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PBMs: Rebates are nearly dead; can the PBMs keep their generic margins?

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Vanessa Furhman continues her swath through the PBM industry in the WSJ. The article is called Managers of Drug Benefits Agree To More Transparency in Pricing. Apparently bullied into this by fear of losing some big clients, both Medco and Caremark are going to disclose their prescription pricing.

Responding to pressure from some of their biggest corporate clients, two big pharmacy benefit managers agreed to provide more information to employers about the way they price and administer employee drug purchases. The two PBMs, Medco Health Solutions Inc. and Caremark Rx Inc., each handles the drug benefits for tens of millions of Americans. They have agreed to participate with eight smaller PBMs in a purchasing model that would require them to pass on to clients their own costs for acquiring retail and mail-order prescriptions. They also have agreed to pass along the price rebates, rarely disclosed in the past, that they receive from drug manufacturers.

Well actually Medco was making its total rebates clear and has begun passing back to its clients a significant chunk of its rebates last year, but its profits increased anyway because it made it up on the spread on mail-order generics. So will they start disclosing what they pay for those versus what they charge? Unclear:

Medco and Caremark both started the coalition’s process to become certified when it launched last year, but dropped out along the way. A big sticking point for them, according to some people working with the coalition, was the demand for full transparency and acquisition-cost pricing on generics ordered through the mail. PBMs enjoy some of their steepest markups and profits on mail-order generic drugs.

It’s not evident that they will be doing this, although smarter employers can find out market generic prices, see what they’re paying and figure out the difference. Something not many have bothered to do–to their great cost.

But if they succeed in beating the PBMs up on rebates and on generic spreads, the enormous profitability of the PBMs (Yup, it is enormous—around 50%  net margins if you don’t look at the cost of the drugs which are mostly a pass thru) can’t continue. So does Wall Street believe the end is nigh?

Judging by the change in their stock price, not exactly.

Big.chart

 

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HOSPITALS: Dr. Anna Pou Defense Fund

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From THCB’s New York Desk … A defense fund has been set up to help cover legal expenses
for Dr. Anna Pou and the two nurses charged with murder by Louisiana attorney
general Charles Foti in the Memorial Medical Center case last week. Contributions should be
mailed to:

Dr. Daniel Nuss, MD
Professor and Chairman
LSU Dept. Of Otolaryngology
533 Bolivar St, 5th Floor ENT Suite New Orleans, LA 70112

HOSPITALS: The secret to Sutter’s high margins?

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Appears to be defamation suits! Yup Sutter just got awarded $17.3m because

Unite Here, one of the nation’s largest unions that represents hotel, restaurant and laundry workers, defamed Sutter Health early last year by sending postcards to women of child-bearing age in Northern California claiming the organization’s hospitals used unclean linens. The union was in a labor dispute with the laundry service that cleaned the linens at the time.

Of course the cynics amongst us might just wonder if Sutter’s continued combination of being the region’s highest cost provider and its most unpopular employer are in any way connected—and whether that really does indicate that Sutter’s only concern is to “enhance the health and wellbeing of people in the communities in which we serve through a not-for-profit commitment to compassion and excellence in health care services”. (Yes, that is their mission statement), especially when Sutter is happy to go to the mattresses to protect its way of doing business, despite in some cases the significant opposition of those communities to its unwillingness to get to a compromise. Still as they say that’s showbusiness, or whatever passes for it in the hardball world of American health care.

POLICY/INTERNATIONAL: Canadians somewhat grumpy about waiting, but not waiting that long

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How bad are those terrible waiting lists in Canada? Well if you hang with the loonies at Fraser and PRI they average 10 months for a typical pregnancy and care for everyone else is delivered only by morticians. On the other hand, StatCanada (the official government body, and this one I believe is an independent bunch of civil servants rather than the US variety who’s reports are re-written by 23 yr old Republican staffers) is out with some real data.

What’s the conclusion? Canadians have to wait a little bit, and they’re pissed off, but only a little bit

Results for 2005 indicate that waiting for care remains the number one barrier for those having difficulties accessing care. Median waiting times for all specialized services have remained relatively stable between 2003 and 2005 at 3 to 4 weeks, depending on the type of care. There were some differences noted in selected provinces. Most individuals continue to report that they received care within 3 months.

Similarly, patients’ views about waiting for care have remained  fairly stable between 2003 and 2005. While 70 to 80 percent indicated that their waiting time was acceptable – there continues to be a proportion of Canadians who feel they are waiting an unacceptably long time for care.

And how bad did that wait make them feel? Well most didn’t seem to worry at all but some were pissed off.

The proportion of patients who felt that their waiting time was unacceptable was highest among those who waited for specialist visits (29%) and diagnostic tests (21%) and lowest among those who waited for non-emergency surgery (16%) (Chart 2 ; Table 9) even though individuals are more likely to wait longer (i.e. > 3 months) for non-emergency surgical care compared with other specialized services (Table 7).

And for some the wait involved real inconvenience and pain. But that was less than 20%.

Approximately 18% of individuals who visited a specialist indicated that waiting for the visit affected their life compared with 11% and 12% for non-emergency surgery and diagnostic tests respectively. (Table 10)

And most of that was stress related rather than actual pain, although there was some of that too with about half experiencing pain. (These are proportions of those who experienced adverse effects from waiting)

Most of those who were affected reported that they experienced worry, stress and anxiety during the waiting period: ranging from 49% among those whose lives were affected by waiting for non-emergency surgery to 71% among those affected by waiting for a diagnostic test. (Table 11) Between 38% and 51% of individuals waiting for specialist services experienced pain and close to 36% of those who were affected by waiting for non-emergency surgery indicated that they experienced difficulties with activities of daily living. Approximately 28% of those who were affected by waiting for a diagnostic test indicated that it resulted in worry, stress and anxiety for their friends and family.

But of course what this doesn’t tell you and what the myopic Canada bashers like Gratzer, the PRI crowd and the AMA guy all fail to point out is the other half of the equation.

Even if every single American never had to wait for any care, there is considerable the impact because of our system on the financial health of poorer Americans, and there is also consequent impact on those poorer Americans’ access to care services. Below is a chart from the 2004 Health Affairs report which shows that on a raft of issues, like not getting care from a doctor, skipping recommended care, and not filing prescriptions, the direct cost of care here impacts people just as much, if not more so. And of course some substantial number of Americans (whichever side of that argument you believe) are going bankrupt because of it.

Schoen_primarycarehltsystemperf_itlchart

Yes there are problems with the Canadian system. Yes there’s room for honest debate about it.

But take the veil of ignorance test John Tierney uses in his columns in the NY Times. If you didn’t know you were going to be born or become rich, which system would you rather be in given the realistic chance that you might end up poor? The one that will get to you if you’re prepared to wait a few months, or the one that you won’t ever get to because you can’t afford to, and that might bankrupt you if you really need it? I bet you nearly half Americans would change places if they knew.

TECH: Cerner stock heading up again?

Following almost a 30% fall from its heights late last year, Cerner’s stock seems to be on the move again. Its numbers had lower profits than the analysts guessed but higher revenue, and then they raised guidance for profits and revenue for Q3. After so many months of bad news the stock was up over 14% on Friday. It’s still 20% of its all time high, but the UK may start delivering (as in cash—as no one there’s got paid yet) and sales in the US still seem to be chunking away. Perhaps the people who piled in today know something?

HEALTH PLANS/POLICY: eHealthinsurance still skipping stats 101

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eHealthinsurance is out with its annual report of what premiums are in different cities and they’re still comparing the price of rotten month old apples with sweet juicy, juicy mangoes. And amazingly enough they’re different. Basically some states ban underwriting and therefore have insurance which is more expensive. So what I said last year when they said that prices were going down still applies—

On further review there are more questions than answers. Who got insurance? Was this group more underwritten (i.e. healthier) than the previous year? And what benefits were they getting compared to last year?  And were there changes in deductibles, co-pays and out of pocket maximums?

Just saying that the premium went down is a bit like saying the average price of a BMW 3 series is less this year on average because more people are buying them without the fully loaded options. And if it’s really true that apples for apples the premiums went down why didn’t eHealthinsurance.com put that information in the report?

Although last year apparently “prices went down” and this year they didn’t say that, so it’s pretty damn likely that if you compared apples to apples of the stripped-down underwritten plans they’re looking at, prices went up.

Of course in practical terms this report is useless. I’m a great example in that I applied for two identical policies from different carriers on eHealthinsurance—both quotes about $100 a month for a $2500 deductible plan. But when the underwriting was done, one was still $100 a month and the other wouldn’t take me at all and suggested I went in the guaranteed issue pool at $400 a month for a $4000 deductible. So quoting price without knowing what the individuals concerned need to go through to get the insurance and therefore knowing the actual price is useless.

I do note one little thing in their report. They say that St Louis Missouri has the cheapest children’s insurance premiums ($29 a month) and yet there are 119,000 uninsured kids in Missouri. In other words very cheap—or even free given the numbers who don’t sign up for the SCHIP programs—isn’t cheap enough to get kids (and adults) insured. eHealthinsurance seems to be surprised about this.

The only logical conclusion is that health insurance needs to be compulsory and automatic (although not of course free to those who can afford it). And in fact even eHealthinsurance could do OK in such a system, although the logical ramifications of it would be horrendous for many of the plans they broker for.

TECH: Why we love HISTalk

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Every so often Mr HIStalk reminds me why he’s the best blogger in Healthcare IT and possibly far beyond:

Kaiser Permanente’s Northwest region president resigns, seemingly because of computer problems that hurt earnings. "Kaiser launched a computer system to govern billing for its high-deductible health plan and for Medicare enrollees, but halted billing for both products in June 2005 due to a technical glitch." If you had all the money that various tentacles of Kaiser have spent on botched IT projects, you could be up there on the dais with Bill Gates and Warren Buffett, giving it away to the less fortunate, which would be just about everyone.

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