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Mylan has been in the news a lot recently, mostly being criticized for the pricing of their popular EpiPen product. Mylan's CEO has responded by blaming health insurance plan design, saying that the rise of plan deductibles has exposed consumers to higher out-of-pocket costs. Congress has called in Mylan's CEO for a hearing, and people have suggested that a price cap of some sort should be imposed. With all of the current unpopularity, Mylan is reported as seeking another way of shielding itself from criticism: by getting EpiPen formally recognized as a preventative drug. If such a designation were to occur, most insurance companies would be required to cover the cost without imposing a co-pay on patients, leading to a classic example of a third-party payer problem (when a different party pays than the party receiving the benefit). Instead of patients trying to find more cost-effective alternatives, insurance companies would likely pass on the cost to everyone through higher premiums. As scary as it might be for current patients who are exposed to the actual price of EpiPen, the current outcry is a step forward in patients learning about the actual sale price of drugs, which might spark a broader conversation of how and which drugs are covered. If Mylan were successful in getting the desired designation, such conversation might get delayed until another drug or procedure takes its place or until premiums rise too much --which might not be that far off.

Mylan has been in the news a lot recently, mostly being criticized for the pricing of their popular EpiPen product. Mylan's CEO has responded by blaming health insurance plan design, saying that the rise of plan deductibles has exposed consumers to higher out-of-pocket costs. Congress has called in Mylan's CEO for a hearing, and people have suggested that a price cap of some sort should be imposed. With all of the current unpopularity, Mylan is reported as seeking another way of shielding itself from criticism: by getting EpiPen formally recognized as a preventative drug. If such a designation were to occur, most insurance companies would be required to cover the cost without imposing a co-pay on patients, leading to a classic example of a third-party payer problem (when a different party pays than the party receiving the benefit). Instead of patients trying to find more cost-effective alternatives, insurance companies would likely pass on the cost to everyone through higher premiums. As scary as it might be for current patients who are exposed to the actual price of EpiPen, the current outcry is a step forward in patients learning about the actual sale price of drugs, which might spark a broader conversation of how and which drugs are covered. If Mylan were successful in getting the desired designation, such conversation might get delayed until another drug or procedure takes its place or until premiums rise too much --which might not be that far off.

For all of the maneuvering that may have happened in the background, it is noteworthy that two non-profits declined industry funding because of a conflict of interest (and presumably putting patient interests first).

Medicare has been trying to move away from the traditional fee-for-service model that encourages over-treatment. The push has been to get providers interested in a new payment model where they take on additional risk, but are rewarded when their patients incur less medical spending. In part to ease the transition, Medicare pegs reimbursement rates to the participating institutions' prior performance metrics. Hence, organizations that were inefficient wouldn't be held to an industry-wide benchmark. Likewise, organizations that are already efficient would have an incentive to do better. Unfortunately, it can be difficult to get these policies correct, as evidenced by Dartmouth's departure from the program and return to the traditional fee-for-service model.

Medicare has been trying to move away from the traditional fee-for-service model that encourages over-treatment. The push has been to get providers interested in a new payment model where they take on additional risk, but are rewarded when their patients incur less medical spending. In part to ease the transition, Medicare pegs reimbursement rates to the participating institutions' prior performance metrics. Hence, organizations that were inefficient wouldn't be held to an industry-wide benchmark. Likewise, organizations that are already efficient would have an incentive to do better. Unfortunately, it can be difficult to get these policies correct, as evidenced by Dartmouth's departure from the program and return to the traditional fee-for-service model.

It appears that even though Dartmouth did better, they did not do better by enough to profit financially (there is a threshold that must be crossed before the savings are shared), in part because they were efficient to begin with. It's easier for the less efficient provider organizations to benefit from adopting the new payment model.

The California legislature is reported as having passed a bill to limit surprise billing at in-network facilities. Recently, people had reported shock at receiving out-of-network prices for procedures done at in-network facilities. This bill (AB 72) limits how much the out-of-network physician can charge; the rate would be the greater of the plan's average rate or 125% of Medicare's rate. Apparently, Consumers Union found that over the last two years, 25% of Californians were estimated to have been surprised by out-of-network rates.

The California legislature is reported as having passed a bill to limit surprise billing at in-network facilities. Recently, people had reported shock at receiving out-of-network prices for procedures done at in-network facilities. This bill (AB 72) limits how much the out-of-network physician can charge; the rate would be the greater of the plan's average rate or 125% of Medicare's rate. Apparently, Consumers Union found that over the last two years, 25% of Californians were estimated to have been surprised by out-of-network rates.

Some doctors oppose bills like this because it gives insurance companies more leverage in pricing negotiations -- in theory, insurance companies would be less willing to agree to pay doctors more than 125% of Medicare's reimbursement. Regardless of how this might affect the relationships between providers and payers, patients benefit by having greater assurance of being charged in-network fees while at an in-network facility.

Some patients have difficulty ascertaining whether a specific doctor accepts a specific insurance plan. Often times, the insurance company will provide a directory listing doctors who take a specific plan, but they will include a disclaimer for patients to check with the doctors' offices before choosing. Likewise, a doctor's office might say that that the doctor accepts a specific plan, but will also often include a disclaimer to check with the insurance company. Neither side wants to accept final responsibility for the designation (the doctor wants to be paid in full even if the insurance company claims that the doctor is out-of-network, and the insurance company does not want to be on the hook for more than it has to if it turns out that the doctor does not actually accept a specific plan). Unfortunately, the patient is caught in the middle, with the two parties who would best know disclaiming responsibility. How can the patient actually find out? The patient can undergo the procedure, and see how the bills come back.

Some patients have difficulty ascertaining whether a specific doctor accepts a specific insurance plan. Often times, the insurance company will provide a directory listing doctors who take a specific plan, but they will include a disclaimer for patients to check with the doctors' offices before choosing. Likewise, a doctor's office might say that that the doctor accepts a specific plan, but will also often include a disclaimer to check with the insurance company. Neither side wants to accept final responsibility for the designation (the doctor wants to be paid in full even if the insurance company claims that the doctor is out-of-network, and the insurance company does not want to be on the hook for more than it has to if it turns out that the doctor does not actually accept a specific plan). Unfortunately, the patient is caught in the middle, with the two parties who would best know disclaiming responsibility. How can the patient actually find out? The patient can undergo the procedure, and see how the bills come back.

In theory, this should not be that difficult of a problem for insurance companies -- they have a list of doctors who have signed legally binding contracts with them, agreeing to perform specific procedures for specific prices. Up until recently, however, insurance companies probably have not had a strong incentive to care about the accuracy of their directories. California is reported to have recently enacted legislation to counteract this: insurers must provide an accurate directory, and if they list a doctor as in-network and the doctor is actually out-of-network, the insurance company must cover the difference in patient responsibility (hence, the patient would only pay the in-network price). In theory, the patient can now go to one single place to determine whether a specific doctor in California accepts a specific plan.

The New York Times reported on a change in reimbursement policy that the California Public Employees' Retirement System (Calpers) implemented starting in 2011. Previously, Calpers presumably paid similar to traditional payers, with the patients paying a portion of their procedures up to to certain limit. Given the price ranges of some procedures, patients were likely looking to pay the maximum regardless of which hospital they visited. As such, the patients had no reason to be concerned about the hospital charges. Starting in 2011, Calpers set prices (known as "reference prices") for specific procedures that they believed could be shopped. Patients who selected options that cost up to the reference prices would pay as they had before; patients who chose more expensive options would be required to pay the difference (in addition to the previous maximum). Suddenly, the person making the decision (regarding which hospital to use) had a very strong incentive to care about the cost. The lower-cost hospitals encountered a flood of new patients, while the more expensive hospitals ended up adjusting their pricing down. Researchers have reported that no change in quality was observed.

The New York Times reported on a change in reimbursement policy that the California Public Employees' Retirement System (Calpers) implemented starting in 2011. Previously, Calpers presumably paid similar to traditional payers, with the patients paying a portion of their procedures up to to certain limit. Given the price ranges of some procedures, patients were likely looking to pay the maximum regardless of which hospital they visited. As such, the patients had no reason to be concerned about the hospital charges. Starting in 2011, Calpers set prices (known as "reference prices") for specific procedures that they believed could be shopped. Patients who selected options that cost up to the reference prices would pay as they had before; patients who chose more expensive options would be required to pay the difference (in addition to the previous maximum). Suddenly, the person making the decision (regarding which hospital to use) had a very strong incentive to care about the cost. The lower-cost hospitals encountered a flood of new patients, while the more expensive hospitals ended up adjusting their pricing down. Researchers have reported that no change in quality was observed.

One nice aspect of reference pricing is that patients who very much want to use a specific hospital can still do so -- they would just need to pay the difference. In contrast, if such patients were using a plan with a narrow network and the specific hospital were out-of-network, patients likely would need to pay much more. The article notes a number of limitations of reference pricing, with a major problem being the lack of pricing transparency. Right now, it would be extremely frustrating for most patients to undergo a major medical procedure to pick a specific hospital. Many hospitals are unable to provide reasonably accurate cost estimates before the surgery, and unlike many other goods and services, there is no central platform to view different options and their corresponding prices. Nevertheless, the success that Calpers has enjoyed is encouraging; hopefully, more payers will adopt such models and provide centralized pricing information to their members.