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“Negotiated” vs. “Administered” Prices for Health Care:
What’s the Difference? What Difference Does It Make?
Joseph White Ph.D.
July 28, 20091
It appears that one of the sticking points in the current health reform negotiations involves a demand by some potential swing legislators that the prices paid by a voluntary “public plan,” as contemplated in HR 3200 (the House “tri-committee” bill), be “negotiated” rather than “administered.” This appears to be related to common claims that Medicare has an “administered pricing system,” which is viewed as a bad thing especially by conservatives and some provider interests.
At the end of the brief period of superior private sector cost control in the mid-1990s, the National Bipartisan Commission on the Future of Medicare contrasted “administered” prices to “truly competitive prices.” The Commission defined administered prices as, “according to a predetermined formula), and argued that, “because Medicare’s prices are not established competitively, it is not possible to know if Medicare is paying the right price.”2 The contrast between “administered” and “negotiated” prices could therefore be interpreted as referring to this difference between prices set by competition (somehow) and by administration (somehow).
But “competition” is not exactly the same as “negotiation.” To see why, ask yourself this question: what prices that I pay are “negotiated” as opposed to “administered”?
In fact, the vast majority of the prices we pay are not “negotiated.” When I went to the optician today to order a new pair of eyeglasses, I did not negotiate the price. They had different frames at different prices, and I could choose a frame and options for the lenses, and that was the price. If I didn’t like it, I could go to a different optician. When I walked out the door and looked at the BP station’s sign, it posted a price for regular gasoline. I could not drive in my car and offer to pay a lower price. In each of these cases I did have the choice to make my purchase somewhere else – so the posted prices for both glasses and gas might have been constrained by competition. But negotiation was not involved. BP and the optician had some routine for setting their prices, which might as well have been “administered” as far as I was concerned (and may well have been the product of some complex process within each organization).
So the first thing to figure out is whether people who object to “administered” prices want competition or negotiation. But that brings us to a second puzzle.
Many observers, including HHS Secretary Sebelius (reportedly) and myself (definitely), have argued that Medicare’s prices are not really “administered.” No medical care provider is forced to sell services to Medicare. Medicare sets the prices it is willing to pay for services, varying them according to both the perceived relative costs of the services and indicators of local cost factors. The process of determining Medicare’s offer is “administrative” in the sense of determined by rules, in large part as a way of maintaining legislative control of the bureaucracy and setting standards of fairness. But, because providers can choose whether to accept it, the actual price is not administered. If a provider accepts that offer, that is not because it is required to do so by law, but because Medicare is a large part of the market and the provider does not want to do without the business. In this sense, the relationship between Medicare and at least some health care providers is no different from the relationship between WalMart and many of its suppliers, or as existed many years ago between Sears Roebuck and my mother’s cousin Izzy’s clothes manufacturing company: the buyer has market power, and that is a good thing for the buyer and its customers, though not always satisfactory to the seller.
So the second question is, at what point does “market power” turn into administration? And, if that can happen in one direction, with the buyer being said to “administer” prices to the seller, can’t it happen in the other direction, with the seller being said to “administer” prices to the buyer?
The Politics of Market Power
Medicare does not currently “negotiate” prices with providers. But neither do most buyers of most products negotiate with most sellers. We might imagine that the reason sellers don’t complain that the prices they charge are “administered” is that they are determined (somewhat) by market competition. But there have been many situations through history where sellers did complain about the prices they were able to charge in the private market, because the buyers (say, Standard Oil) had some form of monopsony power (say, control of pipelines). Similarly, there have been lots of situations where the buyers (say, farmers) complained about the monopoly power of the sellers (say, the railroads, if the farmers wanted to get their crops in Nebraska to market in the eastern United States).
In the current U.S. healthcare system, there are many situations in which a small group of sellers (say, hospital systems or cardiac practices in a community) are selling to a small group of buyers (insurance companies in the same community). The current market dynamic appears to be that these sellers have substantial market power compared to even quite large private payers, so can (from the perspective of payers) impose prices on the payers. In short, the payers do not believe they can “negotiate” very successfully, and they don’t believe the sellers “compete” by offering lower prices.3
It appears that the sellers do not have the same power vis a vis the traditional Medicare program, for three reasons. First, Medicare is a very large payer – though not necessarily the largest in a given market for a given provider of medical services. So doing without its business would be painful. Second, the popularity of Medicare with its enrollees means that providers cannot assume that, by simply refusing to participate in Medicare, they will drive enrollees to alternative insurers, which in turn would pay higher prices. Third, the very fact that Medicare cannot “negotiate” – that the offers are established by formulae derived from administrative regulatory procedures based in law – means that providers cannot threaten not to agree in order to negotiate a “compromise,” higher price.
From a bargaining theory perspective, Medicare has market power (large market share), brand loyalty (enrollees’ preference for it), and bargaining credibility (it can credibly say, “sorry, this is what we can pay, no-can-do more). Conversely, in dealing with private insurers, the balance of power is often held by providers (as in a famous showdown between St. Joseph’s hospital system and Pacificare in Orange County),4 because market share is at least comparable, the equivalent of brand loyalty favors providers, and the insurer can’t as credibly claim it cannot change its offer.
In short, Medicare’s “administered” pricing is an important part of its superior bargaining power. Providers still can choose not to contract with Medicare, just as I can choose to purchase from a different optician or gasoline station. Medicare’s prices are not equivalent to, say, the government setting a price for all gallons of milk, or a price for gasoline. It is much more similar to Sears Roebuck or WalMart using its power to get a better deal for their own customers.5 Medicare uses its market power to get better prices for its customers: its beneficiaries and the taxpayers.
The dispute about “administered” pricing for a voluntary public plan has to be viewed from this perspective. A voluntary public plan simply cannot force any provider to participate. It has to determine its offer prices somehow. The political system is likely to demand that the offers be determined according to some set of rules, simply because the alternative is to give “bureaucrats” more discretion than is normally allowed by Congress and the President. Alternatively, the public plan could be managed by private insurers; but at that point it is hard to see how it is a “public plan” at all.
Much of the actual policy proposals show that the policy question is really about bargaining power. For example, the draft HR3200 says that providers will not be required to contract with the public plan. It appears also to foreclose any requirement that would link receiving payment from Medicare6 to agreeing to serve patients through the voluntary public plan. Some supporters of the public plan believe that in some markets dominant providers will refuse to contract with the public plan, and therefore the public plan will fail, unless those providers are required to participate in the voluntary plan as a condition of being able to bill Medicare. This is not a matter of whether the public plan “administers” prices; it is a question of whether providers who currently have the market power that enables them to demand high prices from other payers based on a threat not to contract with those payers will be able to use the public plan as an example of their ability to refuse contracts.
The political question then is how much bargaining power the public plan should have. Naturally, all medical care sellers want all buyers, including the public plan, to have as little bargaining power as possible. Under normal circumstances the ultimate payers for care – here, the potential enrollees and the taxpayers (who will be subsidizing most citizens’ purchase of public plan insurance) – should want to have as much bargaining power as possible. So the question is why legislators should favor the sellers (medical care providers) over the buyers (their taxpaying constituents, and those of their constituents who enroll in the public plan).7
There are some possible reasons. First, legislators could believe that the prices paid by the public plan are likely to be “too low” and so damage providers. In the case of HR3200, the argument would be that paying 105% of the Medicare rates is too low. Naturally all providers argue that this is true. And this surely matters greatly to legislators who are disposed to believe that their local ophthalmologist, or orthopedic surgeon, or hospital administrator, is a leader of the community whose interests (sort of like General Motors’ used to be) are the interests of the community at large.
MedPAC, generally, believes payments are adequate. MedPAC is rather less self-interested. But the logical question is: if you think 105% is too low, why do you, as a legislator, support the current Medicare rates? Shouldn’t you be voting to raise fees? If not, why not? The likely answer is, “that would cost too much.” Precisely, and health insurance that pays more than Medicare’s fees “costs too much” by an even wider margin.
In the current situation, if the argument is (a) that fees have to be high, but (b) that health care reform must be paid for in order to control the deficit, and (c) that most taxes are off the table, then the argument is essentially that in order to provide higher provider incomes, some people have to remain uninsured. This is a bit puzzling especially if you remember that, in insuring more people, provider incomes should be increased because they will have a greater volume of business. It is easy to imagine that legislators are told by providers that better bargaining power for the public plan would lead to lower prices, which in turn would drive them out of business, leaving no medical services for constituents. It is less clear why legislators should believe this, or at least why they should accept this argument without setting a fairly high burden of proof. It would not happen all at once, for sure, and could surely be fixed if it began to happen, even as it was happening.
Second, legislators could believe, instead, that “negotiation” (or competition) is actually likely to do a better job of controlling costs. That was, after all, the position of the Medicare Commission cited above. It also appears to be false. After all, if it were true, Medicare Advantage plans would be able to provide Medicare benefits for less than the traditional Medicare program does, and enrollees would have been flocking to them before the 2003 legislation allowed and then CMS interpretations increased overpayments to the plans. If it were true, the overall record of private insurers at controlling costs would be better than that of Medicare – and it definitely is not.8 If it were true, the private insurance and conservatives would not be making so much noise about the so-called unfair advantages of the public plan, which supposedly would do so much better at controlling costs that it would destroy the private insurance industry, leading to a “one-size-fits-all” government-run health care system.
Ignore for the moment the question of why a system that cost less and, like Medicare, included all providers so did not subject individuals to restricted choices and all the confusion that accompanies limited networks, would be a bad thing for either enrollees or the taxpayers whom legislators are supposed to represent. A third reason to object to a voluntary public plan that would have significant bargaining leverage is that the plan might reduce the business of the private insurance industry, and one can legitimately believe, given certain values, that that is a bad thing in principle. If one likes the private insurance industry, for whatever reason – one knows some nice people employed by it; it’s a private business and it makes one queasy to see private businesses displaced by government even if government does a better job and contracts out most of the work to private business (which is how Medicare works now and a public plan would surely work); there are insurers in the district who employ people – this is a reason to object to the public plan having any features which help it attract enrollees. Any enrollees who are attracted to the public plan do not provide revenues to private insurers, so the private insurers’ goal must be to make the public plan as ineffective as possible. So people who want to support private insurers must want to have either no public plan or one that has very few enrollees.
A fourth position, and perhaps the one that is expressed most often, is a modification of the third. The idea is that government should not have policies that threaten private enterprise; that that is an unfair application of state power. From this perspective, if the government somehow sponsors a public plan that, because it is able to use some of the same sources of bargaining leverage as Medicare, is also able to pay lower fees than private insurers can, then government is “unfairly” hurting insurers. There is a simple response to this concern: allow the private insurers to pay by the same rates as the public plan does. That eliminates the “unfair advantage” of the public plan’s market leverage. It also maximizes savings for enrollees, employers, and taxpayers. It would likely require that there be some variation in the rates (bringing all rates down to the Medicare rates quickly would be highly disruptive; and the savings from reducing the size of the tax deduction for employer-sponsored care and the size of subsidies for insurance through the exchanges, in the HR3200 design, might even allow raising some of the Medicare rates a bit over time).9 But anything that controls costs better for the whole system, as all-payer rate-setting would, is likely to be condemned by providers on the same grounds that they condemn giving any market leverage to a public plan.
All of these are reasons, based on ideology, or whose interests one cares most about, or believing providers’ and insurers’ arguments, to be worried about a public plan with strong bargaining power. Any legislator simply must decide what values matter most to her, and what is the best case about the facts. Supporters of a strong public plan believe that consumers and taxpayers should matter most; that good cost control is compatible with stable and sufficiently high incomes for providers; that the private insurance industry is necessary for much of insurance administration and should have broader roles if it performs them well; that cost control is crucial to health care reform; and that greater bargaining leverage for the payers (so ultimately, beneficiaries and taxpayers) is therefore crucial. If that means that the payers should have the greater bargaining power that is described as “administered” prices, that is worthwhile. But of course others may disagree.
If people do want something else, then we need to figure out what “administered” and “negotiated” actually would mean, in practice.
We have seen one meaning of “administered”: that what I have called an “offer” is based not on the discretion of whoever manages a payer, but on a significantly constrained and rule-bound process of calculation, following principles that are justified by the processes of developing regulations and doing the kinds of studies MedPAC does. A further meaning of “administered” might be said to apply in the case of all-payer regulation. If all payers in fact paid by the same rules, perhaps with some modest variations (e.g. Medicare, Medicare + 5%, Medicare +10%), then very few providers would have the option of refusing to contract.10
Nevertheless, there are “all-payer” systems in which the participants do not call the prices “administered.” That brings us to possible meanings of the term “negotiated.”
What Do We Mean by “Negotiated”? With Whom, About What?
In the German system as it worked for many years, physician payments in any state (Land) were set in the following way. The Association of Sickness Funds (insurers), met with the Association of Sickness Fund Physicians each year, and negotiated relative values and spending targets. The physicians naturally wanted to negotiate the largest pool of money possible, to maximize physician income. They also had internal divisions about what portion should go to which services. The Sickness Funds wanted to pay as little as possible, so as to avoid increases in the contribution rate (a percentage of payroll below a threshold, much like the Social Security tax though with a lower threshold and not paid to the government) paid by employers and employees. The government was not formally part of the process.11
Would these be considered “negotiated rates?” In the German example, the two sides have very comparable power and legal status, and neither can function without the other. They are certainly bargaining. In principle either side can refuse to settle (in essence a strike on the part of the physicians, or lockout on the part of the sickness funds). This is not particularly likely, but it has occurred occasionally in other systems,12 and is analogous to the situations with policemen or firemen or for that matter baseball players in the United States. Nobody would say that labor negotiations are not negotiations, and one could similarly say that negotiations between the collective medical profession and collective payers are negotiations.13
So the first question for people who do not want administered prices but instead want negotiations, is what kinds of negotiations count. Do they mean negotiations in which the balance of power favors providers? The Association of Sickness Fund Physicians in Germany, after all, could negotiate with each sickness fund individually. We may suspect the result would be higher prices, because the sellers would have more power vis a vis atomized buyers. Do they mean essentially collective negotiations as in the historic German system? I rather suspect they do not. Or do they mean atomized negotiations, in which individual or subsets of providers negotiate with individual payers (insurers)?
The latter form of negotiation, which I call selective contracting, fits best with the idea that “negotiation” means “competition.” But it is also the kind of “negotiation” that we have in the United States today. For a wide variety of reasons, it has not controlled payments, but has generated extensive overhead costs. Selective contracting means many different contracts with many different terms, so costs both for the negotiations and for the administration of the many different sets of fee agreements.14
Hence the logical question is whether “negotiations” means “selective contracting,” and the assumption is that selective contracting is better than “administered prices.” In practice that would mean, for example, that the public plan (unlike Medicare) would pay different fees for the same service (say, outpatient retina surgery) to different physicians in the same community. In other words, the public plan would have to contract separately with each provider, and might choose not to contract with some providers.
In this sense selective contracting really is quite different from “administered pricing,” if the latter is appropriately defined as the payer making a uniform offer, based on written policies, to all providers within a class (here, providers offering a particular service in a particular area). Some economists would argue that selective contracting would force payers to reward higher-quality providers: in short, that it is a good thing if some doctors are paid more than others for the same services. Other analysts would respond that there is little evidence of payers doing that in the current marketplace. Moreover, for a “public plan” to make such judgments would be greeted with protests by the providers who are paid less. And the usual claim that, unless payments vary, quality is not rewarded, is nonsense. Providers who are perceived as being higher quality will get more business, so more revenue relative to their fixed costs, so make more money, even if they are paid the same price as other providers.
Although it does not seem wise or even very practical to me, the idea that the public plan should pay different prices to different providers may seem like a matter of principle to some people. Presumably they would like to do the same in Medicare itself. How that would save money, or lead to higher quality (given the difficulties already in measuring quality), or be operated without a lot of lawsuits from the disfavored sellers of medical care, are reasonable questions. But surely most medical providers feel that they are better than average, so that in a Lake Wobegone world of Medicare, they would be favored by negotiation in the form of selective contracting.
In fact, the winners would be whoever has the most market power. If Medicare overpays specialists now, in many cases it does not favor specialists over primary care providers as much as the private market does now, because specialists get to use their market power (e.g. by forming dominant single-specialty groups) more effectively when dealing with private insurers. So “negotiation” in the form of selective contracting would favor dominant sellers even more than they are favored now.
Bargaining with different forms of providers, however, will be different. Hospitals, pharmaceutical companies and nursing homes are not the same as physician practices. In the case of hospitals, Medicare already pays different amounts to different hospitals in the same community. The payments are administered, however, in the sense that the variations are based on regulatory standards and cost reports. Medicare administrators (unlike officials in some countries) do not (formally) negotiate with hospitals (informally, there must be negotiations about cost interpretations that in practice are fights over payment rates). Private insurers also pay different rates for the same services to different hospitals.15 If a public plan were to “negotiate” with hospitals, should it be much as private insurers do (largely from a position of weakness), or more like Medicare (that is, pay less, but according to measured cost factors)? HR 3200 suggests the public plan would pay Medicare rates plus 5%. If instead it were required to “negotiate,” hospitals might threaten not to contract at all, in order to obtain higher rates. Maybe that would be a bluff: but how would the private plan administrators tell, and to what extent would Congress be comfortable giving them the authority to make those judgments? Would Congress fire administrators who failed to get a good enough price? Or a good enough network? How would the negotiators be accountable, to whom? Again, one solution would be to make the “public plan” managed by private insurers, but then we have to wonder in what way it would be different at all from any other private insurance.
Drugs are different because forms of negotiation between drug companies and payers are common even when governments are the payers. Partly that is because governments have
multiple purposes (e.g. promoting national pharmaceutical industries).16 Partly it is because payers, both public and private, make both formulary decisions and price decisions, and bargaining involves both. Partly it is because dealing with drug companies creates room for all sorts of interesting differences between posted (formal) and actual (informal) prices, including assorted kickbacks, breaks on one drug in return for carrying another, and so on.17 In any event, however, each drug is viewed as a distinct product, and sold by one producer, so the distinction between “selective contracting” and collective contracting doesn’t apply in the same way. In essence, any payer decides what it is willing to pay for, say, Lipitor; and is not going to choose between getting the service (Lipitor) from one maker or another – unlike choosing whether to contract with Cleveland Clinic or University Hospitals of Cleveland for breast cancer treatment.18 It is hard to tell exactly what “negotiated” as opposed to “administered” prices for pharmaceuticals might be, given that no payer simply assumes it will offer all possible legal drugs in the first place. Prices could be called “administered” if government actually sets prices that other payers pay.
Advocates who believe a public plan should “negotiate” rates therefore should explain the following things:
1) What exactly is being proposed, with which types of providers, that is different from what Medicare does now?
2) To what extent would that approach be procedurally legitimate?
3) If it is a good idea for the public plan made available to enrollees through insurance exchanges, does that mean you would recommend that approach for Medicare? Which taxes are you willing to pay, or benefits to cut, to offset any resulting spending increases?
4) If “negotiation” means, as it might, favoring providers with more market power over providers with less market power, do you endorse the likely distributional results among providers?
5) Would you, instead, accept the kind of collective contracting, with strong representatives of both payers and providers on each side, that occurs in all-payer systems? Why? Why not?
Conclusion: Maybe It is Clearer Now?
The purpose of this think-piece was to break down a very general claim – for “negotiated” vs. “administered” prices – into more precise chunks, so as to identify practical choices, justifications, objections, and likely consequences of choices.
This probably seems more confusing than when I began. But perhaps it is confusion that is more useful than the confusion that comes from using loaded, imprecise terms that can only be judged in terms of their connotations and one’s ideology, rather than based on likely effects on real people.
Endnotes
1 The analysis that follows is a “think-piece” in response to questions from participants in health care reform discussions. My qualifications to think about this question, if not necessarily answer it to anyone’s satisfaction, include a long line of research and publications on methods of health care finance and cost control, including both the United States and other countries. My day-job is as Luxenberg Family Professor of Public Policy, Chair of the Department of Political Science, Director of the Center for Policy Studies, and Professor of Epidemiology and Biostatistics at Case Western Reserve University. None of the content of this paper represents the positions of Case Western Reserve institutionally or of any of its staff, students, or trustees. I am solely responsible for any errors of fact, logic, or interpretation.
2 National Bipartisan Commission on the Future of Medicare, “Summary of Reform Task Force Meetings,” downloaded July 28, 2009 from http://thomas.loc.gov/medicare/summary.htm. For those who do not know the history, it may be useful to note that the Commission had nine appointees by Democrats (President Bill Clinton, Senate Minority Leader Tom Daschle, and House Minority Leader Richard Gephardt) and eight members appointed by Republicans (Speaker of the House Newt Gingrich and Senate Majority Leader Trent Lott). But, as part of the political negotiations, the Democrats were committed to appointing two members who were known to favor transforming Medicare into a voucher system (Senators John Breaux, D-LA, and Bob Kerrey, D-NE). So the Commission was controlled from the outset by a majority that did not approve of Medicare’s cost control systems, and that was reflected in report texts. This was so clear from the beginning that President Clinton insisted that the Commission’s terms include that it could not issue a report unless it was approved by a majority of 11 of the 17 members – that is, had at least one vote from someone other than the eight Republican appointees and Senators Breaux and Kerrey. So there are two implications: first, that the Commission’s judgment should not be viewed as “objective” fact; and second that other legislators who represented constituencies similar to those of some “Blue Dogs” have been skeptical of Medicare’s “administered” prices.
3 The authors of the National Bipartisan Commission Report cited above reported that, Medicare had not been able to take advantage of favorable market conditions as successfully as private payers had. This trend, which was true roughly from 1993-96, reversed dramatically sometime in 1997. For an account of what happened and some analysis of why, see Joseph White, “Markets and Medical Care: The United States, 1993-2005, The Milbank Quarterly 85:3 (September, 2007): 395-448
4 See the discussion and sources in ibid.
5 Certainly that is what their managers would say, and while WalMart has many critics, the argument against WalMart has to say that the company’s methods have all sorts of effects that are more negative than the benefits of lower prices for its customers, not that there are no benefits for customers.
6 Which is not technically the same as “participating” in Medicare
7 In the design of HR3200, all members of the “insurance exchange” with incomes up to 400% of the poverty level would be eligible for subsidies out of general revenues. This means that easily the majority of enrollees will receive some support. All individuals who receive employer-based insurance already arguably receive a subsidy through the tax code. In each case the size of the subsidy depends on the price of insurance. Therefore, any measures that limit spending on a package of benefits provide greater value for taxpayers.
8 See, for example, the data in MedPAC, Healthcare Spending and the Medicare Program: A Data Book (Washington DC: Medicare Payment Advisory Commission, 2008), p. 9.
9 For extensive discussion of this “all-payer” option, see Joseph White, “Cost Control and Health Care Reform: The Case for All-Payer Regulation,” and “Implementing Health Care Reform with All-Payer Regulation, Private Insurers, and a Voluntary Public Insurance Plan,” posted to the Campaign for America’s Future website, May 2009, at http://www.ourfuture.org/files/JWhiteAllPayerImplementing.pdf
10 Exceptions would include providers who have a substantial portion of business that isn’t part of the benefit package anyway (e.g. cosmetic surgery), or who have a high-income, specialized customer base (e.g. orthopedic surgeons in some ski resorts, or who specialize in repairs to professional athletes).
11 I put this description in the past tense because there have been some recent changes and I haven’t had time to doublecheck whether this actually changed the rate negotiation process. At various times there have been reforms which seemed to say they would do so, but did not. I say “not formally part” because governments, being interested in employment and other values that could be affected by contribution rates, commonly provided some input into the negotiation process as to how they wanted it to turn out.
12 Not surprisingly, I believe it is more common in France than in Germany.
13 Not that German physicians would ever agree with a description of themselves as unionized in the same sense as, say, metal workers. It is still a form of collective bargaining.
14 A recent study estimates the total costs to physician practices of dealing with health plans at between $23 billion and $31 billion each year. In a primary care practice, these estimated costs are about a third of the compensation costs per physician – which means that reducing them would leave some room for sharing savings between payers and physicians. This estimate does not tell what the effect of the variation of private insurance contracts would be, however. First, the surveys used actually asked about total billing costs, and then adjusted by reducing these costs proportionally by the amount of total reimbursements that come from Medicare and Medicaid. On the one hand, the number of billings relative to revenues should be higher for Medicare and Medicaid because they pay less. On the other hand, much of the costs of billing are related to having to keep track of a great many different plans, and so the costs in any market of keeping track of just two plans out of many is unlikely to be 38% of the total (which is Medicare and Medicaid’s proportion of the actual billings). Second, the study only included labor costs, and did not include things like the space and equipment costs associated with having to have more people to keep track of more contracts. (The average physician office has close to one full-time billing clerk per physician). Third, the study could not directly address the effects of complexity. See Lawrence P. Casalino et al, “What Does It Cost Physician Practices To Interact With Health Insurance Plans?” Health Affairs 28:4 Web Exclusive (posted May 14, 2009), pp. W533-W543.
15 See Uwe Reinhardt’s examples cited in White, “Cost Control and Health Care Reform,” op cit.
16 See Richard Freeman, “Pharmaceutical Policy and Politics in OECD Countries,” in Theodore R. Marmor, Richard Freeman, and Kieke G. H. Okma eds., Comparative Studies & the Politics of Modern Medical Care (New Haven: Yale University Press, 2009).
17 Not surprisingly, this kind of thing is not extensively documented in the literature. But, for example, discounts from the posted wholesale price are one way that drug companies promote their products, and physicians make their income, in Japan, where physicians dispense as well as prescribe. In Canadian provinces, posted standards for prices mean that drug companies will not publicly charge less to provincial government drug plans – but may find ways to give those governments other concessions.
18 A given payer may contract with a pharmaceutical benefits manager, but even then the PBM is an agent for the payer; it doesn’t contract with multiple PBMs. |
