Our nation spends $3+ trillion on healthcare each year. About 1/3 (over $1 trillion) is spent on “managing” how the other $2+ trillion is spent with doctors, hospitals, labs, pharmacies and others who actually provide us with our healthcare.
Having spent much of my adult life managing private hospitals in Asia, where approximately 75% of revenue is from “self-paying” patients, I was in for a shock when I returned to the US to see the unbelievable complexity that exists in the US healthcare financing environment. I was recently forwarded a legislative/regulatory update from the Virginia Hospital Association.
WOW!!! It consisted of an alphabet salad of regulations, regulatory bodies, initiatives to cope with regulations, updates to prior regulations, programs and whole classes of companies to deal with updates to regulations, and……… well, you get the picture.
Pharmacy Benefit Managers (PBMs) are organizations popularized within the past 20 years, supposedly to deal with increasing drug costs, especially after passage of Medicare Part D prescription coverage in 2003. In 2016 the top three PBMs had total revenues exceeding $270 billion with net revenues nearing $10 billion.
How do they work? Their models vary by company but all are extremely complex and opaque by design. However, let’s illustrate how they impact us with an example.
• A loaf of bread currently costs about $3 (priced today at my local Food Lion)
• However, if we had “food insurance” with a Part D “bread benefit,” we would no longer simply buy the $3 bread from Food Lion.
• The cost of the bread would be $45 without insurance.
• However, since we have a “bread benefit card,” our co-pay is only $4.50.
• Lucky us! Boy, are we fortunate that we have a Bread Benefit Manager (BBM) working on our behalf so we don’t have to pay the full $45.
And that’s basically how these PBMs add value; they enable us to pay only $4.50 for the $45 loaf of bread we used to be able to buy directly for $3. Begs the question: “What’s wrong with this picture?”