Pharmaceuticals Need Price Controls

David R. Work has been executive director of the North Carolina Pharmacy Board for 30 years. He is retiring at the end of April. His words are his own and do not necessarily reflect the opinion of the Board. The following is an article reprinted from the Apr. 8, 2006 edition of The Chapel Hill Herald.

The Random House Unabridged Dictionary; Second Edition, contains the following definition: Leech (lech), n-1. Any blood sucking or carnivorous aquatic or terrestrial worm... 2. A person who clings to another for personal gain, esp. without giving anything in return and usually with the implication or fact of exhausting the other’s resources; parasite.

Every couple of years the media rediscover this blood-sucking worm used as a treatment for an obscure disease. Some natural remedy stores and Asian markets have leeches available for purchase in the United States.

The second description of leech is in modern medicine but the media haven’t focused on them, at least not yet.

A pharmacy benefit manager serves as a middleman between health plans and pharmaceutical manufacturers. All health plans have a formulary, which is a list of drugs that beneficiaries can get at a low or no extra cost to them.  PBMs claim to save money for health plans and set drug formularies; they negotiate prices while collecting payments from pharmaceutical manufacturers for placing specific drugs on formularies. Critics note the benefit to the drug manufacturer when their more expensive product is listed on a formulary and a lower cost equivalent is available.

Pharmacy benefit managers do not actually purchase drugs, or make diagnoses, prescribe drugs, provide patient care or pharmaceutical goods and services. They add nothing to the health care equation but they do drain money from transactions involving pharmaceuticals, thereby meeting the second leech definition above. No other country in the world has a health care system with this component.

There is virtually no regulation of PBMs at the federal or state level. Doctors, hospitals, pharmacists, pharmacies, nurses and insurance companies are all regulated; why not PBMs? Moreover, there are competitive concerns when the four largest firms in this business (PCS, Express Scripts, Mèdco and Care Mark) have about a combined 80 percent market share.

PBMs also switch patients from one drug to another, and, in one case, Caremark sent letters urging doctors to switch patients from a generic drug for ulcers costing 20 cents per day to Celebrex which costs 10 times as much and is no more effective. Many lawsuits against PBMs are now pending.

Meanwhile health care costs continue to rise even when they are grossly out of proportion compared to other countries.

It is a jolt to learn that 14.6 percent of the gross domestic product in the United States is attributable to health care while Japan spends 7.9 percent and the United Kingdom devotes only 7.7 percent of its gross domestic product to this activity.

Doctors and hospitals began to have de facto price controls with the advent of Medicare and Medicaid in 1966. That expanded with managed care in the ‘70s and ‘80s until today 90 percent of private physicians’ and hospital income as well as prescription business has price controls determined by the payor.

All the mischief connected with pharmacy benefit managers would be solved with price controls on pharmaceuticals at the federal level.

Every other substantial country in the world has some kind of government price controls on pharmaceutical manufacturers. This policy assures that any savings realized go to the government and taxpayers rather than being diverted to profits of a middleman.

This is a textbook example of unfettered free enterprise giving capitalism a bad name. Isn’t anyone running for public office this year?