The Opaque Industry Inflating Prices for Prescription Drugs | Hacker News Reader

The Opaque Industry Inflating Prices for Prescription Drugs

nytimes.com

People more articulate than me have pointed this out before, but it seems like a huge conflict of interest that CVS simultaneously controls:

- Caremark (pharmacy benefits management)

- Aetna (insurance provider)

- CVS Pharmacy (the actual pharmacy that sells/dispenses drugs)

The question is how one would fix this in practice. Make drug ordering/buying by companies an open bidding process/auction? Or just force the companies to disclose who they buy from for what money?

This has nothing to do with drug ordering or buying.

Pharmacies buy medicines from medicine distributors, namely McKesson, Cardinal, and AmerisourceBergen.

It is literally all just “paperwork” between pharmacies and insurers. The PBM is just the department of an insurance company that “negotiates” pricing for medicine.

Have a Medicare equivalent for those three that people can buy into. Have the government provide a cost competitive offering for insurance to create competition. Allow Medicare to negotiate for lower drug costs in line with other countries.

No one in the healthcare stack is incentivied to lower the cost of care, at least in a way that reduces the payer cost.

When an insurer dictates a lower price with a pharmacy less, or for a doctor (the same as a physician assistant or a nurse practitioner or a naturopath or a chiropractor), that is reducing the payer cost.

Healthcare has a few main vendors. Doctors, pharmacies, hospitals, drug manufacturers, and then the vendors’ vendors, like EMR software (epic, Athena, etc), equipment, liability insurance, etc,

In this chain, the least squeezable are drug manufacturers, because they own the patent and the insurer has to pay. Hospitals are sort of next, and then doctors, and then finally pharmacies must be the easiest to squeeze based on them having been squeezed nearly to death over the last 15 years.

You can see this in publicly listed company profit margins:

Pharma companies - highest profit margins, 20%+

Hospitals - 10%

Pharmacies and health insurers - less than 5%

Doctors are probably below Pharma, above hospitals if they are earning $150+ per hour. Epic and other EMR software is probably even higher profit margin than Pharma.

For drugs one of the fundamental problems is that there is close to zero competition. Getting FDA approval to manufacture an already-approved drug should be much closer to a rubber stamp. Patent lifetime should be closer to 3-4 years instead of 20+, and that whole hack of a superficial tweak renewing the patent needs to be eliminated.

Then things wouldn't be so bad if drug manufacturers charged whatever the market would bear (there should also be one transparent price, none of this opaque "negotiated" price fixing). The 3-4 year period where a new life saving drug has been created and approved but is still cost prohibitive for most many would be gristly, but the impedance mismatch has to accrue somewhere and the current solution we've defaulted into is to claim wide access while allowing drug companies to perform wealth extraction (modulo what the "insurance" cartel can be guilted into paying for).

Kaiser Permanente does the same thing.

PBMs hold an incredible amount of power. The Acquired podcast did a marvelous breakdown of the American pharmaceutical industry while covering Novo Nordisk (https://www.acquired.fm/episodes/novo-nordisk-ozempic). If you have three hours to spare, I highly recommend giving it a listen.

Another great interview comes from Mark Cuban, who is serious about disrupting PBMs with his Cost Plus Drug Company (https://www.drugchannels.net/2024/03/mark-cuban-five-ways-th...).

The health insurers (or more accurately, managed care organizations) are loving the blame that the PBMs get.

It makes the issue just a little more complicated, and thus turns people off from reading into it.

There is no need to refer to health insurers and PBMs separately, they are one and the same with the same bosses for the vast majority of people.

So the complaint really boils down to health insurers not paying enough for medicine.

However, given that health insurer’s profit margins are low single digits, what is actually happening is they are squeezing their vendors wherever they can, however they can, and using these opaque rules is one way to do it. Not really any different than Geico paying Safelite, but due to myriad laws and different insurance plans, the complexity can be greatly increased in healthcare.

Also, Cuban is all talk, no walk. He just wants to try to be another middleman. The real innovation would be building medicine factories and selling medicine for cheaper, but no one really wants to do that since it is high risk low reward.

https://archive.today/RlBVr

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