Prescription Abandonment on the Rise

Today’s Managing Health Care Costs Indicator is 86%

That’s how much the rate of prescription abandonment rose over the last four years, as reporting on public radio's Marketplace this afternoon. 

More and more Americans are in health plans with higher member cost share, and people are going into the pharmacy expecting to pay $20 for a prescription, and discovering it’s $40 or more.  For many Americans, this is just too much to pay.

One of the interviewees noted that he also saw his patients deciding to skip physical therapy because of high copayments.

This is one of the bitter ironies of the increased coverage of health care reform.  More Americans will be insured (mostly starting in 2014), but even those with “full” coverage often find that their insurance doesn’t cover them as it once did.

This is bad news for health.  The pharmaceuticals introduced over the last decades represent quantum leaps in the treatment of HIV, depression, ulcer disease, asthma, diabetes, cholesterol and many cancers.  However, these innovations are no good if people can’t afford them.

The answer for consumers is often generic medications –which can be purchased at a fraction of the cost of brand name medicines.  Generic prescribing rates are currently around 70% in states with ‘mandatory substitution,’ where a physician must explicitly demand the brand or else the pharmacist must use a generic.  However, closed health care systems can achieve an 80% generic rate, which dramatically lowers overall costs.

The public policy answer to high pharmaceutical costs is less clear.  Possible answers include

1. Price Controls: Most industrialized countries have some form of price control.  As a result, drug costs are dramatically higher in the US, which helps attract additional capital into the pharmaceutical industry. Price controls are politically difficult in the US – and unlikely to be implemented. 
2. Antitrust enforcement:  Consolidation in the industry leads to less price competition. (Pfizer just shelled out $2.6 billion for a generic drug maker, King Pharmaceuticals).  Even more important in terms of promoting sane prescribing would be prohibiting cross-promotion of medications.  This is when a company allows discounts on a popular medicine only if the pharmacy benefit manager (or health plan or employer) agrees to put other company products on a preferred list.  This process helps keep actual prices opaque, and leads to higher costs.
3. Patent Vigilance: Patent protection is why brand name medicines are so expensive.  Congress has periodically offered further patent protection to the industry, and limiting patent protection would make the industry less profitable and less attractive to new investors while it would lower costs.

The rising abandonment rate is further indication we need to lower the costs of prescription medications.  It won’t be easy to do so, but there are a lot of people wheezing away who can’t afford their asthma inhalers.  We don’t want them to be hospitalized, and an inhaler is a good deal compared to an emergency department visit

Canadian Provinces Overpay for Generics

Today’s Managing Health Care Costs Number is 46%

That’s the percentage of Canadian provincial budgets that are dedicated to health care.  It’s up from 35% in 1999.

Health care cost woes are not unique to the United States!

The rise of health care costs crowds out other important government services, and this is not sustainable.

The Economist  reports that if there is no change in health care inflation, Ontario will spend 80% of its budget on health care by 2030!

What’s the problem?

For one thing, the Canadian provinces are overpaying for generic medications. Each province sets rates for generic medications, and in Ontario these are pegged at 50% of brand name price, and scheduled to drop to 25% later this year.  Generic prices are often 10% or less of the branded product cost in the United States. 

Some will suggest that this is further proof that we should rely on market forces to drive down prices, rather than having the government set prices.  I think this shows that regulatory agencies have a hard time being dynamic in their approach to prices.   It’s likely that regulations to cap prices of brand name medications is effective, but there is no need for price controls for commodity generic medications. In Ontario,  setting prices actually artificially inflates costs.

We’re likely to have arguments in Massachusetts and in the United States about price controls in the coming months and years.   In the US, our high unit costs are the main reason our health care is more expensive than the rest of the developed world.    Price controls work (at least temporarily) in some instances, but they can lead to paradoxically high costs rather than cost savings.  

Proposed Health Care Bill in Massachusetts Would Regulate Price Increases - Not Prices

The Massachusetts governor filed a wide-ranging bill  last week which would further regulate the small group and individual insurance market in the state, while encouraging selective networks and reducing state mandates. Health care provisions represent 6 1/2 pages of the bill, which is entitled  “An Act Providing for Job Creation by Small Businesses.”

The proposed legislation doesn’t regulate prices – it regulates price increases by both health plans and providers.  Therefore, this bill would likely prolong the current situation, where different provider networks are paid vastly different sums for the same care.  The bill will not address the problems outlined in the Attorney General’s report on pricing in the commonwealth.  

One interesting provision would mandate that small group plans offer narrow network plans with lower premiums.  This could substantially increase competition, since health plans currently lack leverage to press for lower prices as long as every health plan must include all providers. However, the bill only requires these narrow networks for individual and small business accounts, although they could be made available to other health plan clients.

The bill also extends a moratorium on new mandates and gives plans for individuals and small businesses a very narrow window to ignore current state mandates. 

Overall – this bill might give the state a bully pulpit to discourage increased prices from providers and health plans.  It will not address large price disparities, and is not likely to substantially lower overall health care costs.  The state legislature is generally unlikely to pass the health care elements of this proposed bill without substantial revisions.

The Senate Bill: Better for Cost Control than the Status Quo

Cost Control Implications 

There has been substantial buzz about whether the proposed health care reform does enough to address the problem of health care inflation.

There is almost universal agreement that it does not do as much as we’d like it to do control costs, especially when we compare the health care reform in the Senate bill to each of our “ideal” version of health care reform.  Compared to the status quo – the Senate bill does much more that might lower health care costs.   This includes

- Medicare independent commission

- Substantial cuts in Medicare fee increases going forward

- Tax incentives to avoid overcoverage (Cadillac tax)

- Many pilots – each of which might show us the way to lower costs substantially.  Here is Atul Gawande’s take on the importance  of experimentation in controlling health care costs.

We have to start somewhere.

Nate Silver of fivethirtyeight.com http://www.fivethirtyeight.com/2009/12/insidious-myth-of-reconciliation.html has a good graphic showing his point of view about how preferable different health care reform proposals would be in his mind. I’ve taken his graphic approach – and applied the lens of “cost control” – so I am not giving “extra credit” for the dramatic decrease in the uninsured projected under health care reform.

There are a few things I would rank differently. I added “price controls,” since there is good evidence that price controls DO lower prices, although they often have unexpected consequences.  Here’s an interesting take by Uwe Reinhardt, pointing out that if we import drugs from Canada, we are ‘outsourcing’ price control to the Canadian government. Remember, Japan is the home of the $98 MRI because the government price book says that’s the price.

I also ranked a ‘weak’ public option as worse than the current Senate bill in terms of cost control. I continue to be worried that a weak public option merely fragments  the payer market further – and could lead to higher unit prices.

By the way, the market says the health plans “win” in the Senate bill, and their stocks are up sharply today.