Tag Archives: Insurance company

Exploring Walgreens’ Collapse: The Role of PBMs

Posted on by

This newsletter explains why Walgreens is collapsing. My concern is that even a company as big as Walgreens had hardly any control over the declining reimbursements for their pharmaceutical sales. They had to accept the reimbursement due to a lack of leverage related to the consolidation of insurance companies and pharmacy benefit managers (PBMs). Without intervention to reverse the ongoing consolidation of these companies (as well as hospitals), patients will face fewer choices and higher costs. Physician groups will face existential business threats.

Here’s an excerpt from the newsletter:

Walgreens is America’s second-largest drug store chain, and has been a public company for more than 100 years… it has closed a thousand stores since 2018, and plans to shut 1,200 more this year…

The real reason Walgreens, and the pharmacy business in general, is dying, is because of a failure to enforce antitrust laws against unfair business methods and illegal mergers…Moreover, even today, the other financial numbers from Walgreens aren’t bad. Sales aren’t going gangbusters, but the number is basically increasing, and so are the number of 30-day prescriptions, even though they’ve cut the number of stores every year since 2017…

But in its main line of business – pharmaceuticals – Walgreens doesn’t set prices. Insurance companies do. And there’s the rub…Walgreens gets a set reimbursement from that consumer’s insurance company for that medication. How much does it get? Well, those insurance company’s contract with what’s called pharmacy benefit managers (PBMs) to manage negotiations with pharmacies…

Theoretically, both sides have some leverage in this negotiation. If a pharmacy chooses not to accept the prices and terms offered by those PBMs, then consumers who have an insurance company that uses that PBM just won’t go there…Pricing wasn’t a big problem for Walgreens when there were lots of PBMs, because it had the ability to say no if the deal was unreasonable, and still maintain a flow of customers…Today, there are really only three PBMs – Express Scripts, Caremark and OptumRx – serving 80% of customers…

In 2015, the big three, with their market power, began lowering reimbursement rates on pharmacies and charging a host of new fees…

PBMs, however, are engaged in a sort of industry-specific arson. And we can see this dynamic by looking at independent pharmacies writ large, nearly one in three of whom have closed in the last ten years. Today, 46% of U.S. counties now have pharmacy deserts, meaning no pharmacies at all…

326 pharmacies have closed since December of 2024. Why is that month significant? Well, that’s the month Elon Musk tanked legislation to address some of the monopolistic squeezing that PBMs are putting on pharmacies and consumers.

Related explanation of PBMs (Dr.Glaucomflecken): The Middlemen of Healthcare (includes useful organizational flowchart)

Related blog posts:

Islands/Karsts in the Andaman Sea
Bangkok Canal

Expert Actuary is Overcharged by the Hospital in ‘Collusion’ with the Insurance Company– Guess Who Wins

Posted on by

From NPR Why Your Health Insurer Doesn’t Care About Your Big Bills

This is a terrific article that explains a lot about what is wrong with our health system’s economics.  This article details how an expert actuary is overcharged by Aetna and NYU Langone for a partial hip replacement and how insurance companies are NOT good financial representatives for patients.

Some excerpts:

Widely perceived as fierce guardians of health care dollars, insurers, in many cases, aren’t. In fact, they often agree to pay high prices, then, one way or another, pass those high prices on to patients — all while raking in healthy profits…

Before Frank’s hip operation, he asked NYU Langone for an estimate. It told him to call Aetna, which referred him back to the hospital. He never did get a price…

For one item in his bill the implant, Aetna said NYU Langone paid a “member rate” of $26,068 for “supply/implants.” But., the maker of his implant, … told him the hospital would have paid about $1,500…

Turns out, insurers don’t have to decrease spending to make money. They just have to accurately predict how much the people they insure will cost. That way they can set premiums to cover those costs — adding about 20 percent for their administration and profit…

It’s as if a mom told her son he could have 3 percent of a bowl of ice cream. A clever child would say, “Make it a bigger bowl.”

Wonks call this a “perverse incentive.”…

After the hearing, Nugent said a technicality might have doomed their case. New York defendants routinely lose in court if they have not contested a bill in writing within 30 days, he said. Frank had contested the bill over the phone with NYU Langone and in writing within 30 days with Aetna. But he did not dispute it in writing to the hospital within 30 days.

My take: While I’m no expert, I have had a similar experience where I was convinced that my insurance company would want to look into their agreement with a local hospital (Northside Hospital) because I was charged exorbitantly for the processing of a pathology specimen.  Further aggravating the situation was that I had no idea that this specimen, obtained from an outpatient visit, would be sent to a hospital system, rather than an outpatient pathology group.  It turns out that the insurance company had no interest in looking into this matter, even though the cumulative effect of these types of pathology charges were enormous.

Related blog posts: