OP-ED

The Case For Rational Rationing

The House Republicans on Thursday took another swipe at the alleged rationing in Obamacare, voting to eliminate the independent advisory panel that will propose cuts in Medicare spending when it grows substantially faster than the rest of the economy.

Most people have never heard of the Independent Payment Advisory Board, but they certainly got an earful about “death panels” and “rationing” in 2010 when Republicans used it to attack the Democrats’ health care reform bill. Stoking fear of death panels and rationing helped the Republicans win control of the House.

The IPAB has nothing to do with death panels or rationing. The 15-member panel of experts will offer Congress options for holding down Medicare’s spending whenever it grows out of control. Congress has the option of either allowing those cuts to go into effect, or enacting its own menu of cost control measures.

There is no shortage of skeptical analysts who suggest Congress will be just as likely to reject IPAB recommendations and substitute nothing at all. After all, every Congress over the past decade has rejected imposing previously enacted cuts on physician pay. Why will the IPAB cuts be any different?

The reality is that neither party has a good track record when it comes to holding down Medicare spending, and the level of debate Thursday reflected their perennial obsession with the next election, not the next generation. “Do you remember death panels?” cried Rep. Jack Kingston, R-Ga., on the House floor. “It’s not necessarily a death panel, but it is a rationing panel and rationing does lead to scarcity for some. Who’s going to get the needed treatment, an 85-year-old or the 40-year-old with children?”

“The rationing is in the Republican plan,” responded Rep. Chris Van Hollen, D-Md., the ranking member of House Budget Committee. “What they do is allow insurance companies to ration people’s health care.” Never mind that insurers who cover Medicare beneficiaries must follow Medicare’s coverage guidelines.

It’s ironic that the symbolic vote – it will go nowhere in the Senate – took place on the day after a entirely different outside advisory panel met at the Centers for Medicare and Medicaid Services to discuss coverage issues. The hearing offered a revealing glimpse into how rationing could actually save beneficiaries and the government billions of dollars a year without jeopardizing care one iota. That’s right, billions.

The panel considered whether there was enough scientific evidence to support a Medicare decision to pay for drug treatments that can postpone diabetes-caused visual deterioration and blindness, known as diabetic macular edema. The Food and Drug Administration is considering an application by Roche/Genentech for a very expensive drug called Lucentis that can correct the condition.

How expensive? Lucentis costs $1,624 for a monthly shot that will be needed for the rest of the diabetic’s life. FDA approval is expected very soon since clinical trials published last year showed it is very effective.

But there is another drug available for the condition, which is also made by Roche/Genentech. It is called Avastin, and it is equally effective because it is essentially the same drug. The only difference is that Roche/Genentech packages Avastin in very large doses for its primary use, which is fighting cancer. Eye doctors have figured out that if you break those vials of Avastin into the smaller doses appropriate for direct injection into the eye, the treatment doesn’t cost $1,624, it costs $43.

This doesn’t just affect the government purse. Seniors who get the shots – and there are 325,000 Medicare beneficiaries with diabetic macular edema who will potentially qualify for the treatments – must pay 20 percent of the cost of these drugs as their co-pay. What would you rather pay every month: 20 percent of $1,624 ($324.80) or 20 percent of $43 ($8.60)?

If everyone on Medicare who is eligible for the treatment receives Lucentis, it will cost the government $6.3 billion a year, a technology assessment submitted to the committee said. If they receive Avastin, the government will pay only $167.7 million.

The committee didn’t consider pricing issues, unfortunately. Medicare by law can’t consider price when evaluating whether it will pay for treatments. And the Affordable Care Act, yes, the same reform law that Republicans are trying so desperately to repeal, says comparative effectiveness research paid for by the government (like the technology assessment on diabetic macular edema) cannot be used to make payment decisions.

So the committee simply voted on the scientific evidence. Eight of nine panelists said that both drugs (as well as two other expensive drugs in that class) worked about the same.

Right now, both drugs are being used “off label” because the FDA hasn’t approved either for diabetic macular edema. But Medicare contractors in about half the states are paying for them. Once the FDA approves Lucentis for the condition – the company won’t submit an application for Avastin because it isn’t in its interest to do so – CMS will begin paying for the pricier drug everywhere. Medicare will always pay for an FDA-approved drug. Physicians, who get a small mark-up on the price of drugs they use in their offices, will have a major incentive to use the more expensive, on-label product.

A rational government agency that is allowed to consider price would only pay for the off-label drug Avastin. Instead, what we have is irrational non-rationing that within a few years will be costing the government and seniors about $7 billion extra a year. Maybe Congress should hold a vote on that.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect, The Washington Post and Financial Times. You can read more pieces by him at GoozNews, where this post first appeared.

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Barry Carol
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Barry Carol

Bob Hertz – The actual direct cost of drugs manufactured in pill form, as opposed to much more complex biologics, is often literally pennies per pill. The largest costs components for drug companies by far, though, are R&D, sales and marketing. Companies have been aggressively cutting the latter two in the last few years. When comparing the drug industry to other industries, there are huge differences in what financial types like me call capital intensity or how much in assets it takes to support each dollar of revenue. Specifically, for its most recently completed fiscal year, Pfizer needed $2.79 of… Read more »

steve
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steve

The first four years provided little coverage and little revenue. While it will cost more, it will also bring in more revenue. The change in indexing in 2019 (I am pretty sure this has not changed), will slow cost growth. CBO predicted that revenues will offset costs enough that it could decrease debt (deficit?) by 1/2% of GDP.

http://cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf

Steve

bob hertz
Guest

Let;s get back onto the drug pricing issue. I am not in the field of pharma myself, but looking at it from the outside I cannot connect two apparent facts: – the literal cost to manufacture a drug might be $5 for a month’s supply, including labor, raw materials, packaging and shipping. – the drug sells for $100 in most retail outlets. And yet, when governments horn in to lower the price to $70, manufacturers drop out and cite low profit margins as their reason for quitting production. Something does not compute here. Maybe it is me, I do not… Read more »

herbalife side effects
Guest

IPAB is a new thing in American government. Unlike most other boards and commissions, the panel’s 15 members (appointed by the president and approved by the Senate) need not be bipartisan. Also unlike other boards, commissions, and federal agencies, the IPAB’s decisions are virtually nonrenewable .CLASS being scrapped for example reduced revenue which increases 10 year cost since claims would not have been for decades later

Peter1
Guest
Peter1

Nate says:

“English os obviously not your first langauge.”
“It exposes the dishonest accounting of 6 years expenses and 10 years of revenue.”

Sound familiar.

“With 10 years of money inflow vs. six years of outflow, the result is a positive – i.e., deficit-reducing – number. Surprise.

That would be bad if true. But it’s not true:”

http://www.tnr.com/blog/jonathan-chait/81924/charles-krauthammer-laughs-arithmetic

As usual Nate you substitute insults for factual argument.

BobbyG
Guest

“As usual Nate you substitute insults for factual argument.”

That’s just the way he rolls. Gotta love it.

Peter1
Guest
Peter1

Nate says:

“President Obama’s national health care law will cost $1.76 trillion over a decade, according to a new projection released today by the Congressional Budget Office, rather than the $940 billion forecast when it was signed into law.”

More lies.
http://mediamatters.org/blog/201203230004

Nate Ogden
Guest
Nate Ogden

Single payor in 2 months with 33 Senators and the Presidency.

President recess appoints members to IPAB

IPAB amends definition of disability so anyone can be on Medicare
Same time eliminate private insurance

33 Senators block overriding or changing the IPAB recommendations

Changes implemented by default. Hello Single payor

This isn’t a far stretch from the BS methods used to pass PPACA.

Paolo
Guest
Paolo

It’s actually an impossible stretch. By law, the IPAB can only recommend changes that decrease Medicare spending, not increase it as in your example.

Nate Ogden
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Nate Ogden

When PPACA was passed we were told it would save money, then it would cost 150 billion now 1 trillion. Is that decrease spending per member or decrease spending in total? If you forced younger people into Medicare the per member spending would decrease. If Medicare was to collect all the premium paid to private insurance now but only reimburse providers at Medicare rates on paper that would come out $300 billion or so ahead. That would offset current spending showing a decrease. Well until all the providers refused to treat anyone. Paolo you seem to forget these are the… Read more »

steve
Guest
steve

“When PPACA was passed we were told it would save money, then it would cost 150 billion now 1 trillion.” Cite for the $150 billion number please. I read this stuff as much as anyone and never saw that number. The saving money part is just just confusion on your part. “Well until all the providers refused to treat anyone.” It varies a lot, but Medicare pays on average about 20% less than private insurers. I can guarantee you that very few docs would quit. They have plenty of docs in other countries and pay them much less. Besides, there… Read more »

Nate Ogden
Guest
Nate Ogden

“The saving money part is just just confusion on your part.” “I read this stuff as much as anyone and never saw that number.” LOL really, maybe you need to stop reading DailyKos and Huffington so much and get some real news coursec? A powerful House Republican wants the Obama administration to explain why it’s asking for an extra $111 billion to implement part of the healthcare reform law. Ways and Means Committee Chairman Dave Camp (R-Mich.) is asking about a spike in the estimated costs of subsidies to help people buy private insurance — a central, and expensive, component… Read more »

steve
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steve

I am still waiting for the cite that said the ACA would cost $150 billion. AFAIK, that was never alleged. I never read Kos or Huffington, just mainline economists across the spectrum, direct CBO, CMS FRED, BLS and BEA data.

Steve

Nate Ogden
Guest
Nate Ogden

right above you is links to 3 examples.

PPACA was suppose to save us money, Instead of saving money they have since passage found 150-500 billion in additional cost in JCT

111 billion in extra cost for exchange subsidy

820 billion of true 10 year cost according to latest CBO analysis

steve
Guest
steve

March 2012 CBO.

http://cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf

“CBO and JCT now estimate that the insurance coverage provisions of the ACA will have a net cost of just under $1.1 trillion over the 2012–2021 period—about $50 billion less than the agencies’ March 2011 estimate for that 10-year period”

The $1.76 trillion number includes an extra year, and does not include revenue. Net cost is $1.25 trillion. The ACA has always been estimated at about a trillion dollars, it was never estimated at $150 billion.

Steve

Nate Ogden
Guest
Nate Ogden

English os obviously not your first langauge. The $150 billion was an increase over the original suggestions. They have actually found a number of increases that total more then $150 billion. CLASS being scrapped for example reduced revenue which increases 10 year cost since claims would not have been for decades later.

The 1.7 trillion does not include an extra year it includes a 10 year period starting 2 years later then the original bvill. It exposes the dishonest accounting of 6 years expenses and 10 years of revenue.

steve
Guest
steve

From the same CBO site. “This report also presents estimates through fiscal year 2022, because the baseline projection period now extends through that additional year. The ACA’s provisions related to insurance coverage are now projected to have a net cost of $1,252 billion over the 2012–2022 period (see Table 2, following the text); that amount represents a gross cost to the federal government of $1,762 billion, offset in part by $510 billion in receipts and other budgetary effects (primarily revenues from penalties and other sources). The addition of 2022 to the projection period has the effect of increasing the costs… Read more »

bob hertz
Guest

I believe that Canada, Germany, France, Sweden, and the UK (at least) all have Pharmacy Price Review Boards, which limit what drug companies can charge for their new products. An American version would have the FDA set the maximum price for the new drug right in the approval process. If the price for Lucentis was capped at $43 a month, there would be no need for special panels and charges of rationing. If 300,000 people will benefit from Lucentis right today, the drug company can make money at $43 a month. Not as much money as they expect to make… Read more »

Nate Ogden
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Nate Ogden

it’s unamerican and open to corruption for the government to say what a company can charge. The correct way to do it is to allow the payors to set what they will reimburse for a drug. If the company wants to charge more they can, they just need to convince the user why they whould pay for it.

For example 18935 of why we should leave insurance to the private enterprises this is already being done, theraputic reimbursement. For this class of treatment we pay $X

MD as HELL
Guest
MD as HELL

Bob,
Ever hear of the 1970’s? Rent controls, wage and price controls, capped interes rates. Caps don’t change market forces. They just create shortage and alternate pathways.

steve
Guest
steve

Yet they dont in other OECD countries.

Steve

Nate Ogden
Guest
Nate Ogden

really Steve? In crisis-wracked Greece, even finding aspirin can be a pain. The Panhellenic Association of Pharmacists says Greece is running short of almost half its 500 most-used drugs. The Greek government sets drug prices, and public insurers cover most of the bills submitted by the manufacturers and the wholesalers that supply hospitals and drugstores. The economic crisis made cost-cutting an imperative. Over the last year and a half, the government has cut drug prices, in some cases by up to 25 percent. The aim was to trim a national health bill that totaled more than €13 billion ($17 billion)… Read more »

Nate Ogden
Guest
Nate Ogden

Still think they don’t Steve? Or Peter 2?

steve
Guest
steve

Greece is broke. If you want to use that as your model, then I get to use Somalia as the model for free market medicine. There are shortages everywhere. This is largely in injectables and is largely due to low profit margins. This is true in the US where those prices are not controlled and in countries where they are. Given the universal nature of the problem, I dont think price controls are the only problem. Given that these have existed from many years, but shortages are a relatively new phenomenon, I would suspect something else. Steve I should add… Read more »

Nate Ogden
Guest
Nate Ogden

Seeing as how all OECD countries have a debt problem and by most measures would be considered broke isn’t that a great reason to not have national health insurance? When the US Goverment runs out fo money those with private insurance, if there are any left, wont be effected.

If governments across the world don’t have the money to pay for healthcare why are liberals pushing for more government take over?

Nate Ogden
Guest
Nate Ogden

I wasn’t driving but didn’t it work great with Gas?

Barry Carol
Guest
Barry Carol

I think if it were made crystal clear in the law and any supporting regulations that patients would always be able to spend their own money for anything that Medicare didn’t cover and still be fully eligible for services it does cover, IPAB should be less threatening to conservatives and other opponents. Even if their worst fears came to pass, laws can always be changed. We wouldn’t be stuck with it forever. Squeezing provider payments doesn’t cut it as a long term cost control strategy for Medicare especially since it already underpays for many treatments, especially primary care. One way… Read more »

Nate Ogden
Guest
Nate Ogden

Sorry Barry we don’t have that short of memories. Medicare was made palatable by the law clearly saying it would pay market prices for care. As soon as the cost was higher then they predicted they just struck that part of the law. There is no protection you could ever write into the law that we would trust.

MD as HELL
Guest
MD as HELL

The preferred fovernment mechanism for rationing will be shortage. No one will get it. Tey have already engineered shortage in common medicines just to see how it played. No one noticed except the docs trying to practice standard of care medicine. Watch for a shortage near you.

Nate Ogden
Guest
Nate Ogden

and those paying inflated prices for them. How is it the black market can get unlimited supplies but the hospitals can’t and thus are forced to buy from the black/gray markets.

steve
Guest
steve

“The preferred fovernment mechanism for rationing will be shortage.”

We have that now. Many have no coverage.

Steve

Nate Ogden
Guest
Nate Ogden

If you don’t like an Insurance Company’s policy or limitations you have the opportunity to choose another insurer, sue them in court, or pay for it your self.

If you don’t like an IPAB decision you have no options.

Nope nothing like a death panel, Merrill and Obama promise.

Peter1
Guest
Peter1

“If you don’t like an Insurance Company’s policy or limitations you have the opportunity to choose another insurer, sue them in court, or pay for it your self.” Gee Nate, those are great options. What do you think another insurer’s reaction would be if someone had a preexisting where their existing insurer refused to pay for further treatment? I also wonder if anyone would outlive the court process if pay for treatment refusal denied care. Odd that you don’t support IPAB attempts to control costs but you support insurers caps that you don’t describe as “death panels”. I guess you… Read more »

Nate Ogden
Guest
Nate Ogden

Peter before you say stupid things why don’t you research them? Saying something stupid then waiting for people to correct you isn’t the ideal method of learning.

Providers have limits in providing non medicare approved services to medicare enrollees. Under the NHS they also outlaw paying for non approved care yourself, something the IPAB could also implement.

To your first point after all these years you still don’t seem to grasp how insurance works. You buy a policy with the coverage you want before you need it not after.

Peter1
Guest
Peter1

“You buy a policy with the coverage you want before you need it not after.”

That would imply cost is not a barrier to coverage. Those with limited resources are slotted into the, “death panel” group of private coverage.

steve
Guest
steve

“something the IPAB could also implement.”

Or they could go with what is more commonly done, like in France, allowing people to buy care.

The 3/5 rule is intended to keep Congress from raising spending. If it wants to spend more, it can, but there needs to be a supermajority. This actually makes sense since this has become the new requirement in the Senate due to the frequent use of the filibuster. The Ryan plan just assumes that Congress will never increase the premium support levels. Magical thinking.

Steve

Nate Ogden
Guest
Nate Ogden

“The IPAB has nothing to do with death panels or rationing.” A dishonest claim from Merrill, what a shock. If the IPAB proposes to not cover Gleevec and doctors accepting Medicare are not allowed to provide care not approved by Medicare eliminating the individuals ability to pay for it themselves how is that not a death panel decision as most of the public understands it? NHS has been doing it for years and it is very effective at controlling cost. It would be a logical suggestion at the top of the list. Lets give another clear example, if the IPAB… Read more »

DeterminedMD
Guest
DeterminedMD

Social Darwinist here, just to remind readers that finding ingenious, creative ways to keep people alive for decades after nature would responsibly tell our species it is time to call it quits is just a fancy, distracting way to rationalize narcissism at its worst. Again, no one tries to take a legitimate way to argue with me where is the line in sizeable populations above 70 depending on the minority sized population under 30 to foot the elderly bills. Can’t anyone accept people die, and just prolonging life to allow select individuals/companies to flagrantly profit on misery and pain is,… Read more »

Barry Carol
Guest
Barry Carol

I’m with Merrill 100% on this one. Historically, Democrats’ response to the need to cut costs in the Medicare program is to squeeze provider payments. Keep that up and eventually Medicare patients will be hard pressed to find a provider willing to treat them. Medicaid is already at that point and still can’t control its costs. There is absolutely no reason why CMS should not be able to take costs into account in deciding what to pay for and not pay for except that spineless politicians won’t let them. Heck, they wouldn’t even let a proven money saver like competitive… Read more »