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Mandating COVID Shots – Part II

There is a major new development that may impact the number of employers mandating COVID-19 vaccinations. Just this Monday (August 23), the Food and Drug Administration (FDA) granted full approval to the Pfizer/BioNTech COVID-19 vaccine for individuals, ages 16 years and older. Prior to this, the vaccine was available under emergency use only, which is still the case for individuals, ages 12 through 15, and for “the administration of a third dose in certain immunocompromised individuals.”

This full approval cannot come soon enough. According to the Iowa Capital Dispatch, about 2,200 new COVID-19 cases are occurring each day in Iowa. A recent study published in Health Affairs found that COVID-19 vaccines prevented nearly 140,000 deaths during the first five months of the vaccine campaign. This number is approximately the size of Cedar Rapids. Finally, a Kaiser Family Foundation research brief published last week reveals that about 113,000 Americans could have avoided being hospitalized in June and July if they had received the COVID vaccine – which amounted to an estimated cost of $2.3 billion.

For individuals and employers on the fence about whether to obtain (or mandate) vaccinations, this latest move by the FDA signals that the (Pfizer) vaccine was determined to be both safe and effective – far outweighing the potential risks. The two shots together were found to be 91 percent effective at preventing COVID-19 and potentially serious outcomes, including hospitalization and death. The full approval by the FDA provides a stronger, fortified reason for employers to consider implementing – if desired – a vaccine mandate at the workplace.

New Reports that may Help Employers

I must give a big thanks to the May 20 podcast of Tradeoffs that addressed the employer mandate issue. This particular episode provides much of the background information that I am about to share on WHY employers might seriously consider mandating vaccine shots to their employees.

  1. Requiring Vaccines Actually Works

    Many studies show that, by mandating vaccinations at work – such as the flu shot – more people get vaccinated. Nursing homes and other healthcare settings (hospitals included) spell this out. For employers in other sectors, having more workers vaccinated will translate to having a safer work environment that results in fewer sick days and a smaller probability of new virus strains developing.

  2. Vaccines Reduce Community Spread

    According to a new study in The Journal of Human Resources by Corey White, a Cal Poly, San Luis Obispo health economist, California hospitals and counties that implemented influenza vaccine mandates for their employees found there was an uptick of flu shots by about 10 percentage points. But just as importantly, there was a 40 percent drop in the number of patients who caught the flu at the hospital, in addition to a 20 percent drop in people coming into the hospital with the flu. White calls this a ‘positive externality’ benefit, as it benefits not only the person getting the vaccine, but also reduces the risk of spreading the disease to others. It must be noted this may not be a perfect generalized finding for non-medical employers, but it does suggest that any employer, regardless of size and industry, may greatly impact their own community with such a mandate. This is especially true if many customers visit popular businesses throughout the community – such as restaurants and grocery stores.

    We also know that because COVID has become more politicized than the flu, mandating COVID shots may elicit a stronger response from employees than a simple flu mandate.

  1. Provide Exemptions, But Stay Vigilant About Asking Employees

    Brandyn Churchill, a Vanderbilt PhD candidate, released a study that found an 11 percent increase in the number of Washington D.C. school girls receiving the HPV vaccine by allowing parents to make the decision once a year, rather than only asking one time. The study suggests that employers, who may be concerned with employee backlash, can provide ‘generous exemptions’ to their mandates – such as for medical reasons or religious objections – but still increase vaccination rates if they repeatedly approach their employees about getting vaccinated. According to Churchill, how opt-outs are designed can actually lead more employees to getting vaccinated. From his study, it is unknown whether the uptick resulted from the HPV vaccine becoming more normalized during a period of time and therefore more accepted by parents, or because parents were asked more frequently to vaccinate their daughters. Churchill believes both reasons helped push the vaccination rate upwards. The takeaway from this study is that vaccine-hesitant people should be given plenty of opportunities and have options that are based on credible and relevant information. Over time, the vaccination rates will rise.

Final Thoughts…

It is true that in the new world in which we live, COVID is a wild-card on how employees will accept a workplace vaccination mandate. Will our ‘liberties’ be lost, or will we finally gain our freedom from this pandemic? Because the information on COVID-19 is so imperfect and ever-evolving, the delicate balance of providing caveats and caution must be used by employers to ensure that trust is built and maintained for a more informed workforce. The full approval by the FDA for the Pfizer vaccine is a good step toward increasing the vaccination rate. Hopefully, when thorough and appropriate analysis has been completed on the other two vaccines, additional approvals will be forthcoming.

From this, we can all benefit.

NOTE: For additional background on this topic, please see my August 4 blog, Can Employers Mandate COVID Shots?

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It’s Now Time: Medicare Must Negotiate Drug Prices

Free-markets are a necessity in our country, just look at the myriad of consumer products that we consider before we make our informed purchases. To work properly, free-markets must be allowed to function efficiently and transparently. Unfortunately, the pharmaceutical industry is not operating in a true, free-market system.

When drug prices are arbitrarily increased at the whim of pharmaceutical manufacturers without any justification, we have a problem – a big problem. On top of this, we have middle-men – pharmacy benefit managers – who do a great job of making the price component of drugs more opaque than desired. By design, opaqueness veils inappropriate shenanigans that undermines an efficient free-market process. This is the status-quo in the drug industry.

A 2021 RAND Corp. study found that drug prices, on average, are 2.56 times higher in the U.S. compared to the same drugs paid by 32 other nations in the Organisation for Economic Co-Operation and Development

This past January, drugmakers have raised prices on over 800 drugs by an average of 4.5 percent, according to GoodRx counting. Since July 1, drug companies have driven up prices by an average of 3.5 percent on at least another 65 drugs. According to testimony by America’s Health Insurance Plans (AHIP), more than a quarter of Americans said they could not afford purchasing medicine in the past year. Additionally, research findings suggest that 55 percent of Americans grew more worried during the pandemic about drug affordability.

Americans consume a lot of prescription medicine. According to the Kaiser Family Foundation Tracking Poll in May of 2021, over half (53 percent) of American adults reported taking at least one prescription drug, while one in four say they currently take at least four prescriptions. 

No Massive Buyer to Leverage Down Drug Costs

Despite the high consumption of prescription drugs, there is no single domineering purchaser that can hammer down prices for the masses. A typical efficient free-market approach would allow for reasonable drug pricing, but for many various reasons, we don’t have this luxury in the pharmaceutical industry. In pricing drugs, the pharmaceutical companies are allowed to play chess while all buyers, playing checkers, are divided into smaller players without having impactful purchasing power. Buyers, therefore, cannot succeed at winning large price concessions. 

One big reason begins at the lobbyist level, where Big Pharma exercises their financial muscles to influence policymakers at both the state and federal levels. Regardless of political ideology, many elected officials publicly scorn high drug prices, but amazingly, they are curiously reluctant to collectively do anything of great consequence to control this ongoing problem. Election cycles enable cash-heavy drug lobbyists to finance (and influence) cash-hungry candidates to win elections.

Medicare is Not Currently Allowed to Negotiate Drug Prices

In 2019, Medicare had approximately 61 million beneficiaries, accounting for 21 percent of the total U.S. national healthcare expenditures, making it a logical force to negotiate drug prices. For years, discussions centered on Medicare negotiating prescription drug prices directly with pharmaceutical manufacturers. 

The Medicare Modernization Act of 2003 (P.L. 108-173) created the Medicare Part D prescription drug program that is administered through private insurance plans. Under this Act, Medicare is prohibited from negotiating drug prices with manufacturers, however, the contracted private insurers that market Part D are allowed to conduct such negotiations. On the surface, this may appear to be beneficial, but allowing multiple private insurers to separately negotiate drug prices merely spreads the bargaining power of the Medicare programs across numerous plans. Consequently, the federal government pays more for Medicare drugs than it does for drugs purchased through other federal programs, namely the Department of Veterans Affairs (VA) and Department of Defense health systems.

In 2007, while interviewed for ‘60 Minutes’ to discuss prohibiting Medicare from negotiating directly with drug companies, then U.S. House Representative Walter Jones (R-N.C.) flatly stated: “The pharmaceutical lobbyists wrote the bill.” The lobbyists WROTE the bill?

The bottom line is that drug companies are allowed to advertise their drugs directly to consumers (DTC), yet Medicare is not allowed to directly negotiate with the drug companies. The U.S. Government Accountability Office (GAO) released a report in May that finds Medicare likely spends more money because of DTC advertisements. 

Allowing Medicare to Negotiate Drug Prices

A Democrat-sponsored bill in the U.S. House of Representatives, HR 3, empowers the Secretary of the Department of Health and Human Services to directly negotiate prices for certain drugs with manufacturers. In 2019, the Congressional Budget Office estimated that HR 3 would save around $450 billion over 10 years.  

Among other regulations, HR 3 states the following:

“The negotiated maximum price may not exceed (1) 120% of the average price in Australia, Canada, France, Germany, Japan, and the United Kingdom; or (2) if such information is not available, 85% of the U.S. average manufacturer price. Drug manufacturers that fail to comply with the bill’s negotiation requirements are subject to civil and tax penalties.”

HR 3 and the drug cost legislation would also give employer plans and privately insureds access to government-negotiated prices, in addition to those on Medicare. The June 2021 Kaiser Family Foundation polling shows that this approach to negotiate down drug prices has bipartisan support from more than 80 percent of the public. 

In addition to this bill, the Biden Administration issued an executive order on July 9 that would fight high drug costs by importing prescription drugs from other countries and curbing the high cost of medications. This order, however, does not include any mention of allowing Medicare to directly negotiate with drug companies. Most likely, this will require legislation coming from HR 3 or something similar.

Pushback by Pharmaceutical Companies

The ongoing argument made by pharmaceutical companies is that government negotiating powers would stifle innovation of new drugs, eroding access to new treatments. But here’s something to consider. A House Oversight and Reform Committee report was released in early July that reveals PHRMA is not being transparent with the public. It found that, from 2016 to 2020, 14 leading drug companies spent $577 billion on stock buybacks and dividends, which was $56 billion more than they spent on research and development (R&D) during that same time period. In short, despite their claims, pharmaceutical companies are not spending significant portions of their profits to develop new drugs and treatments. Instead, this money is being used to game the system by finding approaches to suppress competition and concocting ways to make more money. 

PHRMAs opposition to Medicare-negotiated drug prices really means they believe that government involvement would indeed drive down prices. 

Bottom Line

If we can’t have a true, free-market approach in the drug industry, then it is high time to pass bi-partisan legislation allowing Medicare to negotiate fair prices with drug companies. There are numerous other ideas that can be tagged to this approach, but this is a great first-step to having a sustainable, long-term solution to rising drug costs. It’s now time for a government checkmate on a long and contentious drug pricing problem.

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The Plight of Rural Hospitals (Part 1)

Even before the Covid-19 pandemic hit Iowa and the U.S., rural hospitals were confronted with their own pandemic of sorts – a financial crunch that could determine business survival. As we know, all rural communities rely on having viable access to a broad spectrum of essential health care services. Iowa is no exception.

Critical Access Hospitals (CAHs)

For decades, rural hospitals in the U.S. have experienced poor financials due to a number of reasons. One large reason is the gradual exodus of people leaving rural communities for urban areas, primarily for seeking more promising career opportunities. Over time, this migration resulted in an older, lower-income population remaining in rural communities, heavily relying on Medicare and Medicaid for their health coverage. On top of this, rising patient deductibles have contributed to the overall rise in bad hospital debt.

Unfortunately for rural providers, specifically hospitals, government reimbursement levels are often below the cost of providing these services. To help offset this revenue shortage, private payments through commercial insurance carriers and self-insured employers, largely due to cost-shifting, are considerably higher than government reimbursements.

To rescue rural hospitals from the ‘death spiral’ during the 1980s and early 1990s, Congress created the Critical Access Hospital (CAH) designation (Balanced Budget of 1997 – Public Law 105-33). The CAH designation was designed to reduce the financial vulnerability of rural hospitals and improve access to healthcare, thereby keeping essential services in our rural communities. CAHs receive certain benefits, such as cost-based reimbursement for Medicare services.

Over the years, additional legislation has been amended to the CAH designation and related program requirements. As of July 19, 2019, there were 1,350 CAHs located in the U.S. According to the American Hospital Association, there are 5,198 community hospitals. Iowa has 119 community hospitals, with 82 being CAHs.  A July 2020 map shows the locations of each Iowa CAH.

In 2019, the Iowa Hospital Association (IHA) developed a proposal to reform rural health care to help address the growing financial challenges of rural hospitals using a three-pronged approach. The outcome of this initiative is unknown at present.

Arrival of the Covid-19 Pandemic

Just before the pandemic arrived in mid-March, the Cedar Rapids Gazette published an article reporting that rural Iowa hospitals are at risk of closing. The article cites a 2019 national report by Navigant, a Chicago-based consulting company, that found nearly 18 percent of Iowa’s rural facilities (about 17 hospitals) “are at high risk of closing unless their financial situations improve.” Navigant also reported that 21 percent of all U.S. hospitals (430 total) are facing a similar fate.

When the pandemic tsunami arrived, the financial hit to hospitals, specifically small, rural hospitals, became even more acute. The primary reason – due mostly to the suspension of elective procedures in clinics and hospitals, including ambulatory surgeries, inpatient surgeries and inpatient discharges.

In June, the IHA reported that audit firm, CliftonLarsonAllen, through financial modeling, projected a potential ten-figure loss for hospitals statewide due to the pandemic, jeopardizing several rural hospitals. The modeling showed that 89 Iowa hospitals may lose more than $1.4 billion by the end of September, and possibly a worst-case scenario showing more than a $2 billion loss by the end of 2020.

A new analysis by Epic Health Research Network and the Kaiser Family Foundation found that, if recent pandemic trends continue through the 2020 calendar year, total hospital admissions will be down by at least 10.5 percent of predicted levels for the entire year. If this prognostication comes close to reality, loss of revenue will adversely impact many rural hospitals that were merely holding on during the pre-pandemic era. According to an October 16 article from Becker’s Hospital CFO Report, at least 47 U.S. hospitals have closed or entered into bankruptcy in 2020.

Kirk Norris, the CEO of IHA, commented that Iowa hospitals have received millions in federal support from stimulus bills, CARES act and Paycheck Protection Program, but not enough to cover predicted losses.

According to IowaWatch, 77 Iowa hospitals collected $928.3 million in accelerated and advance Medicare payments as a government stimulus to cover expenses in the Covid-19 pandemic’s early days last spring. These funds, however, allowed health care providers to receive, in advance, three months of anticipated Medicare billings that must be paid back to Medicare and Medicaid Services. This program was separate from the CARES Act and other Covid-19-related emergency plans – such as a 20 percent add-on payment by Medicare for inpatient hospital Covid-19 patients. All told, 77 Iowa hospitals applied and received accelerated Medicare payments, including 44 critical access hospitals, who could seek ahead-of-time up to 125% of their anticipated Medicare payments for a six-month period. CMS suspended the accelerated program on April 24 to re-evaluate the other revenue sources being made available to healthcare providers.

Nationally, stimulus efforts included $175 billion in two initial rounds of CARES Act funding, with another $10 billion for rural hospitals and other distributions based on high Covid-19 admissions, etc.

Public Health Plan Option Under Biden

Another storm that could potentially hit rural Iowa hospitals will first depend on the upcoming election results. Joe Biden and the Democrats are proposing to create a public option to compete with private insurance companies. This public option would allow individuals to purchase a public option plan from marketplaces in addition to allowing employees to elect a public option plan through their employers. This would mean the payment mix received by Iowa hospitals would further erode because more Iowans would now have health coverage that reimburses hospital care at a lower rate than private insurance.

The key question, however, is just how much different will the public option reimburse healthcare providers when compared to the current Medicare arrangement? If Biden is elected and the Democrats control Congress, this will be a critical piece to watch when the public option is debated.

The process of culling out the eventual mayhem of rural hospitals under a public option approach began last year. In August 2019, Navigant released an analysis finding that Iowa’s rural hospitals could lose more than $476 million dollars under a public option, putting dozens of rural hospitals at risk for closure. Using three different scenarios, the study suggests that between 25 and 52 of Iowa’s rural hospitals would be at high financial risk for closure due to a loss of revenue.

It must be noted, however, the Navigant study was funded by an industry coalition, Partnership For America’s Health Care Future, an alliance consisting of pharmaceutical, insurance and hospital lobbyists whose desire is to fight off the expansion of Medicare and any government-driven payment system. According to IHA CEO Norris, Medicare is a low payer in Iowa relative to other parts of the country. Again, the big unknown is the reimbursement level a public option would have if passed by Congress and signed by the President. The devil will be in the details.

Transparency in Hospital Financial Reporting

In the U.S., hospitals account for the largest expenditure of healthcare dollars, comprising about 33 cents of each dollar spent. It is imperative, therefore, that to effectively address rising healthcare costs and assure financial viability of all types of hospitals serving Iowa communities, state policymakers and the public will need appropriate financial information necessary to assess and understand the financial health of hospitals.

Each state has disparate reporting requirements for hospitals to report audited financial information – with some states being more comprehensive than others. In addition to the IHA providing some hospital data on their website, Iowa does ‘require’ hospitals and healthcare facilities to report a balance sheet detailing assets, liabilities, net worth, income and expenses and “other reports of the costs incurred in rendering services as the department (of Public Health) may prescribe.” This requirement comes from Iowa Code, Section 135.75.

But is this information adequate?

According to my contact at the Iowa Department of Public Health (IDPH), Iowa hospitals submit their yearly balance sheets and capital expenditures to the IDPH, but not every hospital participates, and the IDPH does “not have the time to track down the ones that do not (report).” This statute does not have a template for hospitals to use when reporting, nor is the information collated when received by IDPH. Hospital financial information is not shared outside IDPH unless it is requested. On an as-needed basis, the financial data is reviewed for “future projects that may trigger a Certificate of Need (process)” In short, “We do not have the staff to do much more with the information and have not had for many years.”

If the fate of each rural hospital is truly critical to our communities and state – and it is – how can Iowa and other states successfully address the needs of each hospital and the communities being served?

Next week’s post will discuss an interesting initiative that a national organization has designed to help state officials assess the financial viability and transparent practices of hospitals.

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