Washington Post columnist Steven Pearlstein was online to talk about whether the government should study the cost-effectiveness of new medicines and then use that information to determine how much Medicare should pay drugmakers. In his column today, Pearlstein concludes: "The question isn't whether we'll ration and manage, but who will do it and how. And sooner we start talking about it openly, the better things will turn out."
A transcript of the discussion is below:
About Pearlstein
Steven Pearlstein writes about business and the economy for The Washington Post. His columns on the economy appear every Wednesday and Friday.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
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Washington DC:
Think we should put federal regulations on how much a drug company can profit from medications that have been on the market for a while?
Steven Pearlstein: No. Bad idea. One big mistakes the liberal/consumer types make is to think about drug pricing in terms of the costs and revenues associated with a particular drug. In fact, these companies are really complicated systems in which the winners pay the cost of the losers, and if you try to price the winners only in terms of what it cost to develop and produce them, then there's not any money left to pay for hunches that don't turn out, drugs that have more limited market than originally hoped, etc (the losers). Now that doesn't mean drug companies have to continue to earn outsized profits, as they have year after year. But the way to get at that is to tweek other things, like their ability to hold off generic competition too long or rules that prevent insurance companies and governments from driving a harder bargain on drug prices.
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Helena, MT :
I still can't figure out why Congress and the Administration thought that allowing Medicare to pay more for drugs was a better idea than jaw-boning pharmaceuticals to lower outlandish profit margins. As you've reported, the benefits can't even keep up with the recent price increases. Is there any momentum in Congress to revisit the issue?
Steven Pearlstein: There is some momentum, but its fair to say the drug lobby probably has veto on really threatening legislation as long as the Congress and White House is in Republican hands. They ARE that powerful, thanks largely to their political contributions. Now the particular issue you raise is a bit more complicated than that. Medicare does negotiate drug prices for drugs used under Part B hospitalization, although it is limited in how hard it can bargain, as I explained. On the matter of prescription drugs that people get from pharmacies and take themselves, the new Part D, this is set up as a program involving competing private plans, with the government acting only as a backstop in areas where there aren't any. And in that case, the hope is that price competition for beneficiaries will cause the drug plans to drive as hard a bargain as, say, the government of Canada. PBM's have had some success in reducing price of some drugs, but you're right, its not been enough. There may be a greater role for government negotiation.
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Farragut West, D.C.:
In today's article, you wrote
"Rather than looking to Medicare to take the lead, for example, they are asking simply for the government to perform the studies, with the hope that private insurers, doctors and even consumers will use the information to make better decisions about coverage and treatment."
Doesn't this seem like wishful thinking? If drug A is even slightly more effective that drug B, but cost 10 times more, the Medicare patient will still choose drug A if her cost is the same.
In a related story, AARP released a study showing that pharmaceutical companies have increased the price of the most popular drugs three to five times the rate of inflation. What is the reason for this? Have there been mergers recently that have increased the market power of some pharmaceuticals?
Steven Pearlstein: It is hopeful thinking, I agree, but there is some indication that doctors and patients will use this information to make better decisions. With higher co-payments, people are actually beginning to act like consumers in the health care area for the first time. And the tiering concept, if done right, will steer people toward the cost-effective alternatives, in the cases where there are alternatives. The big problem is where you have a breakthrough drug with no easy substitute. Then the sky's the limit, and there's little we can do about it under the current system unless Medicare wants to take the lead and get tough on price and actually say it won't cover a new drug or molecule or device. That would give private insurers the cover they need to follow along. But there is some legitimate concern about having the government do this with every drug, because it will amount to government price setting and, over time, it will probably have a negative effect on development of new stuff.
As to why drug prices are rising faster than everything else, this is complicated, but in its simplest terms the companies are raising prices this fast because they can. Insufficient competition. Consumers who are insufficiently price sensitive and are at an information disadvantage. Advertising created demand. All of these are factors.
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Marina Del Rey, CA:
It appears that Steven Pearlstein has the belief that the government will get it right by regulating. Maybe he should get more of an insight in understanding the animal he is dealing with...and I mean a realistic insight. He should look at inefficiencies in the health system; which to its own detriment is saddled with wasting resources. Look at the history of healthcare under medicaid and medicare, any other industry would have long gone under...
Steven Pearlstein: Gee, I thought I was calling for a fairly light touch by government, with a heavy dose of reliance on market mechanisms. But of course if you feel government can't do anything right, ever, then you wouldn't do that. I see lots of examples where government does things pretty well, from building highways to picking up the trash to fighting wars to running a pension fund known as Social Security. But maybe out there in California you have a different view of the competency of the public sector.
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Alexandria, Va.:
You make some very good points. I would only add that the U.S. health care system is already very comfortable with rationing. Millions of poor or working-class people lack coverage. When they need care, they to to emergency rooms or (where available) over-extended public health centers.
Steven Pearlstein: Unfortunately, you're right. Only that's a stupid and immoral kind of rationing, which is why we have to talk about this and get comfortable with the idea that some rationing is necessary, then hopefully do it right.
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Washington, D.C.:
I believe Oregon's Medicaid program already has tried to rein in Rx costs by limiting the number of drugs it will cover. I don't know how they compiled their list of approved drugs, and I don't know how successful they've been.
Steven Pearlstein: Well, Oregon has been something of a disappointing experiment for those of us who want to talk about rationing and rationalizing the expenditure of a fixed amount of health care funds. They were successful, I think, in actually constructing a list of all medical procedures and treatments and ranking them in terms of comparative effectiveness. And they were even able to convince the public that you could go pretty far down that list with the amount of money available before the money ran out. What they got into trouble with was doing the kind of cost-benefit analyses that resulted in conclusions like, we won't pay for anything that costs more than $50,000 for ever quality-adjusted year of extended life. Voters and politicians got real uncomfortable with that kind of metric. Unfortunately, it often comes down to that. And that's one reason why the AARP has been on the other side of this issue, because alot of the end-of-life treatment we give to the elderly doesn't have a very good payoff when measured in those terms.
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Washington, D.C.:
Steve -- I have only one thing to say in response to your column: "catastrophic care." Remember back in the 80s when Congress tried to do the right thing for seniors with a catastrophic care law? They still remember the outcry from seniors that forced a repeal, and that's why no serious reform will go through until the system collapses in a budgetary nightmare.
Steven Pearlstein: You know, we have to get over these "failures," just like the "failure" of managed care during its most recent incarnation. In both instances, we handled it wrong -- how the policies were constructed, explained, implemented and sold to the public. But that doesn't mean you don't try again, because there are really no alternatives. Of course we have to move to a system in which insurance pays for the big stuff, the serious stuff, with consumers acting more like consumers when it comes to everyday coverage. And of course we have to move toward rationalizing the use of the huge amount of money we spend on health care by adopting objective criteria, which is what cost effectiveness studies are about. The question is how, when, who does it and how it is done.
Let me give you an example. We know that it doesn't work to have $15 an hour clerks tell doctors what they can and can't do to treat Patient X. But it surely would work if we had docs and nurses at the other end of the line, and they could share with the doc in some fashion the latest literature on that subject, and ask if there was some reason why this particular patient should be treated differently than the protocol suggested by the American College of Surgeons or whatever. Or that if a doctor has a pattern of spending much more per patient to treat particular situations (more tests or more surgery or whatever), that he can't have a conversation with a panel of docs to see if there are some things he might do differently. This doesn't have to be done in a threatening manner, and cost shouldn't be the only criteria -- quality of medical outcomes should be even more important. But it has to be done. The truth is that medicine is so complicated these days and changes so fast that we really CAN'T rely on docs and patients making all the decisions, without some intervention by others with good access to scientifically based evidence on best practices.
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Arlington, VA:
In an election year where everything that a politician has ever said ends up as a negative commercial, I doubt that you can get any candidate to think about the hard choices you mention on managed care for fear of being bashed as an enemy of the elderly by the opposition. So, perhaps the bureaucratic way of doing and publishing studies might be a better way.
Steven Pearlstein: Exactly. Although I still believe that there is a presidency to be won by the candidate that levels with the American people about things. But you'll never convince Karl Rove or Bob Shrum of that.
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Bethesda, Md.:
Have you studied Kerry's health care plan? Is he talking about the issues you raise in your column?
Steven Pearlstein: Only indirectly. He is proposing a system of federally-funded reinsurance for the expensive cases, as a way of lowering insurance premiums. But he would offer this reinsurance only to health plans that agree to use certified disease management techniques in those cases. And part of disease management is using cost-benefit analyses in making decisions about how to treat patients. But you probably won't get him to get very specific about disease management, because people will figure out pretty quickly that it is that "terrible" thing called managed care, only this time done better.
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Washington, D.C.:
we already obliquely ration care. but medicare doesn't pay for drugs generally, so that's not an issue. and medicare generally pays for hospitalization based on diagnosis rather than treatment -- a hospital gets $xx for treating a 70-year-old woman with a severe heart attack, irrespective of the components used in her treatment. so medicare is seldom at risk here. as you say, though, it would be nice to reach decisions on what works and share them with the public -- especially because many private insurance plans still reimburse based on treatment rather than diagnosis.
Steven Pearlstein: That's right, although I think there are things like cancer drugs administered in doctors offices that might be outside the DRG system you refer to.
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Des Moines, Iowa:
Similar to scrutinizing the cost effectiveness of technology and drugs, do you see Medicare doing more to ensure it receives value (quality at a fair price) from hospitals and physicians and rewarding providers accordingly?
Steven Pearlstein: You betcha. And people are indeed talking about that, rating hospitals in terms of quality based on their patient-adjusted medical outcomes. The hospitals are squirming about this, as you can imagine. But at some point, we'll get to paying doctors and hospitals in part on the basis of the quality of their service as well as the quantity, with bonuses paid at the end of the year to those with good ratings. But it will be contentious and hard to do and we'll have to move slowly, or else the first time we screw it up there will be such a backlash that the whole project will be scrapped. What we have learned is that you have to do these reforms slowly, step by step, correcting as you go along.
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Washington, D.C.:
In your column, you reference "the cherished notion that cost should be no object when it comes to treating the health of the American people." Hmmm. That's the whole point. When you or your loved one is sick, you don't care how much it costs to fix the problem, and the last thing you want to hear is that some faceless bureaucrat in Washington decided a treatment isn't "cost-effective." What's cost-effective? Is a drug that might help only 1 in 10,000 people cost-effective?
Steven Pearlstein: Sorry, but that IS the problem. Its not a question of a drug that helps only 1 in 10,000 people. It is a drug that costs $100,000 a year every year to use and administer, with only a 20 percent chance of extending life by three years. And the question we have to ask is whether we can all afford that, because it is all the rest of us that are paying that bill, either as taxpayers or premium payers. That's a very high price to add a year of life, and the same money, used otherwise, could have much higher medical payoffs. The fact is that we are getting to the point where we theoretically could be spending ALL our money on medical treatment that extends life or improves the quality of life. And because that is a ridiculous notion, we have to figure out ways to rationalize a fixed amount of expenditure. In the old days, there just wasn't enough medicine could do to worry about the cost. That's not true any longer, which is a good thing, but poses some political and social challenges in drawing lines. Now that doesn't mean you can't spend all of your own money extending the life of your loved one, if you want. But please don't ask all of the rest of us to pay for it.
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Austin, TX:
Hi Steve,
Liked your column today. As someone who works in health care policy (focusing on reimbursement) I find it amusing when people say that we shouldn't have a system like Canada's because they ration health care!;
So how would they characterize our system? We ration care based on ability to pay. If you are enrolled in an HMO or PPO, the insurer rations your care, unless you are willing - and able - to pay for additional care out of your own pocket.
Yes, we have a system of rationing care, but it is woefully inefficient, with the bulk of the care being given to the oldest and sickest among us. How do we know it's inefficient? We spend way more per capita on health care than any other country, yet our life expectancy is no greater than many - or is even less.
This isn't a knock against the elderly. If we put more emphasis on prevention and healthy living, our senior citizens might be living longer and enjoying a better quality of life than they do at present.
Thanks for letting me vent.
Steven Pearlstein: My pleasure. Only I am disinclined to let you off the hook so easily. Yes, we need to put more attention and redirect spending toward preventive medicine and healthy living. But in the end, you still will confront the question of spending so much on end-of-life treatments with low payoffs. You can't avoid that no matter how much preventive you do.
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Silver Spring, Md.:
AHHHHH. Take a side once and for all the drug price issue. You can't keep mouthing the industry line that "our R&D costs justify high drug costs," and you can't at the same time say that drugmakers "can't earn outsized profits." Tell us how you would keep the drugmakers honest on prices.
Steven Pearlstein: The same way we keep makers of hamburger and automobiles and tennis rackets "honest" -- real competition, not price or profit controls. Now the market we have for drugs in this country is an imperfect one, for all sorts of reasons, not the least of which is that the government confers monopoly patents for new discoveries. There is also the fact that we don't pay for medical services directly, but rely on insurance mechanisms that make us relatively price insensitive to these costs in ways that we aren't when it comes to other goods. Prices are rarely posted and never discussed with those ultimately paying the bill (ratepayers and taxpayers). So we have to do things that make this market work more like a market.
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Columbia, Maryland:
This morning's article by Jonathan Weisman on employer's efforts to combat rising health care costs reports that in 2002, Ford Motor Co. spent $30 billion on health care for its 560,000 employees, dependents and retirees. If my math is correct, that's over $53,000 per person.
Rarely does a statistic make my jaw drop, but right now my chin is on my chest.
In your view, what will it take before this crisis(and it is just that) reaches a point where we as a nation will act upon it?
Thank you for taking our questions.
Steven Pearlstein: That couldn't be right. Jonathan, who sits next to me, is away from his desk but when he comes back I'll ask him.
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Washington, D.C.:
The health insurers and the business community selfishly managed to not only defeat the Clinton health plan in 1994 but to make it next to impossible for lawmakers to talk seriously about the issue. Now, I have to say I'm equally disappointed in the AARP. Why can't they use their muscle to shift the debate? I don't understand how a consumer group can willingly support some of the Medicare "reforms" that have been pushed through recently when it's clear those reforms will bankrupt the system.
Steven Pearlstein: The AARP is in a bit of a bind here. They know what the score is. But it is not in their members interest to start to move toward rationing until the real alternative is between bankrupting the Medicare program. We're not there yet, and its hard for an organization to be that forward looking that it puts the interests of its future members ahead of those now paying the dues.
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Baltimore, MD:
How can society's need for specialized drugs be satisfied by drug companies need for profits? We know that a good anti-baldness drug would generate more profits than a good anti-autism drug because of the sheer numbers. Government research may be a part of the solution.
Steven Pearlstein: The way to solve that is not to have the government or insurers pay for the baldness drug. If somebody wants that, let him pay for it himself. And by the way, if that is the case, you'll see the price come down rather dramatically.
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Washington, D.C.:
You hit the nail on the head with the end-of-life care reference you made. We have a health care system that is being shaped by its most prolific users -- the elderly. Medicare's buying power, backed by AARP's lobbying and millions of senior voters willing to punish any lawmaker willing to talk about the policies you raise in your column has produced a mess. I guess I'll have a different opinion when I turn 65...
Steven Pearlstein: Yes, I suspect you will.
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Knoxville, TN:
Thank you for being here Mr. Pearlstein. I am interested in your comments. It occurs to me that the US does have universal health care. However, universal care and rationing here differs from rationing in the UK or Canada. In the US anyone can seek care in an emergency room. Hospitals are expected to incur a certain amount of cost associated with unpaid medical bills (approximately 5% or more). In the UK and Canada, care is more organized by less available. In the US rationing amounts to 44 million uninsured. In the UK and Canada, rationing amounts to waiting two years for a knee replacement or waiting 8 months after breast cancer diagnosis for surgery. I'm not certain which is worse. What are your thoughts?
Steven Pearlstein: I think our way unspoken system of rationing is indefensible, morally and economically.
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Washington, DC:
I think your article is spot-on. However, it seems the biggest target for rationing is probably the elderly, particularly those who are near death. Given that this group is politically very powerful and has the younger population already picking up most of their health care bills, how can you fashion a method that rations care for this group?
Steven Pearlstein: That's a question we'll be wrestling with for the next decade at least. We shouldn't be glib about it -- it will be very difficult. But we've got to get to it.
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Falls Church, VA:
Are you optimistic that a rationing and cost benefit approach will take hold in health care? It seems to me that the true problem, putting aside drug company greed for a moment, is that the idea that any and all efforts and means should be tried to save a life no matter the cost? I don't judge that cultural trend for good or bad, but isn't that what is at work? Isn't asking patients to act more like consumers going against everything they've been taught?
Steven Pearlstein: Yup, its against our tradition. We could afford to say and do that in the past because, in truth, there wasn't much that could be done in most cases. But we have to purge that notion from our collective psyche, and it won't be easy.
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Steven Pearlstein: That was fun, folks. Keep reading. See you next week.
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