Our options on drug costs: 'Universally unappealing'

A week ago the Star Tribune featured an illuminating report concerning what the headline pointedly called "drug roulette."

The story lamented that many Minnesotans "pay the price" in various ways for dizzying shifts in the availability and cost of prescription drugs, especially insulin for diabetes.

What the story illuminated, in more ways than one, were central reasons why ever-rising health care costs, and not just for drugs, have for so long proven "incredibly resistant to attempts to change [their] trajectory." That's the diagnosis in an equally illuminating and admirably candid report last month from the Minnesota Department of Health.

Now, we're dealing here with a government agency report to the Legislature, deep inside a political arena that is "incredibly resistant" to attempts to speak unspun truth. So what passes for "admirable candor" here are pronouncements like: "Effective strategies to constrain [health care] spending growth will not be universally appealing." After all, they may produce "winners and losers" and involve "perceived or actual change[s] in access, service availability, or choice."

This constitutes plain talk in the customary candy-coated wonderland of health care reform debate, where everybody has a plan for universal coverage, improved care and reduced costs — not to mention continued prosperity for whatever segments of the medical-industrial complex are influential in your state. ("Any viable plan must … driv[e] down costs while improving health care outcomes for all," read a San Jose Mercury News editorial reprinted on these pages just the other day.)

The fairy tale kingdoms of health care debate are places where "drug roulette" strikes many as a rigged game but "negotiation for lower drug prices" is tirelessly touted as a painless cure for high costs. Trouble is, "drug roulette" is what "negotiation for lower drug prices" often feels like on this side of the looking glass.

Among progressives, next to "Medicare for All"-style government-run health care, the most popular reform proposal around seems to be a call for the federal government to directly negotiate Medicare drug prices with the pharmaceutical industry. In fact, Medicare does negotiate indirectly, through "middlemen" organizations called pharmacy benefit managers (PBMs). That's the way other public and private insurers negotiate, too.

The main difference with Medicare is that negotiators for the biggest drug buyer of them all operate under a disadvantage.

PBMs negotiate rebates on drug prices by offering drug manufacturers favored positions on "formularies" — lists of drugs health insurers cover to varying degrees, with varying copays, etc. This process is supposed to steer patients to medications that fork over the biggest price cuts. But that means insurers periodically cut back coverage for drugs not offering a good enough deal, or require patients to try lower-cost treatments in so-called "fail first" or "step therapy" plans.

That's the game that spins the drug roulette wheel.

Medicare is restricted in its ability to reduce or drop coverage of many drugs. That's the main limitation on its negotiations, and it indeed keeps prices higher.

But exposing senior citizen Medicare beneficiaries to more drug roulette may not prove … "universally appealing."

There are problems aplenty with the way drug prices are set, and many well-intended efforts are underway to try to change it. All the confidential backroom deals lead, critics say, to drug companies inflating their "list prices" so they can keep profits high while giving bigger rebates to PBMs, who don't disclose to insurers or patients the size of the discounts (or how much of the total the PBMs pocket).

Meanwhile, through copays, deductibles, coinsurance, etc., many patients pay out-of-pocket costs linked to distorted list prices. And sometimes manufacturers offer out-of-pocket discounts directly to patients to keep them demanding high-priced brand-name drugs, which drives up insurance premiums.

Among the efforts to straighten out this mess:

• Former Minnesota Attorney General Lori Swanson filed suit against insulin makers in October, alleging that their inflated list prices constitute fraud.

• California and other states have passed laws banning manufacturer discounts to consumers (so called "copay coupons"), hoping to encourage use of lower-cost drugs.

• A number of proposals to bring more openness and stability to the drug marketplace are being considered at the Minnesota Legislature.

• The Trump administration is proposing a range of cost-control measures, including allowing Medicare to say no to more drugs that aren't worth the price.

But the administration's most provocative idea would outright prohibit drug company rebates to PBMs, allowing only direct-to-consumer discounts.

If only on the grounds that secret closed-door price-setting can't be healthy in the long run, this is an intriguing idea. But as should be clear, the complications are endless with all of these initiatives.

Drug companies seem to like the notion of banning backroom rebates more than the insurance industry does, while analysts seem agreed that such a change would tend to reduce out-of-pocket costs for patients with high prescription bills while pushing general insurance premiums higher.

We're back to winners and losers, and the Health Department report's bracing candor. The department projects that in the next decade health care spending in Minnesota will double — yes, double — by then consuming 19 percent of the economy. Yet "there has been no substantial evidence that increased health care spending has led to similar gains in health."

Efforts to reduce this spending "both grand and incremental," the report admits, have largely failed. Among the obstacles the report bluntly cites is the simple fact that health care has become a giant industry employing almost 15 percent of all Minnesotans. Society's health care "costs" are the incomes and profits of a huge, well-organized body of "powerful opponents" arrayed against controlling spending.

What's more, patients as well as the system "often err on the side of … more health care, regardless of … effectiveness or efficiency."

Given all this, the report even ponders the "possibility that, at least theoretically, as a society we favor increases in health care spending at the cost of other policy priorities. However, there seems to be a broad interest in … not giving up on … constraining … health care spending."

So let's place our bets and give the wheel another spin.

D.J. Tice is at Doug.Tice@startribune.com.