Wednesday, March 29, 2017

What They Don't Want You to Know About Prescription Drug Pricing

Pharmacy Benefit Managers (PBMs); everybody loves to hate 'em.  They are intrusive, complicated, and an unwelcome layer of bureaucracy. However most people credit them with being a necessary evil, a tool in the kit to try to hold medical costs down.  And originally that was their purpose.  However, this article discusses how they morphed into part of the problem, instead of part of the solution:

 "If you have drug coverage as part of your health plan, you are likely to carry a card with the name of a PBM on it. These middlemen manage prescription drug benefits for health plans, contracting with drug manufacturers and pharmacies in a multi-sided market. Over the past 30 years, PBMs have evolved from paper-pushers to significant controllers of the drug pricing system, a black box understood by almost no one. Lack of transparency, unjustifiable fees, and massive market consolidations have made PBMs among the most profitable corporations you’ve never heard about."

"Americans pay the highest health-care prices in the world, including the highest for drugs, medical devices, and other health-care services and products. Our fragmented system produces many opportunities for excessive charges. But one lesser-known reason for those high prices is the stranglehold that a few giant intermediaries have secured over distribution. The antitrust laws are supposed to provide protection against just this kind of concentrated economic power. But in one area after another in today’s economy, federal antitrust authorities and the courts have failed to intervene. In this case, PBMs are sucking money out of the health-care system—and our wallets—with hardly any public awareness of what they are doing."

"Even some Republicans criticize PBMs for pursuing profit at the public’s expense.... their desire for larger patient networks created incentives for their own consolidation, promoting their market dominance as a means to attract customers. Today’s “big three” PBMs—Express Scripts, CVS Caremark, and OptumRx, a division of large insurer UnitedHealth Group—control between 75 percent and 80 percent of the market, which translates into 180 million prescription drug customers. All three companies are listed in the top 22 of the Fortune 500, and as of 2013, a JPMorgan analyst estimated total PBM revenues at more than $250 billion."

"Why haven’t PBMs fulfilled their promise as a cost inhibitor? The biggest reason experts cite is an information advantage in the complex pharmaceutical supply chain....Says David Balto, an antitrust litigator and former top official with the Federal Trade Commission: “But these companies make a fabulous amount of money, even though they’re not buying the drug, not producing the drug, not putting themselves at risk.”'

This article is worth reading for a better understanding of one of the reasons why is so hard to get a handle on health care costs. There are vested interests which aim to keep it dark, deep, and complicated.


  1. I was on Express Scripts using their mail pharmacy. While they won’t give a ninety day supply until about sixty days has gone by, they seem to push getting the pills out so that overtime you tend to build up a supply, in some cases I have ended up never having less than 90 days!

    Now I am on Rx through my grocery pharmacy. The grocery has a good program that automatically prepares your prescription, e.g. gives you a warning they are going to prepare it next week in case you want to make any changes, then they notify you it is ready. I like to have only 15-30 days supply left the low point of a 90 day cycle. They have been responsible to my control since if they do it early I just don’t pick up the package but stop at the window and tell them I have enough.

    There is an additional layer to all this. As a retired state employee I have a benefits consultant who advises me each year which plan to choose to optimize may cost benefit ratio.

  2. I have the Medicare Part D thing because of the eye problem. I wouldn't be able to afford my meds otherwise. One medication would cost about $70 a month but I pay just a couple of dollars for it, and get everything at the grocery store pharmacy.

    The whole medication subject is interesting, like the coming antibiotic apocalypse, the microbiome, etc.

  3. Jack, my husband found the same problem with the mail order; he would end up with too many pills, and then the doctor would end up changing it anyway. I only have one maintenance med and I am able to go through the local pharmacy similar to what you are doing.

    Crystal, you mentioning the antibiotic apocalypse makes me think of one class of antibiotics (the fluoroquinolones) which I have often taken, which now has a black box warning.

  4. Yes, and the real apocalypse will be the resistance to all those drugs. Few new antibiotics are being created and many don't work anymore because of bacterial resistance to them. BBC - Future - All you need to know about the 'antibiotic apocalypse'

  5. Attended a medical conference today underwritten by two Big Pharma companies. It was bemoaned by one of the researchers that it takes $2.4 billion to bring a new drug to market through four phases of FDA-mandated research. I kept wondering how the poor companies could afford to hold these shindigs and bring in the experts if their R&D is so expensive. They're makin' money somewhere ...

    Yeah, antibiotics. I have become a little OCD about handwashing, and I don't go to the doc with any acute illness unless it lingers for more than 10 days. Fortunately, I have an extensive arsenal of home remedies Dad left us.

  6. About the cost of creating a drug ... I read a bit once about how drugs for Hodgkin’s Disease and leukaemia were made from the Madagascar rosy periwinkle. The drug company committed a kind of bio-piracy. They used medical information from indigenous people to find and harvest the plant but never paid anyone for that knowledge. You can read more about it here.

    And even if it costs a lot to create a new drug, manufacturing it after that is usually really cheap, but the drug companies charge for the drug as if every pill had to recreated from scratch.

  7. Unagidon once noted that a lot of the money goes to consumer direct advertising.

    The cost of drug testing/approval may be very high, but many of those costs are defrayed by govt incentives and nonprofs. Nixon's war in cancer was a bonanza for drug companies. I am skeptical about Joe Biden's moon shot, much as I love Uncle Joe.

  8. Consumer direct advertising... They didn't used to do it. Have we really gained anything from it but added costs? Sometimes they're trying to create a demand where there isn't even a need. I've been seeing kind of a creepy ad lately. It shows old pictures of someone's ancestors. Turns out what they all had in common was a slight double chin. Which unfortunately their (female) descendant has inherited. But thanks to this new injectable drug she can get rid of it. Funny how it's so bad for a woman to have a double chin, but seemingly not a guy. Another one is the ads for ED meds. They used to show a senior couple. Lately it's been a senior guy and a woman at least 20 years younger, who is the spokesperson. Got news for you, guys. She doesn't come with the prescription.

    1. Oh, God, I hate that ad. Raber and I were complaining about it night before last. (There is a guy version of the ad; there's money to be made in making men feel as critical of their bodies as women.) I also hate those ads for Viagra singles. They're just individually wrapped pills in what look like condom packets. And they're probably patented and sold as a whole new drug.

  9. Funny. Pharmacy executives decide not to develop new antibiotics because they aren't lucrative maintenance drugs. But they and their children can get infections, too. Bacteria and viruses are a million times more fatal than terrorists but, instead of the government funding antibiotics and vaccines, they'll blow 62 megabucks on military boondoggles. Maybe if Princess Ivanka gets a necrotising bacteria in her big toe and has to have her pretty leg chopped off,they'll start to figure it out.