Tuesday, March 22, 2016

qotd: The rent-seeking behavior of pharmacy benefit managers

March 21, 2016
Secret deals may mean consumers pay more for drugs
By Jayne O'Donnell

Secret deals often prompt drug benefit companies to cover brand-name
prescriptions when equally effective generic or even over-the-counter
medications are available, several drug pricing experts say.

These companies, known as pharmacy benefit managers (PBMs), negotiate
deals with drug makers that include rebates and other compensation to
encourage certain drugs and come up with lists of drugs that their
insurance plans will cover. Employers and insurance companies then
determine which drugs to encourage on these formularies.

The process is so convoluted that even the United States' largest
insurer, Anthem, discovered what it said were $3 billion in overcharges
by Express Scripts and filed suit Monday against the PBM for damages.

In their deals with drugmakers, PBMs agree to favor the high-cost drugs
on the PBMs' formularies and agree that they won't place quantity limits
— or prior authorization programs — on the drugs, even though doing so
would help health plans save money and make medical sense, says Linda
Cahn, founder and president of Pharmacy Benefit Consultants, which
audits PBM contracts.

"What really gets me started is when PBMs sell their clients on programs
that increase costs by encouraging brands so that the PBM can collect
rebates," says Susan Hayes, a principal in Pharmacy Outcomes
Specialists, which represents plan sponsors and audits their PBM
contracts. "And many clients do not know the cost implications when
they sign off on these programs."



Comment by Don McCanne

Pharmacy benefit managers (PBMs) are yet one more example of how
effective our policymakers have been in taking care of the medical
industrial complex while perpetuating the highest level of health care
spending of all nations. PBMs are superfluous pharmaceutical middlemen
who further compound our uniquely-American, highly wasteful
administrative excesses as a necessity to gain reward for their own
rent-seeking behavior.

Rent-seeking is the use of a company, organization or individual's
resources to obtain economic gain from others without reciprocating any
benefits to society through wealth creation. (Investopedia

Rent-seeking is a creature of the medical-industrial complex. It should
have no place in our health care system. If we established a single,
universal, publicly-funded and publicly-administered health care
financing infrastructure, it would function as a monopsony, representing
the people, that would work for us to dramatically reduce administrative
waste while preventing clandestine rent-seeking gains.

In the words of Nobel laureate Kenneth Arrow - the leading authority in
markets and health care - single payer is "better than any other system

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