Category: Medicare

Drug Insurers Reap $9 billion Windfall from Overestimates

On January 7, 2019

In Corporate Reform, Drug Companies, Drug Pricing, Health insurance, Medicare, Uncategorized

Major drug insurers like United Health Group, CVS Health, and Humana make estimate bids to Medicare for reimbursement for the cost of Part D prescription drug benefits. From 2006 until 2015 the Wall Street Journal examined industry records and found that insurers reaped an additional $9 billion from overestimates of drug insurance costs.

Sources: Centers for Medicare and Medicaid Services, The Wall Street Journal – 1/4/19

From 2010 to 2017 overall Part D spending rose faster than all other Medicare components by 49 %. The bids from insurers include their profit margins and administrative costs. Medicare reimburses the firms monthly. When the year ends, Medicare audits the estimate totals versus the actuals and requests the overpayments be returned. However, the way the payment terms are setup the insurers are not required by pay the full amount of the overestimate. In 2015 insurers overestimated their Part D costs by $2.2 billion and were allowed to keep $1.06 billion.

The size and continuous overestimate pattern seems unusual. The overestimates are extraordinary to the tune of a million to one according to Memorial Sloan Kettering analysts who completed record examinations for The Wall Street Journal. Peter Bach, director of Sloan Kettering’s Center for Health Policy and Outcomes, noted, “Insurance companies use heaps of data to predict future spending. If truly unpredictable events were blowing up their statistical models, the proportion of overestimates to underestimates would be closer to 50/50.” Dr. Bach concluded, “If they start missing in one particular direction over and over they are doing it on purpose.”

The chronic overestimates are particularly a problem in the direct subsidy part of the program as the following chart shows versus the reinsurance program where estimates are far more accurate.

Sources: Medicare, The Wall Street Journal – 1/4/19

Congress designed the program in 2003 where the federal government and seniors would pay for drug insurance while the program would be operated by private companies. Legislators were concerned that insurers would not want to participate so they allowed for companies to hold back overestimated reimbursement funds. The private companies bear all the risk in the direct subsidy program, yet in the reinsurance program for high cost drugs Medicare bears the risk on underestimates causing losses.

Insurers can gain major benefits by overestimating on the routine drug costs they cover. Companies can keep any overestimated funds up to 5 % of their guess. In some cases they can keep more than 5 % based on a Medicare formula. Medicare steps in if the insurers experience a greater than 5 % loss in their estimate.

Next Steps:

From 2006 to 2015 Medicare spent $652 billion on the Part D program, with its cost increasing by 49 % over that period. Costs must be controlled by private insurers to keep premiums low for seniors and cost overruns limited for the federal government. There is too much reward built into the present direct subsidy program. Why not do as many corporations do for contracts that estimate costs and then must be reconciled at the end of the year? Return all the funds that are overestimated. Chronic overestimating companies would be hit with a penalty for overestimating reimbursement based on the opportunity cost of funds over reimbursed monthly payments. Medicare should reward the accurate estimating companies with positive ratings on their prices, and make clear who the violators are. Making the programs more competitive would bring down costs and require that companies be more accurate in their drug reimbursement estimates.

We see the pricing of drugs via insurers and pharmacy benefit companies as being too opaque to clearly design a fair pricing system. Congress needs to pass a ‘simple pricing’ sunshine bill to make drug pricing clear and accurate for all consumers and the government. Medicare should be able to use its leverage covering millions of seniors to negotiate a reduction in drug and insurance costs. California announced today a policy just signed by the newly installed governor, Gavin Newson, authorizing the California Medicaid administration to negotiate drug prices for all 13 million patients enrolled as a block and invites private employers to join the block. Drug companies and insurers need to shift their focus to make pricing programs more equitable for patients and payers or the face increased calls for price regulation.

Administration Drug Price Reduction Plan – Good Start

By Patrick Hill

On October 30, 2018

In Drug Companies, Drug Pricing, Health, Health insurance, Low Income Finance, Medicaid, Medicare, Social Responsibility

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: blog.medicareright.org

The GOP Administration has announced a new drug price reduction program that will use a basket of prices that 16 nations pay for certain drugs in the Medicare Part B Plan (hospital and health services plans) to determine the price the federal government will pay. Biotech drugs which are extremely expensive, yet have high efficacy are to be targeted. The price reductions will be phased in over a 5 year period.

The difference between what the U.S. pays for many often prescribed medicines is huge as the following chart shows:

Sources: Bloomberg, The Washington Post – 10/26/18

How did U.S. prices get so much higher than other nations? Simply, the other countries negotiated tougher than we did. The pharma industry lobby in Washington spends tens of millions of dollars every year to persuade lawmakers and the White House to give drug makers complete pricing freedom. In effect, Americans are paying for the low prices other countries receive where the drugs are being sold with low margins or below margin. Pharma companies do not have a problem with this inequitable situation as long as they make money.

For example, in the U.S. Genentech, a division of Roche, prices a single dose macular degeneration drug Lucentis at $1000 while the same exact bio medicine – Avastin costs 10 times less. The firm says that the extra testing for the eye version requires a higher price. This premise disputed by scientists who worked in the Lucentis division and left in part due to the greed of management.

The administration is also planning on developing ways to give the private sector more leverage in negotiating prices with drug makers. Plus, HHS wants to create new policies that would reduce incentives for doctors to prescribe expensive drugs.

Next Steps:

We applaud the GOP Administration for taking on the drug companies and their money making over all else approach to drug pricing. The pharma companies most affected are stung by the plan and charged it with ‘socializing medicine’. We don’t see their gouging prices to Americans as fair and equitable, so controlling prices to reasonable margins is common sense not a value shift of the health industry.

A good place to start cutting costs is to end prescription drug TV advertising like over 100 countries worldwide ban – that would allow the firms to cut billions off prices each year. Next, they need to end stock buybacks which take shares off the market to increase share price.

Sources: Leerink Group, Market Watch – 10/30/18

These are the top 6 of all pharma firms wasting money on goosing their stock price with stock buybacks to increase stock compensation to executives while patients get hit with soaring drug prices. Nearly $100 billion dollars spent in the last year would go a long way to bringing down the price of drugs. When the industry cries it does not have funding for research it needs to start here and drug advertising if they tried harder to find the money they could. The executives just don’ want to take a pay cut and run their firm with reasonable margins, yet are fine with driving patients into bankruptcy or adding thousands of dollars of debt to patient accounts.

The GOP plan does not go far enough, all medicines purchased by Medicare and HHS should be negotiated. The negotiating authorization for HHS has been in numerous bills in Congress repeatedly defeated in by the drug lobby. Congress needs to pass the bill, and get moving with a fair drug pricing model, with complete transparency from insurers and pharmacies to patients. The federal government can learn from the assertive approaches many states are taking by looking a efficacy based pricing to bring prices within reason as well.

It is time the pharma industry took a hard look at its financial engineering and redesign a more equitable pricing and reasonable profit model for patients, hospitals and suppliers.

Health Providers Not Paying Care Workers Enough, Administrators Too Much

By Patrick Hill

On August 27, 2018

In Drug Companies, Drug Pricing, Health, Health insurance, Medicaid, Medicare, Uncategorized

Photo: aarp.org

There are 3.5 million direct health care workers in the workforce today. The Bureau of Labor Statistics estimates that another 1 million direct health care workers will be hired by 2024. Direct healthcare workers include mostly all the assistant positions except a registered nurse: personal care workers, home health aides, and nursing assistants.

Sources: Bureau of Labor Statistics, Vox – 7/3/2017

Direct care workers often receive a wage below $15.00@hr. About 90 % of personal assistants receive $30,000 or less per year in income. One reason wages are so low is that 70 % of all long term care costs are paid by Medicare and Medicaid. These agencies reimburse care providers on a fixed cost basis. There is another reason. A high number of administrators are being hired rather than physicians, nurses or direct care workers.

Sources: Bureau of Labor Statistics, National Center for Health Statistics – 2010

When viewed from the perspective of healthcare spending per capita, administrator hiring was about 650 % more than overall per capita services. Healthcare is a lucrative sector for business, so they focus on hiring more administrators and managers rather than nurses and direct care workers. Healthcare providers can take the wages they pay too many administrators and give caregivers the wages they need to take are of themselves and their families. The byzantine way the healthcare industry is structured with insurance companies between the providers and workers when we only need one government agency to manage insurance is a good example. Most providers have who departments devoted to interacting with insurers and Medicare staff, which expensive to staff with specialized expertise due the idiosyncrasies of insurance policies.

Next Steps:

We clearly need to use computer systems and software to reduce the number of administrators and overhead in the system to the norm of per capita costs. End the use of private insurers except as contractors to a single government agency, use a standard reimbursement procedure with no middle layers of pharmacy benefit managers and end go to middle managers for insurance companies.

In previous posts we have recommended:

“The core need is to provide low cost effective health insurance for all people (like all developed countries do), so when illness strikes patients receive high quality care and become healthy again. Why do we need multiple insurance payers – private and the federal government? If we were running a corporation we would not have two accounts payable departments? We need to transition to individual health accounts that stay with the patient regardless of employment status beginning at birth. Here are ideas on how this transition could work.

Complete Analysis of ACA – We need to learn from the public exchanges that work – California’s public exchange has been quite successful covering new patients, and keeping costs reasonable for low income patients. Yet, we also need to look at why those exchanges like Oregon are not working well and expensive. Let’s summarize the analysis and publish the results so we can build a consensus around the solution, extending what works and recommendations for changes.

Priority One Cover the 9 Million Uninsured – those not covered by insurance need insurance now, we need to figure out how to cover 100 % of our citizens immediately. Offering a public option on the exchanges for basic health services and drug coverage would be a good start.

End State by State Coverage – state pools not large enough to make insurance work for all. With 360 million people in the US we can make our health insurance pool work to reduce costs. Plus, legislation needs to be passed to reverse the Supreme Court decision to allow states to opt out of subsidies. For example, Texas opted out on $10 billion subsidies leaving many low income families without insurance or very high premiums they cannot afford. Interestingly, a few months ago I talked with a small business office manager in Texas, she complained that ACA was not working (her firm did not offer health insurance), for her hourly staff. Obviously, one reason is that Texas opted out of the subsidy program. Using a national pool would help to spread out the disparities between regions in terms of the rising cost of insurance versus stagnant wage increases.

Create Individual Health Accounts – funding can be setup via a payroll tax, accrued to a personal national health insurance account when working (if they don’t have employer options – to be transitioned later). For individuals or families below the regional poverty level they would pay no health payroll tax. For those individuals who are not contributing to their health account, the federal government would fund a basic health and drug account by progressive taxes on wealthy individuals over $250k and the increase taxes on corporate profits. Corporations can offset the increased tax, by offering lower cost insurance, medigap plans or encouraging their employees to move to the basic national health insurance program.

End COBRA – by setting up health accounts regardless of being employed, there is no need for COBRA plans. Otherwise, for those unemployed to continue coverage often they have to pay soaring COBRA premiums up to 400 % of their employed premium rate. For this author, two major illnesses occurred when I was unemployed, often with the stress of being unemployed is the time we need health insurance. COBRA is another example where health insurers are charging outrageous rates to those who need the insurance badly but can least afford it. For the unemployed they could rely on basic health coverage in their individual health account.

Transition Employer Plans – convert employer plans over 4 years into a national personal health care account. Rollovers can be accomplished in a similar way to 401K to IRA rollovers (without the penalty for early withdrawal). Ending employer programs will cut a layer of administration in benefits departments that more rightly belongs to the individual regardless of employment status.

End Penalties For No Insurance – we want to to tax behavior we don’t want and support or subsidize behavior we do want. All Americans who have Social Security numbers should be able to enroll in a personal health insurance account, if they do not have a employer sponsored program. Parents can apply for a SSN for their child to be covered. A public insurance option should be offered to all those families not in employer sponsored programs. The public option run by Medicare is a basic health insurance program run similar to basic Medicare for seniors with medigap plans to cover the other 80 % of coverage needed.

Use the Medicare Drug Formulary – we don’t need multiple formularies and tiers of drug coverage. Medicare already provides one formulary which should be used as the industry formulary. We need to empower Medicare to negotiate all drug prices and health procedures with providers with provision for regional differences on procedures. A critical medication list can be created by Medicare for life threatening (Epipens) or serious chronic conditions (diabetes) capped at 5% profit for drug manufacturers.

End Stock Buybacks by Insurers – insurers need to end stock manipulation and the waste of stock buybacks. Companies like Aetna have spent billions of dollars on stock buybacks which would go a long way to reducing premiums and costs to patients.

Pricing needs to be transparent – similar to a mortgage disclosure statement. The explanation of benefits and drug claim form needs to be clear about the provider or drug price, any discounts and rebates, the price the insurer is paying, the price the provider is actually requiring, the price the pharmacy is paying and the exact out of pocket cost to the patient, with patient accruals in out of pocket and co pays toward insurance coverage.

Do it Without Waiting – let’s get progressive investors to back drug manufacturers that adhere to drug cost reasonable, critical med list, transparent pricing innovative insurance, publicize get more investors on board. Work with Wall Street to setup an ETF stock to focus on companies adhering to the progressive national health programs demonstrating good returns.

Awareness of What Works – A media campaign with surrogates, leadership in Congress, interest groups like the AMA, and the insurers to bring the American people along on the solution journey and to put pressure on Congress to pass the necessary legislation.

Health insurers would focus on medigap plans, taking risk out of innovative drugs to help speed them to market, vision and integrative medicine, personalized medicine, telemedicine – taking their layer out with reduce costs dramatically. They can be contractors to Medicare for transition to health accts. Or insurers can be contract administrators to Medicare, keeping costs low and utilizing their expertise.

Lets establish a lifetime health insurance program that provides good quality care, and low cost medications for all Americans.”

Seniors Feeling Financial Crunch – Increased Bankruptcies and Pension Overpayment Collections

By Patrick Hill

On August 6, 2018

In Consumer Squeeze, Medicare, Public Interest, Retirement, Social Responsibility, Social Security, Wages

Image: debt.org

Researchers tracking the financial blight of seniors report that seniors over age 65 are 3 times more likely to file for bankruptcy. Seniors are caught by reduced pensions, co pays on their children’s student loans, spiraling medical costs and lost wealth from the Great Recession.

Sources: Consumer Bankruptcy Project, The New York Times – 8/3/18

The post – Baby Boomer generation is feeling squeezed too as their bankruptcy filings are up over 66 % for the 55 to 64 year old group. Many Baby Boomers just beginning their retirement or in the their last years of savings were hit hard by the Great Recession, wiping out 401k investments in stocks and losing home equity wealth too. In all households lost $14 trillion in wealth, most of the income and asset recovery of the past 10 years has gone to the top 10 % in income.

The Consumer Bankruptcy Project is an ongoing effort led by Professor Thorne, University of Idaho; Professor Lawless; Pamela Foohey, a law professor at Indiana University; and Katherine Porter, a law professor at the University of California, Irvine. Their universities fund the project as they review court documents and send out questionnaires to retirees.

Social Security has not been able to fill the gap. Nor was Social Security designed to be the sole source of income for seniors – it was setup to supplement pensions and savings. Over the past 30 years corporations have shifted from defined benefit (pension direct payment) plans to defined contribution plans like 401k where the worker makes the majority for the contributions and the employer is off the hook to make direct fixed payments. Yet, today for 33 % of retirees receiving Social Security it provides 90 % of their income. Medicare and drug costs cut into their Social Security checks:

Sources: The Kaiser Family Foundation, The New York Times – 8/3/18

Health care spending for the average retiree is increasing every year beyond Social Security income and drugs become more expensive, some with standard prices of $70 per dose gauged up in price to $1700 per dose.

Adding insult to injury firms like AT & T are contracting with collection agencies to claw back overpayments to pensioners. The firms make up the calculation tables and send out the checks now they blame the pensioner, who has already spent the money. It is important if the retiree receives a statement of planned disbursements to send back incorrect checks, however in most cases the checks were sent over some years until the error was found and the retiree had no idea that there was an overpayment.

Next Steps:

The perfect financial storm for retirees comes down to the basic fact that corporations shifted their responsibility for pensions onto workers helping the financial services industry sell more financial products to an naïve and financial challenged workers. Professional financial managers were replaced by amateur workers doing their best to invest their 401k plans and save for the future. For the bottom 80 % income the last 30 years their wages have been stagnant with increasing educational costs for their children and increasing medical costs for themselves. The federal government has been of little help, not indexing Social Security payments to the actual costs seniors incur for increasing medical and health services costs.

Pension Claw backs – this makes no moral sense, many retirees have spent 20 or 30 years of their lives for the business, the business made the mistake they need to take care of it. In AT & T’s case they spend billions on stock buy backs to make their executives and shareholders rich, they could take a fraction those funds and take care of their seniors and fund their pension liabilities appropriately.
Retirement Income – in previous posts we have recommended that instead of an incredible mess of 401k accounts, financial houses and amateur investment management by workers, a guaranteed retirement program be implemented starting at the time a person begins work and receives his Social Security card. Worker savings toward retirement would be transferred into this one account for a lifetime, with Social Security contributions by the federal government, and savings by the worker. A portion would be guaranteed by the federal government and professionally managed as a defined benefit plan. Workers could opt for professional management of all their funds as well.
Medical Costs – as we have recommended health insurance should be run by one entity the present Medicare operation for all Americans from the time of birth. Medicare already has a formulary for drugs, and should be authorized to negotiate drug costs for all patients. Standard compensation for procedures and quality of care implemented for Obamacare should be extended. Drug companies will no longer be able to buy back their stock, but instead will be required to spend those funds to bring drug costs down, or reduce costs in other ways. Direct prescription drug advertising should be outlawed to save the over $1 billion spent a year in wasted advertising and spend the funds on price reductions.

States Move Ahead of Fed To Reduce New Drug Prices

By Patrick Hill

On July 5, 2018

In Drug Pricing, Health, Health insurance, Medicaid, Medicare, Solution

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Photo: healtheconomics.com

Several states including New York, Vermont, Massachusetts and California have begun initiatives to take on drug companies for the their exorbitant prices of new drugs. New York is taking a price versus effectiveness approach with a new drug called Orkambi for cystic fibrosis. The New York state Medicaid department is demanding a lower price as it is not clear the drug helps patients with the disease better than existing treatments. Vertex, the manufacturer of Orkambi made $1.3 billion in sales from the drug which is a high sales level for a drug that is marketed to only 26,000 eligible patients. Vertex prices Orkambi at $272,000 for one year of doses. The drug costs so much that some insurers pass on the high costs to patients in some cases $3000 per month.

Dr. Steven D. Pearson, President of the Institute for Clinical and Economic Review is working with New York officials on a state board case against Vertex to bring the price down. The state board found that Orkambi did not meet the effectiveness claims by the manufacturer so New York should receive a 77 % discount. Dr. Pearson said his evaluation of the costs indicated that the drug could be discounted by 77 %.

Major states like New York and California are taking on the drug companies with renewed interest as their Medicaid costs soar in part from new drugs where companies like Vertex price the medication at extreme multiples of a fair cost. While the GOP Administration has promoted some ideas to bring the cost of new drugs down, nothing to date has been done.

The U.S. is alone of all major developed countries in not directly regulating drug prices. In Europe health services officials do not accept high prices for drug with marginal value and negotiate using their purchasing power to bring the price down. Congress has consistently bowed to the drug lobby by not speeding generic drugs to the market and not including in any drug bill the power for Health and Human Services to directly negotiate the price of all the medications it covers for U.S. patients.

Source: Bloomberg – 5/11/18

In 2014, U.S. patients paid the most of ten developed countries at $1,100 per year out of pocket and for many patients with difficult treatment diseases the costs per year are significantly more.

Next Steps:

Time is up for the drug companies and insurers gouging patients with soaring prices while they make hefty profits and executives pocket huge compensation packages. Drug companies need to stop buying back their stock, wasting the money that could be used to bring the price of their drugs by billions of dollars. Congress needs to give HHS the power to negotiate prices and effectiveness limits on drugs of dubious value the way most developed countries in the world do today. Over the past decade pharmaceutical companies have found that their exorbitant prices have not stuck in Europe or other developed country market, so they jack up the price of the medication in the U.S. where there is little regulatory constraint.

Administration Drug Price Reduction Plan Falls Short

By Patrick Hill

On May 14, 2018

In Drug Pricing, Health insurance, Medicare

Photo: NASHP – National Academy for State Health Policy

The Administration last week announced a series of proposals to reduce the price of medicines for seniors and the general patient population. The policy initiatives include: review ways to speed generic drugs to market, placing trade restraints on countries until they pay their fair share of a drug’s costs, lowering out of pocket expenses for patients, require drug companies on TV ads to list the price of the drug advertised, updates to a Medicare drug pricing monitoring tool, and not until 2020 more transparency on drug list prices to consumers, drug rebates from manufacturers will be passed through to consumers, considering a requirement that middlemen like pharmacy benefit managers act in a fiduciary role for clients (consumers), and a report on how to use the Medicare Part D (drug) plan to negotiate for services Medicare Part B (services).

When investors and drug and biotech companies saw how vague the plan was, and the fact it did not give Medicare the right to negotiate prices stock prices went up after the 11 am announcement:

Sources: Money.net, Axios – 5/11/18

Today, biotech stocks were up another 1.0 % and health insurers Aetna and United Healthcare saw stock price moves up almost 2.0 %.

POTUS promised repeatedly during his 2016 campaign that drug companies were ‘getting away with murder’ on pricing. He even promised to Rep. Elijah E. Cummings (D- Maryland) in March of 2017 that he would seek Medicare authorization for drug price negotiations. He did not provide for direct negotiation by Medicare in this set of proposals, basically selling out the American people to the drug and biotech industries.

Next Steps:

“Until we get closer to policy solutions that address the ability of drug manufacturers to set whatever price they want and increase prices year after year, we may only be scratching the surface of this problem.” — Juliette Cubanski, a health-care expert with the Kaiser Family Foundation.

Ms. Cubanski perfectly outlines the problem; drug company pricing power is out of control, shows not restraint and little regard for the common good. Drug companies are making money off of people that are sick or dying. They have a social responsibility for the common good of all people to ensure their drugs are safe and offered at the lowest possible price. We have proposed previously and continue to believe that just showing list prices for advertised drugs is not enough – prescription drug advertising on TV should be banned as it is in all countries of the world except New Zealand. Banning advertising would give the drug companies at least $ 1 Billion per year they could put into research and development or to cut the cost of drugs. The pharma industry is one of the worst offenders in manipulating stock prices in a misleading way, and juicing executive compensation with stock buy backs. Companies like Amgen and Abbvie plan to buy back shares totaling $20 billion in 2018 which could be better used to lower prices or increase productivity, if the whole industry is considered it is over $50 billion.

Source: Company filings, Axios 5/11/18

Stock buy backs can be banned by an SEC policy change and do not require Congressional approval it should be done now covering all health industry companies not just pharma companies.

We are pleased to see the Administration moving on stock rebate discounts going directly to consumers as we have noted in the past. Yet, these proposals are so vague, are missing timelines and will need to be supported by officials in the Health and Human Services organization whose Director came from Eli Lilly. What we think will really happen is these proposals will be used as PR pieces to the voters for the mid-term elections while industry lobbyists water down the key provisions in back rooms. Certainly, the drug companies and investors see nothing to be concerned in the POTUS plan – so if it doesn’t hurt their valuation then these policies may be really don’t really have any bite. We want our drug industry to be profitable and thriving but at the same time it needs to take social responsibility for its products. Since the industry can’t seem to focus on a fair profits for its products, our government needs to bring these companies into alignment on the common good for all the people.