The idea of healthcare as a consumer-driven commodity is growing. The recent mergers of CVS-Aetna and Cigna-Express Scripts were driven in part by the vision of a consumer-driven future. The same is true for Amazon’s official entrance into healthcare last year.

In 2019 an estimated 47% of Americans have high deductible health plans (HDHP), according to the National Center for Health Statistics, and these are often coupled with Health Saving Accounts (HSAs). That means that consumers — and let’s call them “consumers” not “patients” — often pay a significant amount out of their own pockets for procedures or therapies before they’ve met a deductible and insurance kicks in. Consumers rightly want to make sure they get a fair price.

Hospitals Publish the MSRP

Alex Azar, the current Secretary of Health and Human Services (HHS), has prioritized healthcare price transparency under his watch.

The 2019 hospital payment rules require acute care hospitals to post their official charge master prices online. Previously hospitals were required to provide “list prices” upon a patient’s request.

Hospitals contend that a charge master is a meaningless price list because most prices are negotiated by payers. A hospital executive recently noted that the “only people who look at these prices are reporters and labor unions.”

But transparency could change that. Publishing charge masters will naturally lead to price comparisons - by journalists, consumer websites and the like. Pressure could start mounting on hospitals to at least stay competitive on published prices and avoid being perceived as overcharging. An editor of Kaiser Health News suggested that hospitals will now be more conscious about charging prices many times higher than their competitors — something that does in fact happen. Over time, these “list prices” might start to come in line with the actual negotiated rates and thus better represent what consumers need to know.

Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma, who oversees the Medicare and Medicaid programs, asked the twitter universe to monitor high healthcare prices on the government’s behalf. In a January tweet she also requested that people visit their local hospital websites and send a tweet to #WheresThePrice if they can’t find all of the prices available online. Could this public pressure be enough to change healthcare services pricing for good?

Drug Prices Create Nationwide Angst

Lately the prices of both brand and generic drugs have created consternation for a majority of Americans. Healthcare was the #1 issue for voters going into the 2018 mid-term elections with drug prices and coverage for pre-existing conditions topping the list of concerns.

Take for example EpiPen — a drug-device combination that is administered to people experiencing a serious allergic reaction. When Mylan, the maker of EpiPen, suddenly raised the price of a pack of two pens from $100 to $600 some years ago, customers were outraged and so was the federal government. Turing Pharmaceuticals became the poster child for a pricing-driven business model where a company jacks up the prices of older, off patent products that have little competition in the market. In 2015, Turing bought the rights to and dramatically increased the price of Daraprim, which treats parasitic infections. The drug takes pennies to manufacturer but the price skyrocketed overnight. Understandably, providers, patients and insurers were outraged.

Newer specialty therapeutics that treat cancer and other devastating diseases often cost six figures. Gene therapies may have million-dollar price tags. These drugs are patented and can also be life-saving through a single injection, so there is plenty of debate about what is a fair price for them.

While lawmakers generally applaud innovation and job-creating industries, drug makers have come under scrutiny for prices that many Americans cannot afford. President Trump has also made high drug prices a priority.

CMS recently released a drug spending dashboard to shine the light on both extreme price increases as well as high priced drugs, for Part B (physician administered), Part D (largely oral medications), and Medicaid. The agency will provide updated figures on a periodic basis.

States are taking drug pricing matters into their own hands. A handful of states have passed transparency laws, like California and New York, while other states have taken a different approach. Nevada is imposing limits on diabetes drugs, while Maryland passed a generic price gouging law.

The President is engaged, having released a Blueprint in May of 2018, resulting in the publication of a handful of regulations that address various parts of the system. He also enjoys tweeting on the topic of high drug prices.

One regulation that would provide more transparency into drug prices is a proposal released in the fall that would require manufacturers to publish list prices in direct to consumer(DTC advertising, for now limited to television ads.

Here again, the industry claims that list price is a meaningless number. Rebates and discounts often bring prices down, sometimes substantially. However, the current team at CMS believes that informing consumers and allowing comparisons is a public good and will ultimately lead to better price rationalization - not just transparency.

Pharmacy Benefit Manager Clarity Demanded

Drug pricing is often murky due to the nature of rebates and discounts, but those aren’t the only impediments to transparency. Drug companies have contracts with payers and with middlemen in the pharmaceutical supply chain such as pharmacy benefit managers (PBMs) and distributors.

The prescription drug benefit in Medicare, or Medicare Part D, uses PBMs to negotiate health plan drug prices. PBMs can leverage coverage on their formularies for better discounts on wholesale acquisition costs (WAC) with drug manufacturers or wholesalers. These discounts are supposed to then make their way to the consumer, who should then have reasonably priced prescriptions and premiums.

However many have argued that PBMs operate with tightly held contracts that make it difficult for consumers to know how much of the negotiated savings have been passed down to them. Senator Susan Collins (R-ME) recently wrote a letter to HHS, urging Congress and the administration to put pressure on PBMs to disclose how much of the negotiated discounts and/or rebates reach the patient.

The Big Picture

If the goal is rationalized prices for healthcare services, drugs and devices, does transparency solve the problem? At the very least, it’s a start.

In our insurance-based system, most consumers aren’t paying directly for healthcare goods and services. Instead, they are paying co-pays and deductibles and are largely shielded by the cost of care. In the past few decades, most people were not “price-shopping” for their healthcare.

However, that is starting to change. As mentioned earlier, the growth of high deductible plans means more consumers are paying for more of their healthcare. And the Internet makes cross-shopping far easier than ever before. This could be easier in clearly defined categories, such as specific surgeries, drugs, tests and imaging, where many providers have the same or similar offerings. Price won’t be the only factor important to consumers — quality and convenience are also high on consumers’ lists.

Transparency alone will not solve the problem of managing U.S. healthcare costs. But we’re at a point where members of both political parties agree that price transparency is imperative. This buzzword will be a focus over the next few years. From there, we could see a restructuring of incentives, updating of pricing structures and even changes in recommended therapies to support the drive for value and higher quality results.

Despite the many stakeholders in the system – providers, insurers, manufacturers, middlemen, post-acute providers, labs, to name a few – sunlight may be the best (and first) disinfectant in U.S. healthcare.

For more information, please reach out to your Relationship Manager or fill out a simple Contact Form and we’ll get in touch with you.