EP420: Paying Cash for Generic Drugs—Some Finer Points That Had Totally Gone Over My Head, With Ge Bai, PhD, CPA
Relentless Health Value™December 07, 2023
420
36:5733.83 MB

EP420: Paying Cash for Generic Drugs—Some Finer Points That Had Totally Gone Over My Head, With Ge Bai, PhD, CPA

For a full transcript of this episode, click here.

This show is a very natural follow-on to episode 418 with Mark Cuban and Ferrin Williams, PharmD, MBA. This show is the how, as in, “How did everything that we talked about in the earlier show wind up the way it did?” And it also proves it … with data.

I gotta say I never quite understood the finer points of the rationale of a cash pay system for minor expenses—expenses like generic drugs. I always framed this whole thing in the context of a senior on a fixed income taking 10 drugs, as my grandma did. And even if each of those drugs was only $5 or $10 a month, that’s enough beans a month that it was a big deal for her to swing.

So, I have always had this thought that these drugs should be covered by her insurance so she and everybody else living on a fixed income trying to make ends meet could get them and take them and not die from complications of diabetes or high blood pressure.

Now, the counterargument to the above, which I have certainly heard more than once, is to offer members/patients HSAs (health savings accounts) and have them buy stuff with their HSA. My knee jerk there is, yeah, but I can barely figure out the deal with HSAs. Most Americans don’t even know what a deductible is let alone an HSA. This approach just feels like it demands a lot of health literacy.

So, that’s the place I was when I walked into this conversation in this episode with Ge Bai, PhD, CPA.

Here’s two facts that got me inching away from my original position:

1. Generic drugs are cheap. There is already competition in the manufacturing marketplace that holds these prices down.

2. PBMs (pharmacy benefit managers) and insurance are devices to pool risk. If you have a high expense, that expense gets spread out over the rest of the insured population (ie, the risk pool). This whole spreading out of the risk is arduous to pull off and requires a level of administrative costs.

So, let’s break this down: In terms of #1 fact, that generic drugs are cheap, let’s think about the value prop of PBMs. It’s to throw their market power around to lower drug prices. But, oh wait … the prices of cheap generics are already cheap. So, not much need for market power? Yeah, that’s a fact. One of the studies that I talk about in this healthcare podcast with Ge Bai quantifies that. For patients in their deductible phase actually, 79% of the time paying cash is cheaper than if the patient had used their insurance and gotten the price “negotiated by their PBM.”

So, yeah … anytime pretty much anybody can wander in and get a better price than a Fortune 15 PBM, it’s pretty clear that market power is not overly required here. In fact, getting PBMs in the mix just seems to make the drug prices higher for patients.

Alright now, moving on to my fact #2 I talked about earlier, which is, what is the point of insurance (and PBMs are a derivative of insurance)? The point with them is to pool risk, to spread out the cost of something over the entire risk pool. So, yeah … drug costs $3. What is the administrative burden that goes in to spreading $3 across a risk pool? Is it worth it? Or is the admin cost burden more burdensome than the actual cost burden of the cost of the drug, and all we’re doing here is driving up the price of healthcare, which ultimately might throw more financial burden back on the patient through higher premiums or out-of-pockets?

That’s the second study that I talk about today with Ge Bai, and it quantifies exactly how much that administrative burden is when it comes to generic drugs. Because you know who makes the most money in a generic drug transaction? No, it’s not the pharma manufacturer, if that’s what you were thinking. It’s not the pharmacy. It’s not the wholesaler. Yeah, it’s the PBM. The PBM, by a margin of 10 points, makes the most money. The administrative cost burden is actually the most expensive part of buying a generic drug using your insurance and going through that PBM. There’s a bar chart that visualizes these proportions.

But while I’m on a roll here, here’s a #3 fact that speaks to my concerns about HSAs that I raised at the beginning and the financial literacy required to use them: Health insurance is already super complicated, and no one can understand it. And here’s a #4 let’s-talk-about-the-real-world fact: Health insurance and paying for drugs is already pretty unaffordable for lots of people.

So, I guess in theory it would be amazing if we could have our drugs paid for so they could be affordable. And if that were true and things were a little complicated … okay, trade-offs and all that. But right now, the situation is that drugs can be pretty unaffordable, including “cheap” generics; AND getting them covered is complicated. So, bar is pretty low to do better by patients is my point.

And this is what I talk about with, as aforementioned, my guest today, Ge Bai. Ge Bai probably needs no introduction. She is a professor of accounting at Johns Hopkins Carey Business School and also a professor of health policy and management at Johns Hopkins Bloomberg School of Public Health. As she says, she studies nothing but healthcare dollars.

Also mentioned in this episode is the show with Steven Quimby, MD (EP344) going deep on the generic drug market.

You can learn more about Ge’s research on LinkedIn and X (formerly Twitter).

 

Ge Bai, PhD, CPA, is a professor of accounting at the Johns Hopkins Carey Business School and professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. An expert on healthcare accounting, finance, and policy, she has testified in Congress, written for the Wall Street Journal and the Washington Post, and published her studies in leading academic journals such as the New England Journal of Medicine, JAMA, and Health Affairs. Her work has been widely featured in the media and cited in regulations and congressional testimonies. She was a visiting scholar at the Health Analysis Division of the Congressional Budget Office from 2022 to 2023. She teaches graduate courses and has received the Johns Hopkins Alumni Association’s Excellence in Teaching Award.

 

06:13 What is the background on generic drugs that is need-to-know?

06:39 EP344 with Steven Quimby, MD.

07:04 Do we have affordability for generic drugs?

15:40 What’s the policy failure around generic drugs?

18:34 Why is there a huge health equity issue?

20:13 How do PBMs have both a monopoly and a monopsony?

21:59 What should be the goal for cheap generics?

23:36 “Whenever we have no competition, we’ll see high price.”

26:00 What’s the best approach to addressing operational challenges behind generic drug costs?

28:42 How do we solve generic drug costs on the back end?

31:15 “Healthcare insurance is not the same as health.”

36:07 “It’s time for us to reflect and think whether there is a better way to try.”

 

You can learn more about Ge’s research on LinkedIn and X (formerly Twitter).

 

Recent past interviews:

Click a guest’s name for their latest RHV episode!

Andreas Mang, Karen Root (Encore! EP381), Mark Cuban and Ferrin Williams, Dan Mendelson (Encore! EP385), Josh Berlin, Dr Adam Brown, Rob Andrews, Justina Lehman, Dr Will Shrank, Dr Carly Eckert (Encore! EP361)

PBMs,costs,health savings plan,insurance,pharmacy,johns hopkins,generic drugs,pharma,out of pocket,

Recent Episodes

EP448 (Part 2): 340B: Why Employers Should Probably Care About What’s Happening Here, With Shawn Gremminger
September 05, 202425:3923.48 MB

EP448 (Part 2): 340B: Why Employers Should Probably Care About What’s Happening Here, With Shawn Gremminger

Maybe you’re in the know because you listened to Part 1 of this conversation with Shawn Gremminger. But no worries, because here’s the scoop: The scoop is, after some pondering, I decided to release this 340B extravaganza of a conversation with Shawn Gremminger in two parts. So, listen to one, list...

EP448 (Part 1): 340B: Where It Started, Where It Is Now, and Who Is Really Benefiting From This Massive Program, With Shawn Gremminger
September 05, 202437:5734.74 MB

EP448 (Part 1): 340B: Where It Started, Where It Is Now, and Who Is Really Benefiting From This Massive Program, With Shawn Gremminger

So, after some pondering, I decided to release this conversation with Shawn Gremminger about 340B in two parts. So, listen to one, listen to both, pick your poison. Shawn Gremminger came up with three really important takeaways relative to 340B, which is a feat unto itself, considering how sprawlin...

The Euphemism That Has Become Value-Based Care, With Elizabeth Mitchell—Summer Shorts 9
August 29, 202417:1415.77 MB

The Euphemism That Has Become Value-Based Care, With Elizabeth Mitchell—Summer Shorts 9

I was talking to one health plan sponsor, and she told me if she sees any charges for value-based care anything on any one of the contracts that get handed to her, she crosses them off so fast it’s like her superpower. For a full transcript of this episode, click here . If you enjoy this podcast, b...

Encore! EP413: The Intersection of Healthcare Waste, Value-Based Care, and the Potential Rising Power of PCPs, With Will Shrank, MD
August 22, 202434:4131.75 MB

Encore! EP413: The Intersection of Healthcare Waste, Value-Based Care, and the Potential Rising Power of PCPs, With Will Shrank, MD

Before we kick in to the show today, I just want to thank, first of all, ElkinsEcon, who is a state legislator who wrote in the review, “RHV is my single most valuable source of insights into ways to improve healthcare policy.” Thank you so much, ElkinsEcon. For a full transcript of this episode, c...

Encore! EP402: What Physicians Trying to Clinically Integrate Care in the Real World Need to Know, With Amy Scanlan, MD
August 15, 202432:5030.05 MB

Encore! EP402: What Physicians Trying to Clinically Integrate Care in the Real World Need to Know, With Amy Scanlan, MD

This encore episode is with Amy Scanlan, MD. It was, in fact, one of our most popular episodes of the past year. It is still just as relevant today in a slightly different way. It’s interesting how things which were said maybe a year ago have shades of meaning which become evident as time goes on. ...

EP447: Why an “EHR Strategy” Isn’t Enough, With Ashleigh Gunter
August 08, 2024
447
28:4426.29 MB

EP447: Why an “EHR Strategy” Isn’t Enough, With Ashleigh Gunter

There was a study a few years ago that I was very enamored with. The study found doctors tended to ignore signs (ie, signs hanging on walls) asking them to wash their hands if the messaging on the sign wasn’t right. For a full transcript of this episode, click here . If you enjoy this podcast, be s...

EP446: Hey, Let’s Not Talk About EHRs, With Spencer Dorn, MD, MPH, MHA
August 01, 2024
446
34:3731.68 MB

EP446: Hey, Let’s Not Talk About EHRs, With Spencer Dorn, MD, MPH, MHA

This show is about getting or not getting patient outcomes and getting them in an efficient or not efficient way that is in alignment or not in alignment with the values of clinicians trying to care for their patients in the best way that they can. And I’m beginning this conversation with this pref...

Listen and Follow

Sponsored by Aventria Health Group
©2024 BD Bridges LLC. All Rights Reserved.