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This econtalk episode[1] provides some interesting background on how this happens with medication. There are man-in-the-middle companies (Pharmacy Benefit Manag
by ajmurmann 8y ago
This econtalk episode[1] provides some interesting background on how this happens with medication. There are man-in-the-middle companies (Pharmacy Benefit Managers - PBM) that negotiate plans with pharma companies. These companies get paid a commission based on the delta between list price and the deal they got. The Pharma companies need these deals, so both benefit by the pharma company increasing list prices every year and then cutting better deals to those PBMs. If someone is offering a generic that's cheaper, there is less incentive for PBMs to add them to their plan, because the prices are too cheap to begin with and they have a smaller market share initially. It's all a giant Rube Goldberg machine of a mess.
EDIT: One more interesting detail from the podcast and the book it's based on: Those deals between PBMs and pharma companies are secret. Not even the insurance companies know the details of what's in there.
It's also fun to point out that typically this is everyone involved in a consumer getting their drug:
* the consumer
* the consumer's employer who selects the insurance
* the insurance
* a PBM who get a Pharma benefit plan for the insurance
* the Pharma company that manufactures the drug
* the pharmacy you actually buy the drugs.
On top of that the actual payment apparently happens often months after you received the drug.
Edit2: Clarifying "PBM"
[1]http://www.econtalk.org/robin-feldman-on-drugs-money-and-secret-handshakes/ http://www.econtalk.org/robin-feldman-on-drugs-money-and-sec...
- 3xblah 8y ago"Those deals between PBMs and pharma companies are secret." In some cases pharma co.'s created their own PBMs. There is a long and storied history of litigation on American drug pricing. If you want to understand the Rube Goldberg machine, I recommend searching the keywords "Average Wholesale Price" or "AWP". In terms of consumer protection, some states are better than others. Maine was a leader in this area. However it looks like the pharma industry has prevailed. https://www.policymed.com/2011/06/maine-set-to-repeal-unfair-prescription-drug-prices-act-and-end-pbm-discrimination.html https://www.policymed.com/2011/06/maine-set-to-repeal-unfair...
- BurningFrog 8y agoAnd what's the root cause of this absurd arrangement that doesn't exist in unregulated markets?
- thaumasiotes 8y agoAs I understand it, employer provision of health insurance originated as a way to sneak around legal maximum wages (during WWII?).
- EliRivers 8y agoSounds about right. Extending this, and considering employer-provided health insurance as effectivly a tax on your income, and suddenly the US is heavily taxed. I'm sure this analysis[0] has plenty of critique waiting to pounce, but it's something to consider. [0] https://www.peoplespolicyproject.org/2019/04/08/us-workers-are-highly-taxed-when-you-count-health-premiums/ https://www.peoplespolicyproject.org/2019/04/08/us-workers-a...
- colechristensen 8y agoMedicine and testing isn't available on an actual physical shelf and the prices aren't advertised. Send out a flier in the Sunday newspaper and the margins on medicine will reduce to as close to zero as possible just like food.
- gumby 8y agoFortunately there’s a natural experiment of precisely this: drug ads targeting consumers were illegal until 1985. The result has been an explosion in drug prices; the ads were used as a way to try to go around any pricing constraints. I worked for a time in pharma and believe me direct to consumer was seen as a boon to profit margins, not a constraint.
- BurningFrog 8y agoI see ads for drugs. But I never see ads for cheap drugs. So I think you're talking about different things.
- colechristensen 8y agoI'm talking about grocery store ads selling baby back ribs for 2.99/lb not "got milk?" ads by the milk board. Public transparent pricing that will drive consumers to pick and choose their health care providers would do great things for the ridiculous situation we are in.
- TheBeardKing 8y agoYeah but then there's drug rebates, cash discounts for medical services, and costs negotiated down after services. The whole thing is a clusterfuck and 10 patients likely pay 10 different prices for the same thing.
- dkarl 8y agoWhen my father was in the hospital and had a hard time eating, they told us we couldn't bring in anything and he could only eat food from inside the hospital. I asked his lead doctor if he had any special nutritional needs, and he said no, he just needed to eat anything he could get down. But when we asked if we could bring anything in, they said we had to talk to the nurses and see if it was allowed. I checked with a friend of mine who had privileges at the hospital. He got back to me and said the outside food ban was normal, but enforcing it wasn't. The hospital had a hospitality and vending machine contract that required them to train all the staff in being firm, explicit, and proactive about the no outside food policy. Of course the vending machine was full of junk food, and the contract was with the same company that controlled the pharmacy. These people need to be put out of business.
- 86carr 8y agoI love that podcast! I look forward to it every month.