American Elephants


The Trump Administration is Reforming Medicare with Competition and Common Sense. by The Elephant's Child

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President Trump has approved a new medicare rule to reduce prescription drug prices through competition. U.S. Health and Human Services Secretary Alex Azar explained to reporters on Saturday. Few people know that America leads the world in encouraging doctors and patients to use low-cost, high-value generic drugs. More than four-fifths of all prescriptions in the U.S. are for unbranded, off-patent generic drugs that cost less than a typical bottle of mineral water. A tremendous help for people with ordinary medical issues like high blood pressure, early-stage diabetes, and high cholesterol.

The cost problem is the high cost of branded, on-patent prescription drugs. Pharmaceutical companies take advantage of their market power to charge unreasonably high prices unrelated to the true clinical and economic value of the underlying medicine. The way Medicare — with four different insurance programs with different premiums and copays—covers different kinds of prescription drugs. Medicare Part A covers hospital stays, including the drugs administered there. Medicare Part B, covers drugs administers in doctors” offices such as intravenous infusion. Medicare C, “Medicare Advantage”, is a new, popular, privately-administered Medicare program that covers the same services and Parts A and B. The Bush administration created a 4th Medicare program to cover retail prescription drugs from your pharmacy.

Part D has done a great job of helping competition among private insurers and drug companies to bring lower prices, and the program has come in way under budget. A novelty in U.S. history. However Medicare’s design puts a ceiling on competition because it prevents competition among retail drugs and those administered in doctors offices and hospitals.

A number of expensive drugs for rheumatoid arthritis are administered in doctors offices under Medicare Part B. Doctors get a 6% commission on the average selling price of prescription drugs they administer in their offices, which means a big incentive for doctors to steer patients to these drugs. A new generation of treatments for rheumatoid arthritis are oral drugs financed through Medicare Part D. Because the different Medicare programs operate separately, seniors don’t get the benefit from competition between the new oral drugs and the older drugs covered by Part B.

The new rule allows Medicare Advantage plans to use “step therapy” under which seniors might start with an oral drug paid for by Part D, if it’s of equal clinical value but lower cost, and then step to a more expensive injectable drug if the first medicine fails to work. Insurers would be required to return at least half of the savings to seniors, possibly in the form of those Visa gift cards often sold in grocery stores and pharmacies.

This gives Medicare Advantage plans the tools to get a better deal for patients. Competition works. This is free market capitalism at its best.

There are two short books that I recommend highly, by Philip K. Howard: The Death of Common Sense and The Lost Art of Drawing the Line. He explains how government rule books (law) dictate results that never make sense. Government, with the best of intentions, hands out new legal rights that screw up something else. Intending to be fair, in the name of individual rights, Americans end up losing much of their freedom. Brilliant books that help in understanding why free market capitalism brings prosperity that simply eludes the control freaks of the world.



A Little History of Health Care Cost Estimates and Actual Results. by The Elephant's Child
October 27, 2009, 12:46 am
Filed under: Economy, Health Care, Law, Politics | Tags: , ,

Let’s start with the fact that the Democrats want single-payer, government-run health care.  I cannot fathom why they think this would be a good idea, since it has proved so damaging everywhere else.  Damaging to the economy, damaging to the patients who depend on it, and damaging to the medical system itself, and damaging to the society.

But Democrats (Liberals/ Progressives) believe in their good intentions, are uninterested in studies, experience or history, and don’t care much about consequences.  That’s why when they are in pursuit of their enlightened aims, their claims get more and more preposterous.

Washington has just run a $1.4 trillion budget deficit for fiscal 2009three times the deficit in 2008 under the evil George W. Bush.  And we have just been told that a new health-care entitlement will reduce the red ink by $81 billion over ten years.

The theory is that a more involved federal role by those brilliant folks in Congress will restrain costs and thus make health care more affordable.  Stop laughing, it isn’t funny.

Before the creation of Medicare and Medicaid in 1965, health care inflation ran only slightly faster than overall inflation.  In the years since, medical inflation has increased 2.3 times faster than inflation in the regular economy.  Much of this represents advances in technology and new treatments, but the idea of government as thrifty is plain silly.

The Wall Street Journal examined the record of Congressional forecasters in predicting costs.

ED-AK368_1healt_D_20091019182913The record is not good.  Most government programs cost far more than they were estimated to cost, and of course Congress usually cannot keep their hands off and continually tinkers.

The $81 billion “reduction” in cost came from the CBO estimate applied to the Baucus bill which existed only as a bunch of concepts.  We need a good  CBO estimate of whatever they have added in the back room, behind closed doors.  Whatever the estimate, history tells us that it will cost far more.

You will notice that only George Bush’s Prescription Drug benefit came in under predicted cost, but I have read that the Democrats are anxious to fill in the “donut hole” which was the device that brought the program in under estimates, along with greater use of generics, and lower participation by seniors.

Peter Orzag , now White House Budget Director, told Congress when he ran the Congressional Budget Office that the “primary cause” of the cost savings is that “the pricing is coming in better than anticipated, and that is likely a reflection of the competition that’s occurring in the private market.” Competition?  Who knew! The Centers for Medicare and Medicaid Services agreed, adding that when given choices “beneficiaries have overwhelmingly selected less costly drug plans.”

There is a lesson there, but apparently no one is paying attention.




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