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I worked for a PBM back in the 90s. The company, and the whole industry, was/is shady AF. I remember once when I was volun-told to work for new program that ha

I worked for a PBM back in the 90s. The company, and the whole industry, was/is shady AF. I remember once when I was volun-told to work for new program that handled "rebates". They needed a nerd to support the servers/databases. There was a presentation explaining the program and how it worked. At the conclusion, I asked, "So, this is a kick-back?", and the room went silent. "No, it's not a kick-back. It's a rebate." Hmmm. "Well, it sounds like a kick-back. What's the difference?" We went back-and-forth for a minute or two. Then, finally, some suit spoke up and said "Kick-backs are illegal. Rebates are not." And that was that. So, I applaud Mark Cuban for his efforts here. I hope this succeeds.

refurb 5y ago
If I got my grocery store and they say “buy 5 bottles of shampoo and mail your receipt for a $5 rebate” am I getting a “kick back”? PBM rebates are not illegal. They aren’t transparent to patients (which is a problem) but they aren’t illegal.
- Dylan16807 5y ago
  If the end customer gets the money then it's not a kickback. If a middleman gets the money it's probably a kickback.
  - refurb 5y ago
    That’s not how kickbacks work. A doctor could easily tell a patient “if you go to this hospital for surgery, I’ll give you $100” That’s still a kickback.
    - Dylan16807 5y ago
      Is the doctor doing that for fun? If the doctor is getting any of the money, then that part is the kickback. If the doctor really gets nothing extra, and the hospital gets nothing extra, then that's not a kickback, it's just weird.
      - refurb 5y ago
        Huh? If a company gives you a $5 rebate for buying 5 bottles of shampoo, then it gets extra sales. So if a $5 grocery rebate a kick-back?
        Dylan16807 5y ago
        Increased sales, when paid by the same entity that gets the rebate, are not a kickback. If a doctor took money to steer you to a specific hospital, that would be a kickback. If a hospital gives you a rebate and you're paying, that's not a kickback. But if a hospital gives you a rebate and your insurance is paying based on the non-rebated price, that's probably a kickback.
        refurb 5y ago
        Precisely. PBM rebates are based on sales as well. Drug company gets more sales by making their drug “preferred” and PBM gets a rebate. It’s not a kickback.
        Dylan16807 5y ago
        Precisely what? If the PBM gets money then that's not the customer. Being paid for marking something as preferred is a kickback. If the PBM buys something themselves and gets money back, that wouldn't be a kickback. Just like a customer buying something and getting money back. But when you have a buyer on one side, and a separate entity getting the money back, that's probably a kickback.
- mattnewton 5y ago
  I think this metaphor is missing a step - it would be like if you somehow bought "shampoo insurance," and under this policy the insurance company paid for your shampoo needs in exchange for a fixed monthly fee. And since people are buying under their shampoo insurance policies, then one shampoo company starts paying people directly to effectively direct the insurance companies dollars towards their brand. Isn't that a bit more like what is happening? You are being paid to influence the direction of your own policy. I don't think this is as much as a problem with normal kickbacks since the party being directly "harmed" here is an insurance company not getting as good a deal as they could and their whole job is to set prices for policies to account for that. Of course, this could lead to a bigger problem, because insurance companies could account for programs like this in rates, and now you have an arms race where your policy only makes cost sense if you are getting these incentive payments.
  - gruez 5y ago
    >Of course, this could lead to a bigger problem, because insurance companies could account for programs like this in rates, and now you have an arms race where your policy only makes cost sense if you are getting these incentive payments. Aren't the two in equilibrium though? The price of the kickback is priced into the MSRP of the drug, and the kickback you get is priced into the cost of the policy. If the kickback disappears, both would cancel out.
    - mattnewton 5y ago
      They are in equilibrium for people buying the product with the kickback. Other brands now are artificially more "expensive" and have to issue kickbacks to remain attractive, or the people who aren't participating just have worse rates because they might accept kickbacks in the future even if they aren't using drugs that offer them today. My understanding is that your policy funds are effectively "mixed" with other people covered by your insurance company. So, I think it could very easily be a net transfer of money from people who aren't using that drug category but have insurance policies used by people who do use that drug, to the drug company at the end of the day.
PragmaticPulp 5y ago
I deplore the medication rebate racket as much as anyone, but it's not a kick-back. A kick-back would go to the doctor or pharmacist for pushing the customer toward a medication. The problem in this scenario is the monetary incentive to mislead the customer. With medication rebates, the customer is getting the drug one way or another. The rebate just discounts the effective price and sends the discount to the customer. The only party not aligned is the insurance companies (who, IMO, probably hate this system more than anyone)
- derefr 5y ago
  > A kick-back would go to the doctor or pharmacist for pushing the customer toward a medication. Why is it not a kick-back if the customer’s insurance company is the one being paid to push the customer toward a medication, via differential coverage/co-pays/etc?
  - gruez 5y ago
    AFAIK the illegal part of the kickback is when you're abusing your position to enrich yourself (the agent), when you have a duty to act in the best interests of the principal. You buying a widget, and then the manufacturer sending you a rebate (aka. a "kickback") isn't illegal because there's no conflict of interest. However, if you're in charge of buying widgets for a company, and the manufacturer is paying the rebate directly to you instead of the company[1], then it is illegal. In the case of the drugs, it's fine because the person ultimately paying for the drugs is the insurance company, which also happens to be the entity receiving the "kickback". [1] https://www.justice.gov/usao-ndca/pr/former-netflix-executive-sentenced-30-months-bribes-and-kickbacks-netflix-vendors https://www.justice.gov/usao-ndca/pr/former-netflix-executiv...
lotsofpulp 5y ago
PBMs are just departments in managed care organizations (MCOs), aka health insurance companies nowadays. MCO profit margins are 5% or less, so if you buy coverage from an MCO, it makes no difference to you what the PBM division does. Any money made by PBM divisions just goes to offset expenses in the insurance division. If the PBM makes less money, then insurance premiums have to go up. The chain of money goes from managed care/insurance buyer (individual/employer/government) to MCO to healthcare provider, whether it be a pharmacy, a drug manufacturer, a hospital, or a doctor. The fact that the middle has a tiny profit margin means there is not much juice to squeeze there.

refurb 5y ago

If I got my grocery store and they say “buy 5 bottles of shampoo and mail your receipt for a $5 rebate” am I getting a “kick back”? PBM rebates are not illegal. They aren’t transparent to patients (which is a problem) but they aren’t illegal.

Dylan16807 5y ago
If the end customer gets the money then it's not a kickback. If a middleman gets the money it's probably a kickback.
- refurb 5y ago
  That’s not how kickbacks work. A doctor could easily tell a patient “if you go to this hospital for surgery, I’ll give you $100” That’s still a kickback.
  - Dylan16807 5y ago
    Is the doctor doing that for fun? If the doctor is getting any of the money, then that part is the kickback. If the doctor really gets nothing extra, and the hospital gets nothing extra, then that's not a kickback, it's just weird.
    - refurb 5y ago
      Huh? If a company gives you a $5 rebate for buying 5 bottles of shampoo, then it gets extra sales. So if a $5 grocery rebate a kick-back?
      - Dylan16807 5y ago
        Increased sales, when paid by the same entity that gets the rebate, are not a kickback. If a doctor took money to steer you to a specific hospital, that would be a kickback. If a hospital gives you a rebate and you're paying, that's not a kickback. But if a hospital gives you a rebate and your insurance is paying based on the non-rebated price, that's probably a kickback.
        refurb 5y ago
        Precisely. PBM rebates are based on sales as well. Drug company gets more sales by making their drug “preferred” and PBM gets a rebate. It’s not a kickback.
        Dylan16807 5y ago
        Precisely what? If the PBM gets money then that's not the customer. Being paid for marking something as preferred is a kickback. If the PBM buys something themselves and gets money back, that wouldn't be a kickback. Just like a customer buying something and getting money back. But when you have a buyer on one side, and a separate entity getting the money back, that's probably a kickback.
mattnewton 5y ago
I think this metaphor is missing a step - it would be like if you somehow bought "shampoo insurance," and under this policy the insurance company paid for your shampoo needs in exchange for a fixed monthly fee. And since people are buying under their shampoo insurance policies, then one shampoo company starts paying people directly to effectively direct the insurance companies dollars towards their brand. Isn't that a bit more like what is happening? You are being paid to influence the direction of your own policy. I don't think this is as much as a problem with normal kickbacks since the party being directly "harmed" here is an insurance company not getting as good a deal as they could and their whole job is to set prices for policies to account for that. Of course, this could lead to a bigger problem, because insurance companies could account for programs like this in rates, and now you have an arms race where your policy only makes cost sense if you are getting these incentive payments.
- gruez 5y ago
  >Of course, this could lead to a bigger problem, because insurance companies could account for programs like this in rates, and now you have an arms race where your policy only makes cost sense if you are getting these incentive payments. Aren't the two in equilibrium though? The price of the kickback is priced into the MSRP of the drug, and the kickback you get is priced into the cost of the policy. If the kickback disappears, both would cancel out.
  - mattnewton 5y ago
    They are in equilibrium for people buying the product with the kickback. Other brands now are artificially more "expensive" and have to issue kickbacks to remain attractive, or the people who aren't participating just have worse rates because they might accept kickbacks in the future even if they aren't using drugs that offer them today. My understanding is that your policy funds are effectively "mixed" with other people covered by your insurance company. So, I think it could very easily be a net transfer of money from people who aren't using that drug category but have insurance policies used by people who do use that drug, to the drug company at the end of the day.

PragmaticPulp 5y ago

I deplore the medication rebate racket as much as anyone, but it's not a kick-back. A kick-back would go to the doctor or pharmacist for pushing the customer toward a medication. The problem in this scenario is the monetary incentive to mislead the customer. With medication rebates, the customer is getting the drug one way or another. The rebate just discounts the effective price and sends the discount to the customer. The only party not aligned is the insurance companies (who, IMO, probably hate this system more than anyone)

derefr 5y ago
> A kick-back would go to the doctor or pharmacist for pushing the customer toward a medication. Why is it not a kick-back if the customer’s insurance company is the one being paid to push the customer toward a medication, via differential coverage/co-pays/etc?
- gruez 5y ago
  AFAIK the illegal part of the kickback is when you're abusing your position to enrich yourself (the agent), when you have a duty to act in the best interests of the principal. You buying a widget, and then the manufacturer sending you a rebate (aka. a "kickback") isn't illegal because there's no conflict of interest. However, if you're in charge of buying widgets for a company, and the manufacturer is paying the rebate directly to you instead of the company[1], then it is illegal. In the case of the drugs, it's fine because the person ultimately paying for the drugs is the insurance company, which also happens to be the entity receiving the "kickback". [1] https://www.justice.gov/usao-ndca/pr/former-netflix-executive-sentenced-30-months-bribes-and-kickbacks-netflix-vendors https://www.justice.gov/usao-ndca/pr/former-netflix-executiv...

lotsofpulp 5y ago

PBMs are just departments in managed care organizations (MCOs), aka health insurance companies nowadays. MCO profit margins are 5% or less, so if you buy coverage from an MCO, it makes no difference to you what the PBM division does. Any money made by PBM divisions just goes to offset expenses in the insurance division. If the PBM makes less money, then insurance premiums have to go up. The chain of money goes from managed care/insurance buyer (individual/employer/government) to MCO to healthcare provider, whether it be a pharmacy, a drug manufacturer, a hospital, or a doctor. The fact that the middle has a tiny profit margin means there is not much juice to squeeze there.