Barry is a Senior Economist with the National Center for Policy Analysis, one of the most influential think tanks in America today.
The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. The NCPA's goal is to develop and promote private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. Topics include reforms in health care, taxes, Social Security, welfare, criminal justice, education and environmental regulation.
NCPA Motto - Making Ideas Change the World - reflects the belief that ideas have enormous power to change the course of human events. The NCPA seeks to unleash the power of ideas for positive change by identifying, encouraging, and aggressively marketing the best scholarly research.
- How to Get New Drugs to Consumers Faster and Affordably
- 27 Oct 2016 07:00:58 CDT -
NCPA Senior Fellow Devon Herrick writes at Townhall:
House Minority Leader Nancy Pelosi actually agrees on one thing with Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. All three support the 21st Century Cures Act. There is no word about whether Pelosi has actually read the bill. Maybe she wants to pass it to find out what's in it, as she said several years ago about the Affordable Care Act. However, she presumably understands the purpose of the bill is to boost access to advanced drug therapies by making it easier to bring them to market.
A little background: Nearly 90 percent of the drugs Americans take are generic drugs -- most of which are cheap, costing as little as $0.13 cents per day. However, the cost of a few of the remaining 10 percent would make your mortgage look cheap. Many new drugs are made from living organisms. They are difficult to produce and even harder to get approved. After spending $1 billion or more to gain U.S. Food and Drug Administration (FDA) approval, drug makers have an incentive to charge as much as they can. What makes this possible?
1) Many drugs have few -- if any -- competing products;
2) It is also difficult and costly for a competitor to get a similar drug approved.
3) Bringing additional products to market often takes 10 years and costs more than $1 billion.
Bingo! Each newly-approved drug is a license to print money for a limited period!
Some drug makers -- such as Mylan who makes the EpiPen -- appear to be testing the limits for how much they can charge. However, rising deductibles have made it more difficult for drug makers to disguise high prices. In response to public scrutiny, Mylan (and a few other drug companies) have blamed "The Middlemen." Middleman is an old boogeyman that all consumers have heard of. If a big retailer wants to convince customers its products are cheaper, it claims "we've cut out the middleman." In the case of drugs, cutting out the middleman is sometimes done to charge higher prices -- as serial price-gouger Valeant Pharmaceuticals has shown. In Congressional testimony, Mylan's CEO tried to blame drug plan managers for jacking up drug prices. Pharmaceutical benefit managers (PBMs) are really just administrators. Insurers and employee health plans hire PBMs to manage pharmacy benefits and adjudicate drug claims for plan members. They do their best to hold down drug prices for plan sponsors (their clients) which occasionally makes them unpopular with drug makers and pharmacy owners. Blaming the middleman is a straw man. Drug makers set prices for their products. A better way to help drug makers earn more money while forcing them to compete for customers is to inject more competition to the drug market.
For example, what if it didn't cost $1 billion to bring new products to market and new drugs had numerous competitors? With competition, high prices -- such as prescriptions that cost $2,000 per month -- would be impossible for drug makers to maintain. Competition works great in that regard.
The 21st Century Cures Act would streamline the approval process for new drugs by allowing drug makers to take patient experiences into account and allow the FDA to consider aggregate anecdotal data as evidence. Rather than being limited to double-blind clinical trials that are rigid and costly, pharmaceutical companies could also track patient experiences and test out drugs' effects using Big Data.
Allow me to provide an anecdote. In the 21st Century (that would be 2016), Netflix, Amazon and Match.com seem to know which movies you will enjoy, what products you want to buy and which other members you are likely to find attractive. These firms learn this using data analytics by tracking consumers' viewing, purchasing and clicking behaviors -- without even meeting you. But under current law the FDA can only approve a drug the old fashioned way (i.e. based on 1962 regulations weighed down by 50 years' worth of additional bureaucracy).
What if drug companies could use some of the same data analytics at Netflix, Amazon or Match.com? What if the FDA bureaucracy was less rigid and less costly to comply with? These are all things that would boost competition allowing drug makers to bring more products to market. An additional benefit would be prices that don't break the bank!
For more on Health Issues:
- What Holds Back Consumer-Driven Health Plans?
- 26 Oct 2016 07:00:57 CDT -
Senior Fellow John R. Graham writes at NCPA's Health blog:
A previous entry discussed new evidence that so-called consumer-driven health plans (CDHPs) reduce health spending one eighth among employer-sponsored group plans run by national health plans.
CHDPs are defined as High-Deductible Health Plans coupled with Health Savings Accounts or Health Reimbursement Arrangements). These plans became available in 2005. However, they only appear to cover a little over one quarter of employed people or their dependents who are enrolled in their benefits.
The case for CDHPs is that consumers (patients) will spend their health dollars more prudently than insurers or employers will. So: How can such a small proportion of people be enrolled in CDHPs after over a decade of evidence supporting the case that they cut the rate of growth of health spending?
According to the Kaiser Family Foundation's 2016 Employer Benefits Survey, the average premium for a family High-Deductible Health Plan was $16,737, versus $19,003 (almost 15 percent higher) for a traditional Preferred Provider Organization (PPO). Why do employers appear to be leaving money on the table?
One reason is an agency problem. If government policy forced you to buy housing benefits, or automobile benefits, from your employer, the market would obviously work a lot less effectively than the current one, where you buy your home or car wherever you want.
This agency problem is compounded by a type of money illusion: People believe their employers pay most of their health benefits. Employers believe the same thing, even though economists understand workers pay one hundred percent of their health costs, either directly or through suppressed wages.
For more on Health Issues:
- How Federal Regulations Hiked EpiPen Prices
- 25 Oct 2016 07:00:56 CDT -
People with severe allergies and asthma often carry an epinephrine auto-injector or have one readily available at all times. The most common model by far is the EpiPen, which enjoys an 85 percent market share. The price of the EpiPen, preloaded with the generic drug epinephrine, has increased by more than 400 percent in less than a decade.
The drug maker Mylan bought the rights to the nearly 30-year-old EpiPen in 2007. At the time, one EpiPen sold for about $57. By August 2016, Mylan had raised the price of each EpiPen to more than $304. Due to rising health plan deductibles over the past 10 years, families have increasingly borne more of the cost of health care out of pocket. Higher cost-sharing made it more difficult for Mylan to mask its price increases. A public outcry at Mylan's price hikes ensued. The case of EpiPens shows why it important to use cost-sharing to enlist consumers in the battle to control drug spending. Without consumers complaining about their share of the cost, there would be little public outcry to stop many of the more egregious price hikes.
Mechanical engineers have been working on auto-injectors for 50 years and the technology is not particularly complicated. The devices should be sold for less than $20 apiece, based on production costs. That is probably about how much they would cost if the Food and Drug Administration (FDA) approved an over-the-counter version or a "behind the counter" version pharmacists could dispense without a doctor's prescription. The price of a generic drug is much lower than the original when there are several competitors. Moreover, over-the-counter drugs often cost 95 percent less than when sold only by prescription. Greater access could save lives by making epinephrine more easily accessible.
For more on Health Issues:
- Everybody Gets A Medal: Budget Busting "Incentives" in Medicare Reform
- 24 Oct 2016 07:00:55 CDT -
Senior Fellow John R. Graham writes at NCPA's Health blog:
In April 2015, huge bipartisan majorities passed a milestone Medicare reform bill called MACRA, which imported all the worst elements of Obamacare into Medicare. At the time, I wrote an alternative proposal, and anticipated physicians would refuse to swallow the medicine MACRA prescribed. Congress passed the flawed MACRA bill, and President Obama gave a speech describing how "this legislation builds on the Affordable Care Act." Remarkably, Republican politicians who assert they want to "repeal and replace Obamacare" have still not recanted their support of MACRA.
The gist of MACRA is that Medicare will no longer pay for "volume" but "value" in a zero-sum game wherein physicians who do not satisfy the government's requirements for "value" transfer income to those who do. Since the bill was signed, the details have percolated from the elite physician executives who run the medical societies which lobbied for the bill down to practicing physicians. There has been pushback.
Nervous that physicians will bail out of Medicare if the government squeezes them too hard, the Administration has backtracked on MACRA's sticks and shifted towards carrots. Last April, the Administration published a proposed rule, 426 pages long. After a lengthy comment period, the final rule, which is 2,205 pages long (!), was published on October 14.
According to the proposed rule, 761,342 physicians were expected to participate in the Merit-based Incentive Payment System (MIPS) in 2017 (Table 64). Almost half (45.5 percent) were expected to be docked pay for underperforming while 54.1 percent would be rewarded for over performing, and a very small number would be neither penalized nor rewarded. $833 million would be transferred from the under performers to the outperformers. To give a little boost to the incentive for the first year, another $500 million would be handed out to the outperformers.
According to the final rule, up to 642,119 physicians are expected to participate in MIPS in 2017 (Table 62). However, only 5.3 percent will be penalized for underperformance. They will be docked $199 million, while the vast majority will get bonuses of $699 million (plus the $500 million extra in the first year).
In conclusion, the taxpayers' liability doubled from $500 million to $1 billion in just six months. That is not a big amount of money, but it should be an affront to those who still cling to the quaint notion that Congress should appropriate money for public spending. And by giving bonuses to almost 95 percent of physicians, the final rule ridicules any concept the legislation had of rewarding top performers for quality.
For more on Health Issues:
- California's Surprise Medical Bill Law Papers Over A Systemic Problem
- 21 Oct 2016 07:00:54 CDT -
(A version of this Health Alert by NCPA Senior Fellow John R. Graham was published by Fox & Hounds.)
Insured patients who go into a hospital for scheduled surgery are often shocked to find they owe bills well beyond what they expected to pay, especially if they understood the hospital and surgeon to be in their health plan's network. The problem usually occurs when an anesthesiologist or other specialist involved in the procedure is not in the insurer's network. Until now, when it came to the amount the out-of-network specialist could charge, the sky was the limit. A recent Consumers Union survey found nearly one third of Americans who had hospital visits or surgery in the past two years were charged an out-of-network fee when they thought all care was in-network.
The new law, AB 72, which was proposed by Assemblyman Rob Bonta, addresses this problem with two new regulations. First, a patient cannot be charged more out of pocket (deductible or co-pay) by a specialist who is out of network versus one who is in network. Further, the total charge (most of which is paid by the insurer) will be limited to 125 percent of the amount Medicare pays for the same procedure.
As a finger in the dyke, the law is okay. By increasing the rate to 125 percent of Medicare's fees from a previously proposed 100 percent, the bill defused organized medicine's opposition. Doctors often exaggerate how much insurers negotiate their rates down. Complaining about contracts offered by insurers, a surgeon told Casey Ross of STAT News: "Insurers won't negotiate with us. They tell us, 'Take it or leave it. Here's what we're going to give you,'" adding that insurers might offer 90 percent of the Medicare reimbursement rate.
This is hard to swallow. Although there are idiosyncratic cases where private insurers pay doctors less than Medicare does, private insurers pay significantly higher fees than Medicare does, on average. A freshly published study of doctors' claims in Texas using 2013 data showed private payers paid fees ranging from 148 percent to 235 percent of Medicare's fees for facility-based services.
So, AB 72 will likely encourage some more specialists to sign contracts with insurers, in order to avoid getting paid 125 percent of the Medicare rate. And it will likely reduce patients' problems with surprise bills. However, it will not get rid of our medical billing mess because it ignores the fundamental, systemic problem: Patients control an almost insignificant share of the dollars spent on our health care. Only about ten cents of every dollar spent on our health care is spent directly by us. The rest is controlled by insurers or governments (while we pay indirectly through premiums and taxes).
No wonder out of network specialists can inflict so much financial anxiety on patients in such an off-hand, almost careless way. They really do not have an incentive to worry about the pain they cause patients' pocketbooks, because their incomes do not depend on ensuring a patient is able and willing to pay his bill in a relatively frictionless way.
Imagine if other service businesses operated like this. Remember when President Obama was trying to convince us that the Obamacare health-insurance exchanges would operate like Expedia or Travelocity? It is laughable in hindsight. Nevertheless, while most people agree that actual airline travel (which is regulated by the federal government) is miserable, buying a ticket to fly is a convenient and transparent process. A passenger does not get a bill from the co-pilot a month after his flight, stating the co-pilot was not in the airline's network, and the passenger must pay extra!
There is no reason all charges for hospital care cannot also be clearly communicated and accepted upfront. This is the way medical tourism works: Foreign patients agree to a fixed charge for all services associated with a procedure. Overseas hospitals know they have to operate this way to attract direct-paying international patients who do not have entire departments (like insurers do) to wrangle with hospitals and specialists over minutely detailed and confusing fee schedules.
A real solution to the problem of surprise medical billing will only come when Americans demand a very different healthcare payment system; whereby insurers indemnify patients for catastrophic costs, and hospitals and specialists depend on patients directly for their incomes.
For more on Health Issues:
- What NCPA Experts Said about Last Night's Debate
- 20 Oct 2016 07:00:53 CDT -
Here's a short overview of their responses to the Trump/Clinton face off last night:
NCPA Senior Fellow Pamela Villarreal:
"The candidates discussed policy, but neither were very familiar with their own tax and economic plans! Hillary Clinton's plan will produce less of a 10-year deficit than Donald Trump's plan, but her tax increases will only cover half of her proposed $1 trillion in new spending. Trump's plan will no doubt grow the economy but will leave a deficit of $7 trillion over 10 years. Both candidates need to face that fact that spending cuts are in order. Even a robust economy will not cover a multi-trillion deficit, and anticipated revenue from tax increases will be less than expected. As far as entitlements, again, Donald Trump's pro-growth policies and Hillary's tax increases will not make Social Security and Medicare solvent over the long run. These are band-aid approaches that ignore real reforms."
NCPA Executive Director Allen West:
"There are truly two critical issues for the American people -- economic growth and national security. When it comes to trust in our government, it is at an all-time low and we need to restore our rule of law and not create a SCOTUS that is used to advance ideological agendas. The decision about what type of country we shall be is truly in the hands of the American people. The seminal question that should have been posed this evening is, 'How do you define liberty?' We are just three weeks away from determining how we shall advance liberty and empower Americans -- not just a politically and ideologically determined few."
Health Economist and NCPA Senior Fellow Devon Herrick writes:
"The previous debates virtually ignored Obamacare. This debate was no exception. Health care is arguably the one topic that effects all Americans. The rising cost of medical care is something that rivals mortgage payments for most Americans. When will the candidates talk about the issues that effects all Americans' lives?"
NCPA Legislative Director Brian Williams:
"Debt. Entitlements. Immigration. Economic growth. Supreme Court. Foreign hot spots. Fitness to be President. Those were the topics on the agenda for last night's debate. The debate touched on each of those topics (some more fleetingly than others), but a substantive examination of the topics, let alone an outcome, failed to materialize. Instead, the bulk of the debate was spent using the policy topics to sling insults at each other. The morning-after conversation was shocked that Donald Trump talked about rigged elections instead of conceding right there on the debate stage. But even MSNBC's Morning Joe acknowledged the long history of partisan bickering about rigged elections (https://youtu.be/1K5Kw_snIes). In the end, the debate probably didn't move the electoral needle either way. For Americans interested in policy, the debate was probably a waste of time. Who won last night's debate? In my opinion, the winner was Chris Wallace, who was the best moderator of all the debates this year."
For more on Economic Issues: