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What Trump’s Plan to Negotiate With Pharma Should Tell Us

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Donald Trump’s proposal to allow the federal Medicare program to negotiate prices with drug companies should be a wake-up call for the pharmaceutical industry.

Trump is leading in the polls for the Republican nomination and is even drawing the support of Tea Party conservatives who, just a year or two ago, never would have supported a candidate endorsing such strong government intervention into a private-sector industry.

Characteristically, Trump didn’t give a lot of detail about his plans. He claimed $300 billion in savings per year (about 10 times more than is realistic). But that doesn’t matter. If the leading GOP presidential candidate—a man who has proved masterful at reading the public mood and playing to it—has signed on to this idea, it proves that change has come.

I know that many veterans of the pharmaceutical industry think they have seen this horror movie before and know how it ends. There have been several past public furors over the price of prescription drugs, and each one gradually faded without major disruption for drugmakers. But this time feels different.

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Think Again: Health Insurers Have No Reason To Reduce the Price of Health Care

If the mega-mergers among health insurers are allowed to go through, it will create insurers with more bargaining power that can hold the line on prices paid to doctors and hospitals.

At least that’s been the standard rationale given in the business press for why Anthem Inc. is trying to buy Cigna Corp. and Aetna Inc. is trying to buy Humana Inc.

It’s also one reason why doctors and hospitals fear the deals. The American Medical Association cited lower prices as one key reason in its request for the U.S. Department of Justice to block the Anthem-Cigna deal.

“When mergers result in monopsony power and physicians are reimbursed at below competitive levels, consumers may be harmed in a variety of ways,” wrote Dr. James Madara, CEO of the American Medical Association, in a November letter urging the U.S. Department of Justice to block both the Aetna-Humana and the Anthem-Cigna deals.

But this fretting over price negotiations is a side show, as everyone in the finance departments of health systems knows—or ought to know.

That’s because health insurers like Anthem and Aetna have little to no incentive to hold down the price of care. Rather, they directly benefit when the price of care rises.

Let me explain how.

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The Year of the Hacker

flying cadeucii2015 was the year health care got serious about cyber security.

Hackers gave the industry no other choice.

The year started with a massive data breach at Indianapolis-based Anthem Inc., which the health insurer revealed on Feb. 4. Hackers roamed around in Anthem’s computers for six weeks and stole personal and financial information of 78.8 million customers, as well as the information of 8.8 million customers at Blue Cross and Blue Shield plans not owned by Anthem.

There have been 269 data breaches at health care organizations this year, according to statistics collected through Dec. 22 by the Identity Theft Resource Center. That’s actually down from 2014, when health care organizations suffered 333 breaches.

But the number of records stolen has soared to 121.6 million records stolen, up from less than 8.4 million records in 2014. Even without the Anthem breach, there were still 34 million records stolen this year from health organizations.
The health care industry accounted for one out of every three breaches recorded by the Identity Theft Resource Center.

“They can and are trying to break into everything,” Doug Leonard, president of the Indiana Hospital Association, said of hackers. He added, “It’s really on everybody’s radar screen in the health care industry.”

In a survey released in August by consulting firm KPMG, 81 percent of health care executives said their organization had suffered a cyber attack in the previous two years and 13 percent said they were being attacked daily.

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