Decoding US Healthcare Policy Challenges Amid a Shutdown
November 7, 2025
35
min read
From a government shutdown halting FDA approvals to the looming expiration of ACA subsidies threatening to raise insurance premiums for millions, the American healthcare system is facing a perfect storm. These mounting US healthcare policy challenges are creating unprecedented uncertainty for patients, providers, and innovators alike. In this episode, we're joined by healthcare regulation and policy expert Matt Wetzel, a partner at Goodwin Procter LLP, to dissect the interconnected crises plaguing Washington, D.C. and what they mean for the future of your healthcare.
We connect the dots between the federal shutdown, expiring ACA enhanced premium tax credits, clandestine pharmacy benefit manager (PBM) practices, and Medicare's latest payment cuts. Why can't Washington compromise, and who is feeling the most pain? We explore the real-world consequences, including delays for companies seeking approvals for new drugs and devices, the degradation of hospital payer mix due to rising uninsured rates, and the political maneuvering that leaves everyday Americans caught in the middle. This discussion on US healthcare policy challenges uncovers the systemic dysfunctions, from legislative gridlock to the "wrecking ball" approach to policymaking that prioritizes disruption over stability.
This episode provides a comprehensive breakdown of the most pressing issues in healthcare today. We uncover the truth behind Pharmacy Benefits Managers (PBMs) and the bipartisan push for PBM reform, exposing their fundamental conflicts of interest, the dirty tricks of "spread pricing" on generic drugs, and why their business model drives up costs for everyone. We also analyze the controversial Medicare efficiency adjustment included in the latest Medicare Physician Fee Schedule—a "lazy" blanket cut that penalizes specialists and creates further uncertainty in the medical technology market. If you want to understand the forces driving up your insurance costs and creating chaos in the US healthcare system, this is a must-watch conversation that unpacks the complex US healthcare policy challenges we all face.
Introduction
Dr. Anthony Paravati: The world's lone global superpower, United States of America, our country, Amr, closed for 36 days, the government. Can you believe it?
Dr. Amar Rewari: Yes, Anthony. The lights are still on in most hospitals, but in Washington, D.C., they've gone out. D.C. feels like it's been stuck in neutral with a federal shutdown, ACA subsidies on the brink, double-digit premium hikes, state Medicaid pullbacks, new PBM crackdowns, and Medicare's latest efficiency cuts.
Dr. Anthony Paravati: It's not all negative, of course. The government did manage to get out at least a key component of the final rule for Medicare for next year, and they did it on time. Amazing. That's one of the many topics we're going to talk tonight with our good friend who's back on the show, Matt Wetzel. He is an attorney. He is partner at Goodwin Procter LLP based in DC, and he is an expert in the spaces of medical device and healthcare regulation. He is a great health policy commentator. We're excited to have him back on the show.
Dr. Amar Rewari: For our listeners, we hope at the end of this episode, you'll understand why the government shut down based on a lot of things having to do with healthcare and what maybe can be done to get the people to compromise and open it back up. And then also some of these new topics that are just fresh off the press this week in healthcare.
Dr. Anthony Paravati: Tonight with Matt, we're going to connect the dots between a lot of these issues, put a fine point on the impacts to device companies, companies seeking new regulatory approvals for new drugs and new devices, and of course, for the provider side where we live in the healthcare ecosystem. We're excited to have Matt back. Let's get right into it. Matt Wetzel, great to have you back on Value Health Voices.
Matt Wetzel: Thank you. Great to be here. Appreciate it.
The Government Shutdown's Widespread Impact on Healthcare
Dr. Amar Rewari: Matt is a resident of D.C., as am I. What is happening in D.C. right now? The government shutdown, which began on October 1st. As of tomorrow, which would be November 5th, it will tie for the longest government shutdown in history at 35 days. Who's to blame for this? If you talk to Democrats, you talk to Republicans, you'll probably get different answers. If you talk to independents, you'll get a different answer altogether.
But what does each side want? Democrats want a deal to include an extension of the enhanced ACA premium credits and block Medicaid cuts. We'll talk all about the ACA premium tax credits in a bit. Republicans want a clean CR, which means a continuing resolution, which is a funding extension with no policy add-ons. The basic shutdown is over a standoff over sequencing. Open the government first or do policy fixes first.
Just so our listeners are aware, the polling is all over the place. Usually the party that's in power is oftentimes blamed. A lot of polls are showing about a 45 percent blame for Republicans on this versus a 30-something percent blame for Democrats. Matt, where are we with the government shutdown? Tell me what you see happening from your end.
Matt Wetzel: Thank you. Quite a lead up there, Amr. I appreciate that. I'm not any kind of politician myself, and I'm not a political expert in this sense. But I think you did identify the right issues here. When you get to the bigger picture, the question is, what's the purpose of this continuing resolution? Why is it required?
What do we as Americans want going into all of that? I think in many years past, we would talk about pork spending. That's what ends up falling into all of these bills. What the Republicans are saying is, look, we just want to get the spending passed so that the federal government stays open. I think what we're seeing on impacts to Americans more broadly, we're all reading about this in the news.
However, when it comes to health care, certainly the both of you have a direct touch point into what's going on with your own practices and delivery of care. From my perspective, I work with a lot of biotech companies, medical technology companies, digital technology companies. The biggest worry is about the continuing speed of approvals at FDA. They're still working. They're still approving what was in the pipeline. They're not accepting new applications right now. The approvals are still on their way. The FDA staff is still at work.
Similarly, we were talking a little bit in prep for this about the physician fee schedule, the Halloween surprise, I like to call it, that came out last Friday night. Who would have thought a 2700-page rule would have come out in the middle of a shutdown. There are some things still working and there are some policies that are still moving forward. But I think you described the two views exactly right that the Republicans and Democrats aren't seeing eye to eye on them.
Dr. Anthony Paravati: I was, frankly, you mentioned the Medicare physician fee schedule rule coming out, frankly shocked to see that of all the statutory requirements that exist, that that was the one that was respected to release that 60 days before it's due. But we talked about in our intro before you came on, Matt, Amr and I did, in reorienting our listeners to who you are. That is that you have a deep expertise in your practice in working with medical device and biotech companies. What we wanted to understand in this conversation tonight, you mentioned already FDA, but it sounds like the FDA is doing some work, but with the shutdown, who's feeling the pain the most? What agencies or what aspect of the healthcare regulatory value chain is the most suffering at the moment during the shutdown?
Matt Wetzel: I think it's probably more on the direct care side than it is on the back office administrative side. When we're talking about the highest levels of HHS and CMS and the like, what are they getting done right now? Not that much, but they are getting some things done. What aren't we seeing? They're not accepting new applications for new medical products to be reviewed. That's putting a little bit of a crimp in the plan of innovators who have been expecting certain milestones to be hit, investors who have invested based on their understanding that certain milestones would be hit, etc. So there's an impact there.
I would say as well, what we're going to talk about coming up is probably one of the bigger impacts, which is the impact to Medicaid and the potential either loss of insurance or the coming dawn of some super expensive insurance for some people. Thinking about what does that mean and what does that look like for them? I think that's probably more of an impact right now on the product development side, frankly.
Where the deals are moving fast and furious still, in biotech and medtech, there's a lot going on. We're seeing more acquisitions of small companies versus collaboration arrangements. On that front, it still continues to move. I think the potential impact at FDA, potential impact to patients for Medicaid enrollees, I should say, are the two biggest things.
You had mentioned earlier NIH, and that's already been under a ton of pressure. I haven't heard anything from my clients about any kind of pain points coming out of NIH at this stage. But to be quite frank, a lot of the conversation has been more about, we're not planning on or strategizing around obtaining or seeking an NIH grant. That was already under some pressure.
Dr. Amar Rewari: So what you're telling us is delays, delays, delays for accused submission for new drugs and all regulatory processes. Everything's kind of slowing down, except the Medicare fee schedule, apparently. But there were errors in it, so they keep coming out with new addendums.
Dr. Anthony Paravati: That's right. That's another making people very nervous out there. To put a bow on this first topic, one of the things that I think gives a lot of stakeholders a lot of heartburn, but especially the business community that has the need for regulatory approval, active, open questions with the government in that regard, is uncertainty. It's a question of uncertainty. In the business community, those who invest to put capital to work, they crave certainty. That is something that I think this White House probably understands is a liability for them at the moment. There's many things that are uncertain. The shutdown that we're currently in just adds another level of uncertainty. That's my read on it. You guys tell me if I'm off base.
Matt Wetzel: No, I think you're absolutely right. What are some of the issues that are causing uncertainty, at least with the sectors of healthcare where I play the most? On the Medicaid cuts front, what's the reimbursement landscape going to look like for pharmaceuticals or surgical procedures under Medicaid if there's reduced availability of funds? Similarly, at the federal level, looking at drug pricing, I know we're going to talk about PBMs in a little bit, which I'm excited about.
One thing I would say is that on the uncertainty piece, I'm not so sure that the Trump White House really cares so much that it creates uncertainty. I think that there's probably a piece of the policymaking here that's focused on just kind of ripping apart the system as is. Whatever happens, happens. If the markets crash, they crash, whatever. It almost feels a little bit, I don't want to necessarily call it reckless, but it does feel like a wrecking ball for sure. I think that's kind of the image that they've used throughout the administration to date.
The Looming Expiration of ACA Enhanced Premium Tax Credits
Dr. Amar Rewari: They are disruptors. I wanted to pivot a little bit to what we were talking about with the ACA enhanced premium tax credits. So the Affordable Care Act tax credits, Obamacare, for those who want no jargon whatsoever.
Before I ask my question to you, Matt, I thought I would give a little breakdown again about what this premium tax credit is and then turn it over to you. The premium tax credit in lay terms is a discount the government gives you to help pay your monthly health insurance bill. If you're buying your health insurance through the ACA marketplace, then it's a discount so you don't have to pay the full premium. Let's say the plan costs you $600, you may only have to pay $100 or $200 with this credit.
This credit was created in 2021 as part of the Inflation Reduction Act. It allowed people who normally would have been way ahead of the federal poverty level, even more than four times ahead of it, to also qualify for some of these discounts. If let's say you were making $35,000 a year, which is about 225% of the federal poverty level, you would pay $85 a month with these credits. Once they expire, you may pay $215 a month. That's why this is such a big deal. Matt, these credits are going to be expiring at the end of this year. The Democrats want to keep them, and the Republicans are saying, let's worry about talking about this after the fact. Can you talk me a little bit through this? Why does this matter? What's the political ramifications of this and the ramifications within the healthcare industry?
Matt Wetzel: A couple of items. The credits themselves have been around for quite some time, but they were limited to households with an annual income of 400% of the federal poverty line or less. During COVID, Congress said, look, insurance is getting expensive. People are out of work. Every year the premiums go up and up. We're going to take the tax credit and we're going to get rid of the cap. Now anybody above 100 percent of the federal poverty line can qualify. The enhanced criteria, exactly. That was originally intended for, I believe, two years. It was extended for another two years. The Inflation Reduction Act extended it through the end of 2025. Congress says every couple of years, look, I think we want to extend it. Primarily until now, that has been because we faced all these trickle-down consequences from COVID. The economy has been very difficult over the past couple of years, etc.
But it's a huge expense. What the Republicans are saying is there's been a time and a place to handle this. We need to just get the government up and running because in the meantime, while we're debating the ins and outs of whether we even want to do this, do we want to reduce the cap? Do we want to keep it but reduce the cap to 600 percent of the federal poverty line? Do we want to think about establishing eligibility criteria so that once every 18 months, there's some kind of redetermination? All of those questions about how this type of policy, which is a huge expense, should be debated and discussed, Congress can't decide when to do that. They did a lot of this work in the summer. There was obviously a huge cut to Medicaid at that stage and also significant restrictions on who can qualify, how frequently their eligibility is redetermined and etc. It feels a little bit like this maybe should have been thought about when they were doing the big healthcare bill over the summer. I just think when folks are blaming Republicans, blaming Democrats, it's just Congress is just absolutely creating a vacuum of power right now.
Dr. Anthony Paravati: That's an issue that could be a whole episode in its own right. Basically, that the legislative branch is non-functional and the executive branch is there more or less by themselves to run amok maybe even. But seriously, the thing that's so interesting about you, and you've tied these two issues together, because they are important, especially when you think about from the provider side, from the hospital system and physician side, you have a double whammy at the moment. You have significant cuts to Medicaid, which will result in uninsured, which is a problem, lower reimbursement through Medicaid, which is a problem. You can bet that if we don't figure out one way or another to clean up this whole tax credit business, that more and more people are going to forego coverage altogether as well. The uninsured rates coming up, the degradation of payer mix, and that will obviously erode hospital operating margins, which in wide swaths of the country are already very, very thin.
I am sensitive to the point, Matt. The way you framed it was convincing to me that it is a little bit challenging to figure out something this complex under duress. Open the government or let's solve this enhanced tax credit thing, or we're just going to keep the government closed at infinitum. We should probably be a little more thoughtful and take on these bigger issues in an environment other than just, okay, we're closed and we're doing nothing.
Dr. Amar Rewari: The political strategy might be a little bit of a sticker shock, hoping the public sees this price and then they'll blame the Republicans for it. That's a strategy there. Sorry to interrupt you, Matt.
Matt Wetzel: No, I think you're right. We're starting to now see, we're a month plus in, we're starting to now see some of the longer term effects. We're talking about SNAP benefits that are going away. We're talking about cuts to Medicaid. We're talking about all manner of restriction. I think that at the end of the day, there's only Congress to blame, period. The fact that it's so dysfunctional, non-functional, I think is what you said. It's creating a problem from a policy perspective, too, because there are very few things that anybody in Congress can agree upon anymore. Health care is one of those where they just kind of never agree. There's a couple issues, though, and I know we're going to talk about one, PBM reform, where there is some bipartisan agreement. It's a challenge right now in D.C.
Dr. Amar Rewari: I have another question for you, Matt. I think it is confusing for the average listener, and maybe you could clear it up for them a little bit. On November 1st, the new premiums were posted, but the enhanced credits don't expire till December 31st. The higher premiums that KFF and all these people are predicting will be after December 31st. What are these numbers that are the higher premiums? What's that based on that people are seeing as of November 1st?
Matt Wetzel: My understanding of that is it's during the re-enrollment period. Folks were trying to understand what are all of their costs for the next year of coverage. The premiums that are posted would relate to what you will be paying in the future. Those premiums, however, they increase over time by a host of factors, estimates from the private health plans that manage the coverage and benefits, changes to inflation, costs that have gone up over time. You always expect to see those premiums going up. The folks who will now no longer have the benefit of the credit will now start to feel the full force of that. I think that's more of what's happening here.
Because when I think about these premiums, we all pay premiums for our health insurance. It's insane how expensive health insurance is when you're just healthy. There's a big piece of this that relates to the health plans themselves and the payers. I know we're going to talk about PBMs and PBM reform, but there is an aspect of this over-bloated bureaucracy that we hear the Trump administration talking about in the executive and at CMS and HHS, et cetera. It's the same kind of over-bloated bureaucracy in these corporations too, that costs just as much money to run. There's a part of me that wonders, is there a piece of the huge expense that's not just, oh, the costs have gone up. It's also the costs have gone up to run the operation that ensures the health of these covered lives here.
Dr. Amar Rewari: I feel like in addition to just inflation with the base rates going up, there must be something else. I think you articulated it so well that it may just be all the administrative costs associated with all this more regulation and prior authorization and what have you, that could be relating to a lot of this.
Matt Wetzel: That's not everything, though. To be clear, you can't account for the significant increases we're seeing in the cost of health insurance just on regulation alone. I'm a regulatory lawyer for crying out loud. I'm supposed to love this stuff. But the fact that it takes a lawyer to explain it is troublesome in many ways. If all of the internal bureaucracy went away at the government or in the corporate world, I don't necessarily think the costs are going to go down all that dramatically, frankly, but there's an impact there.
Dr. Anthony Paravati: What I was going to ask is if what you guys think the chance is that we actually, because of this mounting, stacking, one on top of another, failure modes, failure points in healthcare right now, and in terms of getting coverage, the cost of care, that this may, in a chaotic way, ultimately take us to the place that a lot of people back in the era when Obamacare was being debated, were trying to achieve. They were trying to achieve a much more consumer-driven healthcare system where the individual patient member enrollee has a lot more financial skin in the game for their choices. In doing that, that creates a market that behaves rationally like the markets for other services and people seek and put downward pressure on providers in terms of cost. Is that a place we're going to go? That's a place that the self-insured companies really want to go for sure.
Matt Wetzel: Oh, absolutely. The movement is certainly there. Look at all of the direct to consumer platforms we're seeing for access to all manner of drugs and diagnostics and testing. It's become very easy for a patient to say, look, I feel like I need to ask a doctor this immediate second about this thing and get a prescription for it. It's possible. I see the move there. I see the Trump administration supporting that with the push for Trump Rx, the drug purchasing platform that would push big drug manufacturers to move away from working with PBMs and just selling direct to the consumer so that the people who are involved are the patient, their physician and the pharmacy. I do think that that's certainly in the works. How soon will we get there? Who knows?
Dr. Amar Rewari: I'm wondering what do you think will get us out of this cycle? I can't ask you to predict the future, but just in terms of just in the immediate right now with what's going on with the shutdown, for example. I know we didn't get into the Medicaid stuff, but feel free to jump and talk about that too. But what kind of a compromise do we think needs to happen for the shutdown, provided the filibuster doesn't change? If there has to be a compromise made, what kind of compromise do we see?
Matt Wetzel: I don't see the Republicans necessarily caving on the Medicaid issue because that's very fundamental to them. It's all about the heart of Obamacare. It's all the problems with COVID and what happened with the lockdowns and the economic problems there. It's Biden era policy. I think all of that is a perfect storm for they're not going to cave on that. I think what's probably more likely going to happen is there'll be some moderate Democrats that cave because they just can't withstand the pressure from their constituencies that they're saying, look. Maybe some of these Democrats in heavy military districts, perhaps, or districts with large federal operations. That's what I've been thinking about.
Decoding PBM Reform: Conflicts of Interest and Hidden Costs
Dr. Anthony Paravati: It could very well be. Through this and other content that we've put out, we've talked quite a lot about the Medicaid situation and where we're headed there. You've mentioned, you're peeking ahead a little bit on some of the topics you mentioned, getting into PBM reform. So pharmacy benefits managers. We at Value Health Voices have put out some content on this lately to try to orient listeners, our followers, to what is going on, to what PBMs are, and what the future of these, consummate pharmacy middlemen may look like here going forward. Matt, it sounds like this is an area that you've been looking a lot into and have some thoughts. Do you want to just kind of describe it from your point of view?
Matt Wetzel: It is one of those areas where you do see support from both sides of the aisle, which is great in Washington. There's like nothing between that and China. That's kind of it. To see this is really positive. But when you think about the opportunities that we've had over time to address some of these issues, it's been like fumble after fumble. HHS policies that in the past have been designed to curb PBM fees or restrict how they can pay out or provide services and what kind of fees they can accept in exchange for that. Restrictions on discounts that can be paid to PBMs and how they can be paid, how they're counted in connection with a host of federal pricing requirements for drugs.
Restrictions on, or requirements rather for transparency in things like rebate payments and fees that are exchanged. All of that's been proposed and finalized previously, and for some mysterious reason or other has been delayed or rescinded or kicked down the road. The Inflation Reduction Act notoriously delayed until 2032, a provision of HHS regulatory, the regulatory Bible that would have prohibited any kind of fees being paid to PBMs that were not based on a flat fee or some measurable non-percentage based fee.
This has been kicked around a lot. The physician fee schedule, the Halloween surprise this year has some provisions in it that would have some impact there too. It's one of these things where Congress, there is a bipartisan voice, but for whatever reason, they just can't seem to get it across the finish line in the right way.
Dr. Anthony Paravati: As pharmacy middlemen, what PBMs do is they get paid by manufacturers, pharmaceutical manufacturers, drug manufacturers. They get paid a host of different kinds of fees in exchange for services like favorable placement on formularies, the exclusion of some drugs from formulary. They get paid market share fees, all sorts of things that are effectively, ultimately commissions, which are effectively kickbacks. The reason why they're kickbacks is that they, and why you would expect them to not have relief from federal anti-kickback statute is because the way these things are arranged ultimately cranks up federal spending for drugs. That's the whole point of the anti-kickback statute.
What Matt just went through is this back and forth about this exemption that they have. The Trump administration version 1.0 wanted to end it. Biden administration undid that. There's even another layer to it, which I covered in a recent bit of content we put out explaining that the PBMs have acquired or started their own GPOs, group purchasing organizations, as another layer to achieve exemption from the anti-kickback statute because GPOs are already exempt for their own reasons from the federal anti-kickback. It's a whole morass of basically trying to continue to receive kickbacks and do it in a legal way.
Matt Wetzel: That's right. To be a little technical about it, because this is the area I practice in, I love that we're talking about this. The reason those PBM fees are viewed as violative of the anti-kickback statute is because they're typically charged based on a percentage of what they say is the volume or value of business referred between the parties. A flat fee, because they contract with both the manufacturer and the health plans and the pharmacies. When they contract with the manufacturer, they also pay for things like data. We need data about how's the drug being prescribed and what geographies and what's the patient profiles and this, that, and the other. They need support with things like processing co-pay amounts and cost sharing and all of the stuff that goes into the pharmacies needing that kind of support.
But then they also contract with the health plans. When they contract, this is what I've been really thinking about a lot recently. When they contract with those health plans, they say, okay, Aetna, for example. We're going to contract on your behalf because you need to support all of these pharmacies out there for all of these drugs. To manage that benefit is a huge, significant expense. We're going to do that for you. You're going to pay us a fee. When they do that, they do it through a bidding process. Those PBMs will show up to the health plans and they'll say, here's what we think the cost is going to be for this drug and for this drug. Here's what we think it's going to be per patient, but they never give any of the math underlying that.
We don't know what kind of rebates, the health plan wouldn't know what kind of rebates they're getting, wouldn't know how much the manufacturers paying, wouldn't know how much it costs to operate the pharmacy network. There's this blind selection of PBMs. It's not even so much that the fees that the manufacturers are charging raise the cost and create these kickbacks. You're completely right. It's also that on the other side, they don't have any kind of check and balance from the health plan they're contracting with to say, well, wait a second here. You're saying the cost for this is going to be X, but when I look at your underlying numbers, that doesn't make any sense. There isn't that opportunity for fair and clear negotiation on any side of the PBM.
Dr. Amar Rewari: Anthony, I thought it might be helpful if you can maybe tell our listeners a little bit about some of the deep dive you did around those numbers, because I think it would be helpful to hear actually what are some of these fees and the spread and how much is this making a difference?
Dr. Anthony Paravati: You just mentioned there are two separate issues. We could take them one at a time. The first one is what Matt was just talking about and I alluded to previously. He put a technical element to it that was a helpful addition. What Matt was just going through, and this is what I described in recent content that I put out, a solo piece of content about PBMs, is that PBMs have two customers. They have the health plan on one side and the drug manufacturer on the other. It turns out that the interest of the health plan and the drug manufacturer are actually diametrically opposed. They have different objectives. That is a big problem. That is a fundamental conflict of interest.
The best example, imagine a relatively small Midwest firm that's self-insured, narrow margins. They need to, for their own obvious business purposes, but also under the law as fiduciaries for their employees, they need lower cost for medical care, for drug expense. The PBM acting in their employ should be, if they're representing their health plan, driving down costs. But the problem is, and this is what Matt was just talking about, is that the PBMs make more money with more script count. The analysts who look at these earnings calls are interested in, hey, CVS Caremark, what's your script count? That means the more prescriptions they process, the more money they make, and they get a higher percentage of fees from higher cost drugs. The more scripts and the higher cost drugs means more money in fees from their other customer, the pharma manufacturer.
That's why a kind of an off-ramp from this ridiculous scenario are the flat fee PBMs or health plans contracting with one of the smaller players. The issue is that there's three dominant PBMs and they make up 85% of the market. It turns out that those three dominant PBMs are part of these omni-channel healthcare companies like CVS and CVS Caremark, just to name one. That's that piece of it. Matt, any comment? Am I leaving anything out there that you want to hit on?
Matt Wetzel: No, no. I'm double-clicking. This is exactly right. You're really highlighting what the key issues are here. As you were talking, I'm thinking about some of the, it's kind of late at night while we're doing this, some of the more dirty tricks that I've seen with my clients. One thing you mentioned, the small health plan. Let's say you're a self-insured plan. You're small, you're not Blue Cross Blue Shield. You've got a couple hundred covered lives or whatnot. These PBMs will approach and they'll say, look, we'll offer you what they call an alternative funding plan. This is for super high cost drugs, which typically for super high cost drugs, these are for, as you guys know, these are usually like patients with rare diseases. This isn't the drugs that are going in this script count that you're talking about, Anthony.
What these alternative funding plans do is they'll approach the employer and they'll say, if you actually exclude this drug from coverage, then what we'll do is we'll help your beneficiary get it cheaper. What they end up doing is they will go to the manufacturer and they'll say, this patient, they don't even have insurance coverage for this. They can't afford it. It's unfortunate. We need you to give it to them for free. Then the manufacturer, they feel this compulsion to cave to that. It really is this dirty cycle of loopholes and contract terms that hide reality of what kind of fees are being paid and whatnot. When you talk about the flat fee PBMs, by the way, why those tend to be supported is that it's a little bit more transparent. We'll provide you with X service, you pay us with X fee. It doesn't matter how many scripts we're processing through our systems each month, each quarter.
Dr. Anthony Paravati: It's not to tie this to the flat fee PBMs. This is a comment related to what you were saying before. It's just obfuscation shrouded in secrecy in every direction, basically. The other thing Amr asked about or brought up is spread pricing. Spread pricing is, and I even called it this in the video that I made, one of the many PBM tricks. It has to do 100% with generics, generic medications. It has to do with the fact that the PBMs will get the drug for the health plan, and they will charge the health plan something called the average wholesale price, but they'll discount it heavily. The average wholesale price, the whole starting number in this whole thing is a totally arbitrary number. There's a couple of companies. One's a Dutch company that's also a publishing company that people know from academic journals, they're involved in setting AWP.
The PBM will go to the health plan and say, we'll charge you AWP discount at 80%. It turns out that that's still a really high number. On the other side, they pay to acquire the drug from the pharmacy. They pay something called a maximum allowable cost or a MAC. Nobody knows, again, another layer of secrecy, what the PBMs have negotiated as the MAC with the pharmacy. The pharmacy will acquire the drug for another cost, which is called the NADAC. If you look at the generics, the NADAC, which is the actual real cost per pill of a drug, let's say generic atorvastatin, is $0.04 for the pill. The PBM ends up charging the health plan like 20x per pill, this NADAC. That's what spread pricing is. What it means is on a yearly basis, let's say for that member who's on atorvastatin, the health plan might end up paying 200 bucks for something that really costs 15, 20 bucks. That's spread pricing in a nutshell.
Matt Wetzel: It speaks all the more to what went direct to consumer. Why are we paying these exorbitant prices for generics? It's just wild. I think the administration, by the way, sees that we just saw the announcement the other day about the biosimilar approval process being opened up and expanded to create this more natural competition. The whole drug pricing area is just a complete mess.
Dr. Anthony Paravati: It is.
Dr. Amar Rewari: It was very enjoyable for me to watch you two geek out over the PBMs since I know you've been excited about talking about this since the beginning of this episode. I got to see you both in your element.
Dr. Anthony Paravati: It's an area of just pure lunacy. Mark Cuban and many others are trying to disrupt it, and it's ripe for disruption.
Dr. Amar Rewari: We would love to have Mark Cuban on this show at some point.
Dr. Anthony Paravati: The invite is open. Come anytime.
The "Halloween Surprise": Unpacking the Medicare Efficiency Adjustment
Dr. Amar Rewari: Yes. Our final topic for tonight that's in the news was the Medicare physician fee schedule, the final rule that was dropped, the Halloween surprise, as Matt likes to call it. One of the things in there is this concept of the efficiency factor. I thought I could maybe talk a little bit about that because it's something when I go to the RUC, it's very relevant for why this is coming in there. The idea of what the administration is doing here is they're saying as doctors do a procedure more frequently, they get better at it, more efficient at it. The time it takes shouldn't be as long as when it was originally valued, when that procedure went to the RUC, the Relative Value Update Committee, and got the valuations.
What's interesting about that is it's just a blanket cut. They're not looking at any data about are efficiencies actually being generated, what services maybe are getting more efficient and which aren't. I, as a radiation oncologist, I definitely agree that there is some efficiencies that happen. But one of the things the RUC does to account for that is when they collect data on looking at times for these procedures, they don't look at median times. They look at 25th percentiles because they already assume people are over inflating and that they will get more efficient. The administration has done this 2.5% blanket cut across the board for all specialty procedures, and calling it an efficiency adjustment. So thoughts from you guys? I think this seems like a crock. I'll just leave it at that. But Anthony, Matt?
Dr. Anthony Paravati: I want to hear Matt's thoughts first. You, I think, already know where I stand on this. We talked about this during when the proposed rule came out with a couple of guests. But Matt, go ahead, and then I'll follow up after you.
Matt Wetzel: Look, when I think about these types of cuts or restrictions on growth, however you want to think about it. I think about my clients. My clients who are most impacted here are going to be the medical products companies where they're really dependent upon these procedures being performed, that they're lucrative for everybody involved, that physicians will want to learn how to perform these procedures and actually will get paid for them and any kind of pressure on that. I think a lot of people would say, well, that sounds like a capitalist idea of how medicine is applied, but that's the reality where we live, is that if you're a practicing physician, if you're working in a hospital, if you have a clinic somewhere and you're performing procedures, it's a business, you want to get paid for that. Any kind of downward pressure on that creates uncertainty for the medical technology markets. That's where I've been really mostly focused. Of course, it's only been a couple of days since I really was hyper focused on it. But that's what I've been thinking about.
Dr. Anthony Paravati: Amar's comments on it capture really well my problem with it is it's just so completely lazy to say, if you want to do this and you want to, okay, yes, the Medicare physician fee schedule is constrained by budget neutrality. If you want to do this, gather some data and make the cuts based on the things that you believe are misvalued by the RUC. Doing a blanket, is this the most total sort of diligence-free, fairness-free thing you could possibly do? Amr hit it right on the head. Of course he did, because he's an expert on this, is that the valuations are already the 25th percentile, like he said, that the RUC uses, that the RUC takes forward as their recommendations to the agency.
This is just another way to redistribute values to achieve value in the fee schedule to achieve an outcome that is predetermined at this point. Okay, that's what you want to do. Just be clear about it and try to do it in a way that gives some preference or some sense to the areas that have gotten more efficient and areas where, to be quite honest, where a given set of procedures may in reality be performed these days on sicker patients than they were when they originally valued. That ups the intensity and certainly ups the time. The reality is precisely opposite to what the agency is doing.
Matt Wetzel: Let me ask a question of the two of you as practicing physicians. How would you see this come into play, for example, for some new procedure? Some new, Amar in your space, maybe there's some new high tech radiation, oncological device that comes out. There's some great new procedure. This would presumably just hamstring the reimbursement on that from the start.
Dr. Amar Rewari: I'm not as clear as when does the application apply? Is it just for everything that's in there now? Or anything going forward, will they also be affected? I haven't read into it as deeply yet. Do you know, Anthony?
Dr. Anthony Paravati: I do. The new therapies that get new codes, they do have a period through which there is no application of the efficiency factor. They are protected. They have relief from that. It certainly doesn't apply to anything that's category three CPT code, for example, and it doesn't apply to anything that's carrier priced.
Matt Wetzel: So they are truly trying to think of, here are the procedures that are longstanding that have been around that they want to make some kind of big, broad assumption, but they didn't do their homework is what we're saying.
Dr. Amar Rewari: I think what it really is, is so you have budget neutrality. You have a fixed pot for the fee schedule. There's new and new procedures happening for specialists. If you have a fixed pot and you're increasing all the specialist stuff, that puts downward pressure on the primary care physicians. Rather than coming up with an elegant way, they just wanted to boost primary care and they have a fixed pot. They just decided to do a blanket cut to proceduralists and call it an efficiency adjustment.
I believe that the outcome, the goal was there, and then they created the rationale for, let's call it an efficiency adjustment, because that makes sense, that if you're doing a procedure over time, you might get better at it, more efficient, and it doesn't account for it. I think if they had just instead flipped it and said, we're going to give a primary care bonus, that could have been another way to accomplish the same thing they were trying to do. I will say I was not surprised that this got approved. There's been a lot of political pressure also from MedPAC over the years supporting this. The last several MedPAC presidents have all come out in favor of such an efficiency adjustment. I wasn't surprised. I just think, like Anthony said, it was very lazy and it probably could have been done in a more elegant way if they really were trying to create efficiencies.
Dr. Anthony Paravati: The other thing, just to be really clear for the listeners, and of course, they'll have multiple sources that will repeat this, is that one of the ways, just mechanistically, why this gives a bump to primary care is because the codes that primary care physicians bill are really E&M codes that have a time component, and those codes will not be exposed to the efficiency adjustment. The majority of the procedural codes or non-time-based codes are exposed to the efficiency downward repricing.
What's Next? Biotech, National Security, and Future Healthcare Legislation
Matt and Amr, we've talked through a lot of the hot button issues. The fee schedule, which is just out and it's half out. We didn't even get into that. The hops rule, the hospital outpatient prospective payment system rule isn't even out yet. We talked about Medicaid. We talked about PBMs. A nice long list of key issues. Matt, now we're in November, the rest of the year. What are we going to get done from a legislative regulatory standpoint? How do you see it?
Matt Wetzel: There's two things that I'm looking at. First, in addition to the continuing resolution, which presumably will be passed, is the National Defense Authorization Act, which is the big defense spending bill that's must pass each year. There's a lot of provisions in there about biotech. Defense and biotech, the intersection of defense and biotech is about to explode with new funding, grant opportunities, research provisions. Opportunities for partnerships with health systems, opportunities for partnerships with biotech companies and the like. Paying attention to that to see where that goes. The whole focus of biotechnology as a national security interest is a hot bipartisan topic in Washington. That's something that I have fingers crossed will happen this year.
The second thing I'm looking at, too, is and I don't think anything's going to happen with this, but there is this movement afoot among the Democrats to try to pull back a provision of the… that expanded protections for rare disease drugs under the Medicare drug price negotiation program. The idea is, and I think Bernie Sanders articulated it well when he said it's a quote, escape hatch for big pharma, because if you have a rare disease drug, you can be exempt from some of the provisions of the negotiation program. It doesn't matter if you're big pharma, small pharma, what. In any event, watching that to see if that goes anywhere, I don't think it will, but watching that as well.
Dr. Anthony Paravati: Matt, that made me think of a little nugget that has been forgotten in healthcare policy talk, debates, conversation, and that is this whole business about an escape hatch and drugs that cost big, big numbers, like even a million dollars a year and a couple of years, which is possible. Trust me, for listeners who don't know, this is possible. That level of stratospheric pricing for drugs was actually not possible before Obamacare. Because Obamacare got rid of the lifetime limit on insurance coverage. If there was a lifetime limit of 1.5 to whatever it was before Obamacare, drugs couldn't be priced anywhere close to that level. Now they can be. That doesn't mean Obamacare was bad or that we shouldn't have done it. It's just, it's always interesting what the unintended consequences of whatever the provision may be.
Matt Wetzel: The other piece of it, too, is I work with a lot of companies whose products end up being that or more when they're priced primarily is because it costs so much to run a research program. There's such a drain on U.S. research capabilities, health systems, academic medical institutions. There is a run on the resources there. That's part of actually why I bring up this defense piece, because a lot of what we hear our biotech clients talk about are, we turn to China, for example, because there aren't resources here in the U.S. to build products and research products. It costs $5,000 a patient for per visit for one treatment at a multi-site research program. There's just so many costs that are associated here that having this expanded resource funding from DOD will have a huge impact in the industry. It's problematic all around. Drug pricing has too many cooks in the kitchen and too many complicated math problems that we have to get through.
Dr. Anthony Paravati: You're right. Amar, I think Matt just gave us an idea for another episode to bring him back and perhaps maybe him plus another guest to talk through what he was just talking about there. The whole process of all the research, all the spending right the way through to approval and then post-market the whole deal, because I think that is really exciting. It's an area we haven't talked much about, honestly, on the show.
Dr. Amar Rewari: It is true. We have not talked about the whole from phase one or phase zero through the whole regulatory process to market. That would be a great episode. Thank you, Matt.
Matt Wetzel: Let's do it.
Dr. Anthony Paravati: We'll see you again. Thanks so much for coming on.
Matt Wetzel: Thanks for the time, guys. Appreciate it.
