49IQVIA Institute for Human Data Science, Medicine Use and Spending in the U.S.: A Review of 2018 and Outlook to 2023 (Parsippany, NJ: IQVIA, 2019), https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/medicine-use-and-spending-in-the-us---a-review-of-2018-outlook-to-2023.pdf?&_=1557542013851;
Micah Hartman et al., “National Health Care Spending in 2016: Spending and Enrollment Growth Slow After Initial Coverage Expansions,” Health Affairs 37, no. 1 (2017), accessed Oct. 15, 2019. doi: 10.1377/hlthaff.2017.1299, https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2017.1299.
50Consider the extreme case of people only buying fire insurance when their homes are actually on fire. If ten people a month need it, then the payments only these ten people will make must be enough to pay for all ten to have their homes rebuilt. In other words, each will pay the cost of rebuilding a house. So they aren’t really insured. To put this in more quantitative terms, imagine an island of 1,000 families on which there are ten home fires a year on average; if each of them pay $2,000 a year, they collect $2 million each year with which to rebuild ten homes for $200,000 each. But if only 800 islander families buy insurance, of which eight experience a fire, and the other 200 don’t buy insurance until their home is on fire and two of them experience a fire, then only 802 families will pay insurance premiums but still ten families will need to have their homes rebuilt at $200,000 each. So now that $2 million cost is spread across only 802 families, which means their premium has to be nearly $2,500/year. Basically, when 20% of the population freeloads, it increases the costs for everyone else by 25%. If half the population doesn’t buy insurance, then it doubles everyone else’s cost. Of course, it might seem more fair to just refuse to allow someone to buy insurance at the last minute while their house is burning and therefore just let them become homeless (if they can’t afford to rebuild their home from their own savings or from a bank loan), but when it comes to health insurance, America doesn’t consider it conscionable to turn someone who is desperate and suffering away from care just because they can’t afford it–ERs will accept anyone.
51Let’s say that the average person will have modest healthcare costs each year but experience a medical emergency that costs $50,000 once every 40 years. (I’m just making these numbers up to illustrate a point.) That means that if everyone saved up $50,000 over 40 years to pay for their own emergency, then some people would not have saved enough because they would be unluckier than average, experiencing an emergency earlier than average or one that costs more than average or maybe even have more than one emergency in that time. So to be safer and have a buffer against bad luck, everyone would need to save up $100,000. But that just means that the very unlucky who have an early, more expensive emergency or three emergencies will not have saved enough. So only the rich will feel that they have enough to cover the cost of even the worst luck, while everyone else will have to save a large portion of their income for self-insurance or else living in a state of anxiety that they might get even unluckier than they have planned for. The result would be that most people would have over-saved for healthcare and robbed themselves of other joys of life. That’s why it’s far more efficient to have everyone share their collective risk in an insurance pool and know that they can contribute to average costs regardless whether they themselves might end up being among the unlucky ones who need an above average amount of help. Of course, this means that those destined to live very healthy lives pay more than they would have if they had just covered their own costs, but who can ever be that sure of their own health?
52Teresa A Coughlin et al., “Uncompensated Care for the Uninsured 2013: A Detailed Examination,” KFF, May 30, 2014, https://www.kff.org/uninsured/report/uncompensated-care-for-the-uninsured-in-2013-a-detailed-examination/.
53A change in the tax code that taxed health insurance provided by employers might decouple health insurance from employment, causing people to shop for their own insurance. While that might appear to create a free market for insurance with more people shopping around, I actually think that the complexity of insurance in America would cause more people to fall victim to loopholes in plans that claim to be comprehensive and cheaper than others and later, when a person falls ill, turn out not to cover treatment. That already happens now, and at least some companies know that their employees will hold them accountable for weak insurance and therefore might shop around for a better plan. But if insurance and employment were decoupled, people might choose to band together into insurance buying groups, which then mimic what companies can do by negotiating for better coverage on behalf of many customers. One way or another, when it comes to a complex marketplace, people usually do better to work together to negotiate collectively rather than try to cut through the complexity on their own.
54“How Much Does Health Insurance Cost Per Month?” Health Markets, accessed Oct. 15, 2019, https://www.healthmarkets.com/content/how-much-does-health-insurance-cost-month
55The Kaiser Family Foundation runs a remarkably comprehensive, thoughtful, and useful website that offers a lot of useful information about how healthcare in America works and features a calculator that lets anyone see what health insurance would likely cost them if they paid for it themselves, including what subsidies they would get given their income level and size of their families.
“Health Insurance Marketplace Calculator,” KFF, updated Oct. 31, 2019, https://www.kff.org/interactive/subsidy-calculator/.
56Emily Gee and Topher Spiro, “Excess Administrative Costs Burden the US Health Care System,” Center for American Progress, April 8, 2019, https://www.americanprogress.org/issues/healthcare/reports/2019/04/08/468302/excess-administrative-costs-burden-u-s-health-care-system/ ; https://www.nytimes.com/2018/07/16/upshot/costs-health-care-us.html.
57Think of it–$500 billion of society’s money is spent on employing millions of administrative workers to send bills, remind patients of bills, explain bills, correct billing errors, and threaten patients who can’t pay with bankruptcy. We need some people to do this, for sure. But if our insurance system were more straightforward and we employed fewer people for this kind of work, then we could spend the same money employing them to do something else for society: teachers, nurses, artists, builders… just about anything besides medical billing paperwork.
58Katie Keith, “Two New Federal Surveys Show Stable Uninsured Rate,” Health Affairs, Sept. 13, 2018, https://www.healthaffairs.org/do/10.1377/hblog20180913.896261/full/.
59IQVIA Institute for Human Data Science, Medicine Use and Spending in the U.S
60IQVIA Institute for Human Data Science, Medicine Use and Spending in the U.S.
61For patients covered by Medicare, there is no out-of-pocket maximum, but most Medicare patients also qualify for programs like Medigap or Medicare Advantage, which cap out-of-pocket costs. For some patients, those caps are still too high.
62Samantha Artiga et al., “The Effects of Premiums and Cost Sharing on Low-Income Populations.”;
Robyn Tamblyn et al., “Adverse Events Associated with Prescription Drug Cost-Sharing Among Poor and Elderly Persons,” JAMA 285, no. 4 (2001): 421-429, accessed Oct. 15, 2019. doi: 10.1001/jama.285.4.421,
https://jamanetwork.com/journals/jama/fullarticle/1108322
63Abhijeet Yadav et al., “Variations in Health Insurance Policies Regarding Biologic Therapy Use In Inflammatory Bowel Disease,” Inflammatory Bowel Diseases 23, no. 6 (2017): 853-857, accessed Oct. 15, 2019. doi: 10.1097/MIB.0000000000001153, https://www.ncbi.nlm.nih.gov/pubmed/28509816.
64Shubha Bhat et al., “Advocating for Patients with Inflammatory Bowel Disease: How to Naviagte the Prior Authorization Process,” Inflammatory Bowel Diseases 25, no. 10 (2019): 1621-1628, accessed Oct. 15, 2019. doi: 10.1093/ibdizz013, https://www.ncbi.nlm.nih.gov/pubmed/30753551/.
65Samantha Artiga et
al., “The Effects of Premiums and Cost Sharing on Low-Income Populations.”;
Robyn Tamblyn et al., “Adverse Events Associated with Prescription Drug Cost-Sharing.”
66Actually, something like this is happening at colleges across America.
James Yang, “Those Hidden College Fees,” Nov. 3, 2016, https://www.nytimes.com/2016/11/06/education/edlife/those-hidden-college-fees.html.
67David Ovalle, “Insurance Adjusters, Appraisers Took Kickbacks for Inflated Mechanic Bills, Hialeah Cops Say,” South Florida Sun Sentinel, Oct. 1, 2010, https://www.sun-sentinel.com/news/fl-xpm-2010-10-01-fl-adjusters-appraisers-charged-20101001-story.html.
68Many drug companies have created programs that provide free drugs to patients who lack insurance. Yet, many patients don’t realize that such programs exist, assume that they won’t be able to afford a drug, and don’t bother getting a prescription filled. Physicians are often too busy to explain the details of copay assistance or free drug programs to each patient. These barriers to access create their intended result: some patients don’t fill their prescriptions.
69Payers want the deterrent effects of copayments partly because they worry that a pharmaceutical company has inappropriately marketed a drug, encouraging physicians to prescribe it to patients who don’t need it. When this does happen, the government should prosecute and punish companies, but it’s inappropriate to cast suspicion on every doctor-patient interaction that results in a prescription for a high-priced drug and then, via cost-sharing, coerce patients into second-guessing their physicians.
70Samantha Artiga et al., “The Effects of Premiums and Cost Sharing on Low-Income Populations.”
71Robyn Tamblyn et al., “Adverse Events Associated with Prescription Drug Cost-Sharing.”
72DHHS, National Health Expenditures 2017 Highlights (CMS ,2017), https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/highlights.pdf;
IQVIA Institute for Human Data Science, Medicine Use and Spending in the U.S.
73“Personal Income in the United States from 1990 to 2018,” Statista, accessed Nov. 1, 2019, https://www.statista.com/statistics/216756/us-personal-income/;
Kimberly Amadeo, “FY 2018 Federal Budget: Enacted Versus Trumps Budget Request,” The Balance, https://www.thebalance.com/fy-2018-trump-federal-budget-request-4158794.
74Juliette Cubanki et al., “How Many Medicare Part D Enrollees Had High Out-of-Pocket Drug Costs in 2017?” KFF, https://www.kff.org/medicare/issue-brief/how-many-medicare-part-d-enrollees-had-high-out-of-pocket-drug-costs-in-2017/.
75“Incorporating the Effects of the Proposed Rule on Safe Harbors for the Pharmaceutical Rebates in CBO’S Budget Projections—Supplemental Material for Updated Budget Projections: 2019-2029,” (analysis, Washington D.C., 2019), www.cbo.gov/system/files/2019-05/55151-SupplementalMaterial.pdf.
76Scott Gottlieb, “Capturing the Benefits of Competition for Patients” (speech, Washington, DC, March 07, 2018) US Food & Drug Administration, https://www.fda.gov/NewsEvents/Speeches/ucm599833.htm.
77BC Editorial Board, “Back to School: Breach of Contract,” Biocentury, Sept. 1, 2017, https://www.biocentury.com/biocentury/strategy/2017-09-01/25th-back-school-issue-repair-social-contract.
78Pan Foundation Issue Brief 8, Capping Out-of-Pocket Drug Costs for Medicare Beneficiaries (Pan Foundation, 2018), https://panfoundation.org/files/PAN-Issue-Brief-8_Capping-Out-of-Pocket-Drug-Costs-for-Medicare-Beneficiaries.pdf.
79Amber Porterfield et al., “Electronic Prescribing: Improving the Efficiency and Accuracy of Prescribing in the Ambulatory Care Setting,” Perspectives in Health Information Management 11, no. 1 (2014), accessed Oct. 15, 2019. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3995494/.
80A single-payer system would capture both the total costs and the total savings of new treatments, running cost-effectiveness models that latitudinally span the entire population as well as longitudinally extend out to patients’ whole lives. Further integrating how much more individuals could produce if they stayed healthy and attributing some value to just being alive, happy, and contributing to one’s family and community, one could construct a grand unified model of the value that a drug brings to society. Extend that model over the course of a hundred or more years, during which any one drug is on-brand for only 10–15 years but then is a cheap generic the rest of the time, and it would be evident that most new drugs are cost-effective and valuable in the long-run, sometimes more than paying for themselves from all the savings on high-cost services. Consider the example in the opening chapter of the bone-strengthening drug that reduces the need for hip replacement surgery. And yet, we are far from such an idealized insurance model (one that would eagerly incentivize more genericizable innovation by paying for it) not only because our healthcare system is fragmented and the incentives of the various plans misaligned with society’s true goal of investing for its long-term benefit, but also because neither the American government nor any government for any large country has demonstrated the bureaucratic competence to be entrusted with the complexity and accountability needed to pull off the kind of central planning required of a single-payer system (even China is encouraging a competitive healthcare insurance market). Basically, for a country the size of America, a single-payer system is likely only appealing in theory, like so many theories, but would be a tragedy of human incompetence in practice. Leaving all insurance plans as fragmented as they are but passing legislation that requires that everyone be insured and eliminates or sets low caps on out-of-pocket costs so all patients can afford what their physicians appropriately prescribe would solve the problem more simply.
81“Medical Loss Ratio,” Centers for Medicare & Medicaid Services, accessed Oct. 15, 2019, https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Medical-Loss-Ratio.html
82Peter Kolchinsky, “How to Save $200 Billion and Cure Hepatitis C,” Exome, July 22, 2013, https://www.xconomy.com/boston/2013/07/22/how-to-save-200-billion-and-cure-hepatitis-c/.
83Stephen Barlas, “Are Specialty Drug Prices Destroying Insurers and Hurting Consumers?” P&T 39, no. 8 (2014): 563-66, accessed Oct. 15, 2019. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4123806/.
5
Honoring Both Sides of the Biotech Social Contract
Patients would be far better served if the public would constructively redirect its outrage to the lack of universal insurance in America and the heartless practice of imposing high out-of-pocket costs on the sick and vulnerable. Insurance companies and government policies behind our current system of inadequate insurance coverage and high copays are at the root of why some patients go without the care they need.
The central element of the Biotech Social Contract, as I see it, has little to do with what price is “fair” for a branded drug. That’s an unwinnable debate and a search for unquantifiable value. Instead we should ask whether or not a drug will eventually go generic, offering society reassurance that there is an end in sight to the high cost of any new drug.
Industry needs to do more to fully honor its end of the contract. When a drug’s patents expire, the company selling the branded drug should be legally compelled to help generic drug manufacturers make generics, both by supplying them with samples of branded product to compare their own versions to and transferring the know-how for ensuring that those generic copies are as identical as possible to the original. Patients should trust the quality of generics and, if we were to acknowledge the inventorship of generics and celebrate genericization, for example with a Public Domain Day for Drugs, then the company losing branded exclusivity would have some stake in ensuring that their legacy is not tarnished with low-quality generics.84
Companies have been pursuing and will continue to pursue
every legal means at their disposal to prevent the uptake of generics, particularly in the case of biosimilars, which are more complex and offer more opportunity for legal and technical gamesmanship.85 The generics industry and the Federal Trade Commission estimate that America is losing out on almost $10 billion of savings each year due to such stall tactics, which is a problem and makes for many galling headlines, but it’s also less than 3% of total drug spend.86
Arguably, the industry as a whole can afford to swear off such excessive cleverness, which would lessen its public relations challenges. Assuming it won’t, regulators should pursue avenues to accelerate genericization in ways that won’t impact innovation (I offer some ideas in Chapter 13).87
Investing in the Climb
Populist demands to cut drug prices may dangerously tempt some voters and politicians to follow through with such policies, but the innovative edge of the biopharmaceutical industry is powered by the willingness of the US market to reward groundbreaking research. Even European biopharmaceutical companies would likely not bother investing in the development of many kinds of new drugs if they couldn’t count on selling them at high enough prices in the US. Hitting the biopharmaceutical industry with price controls in reaction to understandable but misdirected outrage would only rob ourselves and our children of the compounded growth of our giant mountain of generic drugs.
The Great American Drug Deal Page 8
