Demanding Health Plan Vigilance

The Supreme Court’s Warnings, The Mire of Drug Pricing, and the New Frontier of Fiduciary Accountability

In the menacing quagmire of U.S. health policy, two narratives have percolated to the surface and will demand significant change: the Supreme Court's repeated emphasis on the Fiduciary Duty of Prudence in ERISA plans and the convoluted, murky saga of prescription drug pricing.  But as these narratives evolve, a new force enters the stage, reshaping the landscape and elevating the stakes: the Consolidated Appropriations Act (CAA), with its stringent requirements for fiduciary prudence and an unprecedented demand for transparency.  This act not only intensifies the spotlight on plan sponsors but also beckons them toward a path of heightened accountability and vigilance.

Anyone who has read my previous work on Substack or at BenefitsPRO, or listened to me on Armstrong and Getty knows I firmly believe an evaluation of Reverence-Based Pricing must be undertaken for a plan sponsor to demonstrate they are doing their job to protect plan assets (covered in detail here).  Nevertheless, we cannot forget about the clear-as-mud world of prescription pharmacy plundering pricing. 

In recent Supreme Court rulings like Tibble v. Edison International (2015) and Hughes v. Northwestern University (2022), fiduciaries are reminded to don the mantle of guardianship, ensuring every decision resonates with the best interests of plan participants.  It's a narrative that paints fiduciaries as attentive overseers, continually sifting through healthcare and retirement plan options with a discerning eye, ready to discard any that do not meet the gold standard of value and quality.

Parallel to this tale of unwavering fiduciary dedication runs the convoluted and contentious story of U.S. drug pricing.  In this market, haunted by the ravenous demons of corporatism and crony capitalism, the concept of a free market is an illusion, a mirage that vanishes upon closer scrutiny.  Instead of a vibrant marketplace driven by competition and consumer choice, the pharmaceutical sector resembles an arena where a few dominant players wield disproportionate influence, crafting a narrative where prices are dictated not by market forces but by strategic maneuvers designed to maximize profit at all costs, and cozy relationships with regulatory bodies. 

The explosion of private equity into healthcare staggers. Whether it be hospitals, large medical groups, insurers, prescription benefit managers or brokerages, PE has entered the fray with fervor. PE systematically has cut costs to the bone, shrunk service teams, and pushed service providers to the brink with an unrelenting demand for supercharged and often short-term profit maximization.

Antibiotics for Everyone

Consider the volume of inappropriate antibiotic prescriptions.  Annually, doctors pr

escribe more than 130 million courses of antibiotics to patients.  One-third to one-half of these prescriptions are unnecessary.  That’s somewhere between 44 and 66 million wasteful prescriptions per year - counting only antibiotics.  Source: Overcharged: Why Americans Pay Too Much For Health Care. 

Also from Overcharged, in Chapter 6, as to why doctors might be overprescribing something as simple and basic as antibiotics:  

too often because insurers pay them extra when they prescribe drugs.  In 2008, Medicare paid $63.73 for a low-complexity office visit (Current Procedural Terminology [CPT] code: 99213), but $96.01—almost 50 percent more—for a visit that involved ‘a new diagnosis with a prescription, an order for laboratory tests or X-rays, or a request for a specialty consult’ (CPT code: 99214).  The premium that private insurers paid was nearly the same.  The incentive to dole out drugs should be apparent.  If you’re thinking that the same incentive system could drive overuse of specialty consults, lab tests, and X-rays, you’re catching on.  A 2008 medical journal article titled ‘10 Billing & Coding Tips to Boost Your Reimbursement’ noted that just one additional 99214 code per day could net a physician ‘as much as $8,393 over the course of a year.’

Why Sell Injections for $60 When You Can Sell Them for $2,300?

As for how drugmakers themselves manipulate the market to bloat their coffers, consider one more story from Overcharged: 

Avastin and Lucentis are two different medicines that contain the same active component and are made by the same company, Genentech. If you think they sell for the same price, you have much to learn.  Lucentis is almost 40 times as expensive as Avastin.  Understanding how both medications came into existence and came to be priced so differently shows yet another way in which pharmaceutical companies are adept at creating and exploiting marketing exclusivity.

Avastin is a cancer treatment that works by slowing the growth of blood vessels that feed tumors.  After it was approved, some enterprising ophthalmologists thought that it might work on an entirely different illness: wet macular degeneration, a vision impairment caused by the excessive growth of blood vessels at the back of the eye.  They tried it out by injecting very small doses of Avastin directly into patients’ eyes. … The results were terrific, and the use of Avastin to treat wet macular degeneration quickly caught on.

Because only a small amount of Avastin was needed to treat patients’ eyes, the drug was very inexpensive when used for this purpose.  It cost about $60 per injection.  Of course, that meant Genentech didn’t make much money….

When Genentech learned that the active ingredient in Avastin worked on wet macular degeneration, it created and obtained FDA approval for a new drug, Lucentis, to treat this condition.  Lucentis was far pricier than Avastin. It sold for $2,300 a dose—38 times as much as Avastin.  Genentech didn’t try to show that Lucentis worked any better on wet macular degeneration than Avastin, and ‘when the National Eye Institute tested Lucentis against Avastin, it found essentially no difference.’  Six randomized clinical trials have found Avastin and Lucentis are largely equivalent. 

Because of the price difference, many ophthalmologists kept using Avastin instead of switching to Lucentis.  Genentech countered by discouraging ophthalmologists from using Avastin, raising bogus safety concerns and announcing that it would stop selling the drug to the repackaging firms that were cutting it into eye-appropriate doses.  When ophthalmologists responded by threatening to sue, Genentech backed down. 

Into this multifaceted drama enters the CAA, a legislative act that supercharges the script.  The CAA not only echoes the Supreme Court's stern warnings about fiduciary responsibilities but amplifies them, setting a new bar for transparency and accountability.  For plan sponsors, the CAA is more than a set of regulations—it's a clarion call to elevate their game and embrace a level of scrutiny and openness that was previously unprecedented.

Under the CAA, the fiduciary duty of prudence is no longer just about selecting and monitoring plan options.  It's about ensuring that these options are presented and operated with a level of transparency that leaves no room for ambiguity or concealment.  Plan sponsors are now under a microscope, with every decision subject to scrutiny, not just by regulatory bodies but by the very individuals they serve – the plan participants.

This heightened transparency isn't merely a bureaucratic requirement; it's a safeguard, a protective measure that shields both plan sponsors and participants.  For plan sponsors, adhering to these stringent standards is a proactive stance against the looming threat of class action lawsuits, which have become an all-too-familiar narrative in the realm of fiduciary accountability - particularly as it relates to retirement plans.  For participants, it's a window into the inner workings of their plans, an assurance that their interests are not just considered but are the guiding force behind every decision.

The convergence of the Supreme Court's rulings, the quagmire of drug pricing, and the CAA's mandates for transparency and prudence are more than a series of disjointed plots.  It's a comprehensive call to action—a mandate for plan sponsors to not just navigate through the complexities of their roles but to redefine the very essence of care and accountability.  It's a journey fraught with challenges, but the directive is clear: in the realm of fiduciary duty and health policy, the path forward is one of unwavering transparency, unyielding prudence, and an uncompromising commitment to doing the right thing.  The stakes have never been higher, and the role of each participant in this narrative has never been more critical.  As the curtains rise on this new chapter, the spotlight is firmly on plan sponsors, beckoning them to take center stage and set a new standard in fiduciary excellence and integrity.

This is probably my favorite meme as it relates to how I do my job as an attorney and 22-year veteran in helping employers safegurd their health plans.