Collection agencies held $140 billion in unpaid medical debt in 2020, according to a study published July 20 in JAMA.
Researchers examined a nationally representative panel of consumer credit reports between January 2009 and June 2020. Below are four other notable findings from their report.
An estimated 17.8 percent of Americans owed medical debt in June 2020. The average amount owed was $429.
Over the time period studied, the amount of medical debt became progressively more concentrated in states that don’t participate in the Affordable Care Act’s Medicaid expansion program.
Between 2013 and 2020, states that expanded Medicaid in 2014 experienced a decline in the average flow of medical debt that was 34 percentage points greater than the average medical debt flow in states that didn’t expand Medicaid.
In the states that expanded Medicaid, the gap in the average medical debt flow between the lowest and highest ZIP code income levels decreased by $145, while the gap increased by $218 in states that did not expand Medicaid.
El Camino Health severed ties with Anthem after pricing disputes forced the provider to kill its contract, making it the most recent in a cast of Bay Area systems to have troubles with the insurer, according to the Mountain View Voice.
Over the past decade, four systems, including Mountain View, Calif.-based El Camino, have had contract struggles with Anthem related to claims that the insurer is penny-pinching.
The result is a standoff, as Anthem has claimed in the past that regional healthcare costs are too high, explaining low service payment offers.
While Anthem provided annual payment increases, the rate El Camino requested would raise premiums and copays for businesses and families, the insurer told the Mountain View Voice. El Camino said Anthem’s terms are “well below” that of other insurers.
El Camino and Anthem are still negotiating, which could last up to between three and six months based on previous conflicts. Meanwhile, El Camino patients without critical healthcare needs are no longer in-network with Anthem.
This is a guest post by Taylor J. Christensen, M.D. (@taylorjayc). Dr. Christensen is an internal medicine physician and health policy researcher with a background in business strategy and health services research.
Since any mystery in the healthcare system intrigues me, I’ve been working on understanding pharmacy benefit managers (PBMs) lately.
Why did PBMs arise in the first place, and how did they come to have this somewhat strange role in the drug market? Let’s look at the evolution of PBMs, which I will categorize into three distinct phases.
Forewarning: There isn’t a lot of publicly available information on this stuff, so some of this is my best piecing together of things I’ve read plus supplemented by direct communications with people who work for insurers or PBMs.
Way back before PBMs, people used to pay for medications 100% up front out of pocket. They’d keep their receipts and then submit them all to their insurer later for partial reimbursement according to their insurance plan’s formulary.
That clearly had some downsides. If a patient couldn’t afford the full price up front, they would be stuck choosing which of their meds they’re not going to get, which is bad for both patients (nonadherence) and pharmacies (lost sales). Insurers also had to spend tons of time reconciling shoeboxes full of receipts.
If only there were a way to integrate an insurer’s formulary into the pharmacy’s computer system so that patients only pay their exact copay at the time they fill a prescription! Everyone would be a lot happier. Patients wouldn’t have to forego quite so many medications, pharmacies wouldn’t lose out on as many medication sales, and insurers wouldn’t have to deal with people sending in shoeboxes full of receipts. Win win win.
Enter the precursors to pharmacy benefit managers—they were essentially groups of software engineers tasked with working with pharmacies to get insurers’ formularies into the pharmacies’ computer systems. And they succeeded! After that, when a patient showed up to fill a prescription, the pharmacy would simply enter the patient’s insurance information into their system and the exact co-pay for that medicine would magically appear on the cash register’s screen. The patient paid their amount, and the transaction was then sent to the insurer to reimburse the rest.
But how did these precursor PBMs evolve into today’s PBMs that, among other things, “manage benefits”? My guess is that it went something like this . . .
These precursor PBMs got pretty good at integrating formularies into pharmacies’ systems, so they began to expand their customer base by helping lots of other insurers do the same thing.
Soon they became more familiar with all the complexities and intricacies of formularies than anyone else. And, as companies are wont to do, they leveraged that competency to make more money by offering a new service, which they maybe pitched to insurers like this:“Hey insurer, we already know all the details of your formulary. And we know where you could save money since formularies are kind of our thing. Why don’t you outsource your formulary-making efforts to us? We’ll make you a better formulary and charge less than it’s costing you to do it in-house right now. No-brainer, right?” And thus, not too long after their inception, PBMs officially started managing pharmacy benefits.
But that’s not where the story ends.
Phase 3 (dun dun dun)
Soon these PBMs found that they had amassed significant indirect control over which medicines patients get. Set a lower copay for a medicine and, sooner or later, more patients will end up taking it. And the one making the formulary is the one who sets the copays.
What did PBMs do with that power? They tried to leverage it to get better drug prices from manufacturers, which would allow them to offer an equivalent but cheaper formulary to their customers (insurers). But how, if they are not actually in the drug supply chain (that goes from drug manufacturers à drug wholesalers à pharmacies à patients) could they do that?
They cleverly reached out to the drug manufacturers directly and said something like this:“Hey drug manufacturer, we don’t actually have a direct financial relationship with you (yet). But we have significant control over how many sales you get because we set patients’ copays. How about we guarantee that your drug will, from now on, be the only one from its category in the lowest-copay tier? This will increase your sales quite a bit! And, in exchange for helping you get more sales, you can send us a “rebate” on every sale. So this is how it will work. We already keep track of every drug transaction, so every quarter we will send you the data to show how many patients using our formulary bought your drug, and you will send us a $10 rebate for each one.”
Contrary to popular belief, PBMs don’t keep all of this rebate money. Remember, their goal is to outbid other PBMs to offer the best formulary for the cheapest. And if the PBM market is competitive, they will have some degree of price competition that will force them to pass along some of those rebates on to their customers (insurers) in the form of lower fees.
I spoke with someone who works at an insurer and is in charge of contracting with their insurer’s PBM, and this person indicated that it is very possible for an insurer to get multiple bids from PBMs and identify which one is the best deal. Although, with the complexity involved, this process generally requires a specialist healthcare consultant who is an expert on navigating PBM contracts. I spoke with such a consultant, who had also worked for PBMs directly before becoming a consultant to insurers, and this person estimated that PBMs only keep about 20% of the rebates they receive from drug manufacturers. Other studies have been done on this topic, but attribution is tricky since PBMs are able to rename the monies they are receiving from drug manufacturers to fudge the numbers, which is probably why the Government Accountability Office reported in 2019 that PBMs only retain about 1% of rebates.
Well, there you have it. Phase 3 was the start of all the wheeling-dealing complexities that give PBMs their shady reputation.
I believe this is helpful background to have when you’re trying to improve the drug market (i.e., solve the problem of expensive drugs) because without understanding the incentives of the parties involved, you cannot get to the root of the problems with that system.
On Thursday, the Biden administration issued the first of what is expected to be a series of new regulations aimed at implementing the No Surprises Act, passed by Congress last year and signed into law by President Trump, which bans so-called “surprise billing” by out-of-network providers involved in a patient’s in-network hospital visit.
The interim final rule, which takes effect in 2022, prohibits surprise billing of patients covered by employer-sponsored and individual marketplace plans, requiring providers to give advance warning if out-of-network physicians will be part of a patient’s care, limiting the amount of patient cost-sharing for bills issued by those providers, and prohibiting balance billing of patients for fees in excess of in-network reimbursement amounts.
The rule also establishes a process for determining allowable rates for out-of-network care, involving comparison to prevailing statewide rates or the involvement of a neutral arbitrator, but falls short of specifying a baseline price for arbitrators to use in determining allowable charges. That methodology, along with other details, will be part of future rulemaking, which will be issued later this year.
Of note, the rule does not include a ban on surprise billing forground ambulance services, which were excluded by Congress in the law’s final passage—even though more than half of all ambulance trips result in an out-of-network bill. Expect intense lobbying by industry interests to continue as the details of future rulemaking are worked out, as has been the case since before the law was passed.
While burdensome for patients,surprise billing has become a lucrative business model for some large, investor-owned specialist groups, who will surely look to minimize the law’s impact on their profits.