11 ms·

The Mafia of Pharma Pricing

299 points by foolswisdom 2y ago

WarOnPrivacy 2y ago
[flagged]
- deleted 2y ago
  [deleted]
drewda 2y ago
While I have mixed feelings about The New York Times's coverage of certain topics these days, this is one topic where their reporting has (positively) shaped events. They had a big investigative piece earlier in the summer about pharmacy benefit managers: https://www.nytimes.com/2024/06/21/business/prescription-drug-costs-pbm.html https://www.nytimes.com/2024/06/21/business/prescription-dru... And that likely led to the recent FTC announcements.
- conductr 2y ago
  On this timeline, it seems to me much more likely they caught wind of the FTC’s attention being put on this topic.
- WilTimSon 2y ago
  NYT is still good at coverage, I'd just argue that the optics of their coverage can be removed from their original, erm, style, at times. (I don't want to say "politics" but we all know I mean politics.) Still, they do excellent work to this day, just with questionable detours.
its_ethan 2y ago
Setting aside what happens for the uninsured (which is important, I'm just trying to simplify for my own understanding), isn't this mostly the levying of costs of very expensive drugs onto the insurance providers, rather than the patient? Meaning the "victim" of the price gouging is the insurance company? If you have insurance with a yearly out of pocket max of say $8,000 and the drug you're taking has a very veiled and seemingly dubious cost of $80,000 - does that effect the patient? I assume it does somewhat directly in the form of higher monthly payments (for the patient and other customers of the insurance)? Can the insurance company deny access due to the high cost? If this is somewhat the case, I would sort of expect insurance companies to be lobbying for the system to be changed, and they seem to have the capital to actually make a difference in that "fight"? Maybe I'm misunderstanding something though.. it was an interesting article but it really just gave me even more insight into how confusing the US healthcare system is, even beyond what patients actually interact with.
- dahinds 2y ago
  The PBMs have mostly been captured by the insurance companies, so they're charging themselves and pocketing the profits themselves. Insurance companies just pass on the costs by charging higher premiums.
- FireBeyond 2y ago
  > isn't this mostly the levying of costs of very expensive drugs onto the insurance providers, rather than the patient? Meaning the "victim" of the price gouging is the insurance company? I feel there's the obligatory remark here of "and how exactly is the insurance company paying for it?". > I assume it does somewhat directly in the form of higher monthly payments (for the patient and other customers of the insurance)? Absolutely directly. > Can the insurance company deny access due to the high cost? They have little motivation to do so. They just up the premiums. They're limited by law on administrative overhead costs, and are mandated to return unspent premiums (or roll them over), so the only way to make more money is "increase premiums, so we're allowed higher administrative overheads". This was a hallmark of Martin Shkreli. He liked to paint a picture of "I'll ensure you're only paying a low copay while the insurance companies take the hit for this drug I'm charging exorbitant pricing[1] for", as if customers thought that insurance had a magical money fairy, rather than that money was coming from them (albeit usually indirectly through their employer). Sadly, he was often right - a non-negligible amount of people saw him as an everyday hero, sticking it to the man. [1] Yes, pharma has R&D costs. Shkreli's company didn't do much R&D though, mostly patent acquisition[2]. [2] "Fun" story about that. New drug comes before the FDA for approval, and it is opened up for comment. Shkreli lodges an objection to approval of this drug. Why? Because it's unsafe? No - trials thus far have shown it to be safer than the existing drug options. Why? Because it's less effective? No - it's also been shown to be more effective than existing drugs. Perhaps it's more expensive? No - cost of R&D and production, and estimated retail costs are expected to be lower than existing drugs. Huh, odd. So why in this case would Shkreli oppose this drug getting to the market? The only reason he lodged an appeal with the FDA had nothing to do with the drug, butbecause he and his company had just bought the patent to one of those 'existing drugs' referenced, and this new drug coming to market would crater the demand for his drug, and as a result torpedo the profitability of his investment/gamble. Fuck Martin Shkreli.
- 2y ago
BenFranklin100 2y ago
I work in biotech. It’s a long, difficult, and expensive process to develop a new therapeutic. It is immensely discouraging to see middlemen riding on the back of biomedical innovation and enriching themselves at the expense of the scientist toiling in the lab all the way to the patient in the hospital.
- FireBeyond 2y ago
  The prevailing attitude is “it’s already $15,000 a month, no-one’s going to rock the boat if we bump it to $18,000 and pocket the difference.”
daft_pink 2y ago
I don’t really understand why this is possible or if the information in this article is fully true. It doesn’t make sense why we can’t just go around the pbms.
- ProjectArcturis 2y ago
  No one else has the scale to even begin negotiating with the Pfizers of the world. Try to buy something from them directly, and the price would be "Fuck you".
  - elhudy 2y ago
    GPOs are reasonably large and capable
  - daft_pink 2y ago
    i thought the point of this article was that generic drug prices aren't going down.
- CPLX 2y ago
  Go around how? The point is it’s a consolidated monopoly. The same people own every step in the chain. They use this particular step to extract monopoly profits.
- BobaFloutist 2y ago
  Cost plus pharmacies do still exist. The problem is, some drugs really are just way more expensive, so if you already have "free" (or heavily discounted) insurance from your workplace, it's a bit of a waste not to use it, especially since expensive drugs do also contribute to your deductible. Also, wholesalers also negotiate with PBMs, so the cost plus pharmacies might not be able to get the drugs at the same rate PBM-friendly pharmacies do.
ProjectArcturis 2y ago
Several years ago, I worked as a data scientist for Express Scripts, before it was acquired by Cigna. I can't much speak to the macroeconomics of PBMs, but I can say that they were the worst technical organization I ever worked for. They were built out of mergers on top of mergers on top of acquisitions, so their IT systems were what you get when you duct tape a dozen legacy systems together. I worked in the "Innovation Lab", which had been designed to look like an ad agency's idea of Innovation -- brushed metal, Edison lightbulbs, that kind of thing. They'd bring clients through on tours to show off how much Innovation was going on. Meanwhile, I didn't really have that much to do, and no one seemed very concerned about that. Soon I realized I was also part of the decoration - a genuine Data Scientist, hard at work Innovating. Our group produced approximately nothing. Our boss's boss was evaluated mostly based on how much he was able to sell people's medical data for.
- albroland 2y ago
  Not sure if you'll take it as reassuring, or alarming, but having worked with a few PBMs on the insurer side ES was the most tech-competent. Worst probably being CVS Caremark.
  - rancar2 2y ago
    My experience with ES in the 2010s is that they ran a very barebones staff so the people keeping the lights on were quite good and some of the best among my Fortune 500 clients. I had the pleasure of training their staff on my stack expertise as they did not want me to just do the work, they wanted to make sure they were experts at the end as well so they could support and evolve the stack overtime.
- lifestyleguru 2y ago
  Last time I made blood test it really pissed me off why their forms require national ID and phone number. The nurse in turn was pissed at me why I'm reluctant to write down phone number.
  - sofixa 2y ago
refurb 2y ago
Like most mainstream media reports it misses a lot. I worked in the industry and The NY Times article misses key points. There is no “price” for a drug, there are several prices - list, net, Medicaid, AMP, ASP. So yes, while the list price for Gleevec has gone up, the actual price paid is very different. It’s the same for insulin - the price that manufacturers have received has gone down 41% from 2014-2020, while the list price has gone up 140%. https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4Um7zkp7Yy3Qqxi5uNJEBDLvL-lgjhcwku_H9ZDNclk_XahF-o6XmKQGb10NVyjsXKGFIHtiUBLDaSEmR53OrSQhvxab_e2zNngDosrTUW1odEuyEN98ZsfD1OPNTm1abxl-Oiw/s1600/Sanofi-insulin.PNG https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh... If people want to really understand how it all works, I recommend the Drug Channel blog by Adam Fein. He does a great job of digging into details, pulling data and showing what prices are actually doing. https://www.drugchannels.net/?m=1 https://www.drugchannels.net/?m=1
- elevatedastalt 2y ago
  > So yes, while the list price for Gleevec has gone up, the actual price paid is very different. You say it like it's a good thing. It's part of the problem. The fact that there is no clear no-nonsense to get a drug at a reasonable price without jumping through a bunch of hoops which aren't even clearly documented is not a good thing. We are talking of life-saving drugs here, not hacking frequent flier miles or credit card rewards.
  - refurb 2y ago
    There is a good system - that works for insured patients. It’s the uninsured that get hosed NY Times talks about list prices but that price isn’t even used by insurance companies.
    - sofixa 2y ago
      > There is a good system - that works for insured patients Does it? I've read plenty of horror stories of people getting denied treatment by insurance, or paying tons of money for insurance barely covering anything. And more broadly, how much money is wasted on multiple layers of beyond useless middlemen? How much money do hospitals spend on admin and billing departments dealing with this bullshit? Strong "No Way to Prevent This, Says Only Nation Where This Regularly Happens" vibes.
khana 2y ago
[dead]
jimt1234 2y ago
I worked at a PBM back in the late-90s/early-2000s. It was where I was introduced to the value of customer data and the strange world of lawyers, all in a single corporate meeting: - The company is launching a new service. We already sell customer drug-prescription data to drug companies, and the drug companies analyze this data to understand where/when/why/to-whom their drugs are being prescribed. Now we're going to help the drug companies advise doctors on where/when/why/to-whom they prescribe drugs. - Sounds great. Where do we come in? - The new service will act as a middleman, processing payments from drug companies to doctors. - So, a service to manage kickbacks? [Meeting room full of suits goes silent.] - The payments aren't "kickbacks". They're "rebates". - Is there a difference? - Absolutely. [silence] - So...what's the difference? - Please be sure to only use the term "rebate" in all communications, especially email. Never use the term "kickback". And that was pretty much it. The company processed prescriptions for pharmacies, then sold that data to drug companies, who in turn used that data to provide kickbacks to doctors for pushing their drugs over a competitor. And it was all legal, thanks to the lawyers and their select word usage. Oh, and I think we weren't supposed to use the term "middleman", either.
- Aurornis 2y ago
  You can actually look up payments from certain companies to doctors now: https://openpaymentsdata.cms.gov/ https://openpaymentsdata.cms.gov/ I’ve checked several doctors that I’ve visited over the years. None of them show up, with one exception: The doctor who immediately set off my scam alarms when she tried really, really hard to get me diagnosed with sleep apnea, despite not one but two very clearly negative sleep studies. I could never understand why she was pushing so hard, until I looked her up in this system. She takes an incredible amount of money from drug companies and device manufacturers. I don’t know if a scheme like you described would even be allowed today. If it is, the bigger medical systems are actually quite strict with doctors taking anything resembling a payment like this, from what my friends in the industry tell me.
  - lifestyleguru 2y ago
    Doctors remunerated or having an incentive to diagnose specific disease (diabetes, covid, boreliosis, etc) really terrify me. Developed world needs a ruthless transparency in this.
ggm 2y ago
And people say that public ownership is "less efficient" than private industry, and less efficient than regulated private industry. Well.. I don't buy it. Access to drugs and efficient pricing and rationing (because that is what it is) is not working well. It's a massively distorted market. The public good here would be better served by another model. Even the "we need these prices to recover our massive sunk costs" part of the argument is bogus. Much good drug design and research is done on the tertiary education and research budget worldwide. There is absolutely no single-process need to do drug IPR based models, the profit motive is not the only model. I look to the modern mRNA drug emergence to lead to radical shake up in the cost of production of novel treatments. We're seeing some signs of this, along with other changes in drug models: injectable hypertension treatment is in test. Imagine the impact on the cost basis of a pill-per-day model!
- refurb 2y ago
  I think the point you’re missing is that many parts of pricing are government regulations. And the way that the myriad of regulations drive some of this behavior. A great example is the 340B program. A government regulation requiring manufacturers to offer steep discounts to hospitals. It’s created all sorts of distortions including the purchasing of pharmacies by hospitals so they can access the discount but charge the full price for the insured. The US healthcare system is terrible in big part because of regulations.
  - kevingadd 2y ago
    Is there a successful healthcare system you'd point to that was achieved via deregulation?
    - shiroiushi 2y ago
      I'm not sure OP was implying any claim that removing regulation would lead to a great healthcare system, just that the US regulations are bad and causing many of the system's problems. In better-run nations, the healthcare systems are highly regulated, but the regulation is actually (mostly) intelligent and implemented to have a positive effect. For some reason, when the US tries to do regulation, it somehow manages to do a uniquely bad job at it, causing a negative effect.
jmyeet 2y ago
You cannot talk about the problems with pharma pricing without talking about enclosures [1]. Consider: 1. Health care providers are largely banned from importing drugs [2]; 2. Medicare is largely banned from negotiating drug prices [3] 3. The VA was allowed under Obama to negotiate drug prices, something which was promised but never delivered for Medicare. The GAO shows this has reduced costs [4]; 4. Pharma companies will tell you R&D is expensive. It is but it's the government paying for it. Basically all new novel drugs relied on public research funds [5]; 5. Pharma companies generally spend more on marketing than R&D [6]; 6. What R&D pharma companies actually do is typically patent extension [7]. The true "innovation" of capitalism is simply building layers and layers of enclosures. [1]: https://en.wikipedia.org/wiki/Enclosure https://en.wikipedia.org/wiki/Enclosure [2]: https://journalofethics.ama-assn.org/article/what-should-prescribers-and-policy-makers-know-about-us-drug-importation/2024-04 https://journalofethics.ama-assn.org/article/what-should-pre... [3]: https://www.healthaffairs.org/content/forefront/politics-medicare-and-drug-price-negotiation-updated https://www.healthaffairs.org/content/forefront/politics-med... [4]: https://www.gao.gov/products/gao-21-111 https://www.gao.gov/products/gao-21-111 [5]: https://www.cbc.ca/news/health/drugs-government-funded-science-1.4547640 https://www.cbc.ca/news/health/drugs-government-funded-scien... [6]: https://marylandmatters.org/2024/01/19/report-finds-some-drug-manufacturers-spend-more-on-advertising-executives-salaries-than-new-research/ https://marylandmatters.org/2024/01/19/report-finds-some-dru... [7]: https://prospect.org/health/2023-06-06-how-big-pharma-rigged-patent-system/ https://prospect.org/health/2023-06-06-how-big-pharma-rigged...
- max_ 2y ago
  What you have described here is the phenomenon that Stigler describes as "Regulatory Capture". [0] Regulatory capture is the use of state resources (mostly regulation). To tilt the ground of business in thier favour at the expense of the public and other competitors. People beg for "regulation" from the government but the problem is that the politicians are often puppets of the very corporations they are meant to regulate. That's how we end up with regulatory capture scams. Is that "capitalism"? I don't think so. Does it contain traces of capitalism? Yes. But I think what Americans have is more of corny-capitalism, state-capitalism & regulatory capture. It is very different from Hayekian capitalism which is actually anti-crony capitalism & anti regulatory capture. [0]: https://en.m.wikipedia.org/wiki/Regulatory_capture https://en.m.wikipedia.org/wiki/Regulatory_capture
thadk 2y ago
Reading this 4% Pharma conglomerate flow figure, I'm indirectly struck that increasing all-cause cancer likely raises GDP, particularly this segment of GDP. My main consolation in this moment is that lead exposure probably doesn't.
- Terr_ 2y ago
  See also: Bastiat's "broken window" fallacy. https://www.investopedia.com/ask/answers/08/broken-window-fallacy.asp https://www.investopedia.com/ask/answers/08/broken-window-fa...
Terr_ 2y ago
General philosophizing: Is it possible there's an important economic difference between public price discrimination versus secret price discrimination? I mean there's a spectrum between "acceptable" price discrimination and "abusive". Nobody bats an eye at lower rates for bulk purchases or movie theaters offerering half price for kids. It may not be a panacea, but sunlight is still a pretty good [civic] disinfectant.
- thaumasiotes 2y ago
  Here's a pretty simple, accurate description of price discrimination: - The purpose of price discrimination is to reduce the share of gains-from-trade received by consumers to zero. The concept is that you should never feel that you're getting more value out of a purchase than you would otherwise have gotten from the money you spent on that purchase. It's true that, as the article mentions, this means that impoverished people might buy things that, absent the price discrimination, they wouldn't have bought at all. But this "benefit" can't be worth much, because -- even though they paid a small price for whatever it was -- we know that they valued it only slightly more than that. Given this, it's not really clear why price discrimination is supposed to be beneficial. > I mean there's a spectrum between "acceptable" price discrimination and "abusive". Nobody bats an eye at lower rates for bulk purchases or movie theaters offerering half price for kids. Lower rates for bulk purchases is not an example of price discrimination. Half price for children's movie tickets might or might not be - if your theory of the discount is that people will pay more to go on a date than they will to entertain their children, that would be a valid example of price discrimination. If your theory is that children have less money than adults, that doesn't really work - kids young enough to get cheaper movie tickets don't pay for their own tickets.
  - Terr_ 2y ago
    > The purpose of price discrimination is to reduce the share of gains-from-trade received by consumers to zero. Even from a cynical perspective, that is incomplete, since it doesn't capture another purpose--which you mentioned in passing--of "better a little profit than no profit", where a lower price is offered to permit trades that would otherwise not occur. > Given this, it's not really clear why price discrimination is supposed to be beneficial. Leaving aside whether a net-effect or national policy is good or bad, surely you can imagine some individual cases where "price discrimination" is used for good, right? Suppose the local baker wants to offer extra bread to the poor for a symbolic pittance, without impacting the price he usually sells it at to regular customers. It is both a charitable act and also pricing-discrimination: "The really poor" are identified, and a separate price of $0.25/loaf is offered. > Lower rates for bulk purchases is not an example of price discrimination. Huh? Bulk-rates are literally a textbook example of price discrimination, albeit usually with the qualifier of "second-degree." [0] If you still think it shouldn't count, then what's the rationale that sets it apart? It can't be based on "the conditions were publicized in advance", because if that's how it works then "rich people pay more" would magically cease being price discrimination just because I put it on a sign. Another possibility is "because it represents actual cost differences to the vendor", but I don't see that as very compelling, since (A) sometimes those don't meaningfully exist like with "digital goods" and copyright licenses and (B) that would excuse certain kinds of price-discrimination as long as the vendor can argue a smidgen of logistical difference in the deals. [0] https://www.oxfordreference.com/display/10.1093/oi/authority.20110803100451371 https://www.oxfordreference.com/display/10.1093/oi/authority...
coretx 2y ago
"Intellectual property", specifically patents are the elephant in the room. Even if the mafia would want to have a healthy market, there won't be one because you can't when there is monopolies in place. Societies can research, speculate, mitigate and regulate until the end of times for as long as the underlying fundamentals of the problems are never addressed.
edg5000 2y ago
"If you went to Costco, he went on to say, the cost was $97, so the plan didn’t recommend patients go there. If a patient went to Walgreens, which the plan did recommend, it was $9000. And if a patient chose home delivery via the PBMs own mail order pharmacy, it was $19,200." They must be joking right?
- FireBeyond 2y ago
  Nope. Even at its most mundane you are “encouraged” to use the insurers mail order pharmacy or affiliate… for the few routine drugs I take I cannot get a 90 day refill authorized at a retail pharmacy, only 30 day supplies. If I want a 90 day refill schedule I have to go through their mail order.
JumpCrisscross 2y ago
“PBMs consolidated both horizontally and vertically, so each big PBM is now owned by a major healthcare conglomerate. … In 1987, Congress passed an exemption to a Medicare Anti-Kickback statute, which created a safe harbor for group buying entities to accept payment from drug manufacturers in the form of rebates, with certain guardrails in place. … PBMs get large secret rebates in return for allocating market shares…it’s virtually impossible to get any clear pricing on most drugs, because there is no one price.” For a change the solutions seem simple: 1. Prohibit integration between doctors and insurers, on one hand, and pharmacies and pharmacy-benefit managers, on the other hand; 2. Repeal §§ d and f from the kickback exemptions [1]; and 3. Require public filing of insurers’, PBMs’ and pharmacies’ price lists. (Not disclosure: the binding price list is the public one.) [1] https://www.law.cornell.edu/cfr/text/42/1001.952 https://www.law.cornell.edu/cfr/text/42/1001.952
- aidenn0 2y ago
  We have spent most of the last 50 years under an antitrust enforcement regime that considers vertical integration to be harmless, so #1 might be simple, but it's definitely not easy.
ThinkBeat 2y ago
This is a great article, weel researched. Filled with information as many links to sources. I'd like to extend a big thank you to the author for writing this. When it comes to remedies One solution is for our legislature to create laws that specific species some of those practices as illegal. It would probaby be hard to get it passed due to all the corruption in our legislative and executive branches.
waffletower 2y ago
Wouldn't the equivalent of pharmacy benefit managers in China, should they be caught devising such extreme pricing shenanigans, be executed?
1vuio0pswjnm7 2y ago
"Most people think of high pharmaceutical prices, and blame the companies you'd expect in Big Pharma. These firms, with storied names like Merck, Pfizer, Novartis, Genentech, etc, are powerful, and they are in the business of developing and selling drugs. But this other group, corporations you haven't heard of, composed entirely of middlemen, price and handle payment for pharmaceuticals between doctors, pharmacies, and patients, are perhaps equally important, if not more so. And unlike pharmaceutical companies, who actually employ doctors and scientists, PBMs don't do anything difficult. They keep lists." Big Pharma has been permitted to own PBMs. https://www.ftc.gov/news-events/news/press-releases/1998/08/merck-settles-ftc-charges-its-acquisition-medco-could-cause-higher-prices-reduced-quality https://www.ftc.gov/news-events/news/press-releases/1998/08/...
- 1vuio0pswjnm7 2y ago
  Recommended reading: https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefi...
xgfh 2y ago
[flagged]
whlh 2y ago
[flagged]

299 points by foolswisdom 2y ago

WarOnPrivacy 2y ago

[flagged]

deleted 2y ago
[deleted]

drewda 2y ago

While I have mixed feelings about The New York Times's coverage of certain topics these days, this is one topic where their reporting has (positively) shaped events. They had a big investigative piece earlier in the summer about pharmacy benefit managers: https://www.nytimes.com/2024/06/21/business/prescription-drug-costs-pbm.html https://www.nytimes.com/2024/06/21/business/prescription-dru... And that likely led to the recent FTC announcements.

conductr 2y ago
On this timeline, it seems to me much more likely they caught wind of the FTC’s attention being put on this topic.
WilTimSon 2y ago
NYT is still good at coverage, I'd just argue that the optics of their coverage can be removed from their original, erm, style, at times. (I don't want to say "politics" but we all know I mean politics.) Still, they do excellent work to this day, just with questionable detours.

its_ethan 2y ago

Setting aside what happens for the uninsured (which is important, I'm just trying to simplify for my own understanding), isn't this mostly the levying of costs of very expensive drugs onto the insurance providers, rather than the patient? Meaning the "victim" of the price gouging is the insurance company? If you have insurance with a yearly out of pocket max of say $8,000 and the drug you're taking has a very veiled and seemingly dubious cost of $80,000 - does that effect the patient? I assume it does somewhat directly in the form of higher monthly payments (for the patient and other customers of the insurance)? Can the insurance company deny access due to the high cost? If this is somewhat the case, I would sort of expect insurance companies to be lobbying for the system to be changed, and they seem to have the capital to actually make a difference in that "fight"? Maybe I'm misunderstanding something though.. it was an interesting article but it really just gave me even more insight into how confusing the US healthcare system is, even beyond what patients actually interact with.

dahinds 2y ago
The PBMs have mostly been captured by the insurance companies, so they're charging themselves and pocketing the profits themselves. Insurance companies just pass on the costs by charging higher premiums.
FireBeyond 2y ago
> isn't this mostly the levying of costs of very expensive drugs onto the insurance providers, rather than the patient? Meaning the "victim" of the price gouging is the insurance company? I feel there's the obligatory remark here of "and how exactly is the insurance company paying for it?". > I assume it does somewhat directly in the form of higher monthly payments (for the patient and other customers of the insurance)? Absolutely directly. > Can the insurance company deny access due to the high cost? They have little motivation to do so. They just up the premiums. They're limited by law on administrative overhead costs, and are mandated to return unspent premiums (or roll them over), so the only way to make more money is "increase premiums, so we're allowed higher administrative overheads". This was a hallmark of Martin Shkreli. He liked to paint a picture of "I'll ensure you're only paying a low copay while the insurance companies take the hit for this drug I'm charging exorbitant pricing[1] for", as if customers thought that insurance had a magical money fairy, rather than that money was coming from them (albeit usually indirectly through their employer). Sadly, he was often right - a non-negligible amount of people saw him as an everyday hero, sticking it to the man. [1] Yes, pharma has R&D costs. Shkreli's company didn't do much R&D though, mostly patent acquisition[2]. [2] "Fun" story about that. New drug comes before the FDA for approval, and it is opened up for comment. Shkreli lodges an objection to approval of this drug. Why? Because it's unsafe? No - trials thus far have shown it to be safer than the existing drug options. Why? Because it's less effective? No - it's also been shown to be more effective than existing drugs. Perhaps it's more expensive? No - cost of R&D and production, and estimated retail costs are expected to be lower than existing drugs. Huh, odd. So why in this case would Shkreli oppose this drug getting to the market? The only reason he lodged an appeal with the FDA had nothing to do with the drug, butbecause he and his company had just bought the patent to one of those 'existing drugs' referenced, and this new drug coming to market would crater the demand for his drug, and as a result torpedo the profitability of his investment/gamble. Fuck Martin Shkreli.
2y ago

BenFranklin100 2y ago

I work in biotech. It’s a long, difficult, and expensive process to develop a new therapeutic. It is immensely discouraging to see middlemen riding on the back of biomedical innovation and enriching themselves at the expense of the scientist toiling in the lab all the way to the patient in the hospital.

FireBeyond 2y ago
The prevailing attitude is “it’s already $15,000 a month, no-one’s going to rock the boat if we bump it to $18,000 and pocket the difference.”

daft_pink 2y ago

I don’t really understand why this is possible or if the information in this article is fully true. It doesn’t make sense why we can’t just go around the pbms.

ProjectArcturis 2y ago
No one else has the scale to even begin negotiating with the Pfizers of the world. Try to buy something from them directly, and the price would be "Fuck you".
- elhudy 2y ago
  GPOs are reasonably large and capable
- daft_pink 2y ago
  i thought the point of this article was that generic drug prices aren't going down.
CPLX 2y ago
Go around how? The point is it’s a consolidated monopoly. The same people own every step in the chain. They use this particular step to extract monopoly profits.
BobaFloutist 2y ago
Cost plus pharmacies do still exist. The problem is, some drugs really are just way more expensive, so if you already have "free" (or heavily discounted) insurance from your workplace, it's a bit of a waste not to use it, especially since expensive drugs do also contribute to your deductible. Also, wholesalers also negotiate with PBMs, so the cost plus pharmacies might not be able to get the drugs at the same rate PBM-friendly pharmacies do.

ProjectArcturis 2y ago

Several years ago, I worked as a data scientist for Express Scripts, before it was acquired by Cigna. I can't much speak to the macroeconomics of PBMs, but I can say that they were the worst technical organization I ever worked for. They were built out of mergers on top of mergers on top of acquisitions, so their IT systems were what you get when you duct tape a dozen legacy systems together. I worked in the "Innovation Lab", which had been designed to look like an ad agency's idea of Innovation -- brushed metal, Edison lightbulbs, that kind of thing. They'd bring clients through on tours to show off how much Innovation was going on. Meanwhile, I didn't really have that much to do, and no one seemed very concerned about that. Soon I realized I was also part of the decoration - a genuine Data Scientist, hard at work Innovating. Our group produced approximately nothing. Our boss's boss was evaluated mostly based on how much he was able to sell people's medical data for.

albroland 2y ago
Not sure if you'll take it as reassuring, or alarming, but having worked with a few PBMs on the insurer side ES was the most tech-competent. Worst probably being CVS Caremark.
- rancar2 2y ago
  My experience with ES in the 2010s is that they ran a very barebones staff so the people keeping the lights on were quite good and some of the best among my Fortune 500 clients. I had the pleasure of training their staff on my stack expertise as they did not want me to just do the work, they wanted to make sure they were experts at the end as well so they could support and evolve the stack overtime.
lifestyleguru 2y ago
Last time I made blood test it really pissed me off why their forms require national ID and phone number. The nurse in turn was pissed at me why I'm reluctant to write down phone number.
- sofixa 2y ago

refurb 2y ago

Like most mainstream media reports it misses a lot. I worked in the industry and The NY Times article misses key points. There is no “price” for a drug, there are several prices - list, net, Medicaid, AMP, ASP. So yes, while the list price for Gleevec has gone up, the actual price paid is very different. It’s the same for insulin - the price that manufacturers have received has gone down 41% from 2014-2020, while the list price has gone up 140%. https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4Um7zkp7Yy3Qqxi5uNJEBDLvL-lgjhcwku_H9ZDNclk_XahF-o6XmKQGb10NVyjsXKGFIHtiUBLDaSEmR53OrSQhvxab_e2zNngDosrTUW1odEuyEN98ZsfD1OPNTm1abxl-Oiw/s1600/Sanofi-insulin.PNG https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh... If people want to really understand how it all works, I recommend the Drug Channel blog by Adam Fein. He does a great job of digging into details, pulling data and showing what prices are actually doing. https://www.drugchannels.net/?m=1 https://www.drugchannels.net/?m=1

elevatedastalt 2y ago
> So yes, while the list price for Gleevec has gone up, the actual price paid is very different. You say it like it's a good thing. It's part of the problem. The fact that there is no clear no-nonsense to get a drug at a reasonable price without jumping through a bunch of hoops which aren't even clearly documented is not a good thing. We are talking of life-saving drugs here, not hacking frequent flier miles or credit card rewards.
- refurb 2y ago
  There is a good system - that works for insured patients. It’s the uninsured that get hosed NY Times talks about list prices but that price isn’t even used by insurance companies.
  - sofixa 2y ago
    > There is a good system - that works for insured patients Does it? I've read plenty of horror stories of people getting denied treatment by insurance, or paying tons of money for insurance barely covering anything. And more broadly, how much money is wasted on multiple layers of beyond useless middlemen? How much money do hospitals spend on admin and billing departments dealing with this bullshit? Strong "No Way to Prevent This, Says Only Nation Where This Regularly Happens" vibes.

khana 2y ago

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jimt1234 2y ago

I worked at a PBM back in the late-90s/early-2000s. It was where I was introduced to the value of customer data and the strange world of lawyers, all in a single corporate meeting: - The company is launching a new service. We already sell customer drug-prescription data to drug companies, and the drug companies analyze this data to understand where/when/why/to-whom their drugs are being prescribed. Now we're going to help the drug companies advise doctors on where/when/why/to-whom they prescribe drugs. - Sounds great. Where do we come in? - The new service will act as a middleman, processing payments from drug companies to doctors. - So, a service to manage kickbacks? [Meeting room full of suits goes silent.] - The payments aren't "kickbacks". They're "rebates". - Is there a difference? - Absolutely. [silence] - So...what's the difference? - Please be sure to only use the term "rebate" in all communications, especially email. Never use the term "kickback". And that was pretty much it. The company processed prescriptions for pharmacies, then sold that data to drug companies, who in turn used that data to provide kickbacks to doctors for pushing their drugs over a competitor. And it was all legal, thanks to the lawyers and their select word usage. Oh, and I think we weren't supposed to use the term "middleman", either.

Aurornis 2y ago
You can actually look up payments from certain companies to doctors now: https://openpaymentsdata.cms.gov/ https://openpaymentsdata.cms.gov/ I’ve checked several doctors that I’ve visited over the years. None of them show up, with one exception: The doctor who immediately set off my scam alarms when she tried really, really hard to get me diagnosed with sleep apnea, despite not one but two very clearly negative sleep studies. I could never understand why she was pushing so hard, until I looked her up in this system. She takes an incredible amount of money from drug companies and device manufacturers. I don’t know if a scheme like you described would even be allowed today. If it is, the bigger medical systems are actually quite strict with doctors taking anything resembling a payment like this, from what my friends in the industry tell me.
- lifestyleguru 2y ago
  Doctors remunerated or having an incentive to diagnose specific disease (diabetes, covid, boreliosis, etc) really terrify me. Developed world needs a ruthless transparency in this.

ggm 2y ago

And people say that public ownership is "less efficient" than private industry, and less efficient than regulated private industry. Well.. I don't buy it. Access to drugs and efficient pricing and rationing (because that is what it is) is not working well. It's a massively distorted market. The public good here would be better served by another model. Even the "we need these prices to recover our massive sunk costs" part of the argument is bogus. Much good drug design and research is done on the tertiary education and research budget worldwide. There is absolutely no single-process need to do drug IPR based models, the profit motive is not the only model. I look to the modern mRNA drug emergence to lead to radical shake up in the cost of production of novel treatments. We're seeing some signs of this, along with other changes in drug models: injectable hypertension treatment is in test. Imagine the impact on the cost basis of a pill-per-day model!

refurb 2y ago
I think the point you’re missing is that many parts of pricing are government regulations. And the way that the myriad of regulations drive some of this behavior. A great example is the 340B program. A government regulation requiring manufacturers to offer steep discounts to hospitals. It’s created all sorts of distortions including the purchasing of pharmacies by hospitals so they can access the discount but charge the full price for the insured. The US healthcare system is terrible in big part because of regulations.
- kevingadd 2y ago
  Is there a successful healthcare system you'd point to that was achieved via deregulation?
  - shiroiushi 2y ago
    I'm not sure OP was implying any claim that removing regulation would lead to a great healthcare system, just that the US regulations are bad and causing many of the system's problems. In better-run nations, the healthcare systems are highly regulated, but the regulation is actually (mostly) intelligent and implemented to have a positive effect. For some reason, when the US tries to do regulation, it somehow manages to do a uniquely bad job at it, causing a negative effect.

jmyeet 2y ago

You cannot talk about the problems with pharma pricing without talking about enclosures [1]. Consider: 1. Health care providers are largely banned from importing drugs [2]; 2. Medicare is largely banned from negotiating drug prices [3] 3. The VA was allowed under Obama to negotiate drug prices, something which was promised but never delivered for Medicare. The GAO shows this has reduced costs [4]; 4. Pharma companies will tell you R&D is expensive. It is but it's the government paying for it. Basically all new novel drugs relied on public research funds [5]; 5. Pharma companies generally spend more on marketing than R&D [6]; 6. What R&D pharma companies actually do is typically patent extension [7]. The true "innovation" of capitalism is simply building layers and layers of enclosures. [1]: https://en.wikipedia.org/wiki/Enclosure https://en.wikipedia.org/wiki/Enclosure [2]: https://journalofethics.ama-assn.org/article/what-should-prescribers-and-policy-makers-know-about-us-drug-importation/2024-04 https://journalofethics.ama-assn.org/article/what-should-pre... [3]: https://www.healthaffairs.org/content/forefront/politics-medicare-and-drug-price-negotiation-updated https://www.healthaffairs.org/content/forefront/politics-med... [4]: https://www.gao.gov/products/gao-21-111 https://www.gao.gov/products/gao-21-111 [5]: https://www.cbc.ca/news/health/drugs-government-funded-science-1.4547640 https://www.cbc.ca/news/health/drugs-government-funded-scien... [6]: https://marylandmatters.org/2024/01/19/report-finds-some-drug-manufacturers-spend-more-on-advertising-executives-salaries-than-new-research/ https://marylandmatters.org/2024/01/19/report-finds-some-dru... [7]: https://prospect.org/health/2023-06-06-how-big-pharma-rigged-patent-system/ https://prospect.org/health/2023-06-06-how-big-pharma-rigged...

max_ 2y ago
What you have described here is the phenomenon that Stigler describes as "Regulatory Capture". [0] Regulatory capture is the use of state resources (mostly regulation). To tilt the ground of business in thier favour at the expense of the public and other competitors. People beg for "regulation" from the government but the problem is that the politicians are often puppets of the very corporations they are meant to regulate. That's how we end up with regulatory capture scams. Is that "capitalism"? I don't think so. Does it contain traces of capitalism? Yes. But I think what Americans have is more of corny-capitalism, state-capitalism & regulatory capture. It is very different from Hayekian capitalism which is actually anti-crony capitalism & anti regulatory capture. [0]: https://en.m.wikipedia.org/wiki/Regulatory_capture https://en.m.wikipedia.org/wiki/Regulatory_capture

thadk 2y ago

Reading this 4% Pharma conglomerate flow figure, I'm indirectly struck that increasing all-cause cancer likely raises GDP, particularly this segment of GDP. My main consolation in this moment is that lead exposure probably doesn't.

Terr_ 2y ago
See also: Bastiat's "broken window" fallacy. https://www.investopedia.com/ask/answers/08/broken-window-fallacy.asp https://www.investopedia.com/ask/answers/08/broken-window-fa...

Terr_ 2y ago

General philosophizing: Is it possible there's an important economic difference between public price discrimination versus secret price discrimination? I mean there's a spectrum between "acceptable" price discrimination and "abusive". Nobody bats an eye at lower rates for bulk purchases or movie theaters offerering half price for kids. It may not be a panacea, but sunlight is still a pretty good [civic] disinfectant.

thaumasiotes 2y ago
Here's a pretty simple, accurate description of price discrimination: - The purpose of price discrimination is to reduce the share of gains-from-trade received by consumers to zero. The concept is that you should never feel that you're getting more value out of a purchase than you would otherwise have gotten from the money you spent on that purchase. It's true that, as the article mentions, this means that impoverished people might buy things that, absent the price discrimination, they wouldn't have bought at all. But this "benefit" can't be worth much, because -- even though they paid a small price for whatever it was -- we know that they valued it only slightly more than that. Given this, it's not really clear why price discrimination is supposed to be beneficial. > I mean there's a spectrum between "acceptable" price discrimination and "abusive". Nobody bats an eye at lower rates for bulk purchases or movie theaters offerering half price for kids. Lower rates for bulk purchases is not an example of price discrimination. Half price for children's movie tickets might or might not be - if your theory of the discount is that people will pay more to go on a date than they will to entertain their children, that would be a valid example of price discrimination. If your theory is that children have less money than adults, that doesn't really work - kids young enough to get cheaper movie tickets don't pay for their own tickets.
- Terr_ 2y ago
  > The purpose of price discrimination is to reduce the share of gains-from-trade received by consumers to zero. Even from a cynical perspective, that is incomplete, since it doesn't capture another purpose--which you mentioned in passing--of "better a little profit than no profit", where a lower price is offered to permit trades that would otherwise not occur. > Given this, it's not really clear why price discrimination is supposed to be beneficial. Leaving aside whether a net-effect or national policy is good or bad, surely you can imagine some individual cases where "price discrimination" is used for good, right? Suppose the local baker wants to offer extra bread to the poor for a symbolic pittance, without impacting the price he usually sells it at to regular customers. It is both a charitable act and also pricing-discrimination: "The really poor" are identified, and a separate price of $0.25/loaf is offered. > Lower rates for bulk purchases is not an example of price discrimination. Huh? Bulk-rates are literally a textbook example of price discrimination, albeit usually with the qualifier of "second-degree." [0] If you still think it shouldn't count, then what's the rationale that sets it apart? It can't be based on "the conditions were publicized in advance", because if that's how it works then "rich people pay more" would magically cease being price discrimination just because I put it on a sign. Another possibility is "because it represents actual cost differences to the vendor", but I don't see that as very compelling, since (A) sometimes those don't meaningfully exist like with "digital goods" and copyright licenses and (B) that would excuse certain kinds of price-discrimination as long as the vendor can argue a smidgen of logistical difference in the deals. [0] https://www.oxfordreference.com/display/10.1093/oi/authority.20110803100451371 https://www.oxfordreference.com/display/10.1093/oi/authority...

coretx 2y ago

"Intellectual property", specifically patents are the elephant in the room. Even if the mafia would want to have a healthy market, there won't be one because you can't when there is monopolies in place. Societies can research, speculate, mitigate and regulate until the end of times for as long as the underlying fundamentals of the problems are never addressed.

edg5000 2y ago

"If you went to Costco, he went on to say, the cost was $97, so the plan didn’t recommend patients go there. If a patient went to Walgreens, which the plan did recommend, it was $9000. And if a patient chose home delivery via the PBMs own mail order pharmacy, it was $19,200." They must be joking right?

FireBeyond 2y ago
Nope. Even at its most mundane you are “encouraged” to use the insurers mail order pharmacy or affiliate… for the few routine drugs I take I cannot get a 90 day refill authorized at a retail pharmacy, only 30 day supplies. If I want a 90 day refill schedule I have to go through their mail order.

JumpCrisscross 2y ago

“PBMs consolidated both horizontally and vertically, so each big PBM is now owned by a major healthcare conglomerate. … In 1987, Congress passed an exemption to a Medicare Anti-Kickback statute, which created a safe harbor for group buying entities to accept payment from drug manufacturers in the form of rebates, with certain guardrails in place. … PBMs get large secret rebates in return for allocating market shares…it’s virtually impossible to get any clear pricing on most drugs, because there is no one price.” For a change the solutions seem simple: 1. Prohibit integration between doctors and insurers, on one hand, and pharmacies and pharmacy-benefit managers, on the other hand; 2. Repeal §§ d and f from the kickback exemptions [1]; and 3. Require public filing of insurers’, PBMs’ and pharmacies’ price lists. (Not disclosure: the binding price list is the public one.) [1] https://www.law.cornell.edu/cfr/text/42/1001.952 https://www.law.cornell.edu/cfr/text/42/1001.952

aidenn0 2y ago
We have spent most of the last 50 years under an antitrust enforcement regime that considers vertical integration to be harmless, so #1 might be simple, but it's definitely not easy.

ThinkBeat 2y ago

This is a great article, weel researched. Filled with information as many links to sources. I'd like to extend a big thank you to the author for writing this. When it comes to remedies One solution is for our legislature to create laws that specific species some of those practices as illegal. It would probaby be hard to get it passed due to all the corruption in our legislative and executive branches.

waffletower 2y ago

Wouldn't the equivalent of pharmacy benefit managers in China, should they be caught devising such extreme pricing shenanigans, be executed?

1vuio0pswjnm7 2y ago

"Most people think of high pharmaceutical prices, and blame the companies you'd expect in Big Pharma. These firms, with storied names like Merck, Pfizer, Novartis, Genentech, etc, are powerful, and they are in the business of developing and selling drugs. But this other group, corporations you haven't heard of, composed entirely of middlemen, price and handle payment for pharmaceuticals between doctors, pharmacies, and patients, are perhaps equally important, if not more so. And unlike pharmaceutical companies, who actually employ doctors and scientists, PBMs don't do anything difficult. They keep lists." Big Pharma has been permitted to own PBMs. https://www.ftc.gov/news-events/news/press-releases/1998/08/merck-settles-ftc-charges-its-acquisition-medco-could-cause-higher-prices-reduced-quality https://www.ftc.gov/news-events/news/press-releases/1998/08/...

1vuio0pswjnm7 2y ago
Recommended reading: https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefi...

xgfh 2y ago

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whlh 2y ago

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