The management of healthcare delivery employed by the nation’s healthcare insurers has been largely responsible for the un-affordability of our healthcare. As the chart below illustrates, healthcare costs in the U.S. separated from costs in the rest of the world around 1980.
While our healthcare insurers have attempted to lay the blame for this on rising healthcare delivery costs, data shows that healthcare delivery costs have been relatively flat for over 20 years. The average doctor in 1990 earned $164,000 per year. The average doctor in 2011 earned $163,000 per year. Rising healthcare delivery costs should have translated into higher physician income. That physician income has not risen argues against rising healthcare delivery cost.
What has increased since 1980 are the number of healthcare administrators and consequently the cost of healthcare administration as illustrated in the next chart.
As you can see, the number of healthcare administrators began to rise with the advent of the health insurers management of healthcare delivery in 1980 and the number of managers has grown dramatically since then. Since 1970, the population of the U.S. and the number of physicians in the U.S. has grown 125%. The number of healthcare administrators, however, has grown over 3000%. It is the number of healthcare administrators injected into our healthcare system by the insurers management of healthcare delivery that has made healthcare unaffordable in the U.S. The insurers don’t care about this cost because they don’t pay for the administrative cost of our healthcare. They factor that cost into our health insurance premiums, deductibles and copays.
Now it seems that the nation’s healthcare insurers have found another way to have their management cost us more. In recent years prescription drug costs in the U.S. have spiked from 7% of healthcare cost to 17% of healthcare cost in 2015 according to the Milliman Medical Index. The insurers point to Americans consuming more prescription medication and pharmaceutical manufacturers charging more for prescription medication as the cause for the increase. Recent investigations, however, point to another cause.
Both Fox News in Florida and Kare 11 News in Minneapolis have reported investigations in which the copay cost of prescription drugs purchased at the pharmacy by consumers using their health insurance exceeds the cost of the very same drugs when purchased without insurance. The difference is often 2-3 times the cost without insurance. The pharmacy benefit manager through their contract with the pharmacy imposed the higher cost in most cases on the pharmacy.
The pharmacy is prohibited by contract with the health insurer from advising the consumer of the higher cost incurred when using their insurance. Furthermore, the difference in profit is not retained by the pharmacy. Under clawback arrangements, those higher profits are sent back to the pharmacy benefit managers.
What has not yet been investigated is the possible involvement of the pharmacy benefit managers (PBAs) in increasing the cost of our pharmaceuticals before they even get to the pharmacy. While PBAs should be negotiating discounts on our prescription drugs with the pharmaceutical companies, it is possible that they are actually doing the opposite. Pharmaceutical companies need to have their drugs included in the formularies of the insurers in order for those drugs to even be available to healthcare consumers. The insurer does not cover a drug that is not on an insurer’s formulary. Given the arrangements with the pharmacies noted above, it is possible that the PBAs, rather than negotiating discounts that would benefit the consumer, are instead charging the pharmaceutical companies to negotiate inclusion of their drugs on the formularies of the insurers and are thus increasing the cost of our drugs while concurrently increasing the profit of the PBAs. The higher cost of the drugs thus negotiated are paid by the health insurer but then passed on to us by way of higher health insurance premiums. Once again, we, the consumer, pay more for management we don’t want or need while the administrators become wealthier. It is time to bring this process to an end. Join our movement now, bring an end to the management of healthcare, and make healthcare affordable once more.