Everyone is blaming each other for healthcare costs, and the lack of transparency allows each entity to get away with the accusations. With more transparency, we’ll clearly see where the bad actors reside and make appropriate changes.
The Big Players
Think about a company with total revenues of $60.4 billion and operating earnings that grew to $5.0 billion in just the last three months, including a year-to-date growth of 17%. You might think this is a fast-growing biotechnology company. No. It’s the largest medical insurance company in the country, United Healthcare.
These companies achieve such growth, in part, by inappropriately using existing tools such as prior authorizations to physicians or through their own pharmacy plan contracts. These blanket prior authorizations cause frustration, inefficiency, increased staff costs and delayed medications. Many doctors simply give up, resulting in patients receiving less-than-adequate medications.
When it comes to pharmacy plan contracts, the margins on insurance claims are regulated by the Affordable Care Act, but the margins on pharmaceutical plans are not. The public signs up on the insurance side, and the company makes up the difference on the highly margined drug plans they offer the patient or business. Because the insurance plans own the pharmaceutical plans, they can require patients to use these products and then raise the drug costs.
Three pharmacy benefit managers (PBMs) have more than 94% of the market share—mainly because they are owned by the insurance companies. They have a pay-to-play, strong-arm approach with the pharmaceutical companies to take the majority of the profits. As an example, over an extended period of time, Travatan Z (Novartis) made $800 million, $600 million of which—75% of the revenue—went to the PBMs.
Pharmaceutical companies have to pay because the PBMs own the formularies that provide the drugs to their patients and charge exorbitant rates to companies that want their drugs accessible. To compensate for this fee, pharmaceutical companies increase their drug prices, passing the cost on to the patient.
Health insurance brokers are another layer of middlemen. Although some brokers do a great job, the vast majority receive kick-backs from insurance companies to sell the pharmaceutical benefit plans—a vicious cycle of hidden fees that inflate drug prices. Although some brokers don’t play these games, 90% of the drugs go through PBMs that offer these kickbacks.
Canada has significantly lower drug prices because they don’t have PBMs, health insurance brokers or other layers adding to the cost.
Transparency is finally coming. The president recently signed an executive order on price transparency that will be implemented over the next several months. But we should also write to our congressional representatives to recommend fixing the system rather than trying to find a way to pay for a faulty system.
Entities such as GoodRx are another terrific solution, as they shop for the best cash price of various therapeutic agents. But a word of caution: in my experience, the pharmacies sometimes tell patients they must provide their insurance card and then pay the required higher cost of the drug rather than the cash price provided by the Good Rx app. However, patients don’t have to provide their insurance information and can simply pay the cash price if they want.
Some ophthalmic pharmaceutical companies are setting up their own distribution channels at lower costs and hopefully new options continue to be available to our patients.
If you want to better understand today’s healthcare concerns, I recommend reading The Price We Pay: What Broke American Healthcare —and How to Fix It by Marty Makarey, MD.
The system needs healing, but it’s not all the pharma’s fault. Instead, the process begins with identifying the areas that lack transparency and shining a light on them. Only then will these issues become clear enough to put proper solutions in place.
Note: Dr. Karpecki consults for companies with products and services relevant to this topic.