Healthcare’s Endangered Middlemen

The healthcare industry is now coming to terms with the role played by its ‘middlemen.’ This term refers to insurance companies and pharmacy benefit managers or PBMs. At first, these intermediaries were responsible for contacting pharmaceutical manufacturers, collecting medicines and distributing them to hospitals and pharmacies. But now, they have used the advantage of being the first ones with access to medication for profit to the detriment of the consumer. PBMs today serve as the link between health plans and purchases. As prices of pharmaceuticals have dramatically increased over the past few years, scrutiny from purchasers has intensified. This has resulted in the overall decrease of the middlemen’s stock values. There is now an increasing dissatisfaction with their services and demands for better prices are doubling.

The Breakdown

While PBMs like Steve Miller has been vocal against the increasing rates of medicine, circumstances show that they will probably do nothing to change the system. This is because they benefit directly from opaque pricing and rebate practices. On one hand, they are claiming to negotiate to lower prices, but on the other, they are charging the purchaser a steep service fee for every sit-down, which eventually increases the price of the medication. As opposition is rising, organizations such as Aetna are also speaking up against these exploitative practices. In support, they are now reconstructing their PBM model and have criticized these standards that are now the norm for most PBMs. Even state legislatures are working on policies that demand more transparency on their pricing procedures. There have been a few cases that exposed the practices of PBMs, such as the news reports on clawbacks, which showed that after the patient pays at the pharmacy for their medication at the price determined by PBMs, a cut from that money goes back to the PBM from the pharmacy once it finally decides how much to pay for the medication. This money, in principle, belongs to the purchaser, but it never makes it back to them. Additionally, some of the top PBM firms have been accused of violating the Sherman Act. They have been sued by pharmacies and plaintiffs for conspiracy and being dishonest with customers.

The Aftermath

PBM practices have had a very problematic effect on the population. Those who could previously afford medication no longer can as prices have risen. Plus, after the reduction ordered by pharmaceutical manufacturers in the face of public and political opposition, wholesalers are now at a serious disadvantage. Statistics show that PBMs made a shocking 11.5 billion dollars in profits in 2015, which represents an annual increase of 20% in the last five years. Moreover, the prices to even see a primary caregiver have risen to over 20%, while specialists and surgeons are much more expensive. As a result of the outrage against PBMs, some of the major players have begun reinventing themselves. Prime Therapeutics LLC, a PBM, has partnered with Walgreens to form a special pharmacy and provide mail services. Similarly, EmpiRx Health is now working on a collaborative effort between physicists and pharmacists in a clinical care management program to ensure that patients get the medicine they need. Moreover, there are some PBMs that have announced their move toward a value-care system which comes at a financial detriment to them. An interesting development is the activeness of the purchaser in wanting to get directly in contact with the providers. Statistics show an increasing number of people considering this and because it seems mutually beneficial, around 77% of provider executives have expressed interest in the matter as they substantially enrich their organizations within the next few years.