Novara Tesija, P.L.L.C.
In early March, Congressional Republicans unveiled their proposed replacement for the Affordable Care Act, titled the American Health Care Act (“AHCA”). The AHCA was advertised as legislation that would repeal and replace the Affordable Care Act, often referred to as “Obamacare.” However, the proposed bill in fact would have left much of the core reforms of Obamacare in place.
Patient protections such as the prohibition against pre-existing conditions, the ban on annual and lifetime limits, the extension of dependent coverage, and the annual cost-sharing limitations were all left mostly intact. Instead, the AHCA mostly went after the individual insurance market and Medicaid. Democratic opposition to the AHCA was universal, but both conservative and moderate Republicans also opposed the bill. While conservative Republicans felt the AHCA did not go far enough in repealing Obamacare and scaling back federal entitlement programs, moderate Republicans felt the bill was too harsh on older Americans and persons receiving coverage through Medicaid. Despite President Trump’s efforts to “whip the votes” the AHCA ultimately never made it to the floor for a vote by the House of Representatives.
Unfortunately, while both sides of the aisle came out against the AHCA, neither side has to date forcefully pushed legislation to address perhaps health care’s most glaring problem: the cost of prescription drugs. While the costs of medical and surgical care have continued to rise at historically high rates, the cost of prescription drugs has continued on a march upward that is nothing short of astounding – and completely unsustainable.
So called “specialty drugs” in particular are uniquely expensive. With these drugs, there are practically no generic equivalents and they typically carry enormous research and development costs that are disproportionately borne by the American consumer. This is partially because while foreign governments negotiate drug costs (and often cap them), Medicare is prohibited from doing so.
Adding to the problem are complex and varying federal testing and patent regulations that discourage (and in some instances ban) competition. Pharmacy Benefit Managers (often called “PBMs,” hired to manage prescription drug benefits) were once viewed as a guard against rising drug costs, but more and more these entities are consolidating their control over pharmacies in an effort to complicate and shield their pricing methodology from prying eyes.
Moreover, Obamacare health plans (including union-sponsored plans) have unlimited liability for both medical and prescription drug costs. Together, these elements have created an environment where pharmaceutical companies enjoy a near monopoly over the U.S. market, while American consumers, health plans, insurers, and even the federal government (by its own hand) have minimal ability to apply downward pressure on prices.
The logical question to ask is, what is the solution? Certainly legislation that frees up the ability of the government to negotiate drug prices and that would require greater transparency would be helpful. There a few bills floating around in Congress which aim to pull back the curtain on specialty drug pharmacies and the operations of PBMs. While these bills are a good start, the pharmaceutical drug lobby will strongly oppose them.
Ultimately, Congressional gridlock and politics will likely render a near-term legislative solution to the prescription drug problem unlikely.
This is not to say that specialty drugs are all bad, however. Many of them treat once incurable diseases and are absolutely necessary for a person to live. Others mitigate conditions which otherwise would be even more expensive to treat without the medication or would require lifelong maintenance that would limit the person’s ability to live a productive life. Nor can one deny that these drugs do cost a great deal to develop and test in order to determine whether or not they are safe for use. It is simply that the United States continues to pay far more for these drugs and has far less access to generic equivalents of them than the rest of the world does.
As a result of a very lean model for delivering health care, union-sponsored plans have weathered the storm of rising costs better than most.
But, even they are not immune. As time goes on, union-sponsored plans and the professionals that serve them will have to get ever more creative in order to deal with what are frequently double digit annual increases in medical and prescription drug costs. Union health plans may also need to band together in the same way that their members do, leveraging a strength found only in numbers, to achieve a stronger negotiating position with providers of medical care and prescription drugs.
While the AHCA was ultimately a failure, it is unlikely to serve as the end of attempts at health care reform. We may see a more targeted approach in the coming months and years, where Congress goes after pieces of Obamacare and the healthcare market in general rather than advancing a comprehensive reform package. In any case, we expect to see a very active Congress, as this is not a problem that will solve itself. One way or another, only a combination of legislative and industry reform can start to bring costs down to a sustainable level for all Americans.
(Catenacci is with Novara Tesija, P.L.L.C. is a team of attorneys with extensive experience in the field of employee benefits law, labor law and business law).