At one time or another we’ve all heard the phrase, “You get what you paid for.” However, did we ever reflect on how the price was set? Maybe, but likely not. We operate under the assumption that some greater force (an invisible hand perhaps?) regulates the market and prices for us. The rarer an object is the more valuable it becomes. An object becomes rare one of two ways, either there is very little of it to begin with, or there are very few places you can buy it. The Standard Oil Company and Trust is one of the best examples of a modern monopoly. In fact it lead to the creation of many of the laws regulating monopolies in the first place. John Rockefeller was an enterprising businessman who came to control up to 90% of American oil in the late 1800’s and early 1900’s. The principle of any monopoly is simple, when you’re the only provider of a product or service, you get to control the price. This article isn’t an essay on monopolies though, it’s about the state of American Healthcare, specifically health insurance companies and pharmaceutical companies. Before continuing, if you haven’t read We Need a Medic Part I, I highly recommend you do so before reading on. It covers a large degree of background information that this article will refer to.
The premise of insurance is simple. If you pay a little bit of money each month, when something bad happens you have a little bit of help. More than you could afford if you had to handle the burden alone. When phrased this way it seems like a brilliant idea, and it truthfully is. However, the way we think of insurance and the way it actually functions are two incredibly different things. It sounds unreasonable and cynical, after all if we knew it was a bad deal no one would buy into it. But do we really know what our insurance says? Sure, the broad strokes are painted pretty clear, but what about the two hundred page policy guide and endless annotations of fine print?
Remember the little blurb about monopolies at the beginning of the article? Well insurance companies aren’t exactly the same, but seem to end up presenting the same challenges for their customers. The US has ten major insurance companies that are responsible for nearly half of the health insurance policies in America. At face value that might not seem so bad, but it goes a layer deeper. Like all companies, insurance companies have areas that they work in. The same way you can only find In and Out burgers along the West coast, you may only find one or two major insurance companies operating in your area. Effectively, this limits the options we have for our insurance while avoiding the legal troubles of a monopoly. The question posed now, is that even if policies were straightforward would we be able to find one that suited our needs or would our options be limited to the lesser of two evils?
The major downfall to this system are seen in cases like Drew Calvers’. Drew Calver is a school teacher in Texas who suffered a heart attack which resulted in emergency surgery and a four day stay in a local hospital. Aetna, Calvers’ school district insurance, didn’t cover the nearest hospital, St. Davids’ Medical Center. After all was said and done, Calvers bill was close to $165,000. It was nearly double Calvers annual salary as a high school history teacher. This seems like the perfect opportunity for Calvers’ insurance to pitch in and help out. However, the St. Davids wasn’t in the school districts network. Legally speaking insurers are required to provide aid for emergency situations. So why did Calver still end up with a bill of $110,000?
When you go to a hospital that’s in your network all of the details have already been ironed out in a lengthy series of negotiations. However if you happen to go to an out of network hospital, the insurance company and hospital representatives will have a private negotiation over your individual case. In these negotiations insurance companies conduct an investigation of what they believe price for treatment to be. In Calvers case, Aetna determined the bill should be approximately $55,000, roughly a third of the actual bill. Neither the hospital or insurer will back down on their appraisals, leaving Calver with a bill he cannot afford to pay.
Disturbingly, this is only one of the many cases of insurers negotiating over your health. Like most of us, Gretchen Liu trusted her insurance company. After being placed on a medication to prevent strokes, she balked at the cost of the generic medication she was prescribed, but paid her bills and took care of her health. What else could she do? However, when Liu and her husband were planning to go on an extended overseas vacation, things started to unravel. Since she would be gone over the refill date, Gretchen asked if she could her refill early. Her insurance wouldn’t pay for it because she still had time left on her current prescription, so her husband stopped by a local pharmacy and asked if he could get it refilled and pay the full expense. Imagine the surprise Liu and her husband received when the cost of the medication was nearly $250 less than her normal copay.
According to the Schaeffer Center for Health Policy and Economics, nearly 25% of medications have a higher copay than the cost of the drug alone. When pressed for an answer to similar cases insurance providers claimed it was uncommon and that these scenarios are classified as outliers. While the majority of medications are cheaper with insurance, a significant number of people are paying more than they should. According to an article published in the New York Times, the higher price happens during negotiations between insurance companies and pharmacy benefit managers. Every insurance company conducts private negotiations and receives different deals. The same medication could cost more depending on nothing more than your insurance provider.
Which brings us into another complicated topic of pharmaceuticals. We’ve seen that insurance negotiations often contribute to the high price of medications, but can only be attributed to 25% of cases. What about the rest? Once again we can look to the idea of monopolies. Out of the ten major international pharmaceutical companies, six are based in the United States. These six companies account for 45% of the global pharmaceutical market. In this case the lack of players means the pharmaceutical company can be turned into something I refer to as the good old boys club. The idea is these six companies know they control nearly half the worldwide pharmaceutical market and effectively the entire US market, so as long as they keep their prices relatively similar they can raise them as high as they like. With a market that can so easily be cornered, companies are easily able to control entire sectors of the pharmaceutical industry with patents on niche technology.
The Epipen, patented by Mylan Pharmaceuticals, represents the best example of how distorted the market can become. The idea of an Epipen is quite simple, it injects epinephrine into the body of someone having an allergic reaction. Epinephrine is a common and easily made drug invented in the late 1800’s. So why has it taken until 2018 for a generic version of the Epipen to be approved by the FDA? While it was impossible for Mylan to hold the patent on epinephrine it was easy for them to patent the injection system. This granted Mylan a monopoly on Epipens, which in turn allowed them to raise the price of a single Epipen 400% between 2007 and 2016. In a world where 15 million Americans use Epipens and our insurance seems to be a risky bet at best, what options do we have, if any? With how expensive pharmaceuticals are what solutions have been attempted?
Due to the shortages of Epipens two courses of action have been taken. The first is to allow a generic version of the Epipen to be produced to help lower the prices. This seems like a step in the right direction, but also questionable knowing that insurance negotiations with pharmaceutical managers leads to overcharging on 25% of medications. The second is to do nothing, but pretend we did. Instead of trying to find ways to make the Epipen more affordable to the general population, the FDA has decided to extend the expiration date. While the new measure only adds four months to shelf life of an Epipen it demonstrates how far our system can be twisted to save a few bucks.
In parts one and two of We Need a Medic, we’ve explored the state of healthcare in America and the primary reasons for its’ decline, those being the lack of motivation to regulate insurance and pharmaceutical companies. To be honest, if we think about it logically, why would Congress want to antagonize two of its’ biggest donors? With elections coming up in November we’re bound to hear a plethora of new healthcare plans and how your candidate will push Congress to fix it. Yes, healthcare is a complicated issue, but if we look at the progress made in the last few years it seems like the only thing our representatives have fighting over is whether Obama or Trump will replace the health in healthcare. It’s easy to bash on Washington for failing to fix our broken system, yet we also bear a degree of responsibility. How many of people challenged Obamacare simply because it was part of the Democratic agenda? How many of us would immediately balk at anything with the name Trump on it? In a world where our policies have become subject to a overly bipartisan system, we are the ones responsible for the outcome. Whether that means voting in politicians who will actually change the fundamental flaws in our society or addressing them ourselves. We Need a Medic Part III will hopefully be out relatively soon. It will be less factual and focus more on possible solutions to an ever growing problem.
- Ellis, M. (2018, March 28). Who are the top 10 pharmaceutical companies in the world? (2018) | ProClinical Recruitment blogs. Retrieved from https://www.proclinical.com/blogs/2018-3/the-top-10-pharmaceutical-companies-in-the-world-2018
- McCray, C. (2016, August 25). EpiPens save lives. If they cost too much, kids will die. Retrieved from https://www.washingtonpost.com/posteverything/wp/2016/08/25/epipens-save-lives-if-they-cost-too-much-kids-will-die/?noredirect=on&utm_term=.8be4a6df0868
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- Roy, A. (2018, August 24). FDA’s New Generic EpiPen Approval Exemplifies Progress on Drug Price Reform. Retrieved from https://www.forbes.com/sites/theapothecary/2018/08/23/fdas-new-generic-epipen-approval-exemplifies-progress-on-drug-price-reform/#39762ab676be
- Statista. (2016). Topic: Pharmaceutical Industry in the U.S. Retrieved from https://www.statista.com/topics/1719/pharmaceutical-industry/
- Statista. (2018, March). Market share of leading U.S. health insurers by premiums 2016 | Statistic. Retrieved from https://www.statista.com/statistics/216518/leading-us-health-insurance-groups-in-the-us/
- Terhune, C. (2018, August 27). Life-Threatening Heart Attack Leaves Teacher With $108,951 Bill. Retrieved from https://www.npr.org/sections/health-shots/2018/08/27/640891882/life-threatening-heart-attack-leaves-teacher-with-108-951-bill
- Terhune, C. (2018, August 27). Life-Threatening Heart Attack Leaves Teacher With $108,951 Bill. Retrieved from https://www.npr.org/sections/health-shots/2018/08/27/640891882/life-threatening-heart-attack-leaves-teacher-with-108-951-bill
- Thompson, M. (2018, August 19). Why a patient paid a $285 copay for a $40 drug. Retrieved from https://www.pbs.org/newshour/health/why-a-patient-paid-a-285-copay-for-a-40-drug
- Tirrell, M. (2018, August 21). FDA extends certain EpiPen expiration dates to combat shortage. Retrieved from https://www.cnbc.com/2018/08/21/fda-extends-certain-epipen-expiration-dates-to-combat-shortage.html