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Francis: ‘Where’s the Beef’ in Claims That Employee Health Plans Overspend on Drugs?

A June 24, 2009, subcommittee hearing on FEHBP drug costs actually rebutted Lynch and Balto. A witness from the Department of Defense testified that from 2000 through 2008, total TRICARE pharmacy drug costs grew from $1.6 billion to $6.9 billion, fourfold on a per-enrollee basis. Yet the Office of Personnel Management inspector general testified that from 1999 through 2007, per enrollee spending on prescription drugs in the Blue Cross Standard Option had only doubled. These data, if accurate, demonstrate the superior performance of the FEHBP’s largest plan to TRICARE. There is no reason to think that an objective comparison of per-enrollee spending to Medicare Part D, or Medicaid — the other large programs that provide a broad array of drugs at neighborhood pharmacies — would lead to contrary conclusions.Another possible explanation for these unsupported claims emerged at the hearing. Chairman Lynch asked a witness if her union members would be willing to accept the Veterans Affairs formulary in order to get the VA drug prices that depend on formulary restrictions. This scheme is not in the proposed legislation but is probably the only conceivable basis for these grandiose claims of waste. It is hard to believe, however, that Congress would seriously consider such a draconian limitation on federal employee choices of medicines.It is not true, as Balto claims, that this bill “simply imposes reasonable disclosure requirements so the [FEHBP] can better monitor and reduce its prescription drug spending.” The bill would debar CVS Caremark and other firms that combine PBM and pharmacy functions from contracting with any FEHBP plan and would prohibit health-based drug substitution recommendations that did not lower costs. It would also require payment at whatever prices manufacturers charged, would impede the collection and dissemination of information on drug utilization to the Food and Drug Administration and the National Institutes of Health, would have OPM set dispensing fees for FEHBP sales in every pharmacy in America, and would impose an immense array of paperwork burdens on manufacturers, PBMs, and pharmacies.The net effect of these restrictions would be to reduce competition (many PBMs would not or could not bid on FEHBP plan contracts), to raise manufacturer prices to all purchasers including the VA, and in these and other ways to raise prescription drug costs in the FEHBP. OPM, an agency without any competence or expertise in wholesale or retail prescription drug management or in administering national price controls, would administer all these functions.The bill is antithetical to the program design of the FEHBP and of the Medicare Part D and Medicare Advantage programs modeled after the FEHBP. In these programs, plans compete for consumers. They compete on the basis of service, benefits and cost. If they are unable to control costs effectively, they lose business and profits. Since the Part D plans use the same mechanisms as the FEHBP (e.g., encouraging generic substitution), and many of the same firms participate as plans or PBM contractors to plans, the notion that this model is broken or flawed is rebutted by the amazing performance of the Part D program in reducing drug costs from original projections.

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