The Price We Pay

by Marty Makary

  Justin Simon is a respected health care analyst and investor. I met Justin for lunch in Washington, D.C., and he confirmed everything Toth had said. It’s a burden to health plans all over America, he said. Simon said one of the biggest problems he’s seeing with PBMs is that they now often own the pharmacies filling the prescriptions.

  “PBMs claim they are saving you money by managing your medication costs,” Simon said. “But the more the pharmacies sell, the more they make. It’s a conflict of interest.”

  The fundamental conflict is that the PBM claims to reduce what you spend on drugs while owning a pharmacy that profits when you spend more. This leads to yet another PBM shenanigan: signing up patients for mail order drug delivery.

  It goes like this: A PBM figures out in their data that you, the patient, had a medication refilled. The PBM then calls you incessantly trying to get you to sign up for their mail order program, enticing you with a lower copay. But once you get on the mail order train, it’s hard to get off. All of a sudden, you’re getting stockpiles of medications you don’t want or need because the PBM is getting your doctor to sign a refill request even though you never asked for one. When the doctor’s office receives a refill request they often just sign it. I’ve done it myself.

  The PBM has a different spin. They report that they are increasing patient compliance. But then I have to ask: Does sending a medication to a patient’s house mean the patient actually took it?

  Toth’s Transparency

  Can business leaders who suspect that they are paying too much for pharmacy benefits do anything about it?

  That’s where Danny Toth comes in. He has a way of making things transparent. I had dinner with Toth and learned the recipe for his secret sauce. As a former pharmacist and someone who ran an honest PBM for years, Toth has great relationships with many pharmacists. He takes the medication list PBMs send to employers and does undercover work to find out exactly how much the PBMs are paying pharmacies. He then shows employers “the spread.”

  After Toth sends employers through all five stages of grief, he offers them a solution. Toth helps them renegotiate their contract so the PBM is paid a reasonable flat fee—say, $3 per prescription. Toth calls it an administration fee. According to Toth, that more than covers their management costs and yields a healthy profit for the PBM. When employers say $4 is too much to pay a middleman for each prescription, Toth reminds them that PBMs often make more than $50 per prescription in the markup-discount system.

  If we could slash the spread, it would make a tremendous difference for thousands of businesses. According to a recent analysis in the journal Health Affairs, reducing generic reimbursement by $1 per prescription would lower health spending by $5.6 billion annually.4

  Toth and his colleagues at Timber Ridge Consultants have saved employers millions of dollars by renegotiating PBM contracts. For one employer, a city government in Georgia, Toth saved over $1 million. The savings came at a critical time because the city government had been faced with a growing deficit that threatened their bond rating. The savings Toth got them on a better PBM contract meant their city bond rating stayed strong.

  With this seemingly simple recipe for saving millions, I asked Toth why all the businesses in America aren’t negotiating better PBM rates. “Because the health insurance companies that cover the same employers are in cahoots with the PBMs,” he said. “In fact, many times they are co-owned.” Health insurance companies direct their business to their own PBMs, which increases their margins. For example, OptumRx, one of the big three PBMs, is owned by America’s largest health insurance company, UnitedHealth Group. Insurers may offer less expensive health insurance premiums. But then they use their PBM to achieve a greater profit margin.

  The PBM Express Scripts is now owned by the insurance company Cigna, and as I write this book, a merger between the PBM CVS Caremark and the insurer Aetna is being finalized. Together, the big three PBMs—OptumRx, Express Scripts, and CVS Caremark—control approximately 85% of the U.S. market and manage medication benefits for most people in the United States.

  But what about the free market? Can’t employers just say enough is enough and switch to a better-value PBM? For many employers, it’s not that easy. The PBMs are so integrated with insurance companies today that carving out a PBM so you can switch carriers is hard.

  Toth went on to explain to me why he’s fighting the system. When he worked as a community pharmacist he saw patients so poor they had to sift through their pocket change to pay for their meds. He believes that if doctors, patients, and employers could understand the business of PBM spreads and kickbacks, they would take issue with it.

  Scamming the Government

  Just as Toth uses insider expertise to expose PBM spreads to employers, governments can use their clout to get this information for their own government-sponsored health plans that use PBMs. That’s what the state auditor of Ohio did in 2018. The auditor uncovered the spreads of the PBM being paid with taxpayer money and found that in a single year, the spread had cost the state’s Medicaid program $224 million. That’s about 10% of the total amount of money the Medicaid plan spent on drugs during that time period.5

  Unbound by gag rules, the Ohio Pharmacy Association spoke up. “What we see in this report are the truly unfathomable lengths that these massive corporate middlemen will go to manipulate the prescription drug marketplace and hide their litany of revenue streams,” said the association’s government affairs director. “It is now overwhelmingly apparent that PBMs are operating the biggest shell game in modern history, and we are all paying for it.”6

  The pharmacy association pointed out something especially nefarious about the spread schemes. The spread increased over the course of the year and appeared to hit its peak right when the PBMs made cuts to the pharmacists. In other words, the PBMs were not just overcharging the Medicaid plan. They were also reducing what they paid to the pharmacies. They were increasing their take on both ends.

  Other states have also begun to protect themselves from predatory PBMs. In Texas, the state Medicaid program is no longer allowed to contract with a PBM that uses the spread pricing model. Texas also requires periodic audits of the pharmacy middlemen.

  In Montana, a tough negotiator named Marilyn Bartlett took over the state employee benefits plan and scrutinized its pharmacy benefit contracts, among other aspects. The health plan was projected to go broke when she took over in 2014. Bartlett, an accountant with an eye for detail, dug into the PBM contracts. She discovered that the plan, which had 30,000 members, was losing money to both the spread and rebate schemes. She ditched her old PBM and found a new one, Navitus Health Solutions, that would play fair with the employer. In the next year, the Montana plan had a similar mix and volume of drugs, but it saved almost $16 per prescription. The savings included $2 million on the spread and an additional $3.5 million in rebates. Bartlett’s work saved the health plan and showed how employers have power to bring about change. She says they have to push back against the industry to ensure PBMs don’t sneak away with their money.7

  The Ohio auditor report stunned the industry, but it merely scratched the surface because it solely examined the spread. The PBMs have lots of other devious stratagems. The auditor said further study is needed to examine the other schemes—including some of the ones Toth mentioned.

  As PBM money games are exposed to daylight, it’s important for all of us, health professionals, business leaders, and consumers, to speak up and end the games, returning to a fair and transparent market.

  The National Community Pharmacists Association has said the current lack of transparency is bad for patients. “If you want to reduce prescription drug costs, policymakers must demand greater transparency from PBMs,” said the pharmacists’ association.8

  Tips for Your Next Pharmacy Encounter

  The next time you need to buy a medication, consider shopping for it outside your insurance. Examine your copay for your current medications, too, and see if you could g
et them for less without going through a PBM.

  Consumer Reports sent more than 150 “secret shoppers” to buy common medications at pharmacies in six metropolitan areas around the United States. They found that pharmacies offered the same drugs at a wide range of prices, up to a tenfold difference. And the prices you’d pay without insurance are often lower than what you would pay with insurance.9

  In one example, the secret shoppers called each pharmacy asking their combined retail cash price for five common drugs. The batch of five drugs was just $66 online at HealthWarehouse.com. But the national retailers CVS and Rite Aid priced them at almost $900. The big national chains said their price is before discounts get applied. But when the secret shoppers tried to get the discounts, they found they weren’t applied consistently. Some pharmacies marked down the prices a lot. Others didn’t discount them at all. In Dallas alone, the price of generic Cymbalta, an antidepressant, ranged from $22 at an independent pharmacy to $251 at a Walgreens.

  Consumer Reports recommends three steps to shop around:

  Use online discounts.

  Consumer Reports recommends websites like GoodRx, Blink Health, and WeRx.org. The sites show what you can expect to pay for various drugs at different locations. They also have discount coupons or vouchers you can use.

  Don’t always shop at the same old places.

  HealthWarehouse.com is an online pharmacy and had some of the lowest prices. Costco and Sam’s Club also consistently had good prices in the Consumer Reports analysis. Independent pharmacies and grocery store pharmacies also had some of the best prices.

  Push the pharmacy to honor online discount coupons.

  The Consumer Reports shoppers found they almost always honor them, but the shopper had to be persistent. Also, pharmacies will almost always run the prescriptions through a patient’s insurance, even when the discount would result in a lower price. In-store discounts may also exist but won’t be applied unless the patient asks for them directly. “Ask for ‘all available’ discounts,” Consumer Reports wrote in its report. “And then make sure to get the best option.”

  What Businesses Can Do

  For business leaders, get a second opinion on your pharmacy benefits contract from an independent consultant like Danny Toth, who is not being paid a kickback from a PBM or health insurance company. Ask them if they subscribe to the Health Rosetta code of ethics. Insist on a PBM contract where you, the business, are paying a $2.75 to $4.00 administrative fee per prescription above the price paid by the PBM. And demand full transparency in rebates and discounts. It’s not a circus; it’s health care. And it should be a fair marketplace.

  Employers can also disrupt the PBM industry by refusing to sign up for PBMs that gag pharmacists or have mail order requirements. Employers should refuse to be a part of any PBM that sends auto-refill requests to doctors’ offices without a request from the patient. Greater awareness about the shenanigans of unscrupulous PBMs can empower employers to reward good PBMs.

  If you are a patient, you should use an app like GoodRx before filling any prescription to make sure you are not being gouged. Avoid mail order medications unless you are disabled, unable to go to a pharmacy, or are positive that you are medically dependent on a particular medication for the long term. Support independent pharmacies whenever possible, tell your representatives in Congress and your state legislature to make PBM spreads transparent, and ask that state governments audit the PBMs of government health plans regularly. Pharmacies may be gagged, but you can speak up.

  CHAPTER 15

  4K Screens

  The electrocautery is one of the most common devices used in surgery. It both dissects and seals off blood vessels, managing bleeding during surgery. Holding it like a pen, my residents and I use it for hours each day when we operate.

  One day I read about an important new feature added to this important device. The innovation, created by a leading manufacturer, added a small vacuum hole to suck out the toxic smoke created from cauterizing tissue. What a great idea! I thought. There is a growing recognition that surgical smoke is dangerous, maybe as dangerous as secondhand cigarette smoke. I was reminded of this risk when I learned that the young surgeon who wrote the book When Breath Becomes Air had died of lung cancer even though he never smoked. “Let’s get it,” I told one of my colleagues. Months later, we were using it.

  At a national surgeons meeting, I was talking to a surgeon about my positive experiences with the device and encouraged him to get it. But his hospital had a new process for getting devices approved. “It’s not that easy,” he said, rolling his eyes. He went on to detail a massive administrative process for all new OR purchases at his hospital. Not only did he have to convince his administrators, but a formal trial of any new product had to be conducted. He was frustrated. He knew there was no way to do a short trial to see whether surgical smoke caused lung cancer, not to mention transmitting aerosolized viruses that can become airborne in surgical smoke.

  As I researched the process further, it became evident to me that on a national scale, the people buying stuff for hospitals are not only outside the operating room, they may not even live in the same city. Most medical centers today acquire devices, supplies, and medications through group purchasing organizations (GPOs) rather than directly from a manufacturer. GPOs are middlemen that catalog medical supplies for medical centers to purchase from manufacturers.

  Since their inception in 1910, GPOs have simplified the way hospitals buy supplies—from toilet paper to epinephrine vials. GPOs have notable benefits. They spare hospitals the work and expense of negotiating and contracting with hundreds of different manufacturers. GPOs offer hospitals a catalog of thousands of products and sometimes provide product training and support services to hospitals. GPOs also have volume purchasing leverage to negotiate lower prices and can list multiple comparable products in their catalogs to promote competition and reward innovators. However, these benefits are based on economic assumptions that are being undermined by the modern GPO business model.

  Today, GPOs ask manufacturers to pay them pay-to-play fees for product placement in their catalogs. Neither patients, researchers like me, or the public can see these fees. One GPO told me that these fees are completely transparent, but when I proceeded to ask to see them, I was denied. These fees are particularly problematic when GPOs invite a manufacturer to pay a premium fee to become a sole supplier, allowing a manufacturer to essentially purchase market share, rendering hospitals and patients dependent on a single manufacturer’s supply chain. Sole supplier contracting creates a perverse financial incentive for manufacturers to use a fragile supply chain because of this lack of competition. When factory production problems occur, the result can be higher demand and higher prices.

  Seeing Better

  To better understand the growth of this middle layer of health care, I traveled to Boston to meet William, an executive at a medical device company. He walked me into a demonstration center where they had surgical videos playing on state-of-the-art 4K monitors. The picture was stunning. I couldn’t believe it; I could see tiny details of human anatomy I’d never seen before in surgery. I thought the current high-definition (HD) monitors I used were impressive, but this was the most incredible thing I’d seen in my surgical career. I saw beautiful, wide, bright images of tiny blood vessels that were invisible landmines on the older-resolution equipment. At the risk of stating the obvious, I want the best possible view of a patient’s anatomy when I’m cutting into them. “How would a surgeon get this in their operating room?” I asked.

  “I used to travel the country and talk to surgeons about our new stuff,” he told me. “Now I never interact with surgeons.” In recent years, the decision makers at hospitals switched from surgeons to administrators. In many instances today, he told me, the surgeons say “yes” but the hospital purchasing committee says “no.”

  “But a surgeon can see so much better with the 4K optics!” I protested. Surely what we surgeons say should matter.<
br />
  He explained that the only question many value-driven purchasing committees ask is “Is the older version ‘clinically acceptable’?”

  “Clinically acceptable?” I was stumped. Are we shooting for acceptable or excellent? I can see so much better with the 4K screens. Doesn’t that matter? If you were going in for a surgery, wouldn’t you want your surgeon to have the best possible view? Launching a formal study seemed like a waste. After all, it would take a lot of research to demonstrate what any surgeon could tell you on the spot—these screens make surgery safer.

  Increasingly, the purchasing committees aren’t even located in the same city as the surgeons who use the equipment, William explained. Everything goes through GPOs. The purchasing decision makers are not even administrators who roam the operating rooms and see how surgery is done. Their offices are often in separate buildings, far away. When he went to pitch one health system on the new 4K monitors, he traveled to Philadelphia to meet with a purchasing committee deciding which resolution screens to have surgeons use in Phoenix.

  Personally, I haven’t ever met the purchasing decision makers. How would they decide whether a surgeon can have the same 4K technology in the operating room that I already had at home to watch Madagascar 2?

  Purchasing only equipment that is “clinically acceptable” is far too low a bar. If the patients could see the difference in resolution, I’m sure they would have something to say about it. It was certainly clear to me: we should have what’s best for our patients.

  Imagine you are a professional tennis player, and your agent hires an assistant to determine which tennis racket is “clinically acceptable.” You might end up with a Wilson T-2000 with a tiny head. Sure, you can win with it, but you can play better with the racket that makes you play better.

  The idea of group purchasing makes sense for toilet paper, but on the front lines of patient care, doctors need to be an integral part of the decision making. Group purchasing is not the problem. It’s the risk that in the corporate hustle, decision makers don’t work hard to get the clinical input from practicing doctors and nurses.