The Senate Health, Education, Labor & Pensions (HELP) Committee has just released a bi-partisan bill authored by Senators Lamar Alexander (R-TN) and Patty Murray (D-WA) that would make health care more affordable and more transparent for patients. These reforms are not grandiose fantasies that are destined to fail, such as “Medicare for All”. Instead, the bill proposes modest “common sense” reforms that target specific inefficiencies and disincentives that plague the current health care system.
For starters, the bill would promote greater transparency in health care pricing, which is critical in order to make the U.S. health care system more cost effective.
One way the HELP bill will improve transparency is by requiring pharmacy benefit managers (PBMs) to report the costs, fees, and rebates they negotiate on behalf of patients. The legislation would also eliminate the current use of clauses (known as gag clauses) that some health care providers use to restrict, or outright prevent, insurance plans from revealing the price of health care procedures to patients. Accurate cost and quality information will empower innovative practitioners to discover how to provide better quality care at lower costs. The current use of gag clauses creates unjustifiable information barriers that hamper this beneficial process.
The HELP bill also remedies the problems created by the current rebating practices in the pharmaceutical market. While rebates make products more affordable in most markets, in the pharmaceutical market rebates actually drive up the costs of medicines for patients even as they keep the overall costs for insurers under control. Correcting this absurd outcome should be a top priority for policymakers. The HELP bill corrects this problem by requiring PBMs to “pass 100 percent of any rebates or discounts to the plan sponsor”. While there are reasons to consider requiring that these discounts be passed on directly to patients, the proposed change will improve the market’s efficiency.
Another important reform would eliminate a practice known as “spread pricing”. Spread pricing occurs when PBMs charge a plan sponsor, health insurance plan, or patient more for a drug than the amount the PBM reimbursed the manufacturer (earning an additional “spread” on the difference). These fees are in addition to the typical charges PBMs assess, and are a direct result of the government-enabled market power PBMs have amassed. Eliminating this practice enhances the efficiency of the pharmaceutical market to the benefit of patients and overall health care costs.
The HELP bill also proposes meaningful changes that will help eliminate the problem of “surprise billing”. Far too often patients receive a surprise “out-of-network” charge after seeking emergency care at an in-network hospital because the practitioner working at the hospital was not in their network. The bill would hold patients harmless from such billing surprises, and require hospitals to manage their staff more effectively.
While there are other provisions in the bill, some less beneficial than others, these examples demonstrate that, on net, the HELP bill is a substantive improvement over the status quo and, if implemented, would improve the quality of health care in the U.S. while also making it more affordable.
Dr. Wayne Winegarden is the director of the Center for Medical Economics and Innovation at that Pacific Research Institute, and is also a PRI senior fellow in business and economics.
