By Ken Perez, vice president of healthcare policy, Omnicell, Inc.
Ken Perez
Paying for high-cost drugs based on the patient outcomes they produce—an approach known as outcomes-based pricing—is gaining momentum as health plans seek to slow the growth of healthcare costs in the face of rapidly escalating drug prices.
Under outcomes-based pricing, health plans and drug manufacturers agree to a contract in which the revenue the manufacturer receives is adjusted based on how well the medication performs in a real-world population. In practical terms, in the event the patient outcomes are less favorable than expected, the manufacturer must issue a refund or rebate to the health plan, which in effect constitutes a price adjustment.
Aetna, Anthem, Cigna, Harvard Pilgrim and UnitedHealth Group have all signed outcomes-based contracts with drug makers. According to Avalere Health, a healthcare consulting and research firm, one in four health plans has at least one outcomes-based contract, and another 30 percent of health plans were negotiating one or more outcomes-based contracts as of early 2017.
Several of the early outcomes-based deals are for treating common, high-cost conditions for which there is a lot of outcomes data, such as high cholesterol and diabetes. According to the Centers for Disease Control and Prevention, over 100 million American adults have cholesterol levels above healthy levels, and similarly, more than 100 million American adults have diabetes or prediabetes.
In addition, pharmaceutical firms with new cancer drugs that have little data proving their longer-term outcomes value should be motivated to enter into outcomes-based agreements.
Given the Trump administration’s anti-regulation bent and focus on spurring drug price competition through expedited approval of generics and biosimilars, the Department of Health and Human Services is unlikely to experiment with outcomes-based pricing during the next few years. Thus, commercial health plans should remain the key promoters of outcomes-based pricing for the foreseeable future.
By Ken Perez, vice president of healthcare policy, Omnicell, Inc.
Ken Perez
H.R. 1, The Tax Cuts and Jobs Act (TCJA), gained passage in the Senate (by a 51-48 vote) and the House (by a 224-201 vote) on Dec. 20, 2017, and two days later, President Donald Trump signed the bill into law.
The TCJA constitutes the biggest tax reform legislation in three decades for the U.S. and unquestionably the most significant legislative accomplishment of the Trump administration in 2017. Two provisions and one possible pitfall of the TCJA are most relevant to the healthcare industry.
Decrease in the corporate tax rate from 35 percent to 21 percent
This change, excluding other provisions of the TCJA, will clearly benefit for-profit hospitals and health systems, as well as pharmaceutical companies.
Repeal of the Affordable Care Act’s individual mandate
Starting in 2019, the TCJA repeals the ACA individual mandate that requires all Americans under 65 to have health insurance or pay an annual penalty, $695 per person or 2.5 percent of income—whichever is higher.
Per the Congressional Budget Office’s November 2017 analysis, “Repealing the Individual Health Insurance Mandate: An Updated Estimate,” the repeal of the individual mandate in 2019 would increase the number of uninsured Americans—relative to a baseline that assumes continuation of cost-sharing reduction (CSR) subsidies in the ACA marketplaces—by 4 million in 2019, with that figure growing to 13 million in 2025 and remaining at that level thru 2027.
According to the CBO, the 13 million is composed of five million people who would not choose to obtain coverage thru the individual insurance market, five million people who would not enroll in Medicaid—not due to a pullback of the ACA’s Medicaid expansion, as that was not in the TCJA—and three million people who would choose to no longer have employer-sponsored insurance. The CBO admits that its projections are uncertain and states, “The preliminary results of analysis using revised methods indicates that the estimated effects on the budget and health insurance coverage would probably be smaller than the numbers reported in this document.”
Guest post by Ken Perez, vice president of healthcare policy, Omnicell, Inc.
Ken Perez
Though largely overshadowed by the continued pursuit of repeal and replacement of the Affordable Care Act by the Trump administration and congressional Republicans, the concept of a single-payer healthcare system is gaining popularity, and a referendum on it is already starting to take place.
According to a June 2017 national survey by the Pew Research Center, 60 percent of the American public feels it’s the federal government’s job to provide healthcare coverage for all Americans, and a third of the public favors a single-payer health insurance system run by the federal government.
On September 13, Sen. Bernie Sanders (I-Vt.) introduced the Medicare for All Act of 2017. In striking contrast with his previous solitary introductions of this approach, this time 16 Democratic senators—one-third of the party’s Senate caucus—identified themselves as co-sponsors, including Senators Cory Booker, Kirsten Gillibrand, Kamala Harris, and Elizabeth Warren, all possible presidential candidates.
Medicare for All Defined
Per Sanders, Medicare for All would create a federally administered single-payer healthcare program that provides comprehensive coverage for all Americans, spanning the entire healthcare continuum, “from inpatient to outpatient care; preventive to emergency care; primary care to specialty care, including long-term and palliative care; vision, hearing and oral health care; mental health and substance abuse services; as well as prescription medications, medical equipment, supplies, diagnostics and treatments.” Every doctor would be in network, and saliently, there would be no deductibles, copays or cost-sharing requirements of any kind.
Estimating the Cost of a Single-Payer System
One admittedly simplistic way to estimate the cost of a single-payer system would be to assume that the federal government would pay for the nation’s entire national health expenditures (NHE), which the Centers for Medicare and Medicaid Services projects will reach about $3.5 trillion in 2017, which would be equivalent to a more than tripling of the roughly $1.1 trillion the federal government will spend this year on Medicare, Medicaid, the Children’s Health Insurance Program, health insurance subsidies and related spending, and Veterans’ medical care.
Single-payer advocates argue that administrative savings and decreased waste would reduce spending, generally by 20 percent to 30 percent, but such savings would likely be offset by the cost of covering the approximately 25 to 30 million Americans without health insurance, as well as higher demand (from those currently with coverage), resulting from the elimination of all cost-sharing requirements, which tend to curb overutilization of medical services. Per a landmark 1982 Rand Corporation study that examined the spending patterns of patients with insurance that covered 100 percent of expenses versus those with copays and deductibles, patients without out-of-pocket fees spent 30 percent more for medical services. A 30 percent increase in demand for medical services would add more than $1 trillion to the nation’s annual healthcare bill.
Citing the lower per capita costs of healthcare in other industrialized countries with single-payer systems, Sanders argues that NHE would actually decrease under his single-payer plan, by $6 trillion over 10 years. Sanders’ white paper, “Options to Finance Medicare for All”— which outlines a dozen tax revenue-generating ideas —presents $16.2 trillion as the implied expected increase in federal expenditures over a 10-year period under Medicare for All.
Guest post by Ken Perez, vice president of healthcare policy, Omnicell.
Ken Perez
In 1992, the 340B Drug Pricing Program was created to give safety net providers—those that organize and deliver a significant level of both healthcare and other health-related services to the uninsured, Medicaid, and other vulnerable populations—discounts on outpatient drugs to “stretch scare federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” In simple terms, the program requires pharmaceutical manufacturers participating in Medicaid and Medicare Part B to provide discounts on outpatient drugs to 340B providers.
340B-eligible providers include various types of hospitals, such as Disproportionate Share Hospitals (DSHs), Critical Access Hospitals, sole community hospitals, freestanding children’s hospitals, and freestanding cancer hospitals. In addition, certain federal grantees are 340B-eligible providers, e.g., federally qualified health centers, and comprehensive hemophilia treatment centers. DSHs, freestanding children’s hospitals, and freestanding cancer hospitals need to have their Medicaid and uninsured populations account for 11.75 percent or more of their total patient populations in order to be eligible for the program. DSHs accounted for 75 percent of 340B drug purchases in 2011 and continue to account for the majority of the purchase volume.
The program benefits safety net providers by offsetting the cost of providing free or discounted drugs to patients who cannot pay and by generating funds to improve and expand programs such indigent clinics and free oncology services to low-income patients.
Eligible patients must receive services from a covered entity (CE), defined as the healthcare provider that has established a relationship with the individual and maintains records of the individual’s care. Contract pharmacies dispense 340B drugs to CEs’ 340B-eligible patients.
Importantly, CEs are able to purchase drugs for outpatient use at the sizable 340B discount for all their outpatients, not just their Medicaid or uninsured patients. As of October 2016, there were 12,148 CEs, and there were 2,871 hospitals as CEs as of July 2017. Total discounted purchases under the program have grown steadily during the past decade and reached $16.2 billion in 2016.
The program is administered by the Office of Pharmacy Affairs within the Health Resources and Services Administration (HRSA), an agency of the U.S. Department of Health and Human Services.
Controversies
For years, the 340B program has been fraught with controversy, with CEs and pharmaceutical companies defending and attacking the program, respectively. HRSA, the U.S. Government Accountability Office, and the HHS Office of Inspector General have all pointed out the lack of accountability and oversight of the program. There have been many reporting and program integrity issues. For example, in fiscal year 2016, 44 percent of CEs were found to have diverted benefits (discounted drugs) to ineligible patients.
Proposed Major Change to the Program
On July 13, the day after the conclusion of the 340B Coalition Summer Conference in Washington, D.C., the Centers for Medicare and Medicaid Services (CMS) issued its 2018 Medicare Hospital Outpatient Prospective Payment System (OPPS) proposed rule.
Contrary to the Trump administration’s deregulation bent, the proposed rule posited a dramatic reduction in 340B reimbursement of hospitals by CMS from Average Sales Price (ASP) plus 6 percent to ASP minus 22.5 percent.
Guest post by Ken Perez, vice president of healthcare policy, Omnicell.
Ken Perez
What a momentous few days in Washington were observed at the end of July! On July 25, Senator John McCain (R-AZ), dealing with brain cancer, made a dramatic entrance into the Senate Chamber and delivered an impassioned plea to return to regular order and bipartisan compromise, suggesting a process that would begin with the Senate Committee on Health, Education, Labor and Pensions (HELP) under chairman Lamar Alexander (R-TN) and ranking member Patty Murray (D-WA) holding hearings and producing a bill that incorporates contributions from both sides.
McCain’s suggestion was applauded by many senators on both sides of the aisle. The Senate voted to debate repeal and replacement of the Affordable Care Act (ACA), 51-50, with Vice President Mike Pence casting the tie-breaking vote.
The following day, the Senate rejected a bill to repeal the ACA without replacement, 45-55, and in the early hours of July 28, the Senate rejected the “skinny repeal” of the ACA, the Health Care Freedom Act of 2017 (HCFA), 49-51, with Republican Senators McCain, Susan Collins (ME), and Lisa Murkowski (AK) joining the 48 Democrats to defeat the bill. The skinny repeal would have repealed the individual and employer mandates, temporarily repealed a tax on medical devices, defunded Planned Parenthood for a year, provided more money to community health centers, and given states more flexibility in complying with ACA regulations. Thus apparently ended the Republican quest to repeal and replace the ACA, as Senate Majority Leader Mitch McConnell (R-KY) conceded, “It is time to move on.”
In the wake of the HCFA’s defeat, supporters of the ACA were euphoric, but two sobering challenges facing the U.S. healthcare system—one short term, the other long term—loom like imposing mountains.
The Short-term Challenge
The immediate concern is how to stabilize the troubled ACA individual health insurance marketplaces, clearly the Achilles’ heel of the health reform law. Health insurers continue to leave in droves, with 80 departing this past year and Anthem announcing on August 7 that it will leave Nevada’s ACA marketplace in 2018. Premiums are rising many times the growth of both the Consumer Price Index and U.S. healthcare inflation. Moreover, President Donald Trump is threatening to cut off the ACA’s cost-sharing subsidies, which work to prop up the marketplaces and shield some individuals from the premium increases. Obviously, such a move by the Executive Branch would not encourage bipartisanship.
The Long-term Challenge
Even more daunting than the travails of the marketplaces is how to bend the healthcare cost curve. The ACA has not materially slowed the growth of national health expenditures, which will rise by 5.4 percent versus 2016 and reach $3.5 trillion this year. To put $3.5 trillion in perspective, it amounts to 18.3 percent of the nation’s gross domestic product (GDP) and translates to almost $11,000 per person.
Additionally, nominal national health expenditures (not adjusted for inflation) are projected to increase by an average annual rate of 5.6 percent from 2016 to 2025, almost 1.5 times as fast as the growth in nominal GDP over the same period. As a result, healthcare costs will constitute a staggering 20 percent of GDP in 2025.
Conclusion
With the stalled effort to repeal and replace the ACA, Congress still must grapple with the hemorrhaging of the health insurance marketplaces and unacceptably high rates of healthcare cost inflation. Scaling these two mountains will require the kind of bipartisan compromise and collaboration that Senator McCain so passionately advocated.
Guest post by Ken Perez, vice president of healthcare policy, Omnicell.
Ken Perez
On May 23, the Department of Health and Human Services (HHS) released a report on individual market premium changes from 2013 to 2017 for the 39 states using the federal government’s healthcare.gov platform. The report provided a good gauge of the affordability of the ACA marketplaces.
The HHS report found that all 39 states experienced increases in individual market premiums since 2013. Average premiums rose during the four-year period by 105 percent, which translates to an average annual premium increase of $2,928. To put the 105 percent premium hike in perspective, it was more than 20 times the growth in the Consumer Price Index (CPI) and more than eight times the nation’s healthcare inflation over the same period. While 16 states had premium increases under the national average of 105 percent, 20 states had premium increases between 105 percent and 200 percent. Moreover, three states—Alabama, Alaska and Oklahoma—saw premiums triple, rising more than 200 percent.
A comparable analysis of the 11 states running their own marketplaces has not yet been conducted, but from 2016 to 2017, their average approved individual market rate increase was 19 percent, over nine times CPI growth and over five times U.S. healthcare inflation.
Multiple interrelated factors have driven these premium increases, including lower-than-expected enrollment, as estimates ranging from 12 million to 15 million people—disproportionately young and healthy—who were expected to enroll in the marketplaces by the end of 2016 did not do so. Because of the lower-than-expected enrollment and relative non-participation by the young and healthy, the marketplaces have been left with an older, sicker risk pool, producing huge losses for many health plans, in spite of the previously mentioned substantial premium increases. Consequently, in 2017, 80 insurers left the ACA marketplaces while 11 entered, yielding a net decrease of 69.
The inordinate premium inflation of the marketplaces reflects a cycle that appears to be worsening, so much so that some have described it as a “death spiral.” As health insurers exit the marketplaces, competition decreases, which naturally leads to premium hikes, as well as to a narrowing of plan choices. The higher premiums and fewer choices dissuade people from signing up or cause current enrollees to drop out, further shrinking the risk pool.
If the ACA marketplaces prove to be unsustainable then access to affordable healthcare plans for millions of Americans—regardless of the availability of premium credits—will be at risk.
During the past few months, hospital organizations have lobbied for changes to the American Health Care Act (AHCA), with core concerns about possible growth of uncompensated care resulting from increases to the uninsured population and separately, the popularity of high-deductible plans with many of the insured, which raises concerns about patients’ ability to pay their hospital bills. However, as the recent HHS report compellingly points out, hospitals should not only be worried about possible ramifications of the AHCA—the serious, fundamental weaknesses of the ACA’s health insurance marketplaces constitute a clear, present and increasing challenge to hospital finances.
Guest post by Ken Perez, vice president of healthcare policy, Omnicell, Inc.
Ken Perez
The recently concluded debate about the American Health Care Act (AHCA), the Republicans’ first attempt at a Patient Protection and Affordable Care Act (ACA) replacement plan, centered largely around issues of insurance coverage and access to care.
The real turning point for the AHCA seemed to be the Congressional Budget Office’s March 13 release of its analysis of the bill, which concluded, among many things, that millions more Americans would be uninsured under the AHCA than under the ACA (14 million in 2018, 21 million in 2020, and 24 million in 2026).
After it became clear that the roughly three-dozen member Republican House Freedom Caucus—which sought a more aggressive piece of legislation that would gut the ACA—would not support the bill, House Speaker Paul Ryan concluded that the Republicans lacked the needed votes. Thus, on March 24, he pulled the AHCA from the floor. Ryan told reporters, “I don’t know what else to say other than Obamacare is the law of the land” and “We’re going to be living with Obamacare for the foreseeable future.”
With the focus mainly on coverage and access issues, a largely unasked question has been, “What will happen to value-based care?” The AHCA did not address this area, though, perhaps the Republicans intended to cover it in phase two or three of their grand plan to repeal and replace the ACA. As originally envisioned by congressional Republicans, phase two will consist of executive branch initiatives (e.g., actions by the Department of Health and Human Services and presidential executive orders), and phase three will include subsequent pieces of legislation addressing other aspects of the ACA.
The fate of value-based care is an important topic because U.S. healthcare costs continue to escalate and outpace general inflation—increasing 5.8 percent and reaching $3.2 trillion in 2015, equal to almost $10,000 per person per year. In addition, the ACA mandated five major healthcare delivery reforms promoting value-based care:
The Hospital Value-Based Purchasing (VBP) Program
The Hospital-Acquired Condition Reduction Program (HACRP)
The Medicare Shared Savings Program (MSSP)
The national pilot program for payment bundling
The Hospital Readmissions Reduction Program (HRRP)
Moreover, the ACA provided funding of $10 billion over 10 years for the Center for Medicare and Medicaid Innovation (CMMI), which was tasked with testing and evaluating various payment and service delivery models involving, in most cases, voluntary provider participation, with only a few models being mandatory.
Guest post Ken Perez, vice president of healthcare policy, Omnicell.
Ken Perez
During the 2016 presidential campaign, Democratic candidate Hillary Clinton reiterated the longstanding Democratic pledge to allow Medicare to negotiate drug prices and demand higher rebates for prescription drugs. In response, and aware of the general public’s mounting concern about rising prescription drug prices, Donald Trump shifted to the left and repeatedly called for Medicare to directly negotiate drug prices. For example, at an MSNBC town hall on Feb. 17, 2016, Trump said, “If we negotiated the price of drugs, Joe, we’d save $300 billion a year.”
However, none of Trump’s three most substantive policy statements issued in the fall of 2016—including the healthcare section of the Trump-Pence Campaign website, his “Contract with the American Voter,” and his healthcare plan issued two days after the election—mentioned the challenge of rising drug prices or the idea of Medicare negotiating drug prices with pharmaceutical companies.
On Jan. 31, 2017, President Trump met with a group of pharmaceutical industry executives, including the CEOs of Amgen, Celgene, Eli Lilly, Johnson & Johnson, Merck, and Novartis, as well as Stephen Ubl, head of the Pharmaceutical Research and Manufacturers of America (PhRMA).
While during the meeting Trump called drug prices “astronomical” and said, “We have to get prices down for a lot of reasons … for Medicare and Medicaid,” he stopped short of the aforementioned negotiation of drug prices by the federal government. Trump pressed the pharmaceutical companies to bring drug manufacturing and production back to the United States. In return, Trump pledged to work to reduce corporate taxes, support deregulation, and streamline the FDA to expedite drug approvals. One can interpret those broad statements as a draft outline of the deal with pharma that will be struck by the Trump administration.
Where would such a deal leave the drug pricing issue? While Trump clearly expressed concern about high drug prices, the drug makers can offer him something else that he may want even more: jobs for U.S. workers that come from boosting production at existing plants and opening new plants on U.S. soil. Imagine the photo ops!
