. Allowing for reasonable funds to provide for basic housing, food, transportation, clothing, repairs & maintenance, insurance & a modest contingency fund it is evident that anything less than a family income of $75,000 per annum will require some form of subsidy just to cover the basics.

Currently, about 1/3 of the cost is being funded by the government in the form of Medicare & Medicaid. Another 1/3 (or slightly more) is funded through company healthcare plans, and the remainder is paid by citizens in the form of premiums, deductibles, and co-pays. From a company point of view, this high cost to them reduces the funds available for wage compensation.”

Our healthcare system and special interest involvement imposes a heavy tax on the public in 2 ways. First, it causes Government funding for both Medicare and Medicaid to be at least $500 billion more than it should. Next, it results in insurance premiums, both for employers and private payers, to be at least 1 trillion dollars higher than they could be. Of the $3.5 trillion that is paid out annually at least $1.5 trillion of it goes into the coffers of special interests.

“Families on private health plans pay an average annual premium of $4,968 or $414 per month. The average deductible and co-pays for these plans is $ $3,879”.  Source: https://brandongaille.com/average-cost-private-health-insurance-per-month/

Between the premiums, the deductibles and copays the average family will pay almost $9, 000 per year for health insurance, and this does not include the amounts that are being provided by companies or being subsidized by the government. This regressive healthcare tax is a heavy burden on the middle class. Employers are also facing the decision to pay higher wages or continue to fund escalating insurance prices. In many cases, employers are forced to hold increases on wage levels and increase employee funding participation in insurance plans.

Assuming that we can change our system and eliminate the current $1.5 trillion in tax, the next question is how to distribute the savings. $500 billion will occur through a reduction in the current level of Medicare and Medicaid spending. The remaining $1 trillion should provide employers and private pay individuals with a reduction or elimination of premiums. That amount would add an average of $6,300 to every wage worker annually if distributed equally.

This one issue has the potential to reduce the national budget deficit to an acceptable level and at the same time, increase the average wage for the middle class.

One final comment. While the actual amount of medically related bankruptcies is in dispute, there is no doubt that it comprises a significant portion of all bankruptcy events.