Managing Prescription Drug Costs
2 minutes
I don’t know how many dots they’ve connected, but to bring the pharmaceutical industry to heel, President Trump and RFK, Jr will have to wrest control of its distribution system, which is formally and informally vertically integrated.
Formal integration: Pharmacies, PBMs and the Big 5 Insurance companies. e.g. CVS owns CareMark (a PBM) and Aetna (an insurance company).
Roles are as follows:
Pharmacy: retail outlet.
PBM (Pharmacy Benefit Manager): pharmaceutical repricing. Your PBM is specified by your insurance plan.
Insurance plan: drug formulary
“A drug formulary is a list of prescription medications that are covered by a specific health insurance plan, which includes both brand-name and generic drugs. It helps manage which drugs can be prescribed.” The associated PBM dictates how much you will pay for each drug, after the PBM has marked it up from its wholesale price.
President Trump has shone a spotlight on PBMs, but they are not the major culprit in price gouging. Pharmaceutical prices are largely manipulated by warehouse-engineered scarcity within the distribution system. That has been the cause at the heart of a decades-long anti-trust suit. It’s still ongoing.
There are 3 major distributors, described as “drug industry middlemen” in a letter to The Federal Trade Commission (FTC) by anti-monopoly advocacy groups. The Big 3 “comprise 98% of the wholesaler market”. They hold exclusive contracts with the major pharmaceutical manufacturers, and via informal integration, they give disproportionately favorable treatment to the major pharmacy chains.
But there are still 2 more price-manipulation levers. President Trump is addressing the PBM. The Thinking Man’s Union addresses the insurance plan drug formulary: it has none. No formulary. No drugs are excluded or subjected to discriminatory pricing.