Incremental Health Reform First: Medco Sees Growing Resistance Around Price Controls

CEO Snow suggests that resistance to proposals authorizing government price controls through a public insurance option could also bring down programs with broad support, such as expanded use of health IT.

Congress may risk losing the opportunity for incremental but important reforms to the health care system if it tries to roll them up in a package including major new government price controls, Medco CEO David Snow predicted during an April 29 earnings call.

"I don't believe big boom reform will work, and by that I mean you cannot fix everything at once. You need to go building block by building block to make meaningful reform occur," he said.

Snow suggested that resistance to the prospect of a government-sponsored plan that would compete with private plans also could bring down initiatives with broad support, such as expanded use of health information technology.

Having a public option compete against private health plans "is going to create more constituents against overall health reform because you are going against, potentially, doctors [and]... health plans who don't want it," Snow pointed out. "We have seen this happen many, many times. So the worry would be you get nowhere because you try to tag too many things to the incremental reform to the point the resistance is too high."

The pharmacy benefit manager is a major proponent of health IT; broader adoption of electronic prescribing would be a "big win for Medco," Snow said. The firm also stands to gain from Obama administration proposals for COBRA subsidies that would enable laid-off workers to retain their Medco benefits.

Medco itself is not likely to suffer from a public plan option, Snow maintained. The impact would be "positive to neutral" for Medco, he said. "If you look at U.S. history for government-sponsored health care programs, the government generally hires the private sector to administer the plan on their behalf. Therefore, there is the possibility that new business opportunities would be created for Medco."

On the other hand, major insurers are lining up against the public option, and predicting opposition from physicians and hospitals as well, based on the prospect of substantially reduced payments (¹ (Also see "Public Plan Using Medicare Rates Would Face Major Push-Back, Insurers Say" - Pink Sheet, 27 Apr, 2009.), p. 25). In Humana's first-quarter call April 27, CEO Mike McCallister said the public option "is a real lightning rod and could disrupt everything."

The health plan industry has a formidable lobbying effort in place to oppose the idea, McCallister added. "Our industry has done a nice job preparing for this both from the standpoint of having real solid policy positions that we put forward that are really structurally different" and "we have got a good grassroots capability that will be applied when and if and where necessary."

Stakeholders are scrambling to protect their interests as Congress works to transform the Obama administration's vision for health care reform into policy, Medco's Snow noted. "Members of Congress, many of them if not most of them, do not understand how healthcare works. So that translation can really turn out poorly and hurt a great many companies."

-Cathy Kelly ([email protected])