Finally, Lower Drug Prices. But Wait…

By George W. Chapman

It’s a victory, but don’t get too excited. After years of frustration, Congress has passed a bill allowing Medicare to use its massive purchasing power to negotiate drug prices with manufacturers.

The drug lobby has managed to keep this bill from passing for decades, even though 85% of us support negotiating. And why does it take an official bill to “allow” Medicare to simply negotiate drug prices?

Shouldn’t the government be negotiating the price of just about everything it buys with our tax dollars? Fearing the passing of the bill, the huge drug lobby ran totally misleading and threatening ads claiming government “price fixing” will lead to less drug development. First, negotiating prices is not “fixing” prices. Second, most manufacturers invest just 20% of income on research and development. The top 14 largest manufacturers spent $57 billion of income more on stock buy backs and dividends than R&D. The bill also includes a 1% excise tax on stock buybacks. 

Industry watchdogs will let us know if we will finally get the discounts that other countries have been getting for years. So, all is good, right? Well, not exactly. 

The bill allows Medicare to negotiate the price of just 10 drugs. Yep. Ten. The drugs selected must be on the market for several years and with no competition.

Negotiations don’t start until 2026! That gives drug companies four years to jack up their prices ahead of negotiations.

In 2027 Medicare gets to negotiate a whopping 15 prices and then gets to negotiate 20 prices a year after that. Sounds to me like the drug lobby did its job and still controls Congress.

A CEO of one of the largest and most profitable manufacturers was whining to congress about having to negotiate 10 prices.

He’s fortunate to be negotiating ANY prices. Just ask a physician or hospital.

Nursing Homes Struggle 

It seems like everyone has a horrific story about their or someone else’s experience in or with a skilled nursing facility (SNF). We all know bad news travels faster and further than good news.

Some perspective is needed.

There are currently about 15,000 SNFs in the U.S. More than 1,000 SNFs closed between 2015 and 2021 and another 400 will close this year.

Most closed for financial reasons. 

There are 60 million people older than 65 (Medicare-eligible). This number is growing exponentially as baby boomers age. At any given time, there are about 1.3 million to 1.5 million SNF residents.

The average resident is 83 years old. About half of SNF residents die in six months with the average passing being in 14 months. 

Nursing homes are facing unprecedented and dangerous staffing shortages, certainly exacerbated by the seemingly interminable pandemic. SNFs, like hospitals, are paid prospectively by CMS (Medicare and Medicaid.) In other words, payment rates are predetermined based on a patient’s acuity and need for therapy services. Higher acuity results in higher reimbursement. 

But prospective payment is based on budget neutrality. CMS budgets a fixed amount for SNFs every year. The theory (hope) is higher-than-average claims will be offset by lower-than-average claims which results in budget neutrality or break- even. Of course, this never works as planned. The system basically encourages what critics call acuity creep. SNF costs and patient acuity are rising much faster than what CMS budgets. 

It seems like SNFs just can’t get ahead financially. 

The current reimbursement system is gimmicky, confusing, divisive and, worst of all, consumes way too much of management’s valuable time, resources and attention. 

While there will always be legitimate cases of resident abuse, considering the overwhelming negative circumstances ranging from severe staffing shortages to totally inadequate reimbursement, most SNFs do a commendable job.

Primary Care Upheaval

Healthcare is a $4 trillion market. Primary care is a $260 billion sub-market. Industry analysts predict giant retailers and new startups could grab 30% of the primary care market by 2030. There are a lot of negatives facing traditional primary providers including a shortage of physicians, increasing demand for digital and virtual medicine and the transition from volume-based fee for service to value-based care or even capitation.

On one side of the coin, deep pocket nontraditional upstarts like Amazon, CVS and Walmart are licking their collective chops. Amazon just bought fledgling One Medical for almost $4 billion. Although not profitable, One Medical operates around 200 offices in 30 markets. It has approximately 800,000 members. Amazon will grow its online pharmacy and diagnostic services via this purchase. On the other side of the coin, cash-strapped traditional providers like hospital systems continue to merge hiring more and more primary care physicians who are abandoning private practice. It remains to be seen which side of the coin will prevail in the delivery of primary care over the next several years.

Physician Shortage Addressed

Just about every healthcare organization and association, including the AMA and AHA, has petitioned Congress to allow foreign medical students in the US to forego the visa requirement that they return home for two years before returning to the US to practice.

Experts are predicting a shortage of 45,000 physicians in just a few years.

The Conrad 30 Waiver Program and Physician Access Reauthorization Act would eliminate the two-year visa wait if the student agrees to work in a designated physician manpower shortage area. This would be an immediate boon to rural and underserved communities.

Uninsured Hits Low Record

Thanks primarily to expanded Medicaid and the Affordable Care Act, the US has achieved a record low of 8% uninsured or about 26.5 million people without insurance. The continuation of ACA premium subsidies for people making from 100% to 400% of poverty guidelines has been particularly instrumental in lowering the uninsured rate to 8%. Now, if we only had universal healthcare.

Price Transparency

As of July 1, 2022, all insurance companies and self-insured businesses are required to post online what they paid for just about everything including physician services, hospitals, surgery centers and skilled nursing facilities. This includes previously secretive negotiated rates. This is different from the law that requires hospitals to post their most common charges.


George W. Chapman is a healthcare business consultant who works exclusively with physicians, hospitals and healthcare organizations. He operates GW Chapman Consulting based in Syracuse. Email him at gwc@gwchapmanconsulting.com.