Our Broken Healthcare System

 1. Introduction: The State of American Healthcare

Comprehensive Overview of Healthcare Challenges

Anecdote

“Take Aimee Snyder, a 28-year-old graduate student at the University of Arizona. She got preoccupied with choosing her courses and missed the sign-up deadline for health insurance by one day. Then she started having leg pains and shortness of breath.

"My leg swelled up to double the size and turned purple," Snyder says. But she didn't seek care because she couldn't imagine how she'd pay the emergency room bill. After hobbling around in pain for several days, she discovered she could get a discount on her hospital bill and went to the ER.

Doctors found an extensive blood clot in her leg, with pieces breaking off and going to her lungs. She could have died within hours. Luckily, she's fine, but she's had to pay more than $15,000 in bills so far, and she's had to borrow from her family and use student loan funds to pay them.” (Knox and Neighmond)

Total healthcare spending vs. developed nations

“The United States Spends More on Healthcare per Person than Other Wealthy Countries…Such comparisons indicate that the United States spends a disproportionate amount on healthcare. U.S. healthcare spending per capita is almost twice the average of other wealthy countries.” (“How Does the U.S. Healthcare System Compare to Other Countries?”)

Life expectancy and health outcomes

“Despite spending nearly twice as much on healthcare per capita, utilization rates in the United States do not differ significantly from other wealthy OECD countries. Prices, therefore, appear to be the main driver of the cost difference between the United States and other wealthy countries…Higher healthcare spending can be beneficial if it results in better health outcomes. However, despite higher healthcare spending, America’s health outcomes are not any better than those in other developed countries. The United States actually performs worse in some common health metrics like life expectancy, infant mortality, unmanaged diabetes, and safety during childbirth.” (“How Does the U.S. Healthcare System Compare to Other Countries?”)

Call to action: clearly, reform is needed. But where can we even start to fix such a massive issue?

2. Pharmacy Benefit Managers (PBMs)

Anecdote

“Kelly, a 48-year-old personal trainer, got insulin through her husband’s insurance but had to pay out-of-pocket until she met a $5,000 deductible each year. So in 2019, the Kellys dropped the policy and decided to risk the open market. They ended up driving to Canada, where Kelly told KHN she spent $256 on eight vials of insulin that would have cost $2,616 at her local pharmacy. During the pandemic, she used Lilly coupons that enabled her to buy Humalog for $35 per vial, enough for about two weeks.

Despite coupon programs, surveys conducted since 2017 showed that up to a quarter of U.S. patients reported skimping on insulin because of its cost. Some patients have died while trying to ration the drug.” (Allen)

Image 1. Insulin

Background

Payment system: Drug manufacturers create drugs and try to sell at the highest price possible. Insurance companies want to lower the price or else they have to raise premiums for patients.

How do PBMs fit in?

“PBMs act as negotiating entities between several actors in the prescription drug supply chain. Insurers work with PBMs as third-party contractors that manage their prescription drug benefits. PBMs create and update formularies of preferred drugs, with different prices and cost-sharing amounts that influence what beneficiaries pay out of pocket and which medications they can access through their insurance. PBMs negotiate rebates and discounts for an insurance plan from drug manufacturers and determine the prices insurers pay and the payments pharmacies receive.” (Rapfogel)

Structural Problems

Opaque pricing mechanisms

“One of the challenges in demanding greater accountability from PBMs is the relative lack of information about how they operate. The drug pricing process overall is already opaque, and PBMs add another layer of secrecy.” (Rapfogel)

Misaligned financial incentives

“Furthermore, PBMs have an incentive to use formularies and cost-sharing rates to encourage patients to take higher-priced drugs—with steeper discounts and therefore steeper PBM profits.” (Rapfogel)

Market concentration and monopolistic practices

“Market concentration among PBMs is a pervasive problem; in 2022, only six companies made up 96 percent of the PBM market, and the top three PBMs accounted for nearly 80 percent.” (Rapfogel)

Impact on drug pricing and patient costs: Hundreds of billions of dollars a year

“In 2016, US pharmaceutical manufacturers reported gross pharmaceutical sales of $462 billion and net pharmaceutical sales of $318 billion. The difference between gross and net sales is largely due to the different “payments” from manufacturers to PBMs and other intermediaries in the marketplace.” (Schulman and Dabora)

Legislative and Regulatory Responses

Recent congressional investigations: FTC suing and Congress considering bills

Inflation Reduction Act (IRA) negotiations: Allows Medicare to remove PBMs for 10 drugs

Proposed legislation

“We have joined forces on a bipartisan bill — the Patients Before Middlemen (PBM) Act — which delinks PBM compensation from drug prices and better aligns incentives to help lower prescription drug costs for Medicare Part D beneficiaries.” (Blackburn and Menendez)

3. Medicare Advantage

Anecdote

“Gloria Lee was perplexed when the phone calls started coming in from a representative of her Medicare insurer. Could a nurse stop by her Boston home to give her a quick checkup? It was a helpful perk. No cost. In fact, she’d get a $50 gift card.

After several such calls in 2022, Lee agreed. A nurse showed up, checked her over, asked her questions, then diagnosed her with diabetic cataracts. 

The finding was good news for Lee’s insurer, a unit of UnitedHealth Group. Medicare pays insurers more for sicker patients. In the case of someone like Lee with diabetic cataracts, up to about $2,700 more a year at that time. 

But the retired accountant doesn’t have diabetes, her own doctor later said, let alone the cloudy vision sometimes caused by the disease.

Private insurers involved in the government’s Medicare Advantage program made hundreds of thousands of questionable diagnoses that triggered extra taxpayer-funded payments from 2018 to 2021, including outright wrong ones like Lee’s, a Wall Street Journal analysis of billions of Medicare records found.” (Maremont et al.)

Program Structure and Current Implementation

“Medicare Advantage, the $450-billion-a-year system in which private insurers oversee Medicare benefits, grew out of the idea that the private sector could provide healthcare more economically. It has swelled over the last two decades to cover more than half of the 67 million seniors and disabled people on Medicare.” (Maremont et al.)

The problems

Documented overpayment issues

“Celebrating a Medicare Advantage (MA) milestone—enrollment in those private plans surpassed 30 million—the health insurance industry’s trade group proclaimed MA “a good deal for members and taxpayers.”1 The first part of that claim is debatable, while the second part is false. Medicare Payment Advisory Commission (MedPAC), the nonpartisan agency reporting to Congress, recently estimated that MA overpayments added $82 billion to taxpayers’ costs for Medicare in 2023 and $612 billion between 2007 and 2024.” (Gaffney et al.)

Image 2. Graph of false diagnoses

Denying care

“A 2022 report found that 13% of MA prior-authorization denials occur where care was medically necessary.” (Aaron et al.)

Potential reforms: restructuring vs. elimination

4. Conclusion: Toward a More Equitable Healthcare System

Systemic Challenges and Interdependencies

Interconnected nature of healthcare policy challenges

Need for comprehensive, multifaceted approach

Collaborative Solutions

Importance of stakeholder engagement

Policy design principles

Potential paths for meaningful reform

Call to Action

Citizen involvement

Evidence-based policymaking

Long-term health system transformation

Works Cited

Aaron, Daniel G., et al. “Medicare Advantage Under Fire: Public Criticism and Implications - Journal of General Internal Medicine.” SpringerLink, Springer International Publishing, 26 June 2024, link.springer.com/article/10.1007/s11606-024-08876-7.

Allen, Arthur. “Why Does Insulin Cost so Much? Big Pharma Isn’t the Only Player Driving Prices.” KFF Health News, 13 June 2023, kffhealthnews.org/news/article/insulin-costs-pharmacy-benefit-managers-drug-manufacturers/.

Dabora, M.C., and K.A. Schulman. “The Relationship between Pharmacy Benefit Managers (PBMS) and the Cost of Therapies in the US Pharmaceutical Market: A Policy Primer for Clinicians.” American Heart Journal, Mosby, 23 Aug. 2018, www.sciencedirect.com/science/article/abs/pii/S0002870318302485.

Gaffney et al., Adam. “Less Care at Higher Cost—The Medicare Advantage Paradox.” JAMA, 2024, jamanetwork.com/journals/jamainternalmedicine/article-abstract/2819817 .

“How Does the U.S. Healthcare System Compare to Other Countries?” Peterson Foundation, 15 Nov. 2024, www.pgpf.org/article/how-does-the-us-healthcare-system-compare-to-other-countries/.

Maremont et al., Mark. “Insurers Pocketed $50 Billion From Medicare for Diseases No Doctor Treated.” The Wall Street Journal, Dow Jones & Company, webview.wsj.com/webview/WP-WSJ-0001823726. Accessed 6 Dec. 2024.

Neighmond, Patti, and Richard Knox. “Your Stories of Being Sick inside the U.S. Health Care System.” NPR, NPR, 21 May 2012, www.npr.org/sections/health-shots/2012/05/21/153028362/your-stories-of-being-sick-inside-the-u-s-health-care-system.

Rapfogel, Nicole. “5 Things to Know about Pharmacy Benefit Managers.” Center for American Progress, 13 Mar. 2024, www.americanprogress.org/article/5-things-to-know-about-pharmacy-benefit-managers/.

Sens. Bob Menendez (D-N.J.) and Marsha Blackburn (R-Tenn.), opinion contributors. “It’s Time to Put Patients before Middlemen and Reform the PBM Industry.” The Hill, The Hill, 13 Sept. 2023, thehill.com/opinion/congress-blog/4203143-its-time-to-put-patients-before-middlemen-and-reform-the-pbm-industry/.