Honestly, I'm grateful for this article because it encouraged me to recheck Mark Cuban's available pharmacopeia. Cost Plus Drugs is now carrying a couple of my meds at $9/mo. each, where CVS was...
Honestly, I'm grateful for this article because it encouraged me to recheck Mark Cuban's available pharmacopeia. Cost Plus Drugs is now carrying a couple of my meds at $9/mo. each, where CVS was $80/mo. each. [It's inexcusable that hydroxychloroquine went up in price sixfold during the pandemic, if it was available at all, and the price has continued rising since then.]
We're also trapped into changing insurance to UnitedHealthcare next year, and the physicians available in their network are either not accepting new patients or among the worst-reviewed in town. We'll be paying for our current primary care providers out of pocket, and that usually means all downstream services become fights for preauthorizations and reimbursements.
We're by no means among the most needy of healthcare consumers now, but we're frightened we won't make it to Medicare age without another potentially bankrupting life event or condition in the current private healthcare environment. It's obscene that we spend so much, receive so little in return for it, and are just fattening the wallets of middlemen.
Pharmaceutical firms and hospitals attract much of the public ire for the inflated costs. Much less attention is paid to a small number of middlemen who extract far bigger rents from the system’s complexity.
Over the past decade these firms have quietly increased their presence in America’s vast health-care industry (see chart ). They do not make drugs and have not, until recently, treated patients. They are the intermediaries—insurers, chemists, drug distributors and pharmacy-benefit managers (pbms)—sitting between patients and their treatments. In 2022 the combined revenue of the nine biggest middlemen—call them big health—equated to nearly 45% of America’s health-care bill, up from 25% in 2013. Big health accounts for eight of the top 25 companies by revenue in the s&p 500 index of America’s leading stocks, compared with four for big tech and none for big pharma.
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With little room left to grow in their core businesses, and trustbusters blocking attempts to buy direct rivals, the oligopolists have been expanding into other bits of the health-care supply chain. Besides adding to the top line, such vertical integration is juicing margins. The Affordable Care Act of 2010 limited the profits of health insurers to between 15% and 20% of collected premiums, depending on the size of the health plan. But it imposed no restrictions on what physicians or other intermediaries can earn. The law created an incentive for insurers to buy clinics, pharmacies and the like, and to steer customers to them rather than rival providers. The strategy channels revenue from the profit-capped insurance business to uncapped subsidiaries, which in theory could let insurers keep more of the premiums paid by patients.
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Industry executives say that bringing all parts of patient care—primary-care clinics, pharmacy services, pbms and insurance—under one roof is beneficial for all. In the old fee-for-service model, big health argues, doctors or hospitals are paid for each service they provide, encouraging them to perform as many as possible and charge as much as they can. If doctors and insurance companies are part of the same business, by contrast, incentives should be aligned and overall costs should be lower.
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Yet vertical integration can have adverse side-effects. For example, many studies have found that after hospitals acquire physician practices, prices increase but quality of care does not. A health-care company that controls many aspects of patient care could raise prices for rivals wishing to access its network. Some also worry about physicians being nudged towards offering the cheapest treatment to patients, lowering the quality of care.
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At issue is [pharmacy-benefit managers'] opaque pricing, which takes a drug’s list price and shaves off discounts that the pbm wrangles from drugmakers. pbms claim they are a counterweight to big pharma. But critics argue that large pbms do not pass on the discounts to the health plans, instead keeping much of the difference for themselves, and limit access to treatments that are less profitable for them. In August Blue Shield of California, a regional health insurer, ditched CVS’s pbm in favour of smaller firms to save on drug costs for its nearly 5m members.
America’s health-care intermediaries are indeed unusually profitable. Research by Neeraj Sood of the University of Southern California and colleagues found that intermediaries in the health-care supply chain earned annualised excess returns—defined as the difference between their return on invested capital and their weighted-average cost of capital—of 5.9 percentage points between 2013 and 2018, compared with 3.6 for the s&p 500 as a whole.
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Big health’s giant pool of excess profits is at last attracting newcomers. Upstart health insurers like Bright Health Group and Oscar Health have positioned themselves as a transparent and consumer-friendly alternative to the old guard. Mark Cuban Cost Plus Drug Company, an online pharmacy started by the eponymous billionaire, bypasses the middlemen by buying cheaper generics directly from manufacturers and selling them to consumers at a fixed 15% mark-up.
Perhaps the biggest disruption to big health could come from Amazon. In 2021 its health-care ambitions suffered a setback owing to the closure of Haven Healthcare, a not-for-profit joint venture with JPMorgan Chase, the biggest bank in America, and Berkshire Hathaway, the biggest investment firm. Haven had aimed to cut health-care costs for the trio’s own staff. But despite Haven’s failure, Amazon is still expanding its health-care business. Last year it paid $3.9bn for One Medical, a primary-care provider. It runs Amazon Clinic, an online service offering virtual consultations, and RxPass, which lets members of its Prime subscription service buy unlimited generic drugs for a small fee. John Love, who heads Amazon’s pharmacy business, believes that the tech giant’s focus on customer experience, combined with its vast logistics network, makes it well-suited to shake up the industry.
So far the newcomers’ impact has been muted. [...]
Honestly, I'm grateful for this article because it encouraged me to recheck Mark Cuban's available pharmacopeia. Cost Plus Drugs is now carrying a couple of my meds at $9/mo. each, where CVS was $80/mo. each. [It's inexcusable that hydroxychloroquine went up in price sixfold during the pandemic, if it was available at all, and the price has continued rising since then.]
We're also trapped into changing insurance to UnitedHealthcare next year, and the physicians available in their network are either not accepting new patients or among the worst-reviewed in town. We'll be paying for our current primary care providers out of pocket, and that usually means all downstream services become fights for preauthorizations and reimbursements.
We're by no means among the most needy of healthcare consumers now, but we're frightened we won't make it to Medicare age without another potentially bankrupting life event or condition in the current private healthcare environment. It's obscene that we spend so much, receive so little in return for it, and are just fattening the wallets of middlemen.
From the article (archive link:
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