Worldwide Spending on Medicines Will Reach $1.4 Trillion in 2020

Spending on medicine across the globe is expected to reach $1.4 trillion in 2020, according to a new report from the IMS Institute for Healthcare Informatics. The growth in spending over the next five years (29-32 percent) is expected to slow slightly from the five years prior to 2015 in which global spending on medicines increased 35 percent. The U.S. will account for 41 percent of spending on medicines worldwide. Specialty medicines will account for 28 percent of all drug spending in 2020, more than one-fourth of which will be for oncology medicines which will make up the majority of new medicines. However, most of the spending on specialty drugs will occur in developed markets, which will spend, on average, three times as much of their drug expenditures on specialty products compared with “pharmerging” markets.  In 2014, the U.S. spent $124.1 billion (33 percent) on specialty drugs, the biggest driver of which was for curing Hepatitis C.  More will be spent on treating non-communicable diseases in 2020 worldwide than will be spent treating communicable diseases, cancer, and diabetes combined.

Medicare Part B Premium Increases for 2016

The Centers for Medicare and Medicaid Services (CMS) just announced the new premium amounts Medicare beneficiaries will be required to pay to receive physician and hospital outpatient services under Part B in 2016.  These amounts are lower than they would have been had Congress not acted to prevent sharp increases for many due to a little known “hold harmless” provision. This provision prevents Medicare premiums from rising for certain individuals if there is no “Cost of Living Adjustment” for Social Security benefits in a given year—which there will not be for 2016—which consequently forces the beneficiaries not held harmless (approximately 15.6 million individuals) to pay a much larger share of the Part B cost increase. All beneficiaries not held harmless—those newly-eligible, dually-eligible for Medicare and Medicaid, late retirees, and higher-income beneficiaries—will face a 16 percent increase in their premiums from last year.  The Part B deductible for all beneficiaries will be $166, up 13 percent from $147 in 2015. The Part A deductible for inpatient hospital visits will also increase for all beneficiaries from $1,260 to $1,288.

Over Half of the ACA’s Co-Ops Have Failed in Just Two Years, and More Failures are Likely

The consumer operated and oriented plans (co-ops) created by the Affordable Care Act (ACA) were intended to provide consumers purchasing coverage in the non-large group marketplace an alternative from the traditional insurance companies. The co-ops set low premiums in order to attract customers, but in the first year of operation, all but four co-ops lost more than $1,000 per enrollee, with only one co-op (Maine Community Health Options) having a positive net income in 2014. Accordingly, 12 of 23 co-ops have collapsed so far, resulting in a loss of $1.23 billion of taxpayer funds, as these co-ops were initially seeded with federal loans. The financial losses thus far represent 63 percent of the total loans disbursed to the co-ops, and up to another $1.1 billion in tax dollars may be lost if the other co-ops experience the same fate. Given that the remaining co-ops had claims, on average, 26 percent greater than the income received in premiums in 2014, compared with a ratio of -19 percent for the co-ops that have failed to date, it should come as no surprise if more co-ops collapse in the future.

Exchange Plans Cover Limited Specialists In-Network

The Robert Wood Johnson Foundation recently released a report finding that 41 percent of “silver” Exchange plans had physician networks that were “small” or “extra small”. A second study examined 135 silver plans across 34 states using the federal exchange in 2015 for coverage of in-network specialists. Of the 9 specialities included, not one had 100 percent of plans offering in-network coverage to a specialist in that field, as shown below. Nearly 1 out of 5 plans were deemed “specialist-deficient” for covering fewer than six specialists in a particular field within 100 miles. People needing a rheumatologist (for arthritis, joint, or muscle pain); a psychiatrist (for mental health services); or an endocrinologist (for hormonal problems) were most likely to be without an in-network provider. These patients are then left with no choice but to use “out-of-network” providers if they are in need of those specialty services. Out-of-network care is typically significantly more expensive than in-network care. For example, one recent study found the average out-of-network billed charge for an electrocardiogram was 1,382 percent of Medicare’s fee. Additionally, payment for out-of-network care doesn’t typically count towards one’s deductible meaning health care costs for these individuals could get very expensive.

Non-SNP Plans Receive Higher Star Ratings, on Average, than SNPs

Since 2012, Medicare Advantage (MA) and Part D plan sponsors have received payment adjustments based on their Star Ratings (determined by performance on certain criteria) in order to encourage better quality of care. Several entities have claimed that the Stars Rating Program does not appropriately account for the percentage of low-income beneficiaries enrolled in a plan. If true, this causes plans with high enrollment of such beneficiaries to consequently receive lower scores due to factors outside their control—lower socioeconomic status often makes it more likely that an individual will be sick and more difficult for that individual to adhere to a treatment plan. Plans’ 2016 Star Ratings seem to support this theory. Only 38 percent of Special Needs Plans (SNPs) received overall scores of 4 Stars or higher (necessary to receive a bonus), compared with 58 percent of Non-SNPs. Enrollment in SNPs is limited to individuals dually-eligible for Medicare and Medicaid; individuals who live in certain institutions (such as nursing homes) or require home health care; and individuals with specific chronic or disabling conditions.

Higher Cost-Sharing in Exchange Plans Leads to Higher Overall Medical Spending, Relative to ESI Plans

While the Exchanges established by the Affordable Care Act (ACA) have provided millions of individuals with a new outlet for obtaining health insurance, the result for many has been a false sense of health and financial security. As many reports have shown, the insurance provided by the Exchanges is not comparable to the plans typically offered by employers—the deductibles and cost-sharing requirements are higher and the networks are narrower. A new study examined the impact of the higher cost-sharing for prescription drugs on patients with chronic conditions. The findings show that such cost-prohibitive provisions result in patients taking and refilling fewer prescription medications, but consequently increasing spending for other medical services, resulting in a net increase in spending of $298 for individuals with 4 or more chronic conditions. The chart below shows the expected annual changes in health care spending for individuals with chronic conditions if they were to switch from an employer-sponsored insurance (ESI) plan to an Exchange plan.

Hospitals with Higher Net Income More Likely to Receive Bonus Payment

After three years of providing penalties and bonuses to hospitals treating Medicare patients through the Affordable Care Act’s (ACA) Hospital Value-Based Purchasing (HVBP) Program, the Government Accountability Office (GAO) has found that the amount of a hospital’s payment adjustment is well-aligned with the hospital’s net income—hospitals with a higher net income received the largest bonuses. This finding is not all that surprising (with one exception: hospitals in the lowest net income range in 2013 had the second-highest payment adjustment in 2015). While potentially a chicken-and-egg situation, hospitals with low or negative net income are not likely to have the available resources necessary to make needed improvements. When a hospital is penalized for its poor performance, the situation worsens. In all three years, average payment adjustments for safety net hospitals were negative. Interestingly, the most commonly cited challenge to improving quality was health information technology (IT), which every hospital is being required to utilize in the hopes that such technology will catalyze quality improvements. Additionally, the GAO found “no apparent shift... in hospitals’ performance on the quality measures included in the HVBP program”.

Rate of ER Visits Due to Drug Use Has Nearly Doubled Since 2004

Improper drug use, and the negative health effects of such, has been of increasing concern over the past several years. In 2012, of the approximately 36 million young adults in the U.S. aged 18-25 in the U.S., more than one third reported binge alcohol use and one fifth reported illicit drug use in the past month.  The total number of emergency room (ER) visits caused by problems or complications from using drugs (both legal and illegal, prescribed or otherwise) reached nearly 5.1 million in 2011, an increase of 88 percent from 2004.  ER visits following use of pain relievers—responsible for 23 percent of all ER visits due to drug use in 2011—increased 126 percent, with oxycodone and hydrocodone accounting for 46 percent of that increase. ER visits for non-alcohol illicit drug use only increased 19 percent. ER visits for users of antidepressants increased 55 percent, while ER visits due to use of anti-anxiety medicines increased 126 percent. At the average charge for an ER visit in 2013 of $1,233, the cost of these visits would total nearly $6.3 billion.

Medicare and Medicaid Responsible for More than Half of All Federal Government Improper Payments

Between January 2011 and May 2015, less than $10 million in Medicare Part D improper payments had been recovered by the Centers for Medicare and Medicaid Services—less than 0.14 percent of improper payments made during this time period. Over the last decade, approximately 4 percent of all federal government payments each year were improper, but 9.5 percent of all Medicare and Medicaid payments last year were improper. Medicare and Medicaid have accounted for half of all improper payments by the federal government over the last 11 years, and since 2009, these two programs have been responsible for at least 55 percent of all improper payments each year. In 2014, Medicare Fee–for-Service (Parts A & B) accounted for 37 percent of all improper payments by the federal government; Medicare Advantage (Part C): 10 percent; Medicare Part D: 2 percent; and Medicaid: 14 percent.

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