The Senate Finance Committee held a high profile hearing on prescription drug pricing today. The witnesses inclu”ded seven prescription drug manufacturer chief execs. Fierce Healthcare has a good overview of the proceedings. The FEHBlog’s upshot — the current practice of prescription drug manufacturers negotiating rebates with Rx manufacturers is on its way out. Fierce Healthcare notes that “some insurers, including big names like CVS Caremark and Aetna, are taking steps toward a direct discounting model,” rather than wait for a government mandate. Smart move.

Modern Healthcare reports that “Preliminary data from the Medicare Payment Advisory Commission shows hospitals’ Medicare margins continue to decline, reaching their lowest point in 2017 in at least a decade. Even so, hospitals’ all-payer margins continued their upward trek. In aggregate, U.S. hospitals’ Medicare margin [preliminarily] was negative 9.9% in 2017, compared with negative 9.7% in 2016, according to MedPAC.”  These facts illustrate the extent to which hospitals shift costs onto commercial health plans, including FEHB plans. In the Medicare for All scenario, with the commercial plans gone, the hospitals and other providers will have nowhere to turn.

Modern Healthcare also observes that

For many years, the battle cry of healthcare cost warriors was, “Eliminate all those wasteful services.” More recently that evolved to, “Pay providers based on value rather than volume.” But there were always those who insisted the real problem was, “It’s the high prices, stupid.”

Now policymakers and experts who favor attacking price increases have gained momentum, with both congressional Democrats and the Trump administration pushing price-setting proposals. Their arguments are buttressed by growing research showing that rising prices for hospital and physician services and drugs are a major driver of increasing healthcare spending. 

The FEHBlog is no fan of government price controls, but he can see how we got here. As noted above Medicare and Medicaid shift millions of dollars of costs onto commercial health plans. The Affordable Care Act imposed price controls on insurers (but not providers), required health plans to pay tons of lower priced services and supplies, and took away from health plans the strongest tools they had to control provider prices — most notably lifetime and annual dollar caps on benefits.