Opinion: Obamacare's opaque bureaucratic processes are a threat to innovation

RICHMOND, CA - MARCH 31: A worker explains the process for registering during a healthcare enrollment fair at the Bay Area Rescue Mission on March 31, 2014 in Richmond, California. SEIU-United Healthcare Workers West (SEIU-UHW) held the fair to help people sign up for free and low-cost health coverage through Medi-Cal or Covered California on the final day before the sign-up deadline. (Photo by Justin Sullivan/Getty Images) (2014 Getty Images)

Supporters of President Obama’s health care law are understandably skittish that consumers are upset their health care costs are going up. But if they are intent on targeting the root of rising costs and alleviating pocketbook pain for patients, they are badly misfiring.

Obamacare supporters are right to be nervous that the law is driving up premium costs (among other negative effects). But choosing the politically expedient route of blaming an entire industry and offering up simplistic regulatory solutions will not provide real answers.  

— Mario H. Lopez

When Turing Pharmaceuticals jacked up the price of an existing AIDS drug this fall, a group of Democrat U.S. House members instantly formed a group to push for more federal intervention in the market, and the Obama administration convened a one-day forum to discuss high drug prices. Keep in mind the AIDS drug was off-patent and a competitor surfaced shortly after offering the drug at $1 a pill, proving market forces work.

Nonetheless, presidential candidates Hillary Clinton and Bernie Sanders quickly rolled out plans for more government intervention. Clinton embraced recommendations from the left-wing Center for American Progress, which receives funding from insurance companies.

Among their “solutions” is “flat-fee drug reimbursement,” which would mean putting a ceiling on the amount that insurance companies and pharmacy benefit managers (PBMs) would pay to pharmaceutical companies per drug.

As easy as it might sound to cap those payments, it is important to understand the real-world effects of such a short-sighted policy.

The reality is that bringing just one new drug to market takes more than 10 years and about $2.6 billion. Add to that the research and development costs for drugs that never make it to the marketplace.

Medicines that do make it also fund research into other drugs that may at first look promising, but that do not pan out in the end. This creates a cycle of innovation where pharmaceutical companies take massive risk to aggressively explore potential treatments. The enormous monetary investment and lengthy time required to bring a product to market is highly unusual among private-sector endeavors.

But the breakthroughs have been significant. New drugs and treatments have improved health outcomes for patients who suffer from cancer, extremely high cholesterol, mental health, HIV, and a variety of other conditions.

It may sound easy enough to cap prices for pharmaceuticals, but disincentivizing the research and development that fuels medical innovation and improves life for patients is not the solution.

What has gone largely unnoticed in the debate over drug pricing are the shadowy practices of the insurance industry and PBMs (also known as “payers”), the administrative middlemen between companies that create drugs and patients who need them.

Payers have created a variety of convoluted and bureaucratic practices that shift costs to patients and reduce medical options and access for patients in need. Among these practices are “cost-sharing tiers” that raise patient co-pays. Payers have also implemented a policy known as “fail-first,” which means they dictate that the least expensive drug in a class be tried first on the patient (and then the next least expensive, etc.).

Particularly troublesome is how payers limit the list (known as a “formulary”) of prescription medications that they will cover. Payer committees make those decisions outside of the public eye, do not reveal their decision-making process, and leave patients and medical providers with no recourse—save for a select few number of patients who can afford to pay for expensive medicines out of pocket.  What is clear is that when payers dictate what medicines they will cover, the best interests of patients are not necessarily at the forefront.

A Harvard Business Review article on drug pricing puts it this way: “the average formulary decision-making process would hardly pass scientific muster.”

It is estimated that 10 percent of the population in the United States is living with a condition that can be classified as a “rare disease”— that is over 30 million people. Different ethnicities are uniquely affected. For example, people of Spanish descent, such as New Mexican Hispanics, are more prone to Cavernous Cerebral Malformations (CCM), a genetic blood vessel disease impacting the brain and spinal cord. These patients benefit from the development of personalized medicine. Stifling developments in biopharmaceuticals will hurt patients like these and others.

Obamacare supporters are right to be nervous that the law is driving up premium costs (among other negative effects). But choosing the politically expedient route of blaming an entire industry and offering up simplistic regulatory solutions will not provide real answers.

It is past time to take a hard look at countering short-sighted measures that drive up prices and limit patient access. In health care, as in many other areas, opaque bureaucratic processes are a threat to innovation and progress for individuals.