Good morning. Today, two of my colleagues explain why you're probably overpaying for medicines. We're also covering 2024 fund-raising, Stonehenge and Taylor Swift. —David Leonhardt
Bad medicine
You probably already know some of the reasons prescription drugs are so expensive. Drugmakers charge as much as the market will bear. Health insurers and the government haven't reined in prices. But there's another reason: middlemen known as pharmacy benefit managers, or P.B.M.s. Your employer or a government insurance program like Medicare hires these companies to negotiate a price with drugmakers and to pay pharmacies. P.B.M.s are supposed to save money by haggling favorable terms with those businesses in exchange for sending them large numbers of patients. But in their quest for higher profits, they are quietly driving up prescription drug costs. Your pharmacy benefit manager is often invisible to you unless you're having trouble filling a prescription. (You probably rely on one of the big three: CVS Health's Caremark, Cigna's Express Scripts or UnitedHealth Group's Optum Rx.) We spent the past year trying to understand them. Today, we published a story about these companies, how they affect drug spending and how they amassed so much control with so little transparency. Here's what we learned.
A middlemanEmployers and governments hire P.B.M.s because they need someone to handle the intricacies of paying for prescription drugs. Say your doctor prescribes a drug like Eliquis to prevent you from having a heart attack. She'll send the prescription to your pharmacy, where you'll pick it up. Behind the scenes, your pharmacy benefit manager is handling several tasks. It likely negotiated a price with Eliquis's manufacturer. It helped determine how much you'll have to pay out of pocket for the medicine. And it will pay your pharmacy for dispensing Eliquis to you.
At a number of points along the way, your P.B.M. may be overcharging. It might steer you toward pricier drugs or charge your employer much more for your medicine than the wholesale cost. Added up across more than 200 million Americans, that means big profits for the largest P.B.M.s and higher costs for the system. Consider the case of Kent McKinley, a cancer patient in Oklahoma who gets his health insurance through a program for state employees. His P.B.M., CVS Caremark, charged Oklahoma $120,000 per year more for his cancer drug than his local pharmacist would have charged. "We were getting ripped off," McKinley said. Often, employers don't know they're being overcharged. Many admitted to us that they struggled to understand how the system works. Executives at the big three pharmacy benefit managers told us that they were not to blame for high drug prices. They say that when you consider all the drugs they oversee, they save substantial money for patients and clients. They say their size and scale are essential to counter the drugmakers, which they point to as the real culprits. They also say employers can be stingy in the benefits they offer to workers. New scrutinyIf P.B.M.s charge too much, why haven't competitors with lower prices swooped in to steal their business? The short answer is that these companies have gotten incredibly big, and the system is maddeningly complex.
The biggest three pharmacy benefit managers now process roughly 80 percent of prescriptions in the United States. After two major mergers in 2018, they are all now part of conglomerates that include insurers and pharmacies. This structure allows them to juice their own business — by pushing patients to use their pharmacies, for instance — and to discourage patients and employers from going elsewhere. That gives the conglomerates an enormous competitive advantage. The result is that smaller players can't get a toehold. There are efforts to dislodge the pharmacy benefit managers — notably, the billionaire Mark Cuban created an online pharmacy to take them on. But such efforts have captured only a tiny share of overall prescriptions. Until recently, regulators had generally given P.B.M.s. a pass. That's changing as high drug prices have prompted more scrutiny. The Federal Trade Commission, lawmakers and state attorneys general have suggested that the P.B.M.s. may be abusing their power. "They're seeking to extract from the system without creating any corresponding value for the system," said Dave Yost, the Republican attorney general in Ohio who has sued Express Scripts and Optum Rx over their business practices. "The patients are the ones that are suffering." For more: Read what to do if you're overpaying for prescriptions.
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