“Buy low, sell high.” It’s a Wall Street mantra and a fundamental rule of business. But that’s a whole lot easier to do when the government requires your suppliers to issue steep discounts while leaving you free to price gouge like there’s no tomorrow.
For years, middle men in the drug industry have made a killing this way, relying on Uncle Sam to keep wholesale prices low in the name of health care access, then milking consumers for everything they have with exorbitant rates, and pocketing the difference.
But a little noticed regulatory notice suggests the Trump administration is taking a hard look at this extremely profitable arrangement. For CVS, Express Scripts, United Health and other companies, there might not be too many tomorrows to play this game.
“In recent years, only a handful of plans have passed through a small share of price concessions to beneficiaries at the point of sale,” the Centers for Medicare and Medicaid Services (CMS) says in a Nov. 28 proposal.
The English translation from the original bureacratise is roughly, “Wait a second, you guys get to buy this stuff cheap but you’re still charging customers full freight!”
The notice goes on to explain that current law says Pharmacy Benefit Managers (PBMs) like CVS “take into account” discounts imposed by the government, but this is merely a suggestion, not a requirement.
PBMs “can choose whether to reflect various price concessions…such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations” in what they charge consumers, but that’s just a suggestion, not a requirement.
“To date, sponsors have elected to include rebates and other price concessions…at the point of sale only very rarely.” Yeah, no kidding. I’m sure they also “take into account” how expensive a Lamborghini is, not to mention the tens of millions they spent on lobbyists to protect their ill-gotten gains!
Technically, CMS is only issuing a “request for information” about this issue. But under the circumstances, especially the devastating synopsis provided by the agency, it’s more like mom and dad asking if you care to explain yourself after they found the bag of pot high school you had hidden your sock drawer.
After all, President Trump came into office vowing to bring down the hammer on pharmaceutical drug profiteers, saying they were “getting away with murder.” Many people assumed that meant the companies that invent new medicines, probably because the Bernie Sanders revolución is ready to nationalize drugmakers even if it means 2017 is the last year a new drug ever comes to market.
But it’s turning out that Trump is more focused on squeezing out middlemen that provide virtually no economic value to the system, while siphoning off billions in Medicare subsidies as our country drowns in red ink.
That’s good news for Medicare beneficiaries, who will see an estimated $10.4 billion in lower costs. It’s good news for medical research, since it doesn’t destroy the research and design pipeline for the next generation of medicines. And it’s good news for our children, since the momentous debt they are inheriting will be reduced.
But, boy, if you are CVS, this is going to sting a little. It looks like the Medicare gravy train is coming to an end. Maybe they can pivot and do something that’s economically useful for a change (and no, that does not include lobbying).