Late last month, Senators Lamar Alexander, R-Tenn., and Patty Murray, D-Wash., released bipartisan health reform legislation.
The package isn’t perfect. But it does include some positive elements—including measures to improve price transparency, ban anti-competitive practices, and boost vaccination rates.
Consider how the draft legislation would tackle the excesses of pharmacy benefit managers. Insurers typically hire PBMs to negotiate with drug-makers on their behalf.
Just three PBMs account for 85% of the market. This dominance “allows them to exercise undue market power against manufacturers and against the health plans and beneficiaries they are supposed to be representing, thus generating outsized profits for themselves,” noted a White House Council of Economic Advisers’ report.
PBMs often use their negotiating leverage to secure large discounts off of list prices for prescription drugs. But they don’t pass along those discounts to their insurer customers, or to patients—they keep a big portion for themselves.
This system is laden with perverse incentives. It encourages drug-makers to set high list prices, knowing that PBMs will demand big discounts or rebates for including their drugs on their formularies. High list prices also benefit PBMs, who can claim that they’ve obtained significant discounts for their insurer clients—and justify keeping a cut.
Patients who have to pay list price—say, those with high deductibles—bear much of the burden of this broken system. Even those with comprehensive insurance coverage may end up paying more than the discounted price, if their health plan bases their copayment or coinsurance on the list price of the drug.
The Alexander-Murray plan would ban PBMs from charging more for drugs than they paid to the drug makers and require them to pass 100% of any additional rebates or discounts they get from drug makers to plan sponsors. Additionally, the plan would require PBMs to send quarterly reports to plan sponsors detailing their costs, fees, and rebate information.
Hospital mergers have surged in recent years. Big healthcare systems have also bought up independent physician practices. That’s given them a base of patients who can seamlessly be referred from clinic to hospital, with minimal threat of competition.
These larger hospital systems have taken advantage of their market power. Last year, an extensive investigation by the Wall Street Journal found that hospitals in many markets used “secret contract terms to protect their turf and block efforts to curb healthcare costs.”
Among these secret terms, the Journal found, “hospitals can demand insurers include them in every plan and discourage use of less-expensive rivals. Other terms allow hospitals to mask prices from consumers, limit audits of claims, add extra fees, and block efforts to exclude healthcare providers based on quality or cost.”
Employers and consumers never know about these restrictions because health plans aren’t allowed to disclose them.
To counter these competition-squashing tactics, the Senate bill would ban contract clauses that block enrollees and plan sponsors from seeing pricing information. It would also prohibit “anti-tiering” and “anti-steering” clauses, wherein hospitals restrict an insurance plan from incentivizing patients to use lower-cost, or even higher-quality, hospitals.
The Alexander-Murray plan would also attempt to boost vaccination rates. The United States is experiencing its worst outbreak of measles in recent memory—the Centers for Disease Control and Prevention reported more than 980 cases so far this year.
The bill would fund a national campaign to educate Americans on the importance of vaccines and dispel myths that they are unsafe. It would also provide grants to state governments to improve systems for tracking infectious diseases. These initiatives are important, but any new spending should be offset with cuts elsewhere in the federal budget.
The states can take action to promote vaccination by relaxing restrictions on the administration of vaccines. Doing so would make getting inoculated much easier.
Some states require prescriptions for vaccines. Others limit the ability of non-doctors, including pharmacists, to administer certain vaccines. These kinds of restrictions simply inconvenience patients—and protect doctors from competition.
Loosening them would make a big impact. Consider the results of a pilot study in Washington. Pharmacists at eight community pharmacies were given access to patient vaccination data and the ability to act on such information. Over six months, the number of vaccines administered surged 41%.
The Alexander-Murray health reform package contains some good ideas for unleashing the power of market competition to reduce costs and improve care. These ideas deserve serious consideration.