NBER Working Paper No. 22338: Strategic Formulary Design in Medicare Part D Plans

By Kurt Lavetti and Kosali Simon
National Bureau of Economic Research, June 2016

Abstract

The design of Medicare Part D causes most Medicare beneficiaries to receive fragmented health insurance, whereby prescription drugs and other medical care are covered by separate insurance plans. Fragmentation of insurance plans is potentially inefficient since separate insurers maximize profits over only one component of healthcare spending, despite many complementarities and substitutabilities between types of healthcare. Fragmentation of some plans but not others can also lead to market distortions due to differential adverse selection, as integrated plans may use drug formulary designs to induce enrollment by patients who are profitable under Parts A & B, while stand-alone drug plans have no such incentive. We study whether the design of insurance plans in Medicare Part D reflects these two differences in incentives using data on the universe of Part D plan formularies, drug prices, and Medicare claims data. We find evidence consistent with both hypotheses. Relative to fragmented plans, integrated plans systematically design their drug formularies to encourage enrollment by beneficiaries with medical conditions that are profitable under Parts A & B. However, integrated plans also more generously cover drugs that have the potential to causally reduce medical costs. These large differences in incentives and plan design between integrated and fragmented plans are likely the precursors of substantial differential selection of enrollees, and the basic design of Medicare Part D abets this covert selection.

From the Introduction

A growing share of all public expenditures on health insurance in the US is paid to private companies that deliver public health insurance benefits. Medicare Parts C and D, which account for about one-third of all Medicare expenses, are delivered entirely by private companies, and 39 states have contracts with private managed care organizations to deliver Medicaid benefits (KFF, 2014). Although the intention behind privatization is generally to increase efficiency, in the case of Medicare Part D the split between public and private provision of benefits has also introduced several strategic opportunities for insurers that may have reduced efficiency and increased total costs.

We focus in this paper on insurer behavior in responding to these Part D incentives when designing plans, and not on the resulting consumer behavior or net welfare effects. The selection effect that we identity, however, clearly increases the cost to Medicare, and Part D formularies provide a mechanism for MA plans to select patients by medical condition with surgical precision.

From the Summary and Discussion

Finally, the results of this research are useful for understanding the extent to which the fragmentation of health insurance generally affects plan design, which is the primary channel through which adverse or advantageous selection is likely to arise in insurance markets.

http://www.nber.org/papers/w22338

***

Comment:

By Don McCanne, M.D.

The simple conclusion of this highly technical paper is that fragmentation of health insurance – using the example of Medicare Part D drug benefits – results in differences in plan design and incentives that allow insurers to engage in adverse or advantageous selection. The insurers use this to attract the healthy and avoid the sick. This results in reduced efficiency and in increases in total costs.

Although the example used was Medicare Part D drug benefits, the principle extends throughout our entire fragmented health care financing system, heavily dependent on private insurers that use plan innovations to benefit their own bottom lines.

A single payer system obviously does not use plan design to attract the healthy and repel the sick. Everyone is served equitably.

NBER Working Paper No. 22338: Strategic Formulary Design in Medicare Part D Plans

By Kurt Lavetti and Kosali Simon
National Bureau of Economic Research, June 2016

Abstract

The design of Medicare Part D causes most Medicare beneficiaries to receive fragmented health insurance, whereby prescription drugs and other medical care are covered by separate insurance plans. Fragmentation of insurance plans is potentially inefficient since separate insurers maximize profits over only one component of healthcare spending, despite many complementarities and substitutabilities between types of healthcare. Fragmentation of some plans but not others can also lead to market distortions due to differential adverse selection, as integrated plans may use drug formulary designs to induce enrollment by patients who are profitable under Parts A & B, while stand-alone drug plans have no such incentive. We study whether the design of insurance plans in Medicare Part D reflects these two differences in incentives using data on the universe of Part D plan formularies, drug prices, and Medicare claims data. We find evidence consistent with both hypotheses. Relative to fragmented plans, integrated plans systematically design their drug formularies to encourage enrollment by beneficiaries with medical conditions that are profitable under Parts A & B. However, integrated plans also more generously cover drugs that have the potential to causally reduce medical costs. These large differences in incentives and plan design between integrated and fragmented plans are likely the precursors of substantial differential selection of enrollees, and the basic design of Medicare Part D abets this covert selection.

From the Introduction

A growing share of all public expenditures on health insurance in the US is paid to private companies that deliver public health insurance benefits. Medicare Parts C and D, which account for about one-third of all Medicare expenses, are delivered entirely by private companies, and 39 states have contracts with private managed care organizations to deliver Medicaid benefits (KFF, 2014). Although the intention behind privatization is generally to increase efficiency, in the case of Medicare Part D the split between public and private provision of benefits has also introduced several strategic opportunities for insurers that may have reduced efficiency and increased total costs.

We focus in this paper on insurer behavior in responding to these Part D incentives when designing plans, and not on the resulting consumer behavior or net welfare effects. The selection effect that we identity, however, clearly increases the cost to Medicare, and Part D formularies provide a mechanism for MA plans to select patients by medical condition with surgical precision.

From the Summary and Discussion

Finally, the results of this research are useful for understanding the extent to which the fragmentation of health insurance generally affects plan design, which is the primary channel through which adverse or advantageous selection is likely to arise in insurance markets.

http://www.nber.org/papers/w22338

The simple conclusion of this highly technical paper is that fragmentation of health insurance – using the example of Medicare Part D drug benefits – results in differences in plan design and incentives that allow insurers to engage in adverse or advantageous selection. The insurers use this to attract the healthy and avoid the sick. This results in reduced efficiency and in increases in total costs.

Although the example used was Medicare Part D drug benefits, the principle extends throughout our entire fragmented health care financing system, heavily dependent on private insurers that use plan innovations to benefit their own bottom lines.

A single payer system obviously does not use plan design to attract the healthy and repel the sick. Everyone is served equitably.

Health Spending For Low-, Middle-, And High-Income Americans, 1963–2012

By Samuel L. Dickman, Steffie Woolhandler, Jacob Bor, Danny McCormick, David H. Bor, and David U. Himmelstein
Health Affairs, July 2016

Abstract

US medical spending growth slowed between 2004 and 2013. At the same time, many Americans faced rising copayments and deductibles, which may have particularly affected lower-income people. To explore whether the health spending slowdown affected all income groups equally, we divided the population into income quintiles. We then assessed trends in health expenditures by and on behalf of people in each quintile using twenty-two national surveys carried out between 1963 and 2012. Before the 1965 passage of legislation creating Medicare and Medicaid, the lowest income quintile had the lowest expenditures, despite their worse health compared to other income groups. By 1977 the unadjusted expenditures for the lowest quintile exceeded those for all other income groups. This pattern persisted until 2004. Thereafter, expenditures fell for the lowest quintile, while rising more than 10 percent for the middle three quintiles and close to 20 percent for the highest income quintile, which had the highest expenditures in 2012. The post-2004 divergence of expenditure trends for the wealthy, middle class, and poor occurred only among the nonelderly. We conclude that the new pattern of spending post-2004, with the wealthiest quintile having the highest expenditures for health care, suggests that a redistribution of care toward wealthier Americans accompanied the health spending slowdown.

From the Discussion

The slowdown in health spending growth between 2004 and 2013 was widely reported and much celebrated. Our data suggest a sobering interpretation: Slower spending growth (at least through 2012) was concentrated among poor and middle-income Americans, leading to a growing disparity in health expenditures across income groups. It is unclear whether the recent acceleration of spending growth will reverse this trend.

The pattern of sharply rising spending for the wealthy and flat or slow growth for others mirrors the widening gap in the consumption of other goods and could represent a shift from need-based to income-based receipt of medical care. We fear that it might presage deepening disparities in health outcomes.

Prior to the implementation of Medicaid and Medicare in 1966, the poor had the lowest health expenditures despite their greater medical need, while expenditures for the wealthy were nearly twice as high as those for the poor. Subsequent to these public investments, health spending tracked closer to medical need, with the poorest income quintile having the highest expenditures and the top quintile the lowest. (However, after adjustment for age and health status, the health expenditure gap between income groups was never fully reversed.)

The rising income-based disparity in spending suggests a shift from allocation of health care according to need to allocation by willingness (and ability) to pay. It is unclear whether this shift arises from the underuse of needed care among the poor or overuse of unnecessary care by the wealthy. The sharp spending increase among the nonelderly top income group merits further study and could be caused by the widening gap in cost-sharing requirements in private insurance plans for employees of small versus large firms (the latter of which tend to pay higher wages), the rise of concierge medical practices, or supply-induced demand. Irrespective of the cause, the pattern suggests that the efficiency of medical spending is declining, with an increasing share of medical resources devoted to people with the least medical need.

Conclusion

Increasing income inequality has drawn much attention in recent years. Our findings suggest that inequality in health care spending is also on the rise: Expenditures for the poorest (and sickest) segment of the population are actually falling, while those for the wealthy are growing rapidly and now exceed those for other Americans. This pattern, which has not been seen since before Medicare and Medicaid were introduced, could portend a widening of disparities in health outcomes.

http://content.healthaffairs.org/content/35/7/1189.abstract

***

Comment:

By Don McCanne, M.D.

Today’s important message is well stated in the Conclusion of the article: “Increasing income inequality has drawn much attention in recent years. Our findings suggest that inequality in health care spending is also on the rise: Expenditures for the poorest (and sickest) segment of the population are actually falling, while those for the wealthy are growing rapidly and now exceed those for other Americans. This pattern, which has not been seen since before Medicare and Medicaid were introduced, could portend a widening of disparities in health outcomes.”

Initially Medicare and Medicaid were very effective in increasing the proportion of care provided to the poorest who were the sickest amongst us. What is alarming is that there is now a redistribution of health care to the wealthiest, who as a group also happen to be the healthiest, with a decline in care for the poorest and sickest. This is one of the more cruel examples of the contemporary redistribution of wealth from the masses to the wealthy.

Our current fragmented health care financing system, which has been perpetuated and expanded by the Affordable Care Act, is likely a major contributor to this injustice. As private insurance plans have been expanded, innovations such as high deductibles designed to make premiums more affordable (at the cost of making actual health care less affordable) have increased financial barriers to care for the poor. Concierge practices catering to the wealthy and excluding the poor exemplify the trend of redistribution of health care upward on the economic ladder.

There is a crying need to enact a multitude of public policies that would help to reverse the regressive income and wealth transfer that has been taking place in recent decades. One of the more important measures would address the problem presented in today’s article – redistribution of health care to the wealthy.

 A well designed single payer system would remove financial barriers to care while being funded by progressive tax policies. It would ensure that lower-income individuals with greater health care needs would actually receive the care that they need. The limitations of system capacity would help to moderate the superfluous excesses being consumed by the wealthy – excesses currently being paid collectively by all of us through insurance premiums and taxes.

We can have health care justice in America, but only if we demand it though mobilization of our democratic institutions.

Health Spending For Low-, Middle-, And High-Income Americans, 1963–2012

By Samuel L. Dickman, Steffie Woolhandler, Jacob Bor, Danny McCormick, David H. Bor, and David U. Himmelstein
Health Affairs, July 2016

Abstract

US medical spending growth slowed between 2004 and 2013. At the same time, many Americans faced rising copayments and deductibles, which may have particularly affected lower-income people. To explore whether the health spending slowdown affected all income groups equally, we divided the population into income quintiles. We then assessed trends in health expenditures by and on behalf of people in each quintile using twenty-two national surveys carried out between 1963 and 2012. Before the 1965 passage of legislation creating Medicare and Medicaid, the lowest income quintile had the lowest expenditures, despite their worse health compared to other income groups. By 1977 the unadjusted expenditures for the lowest quintile exceeded those for all other income groups. This pattern persisted until 2004. Thereafter, expenditures fell for the lowest quintile, while rising more than 10 percent for the middle three quintiles and close to 20 percent for the highest income quintile, which had the highest expenditures in 2012. The post-2004 divergence of expenditure trends for the wealthy, middle class, and poor occurred only among the nonelderly. We conclude that the new pattern of spending post-2004, with the wealthiest quintile having the highest expenditures for health care, suggests that a redistribution of care toward wealthier Americans accompanied the health spending slowdown.

From the Discussion

The slowdown in health spending growth between 2004 and 2013 was widely reported and much celebrated. Our data suggest a sobering interpretation: Slower spending growth (at least through 2012) was concentrated among poor and middle-income Americans, leading to a growing disparity in health expenditures across income groups. It is unclear whether the recent acceleration of spending growth will reverse this trend.

The pattern of sharply rising spending for the wealthy and flat or slow growth for others mirrors the widening gap in the consumption of other goods and could represent a shift from need-based to income-based receipt of medical care. We fear that it might presage deepening disparities in health outcomes.

Prior to the implementation of Medicaid and Medicare in 1966, the poor had the lowest health expenditures despite their greater medical need, while expenditures for the wealthy were nearly twice as high as those for the poor. Subsequent to these public investments, health spending tracked closer to medical need, with the poorest income quintile having the highest expenditures and the top quintile the lowest. (However, after adjustment for age and health status, the health expenditure gap between income groups was never fully reversed.)

The rising income-based disparity in spending suggests a shift from allocation of health care according to need to allocation by willingness (and ability) to pay. It is unclear whether this shift arises from the underuse of needed care among the poor or overuse of unnecessary care by the wealthy. The sharp spending increase among the nonelderly top income group merits further study and could be caused by the widening gap in cost-sharing requirements in private insurance plans for employees of small versus large firms (the latter of which tend to pay higher wages), the rise of concierge medical practices, or supply-induced demand. Irrespective of the cause, the pattern suggests that the efficiency of medical spending is declining, with an increasing share of medical resources devoted to people with the least medical need.

Conclusion

Increasing income inequality has drawn much attention in recent years. Our findings suggest that inequality in health care spending is also on the rise: Expenditures for the poorest (and sickest) segment of the population are actually falling, while those for the wealthy are growing rapidly and now exceed those for other Americans. This pattern, which has not been seen since before Medicare and Medicaid were introduced, could portend a widening of disparities in health outcomes.

http://content.healthaffairs.org/content/35/7/1189.abstract

Today’s important message is well stated in the Conclusion of the article: “Increasing income inequality has drawn much attention in recent years. Our findings suggest that inequality in health care spending is also on the rise: Expenditures for the poorest (and sickest) segment of the population are actually falling, while those for the wealthy are growing rapidly and now exceed those for other Americans. This pattern, which has not been seen since before Medicare and Medicaid were introduced, could portend a widening of disparities in health outcomes.”

Initially Medicare and Medicaid were very effective in increasing the proportion of care provided to the poorest who were the sickest amongst us. What is alarming is that there is now a redistribution of health care to the wealthiest, who as a group also happen to be the healthiest, with a decline in care for the poorest and sickest. This is one of the more cruel examples of the contemporary redistribution of wealth from the masses to the wealthy.

Our current fragmented health care financing system, which has been perpetuated and expanded by the Affordable Care Act, is likely a major contributor to this injustice. As private insurance plans have been expanded, innovations such as high deductibles designed to make premiums more affordable (at the cost of making actual health care less affordable) have increased financial barriers to care for the poor. Concierge practices catering to the wealthy and excluding the poor exemplify the trend of redistribution of health care upward on the economic ladder.

There is a crying need to enact a multitude of public policies that would help to reverse the regressive income and wealth transfer that has been taking place in recent decades. One of the more important measures would address the problem presented in today’s article – redistribution of health care to the wealthy.

A well designed single payer system would remove financial barriers to care while being funded by progressive tax policies. It would ensure that lower-income individuals with greater health care needs would actually receive the care that they need. The limitations of system capacity would help to moderate the superfluous excesses being consumed by the wealthy – excesses currently being paid collectively by all of us through insurance premiums and taxes.

We can have health care justice in America, but only if we demand it though mobilization of our democratic institutions.

UnitedHealthcare Sues Dialysis Chain Over Billing

By Reed Abelson and Katie Thomas
The New York Times, July 1, 2016

Private health insurers can pay more than $4,000 for each dialysis treatment. Government health plans like Medicaid pay around $200.

That gaping price difference was the motivation for a scheme, orchestrated by a for-profit dialysis chain, that illegally pushed poor people in Florida and Ohio out of inexpensive government programs and into expensive private plans sold by UnitedHealthcare, according to a lawsuit the giant insurer filed in federal court on Friday. UnitedHealthcare says the arrangement needlessly exposed the patients to medical bills.

The suit accuses American Renal Associates, a public company that operates nearly 200 dialysis clinics across the country, of fraudulently billing millions of dollars since the beginning of the year. UnitedHealthcare is trying to recoup that money.

The insurer argues that the effort was aided by the American Kidney Fund, a nonprofit patient advocacy group, which paid the patients’ premiums for private insurance. The insurer said American Renal Associates “earmarked donations” to the kidney fund to pay for the coverage, violating anti-kickback laws in the process.

The kidney fund, which is not listed as a defendant in the lawsuit, is overwhelmingly financed by dialysis companies.

People who need dialysis and have end-stage renal disease are eligible for Medicare coverage, even if they are under 65. If they are poor, they may also qualify for Medicaid.

At the same time, UnitedHealthcare has a keen financial interest in keeping very ill patients, like those who need dialysis, out of its private plans. Under the federal health care law, insurers must cover everyone, no matter how sick they are.

According to the lawsuit, American Renal Associates devised a clever plot aimed at converting patients over to private plans.

The company identified poor patients in rural areas of Florida who did not have a nearby dialysis clinic in UnitedHealthcare’s network, the suit says. The centers then persuaded these patients to switch to UnitedHealthcare plans, using the American Kidney Fund’s program to pay their premiums.

Finally, the centers billed UnitedHealthcare out-of-network prices of about $4,000 per dialysis treatment, compared with just $200 under Florida’s Medicaid program, the suit said.

Because the UnitedHealthcare plans required greater out-of-pocket contributions than Medicaid’s coverage, the centers waived any part of the dialysis bill that was not paid by the insurer.

http://www.nytimes.com/2016/07/02/business/unitedhealthcare-sues-dialysis-chain-over-billing.html

***

Comment:

By Don McCanne, M.D.

In this scheme a dialysis chain was able to increase Medicare payments twenty fold for dialysis treatments, thus cheating the taxpayers who fund Medicare. The scheme was made possible because Congress continues to push us toward privatization of Medicare by overpaying the private Medicare Advantage plans designed to displace our traditional Medicare program.

Its important to understand how this this scheme works because it epitomizes the irrationality of insisting the we use private insurers in our health care financing instead of a single payer Medicare program. Whereas the traditional Medicare program covers all physicians and hospitals, except the few who opt out of the program, the private insurers, such as those providing Medicare Advantage plans, use limited provider networks in order to contract for more favorable rates.

In this case, UnitedHealthcare was not able to contract with dialysis providers in some regions thus they were forced to pay out-of-network prices instead of what would have been contracted prices. American Renal Associates thus jumped at the opportunity to transfer their traditional Medicare patients, for whom they were receiving $200 a treatment, into the private UnitedHealthcare plan, wherein they could demand an out-of-network payment of $4000.

If instead we had a Medicare for all program, payments might have been slightly more than $200 if the dialysis centers were at risk of closing down due to inadequate revenues, but clearly they would not have approached anywhere near $4000. One of the most important features of a single payer national health program is that payments are fair, both for the providers and for the taxpayers funding the program.

The villains here? The dialysis chain gaming the system, the private insurers using schemes such as limited networks to leverage the system in their favor, and our legislators who are forcing on us their ideology favoring market solutions for health care financing when the government is best suited to ensure an efficient and equitable system of health care financing for all. Perhaps it is us who carry the greatest blame by not insisting that our elected representatives fix this system. Both major political parties have excluded single payer from their platforms, and we do nothing about it, except whine.

UnitedHealthcare Sues Dialysis Chain Over Billing

By Reed Abelson and Katie Thomas
The New York Times, July 1, 2016

Private health insurers can pay more than $4,000 for each dialysis treatment. Government health plans like Medicaid pay around $200.

That gaping price difference was the motivation for a scheme, orchestrated by a for-profit dialysis chain, that illegally pushed poor people in Florida and Ohio out of inexpensive government programs and into expensive private plans sold by UnitedHealthcare, according to a lawsuit the giant insurer filed in federal court on Friday. UnitedHealthcare says the arrangement needlessly exposed the patients to medical bills.

The suit accuses American Renal Associates, a public company that operates nearly 200 dialysis clinics across the country, of fraudulently billing millions of dollars since the beginning of the year. UnitedHealthcare is trying to recoup that money.

The insurer argues that the effort was aided by the American Kidney Fund, a nonprofit patient advocacy group, which paid the patients’ premiums for private insurance. The insurer said American Renal Associates “earmarked donations” to the kidney fund to pay for the coverage, violating anti-kickback laws in the process.

The kidney fund, which is not listed as a defendant in the lawsuit, is overwhelmingly financed by dialysis companies.

People who need dialysis and have end-stage renal disease are eligible for Medicare coverage, even if they are under 65. If they are poor, they may also qualify for Medicaid.

At the same time, UnitedHealthcare has a keen financial interest in keeping very ill patients, like those who need dialysis, out of its private plans. Under the federal health care law, insurers must cover everyone, no matter how sick they are.

According to the lawsuit, American Renal Associates devised a clever plot aimed at converting patients over to private plans.

The company identified poor patients in rural areas of Florida who did not have a nearby dialysis clinic in UnitedHealthcare’s network, the suit says. The centers then persuaded these patients to switch to UnitedHealthcare plans, using the American Kidney Fund’s program to pay their premiums.

Finally, the centers billed UnitedHealthcare out-of-network prices of about $4,000 per dialysis treatment, compared with just $200 under Florida’s Medicaid program, the suit said.

Because the UnitedHealthcare plans required greater out-of-pocket contributions than Medicaid’s coverage, the centers waived any part of the dialysis bill that was not paid by the insurer.

http://www.nytimes.com/2016/07/02/business/unitedhealthcare-sues-dialysis-chain-over-billing.html

In this scheme a dialysis chain was able to increase Medicare payments twenty fold for dialysis treatments, thus cheating the taxpayers who fund Medicare. The scheme was made possible because Congress continues to push us toward privatization of Medicare by overpaying the private Medicare Advantage plans designed to displace our traditional Medicare program.

Its important to understand how this this scheme works because it epitomizes the irrationality of insisting the we use private insurers in our health care financing instead of a single payer Medicare program. Whereas the traditional Medicare program covers all physicians and hospitals, except the few who opt out of the program, the private insurers, such as those providing Medicare Advantage plans, use limited provider networks in order to contract for more favorable rates.

In this case, UnitedHealthcare was not able to contract with dialysis providers in some regions thus they were forced to pay out-of-network prices instead of what would have been contracted prices. American Renal Associates thus jumped at the opportunity to transfer their traditional Medicare patients, for whom they were receiving $200 a treatment, into the private UnitedHealthcare plan, wherein they could demand an out-of-network payment of $4000.

If instead we had a Medicare for all program, payments might have been slightly more than $200 if the dialysis centers were at risk of closing down due to inadequate revenues, but clearly they would not have approached anywhere near $4000. One of the most important features of a single payer national health program is that payments are fair, both for the providers and for the taxpayers funding the program.

The villains here? The dialysis chain gaming the system, the private insurers using schemes such as limited networks to leverage the system in their favor, and our legislators who are forcing on us their ideology favoring market solutions for health care financing when the government is best suited to ensure an efficient and equitable system of health care financing for all. Perhaps it is us who carry the greatest blame by not insisting that our elected representatives fix this system. Both major political parties have excluded single payer from their platforms, and we do nothing about it, except whine.

Anthem, Express Scripts Face Legal Challenge Over Prescription Drug Prices

By Julie Appleby
Kaiser Health News, July 1, 2016

Anthem and its pharmacy manager Express Scripts overcharged patients with job-based insurance for prescription drugs, alleges a lawsuit that seeks class action status for what could be tens of thousands of Americans.

It’s the latest wrinkle in a battle that has already pitted the major national insurer and its pharmacy benefit manager (PBM) against each other in dueling legal actions — and further illustrates the complicated set of factors that determine what consumers pay for prescription medications.

The case alleges that insured workers paid too much because Express Scripts charged “above competitive pricing levels” and Anthem, in effect, allowed those higher prices as part of a 10-year contract deal with the pharmacy management firm.

Recently, some independent pharmacists have complained that some PBMs are charging insured consumers more than the cash price for some generic drugs.

And for years, questions have been raised about whether the industry fully discloses how much it is actually saving insurer and employer clients — and what portion of those savings are actually passed along to consumers.

“It’s such a complicated web of intermediaries that stand between consumers and the prices they pay,” said Erin Fuse Brown, an assistant professor of law at Georgia State University College of Law. “As a result, no one knows if they’re getting ripped off.”

Anthem’s lawsuit aims to end its contract with the PBM and seeks $15 billion in damages for what it alleges was the PBM’s failure to renegotiate lower prices for prescriptions. Anthem used to run its own PBM, but sold it to Express Scripts in 2009 as part of the contract deal, court documents show.

In its counterclaims, Express Scripts said the insurer rejected several proposals to renegotiate prices. In addition, Express Scripts’ legal document says Anthem was offered a choice of “less money up front but lower pricing” or a bigger upfront payment “with higher pricing for Express Scripts’ services.” It chose the higher prices over the course of the contract in exchange $4.6 billion more in upfront fees, according to the PBM’s counterclaim. That money, Express Scripts’ documents allege, was then used by Anthem to buy back its own stock, rather than passing it along to health plan members. The stock buyback “applied upward pressure to Anthem’s stock price, thereby enriching shareholders and management,” the filing alleges.

http://khn.org/news/anthem-express-scripts-face-legal-challenge-over-prescription-drug-prices/

===

Decoding Big Pharma’s Secret Drug Pricing Practices

By Robert Langreth, Michael Keller and Christopher Cannon
Bloomberg, June 29, 2016

The pharmaceutical industry has long said that list prices aren’t a reliable indicator of what Americans pay for prescription drugs because big customers, including health insurers and pharmacy benefit managers, negotiate discounts. But a Bloomberg analysis of 39 medicines with global sales of more than $1 billion a year showed that 30 of them logged price increases of more than double the rate of inflation from 2009 to 2015, even after estimated discounts were factored in. Only six drugs had price increases in line with or below inflation.

(A large number of specific examples are provided in the article.)

http://www.bloomberg.com/graphics/2016-drug-prices/

===

Comment:

By Don McCanne, M.D.

Pharmaceutical companies, insurers and pharmacy benefit managers each conspire, with each other and independently, to get the maximum financial gain that prescription drug market dynamics will allow. Health care funds pour into these industries, and patients end up the losers.

What would it be like if pharmaceutical firms all converted to non-profit status and then negotiated earnestly with the public stewards of a single payer national health program? Health care funds would no longer be drained off to passive investors and to exorbitant executive salaries and benefits, and patients would end up the winners.

Anthem, Express Scripts Face Legal Challenge Over Prescription Drug Prices

By Julie Appleby
Kaiser Health News, July 1, 2016

Anthem and its pharmacy manager Express Scripts overcharged patients with job-based insurance for prescription drugs, alleges a lawsuit that seeks class action status for what could be tens of thousands of Americans.

It’s the latest wrinkle in a battle that has already pitted the major national insurer and its pharmacy benefit manager (PBM) against each other in dueling legal actions — and further illustrates the complicated set of factors that determine what consumers pay for prescription medications.

The case alleges that insured workers paid too much because Express Scripts charged “above competitive pricing levels” and Anthem, in effect, allowed those higher prices as part of a 10-year contract deal with the pharmacy management firm.

Recently, some independent pharmacists have complained that some PBMs are charging insured consumers more than the cash price for some generic drugs.

And for years, questions have been raised about whether the industry fully discloses how much it is actually saving insurer and employer clients — and what portion of those savings are actually passed along to consumers.

“It’s such a complicated web of intermediaries that stand between consumers and the prices they pay,” said Erin Fuse Brown, an assistant professor of law at Georgia State University College of Law. “As a result, no one knows if they’re getting ripped off.”

Anthem’s lawsuit aims to end its contract with the PBM and seeks $15 billion in damages for what it alleges was the PBM’s failure to renegotiate lower prices for prescriptions. Anthem used to run its own PBM, but sold it to Express Scripts in 2009 as part of the contract deal, court documents show.

In its counterclaims, Express Scripts said the insurer rejected several proposals to renegotiate prices. In addition, Express Scripts’ legal document says Anthem was offered a choice of “less money up front but lower pricing” or a bigger upfront payment “with higher pricing for Express Scripts’ services.” It chose the higher prices over the course of the contract in exchange $4.6 billion more in upfront fees, according to the PBM’s counterclaim. That money, Express Scripts’ documents allege, was then used by Anthem to buy back its own stock, rather than passing it along to health plan members. The stock buyback “applied upward pressure to Anthem’s stock price, thereby enriching shareholders and management,” the filing alleges.

http://khn.org/news/anthem-express-scripts-face-legal-challenge-over-prescription-drug-prices/

===

Decoding Big Pharma’s Secret Drug Pricing Practices

By Robert Langreth, Michael Keller and Christopher Cannon
Bloomberg, June 29, 2016

The pharmaceutical industry has long said that list prices aren’t a reliable indicator of what Americans pay for prescription drugs because big customers, including health insurers and pharmacy benefit managers, negotiate discounts. But a Bloomberg analysis of 39 medicines with global sales of more than $1 billion a year showed that 30 of them logged price increases of more than double the rate of inflation from 2009 to 2015, even after estimated discounts were factored in. Only six drugs had price increases in line with or below inflation.

(A large number of specific examples are provided in the article.)

http://www.bloomberg.com/graphics/2016-drug-prices/

Pharmaceutical companies, insurers and pharmacy benefit managers each conspire, with each other and independently, to get the maximum financial gain that prescription drug market dynamics will allow. Health care funds pour into these industries, and patients end up the losers.

What would it be like if pharmaceutical firms all converted to non-profit status and then negotiated earnestly with the public stewards of a single payer national health program? Health care funds would no longer be drained off to passive investors and to exorbitant executive salaries and benefits, and patients would end up the winners.