I went down a rabbit hole to try and understand why Pharma company profits were not growing at the same rate prescription drug prices are going up. I now understand and our system is effed up and insurance company gets the biggest blame imo. From the point of drug production to final point of sale to the customer there are too many middlemen trying to maximize profit. Besides profit, they try their hardest to make the cash payment by the customer low so there are a lot of shenanigans amongst themselves and who gets effed the most, us at the end of the chain.

For a normal product, the company manufactures something for $20. They sell to a distributor for $30. The distributor sells to retailer for $40, and the retailer sells for $50.

For prescription drugs, add the Pharmacy benefit managers and insurance company. The insurance company makes money by collecting more premiums than they pay out. The PBM makes money by negotiating lower rates and facilitating the transaction and keeping a % of the savings. It all sounds good and they all say they are working for the end customer. Bullcrap, there's a lot of shady stuff in the middle.

Everybody is trying to maximize profit and the end guy wants to pay the least out of pocket. That's the incentive structure. So a drug company decides to sell their drug $500. The insurance company is like WTF no way. I'm going to make John $200 of it. John is pissed off and insurance company blames drug company. Enter the PBM

The insurance company contracts with a PBM to negotiate lower rates. The PBM through their "magical powers" negotiates rebates of $300. Of the $300 savings the PBM pockets $100 and the insurance company can then offer their customer the drug for $0 out of pocket. Everybody wins right? John pays $0 out pocket. It only cost the insurance $300 and now he has a happy customer. The PBM collects $100. And the drug maker wanting to sell their drug for $500 only collected $200. Oh wait WTF

Why would the drug company do this. It's because this middlemen on behalf of the insurance company says, listen mothereffer, you're going to pay me a rebate or my insurance company won't cover and you won't make no sales. So as a result of the shakedown the drug company moves the list price up.

Now that $500 drug cost $600. The PBM goes to the insurance company and says, listen mothereffer it was a harder negotiation and those effers raised their price but I got you $350 off, even more than last year so **** you pay me more. The PBM makes $50 more. His fee is now $150 The drug company makes $50 more. The insurance company is like WTF I now have to make john pay out of pocket. John goes to cvs and is surprised to see he now owes $100. John calls his insurance company pissed off and talks to the insurance company executive who happens to be getting his Gucci loafers polished. The executive says sorry bro, but I can get you the deluxe package. A little higher premium but nothing out of pocket. John is pissed and finally the annoyed insurance executive tell John, listen mothereffer you have no choice, I own you, pay me or die. John realizes he effed and agrees and somehow is appreciative of the insurance company as they BOHICA him.

That's not even the half of it. Even more shenanigans between pharmacy and PBMs. The entire system needs to be taken down.

Damn. Only 10%? Well i guess that just shows how complicated the whole thing is .

Now do beef prices

Dan Scott said:

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Damn. Only 10%? Well i guess that just shows how complicated the whole thing is .

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DS, that's more knowledge than 99% of the population brother.

I just happen to have done this for 34 years. And not from the retail pharmacy perspective.

DrEvazanPhD said:

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Now do beef prices

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Yeah why is pork so much cheaper???

Not sure there are enough pages to really go down that rabbit hole OP.

The healthcare system is a mess. thanks in large measure to O-care and other government interventions and bureaucratic regulations.

AggieDruggist89 said:

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Dan Scott said:

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Damn. Only 10%? Well i guess that just shows how complicated the whole thing is .

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DS, that's more knowledge than 99% of the population brother.

I just happen to have done this for 34 years. And not from the retail pharmacy perspective.

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Want to discuss abuse of X12 835 claim adjudication reports?

Thanks so much Dan for your explanation. I never knew how it worked. But I know if you don't have insurance, you pay the $500 advertised price. So you have to join the system, or you are even more screwed.,

Patentmike said:

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AggieDruggist89 said:

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Dan Scott said:

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Damn. Only 10%? Well i guess that just shows how complicated the whole thing is .

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DS, that's more knowledge than 99% of the population brother.

I just happen to have done this for 34 years. And not from the retail pharmacy perspective.

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Want to discuss abuse of X12 835 claim adjudication reports?

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Do you?

X12 835 goes way beyond Prescription denials.

Dan went down the Prescription Coverage Rabbit hole and that just barely scratches The surface as medical coverage is a bigger behemoth of a quagmire.

Then there's the DIR fees... That 100% erodes retail independent pharmacies margin...

Insurance should never have been allowed as "for profit" in the first place for any industry. Rates rise or fall based on your balance sheets from last X years and claims can increase premiums for individuals. Those sheets should be publicly available. Your C suite executives should not be making millions a year.

Medical lawsuits and ambulance chasers need to be capped on payouts too plus institute an automatic jail + fine for frivolous and or fraudulent suits (when proven) for both the lawyers and the plaintiff. Watch these suits dry up real quick.

Literally just heard this on a podcast. Prior to the ACA, there were 20+ Insurance companies. ACA kicked in and now there are only FIVE. United Healthcare stock traded at $33 prior to ACA. Now it trades at $506 today. BCBS is private, but the other four have CEO's that make $100 million each.

There's your problem with the healthcare industry, drugs included.

Is there a comprehensive book out there that outlines everything?

Predmid said:

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Is there a comprehensive book out there that outlines everything?

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I could write a book on American Prescription Programs Explained but then I'd have to go into witness protection.

Could be a fun project for me in retirement.

You won't hear me defending PBMs, but you're missing the biggest part when it comes to health insurance. They never have to take a loss. Per the ACA, they must spend 80% of paid premiums on health care, but they don't have to spend a penny more than that. As long as they hit that 80% number, they can just deny every other claim without any penalty or punishment. Doesn't matter if the claims are valid and the premiums are current. There is no mechanism aside from civil litigation that can stop an insurance company from denying a valid claim. So all 5 giant health insurance companies employ an army of lawyers to stop that from ever happening. So they are guaranteed to keep 20% of all premiums no matter what, and now they just need to grow and merge to make that pot bigger.

Really gets fun when you realize they charge Americans significantly more. Why? Because we'll pay it.

Don't forget de-facto price setting due to Obamacare/ACA and Medicare setting the baseline or pricing standard and all the coding and the regulatory framework pretty much ensuring that nobody knows what pricing and actual personal responsibility will be up front. Then you have those with insurance essentially carrying the cost of millions of uninsured to the overall system and the extreme variability between "negotiated" network prices and non net work prices, and cash prices.

There is no clarity and no coherence in the system and process.

ramblin_ag02 said:

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You won't hear me defending PBMs, but you're missing the biggest part when it comes to health insurance. They never have to take a loss. Per the ACA, they must spend 80% of paid premiums on health care, but they don't have to spend a penny more than that. As long as they hit that 80% number, they can just deny every other claim without any penalty or punishment. Doesn't matter if the claims are valid and the premiums are current. There is no mechanism aside from civil litigation that can stop an insurance company from denying a valid claim. So all 5 giant health insurance companies employ an army of lawyers to stop that from ever happening. So they are guaranteed to keep 20% of all premiums no matter what, and now they just need to grow and merge to make that pot bigger.

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I never thought I'd hate Big Insurance more, but I now do, thanks to your post, ramblin.

Great info. Thanks.

To be fair, they pretty much colluded with the Obama administration and congressional Democrats in power at the time to set up this arrangement, do your federal government is largely responsible. The insurance companies are just making the best of the vast regulatory framework they are compelled to comply with as part of the deal struck to allow their survival back then.

mts6175 said:

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Literally just heard this on a podcast. Prior to the ACA, there were 20+ Insurance companies. ACA kicked in and now there are only FIVE. United Healthcare stock traded at $33 prior to ACA. Now it trades at $506 today. BCBS is private, but the other four have CEO's that make $100 million each.

There's your problem with the healthcare industry, drugs included.

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Gee. Where have I heard this story before? Oh yeah, this was the impact of Dodd-Frank that was sold as ending the "too big to fail" banks. Of course now those banks are bigger than ever and the number of new banks being formed is smaller than ever.

There's an old saying that a system does what it was designed to do. It's almost like these massive bills that tell us they're going to improve market conditions are actually designed to enrich the corporations they're supposed to regulate.

Is this what fascism looks like? I think this is what fascism looks like.

Let me run the OP through ChatGPT so I can understand wtf he is saying.

Try medical billing. I know it better than 99.9% of the population and it still is confusing/frustrating.

You think your medical bill is high? It is because the insurance sends the high bills to show you how bad the docs/hospitals are. Do you think insurance pays for a fraction of these magical bills?

pfo said:

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Thanks so much Dan for your explanation. I never knew how it worked. But I know if you don't have insurance, you pay the $500 advertised price.

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This is wrong. The advertised price is a fake price. No one pays the list price, it is just a scam for those who don't know.

So, ultimately, the system is designed to get medical insurance CEOs killed? Because it seems like that setup made it only a matter of time. And now that the cat is out of the bag …

Medaggie said:

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Try medical billing. I know it better than 99.9% of the population and it still is confusing/frustrating.

You think your medical bill is high? It is because the insurance sends the high bills to show you how bad the docs/hospitals are. Do you think insurance pays for a fraction of these magical bills?

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No it's all fake.

A sham.

BBRex said:

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So, ultimately, the system is designed to get medical insurance CEOs killed? Because it seems like that setup made it only a matter of time. And now that the cat is out of the bag …

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I suppose you could draw that conclusion. Way back when Occupy Wall Street and the Tea Party were all the rage I posted on here several times they were fighting the same enemy. That's been proven true and the core of Trump's populist coalition is the result of the unhealthy alliance between big government and big corporations which were the target of those two groups. Populist uprisings never last long but they often get violent so yeah this might not be a one off event.

Not really health insurance companies' fault. They are doing exactly what they are created to do return profits for their owners. The issue is with the 3rd party payer system as a whole.

Not really a government issue either (other than the fact that govt is one of the largest 3rd party payers), except for when government tries to step in and "fix" the issues caused by the 3rd party payer system (which inevitably just makes the issues worse).

Third party payer system is wholly incompatible with reasonably priced efficient health care. Change my mind.

Explain this: Routine bloodwork. Billed about $2800. Ins paid $85. I paid $20. Not one figure makes sense.

Medaggie said:

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pfo said:

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Thanks so much Dan for your explanation. I never knew how it worked. But I know if you don't have insurance, you pay the $500 advertised price.

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This is wrong. The advertised price is a fake price. No one pays the list price, it is just a scam for those who don't know.

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Here goes.

Drug A.

1. Government VA Public Health Services, 340B Pricing. $30
2. Group Purchasing Organization for hospital inpatient. $50.
3. Average Sales Price. $75.
4. Wholesale Average Cost. $100

Now 1, there's no rebate.
2. GPO gets 3%+
3. That's the price Medicare bases reimbursement asp +6%
4.WAC is an arbitrary # manufacturer sets that insurance reimburses retail pharmacy, WAC - 26%
5. Wholesaler mark up 15% then they provide cost - 4-9% based on payment terms.
6. Manufacturer bundled discount... This gets deep. A lot of favors and sex happening

2,3,4,6 have varying degrees of rebate amount not public.

So at any given point, different organizations and companies are paying all different kinds of prices, charging whatever and the PBM gets unknown rebate amount.

This is just an introduction to 10 chapter section on Drug Pricing 101.

strbrst777 said:

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Explain this: Routine bloodwork. Billed about $2800. Ins paid $85. I paid $20. Not one figure makes sense.

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Several years ago Mrs LOYAL AG was bit by a copperhead snake and spent 1-1/2 days in the hospital where she received one bag of anti-venom. The total billed to BCBS was $64k, $44k of which was the anti-venom. After network pricing was applied the new total was less than $2900 and since she had had some minor procedure earlier in the year and was already very close to her out of pocket max we paid $53. Silliest thing I think I've seen.

Easiest thing is for the drug company to sell at their list price only. These rebates acting like they save money here but effing you here are the problem. The drug cost $500 and that's it. Aetna, United, Google, Facebook, whoever this is the price. **** you and your PBM. If the price is too high, the market will adjust. It doesn't need a effing PBM to come in and distort even more an already distorted and opaque market.

Just like CVS or Walgreens or Joes Drug store works with a distributor on crap they sell, it should apply to medication. A simplified market so I can see how much boner medication cost at each store. My insurance covers beyond a deductible or a fixed % on each fill.

The problem, effing insurance executive in his Gucci loafers is saying to go to this pharmacy partner or F your doctor and use a different medication. Trust us we have our own doctor that know better than your doctor. People need to start telling the executive, mothereffer I pay you for insurance. I pay you a premium to mitigate the risk of financial ruin or a large outlay. I don't effing pay you a premium to make healthcare determinations.

And then it gets even more complicated because the insurance company will moan about unnecessary crap people are taking inflating their costs. So yeah it's a crappy system. There are way too many people in the middle trying to maximize profit and claiming they are helping us but I reality we're all getting effed.
Geez this is only drug side which should be easiest. Actual healthcare service side is effed up.

The aggregate revenue of the Top PBMs since 2018 has grown from $400B to $671B. These effing people

Oh I have seen it first hand from the insurance side, radiology side, lab side, pharmacy side.

Our medical office charges what is essentially the "Book" price that most similar office bills. No more, no less. We do not make up charges.

Insurance A - Pays 50%
Insurance B - pays 25% (break even or make alittle)
Insurance C - pays 15% (lose alittle money)
Gov insurance pays 2-5% (lose alot)
Uninsured - good luck getting anything

If we are lucky, we have more insurance A and will have a good year. If we are unlucky we get more C and have a Break even year.

most insurance is going towards Insurance C rates.

Large hospital systems, insurance systems, medical groups then buy out these practices because the margin is so small. These large systems now can negotiate with insurance carriers to get up to Insurance A&B rates and telling insurance C to take a hike. Small groups/offices can not tell the insurance companies to take a hike because they have zero leverage. It is take it or leave it vs go after the pt for the balance.

There is a reason the practice of medicine has become corporatization of medicine and the cycle continues to get worse.

What pisses me off about the whole system is when they get into "specialty drugs" like biologicals for MS. They tell you that you are paying a percent deductible instead of the set $ value you pay for regular drugs...oh yeah and you can't shop around. You have to order it through their pharmacy and pay whatever price they want to charge you, because that is the only place you are allowed to get it if you want them to pay for part of it. They all have in-house pharmacies now, so the insurance company gets their share AND the PBM share of the profit and doesn't have to negotiate against anybody except the drug company.