The Middleman May Not Be Your Friend

A couple of things before today’s newsletter:

1. My apologies for not putting out a newsletter on Friday. It was a crazy week last week.

2. On last Wednesday’s newsletter, I forgot to add the graph for grip strength by age at the bottom. Here it is. Note that it is in kilograms.

Now on to today’s email.

This video came up in my Twitter feed and caught my interest:

I had questions.

1. Like what is a PBM?

2. And can they really stop pharmacists from charging higher copay prices than if a customer paid cash?

Given the state of American healthcare, I could see it happening.

The answer to the first question is easy. A PBM is a Pharmacy Benefit Manager. The idea seems to be a good one. The mission of a PBM is to use the buying power of a large group of people, like an insurance company, to negotiate lower drug prices from pharmacies and manufacturers.

The PBMs can put pressure on pharmacy and manufacturers in several ways:

• They can offer large volume purchases in exchange for lower prices and rebates

• They can offer a spot in the insurance provider’s network to pharmacies

• They can offer a drug manufacturer a spot on the insurance provider’s formulary to get a discount

So far, so good. The trouble comes with incentives for the PBMs. PBM’s can charge their benefit provider more than they negotiate from the pharmacy or drug maker. Then they can profit on the spread.

The practice is called ‘spread pricing’. In military contracting, they call it ‘cost plus’.

If a higher-priced drug can get them a bigger spread, they may choose to recommend that one to their patients rather than the lower priced version.

Say a PBM receives a 15% commission on top of the drug or service. For a $50 product, the PBM receives $7.50 on top of the product price. For a $100 product, they receive $15.

Many states are banning spread pricing. The Congressional Budget Office estimates that eliminating spread pricing for Medicaid could save $900 million over 10 years.

Same with rebates they negotiate. Manufacturers may be willing to offer a bigger rebate to the PBM if the PBM pushes the higher priced drug.

As for the gag order mentioned in the video above, there is legislation passed in 2018 to curtail that practice. Prior to 2018, PBMs could add contract clauses with pharmacies that said if someone gives the pharmacy insurance information, then the pharmacy could not let the patient know there is a cash price that is lower than the copay for a prescription.

The “Know the Lowest Price Act” and the “Patient Right to Know Drug Prices Act” prohibits PBMs from adding gag clauses. Pharmacies can now let you know if the cash price is lower than your copay.

Many of the large PBM’s have connections to the insurance companies and pharmacy companies they negotiate with. The top six PBM’s manage 90% of the prescriptions filled in the United States. Seems like a bit of a conflict of interest.

I take a couple things away from all this PBM research:

1. Always ask for a cash price when the pharmacist fills your prescription. Now they have to tell you the lowest price.

2. A reminder that the healthcare industry loves to hide their pricing behind insurance.

3. Maintaining your physical and mental health enough that you can decrease or eliminate medications also can greatly aid your financial health.

The more I learn about the healthcare industry, the more convinced I am to stay away from it!