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The Hidden Monopolies That Raise Drug Prices

214 points by frgtpsswrdlame 10y ago

encoderer 10y ago
I think blaming drug companies and wholesalers just misses the point. Drugs are really good today. Not even the life saving types, but also things like migraine medication or acid reflux relief. If you suffer and have the means, you'll pay what the market demands for relief. And we live in a wealthy country.
- code_duck 10y ago
  That's true, but there are also many drugs on the market which are barely better than a placebo, or even more harmful than no medication. However, they are still prescribed and billed for as if they are effective.
  - refurb 10y ago
    Have any examples? The FDA won't approve a drug unless safety and efficacy have been proven.
    - Broken_Hippo 10y ago
      Over the counter cough syrup is a weird category. It is an old drug, and some of the studies are mixed. The FDA regulations weren't the same back then, and so it still has the approval. It has some issues when kids take a whole bottle, which means some places restrict its sale - but overall, it hasn't proved harmful to folks either. Cough drops are another one. There isn't much evidence they make you breathe better, yet people report that they do. They think this is likely due to the reaction menthol has on mucus membranes - it feels cool on the air one is breathing so they feel their breath. Yet, menthol is considered a drug and as such, it must have an FDA approval. Edit: I know these aren't prescription, but they were the first ones I thought of.
    - code_duck 10y ago
      Unfortunately that process is a lot more complex than one might think, like everything else involving medicine, government, or even worse, a combination of the two. Safety and efficacy are not a binary condition, either. Questions you might ask are, how effective does a drug have to be to be approved? Is it better to have false positives or false negatives? Who pays for and conducts the studies, and who reviews them? How many FDA officials used to work for or lobby for the companies they are regulating? There are many drugs withdrawn for the reasons I mentioned - ineffectiveness or harm. While I don't personally maintain a handy list of links to articles about this topic, this list contains many drugs that were withdrawn from the market for the reasons mentioned: https://en.m.wikipedia.org/wiki/List_of_withdrawn_drugs https://en.m.wikipedia.org/wiki/List_of_withdrawn_drugs First thing I clicked on: https://en.m.wikipedia.org/wiki/Indoprofen https://en.m.wikipedia.org/wiki/Indoprofen Withdrawn for causing severe gastrointestinal bleeding
      - refurb 10y ago
        Every drug is approved based on a risk vs. benefit analysis. The FDA can't know exactly what will happen when the drug is approved since you can't test a drug on every patient prior to approval (that would be unethical). No one should be surprised when a few drugs are pulled off the market post-launch. I would argue the FDA didn't make a mistake here and the system works.
        code_duck 10y ago
        All I was asserting was my original statement. Many drugs are on the market which are ineffective or harmful. As far as your conclusion there, like your other question it's dramatically over simplified. Whether it 'works' or not seems like a judgement so binary as to be useless. How well it works depends on many factors that we haven't discussed at all.
- clueless123 10y ago
  If your drug is so good, you should let the market decide what the fair price. The problem is that drug companies and wholesalers don't let that happen by lobbying against open markets and government paid healthcare.
  - rayiner 10y ago
    I'm in favor of government-paid healthcare, but you can't have a functioning free market when one buyer dominates. It's the mirror situation of a monopoly.
  - refurb 10y ago
    If your drug is so good, you should let the market decide what the fair price. Contrary to what people think, drug companies can't just charge whatever they want. Take a look at the HCV drugs. They priced too high and their sales are eroding very quickly. If they had priced lower, they probably would have seen even greater profits.
    - kgwgk 10y ago
      How so? There are only so many patients to treat. Sales are eroding mostly because competition has brought prices down and improved drugs allow for shorter treatments.
      - refurb 10y ago
        The price was too high. There are millions of untreated HCV patients out there that can't get treated because insurance companies won't pay for the drugs.
        kgwgk 10y ago
        Now the prices are lower... and the profits as well.
        refurb 10y ago
- awinder 10y ago
  While this country may be wealthy, there's rampant disparity in who holds that wealth. This is an issue because real people are making the decision to either pay for food or pay for life-saving medications they depend on. The number of people in the cross-section of "suffering" and "have the means" is much lower than the number of people in the cross-section of "suffering" and "don't have the means", and rational society is based on the simple premise of making decisions that optimize society for the majority.
- 23443463453 10y ago
  I really despise that "we live in a wealthy country" communist mentality because it is impudent and parasitic. It is precisely because people who had the polar opposite mindset who brought about the outcome of "living in a wealthy country", and now people like you want to give away and sabotage things and culture and mindsets that are not yours to give away or destroy just because you take them for granted and have no sense for what it took to achieve such a state. "We live in a wealthy country" not by accident, but by people's values and tenacious determination and culture and social priorities that are often generalized as God's blessings or by the grace of God. You can look to places that are not wealthy for clear proof of mentalities and values that never have, currently do not, and will not result in the same outcomes no matter how much you give away other people's things. Feel free to give away what you have to others that don't have whatever you want to give them, but how about you control your authoritarian dictator impulses to give away other people's things, lest it result in inevitable conflict and misery. It's always the same story with you immoral authoritarian types, give away other people's things against their will, but not your own. "We live in a wealthy country" is the counter-productive entitled mindset of someone who is freeloading and has things they were provided without having to earn them and therefor have zero sense for what it actually took to bring such a state about, which leads to it begin taken for granted and seen as inexhaustible.
- rlpb 10y ago
  > If you suffer and have the means, you'll pay what the market demands for relief. Actually you'll [be forced to] pay above that price, because the market is distorted by non-free-market forces. The moment drug companies arrange to intervene by having the law altered to their favor, blaming them for inflated prices becomes entirely reasonable.
refurb 10y ago
It's interesting how the villains of drug pricing have gone from the drug companies to the PBMs. At any rate, I don't agree that PBMs cause drug costs to increase. PBMs are simply purchasing groups for insurance companies. They take advantage of bulk purchasing and offer that service to insurers. They also handle the all the complexities in setting a formulary which includes evaluating new drugs, negotiating with drug companies and adjudicating claims. That has real value. The best example of how PBMs have controlled drug pricing is in HCV. Express Script directly attacked the pricing of Harvoni and Sovaldi. However there was nothing they could do since they were the only HCV drugs available. However, when Viekira Pak became available, Express Script did an exclusive deal with Abbvie which caused Gilead to scramble to price match. The cost of HCV drugs came down by almost 40% overnight. It saved the health care system a lot of money. Now, I do agree that PBMs pull a fast one on some insurance companies. They are intentionally opaque when it comes to how much you pay for their services. The smart insurance companies ask for "pass through" pricing and then pay the PBM a fee for their services. The not-so-smart insurance companies don't ask for those numbers and get put over a barrel.
- 23443463453 10y ago
  Interesting and rather specific and niche perspective. Would you agree that the biggest problems in our healthcare system are transparency, i.e., no way of telling how much something is going to cost in spite of all the data existing to provide just that, and the crushing administrative costs of a system that seems to incentivize massive administrative burdens?
- attaboyjon 10y ago
  Actually the PBMs are a big villain here. They pocket the difference between the retail price of a drug and the discounts they negotiate with the drug makers. They choose the drugs on their formulary based on this spread. This one of the reasons why you will see prices for drugs like Insulin going up with each manufacturer raising price in lock-step. The drug makers are not competing to sell the consumer insulin, they are competing to get on the formulary of the PBM.
  - 10y ago
chimeracoder 10y ago
> 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. As I and other have mentioned before, the easiest way to fix this would be to permit re-importing drugs that were manufactured within the US. For example, permitting trade across the US-Canadian border provides an equalizing force on the prices across the border, even though, at steady-state, no drugs actually need to make the return trip. In other words, allowing the trade puts an upper bound on the difference between the prices charged in the US and the prices charged in Canada: that difference can be no greater than the costs of reimporting those drugs, or else it becomes cheaper for people to source their drugs from Canada. By disallowing the trade, we allow the difference to grow unbounded. A few days before Obama left office, there was a bill that would have fixed that, but nine Democrats joined the Republicans in voting it down: https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=115&session=1&vote=00020 https://www.senate.gov/legislative/LIS/roll_call_lists/roll_...
- awinder 10y ago
  Or: we could just emulate what those other countries are doing to control prices, which apparently has been empirically proven to be effective. Why set up this rube goldberg export / import system when we could, apparently, just import some good legislation?
  - chimeracoder 10y ago
    > Or: we could just emulate what those other countries are doing to control prices Because centrally setting prices is very difficult, and that difficulty scales super-linearly with size. Every other country that controls pharmaceutical prices is significantly smaller than the US is, and they also fund much less pharmaceutical R&D than the US does[0], even though they essentially import the benefits of that R&D at reduced prices[1]. If the US tried to do that, pharmaceutical research would completely evaporate in the US, which would impact every other country that either produces or imports drugs produced in the US as well[2]. Instead, cross-border trade ensures that research funding is proportional to drug consumption. [0] Until a few years ago, US funded more than half the R&D of the entire world. It's now around 44%, mostly because China and India have been growing rapidly. [1] Even pharmaceutical companies based in Europe receive most of their R&D funding either directly or indirectly from the US. [2] Which is literally every other country in the world, even countries like India which do not recognize US pharmaceutical patents.
kyleblarson 10y ago
Interesting takeaway: going forward I'll always ask the pharmacy if paying out of pocket would actually be cheaper than using my insurance and paying a copay.
- Broken_Hippo 10y ago
  Some pharmacies already compare the prices, actually, and when the drug is cheaper than your copay, you just pay the lower amount. At least the pharmacies I've been to in Indiana were like that (CVS mostly, but sometimes Walgreen's).
- MichaelApproved 10y ago
  I have insurance with a high deductible. That means, I'm most likely paying a price similar to a cash patient. Often, it makes more sense to use a free 3rd party "coupon/membership" prescription company to get a better price. Here are two that have saved me money. https://www.goodrx.com https://www.goodrx.com https://www.blinkhealth.com/ https://www.blinkhealth.com/
- maxerickson 10y ago
  The price they quote you may be their cash price, which will often be higher than your copay. You can also check which free PBMs they accept and see what those prices are.
- zakirenish 10y ago
  It is almost always the case when it is a generic drug. Also, try to check the price at the small non-chain pharmacy, cash price might be better.
torpfactory 10y ago
I'm going to make the statement that perscription drugs aren't like other products and shouldn't be viewed as such. People literally need them to survive. This whole system of having something you need to survive being subject to market forces like some other widget is ridculous. Price fixing is absolutely a reasonable tactic to employ when the market for prescription drugs in the US is as completely useless at delivering reasonable costs to patients as it is.
- db48x 10y ago
  You need food to survive as well, but any price fixing inevitably reduces supply. Reducing supplies of food is counterproductive.
- deleted 10y ago
  [deleted]
- joshuaheard 10y ago
  We need food to survive, and market forces work fine. In fact, I would say that the U.S. supermarket is a model of market efficiency.
  - torpfactory 10y ago
    When I can buy drugs from the Pharamacy for $1.69 a pound I'll be happy to see it driven by market forces. The market simply isn't doing a good enough job getting medications to consumers at a reasonable price.
    - refurb 10y ago
      When it costs $1.69 to create a new drug, then you'd have a point.
    - replicatorblog 10y ago
      https://www.walmart.com/cp/4-dollar-presscriptions/1078664 https://www.walmart.com/cp/4-dollar-presscriptions/1078664
kellanem 10y ago
The article does a good job of starting to explain the forces, but it's actually even more complicated. A number of the PBMs are cross invested in pharmacies and insurance companies, and the incentives of 2-3 large pharmacies that control the majority of the market (and how they get paid) is very different than how small pharmacies get paid. Additionally the way the generic market works vs the branded (patented) meds is completely different. (and the system of how drugs move from patented to generic is _nothing_ like the way patents work in software) Which is all to say, it's a fascinating space. It's very ripe for innovation. If you're interested in this kind of thing at Blink we're building a price transparency and payment platform that both routes over and routes around PBMs and gives a unified fair price for everyone in the US. If you're interested in roughly what the wholesale price is plus a very small markup, you can find it on https://blinkhealth.com https://blinkhealth.com And we're hiring. https://www.blinkhealth.com/careers https://www.blinkhealth.com/careers Also the re-importing from Canada is a total red herring. As is implied in the term "re-importing" these drugs are made here in the US, there is nothing special about sending them to Canada and bringing them back. There just needs to be a payment platform that allows people to pay the wholesale price with a small markup (vs the "Average Wholesale Price" which is often a 2000-3000% markup over the real wholesale) Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it.
- DarkKomunalec 10y ago
  Proportionately to their revenue, pharma doesn't spend that much on R&D: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/ https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p... And that's just compared to advertising - throw in other overhead, and separate R&D into genuinely new drugs vs. generics and flavoured aspirin, and the numbers are even worse. Of course it's hard to get such comprehensive financial data, but that's just one of the advantages of private healthcare - hiding data to hide how much you're being exploited.
maxxxxx 10y ago
This is just another example of how messed up the US medical "market" is. Almost everywhere you look there are hidden prices, hidden middlemen and so on. I am not aware of any other market where things are so opaque and convoluted. If the current administration was serious about markets they should mandate that all pricing becomes transparent so a real functioning market can actually develop.
- cmdrfred 10y ago
  I like the 'allow drugs to be bought from Canada' idea. I've been buying mine from India for years at about 1/4th the cost.
- novalis78 10y ago
  Absolutely agree. Something long the lines of what pricepain.com had in mind. This "market" is so ripe for disruption like no other. Sadly, its guarded by a lot of lobbying power and artificial regulations. I think they get away with it "because health".
  - maxxxxx 10y ago
    Americans are now so used to this insane system they can't even conceive that it actually doesn't have to be that way.
    - spangry 10y ago
      I see you're getting downvoted, but you're right. This whole thread is filled with utter lunacy. Just look at the top post. It's some middle-man explaining how his company is innovative because they've figured out how to take a cut of the massive economic rents, and everyone seems to just be nodding along sagely. What really gets me is this idiot notion that the US is somehow subsidising everyone else's healthcare. In actual fact, pharmaceutical / medical device companies will simply charge whatever the market will bear, and it just so happens the US market will bear almost any price. If some market won't bear a profit making price, pharma companies simply won't sell into it. It makes utterly no sense to sell at a loss and then cross subsidise using the massive rents extracted from US markets, yet that is exactly what most people here seem to believe is happening. Then again, maybe basic economics somehow doesn't apply to these super exceptional markets in the super exceptional USA.
exabrial 10y ago
Side note:It's also important to remember it takes an extraordinary amount of investment to get a new drug to market. Often our 'staple' drugs are being used to fund future cures.
iamleppert 10y ago
I deal with Express Scripts and CVS Caremark. I have Hemophilia, a bleeding disorder condition I've been born with. By far, these are the most corrupt organizations in the medical/drug industry. At least the phrama companies actually make something at the end of the day and do research, and employ more than just business people. I am forced by whatever insurance plan I have, to deal with these companies directly because they have whats called a "carve out" -- an exclusive agreement with the major insurance carriers that requires I deal with them directly. I literally have no choice or alternative from which to get my medication. The reason is clear: my medication costs between $60,000 - $150,000 per month. I'm not kidding, either. It's been this way forever, despite the patents expiring on the medication. Its so lucrative and it makes me ill that so many people are benefiting and using me as some kind of financial conduit due to my medical condition. A significant amount of the money goes to one of these companies. They literally have a markup on the medication on a per-unit basis. So they tack on 20% or 30% to each unit of my medication (think pills, but its actually IU potency units -- its an IV medication I give to myself). I'm fortunate that, because of these extreme costs, these companies have actually worked out in my favor: they have a dedicated rep assigned to me, and continually renegotiate their position with the insurance carriers to maximize their profit (I'm a high-profit user and thus very important to them). These companies have no interest in getting costs down, and actually fight for the opposite. A few years ago they bullied the drug companies into offering a co-pay assistance program so they can literally take my insurance for all its worth. Their goal is to max out whatever benefits I have, and at that point usually the patient can be a blocker because they don't have the money for the maximum yearly deductible. However, they basically worked with/forced the drug companies into creating a co-pay program, then raised up the prices for the first order of the year. What happens is the first order I place is always more expensive, and then it gets discounted by some amount (usually my yearly co-pay). I don't have to pay this money however, it comes directly from the manufacture's co-pay assistance program. So I guess its a triumph in the fact I don't really have to pay much -- if anything for my medication, but that's only because its extreme high price. I'm sure its not like this for other people on the middle and lower ends of the system.
- e40 10y ago
  So I read this and I'm horrified. And I know that no one in the coming years will make this or anything like it a priority in Congress. They give no shits about us. The media spends all day talking about tweets and Russian influence in our election and on our newly minted government officials. Yeah, the latter is important, but health care is really, really important. It's the reason our new POTUS was elected, according to the post-mortums I've seen. NOTHING WILL BE DONE (that is good for the people, things might be done that will be great for businesses).
koolba 10y ago
Besides the freedom of speech issue, what arguments are there for not banning prescription drug ads?
AnonMePBM 10y ago
I can say this article rings very true. I am generally very impressed by the accuracy of the points raised. But make sure not to associate all PBMs with this practice. We too don't like it. I am pretty high up at a PBM (not one of the big three), and can say our model does not play the same games (crimes!). The point about MAC pricing is not exactly fair however. Some customers prefer to engage this way since it reflects revenue based solely on the usage of medications prescribed. It might sound odd, but this way we reduce (or near zero) other fees that we charge the customer. In general, we DONT recommend this model, but in some cases, it makes sense. I have to stay anon, since I don't speak officially for the company; all opinions are my own.
txmx2000 10y ago
> The Pharmaceutical Care Management Association, the industry’s lobbying group, claims that PBMs will save health plans $654 billion over the next decade. That's about $16 per person per month. Not a very compelling argument for keeping your drug monopolies: eliminating them costs little more than a Netflix subscription.
- refurb 10y ago
  Keep in mind that insurance companies make decisions based on a change in cost of only $0.05 per member. $16 per person is HUGE when you're talking about an insurer who covers 30M+ people.
AstralStorm 10y ago
Ah, the tried and true method of making a market non-free. Increase number of middlemen and make processes complicated so that no transparency remains.

214 points by frgtpsswrdlame 10y ago

I think blaming drug companies and wholesalers just misses the point. Drugs are really good today. Not even the life saving types, but also things like migraine medication or acid reflux relief. If you suffer and have the means, you'll pay what the market demands for relief. And we live in a wealthy country.

code_duck 10y ago
That's true, but there are also many drugs on the market which are barely better than a placebo, or even more harmful than no medication. However, they are still prescribed and billed for as if they are effective.
- refurb 10y ago
  Have any examples? The FDA won't approve a drug unless safety and efficacy have been proven.
  - Broken_Hippo 10y ago
    Over the counter cough syrup is a weird category. It is an old drug, and some of the studies are mixed. The FDA regulations weren't the same back then, and so it still has the approval. It has some issues when kids take a whole bottle, which means some places restrict its sale - but overall, it hasn't proved harmful to folks either. Cough drops are another one. There isn't much evidence they make you breathe better, yet people report that they do. They think this is likely due to the reaction menthol has on mucus membranes - it feels cool on the air one is breathing so they feel their breath. Yet, menthol is considered a drug and as such, it must have an FDA approval. Edit: I know these aren't prescription, but they were the first ones I thought of.
  - code_duck 10y ago
    Unfortunately that process is a lot more complex than one might think, like everything else involving medicine, government, or even worse, a combination of the two. Safety and efficacy are not a binary condition, either. Questions you might ask are, how effective does a drug have to be to be approved? Is it better to have false positives or false negatives? Who pays for and conducts the studies, and who reviews them? How many FDA officials used to work for or lobby for the companies they are regulating? There are many drugs withdrawn for the reasons I mentioned - ineffectiveness or harm. While I don't personally maintain a handy list of links to articles about this topic, this list contains many drugs that were withdrawn from the market for the reasons mentioned: https://en.m.wikipedia.org/wiki/List_of_withdrawn_drugs https://en.m.wikipedia.org/wiki/List_of_withdrawn_drugs First thing I clicked on: https://en.m.wikipedia.org/wiki/Indoprofen https://en.m.wikipedia.org/wiki/Indoprofen Withdrawn for causing severe gastrointestinal bleeding
    - refurb 10y ago
      Every drug is approved based on a risk vs. benefit analysis. The FDA can't know exactly what will happen when the drug is approved since you can't test a drug on every patient prior to approval (that would be unethical). No one should be surprised when a few drugs are pulled off the market post-launch. I would argue the FDA didn't make a mistake here and the system works.
      - code_duck 10y ago
        All I was asserting was my original statement. Many drugs are on the market which are ineffective or harmful. As far as your conclusion there, like your other question it's dramatically over simplified. Whether it 'works' or not seems like a judgement so binary as to be useless. How well it works depends on many factors that we haven't discussed at all.
clueless123 10y ago
If your drug is so good, you should let the market decide what the fair price. The problem is that drug companies and wholesalers don't let that happen by lobbying against open markets and government paid healthcare.
- rayiner 10y ago
  I'm in favor of government-paid healthcare, but you can't have a functioning free market when one buyer dominates. It's the mirror situation of a monopoly.
- refurb 10y ago
  If your drug is so good, you should let the market decide what the fair price. Contrary to what people think, drug companies can't just charge whatever they want. Take a look at the HCV drugs. They priced too high and their sales are eroding very quickly. If they had priced lower, they probably would have seen even greater profits.
  - kgwgk 10y ago
    How so? There are only so many patients to treat. Sales are eroding mostly because competition has brought prices down and improved drugs allow for shorter treatments.
    - refurb 10y ago
      The price was too high. There are millions of untreated HCV patients out there that can't get treated because insurance companies won't pay for the drugs.
      - kgwgk 10y ago
        Now the prices are lower... and the profits as well.
        refurb 10y ago
awinder 10y ago
While this country may be wealthy, there's rampant disparity in who holds that wealth. This is an issue because real people are making the decision to either pay for food or pay for life-saving medications they depend on. The number of people in the cross-section of "suffering" and "have the means" is much lower than the number of people in the cross-section of "suffering" and "don't have the means", and rational society is based on the simple premise of making decisions that optimize society for the majority.
23443463453 10y ago
I really despise that "we live in a wealthy country" communist mentality because it is impudent and parasitic. It is precisely because people who had the polar opposite mindset who brought about the outcome of "living in a wealthy country", and now people like you want to give away and sabotage things and culture and mindsets that are not yours to give away or destroy just because you take them for granted and have no sense for what it took to achieve such a state. "We live in a wealthy country" not by accident, but by people's values and tenacious determination and culture and social priorities that are often generalized as God's blessings or by the grace of God. You can look to places that are not wealthy for clear proof of mentalities and values that never have, currently do not, and will not result in the same outcomes no matter how much you give away other people's things. Feel free to give away what you have to others that don't have whatever you want to give them, but how about you control your authoritarian dictator impulses to give away other people's things, lest it result in inevitable conflict and misery. It's always the same story with you immoral authoritarian types, give away other people's things against their will, but not your own. "We live in a wealthy country" is the counter-productive entitled mindset of someone who is freeloading and has things they were provided without having to earn them and therefor have zero sense for what it actually took to bring such a state about, which leads to it begin taken for granted and seen as inexhaustible.
rlpb 10y ago
> If you suffer and have the means, you'll pay what the market demands for relief. Actually you'll [be forced to] pay above that price, because the market is distorted by non-free-market forces. The moment drug companies arrange to intervene by having the law altered to their favor, blaming them for inflated prices becomes entirely reasonable.

refurb 10y ago

It's interesting how the villains of drug pricing have gone from the drug companies to the PBMs. At any rate, I don't agree that PBMs cause drug costs to increase. PBMs are simply purchasing groups for insurance companies. They take advantage of bulk purchasing and offer that service to insurers. They also handle the all the complexities in setting a formulary which includes evaluating new drugs, negotiating with drug companies and adjudicating claims. That has real value. The best example of how PBMs have controlled drug pricing is in HCV. Express Script directly attacked the pricing of Harvoni and Sovaldi. However there was nothing they could do since they were the only HCV drugs available. However, when Viekira Pak became available, Express Script did an exclusive deal with Abbvie which caused Gilead to scramble to price match. The cost of HCV drugs came down by almost 40% overnight. It saved the health care system a lot of money. Now, I do agree that PBMs pull a fast one on some insurance companies. They are intentionally opaque when it comes to how much you pay for their services. The smart insurance companies ask for "pass through" pricing and then pay the PBM a fee for their services. The not-so-smart insurance companies don't ask for those numbers and get put over a barrel.

23443463453 10y ago
Interesting and rather specific and niche perspective. Would you agree that the biggest problems in our healthcare system are transparency, i.e., no way of telling how much something is going to cost in spite of all the data existing to provide just that, and the crushing administrative costs of a system that seems to incentivize massive administrative burdens?
attaboyjon 10y ago
Actually the PBMs are a big villain here. They pocket the difference between the retail price of a drug and the discounts they negotiate with the drug makers. They choose the drugs on their formulary based on this spread. This one of the reasons why you will see prices for drugs like Insulin going up with each manufacturer raising price in lock-step. The drug makers are not competing to sell the consumer insulin, they are competing to get on the formulary of the PBM.
- 10y ago

chimeracoder 10y ago

> 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. As I and other have mentioned before, the easiest way to fix this would be to permit re-importing drugs that were manufactured within the US. For example, permitting trade across the US-Canadian border provides an equalizing force on the prices across the border, even though, at steady-state, no drugs actually need to make the return trip. In other words, allowing the trade puts an upper bound on the difference between the prices charged in the US and the prices charged in Canada: that difference can be no greater than the costs of reimporting those drugs, or else it becomes cheaper for people to source their drugs from Canada. By disallowing the trade, we allow the difference to grow unbounded. A few days before Obama left office, there was a bill that would have fixed that, but nine Democrats joined the Republicans in voting it down: https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=115&session=1&vote=00020 https://www.senate.gov/legislative/LIS/roll_call_lists/roll_...

awinder 10y ago
Or: we could just emulate what those other countries are doing to control prices, which apparently has been empirically proven to be effective. Why set up this rube goldberg export / import system when we could, apparently, just import some good legislation?
- chimeracoder 10y ago
  > Or: we could just emulate what those other countries are doing to control prices Because centrally setting prices is very difficult, and that difficulty scales super-linearly with size. Every other country that controls pharmaceutical prices is significantly smaller than the US is, and they also fund much less pharmaceutical R&D than the US does[0], even though they essentially import the benefits of that R&D at reduced prices[1]. If the US tried to do that, pharmaceutical research would completely evaporate in the US, which would impact every other country that either produces or imports drugs produced in the US as well[2]. Instead, cross-border trade ensures that research funding is proportional to drug consumption. [0] Until a few years ago, US funded more than half the R&D of the entire world. It's now around 44%, mostly because China and India have been growing rapidly. [1] Even pharmaceutical companies based in Europe receive most of their R&D funding either directly or indirectly from the US. [2] Which is literally every other country in the world, even countries like India which do not recognize US pharmaceutical patents.

kyleblarson 10y ago

Interesting takeaway: going forward I'll always ask the pharmacy if paying out of pocket would actually be cheaper than using my insurance and paying a copay.

Broken_Hippo 10y ago
Some pharmacies already compare the prices, actually, and when the drug is cheaper than your copay, you just pay the lower amount. At least the pharmacies I've been to in Indiana were like that (CVS mostly, but sometimes Walgreen's).
MichaelApproved 10y ago
I have insurance with a high deductible. That means, I'm most likely paying a price similar to a cash patient. Often, it makes more sense to use a free 3rd party "coupon/membership" prescription company to get a better price. Here are two that have saved me money. https://www.goodrx.com https://www.goodrx.com https://www.blinkhealth.com/ https://www.blinkhealth.com/
maxerickson 10y ago
The price they quote you may be their cash price, which will often be higher than your copay. You can also check which free PBMs they accept and see what those prices are.
zakirenish 10y ago
It is almost always the case when it is a generic drug. Also, try to check the price at the small non-chain pharmacy, cash price might be better.

torpfactory 10y ago

I'm going to make the statement that perscription drugs aren't like other products and shouldn't be viewed as such. People literally need them to survive. This whole system of having something you need to survive being subject to market forces like some other widget is ridculous. Price fixing is absolutely a reasonable tactic to employ when the market for prescription drugs in the US is as completely useless at delivering reasonable costs to patients as it is.

db48x 10y ago
You need food to survive as well, but any price fixing inevitably reduces supply. Reducing supplies of food is counterproductive.
deleted 10y ago
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joshuaheard 10y ago
We need food to survive, and market forces work fine. In fact, I would say that the U.S. supermarket is a model of market efficiency.
- torpfactory 10y ago
  When I can buy drugs from the Pharamacy for $1.69 a pound I'll be happy to see it driven by market forces. The market simply isn't doing a good enough job getting medications to consumers at a reasonable price.
  - refurb 10y ago
    When it costs $1.69 to create a new drug, then you'd have a point.
  - replicatorblog 10y ago
    https://www.walmart.com/cp/4-dollar-presscriptions/1078664 https://www.walmart.com/cp/4-dollar-presscriptions/1078664

kellanem 10y ago

The article does a good job of starting to explain the forces, but it's actually even more complicated. A number of the PBMs are cross invested in pharmacies and insurance companies, and the incentives of 2-3 large pharmacies that control the majority of the market (and how they get paid) is very different than how small pharmacies get paid. Additionally the way the generic market works vs the branded (patented) meds is completely different. (and the system of how drugs move from patented to generic is _nothing_ like the way patents work in software) Which is all to say, it's a fascinating space. It's very ripe for innovation. If you're interested in this kind of thing at Blink we're building a price transparency and payment platform that both routes over and routes around PBMs and gives a unified fair price for everyone in the US. If you're interested in roughly what the wholesale price is plus a very small markup, you can find it on https://blinkhealth.com https://blinkhealth.com And we're hiring. https://www.blinkhealth.com/careers https://www.blinkhealth.com/careers Also the re-importing from Canada is a total red herring. As is implied in the term "re-importing" these drugs are made here in the US, there is nothing special about sending them to Canada and bringing them back. There just needs to be a payment platform that allows people to pay the wholesale price with a small markup (vs the "Average Wholesale Price" which is often a 2000-3000% markup over the real wholesale) Finally one of the challenges with moving to a centrally managed pricing solution like what works so well in Canada and most of Western Europe is right now R&D into pharmaceuticals is largely financed by the opportunity size available in the US market. If you were to just adopt the centralized model tomorrow R&D would grind to a stop, at least for some period of time until we found new ways to finance it.

DarkKomunalec 10y ago
Proportionately to their revenue, pharma doesn't spend that much on R&D: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/ https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p... And that's just compared to advertising - throw in other overhead, and separate R&D into genuinely new drugs vs. generics and flavoured aspirin, and the numbers are even worse. Of course it's hard to get such comprehensive financial data, but that's just one of the advantages of private healthcare - hiding data to hide how much you're being exploited.

maxxxxx 10y ago

This is just another example of how messed up the US medical "market" is. Almost everywhere you look there are hidden prices, hidden middlemen and so on. I am not aware of any other market where things are so opaque and convoluted. If the current administration was serious about markets they should mandate that all pricing becomes transparent so a real functioning market can actually develop.

cmdrfred 10y ago
I like the 'allow drugs to be bought from Canada' idea. I've been buying mine from India for years at about 1/4th the cost.
novalis78 10y ago
Absolutely agree. Something long the lines of what pricepain.com had in mind. This "market" is so ripe for disruption like no other. Sadly, its guarded by a lot of lobbying power and artificial regulations. I think they get away with it "because health".
- maxxxxx 10y ago
  Americans are now so used to this insane system they can't even conceive that it actually doesn't have to be that way.
  - spangry 10y ago
    I see you're getting downvoted, but you're right. This whole thread is filled with utter lunacy. Just look at the top post. It's some middle-man explaining how his company is innovative because they've figured out how to take a cut of the massive economic rents, and everyone seems to just be nodding along sagely. What really gets me is this idiot notion that the US is somehow subsidising everyone else's healthcare. In actual fact, pharmaceutical / medical device companies will simply charge whatever the market will bear, and it just so happens the US market will bear almost any price. If some market won't bear a profit making price, pharma companies simply won't sell into it. It makes utterly no sense to sell at a loss and then cross subsidise using the massive rents extracted from US markets, yet that is exactly what most people here seem to believe is happening. Then again, maybe basic economics somehow doesn't apply to these super exceptional markets in the super exceptional USA.

exabrial 10y ago

Side note:It's also important to remember it takes an extraordinary amount of investment to get a new drug to market. Often our 'staple' drugs are being used to fund future cures.

iamleppert 10y ago

I deal with Express Scripts and CVS Caremark. I have Hemophilia, a bleeding disorder condition I've been born with. By far, these are the most corrupt organizations in the medical/drug industry. At least the phrama companies actually make something at the end of the day and do research, and employ more than just business people. I am forced by whatever insurance plan I have, to deal with these companies directly because they have whats called a "carve out" -- an exclusive agreement with the major insurance carriers that requires I deal with them directly. I literally have no choice or alternative from which to get my medication. The reason is clear: my medication costs between $60,000 - $150,000 per month. I'm not kidding, either. It's been this way forever, despite the patents expiring on the medication. Its so lucrative and it makes me ill that so many people are benefiting and using me as some kind of financial conduit due to my medical condition. A significant amount of the money goes to one of these companies. They literally have a markup on the medication on a per-unit basis. So they tack on 20% or 30% to each unit of my medication (think pills, but its actually IU potency units -- its an IV medication I give to myself). I'm fortunate that, because of these extreme costs, these companies have actually worked out in my favor: they have a dedicated rep assigned to me, and continually renegotiate their position with the insurance carriers to maximize their profit (I'm a high-profit user and thus very important to them). These companies have no interest in getting costs down, and actually fight for the opposite. A few years ago they bullied the drug companies into offering a co-pay assistance program so they can literally take my insurance for all its worth. Their goal is to max out whatever benefits I have, and at that point usually the patient can be a blocker because they don't have the money for the maximum yearly deductible. However, they basically worked with/forced the drug companies into creating a co-pay program, then raised up the prices for the first order of the year. What happens is the first order I place is always more expensive, and then it gets discounted by some amount (usually my yearly co-pay). I don't have to pay this money however, it comes directly from the manufacture's co-pay assistance program. So I guess its a triumph in the fact I don't really have to pay much -- if anything for my medication, but that's only because its extreme high price. I'm sure its not like this for other people on the middle and lower ends of the system.

e40 10y ago
So I read this and I'm horrified. And I know that no one in the coming years will make this or anything like it a priority in Congress. They give no shits about us. The media spends all day talking about tweets and Russian influence in our election and on our newly minted government officials. Yeah, the latter is important, but health care is really, really important. It's the reason our new POTUS was elected, according to the post-mortums I've seen. NOTHING WILL BE DONE (that is good for the people, things might be done that will be great for businesses).

koolba 10y ago

Besides the freedom of speech issue, what arguments are there for not banning prescription drug ads?

AnonMePBM 10y ago

I can say this article rings very true. I am generally very impressed by the accuracy of the points raised. But make sure not to associate all PBMs with this practice. We too don't like it. I am pretty high up at a PBM (not one of the big three), and can say our model does not play the same games (crimes!). The point about MAC pricing is not exactly fair however. Some customers prefer to engage this way since it reflects revenue based solely on the usage of medications prescribed. It might sound odd, but this way we reduce (or near zero) other fees that we charge the customer. In general, we DONT recommend this model, but in some cases, it makes sense. I have to stay anon, since I don't speak officially for the company; all opinions are my own.

txmx2000 10y ago

> The Pharmaceutical Care Management Association, the industry’s lobbying group, claims that PBMs will save health plans $654 billion over the next decade. That's about $16 per person per month. Not a very compelling argument for keeping your drug monopolies: eliminating them costs little more than a Netflix subscription.

refurb 10y ago
Keep in mind that insurance companies make decisions based on a change in cost of only $0.05 per member. $16 per person is HUGE when you're talking about an insurer who covers 30M+ people.

AstralStorm 10y ago

Ah, the tried and true method of making a market non-free. Increase number of middlemen and make processes complicated so that no transparency remains.