Tag Archives: insurers

Trade Secrecy and Public Payers

By: Marcus J. Hopkins, Blogger

This past month, I attended the Hepatitis Appropriates Partnership (HAP) and National Viral Hepatitis Roundtable (NVHR) meeting, as well as the National Alliance of State and Territorial AIDS Directors (NASTAD) Technical Assistance (TA) conference in Washington, D.C. To both of these events, I went as a representative of the Community Access National Network (CANN), but I also went as “myself.”

Going as “myself” is a complicated task, no matter the location, as I have several informational gaps in my knowledge about the finer points of crafting policy, and going to these conferences often leaves me feeling like something of a fraud. I haven’t finished my education (and at this point, don’t really have the time to do so), and even then, I wasn’t going to school to study public policy – I was going for Health Communication in an effort to better increase my ability to adequately assist lower- and middle- income people living in Appalachia to access comprehensive healthcare for HIV.

So, when it comes to these meetings, I often find myself nodding along and saying, “Absolutely,” a lot, even when I have no idea what the heck the person is talking about; in the performing arts world, we call this, “Fake It, Until You Make It.” And so, I often leave sessions and conferences with more questions than when I entered, because in order to keep up, I have to almost immediately figure out what’s going on around me.

Perhaps, that is why I was tapped to serve in my capacity with CANN – I’m not just a very good writer (if I do say so, myself), I am also a patient. As such, I can safely say that, despite being a very knowledgeable and informed patient, I still have several information gaps – like many patients. There are some very basic pieces of information that I, as both a patient and a consumer, feel that I should know – that everyone should know – so that I can better advocate for myself.

The one thing that stuck out to me more than anything else during these meetings (in the context of “myself”) was that there is virtually no transparency when it comes to the world of pharmaceutical pricing. As an advocate for open governance, I’ve always been a firm believer that if my tax dollars are being used to pay for something, I have a right to know how they’re being used. This is the basic tenet of public governance –“How’s the money being spent, and how much of it is being spent on what?”

This is where things become interesting. As I reported in the last HEAL Blog, “Behind the Scenes at Hepatitis, Inc.,” certain laws prevent the Centers for Medicare and Medicaid Services (CMS) from discovering the actual price being paid by the 59 AIDS Drugs Assistance Program (ADAP) and 56 Medicaid programs for Hepatitis C (HCV) medications. Furthermore, beyond a single Federal statute, each state may or may not have its own statute that prevents those programs from discussing with any other state the price they’re paying for drugs.

Basically, we have a system in which private companies (in this case, pharmaceutical companies) have the right to enter into negotiations with both privately and publicly funded payers and enter into pricing and rebate agreements with them in total secret, and all of this is legally protected as a Trade Secret, making that information not only invisible to the public, but invisible between the states. This is, according to Pratap Khedar, a principal at pharma marketing consultancy ZS Associates, “…a very efficient free market…between the insurance company and the pharma company” (Herper, 2012).

For the private insurance companies, this seems fair – they are two privately held entities who can and should be able to enter into bargaining proceedings as manufacturer and buyer. This is the cornerstone of the free market – “I have a good to sell; let’s negotiate on the price.” These entities absolutely should be allowed to keep the amount that they pay per unit confidential.

It is, however, with the public payer/private manufacturer secrecy that I have a serious problem. With any other government office, whenever a deal is struck between a private company and the government, the amount the government has agreed to pay, as well as a breakdown of that agreement, are generally subject to public records and Freedom of Information Act (FOIA) requests. With pharmaceutical companies, however, this is not the case.

“Congress has created a system so that even the states, which buy tens of millions of dollars worth of these drugs, have no idea what we pay on a per-unit basis,” said the Democratic former Montana Govenor, Brian Schweitzer (Cross, 2011).

“Actually, Schwierzer does know what the state pays – but, before acquiring the information last summer, had to have his chief counsel sign a written agreement not to disclose it publicly,” reported Mike Dennison of the Billings Gazette (Cross).

Schweitzer came across the information in the summer of 2010, when he was attempting to compare what Montana’s Medicaid program was paying for drugs compared to the cost in Canada (Cross), but discovered in the process that, while he, as the governor of the state of Montana, could access that information, he could not share what his state’s Medicaid was paying at a price-per-unit level – he could only give very broad estimates based on Wholesale Acquisition Costs (WACs) or Acquisition Wholesale Prices (AWPs).

For those readers who are unfamiliar with those two measures, either the AWP, the WAC, or occasionally the Direct Price (DIRP) is the price that is published for the public. Whenever someone says, “Sovaldi (Gilead) costs $87,000 for twelve weeks of treatment,” they are quoting one of those numbers.

What most consumers – particularly those with lower incomes, knowledge levels, healthcare knowledge, or interest in the information – don’t know or understand is that those prices are practically meaningless, as virtually no payer (insurers, private or public) actually ever pays those prices. Instead, they negotiate with pharmaceutical companies and drug manufacturers in order to pay a lower, undisclosed amount, achieving those low numbers either by direct pricing agreements, or by entering into rebate programs.

Rebate programs in the pharmaceutical world operate much as they do in the commercial retail world – the payer pays the pharmacy to fill the prescription, the pharmacy fills the prescription and reports back to the payer, the payer submits a rebate form to the manufacturer, the manufacturer receives the rebate forms and cuts a check for an undisclosed dollar amount, and that check is sent back to the payer.

With both the agreements and the rebate programs, the idea is volume – those states/payers who pay to fill more prescriptions than other states/payers are more likely to receive much more generous pricing and rebate arrangements. For national private insurance companies and pharmacies (Wal-Greens and CVS, for example), this is a great deal, as they can pay to fill several thousands or millions of prescriptions each month.

The rub comes with public payer options, like Medicaid and Ryan White, Part B (ADAP). Ostensibly, this type of closed loop free market should benefit them, as well; instead, the states who are in the direst circumstances – primarily those states that are largely rural, an Appalachian state, are in the South, or are lower-income – end up with the worst pricing arrangements.

Take the example of Stribild (Gilead):

When I lived in California, my ADAP coverage lapse, and there was a period of time where I had to wait for my application to be approved for the new year, during which I ran out of medications. I asked my AIDS Healthcare Foundation (AHF) pharmacy if I could purchase the pills from them, individually, out of pocket, and they agreed to do so at the price of $68 per pill.

So, I did the math:

  • $68/pill x 30 pills/bottle = $2,040/bottle
  • $2,040/bottle x 12 months/year = $24, 480/year

When I first moved to West Virginia, I had to apply for ADAP in my new state. In the application process, they inquire as to how much my current prescriptions cost, which led me to ask the pharmacy for the cost of my prescriptions. After needling them for over an hour, they finally gave me an estimated price of $37,000/year.

Again, I did the math:

  • $37,000/year / 12 months/year = $3,083.33/bottle
  • $3,083.33/bottle / 30 pills/bottle = $102.78/pill.

Did you catch that trick?

The state of California, whose economy is comparable to that of the entire nation of Brazil, pays $68 per unit, while West Virginia, whose economy is comparable to that of the landlocked Eastern European nation of Belarus (best known for its Stalinist architecture and the KGB Headquarters overlooking Independence Square), pays an estimated $102.78/pill (Tippett, 2015).

“But, this,” one might say, “is the nature of business. States who don’t purchase as much of any good will ultimately end up paying more that those states who do.”

This argument does and should hold true for private payers; for public payers, however – particularly Federally-funded public payers – this should never be the case.

Yet again, we are faced with the dual realities of an insurance-based healthcare market and Federally-funded, but state-administered public health programs. The richest states are more likely to benefit, while the poorest states end up paying a higher price for access to treatments than those who live in more urban areas. In a nation where all citizens in all fifty states and the outlying territories are supposed to have equal access and opportunity, there is little parity.

So, what does this mean for poor states’ Medicaid and ADAP budgets? Basically, they get screwed, because, even though they ostensibly have fewer overall clients to serve, they end up paying more for medications than their richer counterparts.

Why I bring up the public payer issue relates to a recent initiative sponsored by AHF in the state of Ohio that would require Ohio agencies and publicly-funded entities from buying prescription drugs at higher prices than what the U.S. Department of Veterans Affairs pays (Associated Press, 2015).

The way this legislation is worded leads voters to think, “Well, the VA must be getting a great price on these drugs! We wouldn’t skimp on healthcare for our nation’s veterans! THIS IS AMERICA!”

As such, it is likely to achieve the adequate number of signatures to force a vote in the Ohio legislature, and potentially go directly to voters if the legislative body fails to act within four months.

The reality, however, is that, because payers cannot legally reveal, either to the public or to each other, how much they actually pay for medications, certain entities may, in fact, pay less than the VA through their own negotiations. This means that the initiative could, in effect, mean that Medicaid and OhDAP could be paying more, if they’re forced to pay the VA price.

The sponsors of the initiative, AHF and its president Michael Weinstein, fully know that this is the case, which makes this proposal a rather open attempt to force a single pharmaceutical company – Gilead – to reduce its drug prices, as well as to enter into pricing negotiations with ADAP programs.

Gilead, the maker of the popular drugs Stribild (HIV), Truvada (HIV, PrEP), Sovaldi, and Harvoni, have weathered a fair amount of criticism in the last few years, mostly in relation to its drug pricing practices. While they have, in the past, attempted to allay the fears of lower-income patients who were denied coverage, the company went forward with a plan to strictly tighten the qualifying requirements for their HCV Patient Assistance Program (PAP), Support Path, in July of this year. This was largely in response to the continued, yet unofficial, practice by insurance companies of sending their client to Support Path to get their medications for free, straight from Gilead, after agreeing to reduced prices and rebates.

What frustrates me the most about this entire situation is my belief that every publicly-funded entity should be held accountable for how our money is spent, up to and including the specific prices these organizations pay for goods and services. Instead, pharmaceutical companies with virtually limitless resources, all but write Federal and state Trade Secrets statutes themselves; they should just start sending their bought and paid-for elected officials out onto the floor wearing their company logos on their backs. As a result, it’s very unlikely that we’ll see any forward momentum on this issue.

References:

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Disclaimer: HEAL Blogs do not necessarily reflect the views of the Community Access National Network (CANN), but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about Hepatitis-related issues and updates. Please note that the content of some of the HEAL Blogs might be graphic due to the nature of the issues being addressed in it.

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Footing the Bill

By Marcus J. Hopkins, Blogger

As a society we need a way of determining what is a reasonable price at the time of introduction of a new drug,” said Stephen Schondelmeyer, a University of Minnesota professor who specializes in pharmaceutical economics. “We have expanded coverage, but we haven’t done anything to control costs on the pricing side.” (Alonso-Zaldivar, 2015)

Truer words are rarely spoken in the world of healthcare coverage. In a time of unprecedented increases in “covered” Americans, the promised “savings” haven’t really materialized, either for payers or for consumers. Rather, the spending on specialty medications has increased so exponentially that both private and public payers are finding themselves faced with difficult choices, when it comes to what coverage can be offered for the amount that consumers pay.

For private insurers, the answers are simple: increase premiums, expand and strengthen prior authorization criteria to restrict access, and place the drugs in the highest available tiers with the highest drug co-pays. For public insurance programs, such as Medicaid, Medicare, and the AIDS Drug Assistance Program (ADAP), the solution is not so clear cut.

For Medicare, specifically, Federal law currently prohibits the program from negotiating with drug manufacturers for lower prices. As recently as February 2015, the Obama Administration requested authority to negotiate prices for Medicare, in large part because of the price of high-cost specialty drugs, such as Sovaldi (Gilead), Olysio (Janssen), Harvoni (Gilead), and Viekira Pak (AbbVie) (Morgan, 2015).

LOGO: Centers for Medicare & Medicaid Services

Photo Credit: Medicare Learning Network

Both Medicaid and Ryan White programs can negotiate for drug prices, but even still, those negotiations are largely kept secret, and the true cost is rarely shared with the public. For that reason, we rely on two measures to express the cost of drugs on the American market: the Wholesale Acquisition Cost (WAC) and the Average Wholesale Price (AWP). Even with those standards in place, nobody actually pays those costs, due to various rebates, negotiations, and other pricing schemes, all of which is available only if you all but threaten them with the comfort of a nice set of thumbscrews.

In fact, getting actual pricing information based on what payers actually pay, often involves Freedom of Information Act (FOIA) requests from government agencies, and threats of lawsuits to get the same information from private insurers. Much of the problem is that no one really wants to show their hand, especially when it comes to the prices that they pay for specialty drugs, because doing so might disrupt some balance of the space-time continuum, creating a paradox, and the entire healthcare system would collapse.

…or maybe, something not quite so dramatic.

It’s likely because openly stating how much everyone is paying for drugs would result in one of two outcomes:

  • Each payer would be able to compare and contrast what they were paying for various drugs, and would thereby be able start a “race to the bottom,” creating a low-bidding war. In addition, the public would be able to see how well payers were bargaining in their own best interests, rather than consumers. In this case, both insurers and drug companies would be on the losing end of the battle, and it behooves them to keep information about payment schemes private.
  • It would be revealed to both the public and the payers exactly how much of the cost drug companies are willing to eat (through rebates and other scenes) just to get their drugs on the market, thus revealing that the whole pricing model companies use to determine drug prices is a farce. In this case, drug companies would be on the losing end, primarily, because they would finally have to publicly justify in quantifiable terms the costs of their medications.

In truth, either scenario could be nothing but a net “win” for consumers. So long as the American healthcare system continues to subsist in an insurance-based market, the only real weapon consumers have against being price gouged is open, honest, and accurate pricing information – a clear explanation of how drug prices are decided, a clear explanation of what each payer is actually paying, and how much drug companies are willing to forego in order to sell more of their drugs.

Without this information being made public, how can there really be a “free market?” How can consumers make a truly informed choice if this information is kept secret? That really is the crux to dismantling the insurance scam – making everyone reveal what they’re actually paying for drugs and services.

What Dr. Schondelmeyer asserted in the opening quote of this piece is absolutely correct: the Affordable Care Act has done a great job of forcing getting people into the health insurance market, but has done very little to deliver the “savings” it promised. We’re still paying more than virtually every other economic superpower for our healthcare, and still achieving subpar results.

Now, private insurers are arguing that the cost of covering these people has become so burdensome [to their profits and bottom lines] that they need to increase premiums by up to 40%. We have effectively handed over clients to private entities without ensuring that people will be able to pay their prices, leaving the “Affordable” part of the law’s title hanging in the wind.

For how much longer can our insurance-based healthcare system continue to operate without imploding upon itself? For how much longer will consumers continue to allow drug and service pricing scams to continue, before determining that there is a better way? Sadly, I don’t think there’s enough interest on the part of Americans to do anything about it…until they’re forced to foot the bill, themselves.

References:

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Disclaimer: HEAL Blogs do not necessarily reflect the views of the Community Access National Network (CANN), but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about Hepatitis-related issues and updates. Please note that the content of some of the HEAL Blogs might be graphic due to the nature of the issues being addressed in it.

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