Dr. Jeff Kane: How much do drugs really cost?
I like to think of myself as reasonably knowledgeable, and my training should equip me to understand things like drug prices. But almost every aspect of that field is as confusing as a back alley shell game.
Like me, you were probably unfamiliar with PBMs. Health insurance companies hire “pharmacy benefit managers” to handle price negotiations, claims, and prescription drug distribution. PBMs serve 266 million Americans; the three largest occupy 78% of the market. Their revenue comes from administrative and service fees paid by insurers, along with rebates from drug manufacturers. They needn’t disclose the prices they’ve negotiated to buy drugs, but are allowed to sell them for a profit.
That might sound suspicious, but there’s more. Sometimes you’re charged a copay for your prescription. When the copay amount exceeds the price the PBM negotiated with the pharmacy, the difference goes back to the PBM. This is called a “clawback.” And who set the copay price, anyway? The PBM, of course. That is, you’re paying a fee to be overcharged. Apparently there’s no limit to greed’s creative genius.
These companies constitute the most lucrative industry you’ve never heard of: in 2017, the largest PBMs had higher revenues than the largest drug manufacturers, and that’s saying something. They perform no healthcare service, only operate a monumental money turnstile. According to U.S. Senator Ron Wyden, PBMs are as “clear a middleman rip-off as you are going to find.”
Here’s a typical example of how this shell game plays out in real life. A friend was prescribed a topical steroid cream, betamethasone. Her pharmacist handed it to her with a bill for $105.
She said, “Wow! At least I’m insured. How much would it be if I weren’t?”
“Well, let’s see…without insurance, $93.”
“What? Then why would I use my insurance to buy it?”
“To pay down your deductible.”
She went home angry, confused, and determined to find a lower price. She learned betamethasone’s average national retail price was $82.25—less expensive, but not by much. She also discovered a raft of online pharmacy helpers. One, GoodRx, discloses that Ralph’s sells the same product for $25.43, and it’s $32.65 at CVS and Target. All a consumer needs to do is print out an online coupon and present it to the pharmacy.
She phoned her pharmacist. “How do these online outfits arrange such cheaper prices?”
“Because they sell your information.”
I looked, and GoodRx doesn’t seem to collect any personal information. But what if it does? What can it learn about my friend that’s worth the difference between $25 and $82? And would selling her info violate HIPAA, the medical privacy law? Obviously there’s far more to this industry than simply selling medications.
Exploring online, I encountered a tangle of business relationships that makes the U.S. Tax Code read like “Dick and Jane Get a Puppy.” I doubt anyone fully understands drug costs, and worse, I suspect its opacity is quite deliberate. Evidently, a major reason why we pay too much for drugs is the many invisible forks in the pie. Are you concerned?
Jeff Kane is a physician and writer in Nevada City.
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