Spead 'Em. Or One Of The Many Reasons Being A PBM Is Nice Work If You Can Get It.

"Drugmonkey, why are drug prices so high?" I imagine some of you might be asking if I hadn't run off all my readers. "It's always been a problem, and it never seems to get any better, in fact, it only seems to get worse!!"

 A good question, and the answer is that I'm a greedy bastard, marking up meds to extract every penny I can from your sick grandma.

 BWWAAHHAAHHHA I wish. That's the business model of the drug makers, and at 53, it's far too late for me to get in on that action. There is another player in the game though, the Pharmacy Benefit Manager, and I can sense your eyes glazing over already. Which is why I'm going to use the magic of the theater to tell this story. Behold, I have written a little play.

  The scene, an office indistinguishable from any office in America, manned by a mid level corporate drone indistinguishable from any corporate drone in the country. It could be anywhere, in any office, anywhere in America. 

 Drone: Jeepers our health care costs are expensive! If only I worked in one of our company's overseas divisions, these expenses would be the responsibility of the single payer healthcare system, lowering our costs and fattening our profit margins!! 

 Boss of Drone, sticking his head through the office door: Johnson!!! I can't believe what I just heard!! You're fired!! We don't want any communists in this company!!" 

 Drone: But we have offices in China. 

 Boss of Drone: Get out!! 

 Mysterious echo: Eeeeeeexxxxccceeelllleeennnnttttt...... 

 Boss of Drone: Who was that?? 

 Echo: I am the ghost of American capitalism, and you did the right thing by getting rid of that pinko. Let me show you a true blue American way to save money on your healthcare costs. POOF!! 

 A cloud of smoke engulfs the office, and another corporate drone appears, in a more expensive suit than the recently fired Johnson, wearing a Rolex, and carrying a laptop.

 "Greetings!! I am your friend the Pharmacy Benefit Manager!! If you think you are paying too much for prescription drugs, hire me and I will negotiate with those greedy overcharging drugstores and pharmaceutical manufacturers on your behalf!!"

 Boss of Drone: That sounds wonderful!! You're hired!! 

 The scene now shifts to your local drugstore, where the PBM man is talking to the pharmacist. 

 PBM: Sign this contract. 

 Pharmacist: What if I don't? 

 PBM: You'll lose all your customers. The biggest three of us manage over 80% of all prescriptions.

 Pharmacist: But you're paying me a dollar for this prescription. My normal price is five. 

 PBM: SILENCE!! IF YOU EVER DISCLOSE THE TERMS OF THIS CONTRACT I WILL SQUASH YOU LIKE A BUG!! NOW TAKE YOUR DOLLAR AND THANK ME FOR IT!!

 We now go back to the office. 

 PBM: I am happy to report things are going splendidly. For example, look here, I have saved you over 80% off the Average Wholesale Price on this prescription alone! That will be 10 dollars, please.

 Boss of Drone: But I'm pretty sure we used to just pay 5 when we bought it straight from the drugstore.

 PBM: Ha ha!! Like I said, you're paying 80 percent less than the Average Wholesale Price!! 

 Boss of Drone: But how is it possible for me to be paying less than wholesale? 

 PBM: The magic of American capitalism!! Good thing for you you're locked in a multi-year contract!

 My imaginary readers, you have just learned a lesson in what is called spread pricing, one of the practices that make running a Pharmacy Benefit Manager so profitable. As you just saw, the idea is to pay the pharmacy as little as possible while passing none of the savings on to the client actually buying the prescriptions. 

 "Average Wholesale Price", by the way, is a benchmark that has no correlation to the actual wholesale price of a med. It's basically a number someone pulls out of their ass. Therefore it is entirely possible to claim you are saving someone 80%, or more , off the "average wholesale price"

 "Drugmonkey", I imagine you saying, "you're a left wing wacko. We can't trust anything you say, prove it!"

 Sure. In just one example, the state of Ohio found that PBMs charged the state $200,000,000 more than what they paid pharmacies for Medicaid prescriptions. Using a little back of the envelope math, that amounts to about $4 per prescription. In California, they decided they could cut out the PBMs from their Medicaid system, split that $4 with the dispensing pharmacy, and leave both the state and the drugstores better off financially. 

 So there you have it  my imaginary readers. I just tricked you into learning some wonky wonky stuff about the drug business. And I haven't even touched on how PBMs browbeat manufacturers into "rebates" or the subject of DIR fees. Trust me, we have just scratched the surface here. DIR fees make my head explode. For now though, I'll reward you for getting through this post with a video of two kittens wrestling. Be sure to vote on Tuesday.