Self-Defeating Savings Strategies

cost balloon.jpgYesterday I did a CLE presentation for lawyers in pharmaceutical firms, focusing on the interaction between the new Medicare Part D and companies’ patient assistance programs (PAPs). The PAPs try to provide very-low-cost drugs to low-income individuals who fall through the cracks of existing insurance programs. Astonishingly, a complex web of Medicare “fraud and abuse” law could actually lead to criminal (and civil) sanctions for such programs if they offer financial assistance designed to get someone through the “donut hole” gap in coverage; as the Office of the Inspector General (OIG) of the U.S. Dep’t of Health and Human Services put it, “Pharmaceutical manufacturer PAPs that subsidize Part D cost-sharing amounts present heightened risks under the anti-kickback statute.”

After extraordinary controversy, the Centers for Medicare and Medicaid Services backed down a bit, claiming merely to insist that PAPs exist outside Part D coverage. This helped a bit, but when one reads the advisory opinions the OIG issues, they are not exactly perfect safe harbors. They contain pretty contradictory language, only purport to assess risk probabilistically, and raise the possibility that conduct that does not present a high risk of liability under the Anti-Kickback statute may well implicate other state and federal laws. (Ahh, the joys of guidance documents in admin law.)

According to the agency, it wants to put pharma under fraud & abuse scrutiny in because they might “increase the number of beneficiaries using the manufacturer’s product who reach the catastrophic benefit in any given coverage year,” steering people away from cheaper drugs. But one has to wonder if this particular obsession with cost-saving is really all that helpful to the program. Consider the following research on “meat-ax” rationing in the New Hampshire Medicaid program:

Jerry Avorn and his colleague at Harvard, Steve Soumerai, were responsible for showing that, when New Hampshire put a cap on the monthly number of prescriptions that welfare recipients would get for free, the result was an increase in nursing home admissions that probably cost the state government as much as it saved on drug costs.

In other words: one part of the bureaucracy may avoid paying for $200 of diuretics, but other parts may well end up having to cover a hospital admission due to congestive heart failure that runs to tens of thousands of dollars. Squeeze one part of the medical cost balloon, and it may just start bulging in some other area.

This is one reason why I’m happy Jason Furman’s recent report on cost-consciousness in health care reform does acknowledge this “big picture,” and proposes little to no cost-sharing for especially helpful interventions, especially preventive care. The OIG might want to focus less on new applications of fraud and abuse laws to Part D, and more on the type of economic analysis that allows us to see the true costs of denying drugs to the elderly.

Photo Credit: PingNews/Flickr.

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