Everywhere PBMs Exist Costs Are Higher
It is said that even a broken clock is right twice a day, but that doesn’t happen if it’s a digital clock.
Speaking at an event in Kansas City, Federal Trade Commission Chair Lina Khan, appeared to get something right by calling for investigations of pharmacy benefit managers (PBM) - a healthcare middleman that negotiates with drug manufacturers, contracts with pharmacies and develops drug formularies. But a big-government bureaucrat is like a digital clock – always wrong.
Khan was right is identifying PBMs as a pain point in healthcare. Everywhere PBMs exist, costs are higher and supply and access is limited. However, this isn’t really their fault. In fact, those outcomes are what their business model is based around, and given the public policy that drives healthcare markets, they have a place in the market.
Just as Martin Shkreli took advantage of a slow and inept FDA to raise the price of his drug, PBMs take advantage of the largely third-party, payer-driven healthcare market. They drive prices up in order to dole out “negotiated” lower prices that they then claim as the benefit of their service. The problem for PBMs is that they drove prices too high and made room for innovative and aspiring entrepreneurs that entered the market and exposed the true price of medications.
There are the smaller buyers like Josh Umbehr and his Atlas MD practice that provides prices lower than can be found anywhere else – sometimes up to 90% less. There are now bigger upstarts like Mark Cuban’s new platform that are looking to completely transform the market (although Cuban still has higher prices than Umbehr).
Using the power of the government to look into these businesses isn’t going to accomplish much. Chairwomen Khan and her FTC colleagues are suffering from selection bias. We can easily forecast the results that will come out of any study of PBM business methods –PBMs in the market drive higher prices. And we can easily forecast Khan’s reaction – government regulation of these business practices.
The problem with these outcomes is they won’t solve or even identify the real problem. The real problem is the fact that government regulations have shaped the healthcare industry into a market where third-party payers and government payers dominate. The result is that competition is artificially harmed, and transparency no longer exists for end users. For instance, if you buy a prescription from a major pharmacy like CVS you see a price that the drug would “cost” and what your insurance discount– but the net price is still higher than what the price would be if you could just buy the drug direct from the pharmaceutical company (which is what Umbehr and Cuban do). But patients don’t see that, they just see the “discount” from the made-up price.
This is one of the oldest sales tricks in the book.
Worse yet, any new regulations proposed by the FTC would need to control the prescription market – that would likely mean who can buy and sell drugs – harming Umbehr and Cuban’s fledgling businesses. Additionally, the public policies would stay in place meaning that PBMs would have even more power (given fewer competitors), the market would move even slower given government control, and the market would move even further away from the patient/physician relationship.
Fixing healthcare isn’t easy because over many decades layers of regulatory Band-Aids have been added, creating a market that operates to preserve itself, not to help patients and providers.
But the answer to what is wrong with healthcare is easy: the federal government.
We need less government. We need fewer layers between the patient and the physician. We need a healthcare system that works for the patient – not for the many layers of middle-men who have found profit in the murkiness of regulatory babble.
The answer is to personalize healthcare. Give more power to the patient and doctor. Where there is less government in healthcare, there is more innovation, lower prices, and increased access.
So, kudos to Chairwomen Khan for identifying a symptom of our broken healthcare market. Hopefully she and her FTC colleagues can avoid their bias and see that they themselves and their sister agencies are the problem. But the same way a broken digital clock will never be right – an entrenched bureaucrat will likely never see or acknowledge their bias.
Dr. Madrigal has been a physician in the Highland Lakes Area for 19 years. She has her own medical practice where she treats people with cancer for free, gives a discount to teachers and preachers and still makes house calls. Dr. Madrigal is also the Burnet County Health Authority, and the Medical Director for Marble Falls and Horseshoe Bay Fire Departments as well as the MFHS EMT program.
