Update: AAFP Should Stand Up for Patient Access to Independent DPC and Withdraw Support for HR 3708

Update: Here is Mr. Shawn Martin’s reply. He granted permission for IP4PI to share it with the understanding that it should not be considered an official statement from the AAFP.

On Oct 25, 2019, at 7:17 AM, Shawn Martin wrote:

Craig-

Thank you for your email. I hope you are doing well. Your email outlines several areas of concern that we share and have been communicating to the various bill sponsors and Committees. We are working to make changes to the bill and I am confident that we will be able to do so.

AAFP policy only speaks to the allowable use of HSA funds for the periodic payment for primary care DPC practice. The bill language meets this objective. We are, however, very concerned with the exclusionary definition of services, specifically pharmaceuticals. Family physicians are not homogenous and the inclusion of a standardized definition and payment rate for “primary care” is concerning. We also are concerned that the allowable periodic payment amount is established irrespective of the patient and their health condition(s).

The other concern we are advancing is the simple fact that the language would apply the permissible use of the HSA to the periodic payment and not the patient themselves. This is nuanced, but basically the permissible amount should apply only to the patient/HSA holder and should have no impact on the practice or the practice’s financial operations.

There are other structural issues, but these are the big items we are working on.

Have a nice weekend – SM

Update 2: From: Shawn Martin, Date: October 25, 2019 at 2:06:39 PM EDT

October 25, 2019 at 2:06:39 PM EDT

I think the challenge in the next few weeks is this – is there a pathway to codify the permissible use of HSA funds for the explicit purpose of periodic membership payments and, if yes, what is the scope of services for such a permissible payment.

The relationship between not permissible (current) and permissible at $x (as proposed in legislation) is not the point in my mind.  The point is providing clarity in statute that an individual may use their HSA funds for a defined purpose – in this case periodic payments to a DPC practice.  Any limitation on the amount of a permissible expenditure is secondary to the permissibility question more generally.  There are defined limits on tax advantage accounts broadly – FSA, CTC, mortgage deduction, SALT, etc.

Its an interesting policy question that I have been kicking around since the ACA.  The HRA is cleaner because it is a defined contribution.  Anyway – look forward to the call with you and others.


10/24/2019 letter from IP4PI founder Craig M. Wax, DO to AAFP Senior Vice President for Advocacy, Practice Advancement and Policy, Shawn Martin:

Dear Shawn

Long time no see, or hear for that matter. I hope you and your family are well and that you landed safely at another entity. I’m writing to express concern about HR 3708 in the House and AAFP support of it. AAFP has been supportive of DPC in recent past and that support is much appreciated, but this bill, as written, would do more harm than good.

Enacting an aggregate cap on patient use of HSA funds for access to value-based care would be a bad precedent and the proposed prohibition on the ability of physicians to include medications in a DPC agreement is contrary to the best interests of patients.

In addition, all specialties, not just primary care, should be permitted to arrange innovative direct payment arrangements with the patient, eliminating the middleman and optimizing care with reduced cost.  HR 3708 appears to preclude the ability of a patient with diabetes from using HSA funds to pay for a monthly arrangement with an endocrinologist, for instance.

The bill also seems to risk the potential for States and others to misclassify DPC as an insurance plan by not properly and clearly defining DPC as medical care.

In its current form, this bill is unacceptable and I am disappointed that AAFP is supporting it. The previous Primary Care Enhancement Act from 2017 (HR 365) was an excellent template, while HR 3708 is flawed.

Please let me know what can be done to revoke AAFP support for this harmful legislation, and work for better options to support DPC and empower both physician and patient independence.

Best wishes for good health,
Craig M. Wax, DO
Family Physician
Independent physicians for patient independence
National Physicians Council on Healthcare Policy member
Host of Your Health Matters
Rowan Radio 89.7 WGLS FM
Twitter @drcraigwax 


Cost transparency in BILLING!

By Paul Kempen, MD, PhD

Price transparency is a fallacy regarding posting of lists of costs when insurance is involved. Perhaps transparency in BILLING is more reasonable to create individual outrage regarding outrageous bills. Please consider the following:

Cost transparency in BILLING!

I want to hear if anyone sees the following proposal as useful in separating physicians out from the “cost of care”. The issue of transparency is nebulous “going into” getting care for a number of reasons. Patients are often ill, in urgent need, in a “closed market” and poorly educated.  Perhaps it  would be useful to push for legislation creating transparency of ALL BILLS, especially those produced by insurance companies which serve to foster that impression that insurance somehow actually pays for care.  Insurance controls payments through ”negotiated prices”, limitation of care delivery and other aspects. I question if it would it be useful to have laws which Demand EVERY “This is NOT a bill” produced by corporate entities include the following data:

HOSPITAL AND INSURANCE STATEMENTS

1) Itemized price charged (i.e. charge-master and/or “full billed price”)

2) Amount ACTUALLY PAID by insurance independent of  patient portion separated from negotiated deductions

3) What Medicare would have paid for every BILLED service in A) HOSPITAL and B) regional Doctor’s office

4) All facility fees separated from total cost as a separate component

Imagine if everyone SEES the “facility fee” and recognizes that doctor offices are CHEAPER!!

If everyone sees the hyperinflated insurance/hospital costs over physician offices

If everyone sees that the PATIENT is paying for care via the deductible and sees just how LITTLE insurance companies are paying from the large premium and this is NOT hidden in the “negotiated deductions” which gives an appearance of “saving money” for patients.

Anyone producing a bill MUST have access to such data and making everyone aware of these realities would create pressure on OVERCHARGES

75 Years After D-Day It’s Time to End a Failed WWII-Era Economics Experiment … and solve the surprise billing quagmire too

It’s a sign of the divisive times: even the American business community is throwing its own under the Congressional bus. In a letter to the Senate HELP committee, a broad coalition of employers, including the National Restaurant Association, Auto Care Association, and the National Association of Wholesaler-Distributors, is calling on Congress to impose price controls on others that they would not tolerate being placed on themselves.

Yes, even the “Small Business & Entrepreneurship Council,” is joining this coalition, whose arcane name is a throwback to 1970s era overregulation—ERIC, the ERISA Industry Committee—to ask for legislation that is anything but entrepreneurial.  

These businesses are part of the growing chorus asking Congress to “do something” to address “surprise” medical bills. But instead of focusing on the root causes of the problem, ERIC, and others are demanding heavy handed price controls that will harm the physicians who render life saving medical care — often small businesses themselves. 

And putting the squeeze on physicians with government set fees, that may not even cover costs bloated by complying with a sea of federal regulation, ultimately harms patients’ ability to obtain high-quality, timely care in situations where care is most needed.

Let’s take a closer look at the real cause of the problem, and solutions that will put patients in the driver’s seat instead of putting their access to care on the hot seat.

“Surprise, your insurance plan is not going to cover the care you received,” is another way to describe the situation. Of course, insurers want to limit their costs, as any business would, and those who provide care want to be paid well for their services. 

But how much should emergency medical care cost? In a functioning marketplace prices are determined through an immeasurable number of mutually beneficial transactions between customers and producers, not by federal fiat. 

But American medicine is anything put a healthy market. 

The fact that ERIC is demanding price controls points to a big reason this is the case. Employers are stuck between employees and their medical care thanks to the downstream consequences of wage controls in WWII that spawned tax-deductible employer-funded health benefits. D-Day was 75 years ago, and while Europe was freed, flawed government economic decisions from the War are still trapping Americans “in-network” with soaring medical prices, deductibles, and co-payments, not to mention premiums.

Because employers and other third parties are often in charge of paying the bill and negotiating costs, patients have lost their leverage and pricing becomes untethered from the marketplace mechanisms that, for instance, have put not just a chicken in every pot, but supercomputers in the pockets of virtually every American over age 13, and a car (or two) in nearly every garage.

It’s time to begin extracting the employer from the health care equation. ERIC and its members can be freed from the burden of overseeing and paying for their employees’ care. Employers don’t like shouldering this responsibility and employees shouldn’t want their employer interfering in the exam room or operating suite.  And, sorry Berniacs, Medicare for All is not the right way to go about winding down employer-based coverage.

One answer is to give patients better options to become independent of their employer for their care, like through expanding Health Savings Accounts with the flexibility to be used to buy catastrophic coverage or pay Direct Primary Care (DPC) arrangements.

Another more long term goal, but one in line with the American spirit of freedom and individualism is to end the $280 billion tax exclusion for employer-based insurance benefits altogether. Increase wages and salaries proportionately and cut taxes across the board. Employees can then decide for themselves how to spend their hard earned dollars, whether on insurance, directly on care, or however they choose.  

This would be a win-win-win, for employers, employees, and all patients. A re-energized marketplace will unleash more competition and more facilities and practices emulating the likes of the Surgery Center of Oklahoma (knee-replacements can be 50% less than through “coverage”) , Atlas MD (unlimited primary care for $50/month, $2 lab tests, and wholesale cost prescriptions), and Green Imaging (home of the $250 MRI) where direct-to-patient pricing, that eschews insurance contracts, is a fraction of what “in-network” options charge for the same care. And yes, competition even works to lower the cost of emergency care, as demonstrated by lower-cost transparent physician-run ER and urgent care options already popping up in Arizona, Oklahoma, Texas, and elsewhere across the U.S.

So instead of a surprise bill, patients will be pleasantly surprised at how affordable and accessible high-quality medical care is even for emergencies, when they, not their employer, insurance CEO, Member of Congress, or government bureaucrat are the customer.


Action Item: Visit https://action.stoppricefixing.org/ and learn how to make an immediate difference in the fight to stop flawed legislation.

16 Bills to Expand Flexibility of Health Savings Accounts #HSA #HSAs

Thank you to Kim Corba, DO for compiling this list of bills under consideration in Congress intended to increase the flexibility of Health Savings Accounts.

H.R.3565 — 116th Congress (2019-2020) Veterans Health Savings Account Act Sponsor: Rep. Gosar, Paul A. [R-AZ-4] (Introduced 06/27/2019) Cosponsors: (7) Committees: House – Ways and Means Latest Action: House – 06/27/2019 Referred to the House Committee on Ways and Means.

This billallows veterans who receive hospital care or medical servicesunder any law administered by the Department of Veterans Affairs to remaineligible to participate in or contribute to a health savings account.

H.R.2177 — 116th Congress (2019-2020) Faith in Health Savings Accounts Act of 2019 Sponsor: Rep. Kelly, Mike [R-PA-16] (Introduced 04/09/2019) Cosponsors: (23) Committees: House – Ways and Means Latest Action: House – 04/09/2019 Referred to the House Committee on Ways and Means.

This billmodifies the requirements for health savings accounts (HSAs) to treat membership in atax-exempt health care sharing ministry as coverage under a high deductible health plan forpurposes of the tax deduction for contributions to an HSA.

H.R.603 — 116th Congress (2019-2020) Health Savings AccountExpansion Act of 2019 Sponsor: Rep. Gallagher, Mike [R-WI-8] (Introduced 01/16/2019) Cosponsors: (14) Committees: House – Ways and Means Latest Action: House – 03/01/2019Referred to the Subcommittee on Health.

This bill modifies the requirementsfor health savings accounts (HSAs) to:

  • increasethe maximum contribution amounts,
  • permitthe use of HSAs to pay health insurance premiums and for directprimary care service arrangements,
  • repealthe restriction on using HSAs for over-the-counter medications,
  • eliminatethe requirement that a participant in an HSA be enrolled in a highdeductible health care plan, and
  • decreasethe additional tax for HSA distributions not used for qualified medicalexpenses.


H.R.457 — 116th Congress (2019-2020) Health Savings Account Act Sponsor: Rep. Fortenberry, Jeff [R-NE-1] (Introduced 01/10/2019) Cosponsors: (0) Committees: House – Ways and Means Latest Action: House – 01/10/2019 Referred to the Subcommitteeon Health.

This bill modifies the requirementsfor health savings accounts (HSAs) to (1) increasethe maximum contribution limits for HSAs to match the sum of the annualdeductible and out-of-pocket expenses permitted under a highdeductible health plan, (2) allow individualswho receive primary care services in exchange for a fixed periodic fee orpayment to participate in an HSA, and (3) permit HSAs to beused for fitness center memberships.

The bill also allows a medical caretax deduction for periodic provider fees, including (1) periodicfees paid to a primary care physician for a defined set of medical services or theright to receive medical services on an as-needed basis; and (2) pre-paidprimary care services designed to screen for, diagnose, cure, mitigate, treat,or prevent disease and promote wellness.


S.2440 — 116th Congress (2019-2020) Qualified Health Savings AccountDistribution Act of 2019 Sponsor: Sen. Sasse, Ben [R-NE] (Introduced 08/01/2019) Cosponsors: (0) Committees: Senate – Finance Latest Action: Senate – 08/01/2019 Read twice and referred to the Committeeon Finance.

Official text still being written.  Quick summary—this bill proposes funds can be moved from FSAs and HRAs into HSAs

S.2441 — 116th Congress (2019-2020) Health Savings Account Expansion Actof 2019 Sponsor: Sen. Sasse, Ben [R-NE] (Introduced 08/01/2019) Cosponsors: (0) Committees: Senate – Finance Latest Action: Senate – 08/01/2019 Read twice and referred to the Committeeon Finance.

Allow individuals who are not enrolled in a highdeductible health planto have access to health savings accounts

H.R.4576 — 116th Congress (2019-2020)To amend the InternalRevenue Code of 1986 to allow contributionsto health savings accounts in the case of individuals withspouses who have health flexible spending accounts. Sponsor: Rep. Wexton, Jennifer [D-VA-10] (Introduced09/27/2019) Cosponsors: (2) Committees: House – Ways andMeans LatestAction: House – 09/27/2019 Referred to the House Committee on Waysand Means.

As of09/30/2019 text has not been received for H.R.4576 – To amend theInternal Revenue Code of 1986 to allow contributions to health savings accounts in the case of individuals with spouses whohave health flexiblespending accounts.

H.R.4530 — 116th Congress (2019-2020) To amend the InternalRevenue Code of 1986 to permit individuals eligible forIndian Health Service assistance to qualifyfor health savings accounts. Sponsor: Rep. Moolenaar, John R. [R-MI-4] (Introduced09/26/2019) Cosponsors: (1) Committees: House – Ways andMeans LatestAction: House – 09/26/2019 Referred to the House Committee on Waysand Means.

As of09/30/2019 text has not been received for H.R.4530 – To amend the InternalRevenue Code of 1986 to permit individuals eligible for Indian Health Service assistance to qualify for health savings accounts.


S.12 — 116th Congress (2019-2020) Health Savings Actof 2019 Sponsor: Sen. Rubio, Marco [R-FL] (Introduced 01/03/2019) Cosponsors: (1)Committees: Senate – Finance Latest Action: Senate – 01/03/2019 Readtwice and referred to the Committee on Finance.

This bill modifies the requirementsfor health savings accounts (HSAs) to

  • rename highdeductible health plans as HSA-qualified health plans;
  • allow spouses who haveboth attained age 55 to make catch-up contributions to the same HSA;
  • make Medicare Part A(hospital insurance benefits) beneficiaries eligible to participate in an HSA;
  • allow individuals eligiblefor hospital care or medical services under a program of theIndian Health Service or a tribal organization to participate in anHSA;
  • allow members ofa health care sharing ministry to participate in an HSA;
  • allowindividuals who receive primary care services in exchange for a fixed periodicfee or payment, or who receive health care benefits from an onsitemedical clinic of an employer, to participate in an HSA;
  • include amounts paid forprescription and over-the-counter medicines or drugs as “qualified medicalexpenses” for which distributions from an HSA or othertax-preferred savings accounts may be used;
  • increase the limits on HSAcontributions to match the sum of the annual deductible and out-of-pocketexpenses permitted under a high deductible health plan; and
  • allow HSA distributions tobe used to purchase health insurance coverage.

The bill also: (1) exempts HSAs from creditor claims in bankruptcy,and (2) reauthorizes Medicaid health opportunity accounts.

The bill allows a medical care tax deduction for: (1) exerciseequipment, physical fitness programs, and membership at a fitness facility; (2)nutritional and dietary supplements; and (3) periodic fees paid to a primarycare physician and amounts paid for pre-paid primary care services.

 H.R.3796 — 116th Congress (2019-2020) Health Savings for Seniors Act Sponsor: Rep. Bera, Ami [D-CA-7] (Introduced 07/17/2019) Cosponsors: (1)Committees: House – Ways and Means Latest Action: House – 07/17/2019 Referred to the House Committee on Waysand Means.

This bill permits a Medicare beneficiary to participate in andcontribute to health savings accounts.

H.R.2878 — 116th Congress (2019-2020) Homecare for Seniors Act Sponsor: Rep. Porter, Katie [D-CA-45] (Introduced 05/21/2019) Cosponsors: (10) Committees: House – Ways and Means Latest Action: House – 05/21/2019Referred to the House Committee on Ways and Means

This bill allow tax-exempt distributions from health savings accounts (HSAs)to be used for qualified home care.

“Qualified home care” includes a contract to provide threeor more of the following services in the residence of the service recipient

  • assistance with eating,
  • assistance with toileting,
  • assistance withtransferring,
  • assistance with bathing,
  • assistance with dressing,
  • assistance withcontinence, and
  • medication adherence.

The Department of Health and Human Services must carry outa campaign to increase public awareness of the in-home service expenses thatare eligible for tax-free distribution from HSAs.

 S.1089 — 116th Congress (2019-2020) Restoring Access to Medication Act of 2019 Sponsor: Sen. Roberts, Pat [R-KS] (Introduced 04/09/2019) Cosponsors: (3)Committees: Senate – Finance Latest Action: Senate – 04/09/2019 Read twice and referred to the Committeeon Finance.

This billrepeals provisions of the Internal Revenue Code, as added by the PatientProtection and Affordable Care Act, that limit payments for medicationsfrom health savings accounts, medical savings accounts, and health flexible spending arrangements to only prescription drugs orinsulin (thus allowing distributions from such accounts for over-the-counterdrugs).

H.R.908 — 116th Congress (2019-2020) Stop Penalizing Working Seniors Act Sponsor: Rep. Latta, Robert E. [R-OH-5] (Introduced 01/30/2019) Cosponsors: (5)Committees: House – Ways and Means Latest Action: House – 01/30/2019 Referred to the House Committee on Waysand Means.

This bill allows Medicare-eligible individuals who are age 65 or olderto contribute to health savings accounts iftheir entitlement to Medicare benefits is limited to hospital insurancebenefits under Medicare Part A.

H.R.3708 — 116th Congress (2019-2020)Primary Care Enhancement Act of 2019Sponsor: Rep. Blumenauer, Earl [D-OR-3] (Introduced 07/11/2019) Cosponsors: (5)Committees: House – Ways and MeansLatest Action: House – 07/11/2019 Referred to the House Committee on Ways and Means.

This bill permits a taxpayer with a primary care service arrangement whose fixed periodic fee does not exceed $150 a month to participate in and contribute to a health savings account. Read about flaws in H.R. 3708 at https://dpcaction.com/take-action-dpc-action-statement-opposing-hr-3708/

H.R.2163 — 116th Congress (2019-2020) Freedom for Families Act Sponsor: Rep. Biggs, Andy [R-AZ-5] (Introduced 04/09/2019) Cosponsors: (20) Committees: House – Ways and Means Latest Action: House – 04/09/2019 Referred to the House Committee on Waysand Means

To amend the Internal Revenue Code of 1986 to allow fortax-advantaged distributionsfrom health savings accounts during family or medicalleave, and for other purposes.

 H.R.3594 — 116th Congress (2019-2020) Healthcare Freedom Act of 2019 Sponsor: Rep. Roy, Chip [R-TX-21] (Introduced 06/28/2019) Cosponsors: (10) Committees: House – Ways and Means Latest Action: House – 06/28/2019 Referred to the House Committee on Waysand Means. 

This bill expands the availabilityof health savings accounts. It renamessuch accounts as “health freedom accounts” andallows all individuals to receive increased tax deductions for contributions tosuch accounts. The term “qualified medical expenses” is expanded toinclude costs associated with direct primary care, health caresharing ministries, and medical cost sharing organizations.

The bill also excludes employercontributions to health freedom accounts from employeegross income for income tax purposes.

President Trump’s Salute to Patients Promises Welcome Changes, But Special Interests Attack

The week before President Trump’s Independence Day “Salute to America” he gave a welcome Salute to Patients when he signed Executive Order 13877, “Improving Price and Quality Transparency in American Healthcare To Put Patients First.”

As free market champion Dr. Keith Smith of the Surgery Center of Oklahoma puts it, the “healthcare industry price gougers wore out their welcome” and were “kicked to the curb by President Trump.”

What does the order do? Its first priority is to end “opaque pricing structures,” that “benefit powerful special interest groups, such as large hospital systems and insurance companies,” but, “generally leave patients and taxpayers worse off than would a more transparent system.”

But there’s more: the order also aims to “enhance patients’ control over their own healthcare resources” by removing failed policies that impede patients from choosing to enroll in affordable Direct Primary Care practices or alternatives to big insurance like Health Care Sharing Ministries.

The bottom line is increasing patient freedom and choice is the centerpiece of President Trump’s order. However, make no mistake, it is also put a target squarely on the middlemen who have for too long taken advantage of backroom deals made with government cronies. And the middlemen are already fighting back with a vengeance and working to undermine the order.

Underestimating the special interests’ power to stop the good changes is not an option. Just last week the Pharmacy Benefits Manager (PBM) cartel killed a White House proposal that would begin to unwind corrupt kickbacks that result in out of control price hikes for life saving drugs through disingenuous propaganda that lower prices would somehow raise premiums.

And the fake news campaigns about the Transparency Order are already underway.

Thankfully physicians like Chad Savage, MD are debunking the industry lies:

No price transparency will not lead to higher prices. “This is akin to saying the best way to get a good price on a new Sony TV is to have no idea what it costs. If someone said that to you, you would rightly reject any future advice from that individual,” explains Dr. Savage.

Marni Jamison of the Association of Independent Doctors exposes another tactic of those who oppose transparency:

The cronies are “lawyering and lobbying up, busily working to undermine, narrow and water down the order. They are not going to give up the hundreds of billions of excess dollars flowing their way easily,” she writes and shares examples of weasel words insurers and mega health systems will attempt to use to corrupt the outcome.

Middlemen’s fingerprints are already evident on the order itself to some extent. For example the “Health Quality Roadmap” provisions empower the use of failed quality metrics that are already driving up the cost of care with out any benefit to outcomes. “Practitioners who practice according to the needs of their individual patients, not according to some standardized protocol approved by a third party whose only focus may be efficiency and cost-cutting, may be penalized,” warns Twila Brase of the Citizens’ Council for Health Freedom and award-winning author of Big Brother in the Exam Room. AAPS, while overall supportive of the order, flagged provisions as potentially harmful to privacy rights and urged that “patients’ right to consent to use of their data must also be respected.”

Winning these battles for patients and those who care for them will not be easy! But nothing worthwhile ever is. So let’s all Salute President Trump for taking these bold steps by stepping to help him fend off the special interests trying to thwart his welcome orders.

Do You Really Want A Unique Patient ID?

The House just passed a bill that eliminates the prohibition on the use of federal funding to assign all Americans a unique medical identifier. Former Congressman Ron Paul, M.D., got that prohibition enacted in 1998.

            The identifier is supposed to improve “efficiency”—of what? Government surveillance of all Americans? The agenda of government-favored special interests, who might want to silence persons with political views they don’t like? Persons who might see you as a threat to their success in business, academia, or other ventures?

            What might be in your record? A prescription for Valium or other drug prescribed during a distressing life crisis? This could be a psychiatric “red flag” causing denial of your gun rights. A diagnosis of a sexually transmitted disease? An admission that you had a temper tantrum or used an illegal drug at a party? Could this derail a job application or cause you to lose child custody or foreclose a political career?

            Can you be honest with your doctor if anything in the record might someday be used against you?

            “Make no mistake. The [patient identifier] would be the end of privacy and the foundation of a national health data system,” warns Twila Brase, president of the Citizens’ Council for Health Freedom and author of Big Brother in the Exam Room.

            The damaging information in the record might not even be yours. A hurried data-entry person might have clicked the wrong item on a drop-down menu or even cut-and-pasted something from another patient’s electronic health record.

            The prohibition on funding for the unique identifier needs to be restored, states the Association of American Physicians and Surgeons (AAPS).

Further information:

       

Faux Fight in DC Against the Financial Foolery in Healthcare

TO THE READER: In the bold, black font below, you see parts of a paper provided by Rep. Frank Pallone, Jr. (D-NJ, 3rd District), in anticipation of hearings held on May 9, 2019, by the Committee on Energy & Commerce of the U. S. House of Representatives. Rep. Pallone chairs the committee. The subject of the hearing? “Lowering Prescription Drug Prices: Deconstructing the Drug Supply Chain.”

In the bold, green font (with blue embedded links to sources), you see our comments on elements of the paper, and most particularly on points of fact that were omitted. Those omissions are telling. They reveal not only how politicians are beholden to very powerful lobbying interests inside the drug supply chain, but also the politicians’ lack of seriousness in fighting to reduce America’s disgraceful annual wastage of dollars spent on healthcare.  CLICK HERE FOR PDF FILE OF DOCUMENT WITH COMMENTS.

There are fighters, and then there are the faux fighters. The latter will choose the photo op and optics over substance every time. It’s what they do. It’s who they are.

Here is the lineup for the panels in the hearings of May 9 as found in the paper provided by Rep. Pallone.

Panel I

Justin McCarthy, Senior Vice President, Patient & Health Impact Group (Pfizer)
Kave Niksefat, Vice President, Value and Access (Amgen)
Jeffrey Hessekiel, Executive Vice President & General Counsel (Exelixis)
Amy Bricker, Senior Vice President, Supply Chain (Express Scripts)
Brent Eberle, Chief Pharmacy Officer (Navitus Health Solutions)

Panel II

Estay Greene, Vice President of Pharmacy Services (Blue Cross Blue Shield of North Carolina)
Lynn Eshenbacher, Chief Pharmacy Officer (Ascension)
Jack Resneck, M.D., Chair, Board of Trustees (American Medical Association)
Richard Ashworth, President of Pharmacy (Walgreens)
Leigh Purvis, Director of Health Services Research (AARP)


I. THE DRUG SUPPLY CHAIN

A. Pharmaceutical Manufacturers

Pharmaceutical manufacturers research, develop, and produce drugs. Once the Food and Drug Administration (FDA) approves a drug for purposes of marketing, the pharmaceutical manufacturer establishes a list price (also known as the wholesale acquisition cost). The list price could be determined by a number of factors such as research and development costs, demand, market competition, and manufacturing and marketing costs. Notwithstanding these factors, manufacturers may set any price they choose.

Manufacturers earn revenue when pharmacies, hospitals, and other health care entities purchase their drugs. For 2017, drug manufacturers earned about $324 billion in net revenues.

COMMENTS:

In his first sentence above, Rep. Pallone has identified who really does the serious work in the drug supply chain. All of the rest are middlemen, third-party payers, prescribers, dispensers, or consumers, none of whom are involved in research, development, or production.

The figure for total net revenues in the industry averages out to $1.7 billion for the over 190  pharmaceutical companies in the United States, which are responsible for 4.8 million American jobs, jobs that have been among the best in the country for years, attracting high achievers from the schools of the relevant sciences.

The U.S. is the preeminent manufacturer in the worldwide pharmaceutical market by a wide margin over its nearest competitor. We are also the largest market for pharmaceutical products. In short, the American pharmaceutical industry is indispensable. It’s where the most-serious work in the drug supply chain is done.

What is glaringly omitted from the “factors” that Rep. Pallone identifies as influencing a drug’s list price? The kickbacks (euphemized as “rebates”) that middlemen in the supply chain—the Pharmacy Benefit Managers (PBMs) and Group Purchasing Organizations (GPOs)—are allowed to accept without fear of prosecution.

The type of drug affects the manufacturer’s costs, as well as the revenue a company earns. Generally, small molecule drugs and their bioequivalent competitors, generic drugs, are cheaper to develop and have a lower list price than biologics. Biologics are made from living organisms and are used to treat serious diseases such as cancer, rheumatoid arthritis, and multiple sclerosis. Biologics often launch at very high prices, with annual list prices reaching tens of thousands of dollars. In addition, unlike the small molecule drug market, many biologics still do not face competition from biosimilar or interchangeable biological products. In 2017, biologics represented two percent of all U.S. prescriptions, but 37 percent of net drug spending. Generic drugs represent nearly 90 percent of all U.S. prescriptions, but only 23 percent of net drug spending.

In 2017, total retail drug spending was $333.4 billion, 6 which was a 0.4 percent year over-year increase from 2016. The key drivers of the slower growth in spending were a continued shift to lower-cost generic drugs and slower sales volume growth in some high-cost drugs.

COMMENTS:

Biologics received extended patent protection as part of a deal to grease Congress’s passage of the Affordable Care Act (detailed on pages 99-102 and 132-133 in America’s Bitter Pill, by Stephen Brill, an outcome for which Amgen alone spent $38 million on lobbying. NOTE: Amgen is represented in the panel testifying on May 9 before the House’s Committee on Energy & Commerce). And, yes, the makers of biologics enjoy large profits; the politicians who extended the period of patent protection to gain support for the ACA saw to that. There’s more than a little irony on display when we see politicians who supported the ACA vigorously (did they have to pass it to find out what was in it?) now pointing at BIG PHARMA as a notable culprit in the search for excessive cost in the drug supply chain. The top biologic, Humira, pulled in over $18 billion in revenues in 2017.

B. Pharmacy Benefits Managers (PBMs)

Pharmacy Benefit Managers (PBMs) are third-party firms hired by insurers, federal health programs, and plan sponsors to manage and administer the prescription drug benefits of health insurance coverage. This includes negotiating the prices of drugs to create formularies, as well as deciding which pharmacies are included in a plan’s network. Formularies developed by PBMs play a role in determining the cost of a prescription drug. The formulary is used to negotiate rebates and discounts with manufacturers, but it is also used to manage prescription drug use and spending by plan members. For example, cost-sharing, drug coverage, prior authorization, and member cost are all determined through a formulary. PBMs also negotiate fees and services with pharmacies, fees that may be based on each filled prescription.

PBMs mostly earn revenue by charging fees to the plans, pharmacies, and drug manufacturers, as well as by keeping a portion of the rebate they negotiate with the drug manufacturers. Increasingly, the large PBMs also earn revenue through the ownership of other parts of the supply chain including insurers and specialty pharmacies. Three companies cover about 70 percent of all prescription claims in the United States: CVS Health, Express Scripts, and UnitedHealth Group. According to one study, the PBM industry had an estimated gross profit of $23 billion in 2016.

COMMENTS:

The top PBMs have annual revenues in excess of $100 billion. This is astonishing. As of 2003, by grant of the Health and Human Services secretary at the time, these middlemen were granted a “safe harbor” from prosecution for receiving money (again, kickbacks) from drug manufacturers. In turn, the middlemen then identify the drugs that go into the formularies of the insurance companies. This is the very definition of a pay-to-play arrangement.

The arithmetic is breathtaking—the middlemen have revenues nearly 100 times as large as the companies that actually do the research and make the drugs.

When it comes to deconstructing the drug supply chain and figuring out where high and unreasonable costs are being injected into the chain, wouldn’t it make sense to mention this obvious fact when passing out white hats and black hats?

C. Insurers

Health plans assume the financial risk for the cost of drugs their customers receive as part of offering a prescription drug benefit. Insurers such as Medicare, Medicaid, private insurance companies, and self-insured large employers reimburse pharmacies, hospitals, and other healthcare entities for the amount paid to purchase the drug and related fees. The actual amount paid by the healthcare entities is confidential; therefore, insurers generally can only estimate the reimbursement amount.

Plans manage the prescription drug benefit by contracting with an external PBM, operating their own PBMs, or by purchasing drugs directly from manufacturers and dispensing the medication to consumers at their own pharmacies.

Plans earn revenue when the premiums they charge exceed the health care claims they pay. Plans use a range of strategies to hold down their drug costs, including through:

  • Formulary tiers (varying cost-sharing to encourage preferred or low-cost generic drugs);
  • Prior authorization (a physician must obtain approval from the insurer prior to prescribing a particular medication);
  • Step-therapy (a physician must begin treatment using the most cost-effective drug therapy before moving to more costly therapies if necessary); and
  • Cost-sharing and copayments (when a patient must pay a portion of health care costs not covered by the health insurance plan).

D. Hospitals and Physicians

Hospitals and physicians will often purchase large volumes of drugs from manufacturers or wholesalers through Group Purchasing Organizations (GPOs). GPOs help hospitals and physicians aggregate purchasing volume to negotiate discounts with manufacturers and distributors. If the physician or a hospital administers a drug to a patient, then the physician or hospital will use a buy-and-bill model, meaning that they will purchase the drug from a manufacturer first (sometimes with the help of a GPO), and then bill for it after it is administered.

Physicians and hospitals earn revenue if they are reimbursed at a higher rate than what it costs them to purchase and administer the drug.

COMMENTS:

The reader may have noticed that one type of middleman, the GPO, has been omitted from the drug supply chain. Did Chairman Pallone think that no one would spot that detail?

Professor Martin Makary, M.D. and Professor of Surgery at Johns Hopkins, has written in the Journal of the AMA, about the kickbacks that GPOs receive as the root cause of the over 150 FDA-documented drug and solution shortages that jeopardize the lives of Americas who are most in need of these medicines. Those shortages drive skyrocketing costs to patients, and increase costs to hospitals as both physicians and bedside nurses “MacGyver” their way around the shortages. We sure hope that the AMA board chair on the panel acknowledges the GPO role in juicing up the cost to the patient and gives Dr. Makary credit for speaking an uncomfortable truth. Dr. Resnick should also reveal what the AMA knows about the kickbacks and when they knew it.

Even pharmaceutical companies who make injectable drugs and solutions make it clear that their access to the market and attainment of market share hangs on their relationships with GPOs. This quote comes from the website of Amphastar Pharmaceuticals: “We currently produce approximately 15 injectable products while we continue to develop a portfolio of generic and branded products that target large markets with high technical barriers to entry. Amphastar’s long-standing relationship with the major group purchasing organizations and drug wholesalers in the U.S. enables it to establish significant market share upon the introduction of its new products.” Amphistar makes injectable Narcan (naloxone), which has recently been unavailable due to shortage.

To name just a very few, the following are among the drugs/solutions in short supply: epinephrine, saline solution, Pitocin, chemotherapy drugs, and insulin.

Philip Zweig has written about this very subject in the Wall Street Journal.

Multiple governmental panels have pointed to kickback to the GPOs as the root cause of these shortages and the related upward pressure on costs.

In a classic instance of the fox-in-the-henhouse paradox, Todd Ebert, the head of the GPOs’ lobbyist, the Healthcare Supply Chain Association, was a panelist on a FDA/Duke Margolis Center event to get to the bottom of the shortages. At the end of the hearings, Mr. Ebert declared that HHS can ask at any time to review the contracts between the GPOs and manufacturers of drugs that are or have been in shortage. During the symposium on shortages, attendees heard again and again that to get to the bottom of the shortages, transparency was key, and that the shortages were driven by economics.

Given that Congress in 1987 provided to the GPOs the “safe harbor” from prosecution for requiring and receiving “rebates” (again, kickbacks), reasonable people may get the impression that the Congress OWES the American people the effort of overseeing the contracts between the GPOs and pharmaceutical companies. They can make a modest gesture toward discharging that duty by calling upon HHS now to demand to see those contracts A few thousand government employees ought to be able to handle the job of reviewing the contracts.

Furthermore, those with financial acumen, but without conflicts of interest, should be present when those contracts are reviewed.

Anything less is staged faux fighting over the financial foolery embedded in the American healthcare system.

E. Pharmacies

Pharmacies dispense prescription drugs to individual patients. There are retail, mail, long-term care, and specialty pharmacies.

Pharmacies negotiate with manufacturers or wholesale distributors and purchase drugs at a confidential price. They will also negotiate with PBMs to be included in a PBM’s network and for reimbursement from the PBM, as well as other types of government and private payers. In addition to reimbursement for the cost of the drug, pharmacies will also receive a dispensing fee, which varies based on the payer. Total prescription dispensing revenues reached $423.7 billion in 2018.

F. Patients

Patients depend on prescription Rx drugs to manage chronic conditions, prevent, treat, or cure diseases, and reduce side effects from diseases or conditions. When patients purchase a drug, the price they pay may depend in part on how much of the cost their health plan covers. Patients are increasingly exposed to the list price of their prescriptions, either through their deductible or through a coinsurance percentage.

If the patient is not enrolled in a health plan, then they typically pay the full list price of a drug. Patients may access patient assistance programs and discount cards from manufacturers to lower the price they pay for a particular drug depending on criteria that is set by either the program or the manufacturer.

A recent poll found that a quarter of people who take prescription drugs say it is difficult for them to afford their medications. People are more likely to have difficulty affording their medications if they have monthly drug costs of $100 or more, are in fair or poor health, have annual incomes of less than $40,000, or take at least four drugs monthly. Three in ten 50-64 year olds report problems affording their drugs.

Comment: The saddest part of what appears to be another faux fight in the battle to help Americans have affordable accessible healthcare, is that Chairman Pallone, D-NJ, puts the patients last and the chosen panel is chock full of financial conflicts of interest. Who is speaking for the patients? We hope committee members ask pointed questions revealing who is making the big money and denying access to healthcare. Americans deserve the real truth and not another staged moment in American politics.