Pharmacy Benefit Managers: The Big Insurance Con That Drives Up Your Drug Prices and Their Profits

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The following article by Rick Manning is is sponsored content from Americans for Limited Government.

My doctor speculated that one day the mob would take over the health care business. Illegal drugs, prostitution, gambling rings, and the like only appeal to a small part of the population, but everyone needs to go to the doctor.

I think he was joking at the time … after all, the mob has nothing on the cronies who’ve already taken over health care.

Although Obamacare was sold as the solution to all of America’s health care woes, the outcomes almost 15 years later have been awful. Premiums have become more expensive as health insurance has become a bank-breaking necessity. Benefits have rapidly dwindled, the costs of treatment have increased, options have become more constrained, and the doctor-patient relationship has been indelibly sullied by the billing codes and arcane databases. Obamacare has been proven as the legislative snake oil of the 21st Century.

Perhaps it would be more accurate to say outcomes have been awful for us – the patient. Health insurance companies have raked in record profits under the “Affordable” Care Act (ACA).

Much like everything else in our gloomy, globalized era, the fundamental problem has been mass consolidation. The free-market economy doesn’t work when it’s unfree from monopolies, and there’s no greater monopoly than the federal government. When it picks winners – even under the oh-so altruistic banner of health care for all – we all lose.

And under Obamacare, the biggest winner has been the UnitedHealth Group (UNH). In April 2010, right after the ACA was signed, UnitedHealth’s stock price was a paltry $30. It now hovers somewhere below $500.

Apparently when Obama said “at a certain point, you’ve made enough money,” he was not counting corporate insurance beneficiaries of his signature legislation.

Now perhaps that last one is not completely fair. After all, Democrats did try to rein in insurers with the ACA. As has been pointed out in painfully precise detail, they stressed a provision called the medical loss ratio (MLR). The MLR requires companies to spend 80 to 85 percent of premium revenue on actual health care “so executives wouldn’t be able to pad their wallets as much.”

However, as is often the case with government mandates, insurers like UnitedHealth just maneuvered around the letter of the MLR rather than following the spirit of it. See, insurance companies tend to have diversified business interests – including pharmacy benefit managers (PBMs), physician-owned practices, payday loans, and so on.

So, while the MLR capped profits for claims reimbursement at the point of service, differently designated treatments serve as a loophole; so, insurance companies can get away with much less than that lofty 80 to 85 percent. In a Freakonomics-style “people respond very strongly to incentives,” the MLR instead created the financial imperative for insurance companies to become even more powerful rather than less.

UnitedHealth has taken point on consolidating the PBM industry when it acquired PacifiCare Health Systems in 2005, which they rebranded as “OptumRx.” Ten years later, UnitedHealth bought Catamaran – the fourth-largest PBM in the U.S. – for just shy of $13 billion.

See PBMs exist ostensibly to serve as a negotiator between pharmaceutical and insurance companies. In theory, that’s a great idea, but not if one of those two parties owns the PBM. It’s like if the mob owns a law firm. The three biggest PBMs are each owned by a large insurer: Caremark is owned by CVS/Aetna, and Express Scripts is owned by Cigna.

Insurance companies use their PBMs to drive up prescription drug prices for patients. A U.S. House Oversight Committee report found that PBMs force drug manufacturers to increase their list price so that PBMs can pad their profits with bigger “rebates.”

Last year, OptumRx made almost $100 billion for UnitedHealth. In the past, we would have called that a conflict of interest. Nowadays it’s called “managed care.”

Adding to the cronyism and complexity, the industry has even recruited AARP as its political bodyguard. UnitedHealth pays AARP close to a billion a year to sell its insurance products to seniors and curry favor with politicians. Our whole byzantine health care system has become so overwhelmingly complicated that it’s no surprise Americans are furious.

Insurance companies and their PBMs have gamed the system, and their profits are up tens of billions. Patients are paying more for prescription drugs. And community pharmacies are closing at record rates.

The deck feels stacked against ordinary Americans. That causes America’s widespread loss of faith in institutions. Maybe it’s because these institutions have become too big for anyone’s good but the few dons at the top. The federal government should not be picking winners and losers; it certainly shouldn’t be creating monopolies who are incentivized to drive up drug prices for patients.

All of this leaves people like me wishing that the health care industry would just be taken over by the mob. At least when they shake someone down, they’re honest about it.

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