The ACA and the Myth of Increasing Drug Costs

Alex M. Azar II, JD, discusses problems with the Affordable Care Act and the spread of misinformation surrounding drug costs during a session at the National Association of Specialty Pharmacy Annual Meeting and Educational Conference.

With significant uncertainty surrounding health insurance and increasing scrutiny regarding high drug costs, specialty pharmacy is poised to play a vital role in providing value and superior patient care in the years ahead.

During the National Association of Specialty Pharmacy (NASP) Annual Meeting and Educational Conference on September 19, 2017, keynote speaker Alex M. Azar II, JD, presented the speech “Specialty Pharmacy: The Bridge to the Patient in a Rapidly Evolving Healthcare Ecosystem.”

Azar, formerly president of Eli Lilly USA and deputy secretary and general counsel of the US Department of Health and Human Services under President George W. Bush, discussed the myriad issues with the Affordable Care Act (ACA) and its effect on the health care market.

“Many of the problems that Obamacare is suffering from right now were entirely predictable as a matter of economic and individual behavior,” Azar said.

He noted that 47% of counties in the United States will have just a single insurance carrier next year, while citing billion dollar losses for insurers fleeing the individual market. As a result, premiums have jumped 105% since 2013.

“That is an increase that would make drug companies hold their head in shame,” Azar said.

Azar noted that Aetna’s CEO described the ACA as being in a “death spiral” that will require statutory changes to recover from. He stated that original estimates by the Congressional Budget Office of 38 million people insured under the ACA by 2016 fell well short, with approximately 10 million people currently insured on the individual market and another 10 million insured under Medicaid.

“I don’t know all the data from within specialty pharmacy, but I would guess the expansion in Medicaid lives have not necessarily been high specialty pharmacy users given the restricted formularies in Medicaid,” Azar said.

Azar added that Lilly and other manufacturers did not benefit financially from the growth in the insured population. Meanwhile, premiums increased 44% in young populations compared with only 7% in older populations.

“Young, healthy moderate and above income individuals have been progressively driven out of the marketplace by structural and implementation decisions made under Obamacare,” Azar said.

While significant concerns have surrounded coverage for preexisting conditions under health care reform packages proposed by Republicans, Azar noted that prior to the ACA, HIPAA prohibited the denial of insurance for a preexisting condition; however, the ACA additionally banned price discrimination based on that preexisting condition.

Azar said this action allowed price discrimination based upon age, but the provision also made a fundamental error that immediately doomed the ACA by setting community ratings of premiums at a 3-to-1 ratio.

“When you look at the actual cost of insurance, the market is more like 5-to-1,” he said. “That choice was made as an act of redistribution from young healthy individuals to pre-Medicare population individuals. A fairly massive transfer of wealth was envisioned there with the 1-to-3. This is what happens when you make policy choices, but don’t actually think about economic laws and human behavior in connection with those laws and where that will lead.”

On the issue of drug pricing, Azar pointed to a large amount of misinformation permeating among the public and media. He said that drug pricing has been relatively stable over the past 5 to 10 years, but insurance benefit design changes have shifted more of the burden in employer-sponsored health care to employees.

Azar said that under the ACA, many people chose low premium plans that meant high bills if they ever needed services such as prescription drugs.

“So, the patient is walking in to the pharmacy and they’re seeing the sticker price,” Azar said. “On top of this, you have the issues that happened with various generic and generic-like manufacturers on pricing that really stood out there.”

He said that high list prices at launch in hepatitis C, oncology, and rare diseases all had a significant impact on spending.

“One of myths is that health care spending is out of control because of high drug costs. It isn’t drug costs that are doing it,” he said. “Over the last 50 years, drug spending has remained constant at 10 to 14%. For the last 50 years it is unchanged and every forecast has it unchanged going into the future at 10 to 14% of spending.”

Azar said that 56% of premium increases were a result of hospital and professional costs compared with 13% from drug costs.

“As we look at insurance benefit packages, they’re still—from the 1960s—prejudiced against prescription drug spending,” he said. “Drugs are one of the most important tools the physicians in our hospitals use who deal with health care conditions.”

Azar said that average out-of-pocket costs for hospital services is 5% compared with 20% for prescription drugs, which removes incentives to use these drugs. List prices have increased as well, rising 12% in 2015 and 9.2% in 2016, according to QuintilesIMS. Azar added that rebates have risen sharply with a concentration of power among pharmacy benefit managers (PBMs) and insurance companies.

“They’re masters of negotiating rebates and they’ve brought down the net pricing of rebates. Effectively, they do their job really well,” he said.

Azar said that cutting list prices does not change the equation at the point of sale for patients. He said brand competition is the magic key to lower drug prices, as seen when competitors to high cost hepatitis C antiviral drugs entered the market.

“Within 1 year, a competitor hepatitis C vaccine entered the marketplace and rebates went up to 65% and net pricing of the hepatitis C vaccine is lower in the United States than the pricing in Europe with socialized medicine,” he said. “Competition actually works because there is concurrent innovation.”

Azar cautioned against pushes for legislation to address drug costs. He said that natural forces of self-correction are already at work.

“You’ve had loss of exclusivity on major drugs and you’ve had fairly bare pipelines. All of that is changing right now,” he said. “PBMs are really good at their jobs. You now have launches of most products under price predictability agreements.”

Azar added that legislating drug costs could be extremely detrimental as we enter a “golden age” in pharma.

“With the decoding of the human genome, we now have such an understanding of the molecular nature of disease that we are producing targeted therapies. We are seeing unbelievable, revolutionary drugs roll off right now,” he said. “I hope this is not when we stifle innovation and stifle patient access to that innovation in the interest of looking at a rear-view mirror problem here.”

Azar concluded the session praising the work of specialty pharmacies, who he said deliver white glove services to patients and act as their shepherd through the storm of battling a potentially life-threatening disease.

“This connectivity isn’t just about a great customer experience or to make the patient feel good. It has an impact,” he said. “It’s been demonstrated that you deliver better adherence when a product is delivered through a specialty pharmacy.”