Lightning Strikes the Least Popular Middlemen in Healthcare

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The Trump administration’s latest plan to lower prescription drug prices could make a big difference for patients and healthcare investors of all stripes.

Recently, the Department of Health and Human Services (HHS) proposed a rule change that the pharmaceutical industry actually appreciates. The proposed changes could crush the middlemen they blame for rapidly rising drug prices. Here’s what you need to know.

How to boost demand by increasing prices
Pharmacy benefits managers (PBMs) help health-plan sponsors negotiate with drug manufacturers as a larger group with more leverage than the sponsors would have on their own. In a nutshell, PBMs wrangle discounts and rebates from drugmakers in return for a preferred position on their formulary and the increased market share that comes with it.

Insurers receive a slice of these rebates, which they don’t necessarily pass on to their customers. Since out-of-pocket costs for pricey drugs are often linked to their list prices, there’s a warped incentive for unsavory characters to transition patients to treatments that cost a fortune when something less expensive might be adequate.

HHS didn’t point any fingers, but it remarked that reimbursement for branded drugs covered under Medicare part D rose 77% from 2011 to 2015. Over the same short span, the percentage of beneficiaries responsible for out-of-pocket costs for brand-name drugs nearly doubled.

If you think restricting customer access to certain drugs if manufacturers don’t offer big rebates sounds like an illegal shakedown, it’s because it nearly is. PBMs operate under specific safe-harbor protections from federal anti-kickback laws aimed at organized crime and corruption.

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