In a unanimous and bipartisan decision, the Federal Trade Commission (FTC) will investigate the secretive practices of six of the largest Pharmacy Benefit Managers (PBMs) in the country. Diverse stakeholders are hopeful this action will unravel years of corruption and reduce prescription drug prices.

The FTC demanded records detailing the business practices of CVS Caremark, Express Scripts, Optum Rx, Humana, Prime Therapeutics, and MedImpact Healthcare Systems. The action has been praised by plan sponsors, pharmacy industry groups, and community pharmacy owners who are subject to clawbacks and additional fees that limit competition and consumer choice.

Of particular concern is the growing trend toward vertical integration… a closed loop in which PBMs are owned by or affiliated with large national health plans. They are also integrated with mail order and specialty pharmacies, significantly expanding their profits and reach in the pharmacy supply chain.

Lina M. Khan, Chair of the Federal Trade Commission, summarizes the situation in this recent quote. “Although many people have never heard of pharmacy benefit managers, these powerful middlemen have enormous influence over the U.S. prescription drug system. This study will shine a light on these companies’ practices and their impact on pharmacies, payers, doctors, and patients.”

Practices to Implement Now

While the FTC conducts its long overdue investigation of the self-serving predation of legacy PBMs, employers and plan sponsors can seek out pharmacy benefit plans that take a more equitable and contemporary approach.

Plans should incorporate these key management features:

• A plan design driven by lowest net cost + medically-appropriate drug procurement and transparent administration
• Rx pricing technology that departs from discounts off fictitious prices created by PBMs under investigation
• A formulary based on comparative effectiveness, not one filled with high-cost drugs that are essentially bribed by rebates
• Rigorous clinical management with manual, evidence-based prior authorization controls vs. the auto-authorization used by the troubled legacy PBMs
• Built-in advocacy for securing manufacturer financial assistance and alternative drug sourcing channels for high-cost and specialty medicines

The FTC confirms that PBM operations have been “difficult or impossible to understand for patients and independent businesses across the prescription drug system.” Employers should be encouraged by the Rx management options currently available and the industry-wide changes that are likely to result from the FTC’s probe.

While there is an imperative for immediate accountability, the immortal words of Reverend Dr. Martin Luther King, Jr. remind us that “the arc of the moral universe is long, but it bends toward justice.”

A study published in JAMA Health Forum reveals that pre- and post-sale rebates from prescription drug manufacturers to commercial health plan sponsors are steadily increasing. Far from reducing out-of-pocket expenses for patients, this convoluted backroom strategy actually makes things worse.

The study succinctly describes how this complex dynamic negatively affects members. (The bold emphasis is ours.)

“Prescription drug manufacturers routinely offer post-sale rebates to pharmacy benefit managers (PBMs) and health insurance plans. While drug rebates can reduce plans’ net costs, rebates do not reduce patients’ cost sharing, which is usually based on pre-rebate list prices set by drug companies. Drug rebates can incentivize drug manufacturers to inflate list prices and PBMs to distort drug formularies to favor high list price and high rebate therapies.”

This can also create equity issues for consumers buying individual plans as well as members covered by an employee health plan.

A related Axios article quotes Ge Bai, accounting professor at Johns Hopkins Carey Business School and one of the authors of the study, as saying, “We have the sick people paying more than their fair share for the drug and the rebate goes back to the plan to reduce premiums for the healthy.”

To build a better formulary, it’s best not to include drugs that are not supported by sound comparative effectiveness research. Follow evidence-based clinical guidelines for prior-authorization of drugs and step-therapy to use less expensive, equally effective medicines first.

Most would agree with the common adage that you get what you pay for, but that’s not the case when it comes to paying for healthcare in America. U.S. spending per capita is up to four times higher than other wealthy countries and yet shockingly, we have the absolute lowest life expectancy of them all.

One contributing factor is that Americans suffer higher death rates from smoking, obesity, homicides, opioid overdoses, suicides, road accidents, and infant mortality. In fact, low-income Americans die at a younger age than poor people in other developed nations because of deep poverty and less access to healthcare.

The other half of the equation is a system that delivers sick care instead of health care and reaps billions of dollars in profits driven by outrageously high fees, opaque pricing, and dubious business practices. And that’s not about to change anytime soon, despite crushing consumer medical debt and rising health plan costs for American employers.

Employers should seek out health plans that are designed to lower the cost of care and improve outcomes. When members spend less on premiums and out-of-pocket costs, they have more resources available to take better care of themselves — from quality food to the pursuit of mental and financial health. Such plans allow people to embrace wellness and bend the life expectancy curve to their advantage.

Medical debt is devastating the credit integrity of American consumers. The Consumer Financial Protection Bureau (CPFB) has taken steps to mitigate this doom loop and the three major credit reporting agencies are now taking action as well, no doubt in response to a greater focus on medical debt.

Transunion, Equifax, and Experian have decided in unison that:

• All paid medical debt will be removed from credit reports.
• Effective July 1, 2022, the time in which to report any outstanding medical debt will be increased from six to 12 months.
• Effective July 1, 2023, outstanding medical debt less than $500 will not be reported at all.

Do No Harm

Consumer healthcare debt is most often incurred by those who are least able to afford it and are most vulnerable to being persecuted for payment. In fact, much healthcare debt should not even be classified as such.

A large proportion of this so-called debt should have been covered from the beginning by hospital financial assistance programs (FAPs), which are mandated by law for non-profit hospitals. These hospitals receive immensely valuable tax-exempt status in return for their commitment to provide services of equal value to patients with financial need.

Research has shown that hospitals fall egregiously short of these charitable commitments. Many neglect to even inform patients that such FAP programs are available to them. Multiple articles and studies, including research conducted by Johns Hopkins University, reveals a “wide variation in charity care provision” and that “many government and nonprofit hospitals’ charity care provision was not aligned with their charity care obligations arising from their favorable tax treatment.”

Moving Forward

Personal credit report relief and similar efforts by the CFPB are promising progress in an area of significant collateral damage caused by the dysfunctional U.S. healthcare business machine. However, bigger strides are needed to protect individuals from the predation and profiteering inherent in our healthcare system.

It’s time to eliminate the financial injury caused by medical debt that’s endured by working Americans. Patients will benefit from next-generation health plans that use advanced, fair market payments for providers, and offer advocates to help patients receive all hospital financial assistance for which they are eligible.

A report from the Consumer Financial Protection Bureau (CFPB) estimates that consumer credit reports include $88 billion in medical debt as of June 2021. The cause is a “complicated and burdensome” medical billing system that creates hard-to-fix errors that increase patient debt and reflect poorly on credit scores.

According to CFPB Director Rohit Chopra, “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.” Chopra describes Americans as often being “caught in a doom loop between their medical provider and insurance company.”

The report describes a variety of circumstances that feed this doom loop, including:

• Unexpected and emergency events that are subject to opaque pricing and involve complicated insurance or charity care coverage and pricing rules.
• Patients in emergency situations who cannot sign a billing agreement until after receiving treatment.
• Patients with chronic illnesses or who are injured or ill, whose desperation for medical care forces them into treatment at any cost.

The Unfortunate Impact on Consumers

The report notes that the impact of medical debt is especially harmful for Black and Hispanic communities, low income individuals, veterans, older adults, and young adults regardless of race or ethnicity.

Consider these statistics:

• Tens of millions of U.S. households (about 1 in 5) report having medical debt
• 58% of bills in collections are medical bills
• The distribution of past-due medical debt is uneven: Black (28%), Hispanic (22%), White (17%), Asian (10%)
• Medical debt is more common in the southeastern and southwestern U.S., in part because states in these regions did not expand Medicaid coverage

CFPB Action Plan

The CFPB intends to take decisive action to ensure that the consumer credit reporting system is not used coercively against patients and their families to force them to pay questionable medical bills.

Specific actions include:

• Holding credit reporting companies accountable. The CFPB expects the Big Three credit agencies to adhere to Federal law by blocking hospitals that routinely report inaccurate information and contaminate the credit reporting system from accessing their systems.
• Working with federal partners to reduce coercive credit reporting. In addition to partnering with the U.S. Department of Health and Human Services to ensure that patients are not coerced into paying bills more than the amounts due, the CFPB issued a compliance bulletin in January reminding debt collectors, credit reporting companies, and others, that it is illegal to collect or report as owing a debt that is not legally due and owing, including where the billed amount violates the No Surprises Act.
• Determining whether unpaid medical billing data should be included in credit reports. The CFPB will conduct additional research to assess whether consumer credit reports should include data on unpaid medical bills.

Consumers having issues resolving medical debts or facing problems with other consumer financial products or services can submit an online complaint or call the CFPB at 855-411-CFPB (2372).

The U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) have done almost nothing over the past decades to protect market competitiveness and consumer interests in healthcare. Employers continue to grapple with ever-rising plan costs as members bear the brunt of fewer healthcare options at a higher cost.

The DOJ and FTC have allowed massive and ongoing acquisitions and mergers by (and sometimes between) hospitals and health systems, pharmacy benefit managers, pharmacies, and insurance carriers to go unchecked. This has fostered monopolies and cartels in these sectors, reducing competition and increasing prices for medical services, drugs, and health insurance.

Consider the following:

In the early days of COVID, America’s nurses were rightly celebrated as heroes. Many nurses had hoped that such long overdue recognition might lead to needed reforms, but that optimism seems to have faded. In fact, nurses are leaving hospitals in droves. Some are even abandoning the profession.

The convenient explanation for this phenomenon is that we’re beginning another year of the pandemic and its attendant stresses – physical, mental, and emotional. In truth, COVID has simply revealed what nurses have known all along — that the root cause of the nursing crisis is chronic understaffing by profit-driven hospitals.

What Nursing Shortage?

This opinion video from The New York Times reveals that rigid and unrealistic staff-to-patient ratios, especially in critical care units, are to blame for the current crisis. To maximize profits, hospitals have intentionally understaffed nurses for decades, long before the pandemic. There are actually more licensed nurses in the country now than ever before. It’s just that hospitals aren’t hiring them and they’re not willing to work at the bedside under these conditions.

In addition to the devastating impact on health care workers, patients often pay the ultimate price for corporate greed. The chances of dying increase by 7% with every additional patient assigned to an individual nurse. As one nurse eloquently put it, “If you push me past my limit, past my capacity for being able to multitask, something’s going to get missed. And when I say something, I’m talking about your mother. I’m talking about your father. I’m talking about your husband and your wife.”

Follow the Money

A provocative video from PBS | Amanpour and Company exposes the practice of hiring travel nurses to temporarily boost hospital staffing during this crisis. While this helps ease staffing burdens, it also creates discontent because travel nurses are paid up to three times more than resident staff.

The traveling nurse featured in this video insists we need full financial disclosure from hospitals regarding where the money is going. “They say that they will not pay nurses and doctors more because they can’t afford it. Yet they still keep giving million dollar bonuses for their CEOs every year. So how exactly is the money being distributed? If it’s not being distributed to the heart of the hospital, which is doctors, nurses, and patients, where is that money going?”

Staff-to-Patient Ratios are Key

Nursing professionals agree that regulating staff-to-patient ratios is key to improving patient safety, protecting burned out health care workers, and retaining skilled and experienced nurses. California put such a law in place in 2004 with positive results, but it has been an uphill journey elsewhere. A recent initiative in Massachusetts was defeated thanks to a $25 million misinformation campaign funded by the hospital lobby, but laws are currently under consideration in Illinois and Pennsylvania.

Hospitals and the for-profit health care industry need to start respecting the expertise of our nursing professionals. These laws could save patient lives and create a more just work environment for a vulnerable generation of nurses, the ones we pledged to honor and protect at the start of the pandemic.

Many school systems rely on property taxes for most of their budget. When a school district in Chester County, Pennsylvania challenged the charitable results of three nonprofit hospitals owned by Tower Health, they exposed the unethical practices that allow many nonprofit hospitals to beat the system. The school district won.

Nonprofit hospitals are supposed to provide acceptable levels of free care to the community in exchange for not paying property taxes. The judge in this case concluded that the results for three Tower Health hospitals “did not show a substantial donation of services” and ordered the hospital to start paying taxes.

The basis for this decision is indisputable:

• Phoenixville Hospital | A mere 0.00076 percent of patients received free services (only 162 of 199,405 people to whom services were rendered last year)
• Brandywine Hospital | Just 0.052 percent of patients received free services
• Jennersville Hospital | Only 0.053 percent of patients received free services

The judge also ruled that lucrative executive bonus plans tied to financial performance disqualified the hospitals from a tax exemption. The compensation plan was clearly a pass through of tax savings to hospital executives.

Questionable Accounting

Another revelation from this case reinforced that writing off bad debt does not equal donated services. “An institution that treats patients efficiently and at a cost lower than the stated reimbursement percentage gets the same payment as an inefficient institution,” the judge stated. “To write off bad debts is not charity when the hospitals decide not to pursue the collection of these accounts even though there was, in the hospitals’ determination, a means to pay. The bad debt write-offs do not equal an increase in donated care.”

The court also ruled that the hospitals’ reliance on a “master charge sheet” — a common feature in hospital finance offices — was meritless because the hospitals’ own witness testified that this charge master has no meaning or value. The witness stated, “The numbers, essentially, are pulled out of thin air and are created only because [the hospital] is required to have a charge sheet to satisfy federal requirements.”

The hospitals contended they had each lost money, revealing that Tower Health had charged them fees in excess of $43 million in 2020 alone. The court rightfully questioned the company’s administrative structure and executive compensation schemes that drained “huge sums…from the [hospitals and to Tower Health], resulting in the hospital ‘showing’ a large net loss.”

A Sign of Things to Come?

Although the Tower Health decision will likely be appealed, it sounds a warning bell for nonprofit hospitals and health systems that have avoided taxes for decades. The decision is a judicial duck test. If a nonprofit organization looks, acts, and compensates itself like a for-profit company, it may be treated like a for-profit company. At the very least, it won’t be treated like a “charity.”

It’s time for hospitals to become efficiently run, tax-paying citizens with rationale cost accounting and transparent pricing — especially those that aren’t living up to their mandate as charitable, nonprofit entities.

2020 was a very good year for pharmaceutical manufacturers. According to an independent analysis by the Institute for Clinical and Economic Review (ICER), Americans spent an additional $1.67 billion on seven drugs whose price increases were not supported by new or improved clinical evidence. And this was after pharmaceutical rebates and other concessions!

How is this egregious behavior possible? Manufacturers continue raising prices, sometimes without clinical justification, and push higher costs to PBMs. And PBMs continue including super-expensive drugs on employer health plan formularies, pushing higher costs along to employers and plan members.

What’s an employer to do? Here are two strategies that can help control spiraling costs while ensuring a safe, clinically-effective formulary.

Build a Better Formulary

The best approach is to create a non-PBM pharmacy plan whose formulary is based on comparative effectiveness research. The only drugs that make it onto the formulary are those whose medical efficacy has been fully researched and documented.

A high-cost drug can be included, if warranted, along with lower priced alternatives that may be equally effective. Since not every drug is right for everyone, clinical management of the formulary ensures members don’t pay more than is medically necessary.

Implement Pricing Controls

Employers can achieve the lowest net cost for the plan by using non-PBM pricing controls and technology. The formula for success looks like this:

Clinical Integrity + Optimized Pricing Technology =
Lowest Net Cost & Maximum Value

In summary, PBMs can’t deliver optimal pharmacy plan performance because their revenue model is at odds with medical evidence and ethical procurement and administration practices. Employers and covered members deserve better value than PBMs can provide and the confidence that their formulary delivers the best clinical outcomes at the lowest net cost.

Payment disputes between insurers and providers are nothing new. Even with their secret, self-serving network contract arrangements, these relationships have been perpetually uneasy.

While insurers have billions of dollars in claims adjudication technology and staffing that should make processing and paying claims more rapid and accurate, they have always delayed payments to providers, sometimes as long as nine months or more, because every dollar they “float” for an extra day is to their shareholders’ advantage. But lately, this longstanding practice of delaying payment has worsened.

Kaiser Health News reports that the country’s two largest insurers are behind on billions of dollars in payments owed to hospitals and doctors nationwide. As of June 30, 2019, Anthem Blue Cross had not paid 43% of its medical bills. That figure has risen to 53% since the pandemic, and yet profits were $3.5 billion for the first half of 2021.

So why is this escalating? Some insurers point to the chaos driven by COVID-19. Others have introduced new and opaque reimbursement rules under the guise of cost-saving measures. Whatever the purported reason, these practices are indefensible in the face of ample resources and healthy bottom lines. More importantly, they are negatively impacting patients and providers in unprecedented ways.

According to VCU Health, an academic medical center affiliated with Virginia Commonwealth University, 52% of outstanding claims are more than 90 days old, despite a Virginia law that requires insurers to pay claims within 40 days. This delay has created “an unmanageable disruption” that threatens to undermine the financial footing of their teaching hospital in Richmond, Virginia.

Providers aren’t the only ones affected by egregious payment practices. Patients are reporting significantly more claim denials and prior-authorization hurdles than usual. The American Hospital Association asserts that insurer demands that go against the provider’s advice appear to be motivated by profit. Patients who receive recommended and routine treatments are now receiving astronomical bills when such services are deemed “experimental” and “not medically necessary.”

Doctors and hospitals appreciate knowing in advance how much they will be paid, and then getting paid quickly and accurately. Ethical health plan administrators who follow this practice, while still applying rigorous pre-payment scrutiny for billing fraud, waste, and abuse, are acting in the best interest of their clients and their clients’ members.