Devon Herrick, PhD, is a health economist and former hospital accountant. He has researched and written about health economics for many years.

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Congress recently began hearings on proposals to combat opioid abuse. Opioid abuse is a serious problem across the country and shows little sign of slowing. In March 2018, the 

 reported a huge increase in emergency room visits for opioid overdoses. Most parts of the country experienced an increase of nearly one-third from 2016 to 2017 and increased nearly 70% in the Midwest during that same period. Once thought to be primarily a rural problem (rising 21%), opioid overdoses increased 54% in large central metro areas, according to the CDC.

Overdose deaths were nearly double the number of fatal car accidents in the United States in 2016. According to data analyzed by the 

, about 64,000 people died of opioid overdoses in 2016. By contrast 

The Insurance Institute for Highway Safety

 counted 37,461 deaths in fatal car accidents. The website 

 more people died of opioid abuse in 2016 than all the soldiers who died in the Vietnam War. In other words, opioid abuse is a public health crisis of epic proportions.

Opioid abuse is also huge headache for managed care executives. 

 and found the cost of drugs lost to fraud and abuse is just the tip of the iceberg. For every $1 spent on unnecessary opioid prescriptions, 

, there are 130 chronic abusers and 825 nonmedical, i.e., recreational, users. For every overdose death there are 10 substance abuse treatments and 32 emergency room visits. This includes medical emergencies, emergency room visits, doctor shopping and both necessary and unnecessary treatment costs. Even for those who are not abusing opioids, the temptation to divert opioids to the illicit market is significant. The street value of $1 worth of opioids purchased at a local pharmacy ranges 

from $6 to $12 according to Office of Inspector General

Congressional proposals to combat opioid abuse include:

Research on non-addictive pain relievers;

Limits on the number of pills in any one opioid prescription;

Improved tracking of opioid prescriptions.

President Trump has even called for tougher measures against drug dealers.

Arguably the best idea is H.R. 3528, The 

. If passed, the bill would require prescriptions for controlled substances under Medicare Part D to be transmitted electronically. Prescribing software would have to meet stringent requirements to transmit prescriptions in ways that are secure; and, allow physicians to track any concurrent prescription for opioid painkillers. New York State tried this approach several years ago and found it reduced opioid use.

Most doctors have been prescribing non-controlled substances electronically for years with few problems. However, until recently federal law prohibited e-prescribing of controlled substances. The DEA was concerned that without proper security protocols, e-prescribing would facilitate diversion of drugs to the illicit market and further exacerbate abuse of controlled substances. The DEA issued final rules regulating e-prescribing software design and security protocols in 2010. E-prescribing of controlled substances is now legal in all 50 states. It should probably be mandatory in all 50 states.

Transmitting prescriptions electronically allows physicians to communicate their intentions directly with pharmacies. The alternative: handing patients instructions scribbled on a blank form ripped from a prescription pad is difficult to track. Tracking e-prescriptions electronically allows doctors to detect drug seeking behaviors, like doctor shopping for concurrent prescriptions and filling prescriptions for more opioids than any one doctor would authorize.

Health IT Now, an advocacy group for health information technology, 

estimates H.R. 3528 would save $13 billion in federal spending over 10 

years. The medication management consulting firm, Visante, estimates the savings at more than $2 billion annually for Medicare Part D 

and as high as $53 billion per year if rolled out nationally

. Nearly two years ago I wrote about the benefits of 

, arguing it was a commonsense solution that was being ignored. It is no longer being ignored.

Many opioid abusers began innocently enough as patients with chronic pain or post-surgical pain. Patients generally found opioid pain relievers effective at controlling pain, even pleasant. That is until they became an irresistible craving. Mandatory e-prescribing may do little to stop abusers who have graduated to street opioids, like heroin and fentanyl. However, better tracking of opioid prescriptions will help prevent new chronic pain management patients from becoming new opioid abusers

Devon M. Herrick, PhD, is a health economist and former hospital accountant. He has written about health policy for over 20 years.

Articles

Congress recently began hearings on proposals to combat opioid abuse. Our policy analyst weighs in.

How Technology Can Help Track Opioid Prescriptions, Slow Opioid Crisis

	About half of states have transitioned at least some Medicaid beneficiaries away from fee-for-service (FFS) drug programs into drug plans integrated with managed care. Yet, recent legislative initiatives are bucking this trend for political reasons. A 

bill in the Kentucky legislature, and similar proposals in Ohio and Arkansas,

 would require the state to manage Medicaid drug benefits on a FSS basis. Indeed, nearly half of states still hang on to outdated FFS programs, mostly for political reasons. The primary reason is to protect or improve the finances of small, rural pharmacies.

	One of the goals proponents of Medicaid drug carve-outs hope to achieve is to persuade lawmakers to increase dispensing fees (i.e. counting and bottling the pills). State-run Medicaid FFS programs normally pay higher dispensing fees than managed care plans. Dispensing fees paid by private plans average about $2 for Medicare Part D plans, although it is reportedly just under $1 for Kentucky Medicaid. By contrast, state FFS dispensing fees range from 

$2 in Arizona to $21.28 in Alaska, for pharmacies not located on a road system

. Every $1 increase in the cost of dispensing a Medicaid prescription in Kentucky is estimated to 

cost federal and state taxpayers approximately $27 million

Drug benefits behind in managed care integration 

	Over the past 20 years, states have increasingly moved Medicaid enrollees into private managed care plans. However, states have been slower to integrate drug benefits with Medicaid managed care. Federal regulations require drug makers to rebate a portion of drug costs. Until recently states could only receive rebates if the state administered drug benefits using FSS.

	The Affordable Care Act changed this requirement. 

States can now receive drug rebates (shared with the federal government) whether benefits are administered FFS or integrated with managed care.

	Medicaid managed care plans in about half of states work with private firms that manage Medicaid drug benefits, called pharmacy benefit managers (PBMs). PBMs span multiple states and have numerous public and private clients. The objective is cost savings; PBMs possess far more purchasing power and expertise than any one state agency. An April 2015 

report found integrating drug benefits with managed care

 plans lowered the cost of Medicaid branded drug by 17.6% and generic drugs by 15.1% compared to state Medicaid FFS programs. The report also found managed care use of lower-cost generic drugs was about five percentage points higher than FFS plans.

Next: Benefits of managed care drug plans

	Medicaid managed care drug plans outperform state FFS drug programs in a number of ways. For example, FFS drug prices often differ unnecessarily from one pharmacy to the next. State FFS Medicaid programs arbitrarily pay much higher dispensing fees than would occur in a competitive market. State Medicaid FFS drug programs use low-cost, generic drugs less often than managed drug plans. In addition, unnecessary and redundant prescriptions are often higher under state-managed FFS drug programs.

	Using private firms to manage drug benefits is standard practice in virtually all other health plans. These are the same private drug plans that manage Medicare Part D drug plans for seniors as well as drug benefits for employee health plans and health insurers. This is important because insurers, employer health plans, and PBMs all have an incentive to hold down costs.

	By contrast, some politicians in Kentucky want to increase Medicaid spending by paying pharmacies hundreds of millions of dollars more. The Kentucky governor warned if the state Medicaid agency takes control of managing drugs, 

federal and state taxpayers’ costs would increase costs by $161 million

	Furthermore, it makes sense that the health plan responsible for medical care should also manage drug therapies. Drugs often substitute for other more expensive medical treatments or lessen the use of hospitalization and emergency rooms. The ultimate goal should be to better manage Medicaid beneficiaries care, not increase pharmacy profits.

	Too often public programs like Medicaid are allowed to become state and local economic development programs, whose supporters hope to shift some of the costs to taxpayers in other states. This is a bad deal for both federal and state taxpayers. It is also a bad idea for Medicaid patients.

Devon M. Herrick, PhD, is a health economist and policy advisor to the Heartland Institute. 

About half of states have transitioned at least some Medicaid beneficiaries away from fee-for-service (FFS) drug programs into drug plans integrated with managed care. Our policy analyst shares why he believes more should do so. 

Opinion: The Bad Politics of Carving-Out Medicaid Managed Care Drugs

	Hospital executives view their emergency departments as the hospital’s “front door” through which their most lucrative guests arrive. The proportion of hospital admissions admitted through the emergency room (ER) has risen from about one-third 25 years ago, to about half today. Hospitals are increasingly outsourcing their emergency departments to emergency medicine staffing agencies, who manage the ER on their behalf. This should come as no surprise. Hospitals often turn to temp agencies because staffing needs vary with admissions, time of the year, day of the week and even hours within the day. However, emergency medical staffing is different than a temp agency supplying a few extra nurses, physical therapists or speech pathologists when the need arises.

	The primary way ER staffing differs from other allied health staffing is that ER physicians generate revenue for the hospital and also bill for the services they provide in the ER. A new study by 

 illustrates why this is not without controversy. A national study of data from a large insurer finds that hospital admissions, up-coding and average charges per patients sometimes rise after outside agencies take over ER staffing. While this benefits hospitals, patients complain of inflated bills, outrageous fees and (surprise) out-of-network balance billing when the physicians who staff the ER are not affiliated with area insurance networks. 

	Across the country patients increasingly complain after getting billed for out-of-network physician charges they did not expect. These often occur even though consumers made sure the hospital was in their network. However, they have no way to ensure physicians who provide services at the hospital are in-network. Why would hospitals not require physicians staffing their ERs to affiliate with area insurers? It’s probably because hospitals are reluctant to rock the boat when the agency is boosting ER revenue. Why would physicians in the business of staffing hospital emergency rooms not affiliation with area insurers? There are two opposing views to this question.

	Doctors complain they don’t join networks because insurers low-ball them; offering paltry reimbursements in return for their services. On the other hand, insurers claim emergency medical specialties take advantage of the fact their patients are in no position to go elsewhere even though the prices are high. When treating patients whose insurer has no fee contract, ER physicians are free to charge whatever they want. Joining a network would likely yield lower fees than refusing network affiliation and playing “gotcha” when desperately-ill patients are wheeled in through the ER doors. Patients often bear the inflated balance after insurance has paid its share. One Yale researcher described this to 

 as a “kind of ambushing of patients.” According to the Yale analysis, EmCare and TeamHealth were both emergency medical staffing agencies they observed that increased out-of-network balance billing once they took over hospital emergency departments.

	Out-of-network balance billing is more common among physician specialties whose members rarely meet with patients prior to providing care. For instance, when patients go to an emergency room they are in no position to compare fees or question the tests their doctors order.  Neither are they in a position to compare fees of radiologists, anesthesiologists and pathologists, who rarely meet with them prior to providing services. Thus, it may be no coincidence that the parent company that owns EmCare is 

also acquiring anesthesia and radiology practices

, along with some other medical businesses. Anesthesia and radiology all share similar opportunities to reject networks and balance bill for services.  

	Across the country more states are taking steps to limit patients’ exposure to surprise out-of-network bills.  One solution is to require a “meeting of the minds” between doctor(s) and patients or hospitals and patients before a debt is collectable. This is already the standard under contract law.

Devon Herrick, PhD,  is a health economist and former hospital accountant.

Across the country more states are taking steps to limit patients’ exposure to surprise out-of-network bills. 

Opinion: Who's to blame for surprise out-of-network bills?

 and my fellow panelists-physicians working in Hungary, Sweden, Canada, and the United States-were all proponents of single-payer health insurance. Indeed, it is increasingly in vogue for American public intellectuals to assert single-payer should replace Obamacare.

 famously campaigned on replacing Obamacare with a single-payer system similar to 

. Charlie Munger, the Republican billionaire vice chair of Berkshire Hathaway made headlines recently when he 

 because he believes our healthcare system puts American manufacturing at a competitive disadvantage. Donald Trump has even flirted with single-payer, at various times 

praising Canadian, Australian, and Scottish socialized health systems

, which seeks to establish a state-run single-payer health plan in the state. In the past several years both 

 have debated and ultimately rejected single-payer initiatives.

	Single-payer health insurance is the ultimate government control of the healthcare system. Purportedly, single-payer would provide universal coverage without the hassle of enrolling in health insurance every year. Absent the marketing expense, executive salaries, administrative tasks, and profits, health coverage would supposedly become less expensive. Absent the need to bill numerous insurers, hospitals could (at least in theory) fire the bean counters and pass on the savings to the government insurer. 

	Most Americans who favor single-payer health coverage do not really understand how it works. Two physicians I spoke with like their respective systems in Canada and Sweden, but complained of too much rationing and excessive bureaucracy. Yet, it should not surprise anyone that single-payer systems are bureaucratic and use rationing. By definition, a single-payer is a monopsony-the only purchaser of a good or service. 

	If you are the only payer, you can dictate the prices you are willing to pay-and limit the services you are willing to reimburse. You can also dictate the bureaucratic rules for payment. 

	Scarce resources must always be rationed in some manner.  Economic theory suggests a monopsony should set provider fees low enough that a sufficient number of providers exit the market, creating a slight shortage of services. This results in what is known as rationing by waiting. Some services or treatments may take months to receive.

	Price controls are commonly used to limit the cost of drugs and supplies in single-payer systems like in Canada, Britain, Australia, and New Zealand. Doctors, medical device makers and drug companies would all face a squeeze on fees and prices.  Setting hospital fees at or slightly below what Medicare pays today (about 71% of private insurers’ fees) would significantly lower expenditures. Many single-payer health systems calculate fixed global budgets for each hospital, refusing to reimburse piecemeal for patient volume.

	The caveat: It is doubtful politicians would have the resolve to follow the single-payer playbook in the face of the powerful healthcare lobby. Indeed, 

buying power is not the same as bargaining power

	Real price concessions result from bargaining power. Bargaining power only exists when one party possesses the will to walk away from a deal and deprive the other of its business. In other words, unless a Medicare-for-all system is willing to deny Americans access to some services, drugs or hospitals, then prices won’t fall.

	Absent any of these preconditions a single-payer healthcare system would cost more than the current system due to the additional utilization from the uninsured and care that’s free at the point of service. In other words, single-payer is a pipe dream. It is not some magical concept that rains down savings like manna from Heaven.  

Our policy analyst explains why he believes single payer Medicare-for-all is a pipe dream.  

Opinion: Biggest problems with single-payer ‘Medicare-for-all’

	Medical needs are not distributed evenly throughout the population. Consider this: The healthiest 50% of Americans only account for about 3% of medical spending. The healthiest half of the population also has a 

73% chance of remaining in the healthiest group

 the following year, according to the Kaiser Family Foundation. 

	By contrast, the sickest 10% of Americans have medical bills that are 100 times, on average, of those in the healthiest 50%. The sickest 10% accounts for about half of medical bills in any given year. Nearly half of those (45%) will remain among the least healthy 10% of big spenders the following year. 

	The primary sticking point in health reform is what to do with high-cost individuals who have pre-existing conditions.

	People with episodic medical needs are easy to insure, while those with persistent needs are far more difficult unless insurers are allowed to underwrite enrollees’ risk.

	Republicans have long favored high-risk pools to cover individuals who are otherwise uninsurable. Prior to the Affordable Care Act (ACA) just over two-thirds of states had some type of high-risk pool. In 2011, high-risk pool enrollment varied from 0.1% in Alabama to a high of 10.2% in Minnesota.

	By most accounts only about 2% of people are uninsurable, although one 

Kaiser Family Foundation study argues the actual rate may be a dozen times higher.

	I’ve talked to insurance brokers who claimed most of their clients that were turned down prior to Obamacare could ultimately obtain coverage either at a higher price or after meeting some preconditions.

	Republicans in Congress are now mulling over so-called 

 to protect those with pre-existing conditions while making coverage affordable for those with few health needs.

	Invisible high-risk pools are a type of reinsurance program that covers the cost of insured claims in excess of a certain amount and/or targets high-cost claims for specific conditions.

	Maine experimented with this strategy in 2011.  The individual market in Maine had deteriorated due to regulations requiring 

: premiums doubled and enrollment plummeted by two-thirds over an 18-year period (1993 to 2011).

	To counteract the incentive for healthy people to leave the individual market, Maine expanded its premium rating bands to 3:1 from an earlier ratio of 1.5:1. The state also agreed to reinsure 90% of claims between $7,500 to $32,500 and all claims above that $32,500 in the individual market.

	After Maine relaxed its rating bands and created an invisible high-risk pool, premiums for those in their 20s, 30s and 40s dropped by about $5,000 per year, on average.  Premiums for individuals in their 50s fell by $6,000, while premiums for those 60 years old fell by about $7,000 annually.

 are disproportionately driving up premiums, making coverage a bad deal for healthy enrollees. Alaska created a two-year 

 and reimburses costs for selected high-cost enrollees. 

	Alaska contributes $55 million a year to cover very sick individuals.  Whereas state residents were initially facing 

premium increases of 40% from insurer Premera,

 insuring the sickest enrollees in a separate risk pool kept the increase to about 7%.

	Reinsurance and high-risk pools sound like great ideas for states to experiment with. One criticism I have heard is that government-funded reinsurance is a step towards Medicare-for-All. All that is required is expanding the risks government is willing to insure.

Our policy analyst explains the concept of invisible high-risk pools, and explains how they might affect health reform.

Congress considering ‘invisible’ high-risk pools

 spearheaded by Pharmaceutical Research and Manufacturers of America attempts to cast some of the blame for high drug prices on the “middlemen”-other stakeholders in the drug supply chain.

	Recently, in another example of an attempt to shift blame, the CEO of Mylan defended the price of its EpiPen during a hearing before congress, arguing 

 are partly responsible for the high price.

	Manufacturers of name-branded drugs tend to have high list prices that nobody actually pays. Pharmacy Benefit Managers (PBMs) manage drug plans and negotiate discounts in the form of rebates that lower the net price of the drugs, in some cases up to 30% depending on the size of the drug plan. The precise rebates a drug plan receives are proprietary; no insurer, drug plan administrator (or manufacturer for that matter) wants competitors to know what each other has to pay.

	Because it’s not public knowledge, some drugmakers have accused PBMs of not passing along enough of manufacturers’ rebates to their clients (employers and insurers)-supposedly making consumers pay too much.

	The accusation rings hollow; if the makers of brand drugs didn’t like rebates, it would presumably be within their power to negotiate 

Is mandated price transparency the answer? 

 (D-OR) hints that pharmaceutical rebates are jacking up the price of drugs. It would force a statutory percentage of rebates to be passed back to plan sponsors. A 

	If regulatory changes rendered old agreements less profitable, the contracting firms would obviously have to renegotiate agreements and shift business practices.  I’m not convinced by the argument that forcing net prices (versus gross prices with a rebate) would necessarily benefit consumers in the long run.

	Rebates are used in various industries to price-discriminate-to give volume discounts to large wholesale buyers who do the most business with the manufacturer. Consumers benefit from retail price transparency; mandating wholesale price transparency would not have the same effect.

	Moreover, the U.S. Federal Trade Commission (FTC) and even the 

 are rather skeptical of the argument that exposing rebates will lower drug prices.  The FTC is concerned that 

mandating price disclosure will remove a bargaining tool

 used by some firms to compete with others. The loss of proprietary pricing information could reduce aggressive bargaining or potentially encourage price collusion among manufacturers.

	Not all drugs are costly. A back-of-the envelope estimate of perhaps only 5% can break the bank, while 88% are cheap generics.  PBMs and drug plans have been so successful steering plan members to cheap generic drugs that branded medications now only have a 12% market share.

	It costs more than a billion dollars to develop a new drug. Once approved, new drugs often only 

have from 10 to 12 years left on their 20 year patents

. After spending a billion dollars, drugmakers have to recover their investments, cover the costs of failed products and eke out a profit in less than a dozen years.

	This likely explains why some drugmakers are aggressively testing the price levels the market will bear. However, the organizations most responsible for high drug costs are the ones who set prices. Playing the blame game won’t make them any cheaper.

Our policy analyst weighs in on a new drug industry PR campaign that attempts to shift the blame for high drug costs.