Rheum for Action

Unintended consequences of perfectly good programs and policies


Some of our worst decisions seemed like really good ideas at the time. We wouldn’t make them otherwise; but often we fall into the unintended consequence of “the cure being worse than the poison.” We have seen this when government is trying to fix a problem, often an emotionally charged problem, without considering the long-term consequences of the “fix.” We have seen the unintended consequences of certain health care policies and programs lead to abuse and negative downstream effects on the same population that they were intended to protect.

It has been postulated that unintended consequences fall into a framework that’s “based upon level of knowledge and the scope for avoidance.” Essentially, that means these consequences fall into one of four categories: knowable and avoidable, knowable and unavoidable, unknowable and avoidable, and unknowable and unavoidable.

What category do the following policies fall into?

Pharmacy benefit managers’ safe harbor from the Anti-Kickback Statute

Let’s start with the “safe harbor” from the Anti-Kickback Statute (AKS) for payments from drug companies to health insurance companies and pharmacy benefit managers (PBMs). The AKS was created in 1972 and its “main purpose is to protect patients and the federal health care programs from fraud and abuse by curtailing the corrupting influence of money on health care decisions.” During the 1990s, a number of safe harbor provisions under the AKS were instituted for certain payments to health insurance companies, PBMs, and other providers. The thinking was that these payments needed a safe harbor because, although they might meet the statutory definition of “kickbacks,” they were beneficial because they would reduce the cost of care and, more specifically, the prices of drugs.

While well-intentioned, those safe harbors now protect a system of such perverse incentives that patients are whipsawed back and forth onto drugs that are the most profitable for the PBMs, who create the annual list of insurance covered drugs (i.e., the formulary). It is clear now that protected kickbacks ($$), in the form of rebates and fees paid by pharmaceutical manufacturers to PBMs, determine what drugs will be on the formulary. PBMs then use utilization management tools such as step therapy to force patients to take those drugs first. Consequently, safe harbor protection from the AKS allows manufacturers to buy market share at the expense of patient’s health. Because these protected kickbacks are based on a percentage of the list price of the drugs, PBMs profit more from higher priced drugs, which PBMs call the lowest cost medications (for them, that is). These bids from various manufacturers can change over the course of a year, allowing PBMs to change formulary coverage (even mid-year) and nonmedically switch stable patients to the drug that is the most profitable. Much of this happens as a result of the unintended consequence of this particular safe harbor from the AKS. Ironically, the safe harbor has helped to create the very behavior that the law was supposed to prevent and has harmed the patients it was supposed to protect. Health care decisions are being corrupted by the influence of profits allowed by safe harbor from the AKS.


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