2 changes to cut Federal health care expenditures

If we’re serious about cutting Federal health care expenditures over the long term, here are two changes that will do just that.

1. Requiring HHS to negotiate with pharma for Part D drug costs would reduce annual expenditures by over $20 billion.

As I’ve noted repeatedly(but unfortunately few in the mass media have), Part D’s perhaps the biggest deficit problem we have – the ultimate unfunded liability is now over $20 trillion. Of course, we could solve the majority of our budget problems by just canceling Part D, but neither the Democrats nor the Republicans ) will do that.

So, as long as we’re stuck with the damn thing, we ought to make it as inexpensive as possible. The best way to do that is to use the buying power of Part D to negotiate with manufacturers to get the best possible price for drugs that you – the taxpayer – are paying for. Believe it or not, the original Part D legislation expressly forbids negotiation with manufacturers for pricing.

In a 2006 House analysis, a report “showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department [emphasis added], 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and Drugstore.com.”

Another study indicated “An annual savings of over $20 billion could be realized if FSS [Federal Supply Schedule] prices could be achieved by the federal government for the majority of drugs used by seniors in 2003-2004…”

Are there problems with this? Absolutely. Reducing prices may impact R&D expenditures and will affect pharma margins – effects that must be balanced against the nation’s long-term financial viability.

2. Stop paying for medical ‘bridges to nowhere’; Require HHS to base reimbursement for devices and therapies on efficacy and effectiveness.

As noted in a recent piece in Health Affairs, “with only very rare exceptions, Medicare does not use comparative effectiveness information to set payment rates. Instead, it links reimbursement in one way or another to the underlying cost of providing services.” CMS is prohibited from considering benefit to the patient when developing reimbursement formulae and levels.

About a third of US health care dollars are spent on treatments that are likely not effective. One has only to look at the history of MRIs, carotid endarterectomy, and angioplasty to identify billions of dollars that have been wasted on treatments that did not help, and may well have harmed, thousands of patients. These treatments, devices, and providers make money for their purveyors and manufacturers, dollars that they are loathe to give up.

It is amazing that we pillory the Feds when they spend taxpayer dollars on services or items that (some opine) don’t work at all or don’t work as they are supposed to, yet prohibit CMS from doing precisely that.

Cutting costs while improving outcomes is absolutely possible. Whether it is politically feasible is another question entirely.

Joseph Paduda is the principal of Health Strategy Associates, and blogs at Managed Care Matters.

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  • Leo Holm MD

    A fine example of corporate welfare. Pharma gets whatever they ask for, while doctors get to struggle to repeal the SGR. Drugs and devices that barely work at all get to command whatever “the market” will allow, while physicians are subjected to “pay for performance” and other reimbursement cutting measures. I wish I was a drug or a device. Then I would be set!

    • Norm

      Yep, the pharmaceutical companies are the evil ones. I would like to see physicians treat their patients without the many drugs that American phama has provided. Go ahead try to practice for one day without antibiotics, H2 blockers, PPI’s, antidepressants, anti psychotics, oncology meds and a host of other beneficial products.

    • ninguem

      I couldn’t agree more. What Dr. Holm said, and Joseph Paduda said, and then some………

      The scooters come to mind as well. A big ripoff of the system, most people don’t need them, in fact it makes them worse, at a grossly inflated price.

      Wal-Mart did more for American healthcare with their $4 prescriptions, than Hillary and Obama and Romney put together.

  • Marc Gorayeb, MD

    “One has only to look at the history of MRIs, carotid endarterectomy, and angioplasty to identify billions of dollars that have been wasted on treatments that did not help, and may well have harmed, thousands of patients.”

    So are you suggesting that we can eliminate these technological innovations? If not, then why don’t you explain to us exactly who should and should not be getting these procedures? And just exactly how would you balance the nation’s expenditures on part D against the need for R&D and a viable pharmaceutical industry? This is such a simplistic summary – a meaningless pipe dream. It does nothing to advance anyone’s understanding of the issues.

  • http://www.BocaConciergeDoc.com Steven Reznick MD

    Its hard to call the development of MRI, carotid endarterectomy and angioplasty unsuccessful and a waste of funding. Maybe the application of these technologies in the field has been inappropriate in instances, and maybe the payment established by the Medicare Payment Review Commission was inappropriately high for the time and risk involved but these technologies have saved lives when used appropriately.

  • William Nuesslein

    The price of a drug has many components including R&D. The various part D plans have some bargaining power for price discovery. Negotiations with Medicare as a single provider would set the price. The result would be less R&D as Canada and others free ride on our industry already.

    The inability to balance costs and benefits comes from the societal belief that every life is priceless, even if that life is a months extension of suffering for a very old person.

  • Dorothy Green

    I hear what you are saying – unnecessary procedures, medical equipment and medications and a very expensive bill passed during the last administration that continues to be part of the cancer – worse than the infectious greed in our economy a decade ago – in US heathcare/economy.

    Physicians cannot be absolved nor can patients. A person has to seek out a physician first before these procedures, equipment and medications can be ordered by a physician.

    It is a cultural issue. A sick culture that has grown out of greed by all parties concerned. just listen to a few ads on TV – singing out “It’s my money and I want it now”, or “Medicare pays for your scutter or you get it free” or I want “an all you can eat” buffet for $10 or 2 beef burgers for a buck”. The Big Pharma ads and all the the political anti public health campaigns – ie ” death panels, lead us down a slippery slope to communism if we dare question Big Ag etc. Ad nauseaum. All reflective of this sickness.

    I agree with your first 2 ways of working toward decreasing healthcare costs except for:

    “Are there problems with this? Absolutely. Reducing prices may impact R&D expenditures and will affect pharma margins – effects that must be balanced against the nation’s long-term financial viability”.

    Uhm! ads cost a lot of money, so stop them. Maybe, there are some scientists and physicians out there like Dr. Salk – who care more about doing something that irradicates a disease rather than making a hugh profits – Big Pharma knows people are lurded by ads to ask physicans for drugs that they, in turn, readily prescribe (with all their side effects). To suggest we have to continue this expensive deception otherwise Big Pharma won’t do R&D for new drugs sounds like blackmail. New drugs for what diseases anyway? I hope not CHRONIC PREVENTABLE DISEASES for which there are already too many drugs.

    Add to this list #3

    A Tax called RISK (reduction in sickness kitty) on all the sugar, fat and salt in processed food – 90% of the American diet, substances which cause humans to overeat or eat non-nutritious products. These are the primary causes of chronic preventable diseases that eat up more than half of American healthcare dollars. Yep! Big Ag profits will go down and the McMacs will fire people if milkshakes, burgers, chips cost more than a salad and fruit for lunch and people start eating more healthy food.

    There is a new job market emerging in this country where a lot of people “let go” by Big Ag and Big Pharma when their buiness of supporting sickness is no longer subsidized by taxpayers – “back to the future” or local farming.

  • Molly Ciliberti, RN

    Just came from ADA annual meeting in San Diego and guess who really spent the money on their booths, marketing, etc???? Big Pharma! They whine that they need to charge an arm and a leg for their medications for research and I really think they spend their money on marketing and sales and on their profits. It is outrageous. I would love for the congress, senate and president to do a little tour of these shows to see where the money goes. Time to renegotiate that deal for Medicare.

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