The Secret Industry That Meddles With Your Medications
WHY YOU SHOULD CARE
Because everyone loves getting a sales pitch instead of their prescriptions.
By Lily Altavena
Adam Pierno, a 40-year-old ad exec in Scottsdale, Arizona, was heading to his local CVS not so long ago, intending to refill a prescription. Quick errand, or so he thought. Upon arrival, he heard his insurance was suspended. But wait! When he called his insurer, Blue Cross Blue Shield, they said there wasn’t a problem and they’d put the scrip through if he wanted — but first, wouldn’t he like to hear how he could save money by switching to a mail-order pharmacy run by Express Scripts? “It was a nasty tactic,” Pierno says.
Americans love to hate their health insurers; these gatekeepers barely edge out the post office and cable companies in customer satisfaction rankings. But it turns out there’s a related industry that people might like even less — if they knew about it. Outfits like Express Scripts go by the terrible name of “pharmacy benefit managers” — PBMs, in insurance lingo — but all you really need to know is that they make a business of inserting themselves between you and the medications your doctor prescribes. (The Federal Trade Commission estimates that PBMs handle 95 percent of U.S. prescriptions.)
Middlemen like PBMs may be dying off everywhere else, but they’re alive and well in the economic hairball of U.S. health care.
PBMs say, with some justice, that they’re playing an important role in the health care system by keeping drug costs down. The industry says it cuts prescription costs by 35 percent, a figure in line with older estimates by the federal Medicare program. That’s a lot of dough in a U.S. drug market that was worth almost $400 billion in 2014, according to the IMS Institute for Healthcare Informatics. But critics argue those savings come at a big cost. Companies like Express Scripts, they say, essentially act as enforcers for insurance companies, telling you what prescriptions you can and can’t use, deciding how much you’ll pay, and even sometimes steering you toward their own mail-order pharmacies.
Middlemen like PBMs may be dying off everywhere else in the modern economy, but they’re alive and well in the economic hairball that is U.S. health care, which turns everyone into a middleman. Drug companies, for instance, don’t sell their meds to doctors or patients — they just spend enormous sums convincing doctors to prescribe the pills that insurance companies will ultimately pay for. Insurance companies hate that and fight back with coverage restrictions and other bureaucracy. Under such circumstances, the capitalist magic of business competition can’t do much to improve service and lower costs. Instead, the warring sides wage costly but inconclusive trench warfare, occasionally creating new weapons like PBMs in hopes of breaking the stalemate.
Trouble is, patients sometimes get stuck in no-man’s land. Lindsay Kearns, a 24-year-old food and nutrition marketer in Denver, found her recent attempt to pick up a migraine prescription hijacked by her insurance company, UnitedHealth Group. But Kearns didn’t get a soft sell; she says the insurer told her she could either switch to a mail-order pharmacy run by UnitedHealth’s in-house PBM, OptumRx, or pay the full — i.e., uninsured — price. UnitedHealth referred queries to OptumRx, which responded with a boilerplate statement touting its “92 percent customer satisfaction score” and the benefits of home delivery. Blue Cross Blue Shield and Express Scripts said they couldn’t comment on the specifics of Adam Pierno’s case, although Express Scripts noted that, in general, insurers sometimes require home delivery of certain prescriptions “for added convenience, safety and cost savings.” (Both Pierno and Kearns ultimately switched to home delivery, saying they couldn’t afford to pass up the lower prices.)
PBMs first arose in the 1990s as IT-savvy firms that could connect insurers to CVSes and Walgreens across the country, according to Patricia Danzon, a health care management professor at the Wharton School. PBMs were so good at that, insurers eventually handed them the keys to their prescription-drug benefits — thus their name — even letting them make huge decisions over which drugs to cover and how. Suddenly, PBMs had the clout to squeeze Big Pharma but good. “They go to the [drug] manufacturer and say, ‘If you give us the lowest price, we will structure our [benefits] to steer patients towards your drug,’” Danzon says.
Once you start squeezing, though, it’s hard to stop. PBMs soon hit on the notion of running their own mail-order operations to cut local and chain pharmacies out of the picture. While mail-order medicine sounds like it should be as convenient as Amazon, that’s only true when it works — and it sometimes doesn’t. Jesse Smith, an HIV-positive physics student at San Francisco State, had his antiviral prescription switched to OptumRx’s mail-order pharmacy in 2012. Only twice did his meds arrive on time, he estimates; once, he paid for a two-day supply out-of-pocket at more than $100 a pill. Similar stories from other HIV or AIDS patients led to lawsuits; some are settled, while others are ongoing. Those settlements, however, are strictly limited to HIV and AIDS patients, leaving out cancer patients or others with chronic illnesses.
PBMs, which routinely argue they’re playing a vital role in the health care industry, are certainly doing well as a result. Express Scripts, generally considered the largest independent PBM, reported a $2 billion profit last year, up 9 percent from the previous year, even though its overall revenue declined. These companies are also getting bigger. UnitedHealth just paid almost $13 billion for a PBM called Catamaran, which it intends to merge with OptumRx to create the third-largest PBM in the world. According to research from Trefis, UnitedHealth will eventually manage more than 1 billion prescriptions when this deal goes through.
You may not even notice, of course. As Jerry Flanagan, a Consumer Watchdog lawyer involved in the HIV/AIDS lawsuits, says: “No one knows what a PBM is, as long as they’re not screwing with you.”
- Lily Altavena, OZY Author Contact Lily Altavena