Waiting for my turn to present at recent health system executive conference, I noticed that presentations before mine spent a significant amount of time lamenting “payers” and “reimbursements.” Strategies and solutions to address these challenges centered on cutting costs, pooling resources to increase negotiating leverage, lobbying, and aligning with larger health systems to bolster positioning. I was struck by the oppressive feeling of impotence in the face of the outside forces shaping the worlds of these health providers.
Given our focus on self-funded employers and novel approach to managing healthcare costs and chronic disease through direct contracted offerings, I understood my place in the line-up to be a voice of hope and encouragement by sharing innovative possibilities. However, my first step was to lay the groundwork for the situation confronting these healthcare providers and the their patients. “Who controls the healthcare of our population in America? My 85 year old mother-in-law sums it up concisely: ‘I go where insurance tells me to go.’
The Federal Trade Commission (FTC) minces no words in its recent report, Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies. Among the many observations of this report, one of the most striking conclusions is that “PBMs have gained significant power over prescription drug access and prices through increased concentration and vertical integration.” How significant? The top three (CVS Caremark, Express Scripts, and OptumRx) manage 79% of prescription drug claims for about 270 million people in the United States. Add-in the next three largest PBMs (Human, MedImpact, and Prime) and the total jumps to 94% of prescription drug claims.
The FTC’s primary argument centers on ownership and vertical integration as the source of the problem. Here is their graphic depicting the extent of the vertical integration:
Why is this a problem? The FTC report concludes that the concentration of power raises drug prices, squeezes out competition through steerage and restrictive agreements, and discourages lower cost generic utilization and development due to exclusionary agreements with manufacturers. Essentially, these massive players what we get, how we get it, and how much we pay for it. The four biggest are part of conglomerates whose revenue exceeds $1 trillion, over 22% of total U.S. healthcare expenditures.
So, what’s your center? If you’re in the healthcare business or providing health benefits to employees, it is one of these massive organizations, also known as “payers.” Though the FTC report focuses on PBMs, the issue is much larger as the organizations holding this concentration of power hold it over all of healthcare. These are the players dictating how we pay for care, how we access care, and even how we are cared for.
Their massive size stunts innovation by focusing on squeezing more out of the existing model and centering efforts on shareholder wealth creation by extracting value from the healthcare system. The result is a lumbering giant of entrenched mediocrity that is unable to flex to address changing populations, new payment models, dynamic technology, or the real underlying issues of our spiral into more cost and decreasing healthiness.
Where does the center need to be? We need to focus on the real payers in healthcare: employers and their employees. As evidenced by recent lawsuits, employees are beginning to demand more out of their company-sponsored health plans and the center of gravity is shifting quickly to employers and the decisions they are making in their health benefits. The employer plan, especially the self-funded employer, is the harbinger of change in American healthcare.
The shift has already begun. Right now, the focus is on tweaks to the existing system and the structures on which it sits. Reworking the veneer will help a bit but lasting change will require more fundamental redesigns in payment models, care strategies, data visibility and interpretation, and careful stewardship of the overall healthcare investment. Siloed looks at pharmacy and medical claims need to evolve to deep insights into overall spend, the implications of decisions, and the efficaciousness of the care being delivered – whether that is a medication or a procedure.
The ultimate answer will sit atop a new care and stewardship infrastructure built on precision networks, real-time access to decision enhancing insights, seamless technology, flexible direct contracts, and less complex payment models. The only way to remove the barriers of costs, access, and complexity, will be to redesign our clunky system, relocalize health, and give employers and employees more control. We need to put them at the center of our healthcare universe.
Healthcare is the name of this $5 trillion game but the real aim is human flourishing and health is just one of its pillars. Once we’ve re-centered and began to remove so many distracting healthcare barriers, we can begin to dig deeper on the root causes of so many of the diseases affecting our capacity to thrive in mind, body, and soul. The center of gravity is shifting and we’ve just started to scratch the surface of all that is possible in the ultimate quest toward full human flourishing.
