Commentary: Amazon’s interest in health care says something

Better regulation of PBMs — a pharmacy middleman — could lower drug prices for many patients.

By David L. Hall

Amazon has become one of the world’s largest companies thanks to its ability to capitalize on market inefficiencies. With recent reports indicating that nearly 1 in 4 patients are overpaying unknowingly for their prescriptions, it’s no surprise that the company considered turning its attention to health care.

Medical care consumes nearly 20 cents of every dollar we spend, so hospitals, health insurers, drug manufacturers and pharmacies seem ripe for disruption. So it was unsurprising to see Amazon almost, along with some partners, enter the health care marketplace.

What did surprise some observers, though, was the news that Amazon planned to focus on pharmacy benefit managers, or “PBMs,” which are the firms that administer drug plans for health insurers.

But this focus makes sense. Wedged between drug companies and pharmacies, PBMs manage prescription drug benefits for most Americans, from those enrolled in private health plans to those enrolled in Medicare. PBM’s profit handsomely each year, they’re growing quickly, and they’re the chief reason why drug prices are eating up an ever larger share of personal spending.

The Economist magazine recently performed an analysis of the U.S. health care system which found that 15 years ago middlemen, like PBMs, accounted for approximately 20 percent of industry profits. Today their share is 41 percent. By way of example, they cite, “Express Scripts earns billions while having less than $1 billion of physical plants and no disclosed investment in R&D. This year the combined profits of three wholesalers that few outsiders have heard of are expected to exceed those of Starbucks.”

Right now, PBMs process 2 in every 3 prescriptions — and just five companies: Express Scripts, CVS Health, Prime Therapeutics, OptumRx, and Diplomat Pharmacy control over 70 percent of the market. Thanks to this clout, PBMs can extract huge rebates and discounts from manufacturers. Indeed, they typically convince manufacturers to rebate 33 percent of a brand-name medicine’s list price, according to a recent study from the Berkeley Research Group.

Tough negotiations over price are fine. The problem, though, is that patients rarely see the benefits of these savings passed on to them. A majority of commercially insured patients’ spending for brand-name medicines is based on the full list price — not the discounted price negotiated by PBMs.

Sometimes, a patient’s “share” of a drug’s price actually exceeds the negotiated price of the drug! Fairness would direct the savings to the patient. But more often than not, PBMs and health insurers simply keep the difference in these situations.

It’s no wonder why the chief operating officer of Rite-Aid, which is booming in Washington state, calls his company’s PBM its “growth engine.”

The health care industry would benefit from innovation in the drug supply chain. Passing rebates on to patients at the point of sale is a great place to start. Doing so might hurt PBMs, but it’s a consumer benefit whose time is due.

David L. Hall is the executive director of the Pacific Northwest chapter of TRIO, the Transplant Recipients International Organization.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Opinion

Initiative promoter Tim Eyman takes a selfie photo before the start of a session of Thurston County Superior Court, Wednesday, Feb. 10, 2021, in Olympia, Wash. Eyman, who ran initiative campaigns across Washington for decades, will no longer be allowed to have any financial control over political committees, under a ruling from Superior Court Judge James Dixon Wednesday that blasted Eyman for using donor's contributions to line his own pocket. Eyman was also told to pay more than $2.5 million in penalties. (AP Photo/Ted S. Warren)
Editorial: Initiative fee increase protects process, taxpayers

Bumped up to $156 from $5, the increase may discourage attempts to game the initiative process.

toon
Editorial cartoons for Thursday, March 28

A sketchy look at the news of the day.… Continue reading

Washington state senators and representatives along with Governor Inslee and FTA Administrator Nuria Fernandez break ground at the Swift Orange Line on Tuesday, April 19, 2022 in Lynnwood, Washington. (Olivia Vanni / The Herald)
Editorial: Community Transit making most of Link’s arrival

The Lynnwood light rail station will allow the transit agency to improve routes and frequency of buses.

Protecting forests and prevent another landslide like Oso

Thank you for the powerful and heartbreaking article about the Oso landslide… Continue reading

Boeing’s downfall started when engineers demoted

Boeing used to be run by engineers who made money to build… Continue reading

Learn swimming safety to protect kids at beach, pool

Don’t forget to dive into water safety before hitting the pool or… Continue reading

An image of Everett Mayor Cassie Franklin is reflected in a storefront window during the State of the City Address on Thursday, March 21, 2024, at thee Everett Mall in Everett, Washington. (Ryan Berry / The Herald)
Editorial: State of city address makes case for Everett’s future

Mayor Franklin outlines challenges and responses as the city approaches significant decisions.

FILE - The massive mudslide that killed 43 people in the community of Oso, Wash., is viewed from the air on March 24, 2014. (AP Photo/Ted S. Warren, File)
Editorial: Mapping landslide risks honors those lost in Oso

Efforts continue in the state to map areas prone to landslides and prevent losses of life and property.

Comment: Why shootings have decreased but gun deaths haven’t

High-capacity magazines and ‘Glock switches’ that allow automatic fire have increased lethality.

toon
Editorial cartoons for Wednesday, March 27

A sketchy look at the news of the day.… Continue reading

Burke: ‘Why not write about Biden, for once?’ Don’t mind if I do.

They asked; I’ll oblige. Let’s consider what the president has accomplished since the 2020 election.

Comment: Catherine missed chance to dispel shame of cancer

She wasn’t obligated to do so, but she might have used her diagnosis to educate a sympathetic public.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.