Pharmacy Benefit Managers

Pharmacy Benefit Managers – Another Shadow Healthcare Actor

Unless you are a health policy person, I’m guessing you have not heard of pharmacy benefit managers, or PBMs. The Commonwealth Fund describes a PBM as “a company that manages prescription drug benefits on behalf of health insurers, Medicare Part D, large employers and other payers … by negotiating with drug manufacturers and pharmacies to control drug spending.” I always thought that pharmacy prices were set directly by my insurance carrier, in contracts that they had worked out somewhere along the line. But it turns out it is more complicated than that, and if you are like me, you will probably understand that PBMs provide some value, but also feel as though they are another actor doing little but driving the cost of healthcare up. For me, it is probably a bit unreasonable, but I hate PBMs.

 

In his book The Opioid Crisis Wake-Up Call, Dave Chase explains how pharmacy benefit managers negotiate rebates with drug companies and insurance carriers for specific drugs. However, the rebates don’t actually get back to the patients. Usually the insurance carrier and PBM are the ones who benefit from the rebate, and specific medications are pushed toward patients so the PBM and insurer can get the rebate. PBMs operate way in the back, and don’t get the same scrutiny as health insurance companies. They are hidden and shielded from risk, which means they have little incentive to put patients first.

 

“PBMs are typically paid by the transaction or employee; it’s not their money, so its not their risk,” writes Chase. “They may strive to handle claims quickly and efficiently, but their defenses against fraud and abuse of prescription drugs are antiquated. The shared responsibilities of the employer or government agency and the PBM create situations in which neither can see the whole picture. Criminals exploit this weakness, leading to a flood of prescription opioids on the street. The American insurance system has allowed this distribution explosion to occur, doing little to nothing to halt its growth.

 

The quote above highlights the misaligned incentives with PBMs, insurers, and governments or employers. PBMs that hide data, favor medications for unclear reasons, and don’t face a lot of direct risk have created lots of problems for the American healthcare system. I opened with a discussion of pricing problems brought on by PBMs, and Chase’s quote shows how they have also contributed to the abuse of prescription opioids. Chase’s book, with examples like the ones laid out in this post, paints a worrying picture of pharmacy benefit managers in the United States. It is partly the complexity they add in the system, and partly the shady behind the scenes deals they are a part of that make me dislike them so much. This type of confusing and apparently unethical role for PBMs is also part of the reason that a lot of people want a universal healthcare system that is able to negotiate drug prices and set specific limits on some costs. It might not save everyone a ton of money in the long run, but it might be more ethical and clarify some of the most confusing parts of the system.
Healthcare Brokers

A Hidden Obstacle in Controlling Healthcare Costs: Brokers

If you are a large company, you probably don’t have one person or department contacting various insurance agencies, hospitals, and pharmacies to get everything in place for the health insurance you provide to your employees. You likely work with a broker who is your agent in negotiating with insurance and healthcare companies. They help you understand the contract you sign with a carrier, and if you are going the self-insured route, they likely help navigate hospital and pharmacy contracts as well.

 

The broker you choose can greatly influence how much your company is going to pay for the health insurance provided to employers, for the administration of a self-insured plan, and even for individual services with providers. Brokers often position themselves as buyers agents, that is as representatives of the company looking to purchase coverage or administration, however, many brokers are simultaneously working for hospitals or for insurance agencies. What’s more, the hospital or insurance agency might compensate the broker more than your company, making the broker more of sellers agent than a buyers agent. Dave Chase highlights and explains this in his book The Opioid Crisis Wake-Up Call:

 

“Your business is just one piece of the total, but keeping it with the same carrier can boost the broker’s total compensation by 50% or more. Because this compensation isn’t specific to you, status quo brokers will often claim they’ve disclosed fees and commissions. But they are actually only disclosing your account-specific fees and commissions that may not even be the most significant piece of their overall compensation.”

 

If a broker is getting paid by an insurance carrier to keep your company with that carrier, then your chances of shopping around to find better alternatives are slim. Your broker is likely to encourage you to stick with your current carrier and accept whatever fee increase they present you with for next year’s coverage.

 

Chase continues, “Forward-looking brokers have sent me letters from insurance carriers saying they’d be fired when they spoke the truth about egregious practices the carrier was inflicting on the broker’s clients. This makes it clear that the carriers view brokers as a quasi-employee they can fire at will. In other works, they are working for the carrier, not your organization.”

 

The company that Dave Chase runs can help you identify trustworthy and high quality brokers. If you select a broker at random or just because you have a good relationship with them, you run the risk of working with someone who is not as independent as you think. The connections and world of insurance carriers and brokers is complex, and navigating it successfully on your own is challenging.

 

At another point, when addressing brokers, Chase writes, “You should always ask your benefits broker or claims administrator if a local hospital is a client, as that is a clear conflict of interest, especially when the hospital itself owns the insurance carrier.”

 

It is clear to me that the healthcare industry has too many entities that are tied together in unclear ways. If we hope to change the system in the future to be more equitable, to reduce prices, and to actually provide quality services, these status quo relationships will have to be broken up. That might be a task the government can solve, but Chase would argue that companies have the tools to do that work as well, they often just don’t utilize the leverage that they have.
The Specter of Rationing Care

The Specter of Rationing Care

American’s fear having to wait for anything. We want to order things from the comfort of our own home and have them delivered in two days. We don’t want to wait behind more than three people in line at the grocery store, and we don’t want to wait for medical care (to be honest these are all examples from my own life – not picking on anyone who isn’t like me here). Our fear of waiting is used as a reason against universal health coverage. We are told about Canadians who cross to the United States to have surgeries that they would have to wait several months to have in Canada. We are told that we won’t be able to schedule an immediate primary care appointment if more people were to have access to health care. And we are told that the high costs of medical care stop unnecessary care from happening, preventing us from having to wait to see a doctor.

 

However, these fears of waiting and the specter of rationing care presented to us in these scenarios is overblown. It is true that some Canadians chose to get care in the United States for elective procedures, but presenting that fact to us in isolation is misleading and done in bad faith. The reality of our waiting for care is much more complex. Dave Chase does a good job of explaining it in his book The Opioid Crisis Wake-Up Call, “People often raise the specter of rationing care. In reality, it’s overuse (i.e., unnecessary and potentially harmful care) that leads to reduced access by squandering enormous financial resources that would be better used for individuals who actually need care and can’t get it.”

 

We act as though our healthcare system is following good market incentives to find a good balance between wait times and receiving the right care. But we often fail to acknowledge that our healthcare system isn’t performing like an ideal market, and that it often pushes people to too much of the wrong type of care. Chase details this in his book with unnecessary back surgeries. Those who have a legitimate need for a back surgery might have to wait, because primary care providers get a bonus when they refer patients to orthopedic surgeons who are paid to operate. The right path for a patient might be physical therapy, but the money for the providers is in the surgery.

 

We should not raise the specter of rationing care when we are so wasteful with the care we provide through our current system. We waste a lot of money when we don’t have a concern about rationing care, and when we reward providers for doing more surgeries, prescribing more pills, and offering more treatment, even if the efficacy isn’t proven. In his book, Chase doesn’t advocate for a universal coverage system with healthcare covered by the federal government, but he does show how employers today can do more to ensure their patients get more of the good care (the effective PT and preventative check-ups) for free. This reduces the demand on the expensive and unproven treatments later on, and actually reduces the demand on the system for services that we are afraid of rationing.
Thoughts on Health Insurance Companies

Thoughts on Health Insurance Companies

Moving to a universal healthcare system with everything run by the Federal government might not solve all the problems in our healthcare system, and it might not really reduce all of our healthcare costs, but at least it would give us someone to hold accountable for rising costs, challenges with accessing care, and questionable quality of care. People across the United States are frustrated by healthcare providers and systems that seem to always be raising their costs and charging outrageous fees for basic medical care. Younger people today seem to find the idea of profiting on medical care to be slightly unethical, and health insurance company practices do a lot to increase people’s discontent with the current system and actors. In short, a lot of people probably just want to move to universal coverage provided by the government just to simplify the process and cut out insurance companies, especially when the average consumer can’t understand what benefit the insurance company provides.

 

These thoughts about our discontent with our current system came to mind this morning after reading the following passage that I highlighted in Dave Chase’s book The Opioid Crisis Wake-Up Call. Chase writes, “If you’re a fully insured employer and have higher-than-expected claims in one year, your insurance carrier will work to get as much back as possible in subsequent years through larger premium increases.”

 

What Chase describes is something that not everyone is directly aware of or able to explain, but it is something many of us have a vague feeling of or intuitive expectation of. Rather than existing as organizations to help us be healthy, rather than trying to solve a problem, rather than caring about our health needs, many people simply see health insurance as stealing a few bucks from them, their employers, their providers, and from people who really need medical care. Insurance companies are seen as morally unethical, powerful government lobbiers, and as bureaucratic machines that treat everyone like numbers.

 

If you are not in favor of a public health insurance program, and if you think that private insurance is the way to go, ask yourself what the industry could do better to actually provide value to patients. If you are in a health insurance company and think you do provide value to your patients, ask yourself, why don’t people see it? Perhaps we only see the games that insurance plays to limit access to care, to increase premiums every year, and to squeeze hospitals and providers, causing us to misunderstand the benefits that insurance provides. If private health insurance really wants to survive in the future, the industry needs to do better at showing its value, and minimizing its greedy tricks, otherwise, you can’t blame the public for wanting to eliminate insurance companies and have an accountable government take on universal coverage.
Healthcare Stagnation

Healthcare Stagnation

We are facing a disastrous healthcare stagnation in the United States. Our hospitals are getting older, Medical providers are aging with too few young providers to replace them, and the quality of care that many of us experience is not getting much better. Despite this, the cost of healthcare has been soaring. Healthcare expenditures, including the costs of our deductibles, co-pays, and what our insurance pays out, has been going up at a rate reliably above inflation.

 

In The Opioid Crisis Wake-Up Call, Dave Chase writes the following about our healthcare stagnation, “Unlike virtually every other item in our economy, where the value proposition improves every year, the norm in health care for decades has been to pay more and get less. Also, unlike nearly every other industry, healthcare hasn’t had a productivity gain in 20 years.”

 

Productivity is how much we produce per unit of time spent on production. A factory that makes 5,000 widgets per hour is more productive than a factory that makes 1,000 widgets per hour. Automation and new technologies have helped factories and offices become more productive, but our healthcare stagnation is evidence that we are not seeing the same gains in healthcare. Technology has improved, but not in areas that seem to produce more healthy patients given the same amount of time and effort from our medical providers. We have some new technologies, but somehow those technologies have not translated into a healthcare system that supports the same number of people with fewer resources.

 

Chase continues, “In other words, for the last two decades, there has been a redistribution tax from the working and middle class and highly efficient industries to the least productive industry in America.” 

 

As your job has become more efficient and more productive, your healthcare costs have risen. Chase equates this healthcare stagnation price increase to a tax. Factories that can work with fewer employees, software engineers, and other employees form highly productive sectors are paying more in healthcare for services that haven’t kept the same pace as the industries of the patients they treat. This is the cost of healthcare stagnation that chase wants to push back against by demanding better systems and structures from healthcare providers, insurance companies, and benefits brokers. Chase believes we can find a way to improve our healthcare system and help people live healthier lives for less cost, if employers are willing to make real investments in their employees healthcare, and are willing to hold their brokers and insurance providers accountable for the value their products provide.
Harris Rosen's Program to Invest Locally

A Program that Invests Locally

Harris Rosen runs a hotel chain in Orlando Florida. He has eight hotels in total, and his company does something almost no other companies in the country do. They provide real, meaningful healthcare services to their employees. They save a ton of money on healthcare by actually providing more of it, and better quality services at that. With the money Rosen saves on healthcare, he has developed programs in a neighborhood called Tangelo Park in Orlando to ensure children can attend school, get support to graduate from high school, and attend college on scholarships provided by Rosen.

 

Dave Chase writes about his efforts in his book The Opioid Crisis Wake-Up Call, “The cost over 24 years of the Tangelo Park program has been $11 million – roughly the amount Rosen saves in one year on health care. … For Harris Rosen, the approach is simple: Get involved; care for your people.”

 

$11 million is not a small amount of money, but what Rosen’s example shows is that you don’t have to be billionaire to make a meaningful impact in your community. $11 million is not an unattainable sum for many companies, communities, and philanthropists who want to make real changes. Mayor Bloomberg spent $500 million on failed presidential election campaign, money that could have helped almost 50 Tangelo Park neighborhoods.

 

What is important to see here, is that we can actually provide people with more healthcare, better preventative services, and easier access to good healthcare to save money in the long run. Money that could be invested back into the communities where it can have the greatest impact. Reducing crime means more savings for local communities by reducing resource demands for policing and jails. Improving education achievement means more people have the tools they need to grow and pursue the American dream. Improved health for employees means they are more productive and live happier, healthier lives.

 

We don’t make these kinds of investments for lots of reasons in the United States, but Rosen shows that we can. We are spending the money that we could use for these programs, but we are spending it in the wrong areas. If we looked critically at where we put the money, and where it could go to actually improve lives, then we could really make a difference in our communities and our countries. It starts with caring for people, helping them to become their best, and encouraging our communities to build together.
Healthcare Price Transparency

Healthcare Price Transparancy

Have you ever tried to figure out what a healthcare procedure is going to cost you before you have the procedure? Almost no one can give you a straight answer, and it takes a long time to get a number at all because the doctor’s office has to check with your insurance to see what their agreement is, what you still have left with your deductible, and where you stand relative to your out of pocket maximum. The result is that consumers have very little insight into what they are actually going to pay or owe when they go to a check-up, when they need a new prescription drug, or when they have a knee operation at a local hospital.

 

In his book The Opioid Crisis Wake-Up Call, Dave Chase addresses the lack of transparency in healthcare pricing. Specifically looking at the ways that insurance companies hide claims data from employers, Chase writes, “They want to maintain the status quo. This means protecting pricing opacity at all costs. If you could see the prices you actually pay, you might begin to wonder why a hospital with a large market share but mediocre quality outcomes is paid exponentially more than a smaller, high quality provider in the same network.”

 

Healthcare price transparency reveals disparities in our healthcare system and shows that healthcare costs are often not connected with quality or health outcomes. Cost is somewhat arbitrary and usually negotiated without the person who will actually be receiving the service. If we could see the costs, then we would be more likely to shop around, either for different insurance or for different healthcare providers with more reasonably prices for services and treatments. I think our health spending is generally rather inelastic, but nevertheless, if we better understood pharmacy pricing, basic medical services, and major surgery costs, we could start to move toward options that offered higher value.
Health Insurance Company Games

Health Insurance Company Games

Dave Chase’s book The Opioid Crisis Wake-Up Call was an interesting read because Chase highlights many of the health insurance company games that add to the cost of healthcare in the United States without providing additional value. I’m skeptical of health insurance companies, and Chase’s book discusses some of the nitty-gritty details of misaligned incentives that lead to unending increases in healthcare premiums and costs.

 

An example that Chase highlights is early renewal discounts for companies that chose to stay with their current health insurance company or plan administrator. Throughout the book, Chase discusses how businesses are letting their employees down and allowing healthcare costs to skyrocket by accepting increasing healthcare costs from health insurance companies each year. Many companies don’t have someone who really understands healthcare or health insurance in charge of their benefits programs, and as a result those individuals are often more focused on not being yelled at by employees than on reducing costs and providing a valuable health insurance package. Insurance companies take advantage of this by pressuring businesses to accept increases in the cost of healthcare administration each year at rates far above inflation.

 

Insurance companies know that businesses don’t actually want to shop around for health insurance and they know that employees don’t want to have a change in insurance each year. Insurance companies will offer benefits for early renewals from companies, and as Chase writes, “Often these early renewals come with no-shop clauses. So, a 20 percent rate increase may only be a 15 percent if you sign today and agree not to shop the competition. This should be viewed as a red-flag, not a great deal on a premium reduction.”

 

Insurance companies position themselves as offering a good deal, but they are increasing the cost of the insurance plan by 15%. Busy employers with small HR staff often see this as a win because it reduces their effort and while employees see costs rise they don’t have to hassle with changing insurance and unknown insurance processes. This is part of why premiums in the United States are rising so fast. Insurance companies hide information and data, and make it difficult for overwhelmed staff to pick benefits that will truly help employees.
Pay and Chase

Pay and Chase

If you were working to set up a healthcare plan for your employers, you would want to make sure that payments by the insurance plan were quick so that your employees were not constantly bombarded by letters and phone calls from doctors offices asking when they would be paid by the insurance plan. You also would want the plan to have a system in place for catching fraudulent claims or errors in charges from hospitals and doctors offices. Both of these desires are reasonable, but in the real world, they have created a system of perverse incentives that Dave Chase calls “Pay and Chase” in his book The Opioid Crisis Wake-Up Call. Here is how Chase describes it in his book:

 

“Another fee opportunity is so-called pay and chase programs, in which the insurance carrier doing your claims administration gets paid 30-40 percent for recovering fraudulent or duplicative claims. Thus, there is a perverse incentive to tacitly allow fraudulent and duplicative claims to be paid, get paid as the plan administrator, then get paid a second time for recovering the originally paid claim.”

 

Insurance companies administering health insurance don’t actually have an incentive to create tools to proactively stop fraud. They actually benefit when there is fraud, because they get a bonus when they spot the fraud and recoup the already paid fraudulent amount. As an employer partnered with the insurance company, you might be happy that claims are paid quickly so that your employees don’t have negative interactions with doctors about payment, but the way that many plans currently operate, you will end up paying a lot more overall when your plan pays for fraudulent claims and billing errors. You will pay for the fraud itself, and if you get any money back, it won’t be for the full amount that your claim administrator originally paid in the fraud or error – they will keep a cut.

 

Chase continues, “Many of the fraud prevention tools used by claims administrators are laughably outdated and weak compared to what they are up against. Modern payment integrity solutions can stop fraud and duplicate claims, but aren’t being used by most self-insured companies’ claims administrators.”

 

Poor incentives and confusing systems have allowed this to occur. This is one example of how the systems around healthcare in the United States are not aligned with what we would all agree should be the number one focus: improving the health of Americans. Employers don’t want their employees to be angry, and plan administrators want to maximize profits. In the end, we all pay more as fraudsters find ways to get past the outdated fraud prevention systems of insurance companies and as those companies turn around and charge fees for catching the fraud and payment errors they didn’t prevent in the first place.
GoFundMe For Healthcare

GoFundMe for Healthcare

We all complain about our personal healthcare costs and we know that healthcare spending in the US is a huge percentage of GDP, but what isn’t clear is that the vast majority of spending and healthcare costs come from a small minority of patients. Cancer care, treatment for severe trauma, and therapy for rare diseases can be incredibly costly and unpredictable. For many people who face such substantial challenges, GoFundMe ends up being a huge support, and I think it is worth asking ourselves if that is a reasonable way for people to be able to afford medical care in the United States.

 

As Dave Chase writes in The Opioid Crisis Wake-Up Call, “In 2013, more than 1.5 million Americans lived in households that experienced a health-related bankruptcy. More than three-quarters of those people had insurance. Some say medical bills may also be the top cause of homelessness. Nearly half of all GoFundMe crowdfunding campaigns are to pay for medical-related expenses.”

 

Our health insurance, what we pay for and what our employers offer us to help ensure that if necessary, we can afford medical care, does not actually help us afford medical care in the case of an emergency or major diagnosis. Medical related bankruptcies are not a rare occurrence, even for those who have insurance, and if Chase’s quote is accurate that a large cause of homelessness is medical bills, then the cost of care that is supposed to help someone be healthy, likely pushes people into incredibly unhealthy living circumstances. The fact that people have to turn to crowdfunding moonshots for treatment is a clear indication that the healthcare system in America is failing those who need it most.

 

I would argue that much of the social unrest in our country is related to stagnated wages. Chase argues that wages have stagnated as businesses cope with increasing costs for providing healthcare to employees. Americans don’t see their wages increase, but do see the cost of healthcare rising, and many face bankruptcy and must turn to GoFundMe for healthcare related expenses. It is not hard to imagine how healthcare costs contribute to an unhappy populace that doesn’t trust public officials and elected leaders who have not been able to remedy the situation, or business leaders who have not provided real value in the health benefits they offer employees.