Robert Pearl, M.D. Forbes Contributor
The American medical system has become undeniably complex, a far cry from the days when doctors made house calls and patients paid directly for care.
With the rise of advanced medical technologies, high-priced procedures and for-profit insurance, U.S. healthcare had—by the late-20th century—transformed into a sprawling and sophisticated industry. As hospitals expanded and insurance options multiplied, individuals and businesses quickly found themselves overwhelmed by the system.
To help manage the growing complexities, a new class of healthcare intermediaries emerged. These “middlemen of medicine” assisted providers, patients and employers with tasks like billing, selecting insurance plans and negotiating drug prices. At a time when healthcare was becoming increasingly convoluted, they offered valuable solutions.
But today, rather than evolving to meet modern challenges and streamline healthcare, these middlemen have become obstacles to progress, often perpetuating inefficiencies in ways that exacerbate medicine’s problems.
Stuck In The Middle
In this way, healthcare’s most entrenched middlemen are unlike the disruptive go-betweens of other industries.
Americans who want to book a hotel, play the stock market or purchase just about anything can turn to “middlemen” like Expedia, Robinhood and Amazon. These disruptors rose to power by lowering prices, broadening access and making life more convenient. By offering near-total transparency on pricing and quality, they equipped customers with maximum control.
In healthcare, however, middlemen serve a different set of “customers.” Rather than concentrating on what is best for patients or their employers, they often act in ways that protect the profits of drug companies and for-profit insurers.
The consequences of these misaligned arrangements are clear: healthcare costs are soaring, making medicine an even trickier maze than before.
Today, half of all Americans can’t afford their out-of-pocket medical expenses and 70% are unsure what healthcare services will cost before undergoing treatment. Meanwhile, employers now pay an average of over $25,000 a year to insure a family of four.
To understand the failure of healthcare’s middlemen, let’s examine two of the most influential types:
1. The Middlemen Of Medication: PBMs
Pharmacy benefit managers emerged in the 1960s and became a major force in the 1980s by helping insurers solve two problems:
Managing the vast and growing number of medications on the market.
Taming their prices.
In the United States today, more than 20,000 FDA-approved drugs are prescribed some 6.7 billion times each year. With thousands of generic or biosimilar alternatives to expensive brand-name medications, deciding which drugs belong on an insurer’s formulary is a complex task that demands specialized expertise.
That’s where PBMs come in. They were created to help insurers make smarter formulary decisions, negotiate lower prices with drug manufacturers and set co-payment tiers that balance affordability with patient health.
These days, however, PBMs and pharmaceutical companies work together in ways that disadvantage payers and patients. To secure favorable placement for their drugs on insurance formularies, pharmaceutical companies offer PBMs significant rebates—particularly for higher-cost, brand-name medications, even when less expensive generics or biosimilars are available.
Say a drug company knows it could make a healthy profit by pricing a drug at $600 per month but, instead, sets the list price at $1,000 and offers the PBM a $400 rebate. The PBM, in turn, tells self-funded employers that it has negotiated a $300 discount off the list price, places the drug in a category with a low copayment, and quietly keeps the remaining $100 of the rebate as additional profit. The pharmaceutical company benefits by securing better formulary placement, boosting sales and earning significantly more than it would have by listing the drug at $600.
You might expect insurers to push back against these practices, especially given that higher drug prices drive up overall healthcare costs and insurance premiums. So why don’t they? The answer lies in the fact that the three largest PBMs—CVS Health’s Caremark, Cigna’s Express Scripts, and UnitedHealth’s OptumRx—are either owned by or closely aligned with the very insurers that rely on them. Together, these PBMs control 80% of all prescriptions in the United States.
This arrangement allows insurers to profit directly from their PBM operations. And because all major insurers are engaged in the same practices, higher drug prices don’t create a competitive disadvantage—they simply result in higher premiums for employers and patients... CONTINUE READING
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