Is Fixing Health Care Delivery Rocket Science? Elon Musk Wouldn’t Touch it

President Trump announced infamously in early 2017 “Nobody knew health care could be so complicated.” Yet, it shouldn’t take a rocket scientist to understand how complex a health care delivery system (and this nation’s in particular) can be. This is a stew of health plans, insurers, pharmacy benefit managers, physicians, other clinicians, hospitals, health systems (public and private), drug and device manufacturers, and other suppliers that don’t always mesh well. Their incentives are extremely different, and their relationship to patient outcomes and public or population health in general, are well, let’s say it—complicated.

Think of it in the following way. Elon Musk’s brainchild, SpaceX, went through extensive development before coming up with a rocket that could lift off from the launch pad. It took numerous attempts to actually reach Earth orbit and complete the overall goal of returning the booster stage to a recovery site intact for reuse. Many have seen the brilliant, colorful explosions of NASA’s attempts in the late 1950s and early 1960s to prepare one of the military’s missiles as a launch vehicle.

A different example is Mr. Musk’s current troubles in mass producing his Tesla Model 3 electric cars. Tesla has been dealing with numerous obstacles and glitches. Production is currently a fraction of what Mr. Musk predicted and investors expected. However, given time and capital (which is not a given), few doubt that he will succeed.

Are We Confident We Can Fix Health Care? 

People often say, “It’s rocket science” when describing something that is incredibly difficult to understand, manage, and/or overcome. But rocket science, like car manufacturing, is based on engineering problems, mechanistic solutions, and the laws of nature. In fact, rocket manufacture, operation, and mission success has been achieved repeatedly because although individual problems do arise, they are eventually overcome.

We have confidence that eventually, the production of electric cars, orbital and interplanetary vehicles, and even efficient use of renewable energy will occur. These are scientific and engineering problems; it may take a while but collectively, we believe the problems will be conquered.

How many of us can say the same thing about our muddied, muddled health care system? Health care is a messy business that is confounded by human behavior, access issues tied to socioeconomic factors, unpredictable flaws in human physiologic function, and our own self-inflicted constructions (e.g., health plans, pharmacy benefit managers, and odd benefit designs) to address them all. Although we may have some confidence in the ability to reach limited and incremental goals, cost-effective, high-quality health care for all our citizens remains a distant, uncertain dream.

We have been trying to fix the US health care delivery system since the HMO Act was signed in 1973. Numerous attempts have been made to address increasing costs (with very limited success) and improve quality. A rocket scientist wouldn’t want to touch this problem (nor would a brain surgeon—Ben Carson is attempting to lead the Department of Housing and Urban Development, not Health and Human Services).

Good Bets, Bad Bets, Sad Bets

We have made significant gains in increasing care access and reducing the number of uninsured. This has largely been achieved through the Affordable Care Act and Medicaid expansion. Yet, political efforts to strip away the ACA threatens to add millions of Americans back onto the rolls of the uninsured.

Nonetheless, we’ve place various bets in several areas over the decades. For example:

•        Value-based care (/value-based insurance design/value-based purchasing)
•        Capitation
•        Primary care gatekeepers
•        Implementation of electronic medical records
•        Greater use of technology (including “big data” and diagnostic testing)
•        Emphasis on quality reporting (NCQA, MIPS/MACRA)
•        Access to biosimilars
•        Direct contracting with providers

Perhaps we should have bet more heavily in some of these areas, and others, like biosimilars, are not nearly fully evolved. Yet, the problem remains. Medical expenditures continue to rise at multiples of the consumer price index. True competition does not exist at the practice or hospital level. Nor does sufficient competition exist in most parts of the country at the health plan level. The concept of value-based care has been around since at least 1995. In 2018, we’re still struggling mightily to prove the value of the care we purchase, as well as institute broad-based value-based purchasing of care.

Mediocrity at High Cost 

The US health system has not distinguished itself as the best in the world, only the most expensive. Our quality metrics in many important areas are mediocre compared with those of other advanced countries. Further attempts to measure quality have resulted in push back from providers on data reporting (witness the recent MedPAC recommendations to stop MIPS in its tracks). Pharmaceutical scientists have made great strides in effectively treating life-threatening diseases, but the costs of these therapies challenge the system’s ability to afford them for patients in need.

Forty-five years after attempting to “fix” the health care system, our cost problems have only deepened. The system has become so complex that no ordinary system can understand it (much less rocket scientists). Further engineering a broken system, which rarely responds as intended to repair efforts, should no longer be considered a reasonable response. Drastically simplifying the system, with consumers choosing among competing doctors and hospitals for their routine and urgent care, is.

Is It That Trump Fails Again to Understand the Problem?

The new budget proposal by the Trump White House attempts to attack the problem of high drug costs, but the battle tactics do not appear to be a winning strategy.

President Trump promised in several rallying speeches as well as in the State of the Union address to lower drug prices for people across the country. However, what is the benefit of lowering drug prices if the costs paid by Americans will balloon elsewhere?

In the White House budget framework sent to Congress earlier this week, the Trump Administration sought to pass through to Medicare recipients the large rebates given to pharmacy benefit managers (PBMs) and Medicare Advantage plans. The rebates, often 15% or more of the price of the drug, are given by manufacturers in exchange for coverage by the Medicare Advantage or Part D plan. There is an unmet need in this country for greater pharmaceutical cost transparency. Today, health plans, insurers, and PBMs depend on millions of dollars in rebates as a distinct revenue stream. Getting those rebate savings into the hands of the consumer is important. Yet, the reaction by payers will be as dependable as medical costs going up—they will make up for the rebate revenue shortfall by raising Medicare premiums. In other words, the balloon squeezed on one side will pop out at the other side. And the Medicare beneficiary will have to pay somehow for the revenue shortfall.

Health plans say that the rebate revenues help fund other services and medical needs, and may actually help put a lid on premium increases. That would be very difficult to prove or disprove. The inference is that the money is used for some purpose, and should it go away, funds would have to be sought elsewhere—most likely not the federal government. There is only one place to turn—the beneficiaries.

Yes, drug prices are very high, but controlling them will require a lot more than managing rebates. Better price transparency is needed throughout the system, including how the manufacturers of innovative pharmaceuticals decide on starting wholesale price at launch and interim price increases. That can only be achieved in two ways: (1) with strict regulations, such as used in other advanced countries, or (2) by exerting more control over demand, which could have damaging effects on drug industry innovation.

Medicaid plans commonly used closed formularies, which although they accept steep rebates from the pharmaceutical industry, they generally are the beneficiary of steep drug price discounts as well. Many expensive drugs are simply not covered, and the result can be frustration from patients; sometimes, they cannot receive the medication prescribed by their doctor. Remember though, patients in Medicaid have very limited (if any) cost sharing.

It seems that there is little in-depth understanding behind such an initiative by the White House, and one has to assume that it is merely done to satisfy the populist promise to lower drug costs. It is a superficial idea that does not address any unintended consequences.

If the President is serious about utilizing these tactics, he won't win this battle much less the war. Perhaps, that is precisely the intention--a show for his base. 

Is There an Escape From the Rebate Trap?

The rebates given to pharmacy benefit managers to secure a drug’s place on the formulary have become a difficult barrier to coverage for new products. The rebate income for these PBMs is sometimes passed on to health plans, insurers, and employer purchasers, but more often it is not.

A big issue is that managed care organizations tend to become addicted to millions of dollars in rebate “income,” and this mindset prevents serious consideration of new medications at competitive costs. 

For biosimilars, Pfizer and Merck have had a difficult time dislodging Janssen, maker of Remicade^®, from its preferred formulary position, despite lower prices based on wholesale acquisition cost (WAC). Janssen has simply matched the net cost (through increasing rebates), while keeping its WAC costs high—tempting plans with ever-increasing rebate revenue. The health plans don’t see the benefit of incurring the administrative costs of moving masses of patients from the preferred product to a new one, or seeing this revenue stream interrupted, without an overall further improvement in net costs.

Managed care plans have long said that discounts of 25% or more will be necessary to release the rebate stranglehold of preferred products. In the case of infliximab, this has not yet occurred, based on recent minor inroads made by Merck’s Renflexis^® biosimilar, despite larger discounts. Until greater competition is available, which drives down the WAC prices (and then average sales prices [ASPs]), barriers to accessing new medications will remain. In fact, when competition does increase, makers of the originator products, like Janssen, can simply ratchet up their rebates to maintain a hold on sales (and a billion-dollar plus profit).

Perhaps the best way around this is to force a change in the marketbasket. This can be accomplished in a couple of ways. The first, by instituting separate tiers for biosimilars and reference agents, takes the biosimilars out of the 1 of 2 preferred drug contracting restrictions, and allows patients to access biosimilars as well as preferred brands.

A second way is to reconsider biologic agents according to indication-based contracts or mechanism-of-action (MOA) based differences. Therefore, the marketbasket is modified to consider anti-TNFs separate from interleukins, allowing preferred agents in each separate category. This would allow, for instance, for more effective psoriasis agents to be well covered, and maintain the preferred position of Humira^® and Enbrel^® for appropriate patients.

A third way is to work out some innovative value-based contract, in which the manufacturer and health plan/insurer reaches an agreement on (usually) the expected outcomes of drug use and additional rebates or performance guarantees if the medication fails to deliver on this performance. The most important consideration in this agreement is the practicality of measuring an outcome of interest or ensuring adherence.

The rebate trap seems to be ensnaring more manufacturers of new biologics and biosimilars. Without greater consideration of the overall good, this trap can cause systematic problems for the pharmaceutical industry and discourage drug innovation and accessibility.