Put Patients over Profits: Cutting out the middlemen will lower drug prices


By Marilyn M. Singleton, MD, JD:

Nobody wants fraud – particularly not in medical care. For almost 50 years, we’ve had a federal Anti-kickback law to punish those who took money (bribes, kickbacks, rebates) to induce referrals of patients or the purchasing or somehow arranging for goods or services paid for by Medicare or Medicaid.  But 25 years ago the government made exceptions (called safe harbors) to the Anti-kickback law.  Vendors could take “dirty” money if doing so helped patients by increasing medical care access and/or choice, or saved the government money.

Give them an inch; they take a mile.  For at least the last 15 years the government has been aware of (but has done nothing about) abuses of the system by middlemen.

One species of middleman, Group Purchasing Organizations (GPOs) are supposed to negotiate lower prices of drugs and hospital supplies through volume purchases. But how do hospitals pay them?  GPOs get a percentage of the purchase price of the item.  The higher the price they “negotiate,” the more money they make.

Another type of middleman, pharmacy benefits managers (PBMs) negotiate discounts and rebates for private and government insurers.  The money saved is supposed to go back to the government (taxpayers) or to insurers to lower premiums or otherwise benefit patients.  Again, PBMs typically are paid by a percentage of the rebate or discount off the list price.  Over time, PBMs have become more focused on the size of the rebates than on getting the lowest possible costs and the best deal for patients. The higher the price, the bigger the kickback.

And by the way, patients whose insurance cost-sharing is tied to the price of a medicine (i.e., patients with coinsurance) and those who fill a prescription before meeting their deductible are typically charged based on the undiscounted list price.  The patient may pay more than the health plan does!  Finally, some of the PBM contracts have gag clauses preventing the pharmacists from telling insured patients about the lower cash price.

To determine whether a discounting or GPO arrangement is a kickback, the government asks:

  • Does the arrangement have a potential to interfere with, or skew, clinical decision-making? (suggesting their crony’s product is the best for cheapest)
  • Does it have a potential to undermine the clinical integrity of a formulary process? (suggesting their crony’s drug is the best value)
  • Does the arrangement have the potential to increase costs to federal health care programs, beneficiaries, or enrollees? (failing to bargain for lowest price)

The answer is a big fat YES.

It’s time to repeal these “safe harbors” and call a kickback a kickback!