Dan Leonard, President, National Pharmaceutical Council

Health care spending in the United States is at the center of a loud, fractured debate mired in deep complexity.

Anyone who watches the headlines on health spending will see a parade of usual suspects cited as the problem. A headline from 

 points to rebates: “Wholesale Drug Prices May Be Rising, but Rebates Are Taking a Bigger Bite.”

 blames hospitals: “Allegations of a Hospital Chain’s Ruthless Price-Fixing Explain Why You Pay So Much for Healthcare.”

 scapegoats pharmaceutical companies: “As Specialty Drugs Gain Share, Trump Looks to Curb Prices.”

Often the headlines can make the problem itself a moving target. A 

 sounded the alarms in “National Health Expenditure Report Shows We Have Not Solved the Cost Problem,” while the same data set was used in an American Medical Association piece that came to the opposite conclusion: “Growth in Health Spending Slows in Post-ACA Era.”

Sometimes headlines even create ambiguity on what problem we need to solve. “Are Drug Prices Too Low?” asked Bloomberg.

Part of the reason for the confusion is that policy makers and industry players are not working from a common set of facts and assumptions about the health care system, blinded somewhat by a desire for quick answers and clear villains.

When it comes to health spending, real problem solving will happen only if all stakeholders dig deep into the issues at hand within a broadly understood framework. To open new doors in finding common ground in the debate, we need to make progress in how we assess, analyze, and apply the evidence and data around health spending.

To do that, we must prioritize 4 efforts.

1. First, we need to zoom out and look more broadly at a complete picture of the patient care continuum and how each piece fits with the next. Drug spending, hospital-based care, and post-acute costs do not happen in a vacuum. A dollar spent in any of those areas will inevitably affect spending in other areas.

Ignoring that point, because it’s either complex or ideologically convenient, robs decision makers of a clear picture of where we get the most value for our health care dollars. And if we really want to come up with solutions that will work in the real world, the patient experience must be included in the equation of what is truly valuable.

If we focus on only 1 area of health care, we might miss the benefits that other sectors bear on improving health, reducing costs, and weeding out low-value services we know are deeply embedded in the system.

2. Second, we must get better at gathering and evaluating the evidence that informs the discussion. Sharpening our focus and taking a critical eye to the data and statistics that drive headlines are vital.

Take, for example, the discussion generated by the recent 

Journal of the American Medical Association (JAMA)

 comparing health spending in the United States with that of other countries using data from the Organisation for Economic Co-operation and Development. The article asserts that because of higher prices, salaries, and administrative costs, the United States spends more on health care. It’s quite a powerful statement and reinforces conventional wisdom.

It might not be entirely true. We can see that the study did not include prices for any service category and infers prices based on expenditures, among other serious limitations. Therefore, using the 

 conclusions to make bigger assumptions about health care spending in the United States could inadvertently point us toward solving the wrong issues.

To be sure, we are always at the mercy of our data sets, and this is not a call to toss out any paper that does not meet some standard of analytical perfection. But to the extent that research is used to create headlines or policy, the community must be attuned to those limitations.

3. Third, going deeper on the debate around health spending requires that we stop confining our view on costs and outcomes to 1 moment in time. Although looking at short-term costs of treatments may be the actuarial imperative for payers, the patient benefit and the reduced costs that come with better health may come years later.

 patients switch insurers frequently over a lifetime, and the payer that initially covered that patient’s care may never see the cost benefits of avoided care. There is a clear social and broader health economic imperative to include those delayed benefits in the health spending discussion. Excluding these data would be like writing a book review without reading the end of the story.

4. Fourth, the ability to critically evaluate existing research and generate new, high-quality research data requires that we broaden the range of stakeholders in any given discussion, especially when there are competing interests. We must move beyond point-counterpoint conflict to closely examine the ways in which different groups have different language and different assumptions that may color how they view the conversation.

When we have stakeholders with myriad perspectives at the table, engaged in real partnership, it helps all involved sidestep the usual talking points and finger-pointing and accelerates our momentum toward solutions and problem solving.

The good news is that as the debate on health spending has grown, we’ve seen a shift and new openness among stakeholders to engage. At the National Pharmaceutical Council, we started the year with a new endeavor—a research-first initiative to answer the hard questions on health spending called Going Below the Surface. We’re engaging with a wide range of organizations representing the payer, the patient, the provider, and research communities that are interested in advancing this discussion in a meaningful way.

By working side by side, we hope to get to the heart of the complex questions that can’t be answered in a headline. We need to dig deeper and get the full picture. Once that’s in focus, it will lead us to some evidence-based, commonsense solutions.

Silverman, Ed “Wholesale drug prices may be rising, but rebates are taking a bigger bite.” 

https://www.statnews.com/pharmalot/2018/03/30/drug-prices-wholesale-rebates-celgene/

Hiltzik, Michael “Allegations of a hospital chain's ruthless price-fixing explain why you pay so much for healthcare.” 

http://www.latimes.com/business/hiltzik/la-fi-hiltzik-sutter-health-20180413-story.html

Japsen, Bruce “As Specialty Drugs Gain Share, Trump Looks To Curb Prices.” 

https://www.forbes.com/sites/brucejapsen/2018/05/01/as-specialty-drugs-gain-share-trump-looks-to-curb-prices/#1f9b9cd617af

Antos, Joseph R., Capretta, James C. “National Health Expenditure Report Shows We Have Not Solved The Cost Problem.” 

https://www.healthaffairs.org/do/10.1377/hblog20171205.607294/full/

Robeznieks, Andis “Growth in health spending slows in post-ACA era.” 

https://wire.ama-assn.org/ama-news/growth-health-spending-slows-post-aca-era

Koons, Cynthia “Why We May Lose Generic Drugs. 

https://www.bloomberg.com/news/articles/2018-04-11/are-drug-prices-too-low

Papanicolas I, Woskie LR, Jha AK. Health Care Spending in the United States and Other High-Income Countries. 

. 2018;319(10):1024—1039. doi:10.1001/jama.2018.1150

Greenwald, L., Graff, J., Wamble, D., Dubois, R. “International Health Care Spending Data: What They Can Tell Us, And What They Can’t” 

, May 7, 2018. DOI: 10.1377/hblog20180430.6731

Cutler, D., Ciarametaro, M.; Long, G., Kirson, N., Dubois, R, “Insurance Switching and Mismatch Between 

the Costs and Benefits of New Technologies.” 

Articles

Going Beyond the Headlines on Health Spending in 4 Steps

Each June, more than 35,000 leading scientists, academics, oncologists, and other stakeholders gather in Chicago, Illinois, for the American Society for Clinical Oncology (ASCO) Annual Meeting. The event has traditionally been a place to reveal potentially practice-changing results from clinical studies, but ASCO has, in recent years, focused attention on a related topic: the ever-increasing cost of cancer care.

This year, attendees may have even more to chew on as they consider cancer drug pricing because the meeting comes only weeks after an expert panel, appointed by President Donald Trump, released a report on the topic, Promoting Value, Affordability, and Innovation in Cancer Drug Treatment.

Although the report didn’t break much new ground, it serves as an important reminder of what we have at stake and how stakeholders need to work together to put patients at the center of all health care decision making.

As the report notes, and as ASCO attendees understand well, “innovations in cancer therapy, particularly in the development of targeted drugs and immunotherapies, hold remarkable potential to transform treatment of the disease.”

However, breakthrough medicines can work only in patients who are able to access them.

The cancer panel’s study focuses much of its attention on what it considers high list prices for therapies. The cost of medication to the patient certainly is a legitimate topic of discussion and is frequently compounded by hospital markups and the byzantine system of rebates and fees accrued within the drug supply chain. Focusing solely on this 1 slice of health care spending not only misses the point, but it also misses the opportunity to fundamentally make the system more efficient without sacrificing improved outcomes.

That’s not a simple task, and it is even more complex in the case of cancer, for which physician visits, diagnostics, surgery, and medical treatment all connect in subtle and critical ways and the personal and societal challenges and costs are meaningful. But that is the level of analysis needed to help us deal with the most important questions regarding how we invest our limited resources.

To the authors’ credit, the report touches on several recommendations that are already in use or being tested by stakeholders as a way to address spending and access concerns. We are very pleased that the report used the National Pharmaceutical Council’s research in some of the critical areas it references for value-based cancer care:

Contracts Many innovative manufacturers and insurers negotiate value-based, or outcomes-based, contracts,

 in which a medicine is reimbursed based on how well it works for a particular patient population. Doing so can reduce the payer’s risk of exposure to failed outcomes and makes treatments more affordable for patients. However, adoption of these contracts has been slow, largely because of difficulty in agreeing on measurable outcomes, lack of required infrastructure, and regulatory barriers. Recently, US Department of Health & Human Services Secretary Alex Azar made it one of his 4 priority efforts to ease regulatory barriers that exist across the health care spectrum, which could accelerate innovative value-based contracting models.

Several groups, including ASCO, have developed value assessment frameworks

 to consider the value of new treatments, which are intended for use by specific end users. Yet most frameworks still fall short in the effort to balance the evaluation of treatment costs with the consideration of benefits to the patient. By not incorporating the full value and benefits of medical innovation, as well as the patient’s input, frameworks will fall short of the goal to meaningfully assess value. On the other hand, the development of flexible, transparent frameworks, in which providers and patients understand how value is being measured, offer the opportunity for more thoughtful decisions about treatment.

Incentives to Use High-Value Medicines and Minimize Out-of-Pocket Costs

With a greater number of insurers offering high-deductible health plans, out-of-pocket costs have been increasing for consumers in recent years.

 Results from studies have shown that those costs fall particularly hard on low-income consumers, causing them to skip treatments or postpone care.

In response, some insurers and government programs, such as Medicare, have been testing value-based insurance design (V-BID),

 which is intended to give patients an incentive (or in some cases eliminate a built-in disincentive) to use high-value medical services. Like many of the other solutions proposed, a move to V-BID could change medicine for the better but only if it is grounded in a strong evidence base, with enough flexibility to ensure that no patient is left behind.

Another consideration—not as much in oncology&mdash;is to lower or reduce out-of-pocket costs for patients who need higher-cost treatments based on their biology or genetics.

 This approach recognizes that patients shouldn’t be penalized for “bad luck” and aligns costs with the benefits of a treatment.

Transparency is an important concern, especially in oncology. Given the vast number of available health insurance plans, it is challenging for both physicians and their patients to know whether a particular oncology treatment will be covered. Similarly, many insurers and health systems use care pathways, also known as clinical pathways or integrated care pathways,

 as a method to manage patient care based on clinical practice guidelines.

Patients are often not aware that their treatment plans follow a care pathway. They may also be unaware whether the clinical practice in which care is being delivered is subject to pathway-related incentives. We need to increase transparency to ensure patients are armed with the best possible care and coverage.

The report also highlights the need for market competition and investment in biomedical research, both of which are important factors in driving innovation for the development of oncology treatments and for other complex conditions. Ensuring a robust environment that balances continued innovation and access is vital, not only for patients but also for the health system as a whole. “This complex problem will not be solved quickly or easily, and it will not be solved by any organization or sector working alone,” the report concludes. “The Panel urges all stakeholders—drug developers and manufacturers, policy makers, government, public and private payers, health care institutions and systems, providers, and patients&mdash;to work together to address rising costs and ensure that patients have access to innovative, high-value, and affordable cancer drugs.”

We could not agree more with that sentiment. This is a conversation we all should welcome, not just during ASCO’s once-yearly meeting but all the time.

Several groups have developed value assessment frameworks that consider the value of new treatments, yet most models fall short balancing the evaluation of treatment costs with the consideration of benefits to the patient.

Aiming for Value Over Volume in Cancer Drug Spending

Over the past decade, creative thinkers in government, industry, and academia have grappled with one of healthcare’s biggest challenges: how to slow the pace of spending while improving access to care. Their efforts have led to changes in public policy and spawned experiments in value-based contracts and other novel payment and delivery models.

By some measures, their efforts have paid off, as hospital systems, biopharmaceutical companies, health insurers, and clinicians have tested the new models, sometimes supported by government agencies. A dip in healthcare utilization is also playing a role. Recent government projections for growth in annual net expenditures, approximately 5.6% through 2025, are slightly lower than earlier estimates.

On the surface, these trends seem encouraging. But what if it turns out that spending projections are down because families hit with higher insurance premiums and coinsurance are skipping doctor appointments or leaving prescriptions unfilled? In that case, we can’t honestly say that these efforts have been successful.

That’s why it’s time for us to have a broader, more honest conversation about healthcare spending. This may include striving to answer some daunting questions about how much spending is too much—or, is it worth the investment should the new spending prove to be of high value to patients? Healthcare isn’t unique. Our elected leaders have had similar conversations around spending on our nation’s defense in the past, and they will in the future as well. As part of this exercise, we must also consider which metrics or measures of health and longevity are reasonable and sensible for our society.

As a start in this direction, we can begin to elevate both the content and tenor of our national discussions about healthcare. Until now, too many of our conversations have focused on how to spend less, not necessarily on how to spend better. We gravitate toward policy proposals that employ blunt instruments such as arbitrary caps on prices or limits on spending in various sectors.

There are 3 problems with this way of thinking. First, not all care is created equal. If we can effectively squeeze out waste, whether it’s unnecessary administrative costs or expensive and ineffective interventions, we can allocate resources to treatments that deliver better outcomes. The National Academies of Sciences, Engineering, and Medicine, for example, claims that we spend $750 billion annually on low-value care or waste.

Second, in our minds and our discourse, we often reduce healthcare to specific costs at a point in time rather than talking about a person’s lifetime investment in health. Third, we imagine that the tools and treatment options we offer patients today will be the same tomorrow—not realizing that investments in research will soon equip us with new treatments that keep people healthy and could cost far less than today’s interventions.

The search for silver bullets that deliver healthcare savings and the general confusion over costs versus investments account for our failure to address structural flaws, such as waste in the system. This is why I stress the need for new discourse among all stakeholders who share a commitment to helping patients. That includes pharmaceutical companies, hospitals, doctors, insurers, caregivers, and all other participants in the healthcare system that serves us today.

In recent years, stakeholders in each of these sectors have squandered precious time and resources on pointing fingers at other segments of the healthcare system. Recognizing that no segment is perfect, we should concentrate on strategies to enhance different areas and commit resources more wisely on what matters most for patients.

We also have to recognize that value isn’t synonymous with cost savings. We agonize over how to reduce the total bill for healthcare when, in fact, the real value for patients may lie in increased spending in one area and reduced spending in another. For example, with HIV in the 1980s and 1990s, most health spending occurred in the hospital or for palliative or hospice care. Today, HIV is being treated successfully with medications. Overall costs of treatment may not have come down, but health improvements have been dramatic.

With this in mind, last fall the National Pharmaceutical Council (NPC) issued a request for research proposals that looked at fundamental needs driving healthcare policy. In response, organizations submitted ideas that could help shift national discussions of value in more fruitful directions. Within this context, it’s permissible to ask whether there are reasonable limits to healthcare spending and, if so, how they should be defined.

To answer such questions, we need a better window into healthcare economics, including how investments in biopharmaceutical innovation today may affect future net spending. The impact may be highly positive if pharmaceutical advances reduce the need for costly in-patient procedures, as history suggests they will. If, at the same time, innovations prolong life expectancy, we will be confronted by a whole different set of cost calculations. The sooner we lay the groundwork for these trends in health care economics, the better.

Innovation has certainly improved prospects for patients. Therapeutic advances between 1991 and 2011 contributed to a 22% decline in overall cancer deaths during that period.

 I believe this positive trend will continue. Over time, we should see fewer deaths from liver cancer (thanks to drugs that cure hepatitis C), lower mortality from blood malignancies (thanks to gene therapies that prime the immune system), and fewer cases of cervical cancer (as more young people are vaccinated to prevent human papillomavirus infections). Someday we will see sophisticated economic impact analyses of these trends. At the very least, preventing some forms of cancers can lead to stunning reductions in costs linked to hospitalization, surgery, radiation therapy, and conventional chemotherapy.

But as I said, innovation isn’t limited to breakthroughs in treatment. The 21st Century Cures Act puts a spotlight on game-changing uses of real-world evidence, a process innovation involving flows of data from electronic health records, insurance claims, and wearable monitoring devices, among other sources of information. These data streams are able to provide a much clearer picture of how medical treatments help patients in their daily lives. Armed with that information, payers and biopharmaceutical companies are better prepared to design value-based contracts in which reimbursement for medicines is tied more closely to how well the drugs perform in a patient’s daily life.

Innovation is also the key to reaping more value from each healthcare dollar spent. Witness the many successful experiments in structuring healthcare benefits to encourage the use of high-value care and discourage low-value care. These experiments include mechanisms that reward medication adherence in patients with diabetes to avoid crises that result in visits to hospital emergency departments (EDs). Overuse of EDs already accounts for $38 billion annually in wasteful spending.

The emergence of tools such as value-based insurance design, which shifts the focus from how many dollars are spent to how well they are used, is critical. Under this same rubric, we should make sure patients aren’t penalized financially for using a drug from a different formulary tier if that drug is proven most effective in treating the patient’s specific condition.

Whatever trend lines emerge on the computer screens of economists, sociologists, and other healthcare prognosticators, it’s clear that driving down prices in one segment of healthcare won’t improve medical outcomes for the majority of patients. The challenge is in learning how we can use our resources more wisely. Developing a holistic view of value will help us recognize the impact of today’s treatments and it will provide insights that can help direct discovery efforts toward areas of greatest need. The NPC will be talking about these trends throughout 2018, and we invite stakeholders across the healthcare system to join the conversation.

Keehan, SP, Stone, DA, Poisal, JA, et al. National health expenditure projections, 2016—25: price increases, aging push sector to 20 percent of economy. Health Affairs (Millwood). 2017; 36(3), 553-563. doi:10.1377/hlthaff.2016.1627. Accessed December 10, 2017.

Transformation of health system needed to improve care and reduce costs [press release]. Washington, DC: National Academies of Sciences, Engineering, and Medicine; September 6, 2012. www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=13444. Accessed November 29, 2017.

Siegel, RL, Miller, KD and Jemal, A. (2017), Cancer statistics, 2017. CA Cancer J Clin, 67: 7—30. doi:10.3322/caac.21387. Accessed November 9, 2017.

New England Healthcare Institute. A matter of urgency: reducing emergency department overuse: a NEHI research brief - March 2010. NEHI website. Accessed November 29, 2017.

Healthcare stakeholders must evaluate how to use resources more efficiently as it has become clear that driving down prices in one segment of care has not improved medical outcomes for the majority of patients.

Having a Broader Conversation About Healthcare Spending

More than 56% of US employers offer healthcare insurance for their employees, providing a vital link to important care through the design of their healthcare benefits. How employers design benefits, select their vendors, and manage their contracts affects the breadth and costs of health coverage offered to employees. Employers rely heavily on their consultants for these important tasks, particularly when it comes to pharmacy benefits management.

Yet the roles of pharmacy benefit managers (PBMs) and their business models have been under increased scrutiny in recent months. The prevailing PBM approach is perceived by many healthcare stakeholders as overly complex and opaque, setting up perverse incentives that work against healthcare goals such as improving outcomes and lowering costs. These perceptions have attracted attention in the press, where PBMs, biopharmaceutical companies, and other stakeholders are engaging in finger-pointing about which group is responsible for high drug prices.

We wanted to better understand some of the underlying challenges that employers are facing to encourage a constructive dialogue among healthcare stakeholders. To do so, we engaged Benfield, a division of Gallagher Benefit Services, to conduct research that assesses employer experiences and perspectives on PBMs so that we can move toward a more fully value-focused approach to pharmacy benefits management.

As part of this research, Benfield surveyed 88 jumbo employers—those with more than 5000 employees&mdash;and learned that there is often a disconnect between the important role employers believe their PBMs play in helping to manage prescription drug benefits and their perceptions of PBM vendor goal alignment, trust, and service satisfaction. The findings indicated that this disconnect is rooted in employer concerns about transparency, contract complexity, rebates, and focus on value.

In particular, employers who participated in pre- and post-survey interviews noted that they have several important objectives for alleviating these concerns and improving the value of their prescription drug benefits on behalf of their employees. They want to:

Improve transparency around pricing, rebates, and discounts.

 For many employers, receiving rebates from their PBMs creates a revenue stream that companies’ benefits departments count on to offset rising costs. Focusing too strongly on rebates can be a distraction to employers, taking attention away from other factors that affect the value they get for the money spent on providing prescription drug benefits to their employees. These important factors include ensuring employees have access to the most effective medicines, making sure employees are not bearing a disproportionate cost share because their coinsurance or deductible payments are based on pre-rebate prices, and supporting broader goals related to employee health, productivity, and satisfaction. Ideally, employers are interested in replacing rebates with discounts or using point-of-sale rebates, in which patient payments reflect a post-rebate price.

Simplify contracts and provide clear definitions to remove ambiguity

. Employers surveyed said they are confused and intimidated by the sheer complexity of the current PBM models and ambiguously worded contracts. They are unclear about how PBMs make money from the services provided to their organizations and do not fully comprehend the details of their contracts.

Provide full disclosure of the rationale behind formulary and exclusion list decisions, such as the clinical, financial, and economic impacts.

 Employers want to ensure that the decisions are being made in the best interest of their employee populations. Value-based contracts—in which payments are based on how effective a medicine works for a particular population&mdash;could become more common, as well as the use of value-based insurance design, in which patients pay less for high-value drugs.

In the future, employers are expecting to have more transparency in how rebates or transactions are handled by PBMs and will need to develop a strong mix of in-house and/or external consulting expertise in pharmacy benefits and contracting.

To have a sustainable marketplace that rewards value and innovation, employers need to get strong value in return for the money they spend on prescription drug benefits. Starting a dialogue and becoming more engaged in their management of the prescription drug benefits are important steps employers can take in meeting those goals.

Toward that end, we have developed tools that employers can use to perform self-assessments, recognize the ambiguous terminology used in contracts, and engage more effectively with consultants or advisers on pharmacy benefit issues. These tools, available on our website at npcnow.org, can provide employers with actionable steps they can take to become more engaged and actively drive toward the goal of better value for money spent on prescription drug benefits.

Many healthcare stakeholders are concerned that pharmacy benefit managers use perverse incentives that work against healthcare goals, such as improved outcomes and lower costs.