Before becoming president, Donald Trump was a long-time proponent of single-payer health insurance (aka Medicare for All).  That shouldn’t be surprising given that Trump was a liberal Democrat for most of his life until Obama was elected and then Trump’s dislike for Obama seems to have motivated him to become a staunch Republican for the first time. Trump first gained prominence in the party by promoting birther theories against Obama.  Trump wrote about single payer at length in a book and repeatedly promised: “We’re going to have insurance for everybody” and “​I am going to take care of everybody…  The government’s gonna pay for it.”

He campaigned for single payer during the Republican primaries and although he gradually moved towards the standard Republican Party platform, after he became president, he still sometimes praised single-payer systems abroad like the system in Australia.

In today’s USA Today, Donald Trump published an op-ed that has been widely ridiculed for deceptions and/or errors.  The Washington Post’s fact checker said, “almost every sentence contained a misleading statement or a falsehood.” Among the falsehoods are targeted attacks on Medicare for All claiming that proponents really want to cut Medicare not expand it.  For example, Trump said:

• Democrats favor “eliminating Medicare as a program for seniors”;
• “the Democratic Party’s so-called Medicare for All would really be Medicare for None”
• “under the Democrats’ plan, today’s Medicare would be forced to die.”

This is how he is attacking the people who want to expand Medicare AND make it more generous.

The only age demographic in which a majority consistently opposed Obamacare was Americans older than 65 because they feared that Obamacare might take resources away  from their socialized health insurance system: Medicare and Medicaid.  US News listed several of the fears that senior citizens have had about that. Seniors were opposed to Obamacare even though it wouldn’t affect them at all largely because the Republican political elite succeeded in making them fear “death panels.” This was the idea that Obamacare would cut lifesaving Medicare benefits. Similarly, organizations like the Heritage Foundation that wants to cut Medicare and Social Security misleadingly criticized Obamacare by claiming it cut Medicare’s generosity to Senior Citizens by $700 billion. In reality, $700 billion was saved through greater efficiency and no benefits were cut. Heritage opposed Obamacare because it was too generous, not because it was spending less, but that would be a political loser, so they made Senior Citizens afraid of benefit cuts instead. Trump’s new op-ed is a another attempt to whip up new fears of death panels. He is literally claiming that Medicare for All would actually mean Medicare for none!  This is Orwellian. Up is down!

The Republican party leadership, such as Paul Ryan, has a long history of promoting numerous proposals that really would have cut Medicare spending and privatized it.  Ironically, Trump distinguished himself during the Republican primaries by consistently pushing back against that direction of the party elites during his campaign. He was correct when he proudly tweeted:

I was the first & only potential GOP candidate to state there will be no cuts to Social Security, Medicare & Medicaid.

Trump’s generosity towards senior citizen welfare programs is one reason why Trump’s supporters skewed more elderly than previous Republican presidential candidates. But Trump tried to break his signature promise after the election when he promoted every Affordable Care Act repeal proposal, all of which included large cuts to Medicaid.

Meanwhile, some studies suggest that one reason the US has lower longevity than any other rich country despite spending more on healthcare (per person) than any other country on earth is that there are many Americans who lack adequate health coverage. Below is one such estimate.

All the other countries have universal health insurance. Maybe we could save lives and cut spending if we copied one of them? The Mercatus Center is another Republican think tank that with similar views to the Heritage Foundation.  Mercatus did a recent analysis of single-payer healthcare which was supposed to be critical of it, but actually came to a number of conclusions that make it sound great. They fear that Medicare for All proposals will

• “substantially reducing drug prices and administrative costs”.  Sounds good to me.
• “become responsible for financing nearly all current national health spending.”  That implies less out-of-pocket spending, yea!
• “expand the range of services covered by federal insurance (for example, dental, vision, and hearing benefits)” which would be more generous than in most single-payer systems like Canada.
• And reduce overall healthcare spending by over 2 trillion dollars over the first ten years despite more healthcare access! Here is their data in a chart by Kevin Drum:

Of course, they oppose this plan to expand healthcare and lower total spending because

1. They think that moral hazard is a huge problem that would only get worse if people had better health insurance. In reality the moral hazard of patients isn’t a significant problem because doctors already ration all the expensive tests and treatments.  Patients only have control over relatively cheap office visits and 99% of us don’t wants to go to any more doctor visits than the absolute minimum necessary for our health.  Most Americans could probably benefit from more office visits. Other countries with single payer healthcare don’t have a worse problem with it than the US.
2. They worry that spending less on healthcare would reduce the quality of healthcare. But for all of you who have a really generous ‘Cadillac-quality’ healthcare policy now, you will still be able to buy a supplemental private healthcare policy that tops off the generosity of the public plan if you want to just like most senior citizens buy supplemental private insurance to top off our existing Medicare insurance. Few people opt for supplemental insurance in nations like Great Britain because most people feel like their free insurance is good enough, but some British citizens want to additional private insurance and they are free to choose to spend more on even better healthcare. Universal healthcare generally only puts a floor on the minimum healthcare citizens can get. The only place I know of where there is any ceiling restricting the maximum is Canada, but I haven’t heard of American politicians proposing any limits on additional insurance that private individuals might want to add to the public plan.
3. It would increase taxes massively. Although Americans would have more disposable income on average because private insurance spending would drop more than taxes would go up, Mercatus really, really hates taxes.  They are the kind of ideologues who would rather give $10 to a private health insurance company than pay $9 in taxes for a public health insurance plan that gives more coverage!  This is also a major reason why they hate Obamacare.  Most Americans don’t realize it because most of the burden fell on rich people and corporations, but it was one of the biggest tax increases in American history as this graph from the Incidental Economist shows:

But turning most of the private insurance payroll deduction into a public insurance system would certainly mean that payrolls would have much higher taxes. The average cost of private insurance is over $20,000 per year for an average family policy with normal deductibles and over $18,600 for stingier family policies with high deductibles as the following graph shows.  The full cost of healthcare for a family of four is sometimes estimated at about $28,000 per year on average! Even though single-payer would be cheaper, there is no way to replace private insurance without raising taxes a lot.  Now, paychecks should still go up after taxes according to this analysis because the new taxes are projected to be less than the insurance they replace, but if you hate paying 95 cents of taxes more than a dollar of insurance payments, then this is a worse scenario.

Ronald Reagan also made similar ‘death panel’-style arguments against the original creation of Medicare in the 1960s.  It is humorous in hindsight, particularly when combined with some funny video imagery from the era:*

Whereas Reagan said that Medicare would turn America into a socialist Russia, Trump’s op-ed is warning that it will turn America into a socialist Venezuela!  It is the same fear all over again.

But Medicare for All is already much more popular than Obamacare ever was because it is based on a proven program that is even more phenomenally popular, Medicare, and everyone understands what that is.  In contrast, Obamacare is confusing and complicated to explain. Some recent polls are finding that 70% of Americans are in favor of Medicare for All versus only 20% opposed.

Although Trump is an incredibly talented salesman, I don’t think his recent death-panel style attack on expanding healthcare coverage will work because Medicare is something Americans already know and love and it will be hard to convince Americans that expanding it is really cutting it.

In the remote chance that the Democrats end up winning a majority of both the House and the Senate in November and thereby getting the power to pass legislation, I’d be surprised if Trump didn’t sign it into law. He is rarely ideologically consistent and he has a long history of supporting this idea.  Plus, it would be a great way to become popular and show that he can reach across the aisle to make deals with the Democrats.   Ironically, Medicare for All could help him get re-elected in 2020!

Update: Trump’s White House released a book-length whitepaper arguing that Medicare for All would be a disaster because socialism is disastrous.  Evidence for this argument includes the horrible famines that happened in the USSR’s Holodomor and Communist China’s Great Leap Forward.  And it spends an entire page explaining that it is more expensive to buy and operate a Ford Ranger XL pickup in the socialist hellholes of Scandinavia than in the USA.  That should turn some heads on Fox News, but it isn’t clear what it has to do with Medicare.  Finally, it argues that Socialist medicine has longer wait times in some other nations than Socialist Medicare has in the US.  It seems Trump’s advisers forgot that Medicare is socialist health insurance when they were praising its virtues in comparison with foreign socialist health insurance.

*If you want to hear the complete 12 minute recording of Reagan’s 1961 warning about the evils of Medicare, the original is available from the Reagan Presidential Library.  When Reagan made the recording for the AMA, Medicare for All was the original plan and doctors opposed the idea of a universal insurance for all Americans because they were afraid that it would reduce their wealth and power.  But Johnson compromised with the AMA and cut back Medicare into a program that only gave universal insurance to the elderly who rarely had been able to afford insurance anyhow.  The AMA approved of this change because they figured that providing Medicare only to the elderly population would dramatically raise doctor incomes because the elderly had mostly been previously uninsured anyhow. Reagan also reversed his position from what he said in the above recording and he became such a big supporter of Medicare that he raised the payroll taxes that fund it (and Social Security) by more than any other president.  He also tried to expand Medicare to cover pharmaceuticals and more.

On the one hand, deregulating the market for the pill would improve health, lower costs, reduce abortion, and eliminate a political football.

On the other hand, it would reduce incomes for physicians and drug manufacturers, a small passionate minority thinks birth control is immoral, and it is easy to scare the public into resisting change.

Birth control pills are available without a prescription in most countries of the world. Generally most (but not all) rich countries require a prescription as denoted by dark blue on the map and most (but not all) poor and middle-income nations do not as denoted by the other colors.

Over-regulated rich countries could learn from our poorer friends abroad. For example, women who live along the US-Mexico border frequently buy their birth control pills on the Mexico side of the border because they are cheaper, more convenient, and don’t require an expensive doctor appointment.  As Virginia Postrel says:

Partly because birth-control pills are available only by prescription, people tend to think they’re more dangerous and less well understood than they actually are. In fact, “more is known about the safety of oral contraceptives than has been known about any other drug in the history of medicine,” declared an editorial in the American Journal of Public Health back in 1993. That editorial accompanied an article arguing for over-the-counter sales…. Nearly two decades later, birth-control pills look even safer than they did then, and recent research indicates that women are both able and eager to manage their own purchase decisions.

….Aside from safety, the biggest argument for keeping birth-control pills prescription-only is, to put it bluntly, extortion. The current arrangement forces women to go to the doctor at least once a year, usually submitting to a pelvic exam, if they want this extremely reliable form of contraception. That demand may suit doctors’ paternalist instincts and financial interests, but it doesn’t serve patients’ needs.

….Right now, the American women who have the most choice are those who live near the border with Mexico, where pharmacies sell oral contraceptives without a prescription, generally for about $5 for a one-month supply. A group of researchers [] conducted extensive interviews with more than 1,000 women who live in El Paso, Texas….One result from the El Paso study surprised researchers. “Women who got the pill in clinics were significantly more likely to stop using it during the study — even though they still didn’t want to get pregnant,” Grossman says. That’s a big deal. In fact, he says, “my hope was that we would show that continuation was no worse for the OTC group, but in fact we showed it was better.”

Kevin Drum comments:

It’s not just doctors who resist making oral contraceptives available over the counter. Pharmaceutical companies usually resist it too. After all, it costs them money for extra testing and produces lower profits at the same time, since OTC meds generally have lower margins than prescription meds. That’s a lot of resistance to overcome.

…another study done in California …compared continuous use of contraceptives among women who got monthly supplies vs. women who got yearly supplies. Over the following 15 months, the women who got yearly supplies were less likely to run out, less likely to get pregnant, and less likely to have an abortion.

Making oral contraceptives available over the counter might be a good idea, but it’s not something likely to happen any time soon. In the meantime, though, providing women with annual supplies instead of making them visit a clinic or refill their scripts every month might have nearly the same benefit. This would require both doctors and insurance companies to change the way they do business, but given the safety of the drugs and the danger associated with running out, annual prescriptions probably ought to be the default.

Although 99% of American women use birth control at some point, many politicians and religious leaders objected to the Obamacare regulation that birth control be covered by health insurance plans.  Their objections culminated in the the US Supreme Court’s Hobby Lobby decision.  Offering oral birth control over the counter would eliminate the need for them to be covered by health insurance because it would dramatically reduce their cost and increase accessibility. Anna Reisman argues that many other over-the-counter medications like aspirin are more dangerous than birth control and reducing unwanted pregnancy and abortion would do more to improve women’s health than the small risk of adverse side effects that are easily prevented with simple screening done at pharmacies.

[With] the reluctance of religious institutions and hospitals to cover the cost of contraceptive services, the time is ripe for women to make it as easy as possible to get oral contraceptives themselves. The obvious solution is to make the Pill available over the counter. But isn’t that dangerous? Don’t certain oral contraceptives interact in scary ways with other common medications, such as antibiotics? And don’t we need a doctor to help us navigate this complicated maze of information?

Not exactly. First, there are clear guidelines easily available online to determine which women shouldn’t take the Pill at all and which women should have physician oversight. The guidelines are really medical history questions; other than a blood pressure check, a woman can look through the list on her own and determine if she’s a candidate for the Pill. With the combination pill, for example, which contains both estrogen and progestin, women over 35 who smoke and those with chronic medical conditions (including high blood pressure or diabetes, liver disease, specific types of migraines, or a history of blood clots) may be advised not to take the Pill or to take it only with medical supervision. The progestin-only “minipill” can be a good option for women who cannot take an estrogen-containing Pill, since it has fewer risks. User-friendly online guidelines plus a very clear list of risks spelled out on the pill package could make this information easily accessible.  Even serious complications such as blood clots and allergic reactions are not a reason not to make the Pill more easily available. Those are extremely rare, and women would have them whether they got the Pill with a doctor’s prescription or not… In many ways having the Pill available over the counter would make it more effective, not less. While the Pill has an impressively low failure rate on paper—0.3 percent in the first year; in practice, the actual failure rate is about 8 percent. One important—and fixable—reason: missed pills and gaps in prescriptions. Some physicians won’t provide a refill prescription unless a woman comes in for an appointment (with some doctors insisting on an often unnecessary pelvic and Pap in many cases). And so for women who can’t get an appointment when they need one, or lack health insurance and can’t afford to see a doctor, or can’t get time off of work to get to an appointment, the story is sadly familiar: missed pills, less effective backup methods, and unintended pregnancies… Pharmacies in metropolitan Seattle have experimented with [one of several models] of “safe use”—the Direct Access study—of making contraceptives available over the counter, in which community pharmacists were permitted to dispense hormonal contraceptives after a woman completed a self-administered screening tool and had weight and blood pressure measurements; both women and pharmacists were satisfied with this experience. Pharmacists already often counsel patients about medications, so it makes sense that they could also play a key role in helping women choose whether an oral contraceptive over the counter would be a good option.

Fortunately, some states are starting to deregulate the market for hormonal birth control:

The Nobel Prize for medicine went to cancer researchers this week who developed immunotherapy drugs that can be miraculously effective, but as Julia Belluz reports, the prize is also a reminder of how expensive the cancer treatments they developed have become:

Getting a cancer immunotherapy treatment costs more than a house in many cities in the US, more than putting a few kids through private college. The average cost of cancer drugs has increased from $50,000 per patient in the mid-1990s to $250,000 today. That’s four times the median US household annual income.

Immunotherapies in particular often cost more than $100,000 per patient. Doctors now use immunotherapies in combination, which means those costs can quickly double or triple. For some of the newest immunotherapies, the price tag is even steeper: When you include the value of the medical support necessary to deliver these treatments, a price tag of $850,000 per patient is not unheard of, according to Emanuel. “The drug companies say that they offer significant discounts to many patients, but because they won’t release this data, the list price is all that we have to go on,” he wrote.

This chart from Peter Bach …says it all.

(Keep in mind that the y-axis here is logarithmic, not linear…) Patients with health insurance can be denied coverage for immunotherapies, even when it’s recommended by their oncologists.

The Washington Post reported on medical trials using a blood cancer drug called Imbruvica. Oncologists discovered that it was just as effective at lower doses than had been standard practice.

The researchers at the Value in Cancer Care Consortium, a nonprofit focused on cutting treatment costs for some of the most expensive drugs, set out to test whether the lower dose was just as effective — and could save patients money.

The researchers saw as a breakthrough because the pill had cost $148,000 per year. But when the manufacturers discovered the new research, they tripled the price per pill:

Within the next three months, the companies will stop making the original 140-milligram capsule, a spokeswoman confirmed. They will instead offer tablets in four strengths — each of which has the same flat price of about $400, or triple the original cost of the pill.

Just as scientific momentum was building to test the effectiveness of lower doses, the new pricing scheme ensures dose reductions won’t save patients money or erode companies’ revenue from selling the drug. In fact, patients who had been doing well on a low dose of the drug would now pay more for their treatment. Those who stay on the dose equivalent to three pills a day won’t see a change in price.

“That got us kind of p—ed off,” said Mark J. Ratain, an oncologist at the University of Chicago Medicine who wrote about the issue in the Cancer Letter, a publication read by oncologists. “We were just in the early stages of planning [a clinical trial] and getting it organized, and thinking about sample size and funding, and we caught wind of what the company was doing.”

Kevin Drum defended the pharmaceutical company, arguing:

what did these oncologists expect? Everyone knows that the price of drugs like Imbruvica doesn’t depend on the cost of actually manufacturing the stuff. Whether it costs a penny a pill or $100 a pill is irrelevant. These drugs are priced to recover their R&D costs based on the number of patients who are likely to use them. …there’s really no argument that the price of a cancer drug should decrease if it turns out you can use less of it. …The pharmaceutical company still has to recover its development costs, and that doesn’t change regardless of how big a dose is typically required.

This isn’t quite correct. First, and most importantly, a for-profit company never does pricing to recover R&D costs. Ever. R&D costs are sunk and for-profit companies price to maximize profits. R&D expenditures are irrelevant for determining pricing, but they are important for determining profit levels and that is important for determining whether a company goes bankrupt or not. But if a drug company goes bankrupt because it cannot repay the loans that financed R&D, then some other company will buy up the patent rights to sell the drugs if it can price the drug over the cost of manufacturing the stuff. That is the second part the Kevin Drum gets wrong. The manufacturing price always influence pricing because for-profit companies care about markup which is the price minus the marginal cost (manufacturing cost in this case). Suppose a company has been getting a $1000 markup, and the manufacturing cost was $200. If the manufacturing cost drops down to $100, the rational thing for a for-profit company to do is drop the price! The mathematical logic is hard to explain in words, but basically, if the profit-maximizing markup was $1000, then it doesn’t suddenly rise to $1100 simply because the manufacturing costs drop. The optimal markup is determined by the elasticity of the demand curve and unless demand is perfectly inelastic for some reason, the company can boost revenues by dropping the price and selling a higher quantity. Now, you could argue that the demand for drugs is very inelastic because people will die without them, but they aren’t perfectly inelastic or for profit companies would earn infinitely much money from selling them. So when for-profit companies get more efficient at manufacturing goods, they increase profits by reducing their selling prices.

Kevin Drum argues that setting the same price per patient regardless of the dosage makes the new pricing scheme fairer:

the new pricing model for Imbruvica may be fairer than the old one. Should a 300-pound person pay more than a 150-pound person just because their body requires a bigger dose? Should people with higher cancer loads pay more than those with lower cancer loads? That’s not at all clear, is it?

It is probably fairer to charge every patient approximately the same amount of money regardless of how much of the drug they acutally take because sicker or bigger patients generally don’t have more money. It is certainly more profitable to price this way. Although it might be fairer to patients, doctors don’t like the new pricing regime because it makes harder and more expensive to change dosages to respond to side effects and patient needs.

But the new regimen could undermine patient safety, Ratain and colleagues argue. People on Imbruvica often need to have their doses adjusted, because it can interact with other drugs. Physicians also may try lower doses when people have trouble tolerating the drug because of side effects, such as extreme joint pain.

The companies said in their statement that a dose exchange program with rapid shipment would allow physicians to make those changes. Under the old regimen, doctors could adjust the dose immediately by telling a patient to take one or two pills a day, instead of three, then return them to the higher dose when necessary. Under the new regimen, physicians will have to initiate a dose-switching protocol that requires paperwork. The phone number physicians have been given to call is only open Monday to Friday during business hours, several oncologists noted.

“I do share their concerns,” said Jennifer Brown, director of the Center for Chronic Lymphocytic Leukemia at the Dana-Farber Cancer Institute, who was not an author of the Cancer Letter paper. “We frequently change the dose of this drug, in relation to drug interactions in particular, and usually we need to do that basically instantaneously.”

Presumably the pills cannot be cut into smaller pieces for some reason or else everyone would just buy the maximum dose and cut the pills down to size. So every time a patient’s dosage is adjusted, another $148,000 set of pills must be bought and the unused pills returned for a refund. That is a lot of administrative expense.

The good thing about these outrageous prices is that they encourage more research to develop more therapies and more Nobel Prizes. The bad things about high prices is obvious to everyone. And prices are the highest in the USA. America accounts for less than 4.3% of the world population, but 45% of the world’s pharmaceutical expenditures in 2016! Americans use fewer drug prescriptions than many rich nations (Japan prescribed 60% more per person), but our prices are much higher which means that the USA provides the global pharmaceutical industry with much more than 45% of their profits. The US is also unusual in that nearly 75% of US drug expenditures went to branded drugs (as opposed to generics) even though 84% of prescriptions in the US specified cheap generics (the highest percent utilization of generics of any rich nation). So the US is paying the majority of the world’s pharmaceutical profits plus a tremendous amount of government-sponsored research in our state universities and grants to research hospitals and that buys a lot of Nobel Prizes.

Most people have never heard of a Pharmacy Benefit Management company (PBM), but a PBM probably has tremendous control over the kinds of medicines you are prescribed and sets the prices you pay for them. It has been one of the fastest growing sectors in healthcare since 2000 and they are so new and so buried within our health administration bureaucracy that most people have no idea how important they have become.  According to The Pharmacy Times, “the top 3 PBMs within the country manage the drug benefits for approximately 95% of the US population or 253 million American lives.” Mckinsey shows how fast PBMs grew over just four years and how they ate away at the revenues of hospitals as they reshaped the pharmaceutical marketplace:

PBMs and retail pharmacies captured a greater share of total profits from the pharmaceutical value chain in 2016 than in 2012… This increase came almost entirely at the expense of hospital systems’ share of profits from drugs; manufacturers were largely able to maintain their share. During this time, hospitals saw their margins from drug sales decline by almost 30%. Hospital spending on drugs grew by 7% to 11% per year, far outstripping growth in reimbursements from both commercial and government payers

PBMs are middlemen between the insurance companies (and sometimes individual patients) who pay for drugs, the medical practices who prescribe them, the pharmaceutical manufacturers who make them and the retail pharmacies that distribute the drugs to patients. PBMs make money in 3 main ways: 1) rebates; 2) administrative fees; and 3) pharmacy spread:

1. A rebate is a fee (or bribe if you are less charitable) that a pharmaceutical manufacturer pays a PBM for including a drug on an insurance plan or hospital formulary. This is a surprisingly big part of the industry:

   Approximately one-third of the net price paid for prescription drugs is traceable to these rebates and, as a result, consumers may already be paying one-third more from rebates alone.6 In addition, patients are often forced to switch their drug therapy based upon these rebates that dictate the plan’s formulary regardless of their efficacy. If patients or their providers want the patient to stay on the original drug therapy, then they are forced to obtain a prior authorization before the PBM will authorize coverage for the drug product. This practice is alarming since a patient’s drug therapy may be interrupted as a result and can lead to patient harm.

2. An administrative fee is charged to the insurance company or hospital for managing the plan’s formulary.
3. The pharmacy spread is the gap between what the patient and/or insurance company pays for a drug and the price that the PBM has negotiated with a particular pharmacy.

PBMs are paid by insurance companies to negotiate for lower prices from pharmacies and select the most cost effective drugs for any particular treatment (the formulary). Most countries have national treatment guidelines and/or formulary manuals, but in the US there is no national best practice and formularies are fragmented: each hospital and/or insurance plan can have a different formulary. PBMs help them figure out what drugs are the most cost effective for treating different diseases which is also dependent upon how cheaply the PBM can get each drug by negotiating a bulk discount from pharmacies. PBMs generally create formularies with different tiers of pricing. For example, a formulary for an insurance company typically has drugs that are not covered at all, drugs that have higher percent of the cost paid by the insurer (typically generic drugs), and drugs for which the insurer pays a lower percentage to discourage their use.

PBMs also help hospitals create formularies and there are sometimes problems when patients are given one drug in the hospital as dictated by the hospital formulary and then have a different formulary for outpatient care and have to switch medications after discharge.

In addition to these problems, unfortunately, the business model of PBMs is badly aligned with the interests of society, so it is unlikely that they make the kind of rational cost-benefit analysis in selecting formularies and pricing that would lead to the healthiest population for the amount of spending that we do.  For example, PBMs make money from insurance companies for saving them money on drugs, not for providing quality care and so PBMs are blamed for causing delays such as, “Nurses spend 16 hours on the phone, medications take months to arrive, and patients suffer as they wait.”

Their first and third sources of revenues listed above give them perverse incentives to put profits over patients.  First, they take bribes from drug manufacturers to skew their formularies in favor of manufacturers who pay the biggest bribe rather than selecting the most cost effective drug.  That should be illegal and if you want to argue (as in the Citizens United ruling) that corporations are people and money is their main form of speech which cannot be banned due to the constitutional right to freedom of speech, then at least they shouldn’t be doing it under the table.  We deserve to at least know who is buying influence over us by “speaking” with cash and how big a part of the PBMs’ budget is coming from different manufacturers.  The PBMs’ third revenue stream is having patients pay more for drugs than the price the PBM negotiated with the pharmacy.  This gives the PBMs zero incentive to pass on lower prices to consumers. I have sometimes found that the regular retail price for people without insurance was lower than the “discount” price my insurance company’s PBM has negotiated.  That either means that my company’s PBM is utterly incompetent at negotiating prices or else they are skimming a healthy profit by getting people like me to pay a higher that normal price from the pharmacy and getting a kickback.  It is always worth checking both the regular retail price and your insurance company’s “discount” price when you buy drugs.  Otherwise you won’t know how well your PBM is doing its job.

PBMs get discounted drugs because they have more negotiating power because they negotiate for millions of patients. If you try to negotiate a lower price as an individual, sellers will laugh at you because you have no negotiating clout. You are a price taker. But if you could band together with a million other patients in a kind of consumer’s union, you would have a lot of market power to demand lower prices for the group. PBMs buy more drugs than individual hospitals or even insurance plans, so they can negotiate cheaper prices. That is one way PBMs make money. In fact, PBMs are so anxious to get more patients in their network, some will let you join their discount plan for free. I actually tried this. I bought a vaccine last year with a free “discount drug card” that gave me a lower price than what I would have paid through my insurance (which uses some other PBM).  Ironically those free PBM discount cards may have more incentive to lower prices than your insurance company’s PBM because if you get insurance from your employer, you are a captive customer whereas the PBMs that give out free cards at least face some competition and have to have some reputation for negotiating better prices or nobody will bother joining.

Because bigger PBMs have more negotiating power, smaller PBMs are at a disadvantage. That is why three PBMs already dominate the entire market. The top three companies already covered 75% to 80% of Americans in 2014.  They represent three very different types of company according to Cole Werble at Health Affairs:

The current top-three firms represent three different models: the standalone PBM (Express Scripts); the PBM aligned with a major retail drugstore (CVS Health); and a PBM associated with a major health insurer (OptumRx, UnitedHealth Group).

Adam Fein has a graph showing the dominance of these top three companies:

At this point already, all the pharmacies other than CVS just have two big independent PBMs that they can work with and all the health insurers other than UnitedHealth also just have two big independent PBMs. I predict that Walgreens (the second largest pharmacy retailer after CVS mentioned above) will try to acquire PBM capacity too to cut out that middleman and Anthem (the second biggest health insurer after United Health mentioned above) will try to acquire with a PBM for the same reason. But Walmart (the third biggest pharmacy retailer) and even Amazon will probably be trying to squeeze the PBM industry too. Mckinsey predicts that the pharmaceutical market is ripe for disruption by online retail and Amazon will soon try to disrupt it:

The threat of technology-driven disruption of the pharmaceutical value chain is also becoming real. This threat made headlines with Amazon’s apparent intention to enter the market, as reflected in its hiring of pharmacy professionals in May 2017 and its acquisition of wholesale drug, medical device, and supply licenses in at least 12 states by October 2017.¹⁵ Retail pharmacies are already acutely aware of the potential of technology-driven disruption, as front-of-store pharmacy revenues have been virtually flat since 2012 due to the digital transformation of the retail industry. (The pharmacies have experienced revenue growth below 1% for general merchandise and 2% for over-the-counter medications; the comparable numbers in the overall US market are about 2% and 4%, respectively.¹⁶ ) Although the opportunities for Amazon or a similar technology entrant are significant, so are the challenges.

Several primary arguments underlie the belief that such a company could successfully disrupt the pharmaceutical value chain. First, the size and attractiveness of the market ($500 billion in revenues) could warrant aggressive investment. Indeed, pharmacy is the second-largest retail category in the United States and the only large category in which Amazon does not yet have a meaningful presence. Second, the economic spread across the value chain is large and could be ripe for potential disruption. Nearly $100 billion in gross margins are being retained by intermediaries across the pharmacy value chain. Finally, evidence exists that demand for direct purchasing of drugs online by consumers could be on the rise.

One of the big problems of the PBM industry is that they reduce price transparency.  Each person buying drugs gets a different price depending on what their PBM has negotiated.  That makes it difficult to comparison shop because there isn’t a single price that everyone pays.  Each customer has to give their insurance card (or separate PBM discount card) to a pharmacist and ask for their customized price.  Hopefully, the advent of online drug retailers of will reduce that problem by making prices easier to comparison shop.

Another barrier to comparison shopping that has arisen during in the PMB era is the decline of universally transferable prescriptions.  In the twentieth century, doctors gave patients paper prescriptions that they could take anywhere which made it easy to comparison shop.  Nowadays my doctors usually want to send a single electronic prescription to a single retailer which locks me in and makes it hard to comparison shop.  If you find that your pharmacy has ridiculous prices you have to go back to your doctor and request another electronic prescription.  It would be simple in the information age to have a transferable electronic prescription that worked better than the old paper system, but the people who have designed our electronic prescription system have made it more profitable for the pharmaceutical industry by reducing consumer power.  Are PBMs partly to blame?  Well they call themselves the managers of our pharmaceutical benefits and they took over this role shortly before the transition to the electronic system.  If they wanted a better electronic system that gave consumers as much flexibility as the old system, they have a lot of behind-the-scenes power to manage how pharmaceuticals are sold.

This power has made them a lot of enemies.  The drug manufacturers blame them for inflating drug costs and  creating and “unfair”, “complex” and “opaque” system with “broken incentives”.  The American Prospect magazine agrees and argues that hospitals and pharmaceutical retailers haven’t been able to do anything about the problem because PBMs have acquired so much monopoly power over the industry.  For example, CVS is using the monopoly power of its enormous PBM to put small mom-and-pop pharmacies out of business and then they buy up the closing pharmacies for cheap.  This is what happened to my local pharmacy in Bluffton Ohio last year. Health Affairs magazine also agrees about the evils of PBMs and Michael Carrier wrote an editorial there suggesting several possible ways the government could fix the system with regulatory changes.