FDA Commissioner Rolls Back 40 Years of Orthodoxy on Cost-Exposure

FDA Commissioner Scott Gottlieb

Speaking yesterday at America’s Health Insurance Plans’ (AHIP) National Health Policy Conference, FDA Commissioner Scott Gottlieb railed against patient cost-exposure (e.g., copays).   His prepared speech said:

Patients shouldn’t be penalized by their biology if they need a drug that isn’t on formulary. Patients shouldn’t face exorbitant out of pocket costs, and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries, or is used to buy down the premium costs for everyone else. After all, what’s the point of a big co-pay on a costly cancer drug? Is a patient really in a position to make an economically-based decision? Is the co-pay going to discourage overutilization? Is someone in this situation voluntary seeking chemo?  Of course not.  Yet the big co-pay or rebate on the costly drug can help offset insurers’ payments to the pharmacy, and reduce average insurance premiums. But sick people aren’t supposed to be subsidizing the healthy.

Wow.  This may seem like common sense to some readers, but it is revolutionary to hear from a senior American government official, and indeed a Republican one no less.

In a new paper, Victor Laurion and I have chronicled the ways in which American politicians at the highest levels have blindly embraced the opposite point of view for half-a-century.  This sort of ideological adherence to simplistic economic reasoning (which James Kwak calls ‘economism‘) is  why U.S. health insurance exposes patients to all sorts of deductibles, copays, and coinsurance.  As a result, even insured Americans find themselves “underinsured” — denied access to care or falling into bankruptcy if they stretch to pay nonetheless.

For just one of dozens of examples that we review in the paper, contrast Gottlieb’s speech with this 1983 address to Congress by Ronald Reagan:

[f]irst-dollar insurance coverage, such as that which Medicaid provides, leaves the consumer with virtually no financial incentive to question the need for services. Services that are totally free are likely to be over
utilized. If patients share in some of the costs, they and their physicians will reduce unnecessary or marginal utilization

This ideology of “moral hazard” was so fundamental to thinking about healthcare policy that President Obama did not even touch it, while trying to dramatically increase health insurance coverage.  Although Obamacare required people to get insurance, it allowed them to be exposed to $13,000+ in out-of-pocket costs each year, which could be devastating to a family of moderate means (median household income is only about $50,000).   Indeed, we still have tax laws that nudge people into such “high deductible health plans.”

As I read his prepared speech, Gottlieb is saying that the cost-exposure strategy is dead. At least for cancer treatments and presumably a wide range of other expensive interventions for life-threatening diseases, cost-exposure does not actually work to shift patients away from wasteful health spending.   In my work, I call this the “behavioral function” of cost-exposure, and Gottlieb here repudiates it.  Does it work?  “Of course not.”

Okay, well what other purpose could patient cost-exposure have?  It is the “distributional” function, causing sick individuals to pay for their own care rather than having those costs spread through the insurance pool in the form of premiums.  But that is really dumb — the whole point of health insurance is to spread risk and guarantee access to care.  As Gottlieb says, “sick people aren’t supposed to be subsidizing the healthy.”  So that’s that.

Unfortunately, the FDA has no formal role in U.S. health policy as it relates to insurance.  We can only hope, however, that Gottlieb represents the first crack in a wall  of rigid ideology, which may just start crumbling.


This entry was posted in Christopher Robertson, FDA, Health Care Reform, Health Law Policy, Insurance, Medicare/Medicaid, Pharmaceuticals by crobertson. Bookmark the permalink.

About crobertson

Christopher Robertson is a professor at the James E. Rogers College of Law, University of Arizona, and affiliated faculty with the Petrie Flom Center for Health Care Policy, Bioethics and Biotechnology at Harvard. Robertson also leads the Regulatory Science program, a partnership with the Arizona Health Sciences Center and the Critical Path Institute. Professor Robertson's research focuses on how the law can improve decisions by individuals and institutions -- attending to informational limits, conflicting interests, and cognitive biases, especially in the domain of healthcare. Blending legal, philosophical, and empirical methods, Robertson's work has been published in the New England Journal of Medicine, New York University Law Review, Cornell Law Review, Emory Law Journal, and the Journal of Empirical Legal Studies. He has received research support from the Robert Wood Johnson Foundation, and runs the Law and Behavior Research Lab at the University of Arizona. Robertson graduated magna cum laude from Harvard Law School, where he also served as a Petrie Flom fellow and lecturer. He earned a doctorate in Philosophy at Washington University in St. Louis, where he also taught bioethics. For 2013-2014, he was a visiting professor at Harvard Law School, and will visit at NYU School of Law in 2016-2017. Robertson's legal practice has focused on complex litigation involving medical and scientific disputes.