FOR PROFIT HEALTHCARE
Medicare is overpaying for generic drugs
Disturbing financial practice by Medicare Part D sponsors revealed in UC San Diego study of data from the Centers for Medicaid and Medicare Services
Medicare is the single largest provider of health insurance in the United States, serving 63.8 million senior citizens as of 2022. Three-quarters of these recipients are enrolled in optional Medicare Part D plans, which provide outpatient prescription drug coverage to seniors through private insurance companies. In 2022, Medicare paid more than $160 Billion for prescription drugs, making it the single largest payer of pharmaceuticals in the US.
While Medicare is meant to keep healthcare affordable for seniors, millions of Americans still face steep costs for prescription medications. Researchers at Skaggs School of Pharmacy and Pharmaceutical Sciences at the University of California San Diego, West Health, and the University of Washington have now explained part of the problem.
The researchers found evidence that the private insurers that sponsor Medicare Part D are artificially inflating the costs of certain generic drugs by overpaying pharmacies. The findings published December 5, 2023 in the Journal of the American Medical Association.
Generic over-reimbursement is one of the areas targeted for reform by the United States Senate, after anecdotal evidence submitted earlier this year by the non-profit manufacturer CivicaRx raised concerns about Part D sponsors potentially over-reimbursing pharmacies for abiraterone, a cancer drug. The concern: that patients are ultimately impacted by these reimbursement practices because of how out-of-pocket costs, such as copayments and deductibles) are calculated.
“For instance, if a patient pays 30% as a copayment for a drug, that 30% would be applied to the inflated price, which could mean higher out-of-pocket costs for seniors,” said corresponding author Inmaculada Hernandez, PharmD, PhD, professor at Skaggs School of Pharmacy and Pharmaceutical Sciences at UC San Diego.
However, whether Part D Plan sponsors are engaging in generic over-reimbursement has been an outstanding question until now.
“This is the first study to investigate whether these practices actually take place in the Medicare Part D program,” added Hernandez.
To fill prescriptions, pharmacies purchase drugs wholesale and are reimbursed by insurers. In order to be reimbursed, pharmacies must adhere to contractual obligations that allow insurers to take back money in certain circumstances, such as when the reimbursement to the pharmacy is higher than a certain threshold or if the pharmacy’s cost of acquisition is very low. These ‘clawbacks’ by Part D Plans can be financially devastating to a pharmacy.
“It doesn’t make sense that insurers would overpay for drugs, then use clawbacks to retroactively adjust payments after the patient has paid their co-payment,” said co-author Sean D. Sullivan, PhD, professor of pharmacy at the University of Washington. “This practice is opaque and ultimately harms patients and pharmacies.”
The researchers gathered and analyzed data from the Centers for Medicare and Medicaid Services (CMS), focusing on spending and reimbursement data for the 50 generic drugs that Medicare Part D spent the most on in 2021. They found that some Medicare Part D sponsors were reimbursing at much higher rates than what pharmacies spent to acquire the drugs.
“The results are alarming,” said Hernandez. “We are talking about markups of 6000% or 7000% in some cases.”
In one of the most dramatic examples, the researchers found that insurers were reimbursing pharmacies an average of $126 per tablet for a cancer drug that cost $4.20 per tablet to the pharmacy. This corresponds to an average markup of 3000%, or $3600 per 30-day prescription. Some insurers paid even more.
“Seniors are clearly paying more for their medications as a result of these markups,” said Hernandez. “More research is needed to confirm the scope of these practices, but the evidence is concerning.”
Co-authors include: Nico Gabriel at UC San Diego, Anna Kaltenboeck at ATI Advisory, Cristina Boccuti at West Health Policy Center and Ryan N. Hansen at the CHOICE Institute, School of Pharmacy, University of Washington.
This study was funded by West Health Policy Center.
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JOURNAL
JAMA
DOI
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The role of marketing in disrupted health care markets: It’s time to move beyond conventional strategies to account for new actors, roles, and exchanges
News from the Journal of Marketing
Peer-Reviewed PublicationResearchers from Duke University, University of New South Wales, University of Wisconsin, and University of Washington published an editorial for the Journal of Marketing that calls for marketing to tackle the challenges and opportunities in dynamic contemporary health care markets.
The editorial, introducing a special issue on “Marketing in the Health Care Sector” for the Journal of Marketing, is titled “Marketing in the Health Care Sector: Disrupted Exchanges and New Research Directions” and is authored by Christine Moorman, Harald J. van Heerde, C. Page Moreau, and Robert W. Palmatier. The special issue editors introduce a series of articles that offer novel contributions regarding marketing’s role in the health care sector as well as a research agenda outlining more opportunities for marketing scholars to examine whether and how these disrupted exchanges are improving health, empowering choice, and fostering competition.
Health care is vital to our interconnected world and, as demonstrated during the COVID-19 pandemic, societies are deeply affected by its successes and failings. Over the last decade, health care has been disrupted on both the demand and supply sides and these changes have impacted the creation, provision, and consumption of health care in fundamental ways.
However, the role of marketing in this dynamic health care industry remains only partially understood and is often focused on conventional strategies such as business-to-business transactions (e.g., detailing or advertising to doctors) and business-to-consumer transactions (e.g., direct-to-consumer advertising). “While important,” Moorman explains, “this limited view ignores the new actors, roles, and exchanges that characterize disrupted health care markets. As a result, the health care sector is not acting on the full range of opportunities associated with these changes, including understanding their effects on consumer welfare.”
At the heart of the editorial lies a set of disrupted exchanges involving conventional and new health care producers, health care providers, and health care consumers. Health care producers refer to those who develop health-related products, services, and information, even though they do not administer health care directly to patients. Health care producers come in two categories: i) conventional health care producers (i.e., pharmaceutical and medical device companies); and ii) new health care producers (i.e., technology and diagnostic companies).
Health care providers deliver information, products, and services to consumers. These providers also come in two categories—traditional providers that include doctors, nurses, hospitals, and health centers as well as new providers that include retail health care providers, complementary and alternative health care providers, and physician influencers who preach their health gospel to the marketplace.
Health care consumers receive and use information, products, and services created by producers and providers. Traditionally, they are exclusively on the receiving end of value. In today’s health care systems, however, consumers may also be peer creators of value when they participate in health care communities, provide reviews, and/or become influencers.
The editorial focuses on two types of disrupted exchanges: i) the influence of new actors on their conventional counterparts and ii) the influence of these new actors on one another. It observes a merging of roles across producers, providers, and consumers manifesting in a “race to the provider role” that is disrupting many exchanges and changing consumer and firm behavior and the operation of these markets.
The editorial identifies initial potential impacts of these disrupted exchanges on three outcomes. The health-enhancing impact refers to the degree to which mental and physical health outcomes might be improved. The choice-empowering impact refers to the degree to which consumers have an actual or perceived improvement in their ability and motivation to understand and make health-related choices. One concern is that more information does not always equate to better choices. The competition-inducing impact refers to the degree to which the change fosters competition that improves quality, increases access, and lowers prices. These competitive effects are determined by whether consumers use new health care exchanges as substitutes or complements. If used as substitutes, disrupted exchanges may spur competition. If used as complements, the effects may be minimal or they may produce beneficial partnerships in the industry.
More research is needed to assess how the marketplace will be transformed and how marketing might contribute in positive or negative ways. Will health be improved, choice enabled, and competition fostered on quality care, access, and lower prices? Or will health be managed differently, but with no effects on morbidity and mortality, with more confusion than empowerment, and with more competition but no welfare gains?
“We see an enormous opportunity for the marketing discipline to help understand and address the complexities arising from the unprecedented pace and level of change in health care exchanges. Asking questions about how the new actors and new roles are participating in these exchanges and to what end in terms of health, choice, and competition outcomes is a valuable role we can play,” says van Heerde. The editors invite contributions for creating a stronger role for marketing in the study and management of health care.
Full article and author contact information available at: https://doi.org/10.1177/00222429231213154
About the Journal of Marketing
The Journal of Marketing develops and disseminates knowledge about real-world marketing questions useful to scholars, educators, managers, policy makers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM has played a significant role in shaping the content and boundaries of the marketing discipline. Shrihari (Hari) Sridhar (Joe Foster ’56 Chair in Business Leadership, Professor of Marketing at Mays Business School, Texas A&M University) serves as the current Editor in Chief.
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JOURNAL
Journal of Marketing
ARTICLE TITLE
Marketing in the Health Care Sector: Disrupted Exchanges and New Research Directions
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