PBMs—The Fox in the Henhouse
AI is supposed to be so much smarter than people. Just for fun, I have recently asked AI what percentage of the U.S. healthcare dollars actually go to doctor reimbursement. And as one might expect, the answer is remarkably evasive. Yes, AI knows how to be evasive, especially when asked direct questions. Here’s what AI offered as the answer.
“Roughly 20 to 24 percent of the healthcare dollar goes to physicians and clinical services. This includes the cost of doctor’s visits, clinical procedures, and other services provided by physicians.”
Think about it. All of these factors include expenses that have absolutely nothing to do with a doctor’s salary.
These costs include maintenance of the building, heating and air conditioning, lights, construction, receptionists, nurses, laboratory personnel, managers and CEOs. In the early 1990s when we were doing research for our book Modern Medicine: What You’re Dying to Know, we discovered that at that time about half of the healthcare dollars went to doctors and half of it went to hospitals. Of course, the times. “they are a changin.” So, to answer the question how much money actually goes to physicians to provide patient care, the truth is hard to find, but I would hazard a guess it would be significantly less than 20 to 24 percent. I suspect the number is probably more in the neighborhood of 10 percent.
The Centers for Medicare and Medicaid Services (CMS) annually recommends cutting physician reimbursement to give the impression CMS is actually controlling costs. I have never seen anywhere what percentage of these dollars are chewed up by CMS administrative overhead.
Over the years I have tried dozens of times to find out the cost of running the administration of CMS. I expect somebody knows but doesn’t want to tell for obvious reasons. I’m not even sure our legislators know or ask. After many searches, I’ve found dozens of evasive answers, but I have found figures for the Affordable Care Act (ACA). The information provided indicated 91,000 enrollees, which comes to bout $1000 average to enroll one member. But the information indicates some members require $3000 in administrative costs to be enrolled.
It's no wonder we can’t get a straight answer to the straightforward question of how much the administration of CMS costs taxpayers. One search indicated CMS has 6710 employees which do 3 percent of CMS work.
Of that spending, 97 percent was allocated to IT services and administrative support, whatever that means. A lot of missing information here.
During Covid, money flowed to Big Pharma. In 2022, Moderna’s Stephan Bancel’s salary was $19.4 million which was obviously not enough so he collected another $382 million from exercising stock options that had previously been granted to him. Indeed, that kind of money would supply approximately 1200 doctors with a very reasonable salary. I’ve written here before about the exorbitant salaries of Big Pharma’s CEOs. Bancel’s salary is not the only money that our federal government pumped into Moderna. Let’s face it—Big Pharma is big money. In the pandemic, Moderna received over 18 billion and Pfizer-BioNTech received over 20.4 billion. I’m sure these are these numbers are not the whole story.
Doctors and patients are high on CMS’s list for being blamed for CMS expenses. The fake news is that doctors can’t wait to scam the federal government and that patients can’t stop over-utilizing medical care. Neither of these fake claims could be further from the truth. In addition, doctors are blamed for ordering tests, but unfortunately they have very little input regarding the cost of these tests. Based on these three false premises, a lot of damage is done by payers, including CMS, to patient medical care. We are all tired of hearing about unnecessary testing and unnecessary visits. And now we have something called value- based care in response to those three false promises. I’ve written before about the folly of value-based care. In reality, value-based care will do nothing except contribute or exacerbate the reason that medical care is failing so many in this country by denying access to care. In medicine, we learn early on to be proactive. A stitch in time really does save nine. But each year our payers push crisis over prevention.
Big Pharma is big business. Each year in the United States 4.4 billion prescriptions are filled. Of those 4.4 billion, 3.9 billion are for generics and one third are sold by CVS and its subsidiary Cardinal Health. CVS has its own PBM.
For those of you who might not know, PBM’s emerged in the United States in the 60s to manage prescription drug benefits for insurance companies which were beginning to offer drug coverage. The point was that the insurance companies utilized PBMs to maximize prescription drug savings to the consumer. So, the initial role was to protect the insurance company and the consumer from price gouging by Big Pharma. The original legislation producing PBMs was well thought out, altruistic, and sincere.
Today the key players are large PBMs such as CVS Caremark, Express Scripts, and Optum RX which dominate the market, often vertically integrated with insurance companies. This so-called vertical integration is designed to reign in Aetna customers for CVS and vice versa. When we discuss the benefits of vertical integration for big business, we’re talking about the unfortunate manipulation of consumers for Big Pharma profit.
Due to a loophole in the legislation, the situation changed in the 1990s and drug manufacturers begin acquiring PBMs. That move raised concerns about conflicts of interest, prompting the Federal Trade Commission (FTC) to issue orders requiring divestment. This is where our legislators, the FTC, DOJ, CMS and other government agencies apparently did a Rip Van Winkle and decided to go to sleep. There were valid concerns raised, but for some reason or other, the FTC failed to deal with these valid concerns and we should all ask why. Were they carrying water for the drug companies as the FDA, CDC and NIH do today?
Today the PBMs know their corporate form is quite different from the original design in the late 1960s to protect consumers from price gouging by Big Pharma. While it is still illegal for drug manufacturers to directly own PBMs, they have devised a way to get around the problem. The Commonwealth Fund explains:
“These incentives are rooted in the vertical and horizontal consolidation that the PBM sector has undergone in recent years. For example, a PBM can charge insurers a higher amount for a given drug than what the PBM actually reimburses the pharmacy — a practice known as “spread pricing.” PBMs also commonly steer patients to the pharmacies it owns and under-reimburse smaller, independent pharmacies.”
The New York Times reports on the damage PBMs do to independent neighborhood pharmacies:
“To take just one example: For a month’s supply of the blood thinner Eliquis, several pharmacists in different states said, the big three P.B.M.s routinely paid them as much as $100 less than what it cost the pharmacies to buy the medication from a wholesaler. By contrast, the P.B.M.s sometimes pay their own pharmacies more than what they pay local drugstores for the same medications.”
Pharmacies have very little recourse in dealing with the PBMs, but on June 24, Louisiana Attorney General Liz Murrill filed lawsuits against PBMs:
“They should also never ever have allowed the vertical integration of pharmacies and the PBMs. This is in violation of the spirit of the initial law passed in the late 1960s.”
Arkansas has also taken up the cause and passed a law to prevent PBMs from owning and operating pharmacies in the state.
I spent decades practicing medicine in rural North Dakota. I know the value of local pharmacies and I know how they struggle to deal with these mandated mail order prescriptions required by PBMs. There are certainly numerous problems with mail order pharmacies. First, you can’t go downtown and get your prescriptions within an hour or two and you certainly can’t get your medications on Saturday or Sunday.
Another serious problem is that mail order pharmacies don’t come to the hospital to restock meds. The local pharmacist does, providing tremendous benefit to the community. We all know that when PBMs rein in patients, small local pharmacies lose money.
A more insidious problem with these mail order pharmacies is that they send patients medications automatically, often sending and charging for more medication than the patient needs. Although this is certainly a fraudulent practice, it seems to be one that has escaped regulators.
The good news is that this mess is all fixable with the appropriate federal or state legislation. The struggles we are having with healthcare financing will continue unabated until, as Elizabeth Rosenthal says in An American Sickness, only voters can get legislators to make the changes needed to reign in corporate greed. Elisabeth Rosenthal provides a particularly detailed history of how our healthcare system has become so controlled by big business in An American Sickness:
“In these troubled times, perhaps no institution has unraveled more quickly and more completely than American medicine. In only a few decades, the medical system has been overrun by organizations seeking to exploit for profit the trust that vulnerable and sick Americans place in their healthcare. Our politicians have proven themselves either unwilling or incapable of reining in the increasingly outrageous costs faced by patients, and market-based solutions only seem to funnel larger and larger sums of our money into the hands of corporations.” (from Kindle description)
The problems with PBMs are real. Concerns about these problems have been presented to the FTC and the DOS in 2017 with the merger of CVS and Aetna. Most eighth graders could have seen the looming problems. Had the FTC and DOJ done their jobs, the Louisiana Attorney General and the state of Arkansas would not have to be trying to correct the problems with PBMs in their states. Our federal government has caused problems that the states must now repair. The issue is why the FTC and the DOJ didn’t prevent the problems in the first place.
The American public is suffering from the errors of the FTC and the DOJ. Big business will always feather its own nest. We know that the fox will eat the chickens. That’s what they do and we really can’t change that behavior. It’s up to the farmer to protect the chickens and it’s up to the federal government to protect the public from the kinds of abuse big business employs to prey on the public.