Blame avoidance and letting the insurers be the evil bastards

Insurers are good evil bastards.

They need to have two core competencies. First they must be able to accurately assess risk. Secondly, they must be able to say “No.”

On a good day, health insurance companies wish they were as popular as syphilis. Everyone loves to punch insurers and insurers roll with it as they don’t need to be popular to be profitable.

HHS Secretary Azar is taking that track as he talked about what he wants to do about high drug prices last week. First he says that the Federal government will not negotiate drug prices as the only way to get a good deal is to credibly threaten to exclude ineffective or low value drugs from a formulary:

The only way that direct negotiation saves money is by doing something this administration does not believe in: denying access to certain medicines for all Medicare beneficiaries, or setting prices for drugs by government fiat….

This is just after he went weedy into the details about Medicare Part D protected classes:

In Part D, we’ll be giving Medicare plans the same negotiating power that private sector plans already have—we know this approach works.

Let me briefly lay out how this will happen. We know right now that Medicare Part D is not getting the deals it should on some expensive, important drugs.

For instance, there are six types of drugs that are automatically put into Part D categories that are called “protected classes,” because they’re vital to treating some serious conditions….

Part D protected classes require an insurer to cover “all or substantially all” of the drugs in these six classes right now. There is little ability to for a Part D buyer to say either “No” or “No, not at that price”.

Non-Medicare/Medicaid insurers attempt to control their drug acquisition costs by either excluding certain drugs from the formulary (the list of covered drugs) or placing some drugs on low cost sharing levels and other drugs on “arm and a leg” cost sharing tiers. Insurers say no.

Secretary Azar is saying that Medicare/CMS won’t say No but they are thinking about outsourcing the “No” to private insurers.

This is a legitimate trade-off on how to get lower prices or more variety of drugs.

It is also a class case of outsourcing the screaming at the decision makers to the insurers. Nothing wrong with that, but that is what is happening here.

17 replies
  1. 1
    Patricia Kayden says:

    I’m kind of surprised that this administration cares at all about high drug prices. Interesting.

  2. 2
    Ben Cisco says:

    @Patricia Kayden: Just chaff/flare – all for show. Also, there’s grifting afoot, as always with this bunch

  3. 3
    Amir Khalid says:

    @Patricia Kayden:
    The Trump administration, being Republican and pro-business, probably wants drug prices to stay high to maintain Big Pfarma’s profit margins.

    The Secretary’s argument that negotiating drug prices with Big Pfarma amounts to setting those prices by fiat doesn’t make sense to me. Haggling, by definition, is not setting prices by fiat. And isn’t it what every other country in the world does? The US doesn’t, and it’s where drug prices are the highest. And why is excluding drugs that don’t provide value for money a bad idea?

  4. 4
    different-church-lady says:

    I usually stay out of your threads, because I have nothing good to say about insurers. They are parasites, plain and simple.

  5. 5
    RobertDSC-Mac Mini says:

    First they must be able to accurately assess risk. Secondly, they must be able to say “No.”

    That they say “No” to legitimate cases of injury is indicative of their failure to accurately assess risk. That they say “No” and fight you to the end of time is why they are so reviled.

  6. 6
    Amir Khalid says:

    @RobertDSC-Mac Mini:
    Their failure, or their refusal?

  7. 7
    ET says:

    Totally OT but on the Yahoo! home page someone forgot the t in trump so the headline for the scrolling news on the home page is
    rump, Pence file annual financial disclosures

    The article headline has the t. I needed that laugh.

  8. 8
    sherparick says:

    One part of story is that Trump promised the Drug companies that he would go after those free loading foreigners that negotiate lower prices on their drugs and to bar imports from those countries (like Canada and from Europe). The media does a terrible job with this debate because they just are incredibly credulous about drug companies’ propaganda that “high drug prices” pay for research and development. This is a lie. Most R&D, particularly basic research, is taxpayer supported through NHI and DoD. The patents the companies get are legal monopolies, enforced by the Government with criminal penalties if necessary. It encourages all sorts of rent seeking by profit maximizing firms. The drive to maximize profits and revenues means that a drug company will charge the highest price it can to maximize revenue on the product. And where that product can be the difference between life and death, that price will be pretty high since it won’t reduce demand very much. Hence, Sanofi-Aventis is not going to reduce the price of its insulin injection pen in the U.S. if it gets more money out of Europe or Canada. Further, the vast rents that can be earned from drug, particularly drugs for chronic pain with addictive qualities, encourages all sorts of bad rent seeking behavior, as exemplified, but not restricted to, Purduepharma and the opiod crisis.

    In 2015, generic pharma was the most profitable industry, and Major Pharma (patents), was the 4th, behind Tobacco (addiction) and Investment Managers (Grifters), per Forbes.

    Health Insurers business model is also pretty cruel, but they are not in the same league as pharma.

    For an alternative system see:

  9. 9
    sdhays says:

    @Amir Khalid: When the government does it, haggling is setting prices by fiat. Because reasons.

  10. 10
    Barbara says:

    Insurers serve the role of national health services in other countries in making hard decisions. The problem, of course, is that they are not disinterested, and thus, even when they make correct decisions those decisions are laden with the suspicion that they were made for the wrong reasons. In the United States, there is no entity, person, or institution that serves the role of an independent prudent purchaser. The result has been a complete stalemate that has allowed per unit prices to rise relentlessly as no one trusts anyone to do anything about it. Medicare’s normal power buyer approach, which is what it does for hospitals and physicians, could work for pharmaceuticals as well, and it might help, but it won’t stop the fact that too often, when it comes to medical care, no country is more determined to buy high priced junk than we are.

  11. 11
    Barbara says:

    @sdhays: Because at then end of the day that’s what Medicare does for every other GD class of medical goods and services. There is no reason at all to exempt pharmaceuticals except the political power of drug companies.

  12. 12
    Barbara says:

    If you wanted to lower drug costs without saying an absolute no to actually innovative treatments, you would do what insurers and PBMs do. You would list every class of drug and every product in the class and you would give a rank from 1 (never) to 5 (always) and in between would be the list of those things you can do without or that you only need two or three of, and then you would put out an RFP and ask what the lowest price would be if you were 1 of however many choices you want people to have in a given class. That leaves you with a few drugs that you need, and there, your choices are more limited, but generally, even if you can’t say absolutely no, you can limit drugs to those people for whom there is a clearly demonstrated need. The pattern of drug manufacturing and marketing is to “expand” the parameters of use without actually seeking a wider scope of labeling. You can also fund or help develop me too classes of drugs that are innovative so that manufacturers have an incentive to avoid setting excessive pricing at the front end because of a fear of having a shortened period of time for which they have an actual monopoly. There are many, many things that could be done if we had a political structure actually interested in solving problems.

  13. 13
    Chris Johnson says:

    @different-church-lady: Yup. Best not to post, really.

    Oopsy :)

  14. 14
    Barbara says:

    @Chris Johnson: Yes, best to stake out a position as a purity pony ready to throw stones at anyone who proposes anything constructive.

  15. 15
    cain says:

    So, I just got laid off and my insurance ends in June. Any suggestions on how to get into a new health insurance plan pronto?

  16. 16
    jl says:

    A rare case where I disagree with Dave, or wonder if he was not very precise in writing this post. I think the following statement by Azar about effect of buyer negotiation on drug prices is just flat wrong: It does not amount to ” denying access to certain medicines for all Medicare beneficiaries, or setting prices for drugs by government fiat…”

    If Dave is saying that there is any merit to that statement, or that is conveys any accurate information about how the drug industry and drug pricing works in the US, I think that is just flat wrong..

  17. 17

    @cain: you will qualify for a Special Enrollment Period which means you can buy a plan on Exchange (potentially subsidized), accept Cobra or see if you can buy a short term underwritten plan.

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