Back Button
Menu Button

Reforming Rx Pricing
First Reform Pharma Campaign Contributions

Both political parties seem to be in agreement that skyrocketing drug costs of specialty drugs and new drugs coming on the market threaten to bankrupt the system. Yet pharmaceutical companies, pharmacy benefit managers (PBMs) and their powerful lobbying efforts have a proven track record in preventing bold measures to address high drug prices.

It’s no mystery why we cannot have an unified national policy on how to control outrageously high prescription medications. It all begins with campaign contributions that impact how national drug policies are made.

According to a recent analysis by STAT, over two-thirds of Congress (374 of 535 voting members) have received campaign contributions from the pharmaceutical industry during the 2020 election cycle. During 2020, the drug industry sector donated $14 million to influence 72 senators and 302 members of the House of Representatives. Overall, however, the Pharmaceutical Research and Manufacturers of America raised nearly $527 million in 2019 and spent roughly $506 million on ‘dark money’ groups, according to OpenSecrets. More specifically, the drug industry focused on those in key committees that impact healthcare legislation. (It should also be noted that Pharma has funded more than 2,400 state lawmaker campaigns in 2020.)

Such campaign contributions must meet certain guidelines to be legal. These contributions can certainly influence those who wish to get elected (or re-elected) to powerful and influential positions to influence government health policy. Quid pro quo is alive and well for those we elect to Congress and our statehouses. I would like to believe that influence cannot be bought, but politics is an ugly process. The lawmakers who accept these contributions represent both sides of the aisle. As STAT mentioned, “Despite the drug industry’s apparent interest in preventing Democrats from controlling both Congress and the White House, contributions were almost evenly split between major political parties: $7.1 million went to Republicans, and $6.6 million went to Democrats.”

Iowa Senators

Have Iowa Senators, Charles Grassley and Joni Ernst, resisted the urge to accept drug-industry money?

According to STAT, Senator Grassley, who has a proposal to fix drug prices, received a total of $32,500 from the drug industry during the 2020 election cycle. The specific donations from each drug company can be found in the STAT analysis. Grassley, it must be mentioned, does not propose that the Health and Human Services Secretary negotiate drug prices with Pharma. Pharma desires to avoid having the federal government directly control drug prices.

As for Senator Joni Ernst, the results are even more pronounced. Sen. Ernst, who was in a re-election dog fight with Theresa Greenfield in 2020, required ‘all hands on deck’ from campaign supporters. Sen. Ernst received $102,000 in campaign contributions from various drug companies. Again, STAT provides the breakout of the specific contributions from each drug company. Sen. Ernst has pressed for “lower prescription drug costs,” but to do so, the U.S. must “adhere to market-driven principles” that would be more pleasing to Pharma than having government-negotiated pricing.

It’s worth noting that House Representative Richard Hudson, Republican from North Carolina, was the top recipient for drug industry funds – $139,500 in 2020. Rep. Hudson is on the influential Energy and Commerce Health subcommittee, which oversees a large portion of healthcare legislation in Congress.

Summary

The drug industry has hastened yet another addiction crisis – the reliance on campaign contributions that compromises objectivity toward fixing a long-standing problem in our healthcare system.

Understanding the drug pricing policy in our country must first begin with how our congressional representatives are funded during their campaigns. Yes, this may sound too simplistic, but in our government – specifically with healthcare – it boils down to following the money trail. This is the ugliness of how policymaking works in Washington and our statehouses. Until campaign financing can be ethically cleansed, we are mere pawns in a game that will largely be decided by others – regardless of how we vote.

To stay abreast of employee benefits, we invite you to subscribe to our blog.

Is Healthcare a ‘Tapeworm’ in the American Economy?

Tapeworms cause health problems in our bodies. They can rob us of important nutrients, block our intestines, and take up space in organs so they don’t function normally. Tapeworms keep our bodies from operating efficiently.

Warren Buffett described the American healthcare system as a “tapeworm in the American economy.” Given the latest failure of Haven, a joint health care venture with JP Morgan, Amazon and Buffett’s Berkshire Hathaway – the tapeworm appears to be live and well.

Buffett’s comment is brutally honest.

The tapeworm analogy is demonstrated in a new article from the New York Times, “Buoyed by Federal Covid Aid, Big Hospital Chains Buy Up Competitors.” This article paints a picture that some larger hospital chains are using Covid bailout money from the Provider Relief Fund and purchasing other hospitals and physician groups to grow their footprint in markets. Without much federal scrutiny, this bailout allows hospital chains to grow larger and dictate higher prices from private insurers, employers and individuals.

Multiplier Effect

I have to hand it to the American Hospital Association (AHA) and their state-based hospital members, including the Iowa Hospital Association (IHA). When payers demand to hold hospitals accountable to improve their outcomes at lower associated costs, hospitals revert to a tried-and-true formula to combat public scrutiny: Remind the public about how hospitals provide economic contributions to our communities and states.

As an example, in 2017, the AHA stated the “Health care sector has traditionally been an economic mainstay, providing stability and job growth in communities. Health care added more than 35,000 jobs per month in 2016.” The AHA mentions that hospitals employ more than 5.7 million workers, are one of the top sources of private-sector jobs, and purchase nearly $852 billion in goods and services from other businesses. More recently, Rick Pollack, President and CEO of the AHA, had a paid AHA advertisement in the Wall Street Journal titled, “Value of Health Systems Shown Clearly During the Pandemic.

This information is pumped out every few years for each state to tout, including Iowa. The AHA provides a state-by-state economic impact grid that illustrates the value hospitals provide to their respective local economies. The IHA readily uses this information to display on their website. Of course, we are constantly reminded of the ‘multiplying effect’ that supports “thousands of additional jobs.” We are told that “more than 143,000 jobs are tied to Iowa hospitals, creating an overall impact that is worth nearly $8.6 billion to Iowa’s economy.” It is true that, along with public schools, hospitals are the largest employers within many of our communities.

Not to be outdone, the lobbying organization for insurance companies – America’s Health Insurance Plans (AHIP) – employs a similar approach to tout how private insurance is an economic boon for local economies. In early May, AHIP posted By the Numbers: How Health Insurance Providers Contribute to State Economies and Peace of Mind.” The 2021 AHIP biennial report discusses how the economies of each state are impacted by health plans, specifically on the number of jobs generated and tax revenues paid to support the local economy.

Based on AHIP data, Iowa employs over 4,000 health plan employees and almost 13,000 insurance-related employees. Average annual wages for health plan employees are over $86,000 while insurance-related employees earn about $63,000 annually. By most standards, these wages are good for the Iowa economy, especially when using the multiplier effect.

Zero-Sum Game

Given the narratives being sold to us, perhaps we should supersize the entire U.S. economy by continuing to expand healthcare and health plans beyond their current size. But that simply will not work. There are economic tradeoffs that come into play.

It brings to mind poker and gambling, two popular examples of the zero-sum game. In poker, the sum of the amounts won by some players equals the combined losses of other players. In a zero-sum game, there is one winner and one loser.

“Currently, the U.S. healthcare and health insurance systems are really a patchwork of different programs, which create gaps and expensive inefficiencies”, according to economic health researcher, Katherine Baicker.

But who pays for these inefficiencies? ALL OF US.

What we pay to healthcare providers and insurers will indeed fund the job growth of doctors, nurses, medical technicians, health insurance personnel and professionals. To be sure, we need these services. But, as a consequence, we don’t have this money to spend (or save) on other economic necessities or preferences. This becomes an economic tradeoff that adversely impacts other parts of our economy.

Inefficient and opaque spending on healthcare creates another problem: a redistribution of our hard-earned money that is often being used to our own detriment – for lobbying efforts to ensure the status quo remains unchanged. Opaqueness breeds blind spending by those who pay. This is a vicious cycle that perpetuates the zero-sum game.

Law of Diminishing Marginal Returns & Opportunity Costs

Another economic term, Law of Diminishing Marginal Returns, is typically used when analyzing the production of a particular commodity. For example, when a factory employs workers to manufacture its products, at some point during production, the company will operate at an optimal level (with all other factors remaining constant). Over time, however, adding additional workers will result in less efficient operations.

At what point has healthcare exceeded the optimal revenue from its payers? When will the best possible returns obtained by healthcare diminish with every dollar invested? Are we there yet? The latest Kaiser Health News poll that found large employers are ready for more government involvement may suggest this point has been reached.

Put yet another way, what are the opportunity costs with each dollar spent on healthcare? Opportunity cost is the loss of the benefit that could have been enjoyed if the best alternative choice was chosen instead. Continuing to pay higher healthcare costs without receiving the commensurate benefits represents a lost opportunity of investing that money elsewhere – such as investing in updated infrastructures, efficient factory equipment or paying higher wages. Redirecting financial investments into other worthwhile opportunities would provide a multiplier effect for local economies.

Continuing to accept overpriced care is not the solution to sustain economic growth. In fact, overpriced and inefficient care is holding the economy back from becoming MORE robust. This is precisely Buffett’s point.

Summary

Contrary to the argument of being an ‘economic stimulus’ to local economies, the REAL purpose of healthcare is to enhance the quality of life by enhancing our health. It is true that creating reasonable profits to remain financially viable is necessary to stay in business to serve others. However, healthcare must focus on creating social health and well-being to fulfill its fundamental promise to society.

Marketing platforms being used by healthcare-related associations on how hospitals and health plans will benefit our communities is, at best, disingenuous. We live in a world of unfulfilled opportunities. Until these opportunities are given the chance to succeed, we will never know just how robust our economy can become.

How long do we allow the tapeworm to control our economic well-being?

To stay abreast of employee benefits, we invite you to subscribe to our blog.

2021 Iowa Employer Benefits Study
POSTPONED

2021 Iowa Employer Benefits Study POSTPONEDAs many of you are aware, the Iowa Employer Benefits Study was not performed in 2020. The reason was quite simple – the unprecedented uncertainty facing most Iowa businesses during the Covid-19 pandemic. As difficult as the decision to postpone was, it was no doubt the right one.

In early 2020, during the beginning of the pandemic, we attempted to perform the survey and quickly learned that fewer organizations desired to be interviewed, which prompted us to suspend the survey process. The cost to perform surveys increases if more organizations need to be interviewed.

Now in 2021, another tough decision has been made. After visiting with many individuals and organizations, I have concluded that 2021 is just too soon to pursue this important survey.  I could certainly randomly interview 1,000 Iowa organizations, but many organizations are still digging out of massive business and personnel upheavals that will require a ‘reboot’ of their workplace practices.

We understand that many individuals who respond to our surveys are charged with multiple organzational tasks that come with time pressures. My desire is to be mindful of the key issues facing employers and to, yet again, refrain from being an additional distraction during this time. I do look forward, however, to performing an assessment this fall about whether to pursue the 2022 survey. By that time, we will have a much better idea of what changes Iowa employers will have made in their workplaces and how these changes may impact future workplace environments.

I am confident that 2021 will prove to be a year of great progress in overcoming the personal and professional challenges we have all endured.

Please continue to stay safe!

To stay abreast of employee benefits, we invite you to subscribe to our blog.