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Prescription Drug Pricing – The Reenactment of Harry Houdini

Noted for his sensational escape acts in the late 19th and early 20th centuries, Harry Houdini used chains, ropes, locks, straightjackets under water and a host of other props to escape from assured harm, if not death. Crowds were enthralled with his heroics, and they paid him for this gross but thrilling form of entertainment.

To protect his unique career, he was a master on safe-guarding his escape secrets, and was very quick to sue others who imitated his escape stunts.

Fast forward to today. We continue to be entertained by protégé’s of Houdini, now better known to be ‘magicians.’ Some are quite well-known: David Copperfield, David Blaine, Ricky Jay, Penn & Teller, among others. One common rule that all legitimate magicians adhere to is quite simple:

NEVER reveal the magic secret.

The biggest magician we have today, is not really a magician, but certainly ‘appears’ to act like one.

The pharmaceutical industry – and many key middlemen side players, such as pharmacy benefit managers (PBMs) – are in the business of obfuscating facts from reality. In June, I wrote a piece about this problem on my The Health Autonomist blog. Like magicians, who know how to manipulate their audience into a false sense of free will, pharmaceutical players want the public to believe that efforts are being made to keep the medication costs as affordable as possible and, in return, ‘reasonable’ profits are justly-earned to keep costs down.

The chart below shows just how unbridled the costs of prescription drugs have become (found in the yellow line since 2013). Rarely do I repeat the same visual, as this one appeared in last week’s blog, but this chart demonstrates just how rampant drug prices have become when compared to other types of health services.

Yet, a host of games are being played that cause the patient to receive minimal benefit from their actions – with much of the financial gain being retained by the ‘altruistic’ players who tout their allegiance to the patient. One example is found on the Kaiser Health News webpage:

A very insightful report, “Getting to the Root of High Prescription Drug Prices,” was recently released by The Commonwealth Fund, that provides an in-depth description of the many problems inherent in drug pricing. More importantly, the report describes many possible actions that policymakers and stakeholders can agree on to find bipartisan solutions to many identifiable problems. By the way, regulating drug prices or purchasing drugs through Canada are not long-term solutions, just band-aid approaches to a persistent open wound.

A newly-published ProPublica article, “Take the Generic Drug, Patients are Told – Unless Insurers Say No,” reveals that pharmaceutical companies are increasingly cutting deals with PBMs and insurance companies to push more expensive name-brand drugs over their generic-equivalents. Such actions suggest that higher profits are being sought, often at the patient’s expense. ProPublica’s other new article about generic drugs serves notice that pharma continues to find innovative ways to make money at the public’s expense.

I enjoy infographics, as they can help make something that is very opaque appear a bit more understandable. Even within the insurance industry, the shenanigans that happen in the PBM world are often difficult to understand – leaving many of us to sort truth from fiction. Through Pembroke Consulting, SSR Health, Kaiser Health News et al., an infographic was produced that does a reasonably good job of exposing the secrets behind the curtain of obfuscation on drug pricing.

Like tricks performed by accomplished magicians, the drug-pricing profession profits from sleight-of-hand tricks that must never be revealed to the public.

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Healthcare Spending – Few Incur the Most in Claims

A country’s distribution of wealth can be eerily similar to its distribution of healthcare spending. For example, a larger portion of wealth of any society is owned by a small percentage of the people in that society. Likewise, the preponderance of healthcare spending comes from a small percentage of people with multiple chronic conditions.

Vilfredo Pareto, an Italian civil engineer, economist and sociologist, termed the distribution of wealth, now known as the Pareto principle, as the “80/20 rule” – of which 20 percent of the population controls 80 percent of the wealth (some caveats apply, but you get the gist of this concept).

Let’s take a look at healthcare spending in our country. Most recently, the National Institute for Health Care Management (NIHCM) released a series of charts that provides a great deal of insight on how a few Americans can greatly impact overall healthcare spending. This insight, of course, is nothing new, yet the slides have been updated, using data from the 2014 Medical Expenditure Panel Survey.

The chart below provides a bird’s eye view of American’s spending distribution in 2014. In that year, the top 10 percent of healthcare spenders accounted for two-thirds of all spending. In healthcare, Pareto’s 80/20 rule might need to be adjusted to the “90/10 rule.” Digging deeper, the top five percent of spenders comprised half of all spending, while only one percent of spenders made up more than one-fifth of all spending.

In a country that spent roughly $3 trillion on healthcare in 2014, about $2 trillion was spent by 10 percent of all spenders and $600 billion was spent by just one percent of healthcare spenders. On the backside, the bottom 50 percent of spenders account for only three percent of spending – quite amazing, right?

In the chart below, the bottom 90 percent of the “Civilian Non-Institutionalized Population” paid $1,500 or less in out-of-pocket costs in 2014, while the top one percent of the distribution had out-of-pocket costs in excess of $6,100, and their mean spending burden was estimated to be nearly $11,000.

Over the past decade (2006-2015), spending for personal healthcare services increased by more than $2,400 per person – roughly a 40 percent increase. Higher spending was observed in all six sectors during this time, with hospital care leading the way:

  • Hospital Care48 percent
  • Home Health & Other LTC Facilities and Services41 percent
  • Physician and Clinical Services35 percent
  • Retail Prescription Drugs34 percent
  • Dental and Other Professional Services30 percent
  • Retail Durable Medical Equipment & Other Medical Products28 percent

Yes, prescription drug costs continue to attract a great deal of media air time concerning price inflation., But it’s hospitals, physician and clinical services and home health that grew more than retail prescriptions over this same time period.

The following chart illustrates the steady increase in per-capita spending for most types of services – such as hospital care, home health and other long-term care, and physician and clinical services. However, retail prescription drugs increased most rapidly from 2013 to 2015, warranting public scrutiny.

Aggregate national spending on personal healthcare services has risen by over 50 percent over the period 2006-2015. Public and private payers are spending more in total, in addition to patients personally paying more (out-of-pocket).

Despite more Americans having high-deductible health plans, other payers (e.g. Medicaid, Medicare and Private Insurance) continue to pay a higher share of the cost.

As health costs continue to increase, the share of total health spending by patient or family has actually decreased (see below).

What do these charts suggest? Healthcare continues to be highly concentrated (few spenders incur the most in claims), costs for all major types of care continue to increase more than we would like, and the spending of the public and private plans continue to outpace the out-of-pocket costs that individuals are required to pay. Finally, personal healthcare spending accounts for a greater portion of the median personal income (see below).

Despite the implications of the above data, recent House and Senate activity in Washington fails to address the source of the cost issue. Much of the ‘healthcare’ debate is about the individual insurance markets, including how to fund Medicaid. What we need is to have an honest, public debate about the relative costs and worth of healthcare – also known as ‘value.’ Currently, we reward volume, not value, in how we pay for the care we receive. The incentives and disincentives we use to ‘reward’ the players in healthcare determine both intentional and unintentional consequences. Because of this, our healthcare ‘system’ is merely performing as haphazardly designed. Let’s solve the individual market and move on.

Perhaps as we move forward, progress will be possible when politicians set aside ideology and focus on pragmatic solutions that put consumers first. That should be our collective hope.

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John McCain & Rob Lind – Healthcare Realities

Rob Lind on Lake Francis, June 2017

Last week, while on vacation in Reykjavik, Iceland, I woke to the news that Arizona Senator John McCain was diagnosed with Glioblastoma, an aggressive type of malignant brain tumor that starts in the glial cells of the brain and spreads rapidly. Glioblastoma is not as prevalent as other, more common cancers. In 2017, this type of cancer is projected to have 12,390 cases in our country. Breast cancer, as an example, is estimated to have 252,700 cases in 2017 – over 20 times the glioblastoma rate.

Cancer impacts people regardless of race, age, gender, social standing, geography, and yes, even political party. Cancer is non-discriminating, an equal opportunity disease – many times due to chance. Of course, there are exceptions, such as cancers that are known as ‘cancer clusters,’ which, according to the CDC, are “a greater-than expected number of cancer cases that occurs within a group of people in a geographic area over a period of time.” Cancer clusters can occur in dangerous environmental areas that can harm the population living nearby, such as toxic waste landfills.

The Brain Tumor Foundation estimates that treating glioblastoma may cost more than $450,000 (up to $700,000 in a lifetime of treatment). I’m not trying to make Sen. McCain’s misfortune into political fodder, but as Congress attempts to sort out what health insurance should look like for Americans who don’t have access to employer-provided coverage and are not yet eligible for Medicare, medical misfortunes continue to plague those who are employed, unemployed, insured or uninsured. Financial catastrophe is one diagnosis away for many Americans.

John McCain

The McCain news unfortunately serves as yet another poignant reminder that illness can occur at any time in our lives. Ironically, Senator McCain and his Senate colleagues are embroiled in crafting a ‘repeal and replace’ fix for Obamacare, with potentially more than 22 million Americans losing health insurance coverage, depending on which plans are being ‘scored’ by the Congressional Budget Office. It’s common knowledge that both House and Senate Congressional members can purchase private health insurance through the Federal Employees Health Benefits Program, which offers about 300 different private healthcare plans – all considered good health insurance by any standard used.

Our country continues to struggle with the “downstream” question of who should pay for healthcare and how much should be paid. This never-ending, divisive and destructive dialogue is made under the pretense that we are unable (or unwilling) to address the true cost drivers of healthcare (found “upstream“) and, consequently, seek our answers through political discourse that will get us nowhere downstream. Meanwhile, the ‘John McCains’ in our country, including those uninsured, must fight this battle on two fronts: 1) Physical and emotional distress that comes with a serious illness, and 2) Facing impending financial disaster.

Rob Lind

Two months ago, I learned that my oldest brother, Rob, has glioblastoma. This news is painfully fresh for me and I’m still sorting out why this has happened to Rob. Most likely, we will never know the answers to the persistent questions we face when family members and friends receive such a devastating diagnosis. The McCain news served as a harsh reminder that you can be a U.S. Senator, or as Rob, a rural Iowa business owner. Both have lived their lives honorably, positively impacting others around them. But each of us must be armed with the knowledge that our health may be compromised at any time by an unwelcomed intruder. Thankfully, both John and Rob have good health coverage. They are the fortunate Americans.

The healthcare coverage problem continues to persist in our country without any prospect of immediate resolution. Meanwhile, any one of us may eventually receive life-changing news that someone important in our lives, (perhaps even yourself), will be visited by an unwelcomed intruder.

Healthcare is the maintenance and improvement of our physical and mental health. The absurdly high cost of healthcare makes it immensely more difficult for those who must endure the physical and emotional hardships when facing the care they need.  When our health is compromised, we worry about the cost and how it will impact those around us – another added layer of stress. In the U.S., more so than other countries, Americans worry about the family being financially burdened.

For Rob, I cherish the remaining time that we have together. Whether we discuss things that matter most in our lives, or climb into a fishing boat and experience the beauty of a Minnesota morning on Lake Francis.

Catching fish is optional.

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