Everyone complains about the high cost of prescription drugs, but not many people try to do anything about it. An admirable exception is the Department of Health and Human Services (HHS), which recently proposed a pilot program to change the way Medicare reimburses doctors for medications they administer directly to patients, as opposed to those distributed through pharmacies or hospitals.
At present, the doctor gets the average price of a drug plus six percent, a clear incentive to use higher priced drugs instead of lower priced equivalents. HHS wants to make the reimbursement 2.5 percent plus a flat fee. The idea is to curb Medicare spending on physician-dispensed drugs — which grew from $9.5 billion in 2005 to $22 billion in 2015 — without harming quality of care.
Alas, there is now an uproar against the proposal on Capitol Hill, where the two interest groups most affected, the pharmaceutical industry and certain medical specialties such as oncology, have immense clout. All 14 Republicans on the Senate Finance Committee are demanding the Obama administration withdraw the proposal — and all 12 Democrats on the committee have signed a letter raising their “concerns.” Similar moves are afoot among both parties in the House. Lawmakers, echoing the lobbies’ talking points almost verbatim, claim the HHS plan will inflict economic damage on small, independent practitioners who tend to pay higher prices for drugs because they lack hospitals’ bargaining power, thus encouraging industry concentration and limiting patient choices.
The obvious goal is to pressure HHS to weaken its plan before it becomes final in a couple of months. Yet a new analysis by the Evidence-Driven Drug Pricing Project at New York’s Memorial Sloan Kettering Cancer Center shows that the HHS proposal addresses a real problem and that the opponents’ complaints are probably overblown. Medicare rules do, indeed, encourage physicians to use more expensive drugs instead of cheaper equivalents, and the incentive is strongest with a relative handful of highly expensive cancer drugs.
In effect, the status quo allows drug companies to raise prices in periodic increments and split the proceeds with the doctors who administer them, the study found. Meanwhile, when all sources of physician reimbursement, not just Medicare, are factored in, the HHS proposal would only modestly decrease the average oncology practice’s overall profit margin from 16.1 percent to 15.5 percent. That’s not a deal-breaker, but if anyone thinks it is, HHS could fix it by raising the proposed flat fee a few dollars.
What we have here is another case study in why it’s so hard to reform health care: Almost any change, no matter how reasonable, creates winners and losers – and the latter can always find a way to recast their narrow interests as a noble stand on behalf of seniors, or small business, or some other sympathetic “stakeholder.” Those interests have the ear of Congress, including, disappointingly, members of President Obama’s own party — who you’d think would be defending his HHS officials instead of carping or remaining silent. The executive branch is on the side of consumers and taxpayers this time. We hope it doesn’t back down.