Governor Gavin Newsom, April 17, 2019, in a news release
California regularly portrays itself as a national trendsetter on political issues, and Gov. Gavin Newsom is claiming that title on prescription drugs.
This story also ran on PolitiFact. This story can be republished for free (details). Newsom has a plan to take on the drug industry, and at an April 17 news conference in Southern California, he declared that two other governors already want to join his effort.
“California is leading the nation in holding drug companies accountable and fighting prescription drug prices,” Newsom said via a press release that day, marking his 100th full day in office.
There’s no question the Democratic governor is aggressively taking on the pharmaceutical industry — vowing to leverage his state’s purchasing power to extract lower prices, and bluntly telling drugmakers that taxpayers are tired of being “screwed.”
But Newsom’s claim that California leads the nation on this issue prompted us to ask: Is that really the case?Email Sign-Up
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What is Newsom doing about prescription drugs?
Newsom marked his first day in office, Jan. 7, with a direct message to the pharmaceutical industry: The nation’s most populous state is fed up with the meteoric rise in prescription drug prices.
He signed an executive order directing the state to negotiate drug prices for the roughly 13 million enrollees of Medi-Cal, the country’s largest Medicaid program that serves low-income residents, by 2021. And he ordered his administration to study how state agencies could band together and buy prescription drugs in bulk.
With the state buying drugs for all Medi-Cal enrollees and state entities, Newsom argues that California will leverage its purchasing power as the third-largest buyer in the country to demand lower prices from drugmakers. Eventually, Newsom envisions private purchasers — including small businesses, health plans and self-insured Californians — taking part.
Newsom has said several times he hopes this collaboration can be a model for the rest of the country.
Newsom traveled to Downey, Calif., last week to announce that Los Angeles County would join California’s bulk purchasing pool, a move intended to show that others are eager to join his initiative.
How do California’s efforts on prescription drugs compare with those of other states?
We interviewed five health care experts who commended Newsom for his focus on prescription drugs, but each noted that he is not the only lawmaker tackling the issue.Sources:
Gov. Gavin Newsom’s Executive Order on prescription drugs, Jan. 7, 2019
California Gov. Gavin Newsom remarks at news conference on prescription drugs, April 17, 2019
California Gov. Gavin Newsom, quote in press release, April 17, 2019
California Gov. Gavin Newsom, news release Jan. 7, 2019, announcing prescription drug executive order
Phone interview with Nathan Click, spokesman for Gov. Gavin Newsom, April 18, 2019
Phone interview with Edwin Park, a research professor at Georgetown University Health Policy Institute’s Center for Children and Families, April 18, 2019
Phone interview with Trish Riley, executive director, National Academy for State Health Policy, April 19, 2019
Phone interview with Erin Fuse Brown, associate professor of law at the Center for Law, Health and Society at Georgia State University, April 18, 2019
Phone interview with Jaime King, associate dean, UC Hastings College of the Law, April 18, 2019
Phone interview with Trevor Douglass, director of the Oregon Prescription Drug Program, April 19, 2019
The Northwest Prescription Drug Consortium, visited April 18, 2019
“How to Strengthen the Medicaid Drug Rebate Program to Address Rising Medicaid Prescription Drug Costs,” by Edwin Park, January 2019.
“Is California a leader? Yes. Is it the leader?” asked Edwin Park, a research professor at Georgetown University’s Center for Children and Families. “That’s not doing an assessment of what all the other states are doing.”
A number of states in recent years have enacted laws to regulate pharmacy benefit managers, the so-called middlemen who negotiate with drugmakers; impose drug price transparency rules; outlaw “gag clauses” that prevent pharmacists from telling consumers about cheaper drug alternatives; and authorize the importation of drugs from Canada.
At least 28 states and the District of Columbia already participate in multistate purchasing pools — joining forces to get bigger discounts for their Medicaid programs or state employees. The Northwest Prescription Drug Consortium, formed by Oregon and Washington in 2006, invites state and local government agencies, businesses, labor unions and uninsured consumers to voluntarily pool their purchasing power.
Roughly 1.1 million people are represented by the consortium, either as individuals or through public and private entities such as the Washington State Department of Corrections, Washington’s Medicaid program and SAIF Corp.
“Other states are actively looking at us as a partner,” said Trevor Douglass, director of the Oregon Prescription Drug Program.
Earlier this month, Maryland lawmakers passed legislation that would create the nation’s first prescription drug affordability board, which, if signed by Republican Gov. Larry Hogan, would let the state cap certain drug prices.
“There’s extraordinary activity” on prescription drug prices, said Trish Riley, executive director of the National Academy for State Health Policy, which tracks bills in state legislatures around the country. “Hundreds of bills were introduced this year.”
What makes California’s effort novel, Newsom spokesman Nathan Click said, is the mandatory inclusion of all state agencies and the Medi-Cal program — which he said would make it the largest purchaser of drugs after Medicare and the Department of Veterans Affairs. Programs in other states are more limited, and some are voluntary.
Health care experts agreed that California’s size by default makes it a national leader on the health care front, not the national leader. But if California is successful, they say, it could lower the price of drugs nationally.
Newsom said “California is leading the nation in holding drug companies accountable and fighting prescription drug prices.”
States across the county are addressing the rising cost of prescription drugs in a variety of ways. California is not the only, or the first, one.
The scope of what Newsom is attempting could bring down drug prices for California residents, and possibly residents in other states that join the effort. But Newsom’s sweeping plan is still in its infancy with many details pending, so it’s too soon to gauge success.
We rate the claim HALF TRUE.
Eric Lewis’ plans for expansion have derailed.
As chief executive officer of Olympic Medical Center, he oversees efforts to provide care to roughly 75,000 people in Clallam County, in the isolated, rural northwestern corner of Washington state.
Last year, Lewis planned to build a primary care clinic in Sequim, a town about 17 miles from the medical center’s main campus in Port Angeles.
But those plans were put aside, Lewis said, because of a change in federal reimbursements this year. Medicare has opted to pay hospitals with outpatient facilities that are “off campus” a lower rate, equivalent to what it pays independent doctors for clinic visits.
Over the past decade, hospitals have been rapidly building outpatient clinics or purchasing existing independent ones. It was a lucrative business strategy because such clinics could charge higher rates, on the premise that they were part of a hospital.
With its new policy, Medicare is essentially saying that an off-campus office is an off-campus office, regardless of whether it’s owned by a hospital, a group of doctors or a solo practitioner.
Making that statement will save Medicare — and possibly patients — money. The federal insurer bore the brunt of its members’ extra charges, but beneficiaries sometimes picked up part of that expense through deductibles and copayments. Patients with commercial insurance often were blindsided by high bills — going to what seemed to be a normal primary care clinic, only to discover they were charged a hospital facility fee, for example.Email Sign-Up
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Health policy experts said the new policy represents an important step in rationalizing payments. The new policy — part of a strategy called “site-neutral” payment — has its roots in the Obama administration and was part of the Bipartisan Budget Act of 2015.
“You don’t care about where [your treatment is] happening. You care that it’s a safe and inexpensive procedure,” said Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management. “And the facility fee just adds to the cost with very little added value.”
The new payment structure may hurt some hospitals financially, he and other experts acknowledged. But making reimbursements more uniform across providers facilitates competition and may lead commercial insurance to follow suit — which could translate to more savings.
The policy’s two-part phase-in cut Medicare payments for clinic visits to outpatient departments by 30% this year, according to the rule finalized in November. By 2020, the rate will be cut another 30%.
The Centers for Medicare & Medicaid Services (CMS) estimates the change will save the federal government $380 million this year and patients an average of $7 every time they visit a hospital-owned clinic because their copayments will be lower. Clinic visits are the most commonly charged service for hospital outpatient care in Medicare.
It could also cut down on consolidation in the industry, experts said, by closing the loophole that created incentives for hospitals to purchase independent physician practices and charge higher rates for services at taxpayers’ expense.
The American Hospital Association filed a lawsuit in December alleging that CMS overstepped its authority when setting the new reimbursement schedule. Olympic Medical Center is among the named plaintiffs.
The hospital association claims that the new rule infringes on a precedent Congress set with the 2015 budget law. That legislation standardized Medicare payments for clinic visits to physicians’ offices and new hospital outpatient facilities, but allowed most hospital-affiliated departments that existed at that time to continue receiving a higher rate, according to a comment letter from the Medicare Payment Advisory Commission. The group is a nonpartisan agency that advises Congress.
The differential for site-based payments was designed originally to help hospitals offset the higher costs they incur for maintaining the staff and equipment to handle a wide variety of treatments, said Christopher Whaley, an associate policy researcher at the research organization Rand Corp.
But that relief became an incentive for hospitals to buy independent practices, said Dr. Ateev Mehrotra, associate professor of health care policy and medicine at Harvard Medical School. Hospitals could charge higher prices for services performed in newly acquired clinics. Mehrotra said the new CMS rule could be a way to slow down the trend.
“This isn’t going to fully put the brakes on it,” he said, “but it could be one push on the brakes here to kind of push that consolidation down.”
Some experts have urged the government to expand the number of services covered by the site-neutral policy, including paying hospitals’ on-site clinics a rate equivalent to what independent doctors receive.
Hospitals acknowledged the change implemented by CMS could lead to savings in the health care system, but they say it comes at the cost of patient access. In Washington state, Lewis anticipates a loss of $1.6 million for his hospital. The lack of a clinic in Sequim means ailing patients there will not be able to get care close to their homes, he said.
“If you’re well-to-do financially, these aren’t big problems,” Lewis added. “But I think the poorest, elderly, sickest of our society will pay the price of this policy.”
Said Melinda Hatton, general counsel for the hospital association: “I think access trumps a couple extra dollars in copays every single time.”
On the other hand, many independent physicians support the change. Marni Jameson Carey, executive director of the Association of Independent Doctors, echoed the experts’ hope that the rule will curb consolidation. According to a report by the consulting firm Avalere Health, the number of hospital-owned physician practices more than doubled, from 35,700 to 80,000, between July 2012 and January 2018. Hospitals own more than 31% of all physician practices, the researchers said.
Jameson Carey said these mergers can also cause problems for the local economy. When a nonprofit hospital acquires an independent clinic, it effectively removes a tax-paying business from the area. That’s because nonprofit hospitals are exempt from paying certain federal, state and local taxes in exchange for providing community benefits.
“So not only do they [hospitals] get the facility fee,” Jameson Carey said, but also, “they don’t have to pay taxes.”
Sen. Amy Klobuchar on April 22, 2019 during a CNN town hall for presidential candidates
Washington’s recent fixation with lowering drug costs has introduced Americans to once-insider terms like “pharmacy benefit managers” and “list prices.”
This story also ran on PolitiFact. This story can be republished for free (details). During an April 22 CNN town hall event for Democratic candidates, Sen. Amy Klobuchar (D-Minn.) described a drugmaker practice that sounds a lot like bribery — drawing attention to yet another secretive process that lawmakers and experts say prevents patients from obtaining affordable prescription drugs.
America, meet “pay-for-delay.”
“We can stop this horrible practice where big pharmaceuticals pay off, they literally pay off generics to keep the prices and the competition off the market,” Klobuchar said. “That’s bad, and we can fix it.”
Klobuchar’s comment was one of the fundamental changes she said she would make to the health care system if elected president.
She said ending the practice of pay-for-delay, as well as allowing Medicare to negotiate drug prices and importing less expensive drugs from countries like Canada, could help bring down pharmaceutical costs.
Nearly 8 in 10 Americans believe drug prices are unreasonable, according to a recent poll from the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.) So it is little surprise that not only Klobuchar but also many presidential candidates are talking about drug costs.
This practice of pay-for-delay sounds almost too shady to be real, so we decided to see if her claim checks out: Are pharmaceutical companies paying generic drugmakers to delay marketing their drugs, keeping prices high? Is that legal? And can it be stopped?Email Sign-Up
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The Back Story On ‘Pay-For-Delay’ Deals
Yes, it is true that pharmaceutical companies compensate generic competitors to hold off on marketing their versions of brand-name drugs. It is also true that this practice results in delays before cheaper, generic drugs become available, leaving patients no choice but to pay for the pricier, brand-name drugs they have been prescribed.
Take Humira, a blockbuster anti-inflammatory medication that treats diseases such as rheumatoid arthritis and Crohn’s disease. AbbVie, the maker of Humira, has aggressively defended its claim on the top-selling drug, filing many patents and striking deals with would-be competitors to retain its exclusivity.
To be sure, the competitors’ versions of Humira are technically “biosimilars,” not generics. But as far as pay-for-delay deals go, they play the same role in this system.
As a result, cheaper versions of Humira will not be available in the United States until 2023 — despite already being on the market in Europe.Sources:
Amy Klobuchar, comments during a CNN town hall, April 22, 2019.
Kaiser Family Foundation, “Public Opinion on Prescription Drugs and Their Prices”, March 1, 2019.
Sarah Jane Tribble, Kaiser Health News, “Why The U.S. Remains The World’s Most Expensive Market For ‘Biologic’ Drugs”, Dec. 20, 2018.
The Pew Charitable Trusts, “Policy Proposal: Banning or Limiting Reverse Payment Agreements”, June 19, 2017.
The Food and Drug Administration, “Paragraph IV Drug Product Applications: Generic Drug Patent Challenge Notifications”, accessed April 24, 2019.
The Supreme Court, “Federal Trade Commission v. Actavis, Inc. et al.”, June 17, 2013.
The Federal Trade Commission, “Pay-for-Delay: When Drug Companies Agree Not to Compete”, accessed April 23, 2019.
Telephone interview with Dr. Aaron Kesselheim, a Harvard Medical School associate professor, April 23, 2019.
Telephone interview with Rodney Whitlock, a health policy consultant and former Republican congressional staffer, April 23, 2019.
Congress.gov, “S.64 – Preserve Access to Affordable Generics and Biosimilars Act”, accessed April 24, 2019.
To understand this issue, it may help to know pay-for-delay deals by their wonkier name: “reverse payment agreements.”
Like many products, drugs are protected by patents. Before companies can sell a generic drug, they must certify they will not market it until any related patents have expired, or they can challenge the existing patents.
Faced with a challenge to its patent, a brand-name manufacturer may, in turn, choose to sue the generic for patent infringement. Often the companies decide to settle, with the generic manufacturer agreeing to hold off on marketing its drug until a certain date in exchange for some form of compensation from the brand-name company — a “reverse payment agreement” — because rather than seeking damages, they agree to compensate the company they sued.
The terms of these agreements, including the amount of money changing hands, are secret. Only the Federal Trade Commission knows how much they are worth — and the FTC says these deals result in Americans paying $3.5 billion in higher drug costs every year.
While drugmakers could argue the settlements help save on costly litigation, they effectively function as a payment to stay out of the marketplace, protecting the exclusivity and the bottom line of the brand-name drug and its manufacturer.
In the past, that compensation usually came in the form of cash, said Dr. Aaron Kesselheim, an associate professor at Harvard Medical School who researches the effects of intellectual property laws on drug development.
But cash payments are no longer as common.
In 2013, the Supreme Court ruled that the FTC could scrutinize pay-for-delay agreements under antitrust laws as part of its mission to promote a competitive marketplace.
Since then, the FTC has made opposing what it calls these “anti-competitive deals” one of its top priorities, taking dozens of companies to court.
Thus, many drugmakers have changed strategies. Kesselheim said these deals have “evolved” since the Supreme Court’s decision, with fewer involving the transfer of cash.
With the FTC considering cash payments a red flag for anti-competitive behavior, drugmakers may offer compensation in other forms — say, by sharing knowledge or agreeing to market one another’s drugs to doctors.
That doesn’t help patients, Kesselheim said, as these agreements still delay lower-cost drugs from making their way to the pharmacy counter. “From a patient’s point of view, they’re both kind of not good,” he said.
Both brand-name and generic drug manufacturers have long opposed a ban on pay-for-delay deals. But it looks as if their days are numbered, said Rodney Whitlock, a consultant and former Republican congressional staffer who was deeply involved in health policy.
A handful of bills have been introduced in Congress to halt the practice, including one co-sponsored by Klobuchar and Sen. Chuck Grassley (R-Iowa), who is chairman of the Senate Finance Committee.
But while it looks likely that Congress will pass a law to stop pay-for-delay, that does not necessarily mean the problem will go away.
Passing legislation seems more likely than not, Whitlock said. But “after that, it will be implementation, and will manufacturers find new ways of attaining the same end that we haven’t contemplated yet?”
Klobuchar said, “We can stop this horrible practice where big pharmaceuticals pay off — they literally pay off — generics to keep the prices and the competition off the market.”
“Pay-for-delay” is a pharmaceutical industry practice that involves brand-name drugmakers compensating their generic counterparts for holding off on marketing their versions of brand-name drugs, causing longer delays in getting cheaper, generic drugs to the pharmacy counter. There are currently no federal laws explicitly barring these sorts of deals.
Brand-name manufacturers do not in all cases “literally pay off” generic drugmakers. Since the Supreme Court ruled the FTC could challenge these agreements in court in 2013, cash payments have become less common, sometimes replaced by other forms of compensation.
Klobuchar is clearly aware of this distinction. The legislation she introduced with Grassley notes that an agreement violates their proposed ban if a drugmaker “receives anything of value,” not just cash.
We rate this statement True.
Cancer survivors Evalyn Bodick, 74, and Barbara Marsic, 63, are caught in the crossfire of one of the fiercest health care fights in the country. They fear they are about to lose access to the doctors they say have kept them alive.
The reason: the latest skirmish in a nearly decade-old battle between two large health systems in Pennsylvania, the University of Pittsburgh Medical Center (UPMC) and Highmark Blue Cross Blue Shield. Both are nonprofit and both sell health insurance as well as provide care. Only a handful of companies nationwide do both.
The dispute — headed toward a court date in May — has implications far beyond Pennsylvania’s borders.
Among the issues at stake are consumers’ access to care, especially costly specialty treatments; the disruption people experience when forced to switch doctors while changing insurance plans; the pricing power of ever-larger health care monopolies; and how much leeway a state has to oversee those companies’ practices.
In the meantime, Highmark customers find themselves in danger of paying more for medical care, in cash, or finding new doctors and hospitals to treat life-threatening conditions.
Pennsylvania’s attorney general, Josh Shapiro, has filed motions with a state court to intervene. A court ruling in his favor will signal to insurers and providers nationwide that states may choose to step in to protect consumers if a health company gains too much market power or consumers’ access to care is otherwise threatened.
A UPMC win could embolden health care companies to use dominant market positions to compete even more aggressively.
The feud between the health care giants began in 2011 over pricing, payment rates and competition, roiling medical care in western Pennsylvania. The state imposed a five-year legal truce in 2014, but that ends June 30.
Shapiro is asking the court to compel both companies to extend the accord and contract with each other, thus allowing consumers with insurance through either company to see providers owned or affiliated with the other company on an in-network basis. And he requested that the courts empower the state to establish a mediation process if the companies can’t agree on contract terms.
Shapiro’s initial motion was turned down early this month by a court that said the June 30 deadline should stand because it had already been ratified in earlier legal decisions. But the state Supreme Court on Monday agreed to hear arguments in the case.
Health experts say Shapiro’s actions are unprecedented. “No other state attorney general has gotten this deeply involved in a health care dispute,” said Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University in Pittsburgh and former director of the Bureau of Economics at the Federal Trade Commission. “He is asking for a major change in the way this marketplace works. If the litigation goes a certain way, it will certainly resonate nationally. It’s a big deal.”Don't Miss A Story
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A Battle Of Titans
UPMC is one of the nation’s premier hospital systems, famous for pioneering work in organ transplants. It owns or operates 40 hospitals, 700 doctors’ offices and outpatient clinics, and several well-regarded cancer treatment centers. Its insurance business covers 32% of the insured residents in western Pennsylvania. With 87,000 employees, UPMC is also Pennsylvania’s largest non-governmental employer.
Highmark is among the largest health insurers in the country, with 4.5 million enrollees in Pennsylvania, Delaware and West Virginia, and another 16 million customers for its dental, vision and other insurance products sold nationwide.
Headquartered in Pittsburgh, it’s also one of the state’s largest employers.
In 2013, Highmark bought the West Penn Allegheny Health System, changing its name to the Allegheny Health Network. That network now consists of eight hospitals, a handful of outpatient surgery centers and 2,800 physicians at 253 locations. It directly competes with UPMC.
The focal points of the current dispute revolve around access to UPMC hospitals, doctors and specialty clinics — especially cancer care — for two groups: the 227,000 people enrolled in Highmark’s Medicare Advantage plans and several thousand people enrolled in Highmark plans through their own or a spouse’s job who have been in ongoing treatment for cancer or other serious conditions.
Under the 2014 agreement, these two groups retained in-network access to UPMC hospitals and doctors.
UPMC last year announced it would shut down in-network access for these remaining Highmark enrollees after June 30.
‘It’s A Kind Of Extortion’
Bodick, who lives in Springdale, Pa., was diagnosed with breast cancer in 2000. She had a mastectomy and four additional surgeries, including when the cancer spread to her lungs.
Through it all, Bodick has been cared for by UPMC doctors and her surgeries were at a UPMC hospital. “These doctors saved my life and have kept me alive. I trust them completely,” she said.
Bodick has a Highmark Medicare Advantage plan and said it still offers the best coverage at the lowest price for her and her husband, Joe, who is retired.
Now, she said, she’s being told she’ll have to pay out-of-network charges in cash if she wants to be treated by UPMC doctors. “I don’t have the money to do that,” said Bodick. “It’s a kind of extortion.”
Marsic faces a similar predicament. Diagnosed with breast cancer in 2006, she has had several surgeries performed by UPMC doctors and sees a UPMC oncologist.
Marsic, who lives in Upper St. Clair Township outside of Pittsburgh, also has multiple sclerosis and has been treated by the same UPMC-affiliated neurologist for 33 years. Her insurance, provided by her husband’s employer, is through Highmark.
In recent weeks, both her oncologist and neurologist have told her they will not be able to treat her after June 30 unless she pays in cash at higher out-of-network rates.
“I just hate the idea of losing the doctors I’ve seen for years,” Marsic said. “But it may cost too much to stay with them.”
Attorney General Challenges Status Quo
Highmark said it supports Shapiro’s efforts. A spokesman, Aaron Billger, said the company seeks “a level playing field” and “a wide choice of providers for patients.”
But UPMC is fighting it.
Shapiro’s legal motions, which have the support of Democratic Gov. Tom Wolf, alleged that UPMC has not acted in the public’s interest as required by its status as a nonprofit system that gets significant tax breaks. He also alleged that UPMC, the dominant provider in the state, is using that market power to charge higher rates “without regard to the increase on the cost of the region’s healthcare.”
UPMC countered that in 2018 it provided $1.1 billion in “IRS-defined” community benefits. In addition, a spokesman said, UPMC paid nearly $600 million in taxes in 2018. The health system also claimed in legal filings that western Pennsylvania has become “one of the most competitive and pro-consumer markets in the nation with some of the lowest-cost health plans available anywhere.”
UPMC said that Shapiro’s requests violate the usual operations of a free and competitive marketplace, as well as laws governing health insurance.
Health care scholars said Shapiro’s arguments do challenge common practices, but also raise important questions about how big companies behave and how that affects patients.
“Insurers must be free to create their own networks of providers based on a host of factors, including quality of care and the fees they’ll accept,” said Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative for Health Policy. “That enhances competition, can lower costs and is good for consumers.”
Likewise, he said, doctors and hospitals are free in an open marketplace to contract with whom they want.
But he also said that the situation in western Pennsylvania is not typical. UPMC is using its “market clout as the leading provider of care in the area to become the dominant insurer, and crush the competition. That’s not something we have seen elsewhere,” Ginsburg said.
Gaynor agreed. “This is not how a well-functioning competitive market should work,” he said.