Dale Lehman writes:
I’ve been trying to understand the large changes being made to Medicare Part D drug plan coverage and prices. Due to recent changes, Part D actually looks more like an insurance plan than it used to – there is a $2000 cap on out-of-pocket spending for all Part D plans (there used to be no limit) and a fairly high deductible, so it is sort of a catastrophic coverage plan. I can now get a plan with $0 monthly premiums, but due to my income I pay around $700/year to subsidize poorer participants. I was trying to find data to see whether this makes financial sense for myself – how common are drugs that cost more than $2000 per year? So, I investigated what data is available. CMS provides data (sample dataset attached) for each drug: https://data.cms.gov/summary-statistics-on-use-and-payments/medicare-medicaid-spending-by-drug/medicare-part-d-spending-by-drug. However, the drug cost data is gross drug costs:
Drug spending metrics for Part D drugs are based on the gross drug cost, which represents total spending for the prescription claim, including Medicare, plan, and beneficiary payments. The Part D spending metrics do not reflect any manufacturers’ rebates or other price concessions as CMS is prohibited from publicly disclosing such information.
This makes the data completely irrelevant! It is clearly measures of net costs that matter, but only gross costs (analogous to sticker prices) are provided. Similar issues arise with recent requirements for hospital price transparency. The data required for intelligent consumer decisions – or meaningful analysis of health policies is simply not available. Mass amounts of data are provided, but much of it is simply meaningless. I’m sure some researchers get access to relevant data, either through their connections or buy purchasing private data. But (too) much government data is not available in any form that permits independent analysis. This permits regulation and legislation to proceed under heavy influence from special interests, along with publication records for the limited few with privileged access. We (I) bemoan researchers not releasing their data – here we have cases where the raw government data that matters is “prohibited from publicly disclosing such information.”
He supplies this example:
The generic drug Tamsulosin, a favorite of mine (and many older men), shows almost 477,000 beneficiaries in 2022 (I said it is a favorite). Average spending per beneficiary is $75/year. When I fill my prescriptions, the price is $0. The brand name version (Flomax) still shows 990 beneficiaries, with an average spending of $1996/year. That drug manufacturer (Sanofi-Aventis) must be making a fortune – or discounting the drug greatly. Or are the small number of prescribers using the brand name drug getting huge kickbacks, financed by Medicare? Or did the insurer strike deals with the other 15 manufacturers of the drug, and what type of deals did they strike? Anybody trying to make sense out of how the actual part D drug plans work is left without any useful data. None of these numbers are meaningful, other than the total number of people on these drugs.
The transparency in this industry is terrible, and I agree that it’s hard for you to make any sort of independent assessment for public policy purposes (as I also agree that there are researchers who do get access to the relevant numbers).
But from your own standpoint, I’m not sure I understand. There are many websites (including Medicare.com) that allow you to put in your prescribed medications (dosage and frequency) and get the actual cost *to you* under a particular insurance plan. Isn’t that all you need to know?
I should clarify that I am mixing two concerns. My example was not really an example of my personal issue – I am aware of Medicare data that allows you to see the actual drug price under different plans. But, from a public policy viewpoint, that data is not useful, the datasets I refer to is what you want. And those are not meaningful. My personal issue regarding part D plans is a bit different than the pricing issue. It is the whole idea that it is good public policy to ask people to guess about their prescription drug needs for the next year – making part D plan choice like gambling (without good information). Further insanity is the fact that you can change plans every year (as long as you don’t drop part D) as the price tiers for different drugs change annually. In fact, they change a lot – I’ve changed my plan every year as a result. The fact that 70% of part D subscribers don’t change their plan in a given year is evidence of how badly this works. Now that the cap on part D out-of-pocket expenses has been set at $2000/year, part D is becoming closer to an insurance plan rather than legalized gambling.
So, my real concern is with the lack of data for good public policy research rather than lack of data for my personal choice. My concern with the latter is the idea that it somehow is good public policy to ask people to make annual bets on which drugs they will need in the next year. I mixed these two concerns which I believe has led to your comment.
And I’m sympathetic to the public policy point. But the risk that I might need some drug for an average of six months (since I don’t know when I’ll be diagnosed to need it) doesn’t seem that bad to me. What’s your alternative? That every drug be free (or in some heavily subsidized tier) in the first calendar year you turn out to need it? The uncertainty over what drug I might end up needing seems much worse than the uncertainty over what I will pay for it… and I don’t see anything that can be done about it.
From my personal perspective, the aggregate cost of the five medications I take (including a couple of substitutes for your beloved tamlusosin) is so low that using drug costs to choose between plans would make no sense. So I haven’t changed plans in the five years I’ve been on Medicare (part of your 70%) but I take a look every year just to see if there’s some other plan that seems meanngfully better to me. So I’m not sure either of experiences are typical…
With the $2000 cap, I agree that the risks are much reduced regarding what drugs you might need or what plan you should be on. However, I don’t see the purpose of multiple insurers competing with such plans. What drugs are on what tiers varies across plan and is not meaningful competition. There is nothing innovative about these plans nor does the information scarcity lead to meaningful cost-reducing competition across plans. What’s my alternative? Why not have Medicare provide the drug plans? I don’t see how having multiple drug plan insurers with different pricing schemes and annual resubscription produces any social benefits. One plan. It won’t remove issues regarding what drugs to cover, but those will be there under any plan. I’m not advocating free drugs for all, just that the artificial competition created by this annual “choice” of part D plan accomplishes no public purpose. It does, however, provide business for the insurance industry.
The odd thing about this market is that the main payer of the premiums is Medicare, who makes a capitation payment to the insurance company so that most people’s premiums are 0. At that point, the insureers offer (admittedly not all that different) bundles of coverages. But with all of them receiving essentially the same payment (ignoring dual-eligible Medicaid recipients) all they compete on are bundles of service — coverage networks, percent co-pays out-of-network, drug tiering, etc. The plans I look at show some differences, particularly with respect to medical netwoeks. And at least in principle there could be substantial (negative) price competition through one plan offering better gym memberships or something. If all of this were provided by Medicare, wouldn’t a lot of people end up paying for services they have no expectation of needing? Maybe (no guarantees!) they can find a company that covers other things.
In case you are not already familiar with it, https://www.46brooklyn.com/ provides data and analyses relevant to public policy concerns.
Thanks for the reference – it was new to me. The range of prices for drugs across part D plans is remarkable (I only checked a few, but they all appear to show similar patterns). When my economist eyes see widely varying prices for the same thing, warning signs flash. Of course, the first question is whether these are really the “same” thing. The drug and dosage may be the same, but when people subscribe to a part D plan, they get a bundle of different drugs and prices. But I’ve never been fond of the practice of bundling – economic research ranges from it being welfare enhancing to anti-competitive. I’m more in the latter camp, so I see this price variability as a symptom of a lack of competition. Also, since part D subscribers can change their plan annually, I see the idea of these price differences as producing little public benefit. If subscription was more permanent, then the price differences might represent true differences in the bundles available and/or the quality of the service provided. But the ability to switch easily, and the need to predict a year in advance what prescriptions you will need, make these price differences look more like a casino game than a well functioning market to me.
Drug prices have been a problem for a long time! At least in California, pharmacists used to claim that it was unethical to disclose the price of a drug unless you came into the store – over the phone was not ok (I tried once, and got an indignant no). According to my physician father, some drugstores would charge poor people more for drugs, because they were less likely to check prices elsewhere. He developed a list of drugstores that didn’t do that, and recommended them to his patients.
To clarify, that would have been back in the 1950s.
We all have trouble understanding drug prices because our mindset is based on a supply/demand free market model that is irrelevant to what actually happens. Drug prices have a large component of monopoly power based on the exclusive rights granted to producers to act as a reward for innovation. These rights make it impossible for competitors to enter the market. Additionally, the right to tell you to use a drug is tightly regulated under the licensing laws every government enforces. Big pharma and medical providers have a symbiotic relationship, and guess who they are allied against. This results in a lot of economic and political power. This power is not ignored by our government; the rich and powerful are the government.
I have been awarded a very comfortable retirement by this system, but I don’t fool myself into thinking that that’s the way angels would design a drug policy.
+1
“but I don’t fool myself into thinking that that’s the way angels would design a drug policy.”
It’s also not the way any other industrialized country designs it’s drug policy.
The insanity in the US medical system is ubiquitous*. And hilarious as long as you don’t live in the US.
*: See, the US actually does have universal health care: universally insane.
Agreed, and Pharma also knows how to play on basic human desires. According to Google’s AI, “The industries that most often hire former female college cheerleaders are pharmaceutical sales, coaching, and other cheer-related fields.” I remember being in a medical office waiting room when a couple of these eye-candy sales reps came in.
Surely male doctors (or lesbian doctors?) are not so childish that they can’t regulate their emotions. Or are you saying they are just too hormonal to be able to control themselves? I guess that’s why the sales reps work in pairs, they can chaperone each other and keep each other safe.
It’s entirely about creating a pleasant association with the idea of Rxing the drug. It’s nice when the drug rep shows up, she chats you up in a friendly way, she tells you all the great claims of stuff the drug does, and some of the docs will be inclined to simply take the word of the friendly good looking rep who’s fit and perky and who seems to have all the answers memorized than to look into the truth of the drugs efficacy etc.
It doesn’t have to be perfect, just work on average in a non-zero directional manner… and your drug sales will be higher than if you hadn’t done those things. Marketing is all about selling the good association for the most part. Unless you’re selling physical equipment to people with engineering degrees who have no choice but to run the numbers anyway for the required code calculations or something, most people just are going to use their heuristics.
How does this way of deciding what drugs a patient will be prescribed fit in with the Hippocratic Oath?
What Daniel said. It’s not all or nothing here. I guess that sales reps are picked to be outgoing and well informed with friendly personalities, physically attractive, the whole deal, everything it takes to make it a pleasant experience to spend time with them so you’ll be exposed to the pitch.
I don’t get this latest exchange. Are you claiming that pharma does not specifically hire young attractive women to promote their products to physicians? While there are always exceptions, doctoring remains a male-dominated profession (yes it is changing, slowly) and pharma sales reps are mostly young females. The motivations are more than just providing a “pleasant” experience though that is a part of it. I don’t think it is correct to remove the sexism and roles that are involved. Males can be “physically attractive” but that does not adequately describe the pharma sales rep workforce (not that I know any data source for evidence).
Full disclosure, although I stopped doing patient care many years ago, I used to practice internal medicine, and I continue to be employed at an academic medical center doing teaching, research, and administration.
I think the obscurity of price information in drugs, and, more generally, in all health services, is without question the most egregious of any US industry. Nevertheless, my observation as an American consumer is that price obfuscation is nowadays a key part of the business model of many US industries. Health care/Pharma got there first, perhaps, and certainly is the most abusive, but the practice is becoming more widespread over time. The airline industry, to pick one example, is close to catching up with health care on this. Given the ongoing convergence of more industries to oligopolies or monopolies, the future almost surely holds more and more of this.
Look up the “chargemaster”. There is no price for a single pill in this system. The total cost is negotiated as a package. Ie, “legally I can only charge you so much for X, but its not worth providing it at that price. However, I’ll throw in Y for 19x the normal cost as a package, if you really want X.”
I highly recommend this book, written in the 1930s from the perspective of a communist in Germany. This is an inevitable consequence of merging industry and state: https://mises.org/library/book/vampire-economy
There’s also the costs of denials of prior approvals. I think the doctor’s office handles the application for prior approval. If there’s a denial, then, if you need the medicine, you pay.
I may be wrong on this, but I think prior approvals are required annually for your medicines, even if you haven’t changed Plan D programs. You could be approved for the medicine, then denied the next year. That’s my understanding. I don’t know how often this happens, if at all.
There’s the costs of playing the games of plan D choice, prior approvals, and pharmaceutical patient-assistance programs.
Insurances, and pharmaceutical companies, play these games well. Or, their AI bots play the games well. Although readers of this blog have some knowledge and ability, they are at a disadvantage compared to these companies. Imagine if you were ill and did not have resources.
There is an organization called MMAP, which helps people by meeting with the person face-to-face and running through Medicare options. I think it’s a national organization, but there are individuals located in each county to meet with people, look up data, and help out. I don’t know who funds them. I met with my county guy. It was helpful.
The choice of a Part D plan also involves location, i.e. which pharmacies participate. For many of us, this is as important as price.