Start with Pharmacy to Reduce Healthcare Costs

I was at dinner the other night discussing President Trump’s lashing out at insurance carriers and issuing an executive order to suspend federal funding for exchange cost-sharing subsidies (which last week I said was misguided). And my friend, a former insurance company executive, pointed out that since the Affordable Care Act’s passage, healthcare company profits and stock prices have soared and so did others in the healthcare space. And while it is likely true, the insurance companies aren’t making money on the exchange marketplace, but they surely are making a lot of money elsewhere.

The magnitude of these profits came to light in an article last week in The New York Times. Anthem, the Blue Cross plan aggregator – still in the midst of its dispute with pharmacy benefit manager (PBM), Express Scripts (ESI) – has now launched its own PBM, IngenioRx, to start at the conclusion of the ESI contract term. Anthem, which had sold their PBM to ESI back in 2009 for $4.7 billion, believes that ESI has amassed “obscene profits” from Anthem’s $17.1 billion annual drug spend. Anthem has said they expect to save $4 billion with the change and take 20% of that as profits. Not bad – an almost $5 billion windfall in 2009 and now an expected $800 million per year in recurring revenue.

Anthem is not alone in profiting on pharmacy spend. All of the national insurance carriers own PBMs and pharmacy costs are a big source of profits, both disclosed and not-so-obvious to the purchasers.

Rising drug costs, which now exceed 25% of total healthcare spend, are the biggest component of healthcare trend. But patent-protected pharmaceuticals are life-saving for diseases like AIDS, cancer or hepatitis and utilization is difficult to manage. While I am not in favor of single-payer healthcare, I do wonder if there is a better model for pharmacy pricing. There is something wrong with $20,000-per-month prescriptions, which wreak havoc on employee benefit budgets. Health insurance companies and PBMs are not the only ones to profit – drug makers and their PR firms rake in the lion’s share.

It’s not health insurance that’s expensive; it’s the cost of healthcare. And the more expensive the drugs, the greater the profits throughout the whole supply chain. While innovation should surely be rewarded, perhaps the prices of drugs should be policed like monopolistic public utilities. I think this is the place to start on healthcare reform.

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Comments

  1. avatarDavid sirowich says

    Well said! Add the drug manufacturers into this equation as well and there is the complete issue of horrific drug expense. I can’t stand it how our government gives grant money to these manufacturers and the manufacturers in turn charge the consumer a ridiculous amount of money!!

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