This is why prescription drugs cost so much

Oligopoly: a state of limited competition, in which a market is shared by a small number of producers or sellers.

SALT LAKE CITY — Why do prescription drugs cost so much? An advocate for open access, transparency, and competitive markets in the pharmaceutical industry shares his eye-popping insights into the business of prescription meds and how insiders, whose job it is to look out for consumers, are raking in a fortune.

Welcome to the show

Money Making Sense host Heather Kelly talks with Antonio Ciaccia, president of 3 Axis Advisors, about pharmacy benefit managers and their role in controlling the costs of prescriptions medications.

“How do prescription drugs get to our pharmacies?” Kelly asked.

In simple terms, Ciaccia explained the main pillars of the prescription-drug supply chain:

• A drugmaker sells to a drug wholesaler, such as McKesson, Cardinal Health, or AmerisourceBergen.
• The wholesaler then sells the drug to pharmacies, hospitals, and physician offices.
• And at each step, the price of the drug rises for the end consumer.

PBMs manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers.

By negotiating with drug manufacturers and pharmacies to control drug spending, PBMs have a significant behind-the-scenes impact in determining total drug costs for insurers, shaping patients’ access to medications and determining how much pharmacies are paid, according to The Commonwealth Fund.

‘Keeping those discounts for themselves’

“They’re not doing a great job, especially for my mother,” Kelly said, explaining her mother who is on Medicare pays $250 out of pocket every month for one drug she needs. “She still has to buy four or five more. So these PBMs aren’t doing a great job. I’m just telling you right now.”

“Unfortunately, the system was supposed to work a lot better,” Ciaccia said.

He added PBMs were designed to act as a counterbalance to the drugmaker, wholesaler and pharmacies and negotiate bigger discounts for consumers.

“The problem is the PBMs are really good at negotiating those discounts, but they’re even better at keeping those discounts for themselves, oftentimes making the patient pay the full list price when they themselves have negotiated some far different and better price for themselves,” he said.

Ciaccia said PBMs were once simple claim processors but  have since landed on the list of the biggest and richest American companies.

The Top 10 Fortune 500 companies in the US include:

• CVS Health, owner of CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager;
  UnitedHealthGroup, offering health care products and insurance services;
  McKesson, distributing pharmaceuticals and providing health information technology, medical supplies and care management tools; and
  AmerisourceBergen, a drug wholesale company.

Who watches the watchdog?

“They are larger than the pharmacy companies and the drug manufacturer companies that they were hired to control in the first place,” said Ciaccia. 

He said PBMs have ended up making prescription drug pricing more complicated and more expensive.

“The PBM is using all of us as individuals to negotiate big discounts that they’re getting on the back end of the transaction. But they’re not passing them back through to us as the patient,” Ciaccia said.

Heather said her blood was beginning to boil “a little at the moment.”

Nobody knows the price for meds

Ciaccia said if you walked into a grocery store, and it cost $20 for a gallon of milk, you would know right away you were getting ripped off. You would take your money to another grocery store where the price of milk aligned with market expectations.

That is “what ultimately holds quality and price accountable within your grocery store. Nobody knows what the prices of thousands of different medications are or what they should be,” he said.

Ciaccia said due to the “tremendous” lack of transparency, the pharmaceutical marketplace is ripe for exploitation.

“Now be clear, PBMs are not the only villain in the drug supply chain, but they are the only ones whose existence is predicated on trying to save us all money,” he said.

Related:

PBMs, big pharma under attack in Utah Legislature