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The Worst Drug Cost Article of the Year

2017-03-16 | Robert Goldberg
Liz Szabo wrote what I predict will be the worst (as in most deceptive and inaccurate) article on prescription drug costs to be published by a so-called mainstream media outlet in 2017.  

"As Drug Costs Soar, People Delay Or Skip Cancer Treatments" claims that high drug prices are causing cancer patients to go bankrupt.  To make that point distorts and omit facts in ways that let PBMs and health plans off the hook for imposing high out of pocket drug costs on a small group of patients.

Szabo overstates the problem and then fails to support her claim: 

"We're talking about huge numbers of patients," says Dr. Scott Ramsey, director of the Hutchinson Institute for Cancer Outcomes Research at the Fred Hutchinson Cancer Center in Seattle. "It's an epidemic. And it's not going away."

While a huge problem for anyone in that situation, the good news is that the percentage of patients that must pay thousands of out of pocket is very small.  Nearly 95 percent of  cancer patients are not exposed to high out of pocket cancer costs.   The other 5 percent often have supplemental insurance or receive cost sharing assistance.  

Szabo claims that between 168,000 to 405,000 ‘ration’ their prescription use because of cost.    This a sloppy use of the word made even sloppier because Szabo defines rationing as delaying the use of cancer drugs.  Moreover, the studies she relies on to generate her guesstimate looks only at the small group of patients that –because of a low income or lack of insurance coverage – cite cost as a barrier to care.

The burden of out of pocket cost is not a small matter to those who must bear it.   But to address the problem you have to identify the cause.  Szabo strenuously avoids doing so. 

She insinuates that the most important factor is the price of medicines. In fact, it is extreme drug cost sharing imposed by PBMs and insurers on the sickest 1 percent of patients with cancer, MS, rheumatoid arthritis, cystic fibrosis and other rare diseases.   

Further,  PBMs and insurers systematically target people with these conditions particularly in Medicare Part D and commercial plans provided under the Affordable Care Act.  In those plans, insurers and PBMs have placed most or all new cancer drugs on the highest cost-sharing tier of drug benefit programs. 

Net drug prices have been declining so the excuse that cost sharing has to increasse in step with increasing prices won't wash. 

A Kaiser study recently found that “Payments for deductibles and coinsurance have outpaced increases in costs paid by the health plans themselves.  Average payments toward deductibles more than tripled, rising 256 percent, and average payments toward coinsurance more than doubled, rising 107 percent. This is while average payments by health plans themselves only increased 58 percent. “

The real reason for the cost sharing discrimination Szabo ignores is that is where the money is.

The one percent of patients and the 1 percent of the drugs that are dispensed to them generate about $150 billion in drug sales at list price.    PBMs and insurers extract $30-40 billion from drug companies in the form of rebatres.  These rebates reduce the actual cost of drugs.  But those savings are not fully passed on to patients. 

Instead, most of these drugs are placed in the highest cost sharing formulary tier and patients then pay up to 50 percent of the list -- not rebated -- price of drugs.  On average, the cost sharing is about 35 percent of the retail price of drugs.   That's another $45 billion insurers and PBMs collect.    Generating $75 billion on sales of $150 billion is a nice haul.  But Ms. Szabo seems to think it's not such a big deal. 

Did I mention that this practice is systematic? 

A recent study found that insurers are increasingly designing benefits to maximize profitability and turn patients into revenue centers.  The analysis notes for example that patients being treated for cancer or multiple sclerosis will cost an average of $61,000 but only generate $47,000 in revenue after accounting for the large risk adjustment and reinsurance transfer payments.  The difference is made up by squeezing more profits out of drugs.

The researchers said this creates a large incentive to place such drugs on specialty tiers, where patients face high out-of-pocket costs and where drugs generate the most rebates. 

This is certainly what has happened to cancer drugs.  Since 2011 net price increases have declined for cancer medicines.  Yet list prices have increased.  The difference between net and list prices goes to rebates pocketed by health plans and insurance companies even as they hike cost sharing.  

Further, even as rebates increase, more health plans are putting all cancer drugs in higher cost-sharing tiers, generic or not:

As a recent American Cancer Society study concludes: “Plans continue to place most or all oral chemotherapy medications on the highest cost-sharing tier, creating transparency and cost barriers for patients. The two generic oral cancer drugs we studied regularly appeared on the most expensive tier (41 and 62 percent of the time). The effect may be to inappropriately discourage enrollment by cancer patients.”

This is both unfair and inefficient.  the use of new medicines lower treatment costs over time as well as substantially improving health over time.  

In some case,  insurers have recognized the dynamic contribution new medicines make to health and health systems and have protected  cancer patients from high-cost sharing.  A study of coverage for targeted drugs treating chronic myeloid leukemia found that their use of “was associated with lower spending on other types of healthcare services. CML patients on such targeted drugs ..”had roughly $12,000 less in nonpharmaceutical medical costs than did patients on alternative forms of therapy. This translated into a decline of more than 30% in medical spending and offset roughly 40% of the cost of the drugs...This result is consistent with prior work that suggested changing generosity for one healthcare service has both short- and long-term implications for spending in other areas.” 

Instead, Szabo ignores the qualitative improvement in new cancer drugs and advantage of eliminating cost barriers for the most innovative treatments:

Spending on cancer has remained about 4 percent of health care spending since 1960 because drugs have been displacing hospitalization, which is more expensive.  For instance, if people were being hospitalized for cancer in 2014 at the same rate they were in 1995, total hospital costs would be $60 billion a year more.   

Additionally, whereas there were only 4 million cancer survivors in 1975, there are 14 million survivors today. The cancer death rate for men and women combined fell 25% from its peak in 1991 to 2014.  

New cancer medicines have reduced health care spending and increased well-being and capacity to work.  So, my question is: if the use of new medications makes cancer care more effective and affordable, why are health plans and PBMs making them more expensive? 

Maybe another reporter will write an article about that.