Will wonders ever cease?The May 9th issue of the Wall Street Journal contained an article called "Selling Generic Drugs by Mail Turns Into Lucrative Business."
Surely you are aware of the backlash against big pharma for their pricing (and resulting "windfall profits") of brand name drugs. This is one major reason why prescribing generics has become so important. Many employers have turned to Pharmacy Benefit Management (PBM) companies based on the promise that they will aggressively steer patients quickly and efficiently away from the branded product to the generic. The end result: lower cost for everyone.
Well, something interesting happened on the way to the forum!
Lo and behold, the PBMs actually delivered on the promise. Unfortunately, they also figured out how to create windfall profits for themselves. How? By purchasing the generics at extremely low prices and marking them up to the employers and the government to achieve huge margins.
Here is an example cited in the article:
"In one case in 2001, Medco paid $514 for the pills to fill 666 prescriptions for a blood-pressure drug. It charged the Ohio teachers' retirement system $5,806."
From my perspective, this is similar to a credit card company charging 22% interest after someone misses a single monthly payment, when the preferred fed rate is only 6%. It may be legal but is highly questionable.
You won't believe what "reason" PBMs are giving in defense of this practice. To paraphrase the argument, "Our margins on brand name drugs are so low and sometimes actually we lose money on them, so we need to make it up on generics."
I'm stunned! Does this sound defensible? Can this lead to good will toward the PBMs?
Well, both the government, the employers and the pension plans are waking up to this practice and are either renegotiating their contracts or switching PBMs. But how exactly did they get into this situation in the first place? One paragraph in the article gives a good indication:
"For the employers, the generic prices look like a bargain because they're generally still much lower than those of brand-name drugs. The employers often don't know the spreads enjoyed by the PBMs."
In other words, there are real savings realized by everyone involved, but the PBMs are gaming the system so they get much larger margins on generics than on branded products. My own example would be the PBM being charged 75 cents for a single Synthroid pill by Abbott but only 10 cents for the generic version (Levothyroxine) from Lannet. The PBM then charges the employer $1 for Synthroid [25 cents margin] and 80 cents for levothyroxine [70 cents margin]. The employer is happy because he saved 20 cents over the branded drug. The PBM is happy because it made 45 cents more on the generic pill vs. the branded.
At what point should social responsibility and fair play enter the equation?
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