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How does this square with the pharmaceutical manufacturers averaging a 26% profit margin, health insurers averaging 3%, and PBMs 2%? https://www.americanprogre

How does this square with the pharmaceutical manufacturers averaging a 26% profit margin, health insurers averaging 3%, and PBMs 2%? https://www.americanprogress.org/issues/healthcare/reports/2019/06/26/471464/high-price-hospital-care/ https://www.americanprogress.org/issues/healthcare/reports/2...

zaroth 6y ago
Two different things entirely. The fake “Discount off MSRP” demanded by the PBM has nothing to do with the profit margin of the PBM, that would be based on markup they charge to their customers above the price they actually pay. But the regular uninsured consumer sure gets screwed. I think this is why there are now self-pay “codes” you can give a pharmacy to get a significant discount off retail price. Sometimes less than your co-pay, but of course then it doesn’t count toward your deductible. I wish they would simply ban these pricing gimmicks as part of a price transparency law. There should be one price and one price only the manufacturer can charge in the USA per dose of an FDA approved medicine, with no ability to do price differentiation, period. No more negotiating, no more kickbacks. Insurance should have to show you the actual price they paid, and no other. And then you pay the patient responsibility of the bill based on your standard policy formula. The same pricing transparency should be applied to labs and procedures where it should be illegal for a given facility to charge two different patients two different prices for the same product or service.
- tsjq 6y ago
  i cannot agree more with this .
wefarrell 6y ago
PBMs make the bulk of their money via secretive rebates they receive from the drug manufacturers, which would not be included in that 2% figure. https://www.fiercehealthcare.com/payer/industry-voices-why-it-s-time-for-pbm-rebates-to-come-to-end https://www.fiercehealthcare.com/payer/industry-voices-why-i...
- lotsofpulp 6y ago
  All the biggest insurers in the US own their own PBM. The profit margins are shown in the 10-K filings. All the insurers have profit margins in the 3% to 5% range. Where is all this extra profit that the middlemen are making? Even if the PBM division is earning more profit than others, it's simply offsetting losses elsewhere.
  - wefarrell 6y ago
    That 2-3% is for the insurance layer, not the parent organization. Consider CVS Health which owns Aetna (an insurer), Caremark (a PBM) and CVS (a pharmacy). Aetna is required to spend 80% on premiums whereas Caremark and CVS face no such constraints on their profit margins. There's a reason why there's so much M&A in this space while consumers are simultaneously facing higher premiums.
    - lotsofpulp 6y ago
      The 3% to 5% profit margin is for the whole company. For all the hate health insurers get as profiteering parasites, their owners sure aren’t pocketing much. United health at 6% https://finance.yahoo.com/quote/UNH/key-statistics/ https://finance.yahoo.com/quote/UNH/key-statistics/ Similarly, Anthem at 4.22%, CVS at 3%, Cigna at 3.38%, Humana at 5.58%, Molina at 4.57%, Centene at 2.12%. The reason there’s so much M&A in this space is because there’s no margins, so it’s either go big and win in economies of scale, or go home and go out of business. And people face higher premiums because more people are getting more access to healthcare. There’s no lifetime benefit maximums or pre existing condition exclusions anymore. And the highest premiums are capped at 3x the lowest premiums.
      - wefarrell 6y ago
        UNH shareholders would disagree - I've made 10x on it. Net income is a poor metric here. It includes acquisition costs (and interest paid on debts for said acquisitions).

zaroth 6y ago

Two different things entirely. The fake “Discount off MSRP” demanded by the PBM has nothing to do with the profit margin of the PBM, that would be based on markup they charge to their customers above the price they actually pay. But the regular uninsured consumer sure gets screwed. I think this is why there are now self-pay “codes” you can give a pharmacy to get a significant discount off retail price. Sometimes less than your co-pay, but of course then it doesn’t count toward your deductible. I wish they would simply ban these pricing gimmicks as part of a price transparency law. There should be one price and one price only the manufacturer can charge in the USA per dose of an FDA approved medicine, with no ability to do price differentiation, period. No more negotiating, no more kickbacks. Insurance should have to show you the actual price they paid, and no other. And then you pay the patient responsibility of the bill based on your standard policy formula. The same pricing transparency should be applied to labs and procedures where it should be illegal for a given facility to charge two different patients two different prices for the same product or service.

tsjq 6y ago
i cannot agree more with this .

wefarrell 6y ago

PBMs make the bulk of their money via secretive rebates they receive from the drug manufacturers, which would not be included in that 2% figure. https://www.fiercehealthcare.com/payer/industry-voices-why-it-s-time-for-pbm-rebates-to-come-to-end https://www.fiercehealthcare.com/payer/industry-voices-why-i...

lotsofpulp 6y ago
All the biggest insurers in the US own their own PBM. The profit margins are shown in the 10-K filings. All the insurers have profit margins in the 3% to 5% range. Where is all this extra profit that the middlemen are making? Even if the PBM division is earning more profit than others, it's simply offsetting losses elsewhere.
- wefarrell 6y ago
  That 2-3% is for the insurance layer, not the parent organization. Consider CVS Health which owns Aetna (an insurer), Caremark (a PBM) and CVS (a pharmacy). Aetna is required to spend 80% on premiums whereas Caremark and CVS face no such constraints on their profit margins. There's a reason why there's so much M&A in this space while consumers are simultaneously facing higher premiums.
  - lotsofpulp 6y ago
    The 3% to 5% profit margin is for the whole company. For all the hate health insurers get as profiteering parasites, their owners sure aren’t pocketing much. United health at 6% https://finance.yahoo.com/quote/UNH/key-statistics/ https://finance.yahoo.com/quote/UNH/key-statistics/ Similarly, Anthem at 4.22%, CVS at 3%, Cigna at 3.38%, Humana at 5.58%, Molina at 4.57%, Centene at 2.12%. The reason there’s so much M&A in this space is because there’s no margins, so it’s either go big and win in economies of scale, or go home and go out of business. And people face higher premiums because more people are getting more access to healthcare. There’s no lifetime benefit maximums or pre existing condition exclusions anymore. And the highest premiums are capped at 3x the lowest premiums.
    - wefarrell 6y ago
      UNH shareholders would disagree - I've made 10x on it. Net income is a poor metric here. It includes acquisition costs (and interest paid on debts for said acquisitions).