Don’t Hit the “Easy” Button

By Nick van Terheyden aka Dr Nick, Principal, ECG Management Consulting
Twitter: @drnic1
Host of Healthcare Upside Down#HCupsidedown

Recently I went to fill a prescription that historically had cost about $12 for a year’s supply. So you can imagine my shock when I was asked to pay a total that would have translated to almost $800. And that’s for a generic drug—long past its patent protection and eligible for manufacturing by any company, dropping its production cost to pennies. I did what many patients do—declined my medication and walked out of the pharmacy.

It was around this time that billionaire entrepreneur Mark Cuban launched his Cost Plus Drug Company, so named for its transparent pricing mechanism. The company buys drugs at the lowest possible price, adds a 15% margin, and then adds a $3 for shipping and handling. Even with all the extra overhead, the difference between Cost Plus’s price and the one I was quoted in the pharmacy was 8,400%. Their model bypasses all the administration that is linked to some of the stratospheric costs we find ourselves paying for drugs in this country.

Episode NOW on Demand

Cost Plus isn’t the only organization that’s disrupting the pharmacy system and, in particular, the pharmacy benefit managers (PBMs). Zack Robinson is the founding partner of DisclosedRx, a company that aims to improve access to prescription medication and make drug pricing more transparent. On episode Zack explains why we’re still a long way from full disclosure on pricing. Here are a few excerpts.

The elusive concept of transparency.

“I love the word transparency, because it’s thrown around so often in the healthcare market space as the end-all, be-all solution to fix everything. Transparency really only means what the other what the person on the other end of the phone wants it to mean. It often ends up meaning opaque or translucent rather than transparent. And unfortunately, that’s because there’s no set definition of transparency.”

The opposite of transparency.

“The large PBMs aren’t even aiming for transparency; they want it to be a completely black box. There is so much money in pharmacy benefits, and just gross profiteering that most folks have no idea even happens. One of the ways they’ll obtain revenue is by charging members their full copay at the pharmacy even when the drug might cost less. So if you go to the pharmacy and the generic drug you’re getting costs $4, but your copay says it’s $25, the PBM is going to tell the pharmacy ‘Charge the member all $25; you can have your $4, we’ll take the other $21.’ That’s called a copay clawback.”

Bundles are easy for employers, but there are better deals to be had.

“Self-funded employer groups that are paying premiums to a black box every month would be much better off assuming some of the risks and reaping the benefits for themselves and their employees. Because of the vertical integration between insurers and PBMs, they’ve been able to create these bundled products that are very easy for brokers or advisers to implement for their clients. And so they have some of those risk-based elements that employers can benefit from, but they’re still seeing double-digit increases on their premiums each year. Part of the reason for those increases is because that vertical integration allows for even more revenue creation by the entities that are involved—namely, the insurer and the PBM. The ease of those types of products has contributed to employers not always getting the best possible deal.”

About the Show
The US spends more on healthcare per capita than any other country on the planet. So why don’t we have superior outcomes? Why haven’t the principles of capitalism prevailed? And why do American consumers have so much trouble accessing and paying for healthcare? Dive into these and other issues on Healthcare Upside/Down with ECG principal Dr. Nick van Terheyden and guest panelists as they discuss the upsides and downsides of healthcare in the US, and how to make the system work for everyone.

This article was originally published on the ECG Management Consulting blog and is republished here with permission.