The Pharmacy Benefit Manger (PBM) Syndicate

Posted on | June 14, 2018 | 5 Comments

Mike Magee

“Syndicate: a self-organizing group of individuals, companies, corporations or entities formed to transact some specific business, to pursue or promote a shared interest. In most cases formed groups aim to scale up their profits.”

Drug channel companies including Pharmacy Benefit Managers (PBMs) (like United Healthcare’s Optum, Express Scripts and CVS/Caremark) and distributors (like AmerisourceBergen, Cardinal Health, and McKesson) are now 6 of the the top 25 companies in the Fortune 500.

What’s the source of all that market power? Let us count the ways:

1. Management of outpatient prescription drug benefits (including kickbacks)

2. Representing insurers and large employers (including kickbacks)

3. Organizing Medicare Part D benefits (including kickbacks)

4. Setting formulary policies (including kickbacks)

5. Negotiating with drug manufacturers (including kickbacks)

6. Assigning formulary tiers (including kickbacks)

7. Distributing drugs through mail order and retail outlets (including kickbacks)

The parentage of PBM’s from insurers like UnitedHealth Group, or pharma companies like Merck, or pharmacy chains like CVS helps explain how we have now arrived at an opaque system of profit sharing that deals in everyone except the patient.

It also helps explain the stratospheric rise in profitability usually associated with crime syndicates and money laundering operations. Since 1990, the prescription drug market in the U.S. has grown tenfold from $38 billion to over $360 billion.

PBMs may appear to be independent but in reality they have been built out “alongside a dominant fee-for-service health insurance system”. They are in fact agents and managers for a syndicate hidden in plain sight. It features contractural profit sharing, market protections to members that prevent competition and intrusion, and distribution of the spoils in a manner that prevents open warfare among participating members in the scheme.

And since DTC advertising was given the green light in 1997 (the only place on Earth besides New Zealand that allows it), the spoils have grown exponentially with the help of a “dog-eat-dog culture” reinforced by remarkable over-prescribing. 50% of Americans have filled a prescription in the past 30 days and 10% of Americans are on more than 5 prescription drugs. That’s quite an appetite!

If there was ever cause for pushing the “reset” button, this must be it.

Comments

5 Responses to “The Pharmacy Benefit Manger (PBM) Syndicate”

Judy Doan
June 14th, 2018 @ 2:48 pm

How about defining what a PBM is at the outset?
Mike Magee
June 18th, 2018 @ 8:29 am

Thanks, Judy, for the suggestion. PBM’s are evolving. Initially set up to manage movement of prescription drugs and dollars, they now are strategic levers in a profit sharing machine and leverager of patient data. Here’s a full answer from the WSJ: https://www.wsj.com/articles/SB10001424053111903554904576460322664055328
Barbara Kennedy
June 20th, 2018 @ 1:32 pm

Unfortunately our country continues to add new methods and levels of service that are not always beneficial for consumers, and that ultimately result in raising the cost to consumers. We are such a greedy society.
Mike Magee
June 20th, 2018 @ 2:52 pm

Thanks, Barbara! Greed now has translated to massive income disparity, unequal access to care, and 1 in 5 dollars consumed by the health sector. Kind of a death spiral!
Jane Woods
July 4th, 2018 @ 1:54 am

Drug channel companies including Pharmacy Benefit Managers (PBMs) have always been a market power since 1990. The tenfold will increase in next 10 years. Healthcare companies like WebMD, Everydayhealth, Mayoclinic, etc..are in demand since past 5 years.