PBMs, pharmacies, and insurance companies: Three legs of a many-legged stool. Or cabal.

PBMs. What are they? Pharmacy benefit managers. Oh, thanks. That clears up a lot!

Well, they are big and important in the health care industry, which should give you a clue: they are somewhere between “not about helping you” and “evil”. Unfortunately, this describes almost every big corporation (pharmacies, insurers, pharmaceutical and device manufacturers, and large health care “provider” corporations) that is involved in health care, or more realistically, sucking money out of the public (directly from you or your government) that was intended to provide health care.

But, back to PBMs. They are, as the name suggests, “managers”, in this and many other cases another word for “middlemen”, set up to be intermediaries between the pharmaceutical companies and pharmacies and insurance companies and you, the consumer (remember that last, “you the consumer”, the one entity in this calculus that has very little weight?). Much of what PBMs do, and a lot of the things that they do that make them more money (and thus could be called “abuses”, since they are not about the only important thing, maximizing the health of the people) are described in this piece from American Progress, “5 things to know about pharmacy benefit managers”. In addition to receiving payments for their services from insurance companies (presumably a legitimate fee, although perhaps for a service that benefits the insurers and not you, and as we shall see below, another scam as many of them are owned by insurance companies!), they also have other little “tricks”. Pharmaceutical companies (another huge pig at the trough of health care dollars) frequently offer discounts in the form of rebates on the cost of expensive drugs – and often, to be fair, negotiated by the PBM – intended to help the consumer. But the PBMs often keep a portion of that rebate. More insidious is that this rebate is a percentage of the price, so the higher the price, the more the PBM gets to pocket. This may (and often does) lead to their “preferred drug lists” having the most expensive drugs as preferred. While this does not cost the patient more (because it puts it in a lower tier), it does make more money for the PBM.

PBMs also engage in “spread pricing” where the amount they receive from the insurer for a drug is more than they pay the pharmacies. And they keep it. And the cost of your insurance and your co-pays can go up to “repay” the insurer for the payments that they make to the PBM. Most of us are familiar with paying for things at a discount, only to discover that the discount is from an inflated “list price”, which already includes a sizeable profit for the vendor. Nowhere is this as common as in drugs; if you have a drug plan (say, Medicare Part D) you are likely to discover that what you pay for your drugs (your co-pay) doesn’t count to your annual deductible, since the insurance company and PBM (now often one and the same) have decided you are already getting a good deal from the discounts that they have received, even when they are pocketing the spread. In 2018, Ohio discovered its Medicaid program was paying $220 million more to PBMs than the latter were paying to the pharmacies for them! Entrepreneurship? Criminal theft?

In a recent piece on his substack, Health Care Un-Covered, health insurance industry whistleblower Wendell Potter describes how ‘The PBM-insurer mafia comes for community pharmacies’. The first important item is contained in the title – “PBM-insurer mafia” – now these two entities are not in competition but in collaboration as two of the “Big 3” PBMs are now owned by insurance companies (OptumRx by United Health and ExpressScripts by Cigna), and the third (Caremark) by a pharmaceutical chain, CVS. This follow the pattern prevalent in all industries, but particularly in “health care” of increasing consolidation, vertical integration, and monopoly power. As Potter describes, one victim of this has been independent community pharmacies. Why such independents are good and of value is eloquently described by one such pharmacist quoted in his piece, so I  won’t re-quote it here; suffice it to say it is what you can imagine is lacking in corporate chains – personal service to people. The benefit to the PBMs of putting independent pharmacies out of business and shunting prescription business to the chains is obvious for CVS/Caremark, but also true for ExpressScripts since it has a deal with Walgreens. And, of course, for all in insurance companies to their owned mail-order pharmacies (which you may get regular emails urging you to use). As is always the case, the lowest income people (who often have the worst insurance coverage, or have Medicaid) are the worst hit, but increasingly insurers and their PBMs have found ways to screw all of us.

There has been increasing political pushback, finally. ‘Last year, Republican Ohio Attorney General Dave Yost said that “PBMs are modern gangsters.”’ This year, Senate Finance Committee Chairman Ron Wyden (D-Ore.) and Ranking Member Mike Crapo (R-Idaho) tried to get new legislation passed; ‘“The time for PBM reform was yesterday,” Wyden said. “It’s past time to crack down on the shady practices of these pharma middlemen that result in higher drug prices for consumers and threaten pharmacies across Oregon and nationwide. I’ll be working around the clock to get this done as soon as possible.”’ But it hasn’t yet passed; it is hard to get consensus on anything in Congress these days, and the insurance companies and PBMs have very powerful (and generous!) lobbies. ‘In recent months, an independent pharmacy, Osterhaus Pharmacy, in Iowa, sued the major PBMs over DIR* fees. In its lawsuit against UnitedHealth, it stated, “This vertical consolidation has served OptumRx well. It now controls not just the pricing of drugs, not just the selection of the drugs covered by Part D Plans, and not just the selection of pharmacy services providers in each Part D network; OptumRx also controls access to almost a quarter of the Medicare beneficiaries enrolled in PBM‐affiliated Plans.”’

Yup. If you are convinced that such consolidation (monopolization) of our health care system is a good thing for efficiency and effectiveness, you should have a UnitedHealth poster on your wall. They are the largest “health” insurance company, control the largest share of Medicare “Advantage” clients, own the doctors’ network Optum, and, as above, control OptumRx. The last two are very big moneymakers for them, and account for much of their growth and profit. But the others are just as bad and would like to be as big.

On the other hand, perhaps you are not so convinced. In which case you should be calling your senators and representatives and letting them know that they should be supporting legislation to rein in the PBMs. And, while they’re at it, the insurance companies. And all the big profit-making corporations jacking up the cost of health care while limiting the care.

They have the dollars. But we have our voices, and our votes!

 

*DIR: Direct and Indirect Remuneration fees, which are charged to pharmacies by PBMs. A much more detailed description of them is in Potter’s piece, but in brief they are another method for the PBMs to scam more money, and to do so without any meaningful transparency.

Medicare Scams? The whole US health care "system" is a scam!

In ‘Staggering Rise in Catheter Bills Suggests Medicare Scam’, Feb 9, 2024, the NY Times suggests that up to 20% of federal spending on medical supplies may be from 7 “high-volume” suppliers of catheters, including people -- like the woman for whom Medicare paid $12,000 for 2000 catheters -- who don’t need them, don’t want them, did not order them, and didn’t receive them. If true, this is a totally illegal scam, something that we see all too frequently in the US, with criminal parasites preying on our people and on a federal agency hamstrung by budget cuts to their enforcement divisions. Perhaps “nursing homes” is what first comes to the minds of many when inflated billing for shoddy care comes to mind, and that is fair, but our medical supply companies and, of course, pharmaceutical companies are right there with scams.

Unfortunately, the biggest scam is not the obviously-illegal like catheter falsifying, but rather the skirting-the-law routine practice of many (maybe not all) health insurance companies in denying necessary, and sometimes legally-required, care to their clients. The most common method for doing so is requiring “prior authorization” and then repeatedly denying it until the client gets weary of fighting it, or recovers, or, maybe, dies from not having a procedure. And it is not like these denials are wisely made by qualified physicians sagely considering the issue; most of them are routinely denied by staff (sometimes, but not always, nurses) following algorithms. Or, increasingly, by AI.

I and others (e.g., https://wendellpotter.substack.com/p/the-great-medicare-advantage-marketing) have written about Medicare Advantage plans several times, which attract seniors with lower out-of-pocket costs (compared to paying for Medicare Part B + a supplement) and full coverage, including for some services not covered by Medicare (glasses, hearing aids, etc.) My main point has been that this is great if you are willing to use their limited network of doctors and hospitals -- until it isn’t. Until they deny you care. Which can be illegal because they are required by law to cover everything Medicare covers. But, using the “prior authorization” and “repeated denials” techniques, many (maybe not all) often (but not always) do. This is just as illegal as the catheter scam, but penalties have been rarely incurred, and when they are, are low enough to be considered a “cost of doing business”, essentially a slap on the wrist.

But it is not only Medicare Advantage (MA) that uses these techniques (I’ll call them PA&RD) to effectively deny care to the people who are paying their premiums. Indeed, the use of these strategies in MA plans was developed for the insurance companies’ non-Medicare clients, those who have coverage through employer-based plans or ACA. For a long time, the use of PA&RD was common, if not ubiquitous, but possibly legal. Unethical, maybe. Fatal for some, yes. But apparently legal. Some state legislatures stepped in to prevent these abuses, requiring coverage for certain conditions, such as diabetes, emergency care or reconstructive surgery for breast cancer. Indeed, ‘States have passed hundreds of laws to protect people from wrongful insurance denials’, but as documented by ProPublica, ‘Health Insurers Have Been Breaking State Laws for Years’. How do they get away with it? Again, lack of enforcers because of budget cuts and very powerful lobbies for the insurers (they make lots of money and are careful to spend enough of it in the “right” places!) Per ProPublica:

State insurance departments are responsible for enforcing these laws, but many are ill-equipped to do so, researchers, consumer advocates and even some regulators say. These agencies oversee all types of insurance, including plans covering cars, homes and people’s health. Yet they employed less people last year than they did a decade ago. Their first priority is making sure plans remain solvent; protecting consumers from unlawful denials often takes a backseat.

What are the results? One is that people stay sick, get worse, and sometimes die from lack of health care. I hope we can agree that is a bad thing. Another is that people are going broke more and more often from trying to pay the bills that their insurance companies don’t (yes, those insurance companies that they and/or their employers have been paying premiums to). The recent study by KFF Health News and NPR, reported in the Guardian and the Health Justice Monitor and discussed by me recently (ER backups and poor-quality but expensive insurance: The American Way!, Jan 24, 2024), but worth repeating, found that more than 100 million Americans have medical debt. More shockingly, (as reported by Kodiak Solutions, a billing and accounting firm that covers 1800, nearly 1/3 of US hospitals) in just 4 short years the proportion of that debt owed by insured people has risen from 11% to 58%! Think about that – way back in 2018 most “bad debt” was owed by uninsured people (almost all of whom were too low-income to be able to afford it) but by 2022 it was by insured people – meaning insurance companies were not doing what they were contracted to do – paying people’s medical bills – even when required to by state law.

When the bad actions of health insurance companies are combined with the bad actions of health care providers, now often owned by private equity companies seeking only profit (see example of Steward Health Care, or overcrowded ERs in Massachusetts, as well as Arizona) it is obvious that get real pain being is being suffered by – really, inflicted upon -- the American people. On the other hand, insurers like UnitedHealth (which also operates the largest chain of physician practices, Optum), and private equity companies like that which owns Steward Health Care, are doing just fine, thank you, making record profits.  And the drug companies finding all the loopholes in laws to charge more and telling Sen. Sanders and the health committee that sure they charge American consumers more for drugs, but, hey, why the heck not, since we’re allowed to here – and, by the way, don’t change that – are continuing, as they always have, to make out like, well, bandits, which they have always been. They argued to the Senate that Americans get access to new drugs first as part of paying more, but Sen. Sanders appropriately responded that this was of no help to people who were unable to get the drugs because of their cost! Duh!

There are those who think that the money we pay – in premiums, taxes, co-pays, etc. – should be spent on delivering health care, not corporate profits. But so far enough politicians have been willfully deaf and blind on the issue to prevent really significant change to the system so that (as in most countries) it does the latter.

They need to hear from you to tell them that’s what matters.

"Non-profit" hospital systems behaving worse than for-profits: No end to the scams

I have often written about the greed of hospitals and “health systems”. In a competitive environment (especially in big metropolitan areas) they have combined and consolidated and become enormously powerful. This has been good for them, as they have made a lot of money. Now these large health systems and the insurance companies stand almost as warriors in the gladiatorial arena, each believing that the other is the problem; the hospitals complain that the insurers don’t pay enough and the insurance companies complain that the hospitals charge too much. Nowhere in this equation is the “consumer”, the “patient”, the “person” who is supposed to be the focus of this whole system. If the hospitals and insurers are the gladiators, people are the ants crushed under foot.

“For-profit” healthcare organizations -- incorporated tax-paying, investor-owned -- that run hospitals, nursing homes, and virtually any other kind of healthcare related operation (obviously including all pharmaceutical companies) have long been callously evil in their pursuit of profit, although they have never claimed they were not. Many university teaching hospitals, and even publicly-owned hospitals, were taken over by such companies when their former owners could not afford them (didn’t want to support with tax money, in the case of public hospitals, and were losing money from a combination of caring for people without insurance and overspending on administrators in the case of university hospitals). Predictably, this led to no improvement in the quantity or quality of care being delivered – the quantity, especially for the poor was always less. But it did bail out the former owners.

What has become more and more apparent over the years and decades is that “non-profit” hospitals (called “voluntary” in  New York) have become just as callous and evil, including those associated with religious orders that founded them on the basis of serving the ill and those in need. These hospital systems do not have owners or shareholders and are free from paying taxes, in acknowledgement of the community service that they – ostensibly -- provide. The problem is that they continue to receive the tax break, while cutting back and back on the community service, until in many cases it is not only negligible but even negative – actively hurting the community.

In recent days, the New York Times has featured an exposé on this situation, focusing on two systems, Providence (based in Washington state) and Bon Secours (in Virginia). Both have ravaged and ripped off the people who should be receiving their care, acting in at least as predatory a manner as any for-profit, while legally (so far, maybe) gaming the systems put in place by state and federal governments to regulate them and ensure that they deliver community service.

The article on the Providence system, one of the largest in the nation with 51 hospitals, originally founded by a caring order of nuns, is called 'They Were Entitled to Free Care. Hospitals Hounded Them to Pay.’ It is enough to make you throw up if you are at all a caring person, or one who might ever need healthcare. The gist of the piece is that their prior level of “community service”, the justification for paying no tax, was providing 1.29% “charity care” (well below the already-pitiful national average of 2%), and that this was slashed to below 1% by a new campaign by management to wring every nickel out of every patient, especially those with no or terrible insurance and no money. The article details the methods utilized (such as never offering people, regardless of poverty, the option of not paying, but only how they would pay). These details are sufficient to ensure that, if the perpetrators are religious, they know where they are headed after this life. Even the people who ended up not paying (essentially because they had no money) were subjected to terrible oppression and dunning not only by the hospital itself but by the collection agencies they hired, including garnishing wages from those who were lucky enough to even have jobs. The federal government does not prescribe a specific percent of charitable care that must be done to stay tax-free, but squeezing the poorest is clearly not the intention.

Providence avoids more than $1 billion a year in taxes. In exchange, the Internal Revenue Service requires them to provide services, such as free care for the poor, that benefit the communities in which they operate.

They’re not doing much of that! Meanwhile,

Providence is one of the largest nonprofit health systems in the country, with 51 hospitals and more than 900 clinics. Its revenue last year exceeded $27 billion.

Providence is sitting on $10 billion that it invests, Wall Street-style, alongside top private equity firms. It even runs its own venture capital fund.

What they are doing contravenes any conception of why a hospital (or system) should be tax-free; indeed, it makes the for-profits look good, because while they act no better, at least they pay taxes!

The next day’s article, about Bon Secours Mercy Health, ‘How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits’, describes

‘Richmond Community Hospital … consists of little more than a strapped emergency room and a psychiatric ward. It does not have kidney or lung specialists, or a maternity ward,’

and how it is the most profitable hospital in Virginia, making over $100M a year profit.  The scam here is just as reprehensible as Providence’s, but is a little more difficult to understand. It involves gaming  a federal program called 340B. This program was developed to allow people who were poor but not on Medicaid to get reduced costs for their drugs. This is a good thing, but this example also shows how evil corporations can misuse even well-intended programs.

Here’s basically how it works: an eligible entity buys outpatient drugs from pharmaceutical companies and then gets a rebate from them, which can be tens of millions of dollars. The federal government likes this because, unlike money for Medicaid drugs, it doesn’t come out of their coffers but from the drug companies (and thus, of course, the drug companies hate it). What is an eligible entity? Some are categorical, like Federally-Qualified Health Centers (FQHCs). Hospitals become eligible if more than a designated percent of their inpatients are on Medicaid. This is ironic on two counts, since Medicaid patients are not eligible for 340B drugs (because their drugs are already purchased at a discounted rate, and must be separated from 340B drugs) and the drugs are not for use on inpatients. The qualification is an on/off threshold;  you either qualify with a certain % of Medicaid inpatient days or you don’t. Once you do qualify, any outpatient medications you dispense are eligible for rebates; there is no income restriction on who you can sell these drugs to.

 

Maybe you see where this is going. Bon Secours Mercy qualifies for 340B at Richmond Community Hospital since it is an inner-city hospital serving almost entirely poor people. And the outpatient pharmacy there would surely be entitled to use 340B drugs, and that would be the intent of the program. But…here’s the genius: Bon Secours set up a network of clinics in high-income communities that were legally tied to the “mother” hospital of Richmond, and thus received its 340B designation. So now they could sell drugs on which they got huge rebates to people with money and insurance! Cool! Great idea if you are an MBA student! You might get a good mark for coming up with such a project, provided you can demonstrate that it was not illegal and the management won’t go to jail or pay a huge fine. In this case, I hope that they do. What is wrong with it? Well, for starters they’re not investing any of that money back into Richmond Community, the source of their 340B designation, the hospital that is miserably inadequate to care for its patients…

Of course, not all hospitals and hospital systems are Bon Secours or Providence. Some, especially in small towns and rural areas, and inner cities, are barely surviving. Of course: the rich get richer, even on the backs of the poor, as in the Richmond case. But the ones that are successful (i.e., making money) are almost all doing similar things, gaming the system, and providing as little charitable care as possible, while paying no tax and, if they can, maximizing income from programs such as 340B.

There is a solution. A national health insurance system, Improved and Enhanced Medicare for All, in which everyone’s medical bills are paid by the federal government and hospital budgets are negotiated annually, and there is little or no opportunity for such scams.

Scamming Medicare: It's the providers and insurers, not the patients!

I have often written about universal health care and favored a single-payer system, or, in its current incarnation, Medicare for All. I still do and will have some more to say about it in a bit, but wanted to begin by providing some recent examples of the outrageous abuses of our non-system of health care. More important, abuses of the people who are supposed to be receiving health care. Actually, it is not so much that these are examples of new practices, but rather that there have been important recent articles exposing them.

In “Where the frauds are all legal” on December 7, 2019 in the NY Times, Elisabeth Rosenthal, an opinion writer, physician, and editor of Kaiser Health News, describes exactly that. Dr. Rosenthal has often written on the same theme, notably in a wonderful book that I have recommended before, “An American sickness: how healthcare became big business and how you can take it back”, but this recent article was precipitated by the experience of her husband following a serious bicycle accident. Dr. Rosenthal describes a number of scams (and they are scams, even if they are legal) perpetrated by the hospital, and gives them cute and memorable names; it is good enough to summarize here.

1.      Medical Swag, such as charging $319 for a plastic brace that was in place for an hour (and you may or may not get to keep it!) and other such goodies, “…like the sling you can buy at Walgreens for $15 but for which you or your insurer get a bill for $120 after it is given to you at urgent care.”

2.      The Cover Charge. This was the $7143.99 “trauma activation fee” charged by the hospital. This was in addition to whatever else was charged by physicians, for x-rays, labs and medical equipment. ‘Trauma activation fees have been allowed since 2002, after 9/11, when the Trauma Center Association of America, an industry group, convinced regulators that they needed to be compensated for maintaining a state of “readiness.”’ But, she asks, ‘Wait. Isn’t the purpose of an E.R. to be “ready”? Isn’t that why the doctors’ services and scans are billed at higher rates when they are performed in an emergency department?’ Note: Dr. Rosenthal in an emergency physician.

3.      Imposter billing. This is when the physician bills for a service that s/he didn’t provide directly, such as when it was done by a resident or PA or NP. Sometimes the physician is on site, sometimes not. But they are billed at the full physician rates. Cool beans. This is what allows some doctors to see a panel of patients in clinic while they are in the operating room at the same time!

4.      The Drive-By. Charging for full examinations (which are documented as full examinations after just a few questions – or even a phone call). Sometimes only a few questions are all that is appropriate, but you can’t – or shouldn’t – be able to bill for a physical examination!

5.      The Enforced Upgrade. Meeting someone in the ER, even for a minor problem, because the office is closed (in the specific case, the clinic the doctors used was open only 2 hours 45 minutes two days a week), causes much, much higher charges.

What is sometimes more amazing to me is that the insurer paid for all these things. Part of the reason is that they have no way of knowing if these upcharges were medically necessary. Sometimes (as pointed out in Rosenthal’s book) it is because they just pass the charges on by raising their premium rates. Of course, insurers don’t pay the full charges – they pay a significant discount. Only uninsured people are expected to pay the full charge!

So these are pretty outrageous, but mostly (as the title points out) legal, if outrageous. Not, however, necessarily legal would be the overcharges and payments from Medicare to certain insurers documented in a report from the DHHS Office of the Inspector General, and covered by the Times in “Federal Watchdog Questions Billions of Dollars Paid to Private Medicare Plans” by Reed Abelson, December 12, 2019. This is a different sort of scam, perpetrated by Medicare Advantage plans. To start with, Medicare Advantage plans are something of a scam to begin with. Why? Well, on the surface, “all” they do is to essentially provide Medicare patients with the benefits of an managed care plan – indeed, often you may an additional premium on top of Medicare to the insurer and you have wrap-around HMO-type coverage. This can be really good for you as a consumer; you can get covered for vision, hearing, prescription drugs (without the need for an additional Part D plan), and copays. What makes it at its essence a scam is that the Medicare Advantage plans get higher payments for a variety of reasons than does traditional Medicare.

One reason is that they tend to enroll lower-risk patients, who cost less to care for. To some degree this is because they have the disadvantages of HMOs as well as the advantages; limited physician and hospital networks and limited portability if you are out of the geographical service area. But most of it is from the way that they are marketed. It is to these insurers’ financial advantage if as many of the high-utilizing, high-cost, older, and sicker Medicare patients are in traditional Medicare, and the ones who are younger, less-sick, and lower-utilizers – thus lower cost – are in their plans. They work hard to make this happen, When the Trump administration pushes Medicare Advantage, as when Center for Medicare and Medicaid Services (CMS) administrator Seema Verma says “What works in the Medicare program is Medicare Advantage — because plans are competing on the basis of cost and quality, driving toward value and increasing choice to beneficiaries,” it is true – but, as with any other for-profit product, it markets its advantages to those most likely to make it money.

Then there are the probably-illegal actions found in this report. Primarily, these result from “up-coding”, having administrative personnel comb the entire medical records to find things that they claim allow them to bill for higher-complexity in patients who have more diagnoses, even when the person providing the care did not address those issues. Hospitals use reviewers to upcode all the time, and sometimes it may be legitimate, in cases in which the care was provided but not completely documented. This “data-mining” approach to upcoding, however, is not. And this is not all. The Times article also notes  that ‘An earlier report from the inspector general’s office also raised concerns about Medicare Advantage, concluding last year that plans were inappropriately denying medical claims as a way to increase profits.’ The amount involved is not chump change; an additional $6.7 Billion in payments in 2017.

So no good either way, “legal” scams by providers (read mainly “hospitals”) or probably illegal scams by insurers. Both illegitimately take our money (whether paid as taxes, premiums, co-pays, etc.) and funnel it toward profit. Would a single payer, Medicare-for-All program prevent this? Yes, although it would have to be the “Improved and Expanded” Medicare called for by the current bills in the House (HR 1384) and Senate (S1129). From the patient point of view everything is covered. From the provider point of view, they would not be able to game the system by upcoding and other techniques. From the insurer point of view, they would not make so much profit.

For too long, healthcare in the US has been a struggle between insurers (who think they pay the providers too much) and providers (who think that they don’t pay enough). The interests of the actual people, patients, taxpayers, rate-payers, are lost in this struggle, crushed by the tectonic plates of those big industries. Many politicians and pundits say we can’t go against them. I say we have to. As Jim Hightower says “Who’s afraid of Medicare for All: Not ordinary Democrats or independents — just insurance companies, lobbyists, and old-line politicians”.

Time to make them put our interests first!