Predatory Pharmaceutical Parasites (Pharmacy Benefit Managers)

prospect |  Rob Frankil of Sellersville, Pennsylvania, followed his father into the family business after college. “My entire life,” he said, “I’ve been involved with managing and owning independent pharmacies.” He now owns two stores, a traditional community pharmacy and another that caters to long-term care facilities.

Like any retail outlet, Frankil purchases inventory from a wholesale distributor and sells it to customers at a small markup. But unlike butchers or hardware store owners, pharmacists have no idea how much money they’ll make on a sale until the moment they sell it. That’s because the customer’s co-pay doesn’t cover the cost of the drug. Instead, a byzantine reimbursement process determines Frankil’s fee.

“I get a prescription, type in the data, click send, and I’m told I’m getting a dollar or two,” Frankil says. The system resembles the pull of a slot machine: Sometimes you win and sometimes you lose. “Pharmacies sell prescriptions at significant losses,” he adds. “So what do I do? Fill the prescription and lose money, or don’t fill it and lose customers? These decisions happen every single day.”

Frankil’s troubles cannot be traced back to insurers or drug companies, the usual suspects that most people deem responsible for raising costs in the health-care system. He blames a collection of powerful corporations known as pharmacy benefit managers, or PBMs. If you have drug coverage as part of your health plan, you are likely to carry a card with the name of a PBM on it. These middlemen manage prescription drug benefits for health plans, contracting with drug manufacturers and pharmacies in a multi-sided market. Over the past 30 years, PBMs have evolved from paper-pushers to significant controllers of the drug pricing system, a black box understood by almost no one. Lack of transparency, unjustifiable fees, and massive market consolidations have made PBMs among the most profitable corporations you’ve never heard about.

Americans pay the highest health-care prices in the world, including the highest for drugs, medical devices, and other health-care services and products. Our fragmented system produces many opportunities for excessive charges. But one lesser-known reason for those high prices is the stranglehold that a few giant intermediaries have secured over distribution. The antitrust laws are supposed to provide protection against just this kind of concentrated economic power. But in one area after another in today’s economy, federal antitrust authorities and the courts have failed to intervene. In this case, PBMs are sucking money out of the health-care system—and our wallets—with hardly any public awareness of what they are doing.